Arjo AB (publ)

STO:ARJO B

Earnings Call Transcript 2020-Q3

[Operator]

Welcome to the Arjo Q3 2020 Conference Call. [Operator Instructions] Today, I am pleased to present Joacim Lindoff, President and CEO; and Daniel Fäldt, CFO. Speakers, please begin.

[Joacim Lindoff, CEO, President & Director]

Thank you very much, moderator, and good morning to everyone, and welcome to this Q3 call for Arjo. Thank you for dialing in. And I will, together with our CFO, Daniel Fäldt, take you through the Q3 report that we released at 7:00 this morning. Next slide, please. I will start by giving you business update for the quarter with some highlights from the business and outlook for the full year. Daniel will then walk you through balance sheet items. We'll finish off with a short summary before we open up for questions. And as always, we aim at keeping this call to an hour and finish no later than at 9:00 CET. Next slide, please. So if we then start with an update on the business, and next slide. After a very strong Q2 where we had visible positive effects of the COVID-19 situation, our estimates were that we would start to see a return to a more normal market situation throughout the second half of the year, starting in the Q3. We can, however, conclude that Q3 has continued with the same trends as we saw in the end of Q2, and we have, as an organization, continued to do a good job to adapt to the situation. We have continued to support customers and their patients during this challenging period, and at the same time, made sure to continue to develop Arjo for the long and the short term. Q3 2020, in isolation, has a better-than-expected outcome, both on net sales and profitability. Net sales grew with 5.8% organically, and profitability grew on all lines in the P&L, despite continued negative currency effects. Keywords have continued to be operational leverage and good cost control throughout the value chain. Our net sales development in the quarter is a result of continued good development of our US Rental business. Our core rental in U.S. continues to grow, both driven by new long-term contracts secured, but also due to higher demand from COVID. Our critical care side in the U.S. is still heavily influenced by the COVID-19 situation. Not as much as in Q2, but still on significantly higher levels than a normal in Q3. Our capital sales of medical beds and therapeutic mattresses have also continued to grow based on significant COVID-19 effects. During the quarter, we've been able to deliver on a number of projects originally planned for delivery in Q4, which has helped the good net sales development in Q3 and obviously supported our customers. The entire organization has done an excellent job to adjust to this higher demand and has managed to help our customers in the best way possible. The quarter has, however, continued to be affected by the restricted access to health care facilities in general and in particular, to long-term care facilities. This has led to a negative impact on our sales in our Patient Handling and Hygiene categories. The postponement of elective surgery has also led to notable drops of our DVT sales in U.S., Australia and Europe. Our Rental business in Europe has developed slightly better than previous quarter, but still not up to pre-COVID levels. Service has performed slightly better than in Q3 2019, mainly due to some recovery from Q2. Our Service development now depends on continued improvement in access to mainly long-term care facilities. Gross margin in the quarter increased to 45.4% versus 41.8% in Q3 2019. The main driver is a significantly improved operational leverage in our US Rental business through the increased volumes and good cost control. Also in Europe, we have had a well-managed cost base in our Rental business, contributing to better gross margins. We also continued to see an improved gross margin in our medical beds business, as we are selling more high-end medical beds, which is well aligned with our plans here. We are seeing good effects of our continuous improvement work in our supply chain, where the increased volumes have been successfully translated through operating leverage to higher margins. Our supply chain has done a very solid job to adjust for the swings between product categories and have been able to slow down when necessary and accelerate when needed. Given the lower sales of Patient Handling, Hygiene and DVT, there is an adverse product mix effect, but the positive actions have compensated well for this. It is also notable that we have not lost gross margin in the isolated category Patient Handling despite lower volumes, which is thanks to good price management and flexibility in our supply chain. The gross profit development, together with a good OpEx control during the quarter, has led to a significant increase of adjusted EBIT of almost 70%. And that number includes negative currency effects of minus SEK 20 million for the quarter. Our financial position remains strong, and we continue our solid performance in working capital, especially in accounts receivable throughout the quarter. Our operating cash flow continues to improve, and cash conversion is 117% for the quarter. We have, in the back end of the quarter, restarted our logistic and inventory overview, and we'll be aggressively addressing this area mainly during 2021. All in all, we put a very strong quarter behind us. I am very pleased with how the organization continues to adapt to a constantly changing environment due to COVID, and I'm also impressed with how we continue to support health care in this unprecedented situation. We continue to meet our commitments short term, which allows us to drive investments into our long-term journey.Next slide, please. And going into the outlook for 2020, and the significantly increased global spread of COVID, especially in the end of the quarter and beginning of Q4 is obviously putting some additional uncertainty to our possibilities to predict in detail where we will end up the year. It is probably a fair estimate that the reduced access will continue, especially in long-term care, during Q4 and throughout the first half of 2021. But also with this uncertainty, we believe, based on our own assessments and our current traction, that we will be able to grow net sales organically with 2% to 4% in Q4, which means that the second half year will be very well in line with our predictions after Q2.Looking ahead beyond this period with limited access, we feel very confident in our ability to grow our business in a good profitable way for the mid and long term, something that we will be talking more about on our Capital Markets Day on this upcoming Monday. As a consequence of continued good cost management, we expect operating expenses to continue to decline as a percentage of net sales also in the last parts of 2020. And also here, the journey that we expect will continue in 2021 and beyond. Next slide, please. Before we move forward with more details on the quarter, I would like to spend some time on our acquisition of an equity stake in Bruin Biometrics, in short BBI, which, in our view, is going to be a real game changer for our company and a significant step in the transformation journey that we're on towards creating a company offering value-added solutions to health care globally. The equity stake secures the global exclusive distribution rights for BBI's SEM scanner, which will help caregivers to detect pressure injuries days before they're visible to the human eye. This will enable health carers to prevent pressure ulcers from appearing through the correct usage of our systems of pressure injury prevention where we, as you know, currently are spending a significant effort to update our current portfolio with launches starting in the end of next year. Pressure injuries is a big burden to global health care systems, and with our outcome-based solutions, we will be able to help health care reach significant economic savings, while benefiting millions of patients affected. This acquisition is expected to generate positive impact on our net sales and earnings per share starting in the second half of 2021, and will contribute significantly to both net sales and EPS development from 2023 and onwards. Next slide, please. Moving over to some details around our regional development and starting with North America. In Q3, we have continued strong development of our net sales in North America, growing organically with 9.2%, with the year-to-date growth for the region at 4.8%. Growth in the quarter is largely generated through our US Rental business, where both core and especially critical care rental is significantly above normal levels, driven by COVID effects. Our critical care rental has, after some record weeks in the beginning of the quarter, stabilized on higher-than-normal levels. Our core rental has seen good development where we see increases due to both COVID and also long-term market share gains. The higher volumes has also driven significant operational leverage in our US Rental business. Our good cost control and execution of the restructuring program in 2019 are obviously also playing a positive role here. As in Q2, the organic net sales growth in the quarter was held back by lower volumes in Patient Handling and Hygiene for reasons explained before. For DVT, the decline was significant in the beginning of the quarter based on the continued postponements of elective surgery. The exit rate in September was around 85% of pre-COVID volumes, and we expect a step-by-step return to normal over the next 2 quarters based on our current assessments. Service in North America has continued their improvement journey, and this is one of the areas where we will see continued good profitable growth when the market returns to a more normal state.As a quick summary, a strong performance in North America, and we absolutely continue to see significant potential of profitable growth, both short and long term, in this region. Next slide, please. In Western Europe, we had an organic net sales growth of 0.7% in the quarter. U.K. sales was down slightly due to lower-than-expected sales in Patient Handling, Hygiene and DVT. And they were also affected by a lower rental volume than in Q3 last year. Our Continental Europe business had a mixed picture in the quarter. We saw very strong growth in France and Spain that continued to see net sales weakness in our German and Dutch entities. The reasons are the same as before, where accessibility is key to a good performance in major product categories like Patient Handling, Hygiene and Service. Rental in Continental Europe picked up somewhat during the quarter with exit rates in September that was equal to last year's performance, but still below expected volumes due to lower elective surgery and lower access to health care facilities. Our restructuring program in Europe continues to develop well. We have not charged any cost to restructuring in the quarter, but we will see approximately SEK 15 million in additional restructuring cost in Q4 in relation to this program. This will take the total restructuring relating to the Continental Europe program to approximately SEK 60 million this year instead of the announced SEK 75 million. The delta of SEK 15 million will be moved to 2021, as we want to have a clearer visibility on some of the areas of improvement before we go ahead. As indicated already after Q2, we have managed to fast track more savings in current year than expected and now expect the total savings to be SEK 30 million already in 2020. Additional savings to get to the announced SEK 50 million on a yearly basis will come in 2021, also with the move of restructuring activities as indicated. On a year-to-date basis, Western Europe has grown organically with 1.2%, which I, given the circumstances, consider to be a good and solid performance. Next slide, please. If we move over to our development in Rest of the World, the region grew organically with healthy 12% in the quarter, with markets like Australia, South Africa, Singapore, Japan and a number of our distributor markets across the globe performing well. We have seen a continued high demand and net sales of medical beds, and we have showed strength in securing available profitable business during the quarter. A number of countries in the region still experiences heavy restrictions, but we have still managed a good development. After Q2, we talked in detail about our development in India, where we unfortunately continue to see significant decline in the quarter as access to health care, especially for our Rental business in India, has been very limited. Year-to-date, Rest of the World is growing organically with 9.2%, a very good achievement given the current challenging environment. As stated before, we built our Rest of World region as planned and is well positioned to continue our journey, especially when the current situation around the pandemic has stabilized, both owned markets with owned infrastructure like Japan and also within our strengthened distributor network. Next slide, please, and moving over to some financial development and the next slide. We have a significant gross profit and margin increase versus Q3 of 2019. We post a gross margin of 45.4% in the quarter, up from 41.8% in Q3 2019, and there are a number of factors affecting this improvement. The high volumes from our US Rental business, in both core and critical care continues, to generate a very high operational leverage. Together with the successful deployment of the restructuring program last year, which has lowered our fixed cost base with more than SEK 30 million on a yearly basis, the additional volumes driven by COVID plays a significant role. Medical beds' capital sales gross margin continued to develop favorably versus last year. The increased overall capital sales of medical beds in the quarter is giving a slight negative product mix, but the category in isolation sees an uptick in gross margins. Like in Q2, categories like Patient Handling, Hygiene and DVT, where we normally see above-average gross margins, have all been affected by lower volumes due to COVID-19, and this development contributes to a negative effect on the gross profit and margin for the quarter. Our supply chain continues to work in an efficient way also during the last quarter. The increased volumes in some capital categories have compensated for lower fixed cost coverage in categories where volumes have been dropping as an effect of COVID-19 in the quarter. We have good traction on our review of our future logistics setup, and we drive a number of initiatives as a part of our internal efficiency agenda that will continue to generate continuous improvements in the quarters and years to come. Our Service business has returned to more normal net sales levels in the quarter, posting a smaller organic increase versus Q3 of 2019. There is still considerable restrictions around access for our technicians, which also drives additional costly requirements around safety procedures and personal protection equipment, all very necessary to protect the well-being of our employees and our customers, but obviously putting a strain to margin development in this area. All in all, we continue to see a good performance and cost control throughout the value chain that will assist our future journey in a good way. Next slide, please. Based on the described development, our adjusted EBIT in the quarter grew with almost 70% versus Q3 of 2019. The outcome is better than expected, mainly due to higher-than-expected net sales and good cost control. The good profitability development is there, despite rather large negative currency effects in the quarter, especially visible in the second part of the quarter. Translation effect is negative with minus SEK 18 million in the quarter, and with a small and negative transactional effect of minus SEK 2 million, negative currency effect adds up to minus SEK 20 million on EBIT in the quarter. It has been a very hectic quarter where we follow the development on the respective markets more or less on a daily basis. I am very proud of what the organization has accomplished during these very different circumstances. And I find it impressive how we managed to focus on supporting our customers and their patients and at the same time ensuring good profitable growth for the company. Finally, we have also continued to detail our strategic plans for the future, and I feel very comfortable around the dedication and commitment in the organization on our long-term journey as a company. With that, over to Daniel, and next slide, please.

[Daniel Fäldt, Chief Financial Officer]

Thank you, Joacim, and now some comments with respect to our working capital development and cash flow. We are continuing to see positive results from our persistent focus on managing the working capital throughout the organization also in the third quarter. While the COVID-related challenges for our supply chain remain from the second quarter in terms of inventory level optimization, we have again been able to fully compensate for this by another strong performance in receivables collection. We are especially pleased with the progress made in this area, and would like to point out that our working capital days level has continued to improve from 100 in the second quarter to 96 at the end of Q3, and by 10 days since year-end 2019. The net positive impact from working capital in the quarter, along with the EBIT improvement, means that we have followed up the record-breaking operating cash flow number from the second quarter with another strong performance posting SEK 525 million in the quarter and SEK 1.4 billion year-to-date. Subsequently, cash conversion again exceeded our target and came in at 117.1% for the quarter and is now at 107% year-to-date. Cash flow from investing activities was SEK 191 million, where the main part relates to fixed assets in general and mainly in our rental fleet in particular. Next slide, please. As a consequence of the positive profit development and cash flow performance, our net debt remained at the same SEK 5.6 billion level as last quarter, despite the 2019 dividend being paid during the quarter. Meanwhile, our cash position remains strong, and our net debt to adjusted EBITDA has decreased from 3.4 to 3.1 like-for-like since the end of last year. The equity ratio came in at 40.4%, which is a slight decrease since year-end 2019. Back to Joacim, and next slide, please.

[Joacim Lindoff, CEO, President & Director]

Thank you very much, Daniel. Over to Slide 15 and some key takeaways from this presentation. We put another strong quarter behind us with a 5.8% organic net sales growth and considerable profitability improvement, growing adjusted EBIT with almost 70% versus Q3 of 2019. We continued to follow the COVID development closely and navigate the challenges and adapt to current environment. We work together to find new solutions to engage with customers digitally when we cannot access the facilities in the same way as before. We are handling the situation here and now and at the same time as we are investing in our long-term agenda. We are facing a health care system under continued pressure and we strongly believe in more outcome-based solutions to get a sustainable health care going forward. I am looking forward to present our updated strategy where we will address this and also announce our new financial targets on our Capital Markets Day on Monday. We also look forward to perform a good finish to the year with continued positive development for the company. With that, I would like to say thank you for listening, and we will be happy to try to answer any question you might have. So moderator, please open up for questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Kristofer Liljeberg of Carnegie.

[Kristofer Liljeberg-Svensson]

I have a question related to margins, and there are some parts in it. So what I'm trying to understand is, is the net effect from the negative product mix and higher rental volumes is having a negative or positive effect in the quarter.And related to this, I also wonder if the margin improvement year-to-date -- how much of that is due to the unusually high rent -- or ICU rental volumes in the U.S. and how much is sustainable? And if we assume then rental volumes are getting more normal in 2021, does that cost savings that you will have of, I think you said SEK 40 million, will that fully compensate for that so that we could assume margin continue to improve also in 2021? Or is there a risk that margins will be lower next year than they have been in 2020?

[Joacim Lindoff, CEO, President & Director]

Thanks, Kristofer. I'll probably try to answer all the questions in one as they relate to more or less the same thing. If we look at the margins for the quarter, I would say that, as a summary, we have a net slight positive effect from the overall COVID situation. We do have significantly better operating leverage from our -- from the increased volumes in rental in the U.S., which has driven good gross margins in that area. But at the same time, we have seen a decline on both profit -- gross profit and gross margin due to the lower volumes of Patient Handling, Hygiene, and especially, as I mentioned during the call, on the DVT side in the U.S. in the beginning of the quarter. So my estimate would be a slight positive on gross margin from COVID. We -- on a general note, when -- if we look into a 2021, where we are hopefully back to a more normal state, we will see the -- or most probably we see lower critical care volumes in the U.S. We will see lower core rental volumes in the U.S. But some of the core rental volumes will stay, as I said, given that we have secured a number of long-term contracts and gained market shares in that area. That equation, together with the fact that the restructuring program that we did do in 2019, has lowered our fixed cost in the US Rental business with more than SEK 30 million, and that lower cost base will obviously follow us into 2021 as well. So there will be lower volumes of critical care, most probably in 2021, but we have secured a lower cost base or fixed cost base in the US Rental that will continue to assist margins in rental in the U.S. So -- and with a more back to normal in rental, we would also see it more back to normal when it comes to how we can deliver on volumes in Patient Handling, in Hygiene and also in DVT, where we do have 3 categories with above-average gross margins. So that would obviously help on the positive side of the gross margin and gross profit development. But the message, from my perspective, remains is that we have, as I plan, to have a continuous improvement, not rocket-exploding development, but continuous improvement of our gross margin also going into 2021 and onwards.

[Kristofer Liljeberg-Svensson]

Could I ask you, the SEK 30 million in savings, how much of that is seen in lower operating cost? And how much of that is helping the gross margin?

[Joacim Lindoff, CEO, President & Director]

The SEK 30 million that I was referring to is coming from the restructuring program that we did in the U.S. around the Rental business. So that is all in COGS, so improving the margin.

[Kristofer Liljeberg-Svensson]

Okay. And the lower...

[Joacim Lindoff, CEO, President & Director]

One of the reasons -- sorry?

[Kristofer Liljeberg-Svensson]

And the lower operating cost, I think it was SEK 22 million in the quarter, how much of that is for long-term savings? And how much is just temporary effects from less traveling, et cetera?

[Joacim Lindoff, CEO, President & Director]

They're obviously parts of the lower OpEx that comes with lower activities in terms of traveling, accommodations, et cetera. So I can't quantify it. But I would estimate that we do see maybe SEK 20 million of lower cost in the quarter based on that. It is, however, also the fact that we -- in -- which is not hitting OpEx, but it's hitting in COGS, is that we do have higher cost in COGS due to the restricted access where we have a number of special procedures and the protective equipment for our employees that needs to be added at each intervention with customers or on customer sites. But that's -- the release is -- hits OpEx, but the extra cost hits in COGS. But you do have a part of the OpEx where we have savings due to -- or based on COVID, that will probably come back as cost in 2021 when we go back to a more normal state.When it comes to the cost savings that will be -- that we will continue to see from -- for example, the Continental Europe restructuring program, as I indicated, from the SEK 50 million that we said that this program would generate in yearly savings, we have already, this year, managed to get out around SEK 30 million in that where most parts are coming in OpEx. So far out of those SEK 30 million, I would estimate that a large part, at least 2/3 has come into OpEx and 1/3 into COGS savings. And then on top of that, you have the restructuring program from the U.K. that we did in 2019, which then is generating its estimated savings of around SEK 30 million on a yearly basis, evenly spread between COGS and OpEx.

[Operator]

Our next question comes from the line of Victor Forssell of ABG.

[Victor Forssell, Analyst]

I'll start -- I think I continue on the restructuring side. If I remember your current efforts correctly of what was about SEK 70 million prior to today, I thought that it was going to be more of a 50-50 split between those savings. Has anything changed in that sense?

[Joacim Lindoff, CEO, President & Director]

Yes the -- what we said on the Continental Europe restructuring program initially was it was going to cost us SEK 75 million and get savings on a full year basis of SEK 50 million when the project -- program was fully implemented. We also said that in 2020, we were foreseeing around 20% to 25% of those SEK 50 million to come into the P&L already in 2020. We have fast-tracked the program in the beginning of the year. So we -- instead of just 20% to 25%, which would be around SEK 10 million to SEK 15 million worth of savings in 2020, we have accelerated and are now estimating that we would have around SEK 30 million of savings already in 2020. The additional SEK 20 million of savings, as I said during the call, will come during 2021. And we feel very comfortable that we will continue to make sure that, that happens. The additional SEK 15 million in restructuring costs, 1-5, that we are not going to spend out of those SEK 75 million for the Continental Europe restructuring program, will be spent most probably in the beginning of 2021 as a part of the bigger program and will also then contribute to safeguarding the full savings of the SEK 50 million on a yearly basis.

[Victor Forssell, Analyst]

Yes. Okay. That's clear. And just a follow-up on that. When do you think that you will hit the run rate of SEK 50 million if you look at the full year next year?

[Joacim Lindoff, CEO, President & Director]

My view in Q2 of 2021.

[Victor Forssell, Analyst]

Okay. Great. And coming back to the European rental performance, I think that you had a steep decline in margins in 2019. Could you just give us a comment regarding where you're at in terms of margins for your European rental business and if anything has changed in the time line for recouping those margins from where you stand at the moment?

[Joacim Lindoff, CEO, President & Director]

As you say, Q3 of 2019, when it comes to rental performance was probably a -- probably a quarter to forget. We very actively then initiated our plans on getting the European rental in total back on track and something that we have initiated with bigger programs like the one that we were driving in the U.K., but also with a number of incremental activities or smaller activities in our major rental countries like France, like Germany, et cetera. What we can see now is that there is not one single country in Continental Europe that today has lower gross margins than they had in 2019. All of our Continental Europe markets are performing better on gross margin in the quarter than they did the year before. So as a summary, that, I would say, getting back to the normal state is working well and is performing absolutely on plan. What we said after Q3 and what we said also after 2019 was that our intention was to get rental by the normal circumstances back to at least the profitability that we had in 2018, which was then about recuperating SEK 90 million worth of gross profit in our rental business over 24 months, 2020 and 2021. And also under normal circumstances, we would have been tracking very well on that plan.

[Victor Forssell, Analyst]

That's great to hear. And just a final one from my side before getting back into queue. On the SEM scanner, I would like to hear your thoughts about how that is being used today by practitioners in the U.S. For example, how many scanners could be used by the same hospital or site? And how the usage of that -- of what I understand, there is a consumable part of it as well. If you could give us any flavor on that.

[Joacim Lindoff, CEO, President & Director]

Yes, the -- let me come back maybe to the full details on how the scanners are used during the Capital Markets Day where we will have a section around that to give you some more clarity. But the interesting part with the U.S. is not only the possibility for us to sell a scanner where you have a sizable part of the business being disposable heads to those scanners to be compliant with the procedures that are recommended in the U.S. There is a zero tolerance around pressure injuries in the U.S. And the protocols that are used are, today, manual. And we believe that with the SEM scanner, we will be adding a possibility for hospitals to have a -- not an automated, but a repeatable procedure being done on all patients, which will be also a good compliment when it comes to discussing how they have treated the pressure houses in the case of litigations in the U.S.So it's twofold in the U.S. where we believe that this will drive adoption rates both that it will help the caregivers to diagnose a pressure ulcer earlier than before and in a very structured way; and it would also have a second effect, which will be mainly in the U.S., and that is on the litigation side where health care will be able to prove that they have followed a particular process and thereby having a much better case for themselves in terms of the litigation side. So it's twofold in the U.S., and that's why we believe that traction and adoption in our U.S. side around the SEM scanner will probably be the quicker one.

[Operator]

And our next question comes from the line of Sten Gustafsson of Nordea.

[Sten Gustafsson, Senior Analyst]

Two questions, if I may. First of all, with regards to the organic sales growth, could you perhaps give us some flavor for how that developed month-by-month during the quarter, if we saw a higher growth rate by the end of the quarter than in the beginning or the other way around? That would be interesting to hear. And also, if you could comment on if you have had any sales contribution from Wound Express in Q3 and how that is developing year-to-date, that would be great to hear.

[Joacim Lindoff, CEO, President & Director]

Thanks, Sten. On the organic net sales and the phasing over the quarter, what we can say is that we saw, as I said during the call, a very high level of our critical care in the US Rental. In the beginning of the quarter, we also saw higher-than-normal development of -- well, rental in general. But on the other side in the beginning of the quarter, we had very low volumes of our DVT business. Over the course of the quarter, we have still higher-than-normal volumes in our US Rental business, but it has declined slightly, not -- I mean we're still on very high levels, but it's lower than it was in the beginning of the quarter. And we have seen a rebound of, for example, DVT up until the end of the quarter. So the net sales development has, all in all, on a -- from a net effect perspective, been fairly equal spread over the 3 months with some changes within the product categories. When it comes to Wound Express, given that we continue to have difficult access to long-term care facilities and facilities where venous leg ulcers are being treated in the U.K., where we -- which is currently the country where we are selling the Wound Express. We are not selling that much of Wound Express in Q3. There is no change to the plans that we have around making sure that we -- by 2021 -- and prefer we then, in the back end of 2021, we'll start having our sales up and running in more countries than the U.K. and the Nordics where we're presently at. And also with the help of an FDA approval of Wound Express, we'll have started to navigate the U.S. market as well. As we mentioned -- or as we have mentioned, the randomized controlled trial is delayed because of COVID and it's probably 6 to 9 months delayed because of COVID. We hope to get continued reads out of both the randomized controlled trial and also the continued clinical evaluations that we have made -- for example, we are running one clinical evaluation at Helsingborg Hospital in Sweden with good results. And we hope to be able to continuously be able to communicate once we have these results in a structured way. But no change, really, to the Wound Express side. It is difficult based on the access to facilities, but there's nothing in any clinical evaluation that doesn't -- or doesn't make us believe that this is going to be the standard of care in the years to come.

[Operator]

And our next question comes from the line of Kristofer Liljeberg of Carnegie.

[Kristofer Liljeberg-Svensson]

Yes. Just one more question for me. The strong growth you had in the Rest of the World, is that almost entirely due to hospital beds? Or could you explain that strong growth?

[Joacim Lindoff, CEO, President & Director]

Yes. The main part of the growth is coming from medical beds in rest of the -- and also therapeutic services. We -- where we have seen a huge uptick, we have managed to safeguard the volumes in a profitable way in distributor markets mainly when it comes to the medical beds. When it comes to the countries in Rest of the World where we have our own infrastructure, it's more a mixed picture. Australia, for example, is growing, but they're growing with -- not only on medical beds, they're growing also in Patient Handling. And they're growing their Service and Rental business as well while seeing a slight decline in DVT. Our Japanese business is growing significantly during the quarter, again, from low numbers, but that's more an effect of the fact that we now have registrations in place in Japan and can start selling our -- or a broader part of our portfolio in Japan. So it is a positive development throughout, but obviously helped by medical beds, to a large extent, in distributor markets.

[Kristofer Liljeberg-Svensson]

But have you signed up some new distributors that has been stocking up of hospital beds and, as such, affecting the quarter?

[Joacim Lindoff, CEO, President & Director]

No, there is absolutely no stocking up. I mean the beds goes directly to our end -- to the end customers and we get paid for them. So it's nothing about putting on stock. But what we have done when it comes to the distributor network is that -- when we started this journey in 2018, we had to redo larger part of our distributor network. We have signed up a number of new distributors where we've obviously -- it's obviously taken some time to get them going, to train them, to get them onboard with all our product categories, and we have started to see traction already in 2019. We continue to see good traction in the beginning of 2019. And based on the COVID effects, we have seen some additional traction based on that. There has been a number of more medical beds deals over the last couple of months. But the underlying structure of our distributor network is solid and is developing step by step. So it's nothing that we have just built up for COVID. It's something that we foresee will help us also in the future.

[Operator]

Our next question comes from the line of Annette Lykke of Handelsbanken.

[Annette Lykke, Research Analyst]

Congrats with a very impressive quarter. My question is more -- if the situation within Patient Handling, DVT and Hygiene is related to restricted hospital access or focus on COVID-19-related matters or if it is a result of the economic impact of the delayed elective surgery also maybe reducing the appetite for capital spending for -- from hospitals? That's my first question.

[Joacim Lindoff, CEO, President & Director]

Yes. My view here, Annette, is that the lower volumes on Patient Handling and Hygiene is only related to the first part of your question, which is the lower access. We don't get access to decision-makers in Patient Handling and in Hygiene, and we -- due to the lower access and obviously, the very big focus we currently have on treating the effects of the -- of COVID-19, there is lower interest in discussing this right now. What we can see in countries where restrictions lifted in the beginning of Q3, we saw that directly, the discussions around Patient Handling started to accelerate. If we look at France as an example, we had -- which is a very important Patient Handling market for us, we saw a very good uptick on order intake in Patient Handling directly when restrictions were lifted, which, again, underlines that we believe that this has to do with the COVID focus and the restricted access to health care facilities. When it comes to capital spend as an effect of the COVID-19 during 2020 and if we look into 2021, we believe that, yes, there will be countries and health care systems that will be under constraints. But that is also why it's so important that we continue to work with outcome-based solutions because just buying a lift in the future without knowing how and where and who should use it, to get the best outcomes of that one will, our view, be less interesting over the next 5 years. So we, therefore, believe that our strategy that we are going to present on Monday is more vital today than it was just 12 months ago.

[Annette Lykke, Research Analyst]

Okay. And then -- I don't know how many product launches you have made, but I think it could be quite interesting to hear whether you find these virtual launches just as effective as if you do it like in a normal physical one?

[Joacim Lindoff, CEO, President & Director]

Yes, we have made...

[Annette Lykke, Research Analyst]

I'm sort of fishing for whether we could imagine that marketing and selling expenses also in the future will be lower simply as a result of finding a smarter or more digital way of doing it. Yes.

[Joacim Lindoff, CEO, President & Director]

Yes. With the first one, I mean, we have done smaller launches during the COVID-19 process or time lines with very good effects with the virtual launches that we have made. On an overall -- from an overall perspectives, Annette, you are 110% right. We have discovered new ways of working. We have discovered that there are a number of meetings that will not need to be held physically. We are managing a lot of our education throughout both internally and externally in a virtual way with very good results so far. So a number of parts of our organization has changed the way of working, and we'll continue with that way of working also going into a more normalized time and situation. As an example as well, which I believe that quite a few other companies has done as well, we have changed our travel policy, as an example, where it's now stated as not a travel policy, it's a meeting and travel policy where the first sentence is that internal meetings should be planned as virtual meetings, and physical meetings will be when it's absolutely needed, which might not be a huge change. But if you read the sentence, you understand that it's quite a big change to a company like ours. And we believe that, that will bring further efficiencies in the way that we're working internally and externally.

[Operator]

[Operator Instructions] the last question in the queue so far comes from the line of Peter Östling at Pareto Securities.

[Peter Östling, Life Science Analyst of Equity Research]

Yes. Just a quick one. I thought -- I think that you mentioned that part of the orders for Q4 were already delivered in the Q3. Could you quantify how much sales that was?

[Joacim Lindoff, CEO, President & Director]

It's not huge amounts, but it's -- my view, maybe between SEK 20 million and SEK 30 million that we have been asked by our customers to fast track. And which we have obviously done everything in our power to do. And that's also one of the reasons why the organic growth in the quarter came up as it did. But the underlying business is obviously performing very well as well. But it's not affecting our outlook for Q4. We, as I said, still believe that the quarter -- we will be able to grow the quarter with 2% to 4% also for Q4. So even if we have pulled in SEK 20 million, SEK 30 million worth of sales into Q3, we still believe that we can grow within the [ interval ] 2 to 4 also in Q4.

[Peter Östling, Life Science Analyst of Equity Research]

Yes. Great. Just finally on FX. I guess with the current FX levels, the FX effect on gross profit and total EBIT will probably at least be on the same level in Q4 as in Q3. Is that right?

[Joacim Lindoff, CEO, President & Director]

We -- I mean we don't have any other data points than where we are in the end of the quarter. And I said that shortly during my presentation that the -- we saw an accelerated negative currency effect in the back end of the quarter. And if we relate to that, that assumption is right that it will probably be in the same spectrum as we saw during Q3.

[Operator]

[Operator Instructions] Okay. So no further questions coming through at this time. I'll hand back to our speakers for the closing comments.

[Joacim Lindoff, CEO, President & Director]

Thank you very much, moderator. Again, we put a very strong Q3 behind us with an organic growth of 5.8% with significant improvements on our profitability. We continue to support our customers and their patients during this unprecedented time, and we have every intention of continuing doing so also during Q4. Thank you very much, and I hope to speak to a number of you during the Capital Markets Day on Monday. Thank you very much.