Getinge AB

STO:GETI B

Earnings Call Transcript 2020-Q2

[Operator]

Hello, and welcome to the Getinge AB Q2 teleconference 2020. [Operator Instructions] Just to remind you, this conference call is being recorded. Today, I'm pleased to present Mattias Perjos, CEO; and Lars Sandström, CFO. Please go ahead with your meeting.

[Mattias Perjos, CEO, President & Director]

Thank you very much. Welcome to today's conference, everyone. As mentioned, it will be myself and our CFO, Lars Sandström, talking today, and we can go directly to Page #2 in the presentation, please.So before we get into the figures and the facts related to the second quarter, I'd just like to take the opportunity to reflect a little bit on COVID-19, which is still very much impacting, not only us at Getinge, but more importantly, millions of people around the world as we speak. We continue to see the number of new cases reach new highs on a daily basis, which is really tragic in so many ways. This, of course, has a profound impact on the work situation for all the dedicated clinicians out there and also on our people at Getinge. And I just want to mention that I've seen such a lot of great collaboration and dedication during the first half of 2020, and I really want to send a big thank you to all of you involved there. Besides an intense cooperation with hospitals all over the world, we also continue to have multiple dialogues with the governments and governmental bodies in all regions in order to secure deliveries of the components. The same goes for companies from other industries who've been supporting us in the task to ramp up production capacity and to meet the rapidly and significantly increased demand of advanced ICU ventilators that we've seen during the first 6 months of this year. So I want to take the opportunity to send a big thank you to all of them as well and looking forward to continue the productive collaboration that we've had the first 6 months of this year.So with that, we can move over to Page #3, please. So if we go over the key takeaways regarding the performance for the second quarter of 2020, we can see that the COVID-19 pandemic continues to create a huge need for advanced ventilators and ECMO therapy. Our world-leading positions in both these areas contributed to an organic 17.5% increase in orders and 9.1% increase in net sales despite the quite significant declines that we saw in Surgical Workflows and in our products within cardiac and vascular systems that are used for elective surgery. These large volumes, combined with the productivity improvement that we've had in recent years, gave a very good leverage. So this has resulted in substantially higher margins in the quarter, significantly strengthened free cash flow and consequently, also a lower net debt. So our leverage continues to improve. We are down to 1.8 now compared to 3.3, 1 year ago.What are the key takeaways in terms of our performance? So let's move over to Page #4, please. Here's an update on the closer look at COVID-19 that we did already in the first quarter of this year. So the developments in the second quarter, I'll just go through them briefly here. On the demand side, we've seen orders continue to be at an exceptional level within Critical Care and Cardiopulmonary, and more specifically then related to advanced ventilators and ECMO, where we are the #1 in the world. At the same time, we've seen a negative development in products for elective surgery and the large -- and also large parts of our portfolio that relates to operating rooms and infection control in the hospital.In the Life Science business, we saw a very good growth when it comes to Sterile Transfer and this is mainly related to our world-leading BetaBags, which offset the more challenging development that we had in sterilizers.When it then comes to supply and logistics, we continue to have challenges linked to supply of components in order to ramp up production of advanced ventilators. I have to say that it has been handled in a very professional manner by the whole team, very, very positive. We've been able to gradually increase output throughout the quarter, and this will continue into the third quarter of this year. I'm also satisfied with the fact that the interruptions that we've had in the supply chain and the production only have had a limited impact on the output in the second quarter, and the situation has gradually stabilized. This also truly shows the strength in partnering and working close with suppliers, and then it shows the benefits of having suppliers in many different regions and in that way, lowering these kind of risks.We also keep the foot on the pedal when it comes to continuous productivity improvements throughout the business in a really good way. I'm very happy with the way the organization has rolled up its sleeves and really continued with the strategy implementation despite all the different challenges inflicted by COVID-19.And finally, from a financial perspective, we see significantly improved margins due to volume and the mix as the acute therapy products come with a margin that is higher than the average in Getinge. We also see very strong cash flows, simply as earnings are much higher and that we, at the same time, have continued to work actively with our working capital. So this means our cash position is very strong. At the end of the quarter, we had roughly SEK 5.9 billion in cash.With that, we can move over to Page #5, please. Here's an updated view on where we are when it comes to order trends in some of the more important product areas, representing about 90% of our business. Within Critical Care and Cardiopulmonary, we had an exceptionally strong order intake in the beginning of the second quarter. And by the end of the quarter, the order book was almost full when it comes to the 26,000 advanced ICU ventilators that we have capacity for this year. We've left some space open for commitments that we have under tenders but otherwise, the order book is almost full.In the dialogue with our customers as well, it's really clear that some of them now start to plan for the coming flu season in the Northern Hemisphere. We can see that there are activities to address local COVID-19 flare-ups and also discussions about it, a general increase of permanent ICU capacity in different countries. So this obviously has an impact on demand as well.When it comes to cardiac and vascular systems, we had a significant decline in orders in April and May related to elective surgeries being put on hold due to the lockdowns in different countries. All in all, this is creating a significant backlog in hospitals. So the pattern that we saw is that this bottomed out in May, following -- followed by a promising sequential growth in June which then, however, may be threatened by local and regional flare-ups of COVID-19 as we go along. So it's still a very -- a situation with a lot of moving parts here.In Surgical Workflows, our main businesses are within products for operating rooms and the flow of thera goods within the hospitals. Both these categories have been in some kind of low activity mode throughout the quarter on the order side, as hospitals now allocate much of their time and resources to manage the acute needs created by COVID-19. Since we have a lead time of about 3 to 6 months on the products in this business area as well, you shouldn't expect a very quick bounce back in the -- in terms of net sales during the second half of the year, even though it's important to understand that the underlying demand here is probably, if anything, greater than before the pandemic.Then, we can move to Page #6, please. Here, we take a closer look at the progress of our capacity ramp-up in the production of ventilators, which started to take place in the second quarter and is expected to continue for a while until we are at maximum capacity. So far, we've delivered around 1/3 of the 26,000 ventilators we have capacity and orders for in 2020. So again, this is an increase of 160% compared to 2019. We also continuously get feedback from our customers about the positive effects our sophisticated ICU ventilators have when it comes to the treatment of COVID-19 patients. So it's really encouraging and really meaningful for us to be to play this role in the fight against the pandemic and very encouraging to continue the intense efforts to -- for the ramp-up here.Our biggest challenge during the quarter has been to secure access to components from suppliers and there's a lot of work that has gone into doing this. It's been a daily and weekly fight during the quarter, but I'm very happy with the great work done, and we have really good momentum at the moment, and we'll continue this into the third quarter of 2020.With that, we can move to Page #7, please. This is a page that I will not go through in any detail. I just wanted to spend a short moment on this slide, simply because we get a lot of questions from the financial community when it comes to the difference between our advanced ICU ventilators and the more basic mass-produced ones that we've seen in so many countries here during the first half of 2020. As you can see in the table, there are many ventilator features that you need in order to treat critically ill COVID-19 patients, and most of the mass-produced basic vents miss every one of those feature. While if you compare it with our Servo-u ventilator, it has all of those features. So if you want, you can read more about this in our white paper, which you can download by using the link at the bottom of this page. So this page is more for reading outside of this conference.Let's go to Page #8, please. We also get a lot of questions about the demand for ventilators and basically, the question is whether too many ventilators are being produced. And I think in terms of the total volumes, maybe yes, but the question when it comes to advanced ICU ventilators, the answer is no. And this is based on clear facts. We can see from recent research and also the dialogues that we have with many governments, indicates that the permanent ICU capacity will have to increase in many countries and regions still. And there's also an ongoing fight still in parts of the world against the first wave of the pandemic and in other parts of the world against different flare ups. So an overwhelming majority of the devices that have been produced in total in the world are not ICU ventilators, and there are still regions where there is a significant need for ICU vents. So there is still an overall market need for this, that's something we can see clearly.Let's go to Page #9 then, please. We also get a lot of questions on elective cardiac and vascular surgery and how the hospitals can tackle their growing backlogs. Our way of helping out in this situation is by investing in an inventory buildup, which you have seen in our numbers for the second quarter. And this is in order to help hospitals really take on a rapid, safe and efficient increase of cardiac and vascular interventions, when it is deemed safe to do so. So this is really important. And this really varies depending on where in the world you look. So by doing this, we're not only helping the hospitals improve their financial situation, which in many cases is urgently needed. We're also continuing to contribute to a reduction of risk for huge accumulated negative effects for patients and for society.We can then move to Page #10, please. One other question we tend to get a lot in this recent weeks and months is what to expect when it comes to hospital CapEx budgets going forward. And to be completely transparent, it's very difficult to predict this. We -- like I said in the beginning, the underlying need, I think if anything, has increased. But it's very clear that the priority now is on fighting the impacts of COVID-19 in most hospitals around this world. So this might have a negative effect on the actual spend on capital goods during the coming quarters. To some extent, this depends on how quickly hospitals get back to higher levels of elective surgery, which is the economic engine for hospitals. And as I said earlier, that this is something that we can help out with as well. And also in the longer term, we -- I think one of the key pillars of our strategy is to help hospitals become more productive. So we have a key role to play in the longer term here as well.With that, we can move to Page #11, please. Kind of just a few short word on the outlook for 2020. So we withdrew the guidance already after the first quarter, and we've decided not to reinstate any guidance for 2020. And this is really just because it's very, very difficult to judge and to estimate the demand of our different products going through the year. So we will come back with updates when we can, but we cannot provide an updated outlook for the current year.Then, I'd like to move to Page #12, please. So if we touch a little bit on the key takeaways from a nonfinancial perspective, so we leave COVID-19 behind for a while. I just want to mention a few of the other activities and events in the quarter. It's very easy to put all the focus on everything that is pandemic-related, but it's important to know that we're going full speed ahead also with everything else in the strategy that we have in place since 2017. And I really think that the achievements of the teams that are working on this are equally commendable and even if they don't make the headlines in the same way as our Critical Care and Cardiopulmonary business. Just a few examples on this. If we look at the move from Ankara to Poznan that we announced earlier on here, this move is continuing despite the travel restrictions. Team has done an excellent work in handling this remotely and using digital tools. The integration of Applikon is going on with full speed as well. We've kept our factories for elective surgeries running. We are moving ahead with the acute care therapy factory consolidation in New Jersey. Our integrated workflow solutions team have made great progress when it comes to supporting customers. For example, with an updated software tool for ICU bed coordination, which took only 3 weeks from idea to first implementation. They're also helping with the plans for improving productivity in hospitals in the longer term. We've made good progress when it comes to our sustainability program. We've converted all our people and leadership development programs to virtual during the first half of the year with great results as well. We are making good progress when it comes to our strategic initiatives in logistics, in purchasing, in IT, in our shared service centers and so on. So we did great work under the surface as well by many, many people during the first 6 months of 2020.To begin with, we also continue our improvement plan when it comes to the increased productivity at a really fast pace despite COVID-19 and we've really seen also, not only from an internal perspective, but also new ways of working together with our customers. And in terms of translating this to numbers, I think one example is that we've had an OpEx decrease of 5.8% organically in the second quarter year-on-year.We've also launched a couple of restructuring activities, targeting a distinct need for productivity improvements, and these are things that were mainly part of the -- of our plans already. I already mentioned the consolidation of the production set up in New Jersey in the U.S., which is going according to plan, expected to be finalized in 2021 and bring about SEK 40 million in annual savings with a gradual realization from the second half of this year. In addition to these savings, the consolidation will also create the valuable concentration of competence and a higher degree of control in areas such as quality management and production.In Surgical Workflows, I also want to mention that we started to rationalize our operations in the Växjö factory in Sweden and Rastatt in Germany. We've also started the move of Getinge hospital solutions, which is a turnkey operating room, product management division, and we moved this to hubs in South Asia and the Middle East, with the intention of getting closer to our end customers and also establishing a more competitive supplier platform. This is expected to increase or create annual savings of around SEK 90 million with a gradual realization from the second half of this year.In the quarter, we also made a number of write-downs linked to predominantly old R&D projects. This amounted to SEK 167 million in total, whereof SEK 136 million impacting EBITDA and SEK 31 million impacting EBIT.We've also been launching a number of new products and updates during the quarter, as you can see on this picture. The newly updated and expanded digital platform Getinge Online is one good example on this. Getinge Online enables hospitals to improve efficiency by using product data to gain insights and enable rapid remote error detection, for example, and also maximize uptime.Of the acute care products, the first ones to be connected to the new portal are the Getinge flow family anesthesia machines and the Servo-u, Servo-n and SERVO-air ventilators. And the platform here is designed in close collaboration with the -- with customers, and the initial feedback has been very positive.With that, we can move to Page #13, please. Just want to provide a little bit more of a granular picture when it comes to the order -- organic growth as well. So from an order intake perspective, we had 17.5% organic growth, 19.1% in actuals. The strong organic growth is clearly linked to Acute Care Therapies, which grew strongly in all geographic markets. At the same time, we saw a decrease organically in Surgical Workflows and Life Science, mainly related to durable goods. The strong development in EMEA is explained by exceptionally good development in ventilators, while orders in Americas and APAC were hampered by lower demand for durable goods in Surgical Workflows and also lower activity in planned surgeries, which impacted our cardiac and vascular systems businesses negatively. From a net sales perspective, we had 9.1% organic growth and 11.1% in actual numbers. The growth in net sales is mainly attributable to high levels of deliveries within Acute Care Therapies, in Critical Care and in Cardiopulmonary. Net sales in Surgical Workflows were negatively impacted by lower activity linked to capital goods. And turnover in Life Science was positively impacted by the very strong development that we saw in Sterile Transfer. We also had some slight growth in sterilizers due to larger deliveries towards the end of the quarter. The strong development in EMEA from a net sales perspective is explained by large deliveries in ventilators, while Americas and APAC were hampered by lower volumes in surgeries and reduced deliveries within Surgical Workflows.So from that top line pattern, we move to Page #14, please, and look at this a little bit more by BA. Order intake increased by 19.1% to just over SEK 8 billion in the quarter. Acute Care Therapies had 44.3% organic growth, just over 1.7 -- sorry, SEK 1.6 billion in actuals. Very strong order growth in ventilators in the quarter, which, to some extent, then was offset by low activity in planned cardiovascular surgery, which had a negative impact on orders in Americas, in particular, in April and May, followed by a more positive June.When it comes to Life Science, we had a decline of 1.2% organically, but plus SEK 119 million in actual numbers. The slight organic decline in orders in the quarter is mainly attributable to delays in new products as a result of the COVID-19 pandemic. However, we had a very strong development in Americas within Sterile Transfer, or our BetaBags product area where we're getting at a truly leading position globally.Order intake in Surgical Workflows declined 18.1% organically, 433 -- SEK 436 million in actuals. Orders received decreased significantly in all product areas here and really only as a result of COVID-19. The decline was particularly evident in the Americas as a result of hospitals prioritizing investments in intensive care.Then, we move over to Page #15, please. Here, you can see that net sales for the quarter increased by 11.1% to SEK 6.971 billion. Currency impacted positively by SEK 35 million, and capital goods grew way faster than consumables, service and spare parts because of the sales of ventilators primarily. Acute Care Therapies had a growth of 20.8% organically or SEK 759 million in actual numbers. We've had intensive work to deliver ventilators and ECMO products during the quarter, deliveries to hospitals, of course, despite the decline in other categories. We have had disruptions in production and logistics during the quarter, but they've had a limited impact on the overall outcome, I would say. We've also seen lower activity in planned cardiovascular surgery, which had a negative impact in April and May, primarily in the Americas and in APAC. Within ACT still, we had sales of capital goods increasing sharply then as a result of the increased ventilator sales.When it comes to Life Science, we had 0.6% organic growth or plus SEK 97 million in actuals. This growth is related to Sterile Transfer products and a slight positive development in sterilizers as well. We had some good deliveries towards the end of the quarter. Offsetting this, we had reduced deliveries when it comes to washers and to service as a result of lower activity linked to COVID-19.Sales in Surgical Workflows declined 7.8% organically or SEK 162 million in actual numbers. Net sales here was not down as much as we saw on the order front, as the large part of the deliveries in the quarter were made based on orders from previous quarters.Infection control products in EMEA, withstood the decline best mainly due to good sales in the Middle East.Sales in Surgical Workplaces were significantly affected by reduced deliveries in the Americas as a result of lower activity in affected health care areas in both North and South America.With that, we can move over to Page #16, please. If you look at then the gross margin development during the quarter, we could see that adjusted gross profit increased by SEK 622 million to SEK 3.723 billion in the quarter. This is driven mainly by the significant net sales growth in ventilators and ECMO products in Acute Care Therapies. The gross margin continues to strengthen, mainly due to the increased sales in Acute Care Therapies, which contributes to a healthy product and regional mix. And this, combined then with the implemented productivity improvements that we've been working on for several years now and a slightly positive currency effect contributed to a 4 percentage point increase in gross margin.With that, we can move over to Page #18, and I leave over to you, Lars.

[Lars Sandström, Chief Financial Officer]

All right. Thank you, Mattias. Looking at adjusted EBITDA then, we increased by SEK 627 million in the quarter. Adjusted gross profit impact on the margin amounted to some 3.6 percentage points, adjusted for currency, and due to the reasons then Mattias just mentioned. And the reduced sales expenses here due to COVID-19, in combination with ongoing efforts to stabilize our adjusted OpEx is continuing to have a positive impact year-on-year -- and on the margin here. This quarter, the impact was 4.5 percentage points, excluding the currency. Currency as such, had an impact of minus SEK 4 million on EBITDA and very limited impact on the margin. All in all, this resulted in an adjusted EBITDA of SEK 1.218 billion compared to SEK 591 million last year, and the margin increased from 9.4% to 7.5% (sic) [ 17.5% ] year-on-year.Then, over to Page 19, please. If we then look at the BA contribution to adjusted EBITDA, starts with Acute Care Therapies, where we had a margin of 29.9%, which is an increase of 10.2 percentage points in the quarter. And here, the increase is due to a sharp increase in the sales volume and the positive mix effects in Critical Care and Cardiopulmonary, which was partly offset by soft development then in cardiac and vascular systems.In Life Science, adjusted EBITDA increased by SEK 34 million, and the margin increased by 3.4 percentage points here, mainly attributable to the positive product mix.Surgical Workflows. Adjusted EBITDA improved by SEK 4 million compared to Q2 2019, and the margin remained unchanged despite the sales decrease significantly, which was more than offset by reductions in OpEx. And the adjusted EBITDA was negatively impacted by, as I said, SEK 4 million in currency effects in the quarter. And compared to last year, we had realized cash losses amounting to SEK 25 million, with losses in the first half and gains in the second half 2019, which basically means that we should expect to have some headwind in the second half of this year due to this and almost all of it will come in the fourth quarter.Over to Page 20, please. Free cash flow developed positively with SEK 792 million to almost SEK 1.4 billion due to the increased earnings and continued active works on improving working capital, which continues to decrease in terms of number of days. We are now at around 106 days, down 23 days from the peak in Q2 2018. And leverage is significantly improved then to 1.8, which can be compared to 3.3 at the end of Q2 2019. If we look at the leverage adjusted for pension liabilities, we are at 1.2.Let's move to Page 21. In Q2, the net debt was positively impacted by the free cash flow and the positive currency impact, taking us to SEK 10.9 billion compared to SEK 14 billion in Q2 2019. For the first half of 2020, the net debt has increased -- decreased by SEK 1.4 billion despite flat currency impact, a negative impact of SEK 0.8 billion from the funding of Applikon acquisition.Liquidity increased, and cash amounted to amount approximately SEK 5.9 billion at the end of the quarter. And on top of this, we have unutilized credit facilities amounting to more than SEK 7 billion.With that, I -- let's move to Page 23, and over to you, Mattias.

[Mattias Perjos, CEO, President & Director]

All right. Thank you very much. We can then look at the key takeaways for the second quarter of 2020. And if we look at the order and sales growth, with -- this is really built on the strong customer relations that we continue to develop. And we look forward to continuing the strong work that we've done together with our customers during the first half of this year. We have seen improved margins due to high volumes, due to mix factors, and due to productivity gains that were already part of our strategy. We have seen significant strength in free cash flow, and consequently, also improved leverage and the intense cooperation that we have with the hospitals in the fight against COVID-19 continues. I also want to really underline that we continue the implementation of our strategy, the strategy that we have been on since 2017. This is a strategy that had proven sound already before the pandemic and is now more relevant than ever. I'm very happy with how our people in the company have stepped up to this challenge in all parts of our business that it was negatively impacted by the pandemic, and this really bodes well for the future, I believe.So at Getinge, we will continue to play our role in the fight against COVID-19, but at the same time, be well prepared for the new normal that awaits at some point in the future.So with that summary, I open up the floor for questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Annette Lykke from Handelsbanken.

[Annette Lykke, Medtech Analyst]

My first question is on -- if you have seen any cancellations of ventilators or ECMO systems? Or have you seen any options in contracts that is not being exercised? That's my first question.Then, I would like just to clarify on the comments you made about that you have delivered 1/3. Is that 1/3 of the 26,000 systems you can do? Or is it 1/3 of the order backlog you have within ventilators and ECMO systems? Reason for asking, of course, is that I would like to know what should we expect for the second half of 2020 and how should we also see 2021 in this respect.And then just another question on the COVID-19. Has that had any impact on how you are performing on the remediation program in Hechingen? That's all from me.

[Mattias Perjos, CEO, President & Director]

Yes. Okay. If we start with the cancellations then, we've had no cancellations of ventilator or ECMO products. It's been very stable in the whole first half and certainly the second quarter.When it comes to the deliveries of the -- or the 1/3 that we referred to, this is 1/3 of the 26,000 that we have committed to making in 2020. And the bulk of the deliveries then needed it would be now in the third quarter and part of the fourth. So we have a very intense delivery period ahead of us here.When it comes to 2021, I will only reiterate what I said after the first quarter, we will assess the situation come September and see what capacity is needed towards the end of this year and into 2021. So this is an ongoing dialogue that we have with our hospital customers and, in some cases, governments around the world about what's really needed both to fight what is rest of the pandemic, but also to build up additional permanent ICU capacity locally.And then regarding your third question, when it comes to remediation, it hasn't really had any material impact. We have an agreement with the FDA, decided to have some products that were on aging tests delivered to customers instead to really be used for patients. So those tests are delayed, but it doesn't have a material impact on our remediation program. We could, worst case, be a quarter delayed compared to the original plan, but this is in full agreement then with the FDA.

[Annette Lykke, Medtech Analyst]

So if I then can just follow-up on the capacity of 26,000, does that correspond with your order backlog? Or is your order backlog larger than the 26,000 systems?

[Mattias Perjos, CEO, President & Director]

Yes. No, the order backlog is not larger than the -- I can't disclose an actual number for the order backlog, but we have delivered some of the 26,000 already this year. So the backlog is lower than 26,000.

[Annette Lykke, Medtech Analyst]

Okay. And then finally, the plan of finalizing the remediation program in Hechingen, is that 18 months from now?

[Mattias Perjos, CEO, President & Director]

No. The original plan was to be finalized by the end of this year. Now that may be early 2021. So it's not a significant delay in that respect.

[Operator]

Our next question comes from the line of Kristofer Liljeberg from Carnegie.

[Kristofer Liljeberg-Svensson]

Three questions. The first one is ACT orders. Should we expect them to be close to 0 now in the second half of the year? Or are you -- or do you expect to continue to take orders for shipments in 2021?Second quarter on the ACT gross margin. I'm interested to hear how you were able to improve that year-over-year? I guess, ventilators should have had a dilutive effect, and you also have lower sales of consumables. So I don't know, if it's ECMO that's helping or something else. And also related to that, if the inventory buildup for the consumable products, did that have any impact on the margin? And finally, on operating costs. I wonder if it's possible to say how much they would been down without the temporary COVID-19 effects, i.e., less traveling, et cetera?

[Mattias Perjos, CEO, President & Director]

Well, I'll take the first question then, and let Lars talk about the margins, the inventory buildup impact here.So when it comes to the expectations for order intake, we have withdrawn the guidance for a reason, I think it's very difficult to judge for the rest of this year and going into 2022 -- or '21. In general, I can say that the -- we aim to have the bulk of the 26,000 delivered in the -- before the beginning of the fourth quarter. So we are -- it's possible to take additional orders for the end of the fourth quarter and certainly, with deliveries in 2021. But the magnitude of this is very difficult to predict, it's an ongoing dialogue, as I said.And then I'll let Lars talk about the margin questions you have there.

[Kristofer Liljeberg-Svensson]

Sorry. So does that mean that your capacity is actually more than 26,000 for the year, if there is a demand?

[Mattias Perjos, CEO, President & Director]

Yes. Yes. Yes. Absolutely. There is -- we have a higher capacity. We are currently running 3 shifts in the ventilator factory. So the bottleneck has been -- in the second quarter, has been components. And then now that component situation has improved gradually during the quarter. So we have better momentum than ever now going into the third quarter, even if there has been some critical suppliers. But we do have capacity beyond 26,000 for the full year, if that's needed. And we will decide on how many shifts and what capacity level we need into 2021 as we approach September.

[Kristofer Liljeberg-Svensson]

And follow-up on that, you said you had most of the orders coming in early second quarter. Have you seen any increase in orders again later in the quarter and early third quarter, given what's happening in the U.S., for example?

[Mattias Perjos, CEO, President & Director]

No. No significant change, I wouldn't say, there is a -- as you've noted, there are flare-ups in different parts of the world. In U.S., there's a handful of states that have again canceled elective surgeries and focus again on treatment of COVID-19 patients. So of course, this has an impact on demand, but I really can't give you a granular picture of what this looks like in the coming months.

[Lars Sandström, Chief Financial Officer]

Good. Then, on margin and the improved gross margin in ACT. I think here, it is the high deliveries of ventilators and ECMO products to giving a leverage, of course, out of that, but also the product mix and geographical mix of these deliveries is supporting the margin. And of course, the lower sales and deliveries within the elective surgery segment has had a negative impact, but that is more offset than the other parts.And to your question there on the margin impact on the -- keeping up the production, yes, to some extent, of course, the absorption, of course, is somewhat higher then it's not a positive margin impact. It's more that we have kept up the production during the quarter for those products. So that has -- so they have not had the same negative impact as if we would have reduced production at the same ratio, say.

[Kristofer Liljeberg-Svensson]

And then finally, on the operating costs, the underlying trend, so to say, except the temporary effects.

[Lars Sandström, Chief Financial Officer]

Yes. Now as you know, we have done restructuring activities in different parts of the group and that are giving us a positive impact from that. And then, of course, with the lockdowns that have happened and the reduced access to hospitals to travel and marketing expenses to different payers, et cetera, has had a significant positive impact on the OpEx level now, in this quarter, compared to a year ago. As I said, we have moved over now to keep conference on a digital way, et cetera, which makes it possible for us to reach out to our customers and doctors to train and explain our products, well, at a significantly lower cost as well. So -- and that is something that we intend to continue with.

[Operator]

Our next question comes from the line of Carolina Elvind from Danske Bank.

[Carolina Elvind, Analyst]

So just one question first, on the service contracts on ventilators. So for the volumes that you delivered now in Q2, what was the attachment rate of service contracts for those volumes? And what should we expect in terms of services for the coming years?

[Mattias Perjos, CEO, President & Director]

Yes. We don't disclose numbers on attachment rate on service contracts accounting year-over-year.

[Carolina Elvind, Analyst]

Okay. But could you give an indication if you have managed to sell service contracts in the way you used to do on ventilators? Or is it lower?

[Mattias Perjos, CEO, President & Director]

No, I can't give you even a relative comparison, unfortunately.

[Carolina Elvind, Analyst]

Okay. And then just a general question. So looking at the company now, you clearly have some product groups or business areas performing very well and some performing clearly negatively. How do you handle this internally? I mean, you're already planning to turn around the company when it comes to processes and culture. And how has the crisis impacted this work? If you could give some color on that.

[Mattias Perjos, CEO, President & Director]

Yes, sure. The impact is entirely positive, I would say, from a culture and collaboration standpoint. And I have -- as I mentioned in the presentation, I'm really happy with the way we've continued to implement all parts of our strategy despite the headwind from the pandemic. So it's been great collaboration with the -- between the areas that are positively affected and with help of people in the areas that are experiencing more challenging time. And at the same time, the part of our business that are more challenged now have really also rolled up their sleeves and continue to support customers, but also work on the programs that we had in place when it comes to becoming more proactive at the company. So I think it's -- from a culture and strategy point of view, it's a positive impact of COVID-19 as well, even if you don't see it in the numbers in several part of our business right now.

[Operator]

Our next question comes from the line of Michael Jungling from Morgan Stanley.

[Michael Klaus Jungling, MD, Head of MedTech & Services and Analyst]

Great. I have 3 questions. And the first question is around restructuring charges. Can you talk about the magnitude of those in the second half? And why there was a need or so to record further charges in Acute Care Therapies after what I thought was already a pretty efficient business by now?Question number two is on ventilators. I'm referring here to the order trend. If I look at Slide 6 of your presentation, you have this sort of a blue, beige as a -- blue line or the light blue line on top, finishing on the 30th of June, but no real directionality of where you think this may go. Could you perhaps please, complete the chart to see what you think may happen in the second half of this year?And then my third question is around capital equipment outside of ventilators and ECMO devices. You highlighted towards -- or highlighted a slow recovery in the second half of this year, but you made no comments around 2021. What are your thoughts around 2021?

[Mattias Perjos, CEO, President & Director]

Okay. When it comes to the restructuring charges, I think the -- a lot of what you saw were related to Acute Care Therapies in the second quarter was the factory consolidation that we announced earlier in New Jersey. So that's the reason for that.I want to take the opportunity though to highlight what I've said a couple of times based on the message that we had at the Capital Markets Day in 2018, where we looked at the EBITDA gap between our different businesses. I think it's fair to say that what we've learned since then is that there was probably -- there is probably more upside in Acute Care Therapies than we realized at the moment, both thanks to the strength -- competitive strength of our portfolio, but also because of additional productivity opportunities in the business. So there's 2 aspects of this.And we don't guide on restructuring charges in the second half of the year. So I can't say anything in terms of numbers there.Then, when it comes to your other question on the order patterns, I think we stopped the graphs at June 30 for a reason. We don't give guidance going forward. And this is simply because it is very difficult to judge. There's a lot of moving parts here in different parts of the world and how the pandemic is addressed. So to judge ventilator demand, second half of the year and into 2021, is a very difficult task. And that's why I say that we will wait until sometime around September before we make a decision on what is the right level of capacity for the second half of Q4 and into 2021.And of course, I can't give you a very clear guidance on the capital equipment outside of vents and ECMO as well. It's, like I said in one of the slides here that, if anything, the underlying demand has probably gone up, and we believe that CapEx investment will follow-on in the wake of elective surgeries picking up again, but the timing and the magnitude of this is difficult to estimate at this point in time.

[Michael Klaus Jungling, MD, Head of MedTech & Services and Analyst]

Okay. Maybe I can follow-up on the capital equipment side. When you mentioned a slow recovery, I suspect you're talking about a recovery that sequentially is better month-on-month. Could we see, in the second half of this year, capital equipment outside of ventilators and ECMO devices, actually some year-on-year growth?

[Mattias Perjos, CEO, President & Director]

Again, I really can't guide. The only thing I can say is that we had a difficult middle of the quarter for the capital equipment, excluding vents and ECMO. There were signs that it was kind of bottoming out there, but again, very difficult to speculate about the magnitude and the timing of the recovery, unfortunately.

[Operator]

Our next question comes from the line of Ed Ridley-Day from Redburn.

[Edward Nicholas Ridley-Day]

Two questions, if I may. With some idea on the last question. On the vascular business, you talked about a pickup in vascular elective surgeries in June. And in terms of quantifying this, are there any European markets where you feel volumes are getting back to either flat year-on-year or producing minimally negative? That would be my first question. And clearly, also that would have implication on second half.And the second one is more technical. Just in the sterile bags business. If you can give us some color there on your market share in that market?

[Mattias Perjos, CEO, President & Director]

Okay. Yes, sure. When it comes to the vascular business, as you pointed out, that we did see a pickup in June. We had a rather strong ending of the quarter, but a very difficult beginning and middle. Well, it's, again, difficult to judge whether you can extrapolate this trend or not. We do see flare-ups in some U.S. states now, that would probably mean elective surgeries get canceled again. In other markets, you mentioned the European examples, I think the best European example in terms of the new normal or post COVID-19 is Germany and the DACH region, in general, where we've seen very, I think, professional management of the pandemic as such and consequently as well, a quicker pickup when it comes to elective surgeries and also a quicker pickup when it comes to capital goods investments again. So there were, for sure, some good signs in the DACH region towards the end of the quarter there due to a better handled the pandemic than average globally.When it comes to the Sterile Transfer and the BetaBags, we are, too a market leader, between 60% and 70% of global market share in this category.

[Operator]

And we now have time for one last question, and that question comes from the line of Scott Bardo from Berenberg.

[Scott Bardo, Analyst]

Yes. So the first question on ventilators, please. Could you help us understand of your normalized 10,000 ventilator demand that you've seen up until this crisis, how much of that relates to replacement cycles of your existing installed base? And would you expect this replacement cycle type business to change materially as a result of this COVID supply into the market?And second question, sorry, if I missed this, but could you provide us some additional color on the sequential trends through Q2, both for capital and elective procedures, perhaps where growth was in April and where it ended in June? That would be helpful.And last question, please. Obviously, we're seeing some pretty impressive margin performance for the business for the first half of the year and presumably for this year. As I look to the way that market estimates are formed for Getinge, there is a sharp contraction in profitability being anticipated in 2021. I know you've done a lot of efforts to speed up remediation and some restructuring costs and should expect some elective procedure recovery. So I'd just like you to share some thoughts about whether you see a situation of going backwards in terms of margin next year?

[Mattias Perjos, CEO, President & Director]

Yes. When it comes to the vents bit first, we have never disclosed in detail numbers on how much of the normalized 10,000 is replacement and how much is new capacity. There's a majority that is replacement on new capacity, but we haven't given any number on this. And so I can't help you further there.When it comes to the sequential trends in the second quarter, again, well, I can't give you specific numbers by category. But we saw already a decline in the first quarter and yes, we had -- so we had like a -- we had a negative trend for elective surgery products and that continued with the good speed into the beginning of the second quarter. So April and then bottomed out in May. And then a rather good pickup towards the end of the quarter, but then it's difficult to estimate what will happen going forward with the flare-ups in different parts of the world.With capital, it's a little bit similar, but with a slightly bigger delay in how things -- how well activities translate into numbers, but the -- and also the comeback was not as strong as progress for elective surgeries towards the end of the quarter. So that's the dynamic that we tried to describe also on Slide 6.When it comes -- I won't comment on any market estimates for profitability going forward, and I'm glad you asked for thoughts and not numbers. And what I would like to say is that the overall message that we gave at the Capital Markets Day in 2018 about closing the gap with our peers, that remains. And I've tried to reinforce a couple of times during the quarter that we're very happy with the way our strategy implementation is progressing despite COVID-19. Then of course, we have a boost now during 2020 at least, because of the pandemic, but the underlying logic of our strategy and the underlying journey for coming back to profitability now with our peers remains exactly the same as before.

[Scott Bardo, Analyst]

Just one quick follow-up then, perhaps on the last point, and Mattias, I mean I think you communicated at the Capital Markets Day, an expectation to close this gap on a 3-, 4-year time horizon with respect to margin gap versus peers. Does COVID-19, in any way, change the time horizon towards this bow?

[Mattias Perjos, CEO, President & Director]

It helps in the short term, absolutely. As for the longer term, I think if anything, yes, probably a positive as well, but I think the longer-term effects will be marginal.

[Operator]

Thank you. And I now hand back to our speakers for any closing comments.

[Mattias Perjos, CEO, President & Director]

Yes. Now thanks, everyone, for listening in. I've already made the summary here, and I think that was complemented with the relevant questions as well. So nothing in addition from my end. I just thank you for listening in today, and I wish you a good rest of the day. Thank you.

[Operator]

This now concludes our conference. Thank you all for attending, and you may now disconnect.