Getinge AB

STO:GETI B

Earnings Call Transcript 2019-Q3

[Operator]

Hello and welcome to the Getinge Q3 reports 2019. [Operator Instructions] Just to remind you, this conference call is being recorded.Today, I'm please to present, Mattias Perjos, CEO; and Lars Sandström, CFO. Please go ahead with your meeting, Mattias.

[Mattias Perjos, CEO, President & Director]

Thank you very much. Welcome to today's phone conference where we're going to go through the results of the third quarter here, myself and Lars Sandström, our CFO.So we can move directly over to Page #2, please. If we start to look at the key takeaways from the third quarter in terms of performance, we can see that our top line continues to outgrow the market a little bit, so it's been about 2 years of really steady growth now. It's also good to see that the net sales continues to grow in all business areas, and all of our regions, it's very much across the board. In the quarter as well, we had good support from the volumes, and there were really no material disturbances in the supply chain or production in the quarter, and the result of this is that both the gross margin and the EBITA margin increases in the quarter versus last year's softer margins.Margins are also improving sequentially as you can see compared to the previous quarter, and this is despite the continued cost increases that we had as we continued to invest in remediation. And this is what we flagged for in earlier calls, and it will continue for the coming quarters as well. Looking at the rolling 12 months performance, we can see also a clear shift upwards. And it's a good indication, I think, that some of the improvements that we've talked about since the Capital Markets Day in 2018 are generating results. And we believe that we have still a lot of more work to do there. So we reiterate that 2019 will remain a year of implementation for us.When it comes to cash, the positive development in underlying cash flows continues, supported by both an improved operating profit and also working capital. This also has an impact on the leverage. So we're now at 3.0 on leverage, so yet another piece of evidence that we're continuously moving in the right direction.We can then move over to Page #3, please. So the key takeaways in terms of events and actions, just brief comments on OpEx to start with. OpEx is declining sequentially, which means that we start to see a positive impact on the restructuring efforts that we made in the first half of 2019. In the third quarter, we have [ seen ] some restructuring costs. We took SEK 39 million in the quarter. It was a little bit less than the 2 previous quarters, but in this case, it's mainly related to Acute Care Therapies and also global sales. And it's a number of activities to support productivity improvements in selected areas where they need to function as the 2 parts of the company.Remediation costs that I mentioned on the previous picture here continues to have a negative impact on margin both versus last year and also sequentially. So -- and again, it will continue for the remainder of this year and well into 2020 as well this investment. It's a rather high activity level at the moment.We see a positive trajectory when it comes to the premium products that we've launched, the uptake to products that we've launched in the last 12 months. This is encouraging. So as some examples of this, the ventilator Servo-u 4.0 platform. And we have also a new set of sterilizers out on the market that have been very well received. And the third example will be the PowerLED II that we mentioned in one of the previous calls. So it's very good to see the market response from these recent launches. At the same time, we're strengthening -- at the same time as we're strengthening our premium offering, we do aim to increase our offering to the growing value segment as well. For those of you with really good memories, you may remember that, at the Capital Markets Day in November of 2018, we presented a number of 5% of Surgical Workflows portfolio being able to address the value segment. So we start from a rather low base here. And therefore, I'm happy to see that we've now launched the operating table, Maquet Lyra, in the third quarter. It's a high-quality table. It's developed in collaboration between our R&D team in Europe and in China, together with customers in this segment as well. And it will be produced in our factory in China. It's a really good match of the functionality, tailored for the release to the customers and the price that we're able to demand for this. That's very good.Over then to Page #4, please. So a few comments on the organic growth. Back then when it comes to order intake to begin with, we had 3.5% organic order intake growth, 8.2% in actual numbers. There's Acute Care Therapies that accounts for the most part in absolute terms mainly due to strong development within the Cardiopulmonary segments in heart-lung machines and consumables more specifically. And this is very much across the board as well, geographically speaking.We also had a significantly increased order intake in Life Science and in most of the product areas inside this business area. Surgical Workflows though decreased the organic order intake compared to the previous year, and this was mainly related to tougher comps in Americas where we had the strong Q3s in both 2018 and 2017.If we then look at this from the [indiscernible] from the sales perspective, we had 4.8% organic growth, 9.7% in actual numbers. Here as well, we had continued growth in all business areas in all markets. Overall, stronger growth in developed markets, which means a slightly more positive contribution in terms of results from a regional mix perspective.Looking at the [ deal ] perspective, Acute Care Therapies is developing positively in all our regions. It accounts for most of the growth in actual numbers. Life Science growing strongly in the largest market, which is EMEA, while performance was a little bit weaker in Americas and APAC in the quarter. And from a Surgical Workflows perspective, we performed extremely well in Asia Pacific thanks to a number of deliveries in the month of September. Growth in Americas and EMEA was also higher than the market growth but a little bit less than Asia Pacific.And if we look at the mix perspective between capital and consumables, we can see that capital goods sales continued to increase as a proportion of total sales, dampening the margin a little bit at least in the shorter-term perspective.Now we can move over to Page #5, please. So if we dissect the contribution in order intake a little bit and look at it from each business area, when it comes to organic order intake, as I mentioned, we see a strong growth overall. Acute Care Therapies was up 6.9% organically. This is SEK 397 million in actual numbers. We had good growth all regions and most of our categories as well and very strong growth within heart-lung-related machines and consumables, so our Cardiopulmonary business.Looking at Life Science then, we have 10.5% organic order intake growth, SEK 78 million in actual numbers. We have very strong order intake growth in Americas and in EMEA, and we have a slight decrease in Asia Pacific. From a product perspective, we saw good growth in sterilizers, in isolators and in consumables also from the Life Science period. Surgical Workflows had a 3% organic order intake decline but SEK 30 million up in actual numbers. The organic order intake was mainly attributable to Americas where we had strong orders both in the third quarter of 2017 and in 2018 so somewhat challenging quarter for Surgical Workflows in this part of the world. We had, I think, good news in terms of infection control performance. Some positive development there for Surgical Workflows and especially in the EMEA region.We can then move over to Page #6, please. So if we look at the development in net sales, we had net sales for the quarter increasing organically by 4.8% and 9.7 in actuals. So the number was SEK 6.236 billion. We had a positive currency impact of SEK 283 million, but as you can see in the picture here, every business area contributed positively. We could also see that capital goods grew 3.4 percentage points faster than consumables in the quarter, which does have a somewhat negative impact on the gross margin in the short and medium term.ACT then, who had 3.6% organic growth or SEK 276 million in actions. There was a broad-based increase in all regions and most product categories. We saw continued strong development in Critical Care, which has been a success for quite some time now growing in all of our regions. Also happy to note that we had very strong development in cardiac disease and Cardiac Surgery business, so very positive. On the negative side, we had sales of [ wraps ] not reaching last year's level. This was mainly because of a rather significant delivery in Japan in the third quarter of 2018. When it comes to consumables in ACT, we had sales increase as a proportion of sales, which still has a positive overall margin thanks to the gross margin impact.When it comes to the Life Science business area, we had a 2.9% organic increase in net sales, SEK 33 million in actual numbers. Very strong organic sales growth in the largest market, which is EMEA. We had, from a product perspective, good growth in disinfectants and in isolators. If we look at the decline in sales in Americas, it was mainly attributable to North America, where we had a number of projects delivered in the third quarter of 2018. So they were impacting comparability to some extent. On the split between capital and consumables for Life Science, we had an increase of capital in relation to consumables so a little bit negative impact on the gross margin for Life Science because of it.When it comes to Surgical Workflows, we had 7% organic sales growth, which equates to SEK 244 million in actual numbers. Same as ACT, had a rather low base, so organic growth in all regions and product categories. We saw very good growth in Surgical Workplaces so mostly tables, lights and pendants for the operating rooms. We had high growth in the integrated workflow solutions as well. So this happened from the previous quarter continuous sale, which is also encouraging to see. And Surgical Workflows capital goods sales increased at a faster pace than consumables, which does have some negative impact on the gross margin.We then move over to Page #7 please and look at the gross margin development for third quarter. So gross profit as such, increased by SEK 450 million to SEK 3.171 billion in the quarter, driven mainly by Acute Care Therapies, Surgical Workflows and support from currency. So the currency support was SEK 177 million in the quarter. There was a small IFRS 16 effect as well of SEK 29 million, which was the positive impact on the GP.Compared with the preceding years, tough Q2 margins. The gross margin is 2.9 percentage points higher. This is driven by improvements in all of our 3 business areas. And there's some operational leverage because of the higher volumes. And we've also had a rather trouble-free quarter when it comes to supply chain and production, so that had a positive impact for us.On the margin, I said, we had positive contribution from volume, currency, little bit negative contribution from the product mix. But this was then countered by a slightly positive regional mix from increased share of sales in higher-income market. So that's the P&L down through gross margin.And with that, I would like to move over to Page #9. And I leave over to you, Lars, to continue.

[Lars Sandström, Chief Financial Officer]

Thank you, Mattias. Coming into adjusted EBITA, as you can see, the adjusted EBITA did increase by SEK 239 million, and adjusted EBITA margin improved 3.2 percentage points year-on-year. Currency effects had the impact of SEK 93 million on EBITA and supported the EBITA margin then by 1 percentage point. Gross profit increased by SEK 450 million and had a positive impact on the margin amounting to 2 percentage points compared to last year's [ summer ] stock performance. And thanks to the high volume and the fewer disturbances in the supply chain production overall, there is also an improvement sequentially compared to the second quarter when [ before ] example were negatively affected by approximate [ lives in back ].Adjusted for currency and IFRS 16, OpEx increased by SEK 101 million year-on-year, which implies almost a neutral impact on the margin. The increase is primarily due to the investments in compliance, quality and remediation and preparations for EU MDR. However, OpEx decreased sequentially by 1.4% or SEK 29 million, which shows that the restructuring efforts starts to pay off.IFRS 16 impact was down SEK 3 million for the adjusted EBITA for the quarter. And all in all, this resulted in an adjusted EBITA of SEK 677 million and an adjusted EBITA margin then of 10.9%. Then let's go to Page 10, please. If you look at the [ PA ] contribution to adjusted EBITA. Here, we have a positive currency tailwind of SEK 93 million for the quarter. And if we start with Acute Care Therapies, it increased its adjusted EBITA by SEK 182 million, and the margin improved by 4.1 percentage points to 18%. This was mainly due to increased sales volumes, high gross margins and positive currency effects, which was partly offset by higher remediation costs. Life Science adjusted EBITA increased by SEK 16 million, which represents an increase of 2.6 percentage points on the margin, mainly attributable to higher gross margin compared to last year, which was to some extent offset by a higher cost base. In Surgical Workflows, adjusted EBITA increased by SEK 84 million, corresponding to increase of 3.6 percentage points. And it's thanks to higher sales and improved gross margins in most product lines, including Servo-u and unchanged operating expenses. As you know, we have high net sales volumes at the end of the year. And this quarter, we shipped somewhat higher volumes in the last month for the quarter as well, whereas, some should have been maybe coming a little bit more in the fourth quarter. So this explains the higher net sales that you saw here already in the third quarter and also then consequentially improving the EBITA margin here for this quarter already. The cost for common group functions increased by SEK 43 million, mainly attributable to increased compliance activities. Let's go then to Page 11, please. We continue to see good development in the underlying OpEx development, which is tracking according to plan and as Mattias already mentioned. And today, we are some 10,467 FTEs, and we do see continuous underlying decline in the number of FTEs using the natural turnover and only refill where it brings value to the big customers and business. However, we have increased the number of FTEs in the quarter, and this was mainly attributable to supply and production and remediation and somewhere -- some parts in our global sales organizations, where we see -- where we have a net decrease when it comes to FTEs more in admin and in general. Our work to continue to bring down OpEx in relation to net sales continues also according to trial. As you can see in the graph to the right, OpEx since adjusted for the IFRS 16 effect. The relation to net sales on a rolling 12 months basis are now 1 percentage points below peak level in the first half of 2018.Let's move to Page 12, please. For cash flow, here, cash flow before changes in working capital was supported by the improved operating profit while tax recovery last year is making the comparison with Q3 this year, where we have more of a normal tax payout to [ beat the torches]. So the difference in total of SEK 291 million of paid taxes in Q3 2019 versus last year, 2018, which, of course, has an impact and when you compare them year-over-year.And changes in working capital continues to be positive despite strong growth in the net sales. And net investments, you can see here year-to-date is some SEK 122 million below 2018's level. However, I just would like to mention that we expect this to rise a little bit when you come into Q4.Net debt was negatively impacted by currency, IFRS 16 regulation of pension liabilities. And net debt in relation to adjusted EBITDA rolling 12 months to SEK 3.0 million here at the end of September.Then let's go over to Page 13, please. During 2018 and this year, we have been working intensely with improvement of working capital. And as you can see in the next graph, we broke the trend in working capital days in the second quarter last year, and this is because of our decline each quarters seen. And we are now at some 114 working days -- of working capital days.Working capital as such is decreasing 7.1% year-over-year at the same time as our net sales is growing 4.8% organically. This work will continue, yes. That's with everything that we do in order to improve productivity in both underlying earnings and cash flow improvement. Of course, you should expect to see steep decline in working capital days to slow down a bit as we get the compares that are tougher. Nevertheless, we do still have many things to improve in this area going forward.Then let's move over to Page 15 and back to you, Mattias.

[Mattias Perjos, CEO, President & Director]

All right. Thank you very much, Lars. We can skip 14 and move directly to Page #15. And talk a little bit about the outlook where we do expect an organic net sales growth of 2% to 4% for the full year of 2019. Nothing has really changed fundamentally, I think, in terms of market growth and so on. From a customer perspective, we expect the overall positive demand pattern to continue both on capital goods and on consumables. We also, in general, I would say have positive signals from customers on our newly launched products, and we expect the same with the ones to come for the rest of 2019 and the coming year. So our general outlook remains positive. However, we did see a decline in orders in Surgical Workflows for this quarter, especially in Americas, where it makes the gap -- there's a certain gap to fill before year-end that we need to be aware of. And I also reiterate what we said during the whole year, that we do see that part of the order -- strong order growth so far this year is set for delivery in 2020. So that's the reason for keeping the guidance unchanged. So no change in the outlook for 2019.So we can move then to Page #17, please, and the summary. Just before we move to Q&A, recap the key takeaways for third quarter of 2019. We continue to deliver growth due to the bulk of the market growth that we're in. We're starting to see positive development in -- on margins in the overall business area, and there's a clear shift in the rolling 12-month figures from this perspective. We also continue to see positive development in the underlying cash flow for the business. This means that our leverage has now declined to 3.0 so another example that the business continues to move in the right direction.Finally, I just want to remind also everybody that 2019 has been a year of implementation for us. We feel that we've made good progress on the plan that we outlined at the Capital Markets Day in 2018. And the third quarter was a good step in that direction. A lot of work remains, though, and we continue to focus on this. And with that said, I open up for questions.

[Operator]

[Operator Instructions] And our first question comes from the line of Alex Gibson from Morgan Stanley.

[Alexander Matthew Gibson, Equity Analyst]

Thanks for taking my question. I have 3. The first one, could you please break out what impact your own savings programs have had on the sequential quarter-over-quarter improvement you've seen in your margin profile? Any details on various programs and initiatives, their current status and when they will be completed will be helpful.My second question is around the U.S. market with regards to orders. We've seen some data and a few competitors highlight some weakness in the U.S. market, and your orders also turned negative in the quarter. Any insight on the health of the U.S. market at the moment would be very helpful.And then my last question. It might be a bit early, but I wanted to know what factors and when will you have confidence to give guidance on the trajectory of your margins and if there's still any uncertainty around that?

[Mattias Perjos, CEO, President & Director]

All right. Thank you, Alex. When it comes to the first question on the savings program, we do not break down and share details of this externally. I reiterate what we said when we announced the restructuring in the first and second quarter of this year that, in general, the payback for these initiatives are about 1 year, so we're not prepared to give further breakdown in this regard.When it comes to the U.S. market, we try to keep our ears close to the ground here as well. We did have tougher comps based on the performance in the 2 previous third quarters. It is by nature as well a bit [ luck-based ] business because of its significant investments. We don't generally see any weakening demand from customers. And I think the reason for our own disappointment here is that we do have some more market shares for this part of the business, and we would have hoped to continue to grow even if we had more challenging comps, as I said, and we're still optimistic about the underlying opportunities for us in the U.S.When it comes to guidance, I don't have a lot of updates to give you either, unfortunately. We do feel there's a little bit more stability, of course. But I reiterate what we said in 2018 that it's not going to be a straight-lined turnaround. It's a 3- to 4-year journey. The third quarter was a good quarter, and we're happy about that. But we're not prepared to issue any more detailed guidance at this stage. And I can't give you a point in time when we'll give you some of that detail. We evaluate this every quarter.

[Alexander Matthew Gibson, Equity Analyst]

Okay. And if I could just follow-up on the first one. So the breakdown, the sequential improvement in gross margin. Could you even break down how much of that you think was attributable to self-driven programs versus, say, product, regional mix? Can you give us that detail?

[Lars Sandström, Chief Financial Officer]

Well, there is -- when you compare to sequential, there are less impacts from that -- coming from regional and product mix. It's more a question of -- that we have more of this from disturbances that we mentioned for the second quarter, and this has been much, sort of, smoother. And there's also higher volumes that impacts the leverage. And of course, we have a lot of activities. When it comes to restructuring, it's not one activity. We do -- we work finding small areas where we see an opportunity for improvement, and then we address that. But there is a lot of broad-based improvement activities going on in the manufacturing side and all over the company. So this is more mainly small steps that we, in this quarter, then see comfortable.

[Operator]

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

[Annette Lykke, Medtech Analyst]

And first of all, congrats on a very strong Q3 report. My first question after listening to a fairly confident figure is that how -- I mean, the implicit growth rates for Q4 must, in the best case, be around 2%. If we go to the lower end of your range, it could be negative or 0%. Isn't your guidance too conservative? Or otherwise, is it only the Surgical Workflows you are so uncertain on that you feel that you had to guide for a lower implicit growth rate in Q4?My other question will be on MDR preparations. You have mentioned those a couple of times. How would these affect cost in 2020? And should we see the admin and R&D up? Or will they stay at this current level?And then, of course, also on the top line effect, I seem to recall that you had a talk about a lot of the SKUs and you may wanted to do a bit of a slimming of the tail of the legacy products. How should we see that impact, if any, on the top line also in 2020 when the MDR is taking effect from May?

[Mattias Perjos, CEO, President & Director]

All right. Thanks, Annette. Let's start with the guidance a bit. You know by now that we're trying to be a little bit conservative here, not overpromise anything. And to hit 4% for the full year still requires growth about 2% in the fourth quarter so within the market there.We do have a significant part of the order book for 2020 as well. And Q4 is always a very busy quarter with deliveries, and so there's always some risk associated with it. So if there is, that's the reason for remaining with the guidance. I can understand that it is seen as conservative, absolutely, but this is a choice that we've made.When it comes to the admin, R&D cost for 2020, we don't guide on this, as you know. What I can say in general is that we -- the 6% gross R&D investment that we make, it's a number that we're quite comfortable with going forward as well. More important for us is how we allocate the spend in the most productive way.When it comes to admin, there's not a lot of guidance I can give you there. I mean, as Lars said earlier, the increase that you saw in some of the costs during the third quarter are related to compliance work, both for active work and some of the work in the wake of the issues we've had in Brazil, for example. But we don't expect any significant increase of this either. We do expect, when you look at OpEx as a whole, to continue to creep down as a percentage of net sales. So I just want to reiterate that card.When it comes to the SKU reduction, there's good progress, especially in Acute Care Therapies, Surgical Workflows follow a little bit later, but they have a good plan in place as well. And we do not expect this to have a significant impact on the top line here, reporting really immaterial numbers since it's mostly variants of products that we believe can be replaced by others.

[Annette Lykke, Medtech Analyst]

Is it fair to assume that, in Acute Care Therapies and Surgical Workflows that you have been able to maybe replace some of the demand for the older products with new and maybe more profitable products? Or how should we see this?

[Mattias Perjos, CEO, President & Director]

Yes. I can't give you a good number on that. I don't have the breakdown with me today. Lars can add something else. No? Okay. No, I think we would have to look back. I don't have this off the top of my head.

[Operator]

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

[Kristofer Liljeberg-Svensson]

Three questions. I hope that's okay. The first one, I totally understand you want -- you don't want to give any detailed guidance on 2020, but if I remember correctly, previously, 2019 is the year of implementation and that we should see more and more of improvements from 2020. But so far this year, it seems small to maybe improving a little bit this year as well. So is this still sort of -- we should expect margin to improve more year-over-year next year? That's my first one.

[Mattias Perjos, CEO, President & Director]

Yes. Yes, this is a short answer. We've also said that it's not a straight-lined recovery. So there will be some fluctuations between quarters. So 2019, we do expect to be an improvement over 2018. And then 2020 should be a slightly bigger step in improvement. That's still the general thinking here.

[Kristofer Liljeberg-Svensson]

Okay. And that leads into the second question, and that's about what's going to drive that margin improvements from here. We're happy to see the number of employees decreasing in absolute terms a few quarters ago, now it's increasing a little bit again. Is this the trend we should expect so that margin improvement would be more from leverage on operating cost? Or will it be more cost cutting?

[Mattias Perjos, CEO, President & Director]

It's for sure long term going to be more from true productivity. I think the FTE indicator that is here is a very crude KPI, actually. So it's much more important with how we work with productivity with the people that we have. So future improvements will definitely be much more from productivity than from cost cuts.

[Kristofer Liljeberg-Svensson]

Okay, that's good. And my final one, just on the FTE cost. The provision you have now, I think it's still close to $300 million. Is that enough in your view to do what needs to be done in Hechingen, et cetera?

[Mattias Perjos, CEO, President & Director]

Yes, we can feel that the provision is sufficient to cover the work that we need.

[Operator]

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

[Virendra Singh Chauhan, Analyst]

I just had a question on profit margin, which I think somebody else has also asked. There was an operator interruption, and I couldn't get your answer to the margin question. So you did speak something about this 2020 will be a year of margin improvement because the way I'm trying to understand this while you do not want to give a concrete number on the trajectory, should we be thinking of this -- the margin in 2019 as something of the margin that's kind of bottomed out, and we only get better from here in terms of some qualitative commentary around that, if you may?

[Mattias Perjos, CEO, President & Director]

Yes. So yes, I think the question that you partly missed, just to reiterate, that was the -- whether we stand by the comments I made some quarters ago that the 2019 is a year of implementation and we should see benefits in 2020. We do stand by that comment. We believe that 2018 would be a little bit better -- sorry, 2019 would be a little bit better than 2018, and then 2020 should be a further improvement. So -- and as I -- back to Kristofer's question a moment ago. We believe that the driver of margin improvement should come from more productivity. I think we have made some good steps now in several parts of the business, though, which should create good momentum and spirit, I think. But there's still a lot more to improve in almost all parts of our business.

[Virendra Singh Chauhan, Analyst]

Okay. And just a second one on the capital versus consumables mix, the product mix basically. So the product mix, capital has been outgrowing consumables for the past many quarters. So any kind of view that you may have that -- where product mix will start to have positive impact on your margins?

[Mattias Perjos, CEO, President & Director]

Well, I think we do have a positive impact from the consumables. This has meant the ratio is still in favor of capital. And we said, in a growth phase like this, it's quite natural that it is this way, and I couldn't -- even if I wanted to, I couldn't give you a picture on how this will swing going forward.

[Operator]

Our next question comes from the line of Johan Unnerus from Pareto Securities.

[Johan Unnerus, Analyst]

And yes, with this sort of delivery during the implementation stage, of course, curious about the future results. But anyway, some question regarding Surgical Workflows. It's been a soft spot with some challenges. And in this quarter, it's a pretty good outcome. And you are also clear that capital goods contributed to it substantially. So the first question is to what extent -- is there any unusually big capital orders in Surgical Workflows?

[Lars Sandström, Chief Financial Officer]

Hello, Lars here. I think there's nothing unusual. In essence, when it comes to sales, they're really quite strong quarter in sales in capital goods. I mean, as I mentioned earlier before, as you know, SW, Surgical Workflows, has a very strong fourth quarter, and then that is also for the latter part of the year. So we could see already now at the end of Q3 that some of the deliveries were picking up quite in a good way already, as stated earlier, in the quarter here.

[Johan Unnerus, Analyst]

Yes. And on the broader picture on Surgical Workflows, can we -- how should we look at the strong Q3? Is that a sign that you're in a better position to recover and improve margins ahead? Of course, this is a bit overlong journey, I guess, but what's the outlook? Are you more confident now and can be -- regard this as you see past the low point?

[Mattias Perjos, CEO, President & Director]

Yes, I think we should be past the low point. I think I said already last quarter that we do also, for Surgical Workflows, expect 2019 to be a little bit better than 2018. I also think you could look a little bit the 2 quarters combined in a way if you want to understand the underlying dynamic of SW. So I think that -- I want to reiterate that they're still in the early phase of their turnaround. There are good plans in place and good progress on some fronts but still a lot of work to do there.

[Johan Unnerus, Analyst]

Good. And is this possible to say anything about the contribution from launches? Sale of new products seems to pick up a bit. To what extent is that contributing to organic growth at this stage?

[Mattias Perjos, CEO, President & Director]

Yes, we can't break that down for you, unfortunately. I think we're just happy to note that the products we have launched are very well received by customers in general, but I couldn't give you a number on how much they actually contribute to book

[Operator]

Our next question comes from the line of Scott Bardo from Berenberg.

[Scott Bardo, Analyst]

Mattias, lots of programs going on, as you mentioned, to approve efficiencies for the company. And you clearly have some [indiscernible] building upon margin momentum into 2020. So I wonder if you could spell out for us what are the main sort of projects that are ongoing in the organization, which start to kick in with some visibility next year to help support your margin aspiration for next year and beyond? So that would be helpful, please. So that's the first question.

[Mattias Perjos, CEO, President & Director]

Yes, thanks, Scott. Yes, I think the 2 enablers that I've talked about before are still valid: the SKU reduction program that's going on in overall [ 3 BAs and especially EM ] and SW, I think, are important to continue to implement during 2019 and next year. We also have an initiative ongoing when it comes to harmonization of processes to be able to generate some economies of scale in things we do not just impact with but by all the support processes in the company as well. So this is work in progress in 2019 and likely for all of 2020 as well, but they start to gradually help in different areas after being implemented.We have then as well, I would single out also when it comes to the supply chain, when it comes to warehousing and logistics, we've made good progress in warehouse reductions in several geographies. Also good progress when it comes to consolidation within logistics to lower the costs and also work to increase the service level of this part of the organization, so that's still ongoing.We have the improvement initiative that's going on across all our factories as well and with so far really different momentum. So we see some positive contributions in certain areas but still a lot more to come in the coming quarters and years. We have the purchasing program going on as well, which is generating some results but also early days. But all of these types of initiatives are really in full swing in 2019, but we do expect the bulk of the improvement to be ahead of us. That's a little bit more details on this.

[Scott Bardo, Analyst]

Very good. And when we think about previous attempts for recovery for Getinge, I recall that there was a year where margins started to increase, and what disappointed there the year after was that growth turned negative or didn't deliver as you expected. So I wonder if you can add to some comfort about the sustainability of the top line, what you think has really been the main drivers why the organization is in a better place to deliver that? Perhaps also touch upon timing for the PMA for the covered stent.

[Mattias Perjos, CEO, President & Director]

Yes. When it comes to the market. Looking into 2020, we still remain with the 2% to 4% market growth, and that we'll be able to at least stay in line with this. We believe that, in general, in the dialogues with customers and so on, I think it's a positive dialogue. We don't see any decrease in investment anywhere that we need to be worried about. And we feel that we still have several white spots when it comes to the matching of our product portfolio with geographies. So a bit more work to do there, even if that's been the main driver of growth so far in the last 2 years. So that's kind of the reasoning for having some confidence in that we'll be able to grow that bridge for the market.

[Scott Bardo, Analyst]

And on covered stent. Any sense of when the PMA is set to be approved there?

[Mattias Perjos, CEO, President & Director]

Now we've said earlier, it's at the end of this year, and we remain -- we still have a dialogue ongoing with FDA in this. So no news today.

[Scott Bardo, Analyst]

Last one from me. Obviously, there's still a few lingering issues for the company with respect to Consent Decree, warning letters and the mesh litigation. Can you give us some sort of timing actually of when there are certain milestones to progress away from these issues and impacts? Can you give us some sense of how you're thinking about these over the coming 12 months?

[Mattias Perjos, CEO, President & Director]

Yes. I probably can't give you that much more detail than we've said in earlier calls. When it comes to the remediation efforts in our warning letter sides and in cardiopulmonary, it's really a high intensity, a lot of work going on at the moment. You can see that in the P&L, well, mainly on the gross margin, per se, more than on the OpEx side. And that will continue well into the second half of 2020, the way we see it at the moment. So we're trying to compensate by other productivity improvement work really to better finance these investments.When it comes to mesh, there's no news either. The time frame we mentioned in the previous quarter is unchanged so far. Nothing material has changed in either direction, the way we look at this.

[Operator]

Next question comes from the line of Carolina Elvind from Danske Bank.

[Carolina Elvind, Analyst]

Carolina from Danske Bank here. So my first question is on restructuring because you talked a bit about now what the main ongoing projects are. Could you give some color on how that's progressing per division? And then my second question is on the U.S. business because, as I understand this, you've been working on the sales and service structure there. I just want to get an update on how that is progressing.

[Mattias Perjos, CEO, President & Director]

Yes. Thanks, Carolina. When it comes to the restructuring, the initiatives that we implemented in the first 2 quarters, as I've said, they're generating some benefits as you can detect in the P&L today. But we don't break it down any further than what we've done previously. A lot of this was related to Surgical Workflows in the first 2 quarters and a little bit more in ACT and global stakes now in the third quarter. A similar type of payback on these initiatives, I would say, as earlier.And when it comes to the U.S. business, it's correct that we had some -- in the first quarter, we made some improvements when it came to sales force structure and also the way we work with service. And then we do see some recovery from this. That is one of the positive improvements in the third quarter compared to both third quarter last year but also previous quarter.

[Operator]

And as we have no more questions registered, I'll now hand back to our speakers for any closing comments.

[Mattias Perjos, CEO, President & Director]

All right. Thank you very much. Nothing else we need to add. I think we covered most of the things with the questions now. So I think we can close the call here and just thank you for your attention today.

[Operator]

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