Getinge AB

STO:GETI B

Earnings Call Transcript 2021-Q2

[Operator]

Hello, and welcome to the Getinge AB Audiocast on teleconference Q2 2021. [Operator Instructions] Just to remind you, this conference call is being recorded. I'll now hand the floor to Mattias Perjos, CEO. Please begin, sir.

[Mattias Perjos, CEO, President & Director]

Thank you very much. With me on today's call, I have Lars Sandstrom, our CFO, who will take you through the financials a little bit later. Let's start with moving over to Page #2 right away and look at the key takeaways from the second quarter of 2021.Organic net sales growth was 3.6% for the quarter. It's mainly explained by a tail of demand for [indiscernible] related to COVID-19 in India. In combination with continued strong development in hemotherapy products is Life Science business area and a comeback in cardiovascular devices. Order intake decreased organically by 6.1% compared to 2020, when we had an exception of COVID-19 related order intake, especially in ventilators. We had a favorable product mix and continuous productivity improvements, and this resulted in higher margins overall, very strong free cash flow, lower net debt and consequently, overall strengthened financial position.We then move over to Page #3, please. So if we take a closer look on where we are trend-wise on orders, we can clearly see that the trend largely continued to move towards where we were in the beginning of 2020 after quite an exceptional period here due to COVID-19. However, orders -- ventilators were still quite strong in the quarter due to demand from India. Overall, though, we expect orders to decline in the coming quarters. This is ventilator orders, of course. ECMO orders continue to be at a new higher level overall, confirming our strong position in this segment of the market.Cardiovascular product also continued to improve during the quarter, and we moved slightly above the level of Q2 2019 for the first time since the outbreak of COVID-19. North America is the -- when it comes to the recovery, to a large extent, explained by a successful rollout of vaccine. There are good reasons for expecting this part of the business to continue to gradually improve as even more people get vaccinated in North America, but also in Europe and the rest of the world here as well. Hospitals can -- this means hospitals can focus more of their energy and -- on handling the backlog of surgeries, which is still very significant.We also continue to see good order intake -- good order growth in Surgical Workflows compared to the quite weak order intake 1 year ago. We expect this trend to continue as hospitals are focusing more and more on how to improve our activity in the Surgical Workflows in order to take care of the backlog of surgeries in an effective way. However, we are still below the 2019 level on order intake here. In Life Science, we continue to see strong order growth in all product categories, taking us to a level that is materially above the levels in the first half of 2019 and '20. So all in all, it's migrating back towards the pre-pandemic levels with the exceptions on that side.We can then move to Page 4, please. If we then take the trends in orders that we just saw and look at what this could mean in terms of net sales for 2020 compared to 2019, it might look like something that you see on this picture. In Cardiopulmonary, we expect the high demand on products for ECMO therapies to continue driving growth throughout the year, supported by our increased capacity, which is now at a new and significantly higher level, thanks to the investment program that we've been rolling out for a while now. In Critical Care, we expect the year to be slightly above 2019 due to us having a strong first half of 2021, even though demand is expected to be lower in the second half of this year.In products for cardiovascular procedures, we grew strongly year-on-year in Q2, and there are good reasons for us expecting -- to expect us to continue to be at a new higher level from here in order to meet the demand linked to the backlog of surgeries. North America, as I mentioned, is the first mover here as they've come further in the vaccination rollout, and there are good reasons to expect the same thing to happen in the other parts of America and of course, EMEA as well, of course, depending still on a successful vaccination rollout and capacity in hospitals returning to normal or even above normal levels.As said before, Surgical Workflows order intake was positive in the first half of this year, and we participate in materially more tenders today, which is also promising. North America is first out of the starting blocks here in placing orders and in a number of ongoing tenders. We expect EMEA to come to the same situation further down the road. The need for our product is clearly there, and we expect to grow orders and net sales from here. However, there is a risk that some of the orders will take longer lead times than normal and be delivered in 2022, and this is due to capacity constraints in hospitals and potential risk for supply constraints among constructors during the actually [ the labor ] work in hospitals.In Life Science, we expect the strong growth in Sterile Transfer to continue at a high level, accompanied with a strong development for the Applikon bioreactors. We also expect a strong order intake in sterilizers and washers to transform into increased net sales in the second half of this year. So all in all, this takes us to a better first half than expected, followed by a good second half for Getinge as a whole when compared to 2019.So are there any risks in this? Yes, of course, there are. We're still in a pandemic with a fast pace spread of the delta variant of the virus. However, we see that vaccination rollout is doing its job in a good way and our hospitals are in a different and better position today to tackle this challenge. So the capacity constraints that were really evident in all part of the globe, in the middle of a pandemic, they are managed in a much better way right now.We also often get questions on the supply and how potential constraints could impact our different businesses. The risk here isn't imminent at the moment for us. But if the global constraints on electronics, for example, get worse, and continue for a long period, we will most likely be impacted in some way as well, creating a timing issue or a phasing of net sales going forward.In this context, it's also worth mentioning that we are better prepared than ever to mitigate this, using the best practice from last year's ramp up in ventilators. We learned a lot of things when it comes to managing our supply chain. Other risk is, of course, that large product and a greenfield hospitals are delayed due to other parties and consequently constructed customers asked us to delay our deliveries here. At the moment, it's not a huge risk, but I thought it would be prudent to mention this in the conference in order to be fully transparent.Having said this, we can move to Page #5. So based on what I just said here and despite the more negative FX impact than expected, we choose to keep the outlook for 2021 unchanged at SEK 27 billion in net sales as a floor for the full year.We can then move to Page #6, please. I wanted to mention some of the key events and activities during the quarter as well. We've had a number of launches, which I think is worth mentioning in this context, one of them is that we have 510(k) clearance by the FDA, the 3 products, strengthening the offering of the advanced ICU ventilators in the U.S. market. We are doing the commercial launch of the heartline machine HL 40 in Europe with really good traction and good success so far. We've also launched Torin AI, helping hospitals bring down the surgery backlog in a very effective way. We've also launched a new framework for social financing and a new social bond of SEK 570 million.We've also, as part of our consolidation efforts in [indiscernible], decided to establish a customer experience center in Frankfurt, which would be very accessible to customers from all over the world. In general as well when it comes to productivity, our improvement journey continues. I continue to be very happy with the way our organization has addressed the strategy implementation topics that we have despite the ongoing price again. COVID-19 and the ramp-up of surgery. So one example here is the consolidation of operations in New Jersey in the U.S. going from three factors into one. This is going according to plan. It's expected to be finalized at the end of 2021. And it's one example of many that will continue to drive higher productivity in Getinge.With that, we can move over to Page #7, please. Order intake declined 6.1% and net sales grew 3.6% organically. So even if we see a strong comeback in many product categories, we couldn't quite match the last year's exceptional and COVID-19 related order intake in -- especially when it comes to ventilators in EMEA. We can clearly see a pattern in the picture. And the reason for this is mostly linked to how far each region has come in terms of handling COVID-19.Clearly, North America are further ahead when it comes to the vaccination rollout and consequently better able to take on orders and deliveries. For example, in cardiac and vascular devices, also in Surgical Workflows, as already mentioned. The strong performance in Asia Pacific is attributable to orders of ventilators to India and very strong growth in several product categories within Life Science, especially in China, we also have been progressing well in terms of vaccination. One conclusion from this is that we can expect some kind of comeback in EMEA as well to take place quite soon as vaccination starts to pay off.Then move over to Page #8, please. So order intake in actual numbers amounted to SEK 6.934 billion in the quarter, in acute care therapies, we had a 20.7% organic decline in orders and the SEK 1.5 billion decline in actions. So this decline is, of course, a result of the challenging comparative figures due to large orders for advanced ICU ventilators in Q 2020. And we had good order intake, good organic order growth in all other product -- both categories in the business area, which is a very good sign.In Life Science, we had a 27.9% organic increase of orders or SEK 154 million in actual we saw very strong growth in several product categories within Life Science and a particularly positive development in Asia Pacific. When it comes to Surgical Workflows, we had an 18.8% organic increase or SEK 199 million in actual numbers. We saw a significant organic growth in order intake in all regions for very low levels last year, which means that the order book is recovering in a good way. Growth in Teleco workers was particularly high in infection control.We then move over to Page #9, pay. Looking at sales, the net sales amounted to SEK 6.587 billion in the quarter. If you compare with 2019, net sales is up more than SEK 300 million all in all. Acute Care Therapies had 1.3% organic growth, but a decline of SEK 370 million in actual numbers. We saw strong organic growth in Cardio product and vascular surgery products as a result of the increased surgical volumes, mainly then in North America. We had also continued good growth in ECMO therapy products in the quarter.We had challenging comparables, as I mentioned, in ventilators in the second quarter here of this year compared to last year. So this contributed to a sharp decrease in organic net sales for this product category. And this is despite the significant deliveries to India that we had in the quarter.When it comes to Life Science, we had a 36.5% organic increase and SEK 184 million in actions. And here, we saw a strong organic growth in sales in their transfer products. In dishwashing disinfectors and also the bioreactors from Applikon. Invoicing also increased in service and sterilizers, even if not to the same extent to the above mentioned.Strong growth in all regions. If we look at it from a geographical perspective and particularly good development in Asia Pacific. Surgical workflows from a sales perspective, we had a 3.2% organic decline or SEK 198 million in actual numbers. We had slightly negative organic development, and this is explained by long lead times from order to delivery and a smaller order book at the beginning of the quarter compared to the previous year.We have very good growth in Integrated Workflow Solutions during the quarter. So this is worth highlighting, I think. We saw organic growth in both North and South America, albeit from a low level. The organization's focus or the offering in service and consumer bus as well has contributed positively during the quarter, which is a very nice also long-term benefit. Currently had a negative impact on net sales for the quarter. It was minus SEK 642 million, which equals 9.2%.We can then move over to Page #10, please. We had margin improvement in all of our business areas. So our adjusted gross profit decreased by SEK 99 million to SEK 3.624 billion in quarter. Negative FX effect accounted for minus SEK 371 million here. If we compare with 2019, gross profit is up more than SEK 500 million all in all.For the group as a whole, the gross margin improved year-on-year. The product mix is flat. Product mix effectively is flat to despite the negative effect from net sales of ventilators because this is offset by the recovery of products in elective surgeries. We also saw factory absorption and service performance, supporting the margin and FX had a negative impact on the margin overall.So with that overview, let's move over to Page #2, and I'll leave it to you, Lars.

[Lars Sandstrom, Chief Financial Officer]

Thank you, Mattias. Adjusted EBITDA increased SEK 32 million in the quarter, and the margin improved 1.5 percentage points to 19% in the quarter. Adjusted for currency, gross profit had a 1.9% positive impact on the margin due to the improved results in Surgical Workflows, combined with recovery, for example, in products like elective surgeries.Regarding OpEx, our new way of working continues to have a positive effect. However, comparing to last year's situation, with lockdown and restrictions, OpEx is impacted slightly negative on the margin with 0.7 percentage points. And as we come into 2021 with lower levels of depreciating and amortization due to asset rolling off the balance sheet, G&A adjusted for FX is impacting the margin positively by 0.9 percentage points. Currency had a negative impact of 0.6 percentage points on the margin. All in all, this resulted in an adjusted EBITDA of SEK 1.250 billion compared to SEK 1.218 billion in Q2 2020. And in 2019, we were at SEK 591 million and an EBITA margin of 9.4%.Over to Page 13, please. As we have mentioned before, currency had a material effect on our net sales and profit for the quarter due to the strengthening of the stake year-on-year versus most other currencies. This is, of course, taking into account when we set the outlook for the year. And from the left, on the page, you see 3 major currency payers for us followed by a combination of small currencies with high volatility gas, each then represent a small proportion of our business, but together, they stand for approximately 10%. And of course, we use the split financing in the plane and you price in major currencies in these countries in order to secure good integrated margins. But you cannot mitigate all the effects when you see volatility like this.The dark blue and solid line in each growth is the average rate, which we use in our financial reporting. And as you can see, there is quite a substantial difference year-on-year. The bottom line represents the closing growth each month. The speed decline in the middle of this graph illustrates a shift from '20 to '21, and recalculation of average rate that comes with that. As we are long in the U.S. dollar, i.e., more revenue than costs. And you represent more than 1/3 of our total revenue depreciation of USD in relation to the Swedish krona well above 10% is, of course, having a negative impact for us.I just want to show you this as a reminder when taking FX into account. We also find some good information on this in the annual report that was released at the end of the March.Over to Page 14, then, please. Free cash flow continues to be strong, amounting to SEK 1.2 billion. This is a result of a healthy operating profit in combination with continued good control on how we put the working capital at work. Working capital days continues to decrease. We are now down 39 days on the peak in Q2 2018. And we also see continued increase in our operating return on invested capital, where we are at 21.8% on a rolling 12-month basis. And one could expect to see some kind of a reversal towards the long-term trend on working capital days and return invested capital and the net sales flew more into normal territory.Then let's move to Page 15. Net debt was positively impacted by the free cash flow, taking us to SEK 5.3 billion. This also includes payment dividend of SEK 870 million in the quarter. Last year dividend was paid in Q3 due to the delayed AGM connected to the COVID-19.And if we adjust for potential liabilities, we are at a net debt of SEK 2 billion. This brings us to a leverage of 0.7x EBITDA. And if we adjust potential liability, leverage is at 0.3. During the quarter, further reduction of loans have been made and cash amounted to approximately SEK 3.5 billion.Let's move on to Page 17, and over to you, Mattias.

[Mattias Perjos, CEO, President & Director]

Great. Thank you, Lars. So on Page 17, just wanted to reiterate and summarize some of the key takeaways from the quarter. So as we highlighted already at the end of 2019. And again, not for the first quarter, the market continues to move towards a new normal. We've seen the recovery that we expect when it comes to both elective surgeries when it comes to the investment patterns among customers for more long-term infrastructure type of investments. And we've been able to fight the third wave of COVID-19, together with our customers in a very good way as well.As I mentioned initially, I'm also very happy with the activity level and the progress on strategy implementation. This can be seen, not the least when it comes to the margin progression, which is really positive. The improved results from our operations, of course, then generates a very solid financial position as well. All things considered, our outlook for 2021 is unchanged at least SEK 27 billion in net sales.So with that summary, we open up for questions.

[Operator]

[Operator Instructions] And our first question comes from the line of Annette Lykke at Handelsbanken.

[Annette Lykke, Research Analyst]

Congrats on a very strong results, in particular, to the margins. My first question goes exactly to that area. The exceptional high margins you have here in Q2, how much of this is reproduced or sustainable for the remaining part of second half. And maybe if you are not willing to answer that, maybe you can try to help us indicate how much of this margin contribution is coming from this additional sold events to the Indian market.And then another question, if you could elaborate a little bit on that. How do you see the potential new delta version of C-19. And maybe in some regions, we will see more lockdowns. Are you prepared for this? And do you think that we could risk or have a chance to see more demand for some of the C-19 related products you have in your pipe?

[Mattias Perjos, CEO, President & Director]

When it comes to the first question, you're absolutely right. We don't guide forward-looking on margins. But we -- as I alluded to in the summary and also in the beginning, we do see better progression than expected, maybe from some of our strategic initiatives underlying -- so there's, I think, room for optimism in that sense. And we also have some good product mix effects here that we kind of highlighted already at the end of 2019 and after Q1 that this would be positive when things return to normal, especially related to our elective surgery type of products. The exmotherapy provides a good mix effect also. When it comes to -- yes, sorry, go ahead.

[Annette Lykke, Research Analyst]

Just could you say anything about the wins? How much of -- I mean, additional margin, is it 100 or 150 basis points coming from these additional ventilators sold to India?

[Mattias Perjos, CEO, President & Director]

No, we don't disclose that type of granularity when it comes to our margins. So I only want to highlight the good underlying progression that we mentioned after the first quarter, still it is going a little bit better right now. And I think the -- we get the traction that we want from the different strategic initiatives. There is a positive product mix effect in there.You should also keep in mind that we still have the lower levels of costs because things haven't ramped up entirely when it comes to customer activities and some of the internal activities that's been under restrictions for quite some time now. So that has a positive impact. We also had good utilizations of factors, which, if you look a Q3 normally is on a lower level because of vacation periods in large parts of the world and so on.And when it comes to Q4 as well, if you look at the normal type of hockey stick effect that we have, we will be dampened a bit because of the order of fast and in critical care, but also because of the deliveries pattern that I mentioned when it comes to Surgical Workflows. If you look at Surgical Workplace product, operating room products and infection control products, these are normally longer lead times, and right now, with supply constraints around the world, possibly a little bit longer, so some negative leverage effects from this. But underlying, you're absolutely right, it's going better than maybe we guided for the first quarter, and that, we believe, is sustainable. We don't kind of publish a magnitude on this.And then when it comes to your question about the delta version, we're certainly ready to support this. We -- the team has done an excellent job, I think, in doing a mini ramp up to support the ventilation demand. We had a lot of really strong book and turn in the second quarter of ventilators. So we were able to provide additive lead times on this. And we'll be able to do that also for the second half of the year if the outbreak becomes worse than we hope.

[Operator]

And our next question comes from the line of [ Christopher Lullaby ] of Carnegie.

[Unknown Analyst]

Three questions. First, could you just give, in volumes, ventilator sales now in the second quarter versus what you had in the first quarter and also year-over-year. And then the financial cost has come down quite a lot for second consecutive quarter here. Is this a good level going forward, if you look at the financial net and then finally, on -- talk a little bit about this. But if you could give some more details for the lag we see in surgical sales that were down now organically versus the strong orders we have seen now for 2 consecutive quarters. And when do you expect surgical sales to really start to grow?

[Mattias Perjos, CEO, President & Director]

Yes. Sure. Yes, when it comes to ventilators, it's important to think not only units of ventilators now, but look at the actual revenue of ventilators. We've highlighted a number of times that the product in critical care, they will -- there'll be more and more connected services, consumables and so on related to this. So it's important to not just get back on the number of vents...

[Unknown Analyst]

But I think that's more of a recurring type of business. What I'm after is the exceptionally large number of machines you have been selling. And I guess they must have been down quite dramatically year-over-year and still is increasing earnings if you adjust for FX. I'm just trying to understand what the underlying business is doing?

[Mattias Perjos, CEO, President & Director]

Yes. Sure. If you look at the number of vents, we have 3,600 vents sold in Q2. The other categories are going really well, and we have a positive mix effect from this. As you probably know vents are not the highest margin category for us in acute care therapies. And I think the total first half year number is about 7,500 vents. And we remain comfortable that the number of around 12,000 that we have given as full year is still valid.And I think you that we [indiscernible] a lot of orders in Q2, so that's the first question.When it comes to financial cost, I think, yes, it's rather sustainable. I'll let Lars add if there's anything on to this.

[Lars Sandstrom, Chief Financial Officer]

But what you could see in Q2 is reflecting the lower net debt and the lower interest cost that we have now. And that will -- we do not see the exchanges going forward.

[Mattias Perjos, CEO, President & Director]

And when it comes to the lag of surgical workflows sales, this is something that we also believe is difficult to estimate right now, but we do see some constraints among customers and other sub-suppliers into different product that is kind of out of our hands. So normally, the lead time on the annual average is about 6 months, but there's a bit of more uncertainty right now. But even if we wanted to, I couldn't give you a better indication of this right now.

[Unknown Analyst]

Okay. And still good gross margin or improved gross margin in Surgical Workspaces. Is that -- yes, and a mix that you mentioned Critical Care or Infection Control was strong, for example. So would you say is this a mix effect or efficiency gains you have done?

[Mattias Perjos, CEO, President & Director]

Yes. Well, it's both. I mean we also have IWS, which has rather good gross margins. They're -- even if they're the smallest part of it, they do have a positive effect. I think the main reason is, as well, that if you look at assets to assets, compare the same volume, the work that the Surgical Workflows team have done with the improvement average when it comes to productivity is really paying off here. So that's really the bulk.

[Operator]

Our next question comes from the line of Kit Lee at Jefferies.

[Nyeok Lee, Equity Analyst]

My first one is just on Surgical Workflows as well. I guess you mentioned some delays in the delivery timing. But just in terms of the productivity measures that you are working on, is that going to improve as well going into the second half? Or is margin now going to be more dependent on your sales level? And then my second question is on Sterile Transfer. I'm just wondering how much of the additional capacity that you're planning to add at the end of this year is now already being taken up by the customers. And I guess, for 2022 as well, if you can give some color on the revenue growth there for Sterile Transfer, that would be great. And I'll come back with my third question.

[Mattias Perjos, CEO, President & Director]

Okay. Now when it comes to the Surgical Workflows productivity, I mean, everything that's been implemented in certainly the workflow is really aiming for the structural improvements. So that will continue to be there. I should mention as well that we have good progression when it comes to service and service margins, which is not only good from a margin perspective, but also from a customer satisfaction perspective. So we expect this to continue to support us really going forward. And we haven't changed anything when it comes to our really longer-term outlook for the margin potential in Surgical Workflows, that remains unchanged as well.When it comes to Sterile Transfer capacity, everything is going according to plan. We've added the shift in the existing factories. The investment in the U.S. is going according to plan as well and will come online in the fourth quarter. We still have capacity to take orders. I think our customers in Life Science and related to the Sterile Transfer offering, they're very good at planning long term. So we do have good visibility and a good situation when it comes to planning and supporting them capacity wise, so no concerns there.And the outlook that we gave also in terms of volume for this year still holds. We expect this to be over SEK 1 billion -- around SEK 1 billion in sales. For 2022, we haven't given any more detailed guidance on that other than that we believe that there is continued growth both from vaccines, but also the underlying business related to biopharma manufacturing.

[Nyeok Lee, Equity Analyst]

Okay. That's great. And then my third question is just on ECMO. You talked about the increase in production capacity there. Can you just talk about what's been the rate of that production increase? And I think for the second half of this year as well, are you planning to add more capacity compared to the first half? Or is that going to be more steady state for the rest of the year?

[Mattias Perjos, CEO, President & Director]

We don't guide on dates when it comes to capacity, but we've been on a significant investment program for quite a while now that has really helped to take out some of the bottlenecks. So we were in a completely different situation right now to support the market where we've -- up until this point in time, we've been the bottleneck here really for growth, and we are not anymore.So we can be a little bit more forward-leaning when it comes to active selling of these products as well. And we've said that longer term, we believe that this is a 15% to 20% growth category of our business. So that's probably the best outlook I can give you.

[Operator]

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

[Unknown Analyst]

Just a follow-up on the last one on ECMO. Does your comments also imply that you will be much above those figures that you provided for your long-term growth rates, i.e., above 20% for this fiscal year. And also a quick one on your order intake in Life Science. I note the quite flattish figure in Americas. I just want to hear your comments regarding that figure and some more granularity on the performance there, especially for Sterile Transfers? And then I have one last one.

[Mattias Perjos, CEO, President & Director]

Yes. When it comes to ECMO growth, there's no more carry I can give you other than the longer-term guidance of 15% to 20% to grow. The main variations related to ECMO is as, of course, there is COVID-19 impact of this. And then there's a flu season impact. So that seasonality pattern, I think it's important to be aware of the overall long-term growth, 15% to 20%, I think is a good estimate for this part of the business. And what was the second question? Can you repeat that?

[Unknown Analyst]

On Life Science and your order intake, I think that the Americas figure was quite flattish. So I would just like to get some granularity on that figure overall.

[Mattias Perjos, CEO, President & Director]

It is just by nature, a bit of a lumpy business. If you look at the Sterile Transfer, they are normally quite cyclable contract in terms of order intake, but with more linear development of deliveries. It's also a business that has a lot of large projects and it's not unusual to have projects about SEK 50 million in volume. So when these fall into different quarters, it can give this kind of pattern. But there's nothing underlying, I think, to be aware of here. It's generally a good development on all our categories in Life Science.

[Unknown Analyst]

Okay. Great. And just a final one. In terms of your remediation work in Hechingen in sight. A bit curious also if the stronger gross margin is somewhat supported from you being able to take out some cost here faster than anticipated? And also what is your expectations or some details on the time line here for the coming quarters? That would be interesting.

[Mattias Perjos, CEO, President & Director]

Yes. The remediation in Hechingen is progressing according to plan. We've said that we should be done with this at the end of the third quarter, and that forecast still holds. The margin progression has nothing to do with us being able to take out costs. We've not been able to do that. It's going on in full swing right now. So that improvement will have to come later.It's more of a volume and mix effect, right.

[Unknown Analyst]

Great. And any sort of guidance on what that could be in terms of costs being taken out?

[Mattias Perjos, CEO, President & Director]

No. No, we don't disclose that. We should say that we have a significant cost related to this, but we haven't given any numbers.

[Operator]

The next question comes from the line of David Adlington at JPMorgan.

[David James Adlington]

So two, please, for me. Firstly, on the Capital Markets Day. I just wondered if you would plan to give to the type of guidance you might give? And firstly, whether you might look to update your long-term top line guidance and also whether you're planning to give a margin target at the event? And then secondly, just a latest update, please, on where we are on the litigation, when that might come to court?

[Mattias Perjos, CEO, President & Director]

For the Capital Markets Day, I mean, the date is set, but not the content. We do expect to give a clearer picture on top -- longer-term top line guidance. I know there's been a lot of questions asked about up gravitating to more towards higher growth categories. And I think this is a valid hypothesis, but we would like to see through the effects of all the effects of COVID-19 and really understand the longer-term dynamics here. But we do expect to be able to do that at the Capital Market Day.When it comes to margin targets, again, we're not promising anything in terms of forward-looking, but we will certainly be able to provide a bit more information on the actual performance historically for several of our categories or some categories but we haven't decided whether we will give explicit EBITDA margin guidance for that.And when it comes to mesh, we -- there's nothing new development. It's an ongoing process. Nothing has changed that makes us change our mind on the accrual that we have for this. So we've been dragging out in time a bit because of COVID-19, and these are complex discussions as well. So we will provide more information as soon as we have it.

[David James Adlington]

And do you have any line of sight in terms of when that court case might be coming through?

[Mattias Perjos, CEO, President & Director]

No, not at this point in time, we don't.

[Operator]

Currently, we have one further question in the queue. [Operator Instructions] And that question comes from the line of Scott Bardo at Berenberg.

[Scott Bardo, Analyst]

So firstly, on Life Science. Mattias, I wonder if you could help dissect a little bit the growth performance this quarter for your bioreactor business and Sterile Transfer. That would be helpful given the moving parts there.And furthermore, can you talk a little bit more about some of the dynamics you're seeing in bioreactors? Is it simply recovery from the best base? Or are there new products and demand that are driving through here? Similar question really on as Sterile Transfer, perhaps talk a little bit about your alpha port installed base, which I think is a leading indicator to consumables so that's the first question, sir, please.Second, very brief. Can you perhaps give us some update on the GPO status for Surgical Workflows in North America. It's good to see you on tenders. I wonder if this is anything to do with a change in status or accessibility. And also perhaps the question you always get from me and any update from the regulator on your covered stent approval, which I think we'll be making for some time.

[Mattias Perjos, CEO, President & Director]

If we start with the first 1 then, we don't give a breakdown on how much has been Sterile Transferred versus bioreactors in the quarter. I think in terms of the transfer, there's nothing that has changed in the underlying market dynamics, our own performance that makes us change our mind on the full year outlook for Sterile Transfer. And we don't disclose in all [indiscernible] either. But things are progressing according to our own plans and what we've communicated earlier. When it comes to bioreactors, it's going a little bit better than I think anyone had expected. There is a very strong interest in the market for our type of solutions. So this is looking really promising, and we have a bit of a ramp-up challenge now to really meet the market demand. So we're applying everything that we've learned from ramping up other parts of our businesses before to really support this. So that's maybe a change to the type of patterns we've seen before. When it comes to Sterile Transfer, it's in line with what we've mentioned in the past.When it comes to the GPO status, there's no decisions made yet either. They keep delaying this. So we hope to be able to come back in the next quarter or so with some decisions here, but there's nothing to announce at this point in time. When it comes to the coverage stent situation, we have a constructive dialogue regarding this, but I really can't give you a time line for approval. We're hoping to have this in place by the end of the year. Nothing has changed us change our mind on this, but it's still an ongoing dialogue with the FDA. In a constructive way, absolutely, but very difficult to predict the time line.

[Scott Bardo, Analyst]

Understood. And perhaps last question, please. Balance sheet looking very strong. I think getting here has been a serial acquirer over the last 20, 30 years and I can't remember situation where your leverage has stayed at these low levels for a prolonged period. So can you talk a little bit about how inorganic growth is shaping your consideration for opportunities for the future? And are there any active packages you're working on? Is the pipeline rich? Or is it more difficult in this environment? I'd like some thoughts there, please?

[Mattias Perjos, CEO, President & Director]

Yes. I think it's definitely a very active pipeline with concrete opportunities on a weekly or monthly basis. We are engaged from that perspective. The main thing that's holding us back is that the valuations are very, very high right now and have been for a while. So it is difficult to find the type of target that is a good strategic match and attractive valuation that we have enough synergies, so that we can really create value from that. So it is actively ongoing. We're screening several hundred companies every year, and I think we will continue to do so as well. But it's a low hit rate type of activities.Any more question?

[Operator]

We've had a couple more come through. The first is from [ Christopher Lullaby ] at Carnegie.

[Unknown Analyst]

Yes. I just need to follow-up on your comments about M&A and valuation. I think valuation is just so far, at least, continues to go up, I guess, for targets and balance sheet is just getting stronger. So how patient are you? And what will you do if you don't find the targets? Will you just keep the balance sheet? Or would you consider paying out more cash to shareholders?

[Mattias Perjos, CEO, President & Director]

Yes. Well, first of all, we do have patients. I think that's important to underline. And I've said long before we had this type of financial positions whether we never really felt constrained when it comes to looking for acquisitions, given that we have a very supportive majority shareholder as well. So we've been active for quite some time, and we'll continue to be active but with patience and discipline. It's important to not erode the good position that we're creating here. And we have no plans for any other type of capital distribution right now, we do believe that there's enough opportunities to act on here and will remain patient. So there's no plans for any share buybacks or additional dividend at this point in time.

[Operator]

And the next question comes from the line of Virendra Chauhan of AlphaValue.

[Virendra Singh Chauhan, Analyst]

Just one question around margins from me. So I think the margins in the quarter were substantially strong. And even compared to what we had last year, which was already considered fairly high. So what I'm trying to understand is that what's driving the margins? Of course, you did mention that some kind of cost control was one reason. But then in terms of sustainability, do you think these margins are sustainable going ahead? Or do you expect some kind of a pullback from these kind of levels, if you expect them to be slightly lower than here. So that's it from my side.

[Mattias Perjos, CEO, President & Director]

Yes. Unfortunately, we don't provide forward-looking margin guidance. But I think, as I mentioned earlier, we do have now a positive product mix effect from the recovery of elective surgeries. We do have some cost benefit because of lower activities in the wake of academic as well.And then I really want to put the attention towards the structural improvements when it comes to productivity, that's also supporting the margin progression right now. So the mix effect, I think, is turning towards more of a new normal, and we're gravitating to much better margin categories in general, if you net everything out. And we do expect to have continued positive benefit from the productivity improvement as well.So what will go away is the leverage effect of high ventilator sales. That's kind of a temporary benefit. And of course, some of the overall cost that have been dampened by COVID-19 as well as activity returns to moment when it comes to customer activities and some of the internal activities, even if we new better ways of working. That will also normalize a bit. But the net is certainly possible and positive and a bit better than maybe with the underlying margin progression that we guide for after the first quarter.

[Virendra Singh Chauhan, Analyst]

Okay. Just a quick follow-up on this. Like if you look at the efficiency improvements and then -- based on '19, so how much of these margin improvements would you tie down to the structural improvements, the way you put it, like any ballpark around that?

[Mattias Perjos, CEO, President & Director]

No, we don't -- yes, yes. No, I understand the question. But we don't guide on this. We said after the first quarter that we have had -- when you clear out the pandemic effects and everything, we've had about a 1 percentage point on EBITDA level improvement due to the structural productivity improvements that we do. That's a little bit better right now, and it's going better than maybe we guided for after the first quarter. But I can't give you a magnitude of that additional improvement.

[Operator]

As there are no further questions at this time, I'll hand back to our speakers for the closing comments.

[Mattias Perjos, CEO, President & Director]

All right. Thank you very much. Thanks for engaging in the Q&A as well. And I think we already made the summary during the presentation. So nothing further to add from here. So thanks for the attention. I wish everyone a good rest of the day.