Getinge AB

STO:GETI B

Earnings Call Transcript 2020-Q3

[Operator]

Welcome to the Getinge AB Q3 report 2020. [Operator Instructions] Just to remind you, this conference is being recorded.I'll now hand the floor to Mattias Perjos, CEO. Please begin your meeting.

[Mattias Perjos, CEO, President & Director]

Thank you very much. Welcome, everyone, to Getinge's third quarter earnings call. With me, I have also our CFO, Lars Sandström, who will present the detailed financials in a moment. Let's get started and move over to Page #2, please.So before we get into the figures and facts of Getinge's performance in the third quarter, I'd just like to spend a brief moment on the latest regarding the COVID-19 pandemic, which is still obviously impacting not only us, but millions of people around the world as we speak. Unfortunately, we are in a situation where we continue to see a record number of cases on a daily basis. So it seems safe to say that there is a second wave here now that we need to address, obviously.This pandemic is also having a negative impact on all the patients that are waiting for elective surgery, and we've seen a quite significant buildup of the backlog, and it keeps growing now every day. So it's quite a challenge for the health care system. Given that the second wave that we see in these regional flare-ups, it's a little bit too early to predict when we will move into a situation when this is under control. It seems like in many places it is going the other direction at the moment. This, of course, has a profound impact on the work situation for all dedicated clinicians out there and also on our employees, especially the ones working on the frontline, but also a lot of people in the other structures, other parts of Getinge. I'm very happy with the great cooperation that I see and the dedication from all the people. So I'd just like to start by thanking all of you as well. So thanks very much for the efforts and achievements in the third quarter of 2020.With that, we can move over to Page #3, please. So if we start with the summary and look at the key takeaways in regards to our performance for the third quarter, it's well-known by now the COVID-19 pandemic has created a huge need for advanced ventilators for ECMO therapy products and Sterile Transfer products. And our world-leading positions in these areas contributed to an organic 33.4% increase in sales for the quarter. In -- one example is that we delivered more advanced ventilators this quarter than we normally do in a year. So we've delivered 17,700 ventilators at the end of the third quarter, and we are continuing to deliver at full speed here in the beginning of the fourth quarter before we plan for any ramp down.Organic order intake is down 5.3%, mainly due to elective surgery procedures still being behind last year's level in hospitals in most parts of the world, I should say. The large volumes -- overall volumes that we have though, combined with the productivity improvements that we've done in recent years, resulted in substantially higher margins, strengthened free cash flow and significantly lower net debt as well. So this meant that our leverage continued to improve, down to just under 1.4 compared to 3.1 1 year ago, so significant improvement.We can then move over to Page #4, please. So we continue to use this way of describing the impact of COVID-19 for us in the third quarter, and this highlights the impact in different parts of our business. So order intake is still growing for our ventilators and ECMO-related products, where we are #1 in the world. But the growth in the third quarter has been at a lower pace compared to the exceptional growth that we saw late in the first quarter and throughout the whole of the second quarter, basically.If we look at cardiac and vascular consumables for elective surgery, this has been growing sequentially since May, but it's still behind previous year's level, so in line with the assumptions that we had that it was going to take towards the end of the year for this to come back fully.Our Life Science business continues to perform very strongly in Sterile Transfer, which is towards pharma customers, where we are a strong market leader. In Surgical Workflows, the order intake is still muted due to hospitals focused on -- focusing on COVID-19, but we also do see in some areas green shoots of progress in terms of planning for investments and planning for decision-making as well.When it comes to supply and logistics, we've managed to handle the challenges, linked to supply of components in a very good way. I must say I'm impressed with how the team has handled the challenges exceptionally well done in the quarter. It's been a monumental exercise to ramp up to the -- over 1,200 ventilators a week that we've been producing for a while now. So really well done.I'm also satisfied with the fact that the interruptions in the supply chain and the production only had limited impact on the outlook. The third quarter has been much smoother than the second quarter. And this obviously can be seen in the financial performance as well in the quarter.In parallel, we've also been working on continuous productivity improvement throughout the business in a really good way. So this is one of the cornerstones of our strategy, and we're able to continue to work through that as well despite all the challenges with COVID-19. In the quarter, we had some under-absorption in production of capital goods, which is mostly evident in Surgical Workflows, but you can also see the parts of Life Science -- with the Life Science supply chain.And then finally, from a financial perspective, we see a significantly improved margins due to volume and mix. The acute care therapy products come with a margin that is higher than the average in the group. We also see very strong cash flows, partly because earnings are higher, of course. But at the same time, we continue to work really actively with keeping our working capital at a good level despite the increase volume. So a job well done by many people in the company in this regard.Let's move over to Page #5 then. We said after the second quarter that we would try to provide some more detailed insight to the dynamics of the business that are positively impacted versus the ones that are negatively impacted, both in terms of top line but also in terms of cost. So this is the first shot at doing this. So let's take a closer look at the order growth so far 2020 and divide it into a number of larger building blocks. So order growth is up 19% in total. So a large extent, obviously, related to Critical Care, where we have our world-leading ICU ventilators. If we take Critical Care out, orders are down 6% year-to-date organically and down 4% if we add the orders coming from Applikon, which we acquired in early January this year. If we then take this 1 step further and take out all the product categories performing well year-to-date, so this means that, in other words, taking away the order growth from ECMO-related products and from stents, Sterile Transfer products where we are world leading and where we've seen a strong underlying demand and really good potential to demand -- good potential to expand, sorry. If we take all this out, these are areas where also we, by the way, have increased capacity and we already implemented and a number of activities under implementation as well. But if we take all these out, that leaves us with Cardiac System, Vascular Systems in Acute Care Therapies, which is closely linked to how fast hospitals can get back to historical levels on elective surgeries. And it leaves us with the demand for capital goods in Life Science and Surgical Workflows, where capital goods is down, while service and spare parts still are holding up quite well. So if we only have these product categories to offer, then our orders would have been down 15% organically year-to-date. So that gives you a little bit of help understanding the dynamics from a portfolio and market category perspective. But again, we are not down 15%, we are up 19%, and we are well positioned for the long-term growth with our world-leading products. What happens short term, however, is very much related to both the short-term development of COVID-19 and the second wave that I touched on initially, and that is unfortunately very, very hard to predict at the moment.With that, we can move over to Page #6, please. So let's take a closer look on where we are trend-wise when it comes to orders. We can clearly see that the trends are starting to converge now, taking us 1 step further towards normalization. Within Critical Care and Cardiopulmonary, we've had an exceptionally strong order intake in the late part of the first quarter and throughout the second quarter. We filled the order book for the 26,000 advanced ICU ventilators during the third quarter. As I mentioned earlier, we've delivered 17,700 of those at the end of September. We continue to grow on ventilators and ECMO-related products, but not at the extraordinary pace that we saw in earlier quarters. In the dialogue with our customers, it's clear that some of them are looking into increasing capacity in ICUs in order to potentially be forced to manage a second wave of COVID-19 and also, of course, the regular flu season at the same time. It is, however, too early to say anything about what we expect for 2021 on ventilators, given the uncertainty that I just mentioned.In Cardiac and Vascular Systems, the orders have been growing sequentially since May, but we still have some distance to go before being on par with last year's order levels. All in all, this is creating a significant backlog in hospitals, which we do -- we will do everything that we can to help out with, but the short-term development again here is very hard to predict at the moment, given the signs of a severe second wave of COVID-19 that is also hitting extremely different depending on where in the world you look.In Surgical Workflows, our main businesses are within products for operating rooms and the flow of sterile goods in hospitals. Both of these categories have been in some kind of low activity mode throughout the third quarter as well when it comes to the order side of the business. And this is simply because hospital allocates much of their time and resources still to manage COVID-19.If you look at orders related to service, spare parts and consumables within Surgical Workflows, this has been holding up quite well, as hospitals need to ensure uptime also in operating room, even if it is at a lower capacity level on average.Life Science is trending upwards due to strong development mainly within Sterile Transfer products for biopharma customers. But we also see strong interest -- or strong increase in the interest related to the production of the COVID-19 vaccine. So we've had a boost both related to research for the vaccine, but also now for planning of production. So the major part of order growth so far this year is, however, still related to other biopharma drugs. If you move over to Page #7, please. Here, we'd like to take a look at what these converging trends indicate when it comes to next year's sales. So as I mentioned a moment ago, our order intake from ICU ventilators is still growing organically, but the trend, as it seems for now, is moving towards a more normal level of net sales next year. This could, of course, change if governments and hospitals decide to increase ICU capacity in order to have a larger safety margin, but it's too early to have a view on that. The ECMO trend is positive for next year when it comes to net sales with -- also with strong healthy margins. Cardiac and Vascular System products have a margin that is much higher than the average group and -- the average of the group, and they also have lead times that are short, basically in the same quarter from order to delivery most of the time. So the 2 basic questions here is when will -- when we will grow versus last year and at what magnitude? And the backlog is for sure is there, and the hospitals would like to start taking care of that immediately. But as we know, there is the second wave that's holding things back for now. And as I mentioned a moment ago, geographically speaking, it's very, very different depending on where in the world you look today.In Surgical Workflows, we have longer lead times from order to delivery up to 6 months. And given the minus 15.6% organic order intake year-to-date, it's not unlikely that we need to wait until the second half of 2021 until we see a clear shift upwards in the net sales trend for Surgical Workflows.The trends in Life Science are pointing upwards in total with expected net sales to grow in the full year of 2021 in products for the biopharma segments, which normally comes with a healthy margin contribution as well. As orders on capital goods have been soft so far this year overall and the lead times are quite long in this part of the business, it is expected to dampen the growth a little bit for next year. Overall, we see that the product categories with positive trends have quite a nice margin from a mix perspective, so this is quite clear in the actual results of the third quarter as well. Again, a lot of uncertainty here, given the current COVID-19 situation. And there's not that much we can do about that. It's something we just have to live with, unfortunately.Let's then move to Page #8. So when it comes to the outlook here, as a consequence of the uncertainty in the short term and the quite wide range of potential outcomes, we choose not to provide an outlook for how much we will grow net sales organically in Q4 and the full year of 2020. And this has to do with the uncertainty that I mentioned. Looking at the recovery of elective surgeries, it's very much driven from patients' anxiety coming back to the hospitals, it's driven by capacity and operational ability in hospitals to manage the backlog. It differs vastly depending on where you look geographically. And there's, of course, a second wave effect when it comes to the categories that are positively impacted as well. So this overall mix makes it very, very difficult to predict, and therefore, we choose not to provide any guidance.Let's then move over to Page #9, please. I wanted to share some information regarding the cost impact from COVID-19 so far as well. So as everyone on this call knows, this has been a year of many changes in how we work. In many ways for the better, I have to say, I just wanted to give you one example of what this means for us in terms of cost savings. So during the first 9 months, our new ways of working has created savings within OpEx amounting to approximately SEK 200 million. Roughly half of this is what we deem as structural savings, for example, from new virtual ways of meeting and training, both internally, but also training customers. And this is an area where we don't expect the old ways of working to come back simply as the new ways are better, creating more value, both for our customers and also for us as a company.The other half consists of activities like marketing in general, the trade fairs, sales travel and so on. So these are activities that we expect to come back to some degree when we move into whatever the new normal will look like, simply because they do make a difference -- positive difference here. So these are investments that we would like to start doing again. That gives you a little bit of a flavor of the COVID impact on OpEx year-to-date and a little bit what to expect going forward as well.Let's move over to Page #10, please. So if we leave COVID-19 and the impact of that for a while and look at other activities and events in the quarter, we continue with our improvement plan when it comes to increasing productivity at a very fast pace. The initiatives that we informed about in the Q2 report is progressing according to plan and is expected to contribute with annual savings of approximately SEK 130 million, gradually being realized during the second half of 2020.When it comes to our offering, it has been a quite intense quarter from a news perspective, and we've chosen to provide a number of examples of this. This has been very well received we feel by customers and the community at large. As you might remember as well, we presented a white paper in the previous quarter, presenting the benefits by using an advanced ICU ventilators, where ours is the most advanced compared to many of the others out there.Recently, we received the results from a study on the impact of patients. The study show that the -- through the use of NAVA, the days on mechanical ventilation could be reduced from 12 to 8 days, which is quite a remarkable improvement with many positive consequences. Fewer days in the ICU also translates into significantly improved health economy, enabling hospitals to free up pressure in ICU beds and resources. Unfortunately, this technology is still rather underpenetrated, and we will do everything that we can to expand the usage, as this will mean so many benefits for all stakeholders, both for patients, as I mentioned, and also the economics of the health care system.In the quarter, we also launched a campaign called Life-Defining Moments, which includes films that I really recommend you to take a look at and get a feeling of what's driving us to develop the best products out there in the market.We also received 510(k)s for our Flow-e and Flow-c anesthesia systems and for our SERVO-air, enabling us to help clinicians and patients in the U.S. market with our world-leading technology in these products. In the modern intensive care unit, a large number of medical devices are used to generate independent alarms. And without coordination, this can lead to a very disruptive noise levels and stress for both staff and also for patients. So in September, Getinge in collaboration with other industry-leading partners, presented the concept of Quiet ICU. Its groundbreaking solutions expected to reach the market in the next few years. This fits perfectly with Getinge online that I mentioned in the previous quarterly call as well. So it's another step of making progress when it comes to digitalization and using digitalization to improve the situation for both patients and the health care systems.As mentioned before, the backlog in elective surgery is growing larger each day at the moment, which puts an even higher pressure on productivity in the surgical process in the hospital setting. As a consequence of this, we also launched a product called Torin OptimalQ. This is an easy to use planning tool, where we let hospitals capitalize on our knowledge base with thousands and thousands of man hours of experience on how to plan the activities around the OR in the most effective way.Finally, on the people front, I'm proud to present Anna Romberg as responsible for legal compliance and governance for Getinge. She will join the management or has joined the management team already starting in October. She has a vast experience from multinational companies and is one of the founders of the Nordic business ethics network. And Anna joins the exec team in the company and will play an integral part in the continuous work that we're doing to shape culture and behavior in Getinge when it comes to these areas.We can then move over to Page 11, please. So in the quarter, we also announced that Getinge will be carbon neutral by 2025, which will be achieved through a combination of activities, such as transition to renewable energy sources. We have reduced travel through more modern ways of meetings. We have more sustainable logistics solutions and so on. So this is some examples from our own operations. But of course, it's even more important that we help our customers with their ambitions to reduce the climate footprint. And this is why we go full speed forward with our sustainable product development. I have included 2 examples here on what that can look like. So our anesthesia devices can help customers reduce the usage of the environmentally dangerous agents quite a lot. In the case presented here, the net reduction was 42%. So it's a really impactful solution. The other example comes from the use of one of our new sterilizers, bringing down the energy consumption with up to 30% and reducing water consumption with up to 95%, so really remarkable if you ask me. And if you don't believe me, ask our customers. This has been received very, very positively.We can then move over to Page #12, and we'll start looking at the top line. So we had record net sales in the Q3 and orders starting to move towards more of a normal situation. So order intake-wise, we saw a reduction of 5.3% organically. So organic order intake declined now after strong growth early in the year in Critical Care, which is part of our biggest business area, Acute Care Therapies.Order intake in most of the other parts of Acute Care Therapies and Surgical Workflows is increasing sequentially, but still are not on par with previous year. And this is mostly as a result of elective procedures still being postponed and the hospital system struggling to catch up with the pre-COVID surgery levels.The organic order intake decreased marginally in Life Science, mainly related to capital goods. And I think one thing that stands out here is the negative development Asia Pacific year-on-year, mainly attributable to very strong growth past year, for example, in Japan, which if you go back a year, we talked about that. So it's not really any underlying trend or anything, it's more a quarterly fluctuation, I would say.Net sales increased 33.4% organically. The very strong order growth in Acute Care Therapies is exclusively attributable to advanced ICU ventilators and products for ECMO therapy. In addition, sales, albeit marginally in products for planned vascular procedures also increased in the quarter. Sales in Life Science positively affected by continued very good sales in Sterile Transfer and a bit of a recovery in sterilizers as installations were allowed to be implemented at customers. Net sales in Surgical Workflows was negatively affected by lower orders received in previous quarters. We see the continued good activity in service, spare parts and consumables. So this helps to, some extent, mitigate the negative effect of the capital goods.We can then move over to Page #13, please. When I look at the order intake breakdown by business area, it decreased by 11.7% to SEK 5.898 billion in the quarter. In Acute Care Therapies, we had an organic reduction of 0.4% and SEK 404 million in actual numbers. We saw continued growth in advanced ICU ventilators, but a lower level than in previous quarter. If you look at the orders received in cardiovascular surgery products, this increased sequentially, but did not reach the same level as last year.From a Life Science perspective, almost flat. It was minus 0.2% organically, but plus SEK 75 million in actuals. Order intake here increased organically in Sterile Transfer, as I mentioned earlier, but also in disinfectors, while other products -- product there did not reach the previous year's level. The positive development in Americas in Q2 was maintained in the third quarter of 2020 when it comes to Life Science as well. If you look at Surgical Workflows then, there, we had a minus 14.5% organic development and order intake at minus SEK 450 million in actual numbers. We had here a continued subdued order activity in capital goods in all regions, and this is primarily a result of the COVID-19 and the negative impact that this has on the capital part of our offering. Orders received in the smallest product category in Surgical Workflows, which is integrated workflow solutions, our software business actually increased in the quarter.We can then move over to Page #14, please. If you look at the net sales then by business area, the net sales for the quarter increased by 27.9% to SEK 7.976 billion. Currency impacted negatively by SEK 433 million, and capital goods grew way faster than consumables, service and spare parts. And this is obviously then mostly related to ventilators being delivered.So on Acute Care Therapies, we had a 63.1% organic increase or SEK 1.875 billion in actuals. Here, we have the main contributors being the intensive work to deliver ventilators and ECMO products to hospitals. This contributed to the sharp increase in turnover that we see here. Deliveries of products for planned vascular surgery increased marginally, while the sales of products for cardiac surgery were still lower than at the same period last year. Sales of durable goods increased sharply as a result of large delivery of ventilators, as I mentioned earlier. And if we look at the supply chain perspective on sales, say, the disruption in production logistics have had a limited impact on deliveries in the quarter. It's been a much smoother quarter than the second quarter this year. If we move then to Life Science, we had a 33.4% organic improvement or SEK 232 million in actual numbers. So net sales increased organically in all regions and product categories due to large deliveries, some of which were actually brought forward. Growth was particularly high in sterilizers, where installations could resume on a larger scale during the quarter. And in Sterile Transfer, where growth from previous quarters continued to strengthen. If we then look at Surgical Workflows, we had a minus 11.2% organic sales development or in actuals minus SEK 368 million. And this is the lower order intake in the first half of the year that had a significant impact on the sales development in the third quarter. Sales in the 2 major product categories, Infection Control and in Surgical Workplaces, significantly decreased, and we did integrate the solutions -- sorry, integrated workflow solutions, which is a softer part, kept up sales a bit better compared to the previous year. And as I mentioned a couple of times, sales and service, spare parts and consumables were also relatively good compared to the third quarter of 2019. With that, we can move over to Page 15, please. And we look at the gross profit perspective. So adjusted gross profit increased by SEK 1.207 billion to SEK 4.378 billion in the quarter, driven mainly by the significant sales growth in ventilators and ECMO products in Acute Care Therapies and Sterile Transfer in Life Science. The gross margin continues to strengthen. Of course, this is heavily impacted by the increased sales in Acute Care Therapies, which brings both healthy product and also regional mix. At the same time, we see headwinds when it comes to under absorption within production of capital equipment, particularly in Surgical Workflows, but also in parts of Life Science. All in all, the things mentioned together with the implemented productivity improvements in earlier this year and then 2018 and '19 and also a slightly positive currency effect on the margin, we ended up with a 4.1 percentage point increase in the adjusted gross margin.And then to go further down the P&L, let's move over to Page #17. And with that, I leave over to you, Lars.

[Lars Sandström, Chief Financial Officer]

Thank you, Mattias. Adjusted EBITDA then increased by SEK 1.352 billion in the quarter, and adjusted gross profit impact on the margin amounted to 3.8 percentage points due to the reasons Mattias just mentioned there. And looking further down the P&L then, we managed to keep adjusted OpEx stable organically, despite significant growth in net sales and some incremental increase in R&D spend. This was possible due to new ways of working, which is most evident in the sales organization, which Mattias already mentioned, in combination with the long-term activities to improve productivity that we have been informing about since long. All in all, the significant growth in combination with only small changes in OpEx translated into significant leverage and margin impact of 8.3 percentage points. Currency FX had an impact of SEK 30 million on adjusted EBITDA and 1 percentage point impact on the margin. All in all, this resulted in an adjusted EBITDA of SEK 2.028 billion compared to SEK 677 million in Q3 2019. And the margin increased from 10.9% to 25.4% year-on-year. Over to Page 18, please. Let's take a look at [ the year ] contribution to adjusted EBITDA, starting with Acute Care Therapies. Here, we increased the adjusted EBITDA by SEK 1.370 billion, and the margin improved by 19.5 percentage points, thanks to the sharp increase in sales volumes from ventilators and ECMO-related products, despite the year-on-year decline in consumables for elective cardiovascular procedures, which normally comes with, say, somewhat higher gross margin. Life Science adjusted EBITDA increased by SEK 83 million and the margin increased by 7.8 percentage points, mainly due to increased volumes and mix effects, and here also then due to the increased sales in Sterile Transfer.Turning to workflows, adjusted EBITDA decreased by SEK 109 million compared to Q3 2019, and the margin decreased here by 4.8 percentage points as a result of lower sales volumes and under-absorption in the 2 main product areas, Surgical Workplaces and Infection Control.Service, spare parts and consumables held up quite well on sales, as Mattias said earlier, but could only mitigate the decline to some extent. The adjusted EBITDA was negatively impacted by SEK 30 million in currency effects in the quarter.Then over to Page 19, please. The free cash flow was strengthened by SEK 980 million to SEK 1.567 billion, mainly due to increased earnings and continued active work on keeping working capital in control, which continues to decrease in terms of number of days, which is, of course, now helped by the steep increase in revenues. And we are now just below 100 days, down 30 days from the peak in Q2 2018.We also see a steep increase in our operating return on investing capital, where we take a jump from the long-term trend we have seen since Q2 2019. And now we are at some 17.8% on a rolling 12-month basis.Then let's move to Page 20, please. Following the good and strong cash flow here, the net debt came down to SEK 9.9 billion compared to SEK 14 billion in Q2 2019. And if we adjust for pension liabilities, we are at SEK 6.3 billion. This brings a leverage of 1.4x EBITDA. And if we adjust for pension liabilities, the leverage is at 0.9x.Liquidity was unchanged during the quarter, since we continue to amortize loans and also paid a dividend during the quarter. And cash amounted to approximately SEK 5.7 billion at the end of the quarter here. And this is, of course, something we're looking closely at. And our intention is to have a more effective balance sheet and reduce the level of cash, but we also follow and make sure that things have normalized a bit more here, then that we will also stock up.Then let's move to Page 22. And over to you, Mattias.

[Mattias Perjos, CEO, President & Director]

Right. Thank you very much, Lars. I'll make a brief summary here before we move to Q&A. So Q3 of 2020 was a quarter of record sales growth. We also see greatly improved margins, partly because of the volume effect, of course, but also because of the good operational leverage in the business, thanks to the productivity work done in the earlier part of this year and previous years. This also translates into a significantly strengthened free cash flow, bringing down the leverage to under 1.4 now compared to 3.1 a year ago.And most importantly, our intense cooperation with hospitals and clinicians around the world really continues both to fight the second wave of COVID-19, but also now help with bringing back elective surgeries, reducing the backlog that has been built up and helping move towards a much more sustainable and better performing health care system going forward.So with that, a very strong quarter, and I open up for Q&A.

[Operator]

[Operator Instructions] And our first question comes from the line of Catherine Tennyson at Bank of America.

[Catherine Tennyson, Analyst]

I have 3, if I may. So firstly, I was just wondering if you could give us a sense of how 2021 might compare to 2019 for your 3 core businesses based firstly on what you're seeing in the order book and on the needs and conversations that you're having now in H2 as customers plan for 2021?Secondly, on your cardiovascular business, we are seeing a return to elective procedures. Just wondering what levels of inventory in your hospitals in Europe and the U.S. have? And perhaps, is there a bit of a lag time there before we see that elective recovery fall into your numbers?And then thirdly, if you could just give us some idea, I appreciate it's early days in Q4, but what levels of recovery are you seeing in ACT ex ventilators?

[Mattias Perjos, CEO, President & Director]

Yes. Thanks, Catherine. Can you repeat the third question? I didn't quite get the Q4 regarding ACT there.

[Catherine Tennyson, Analyst]

Sorry, just repeat that again. You cut out.

[Mattias Perjos, CEO, President & Director]

Yes. Can you repeat the third question? I didn't quite get that.

[Catherine Tennyson, Analyst]

It was just on the both ACT business in Q4, and what levels of recovery are we seeing relative to Q3?

[Mattias Perjos, CEO, President & Director]

Okay. All right. When it comes to 2021 versus 2019, we've chosen not to give guidance for neither Q4 of this year, but also not for 2021. And it's simply because it is still very dynamic, a lot of moving parts. We've done surveys and looked at data. And if you look at the -- because it all hinges on the -- both, of course, the -- say, how we handle the second wave of COVID-19, but also then the comeback of elective surgeries. And if you look at the reasons why elective surgery isn't coming back as strongly as one would have hoped at the moment as quickly as one would have hoped, it's driven by patients' anxiety. People don't dare to go to hospitals still. That's a major factor more than maybe we would have thought then during the first half of the year.There is a lack of trained clinical staff in many hospitals around the world. And there are operational challenges as well, operating room capacity in some areas and so on. It's just planning ability in other areas. So this just makes it very, very difficult to predict. And also, as I mentioned, very big geographic differences depending on where you look around the world. So it makes it impossible to really make any credible statements about the finish of this year and also 2021.When it comes to the order book, though, as we open the report, it is on a higher level than the same period last year. And it's not only because of the ventilators or even if that has a big impact or a big part of the order book still, but we have delivered 17,700 so far this year. We have a couple of very hectic weeks ahead of us still and then planning for a ramp down that we will see how much we actually do or how much capacity we keep depending on how the second wave evolves.When it comes to cardiac surgery and the level of inventory, if you look at the backlog numbers, this is evolving, and the statistics are a little bit different, both in terms of numbers, but also reliability, depending on where you look. But there's millions of surgeries now in backlogs around the world. It is, in my view, impossible to predict the magnitude and the pace of the comeback. If I look at the forecasts that were done at the beginning of this year and how that has actually panned out so far, there hasn't been a great accuracy even in those forecasts. So it doesn't really give you courage to make a lot of statements about future either. But we do see much better planning and a bit more productivity than we saw in the second quarter. So I think that is promising. It's more down to the patient anxiety, the lack of staff, partly lack of operating room resources and planning ability that I alluded to.If you then look at ACT and the Q4 level of activity, I can't say much more than that we've seen -- when it comes to ventilators, we had a peak of demand order intake-wise in the middle of the second quarter, and then it was much more quiet in July. And then it has started to pick up again, which makes the planning more difficult. So we were expecting a continued decline all the way back to normal levels, but we don't see that at the moment. It's just very difficult to predict, but the trend has changed a bit.And the opposite impact is what you see when it comes to the elective surgery categories where we saw really a steady incline or steady improvement, especially at the end of the second quarter and then sequentially during the third quarter, but not yet back to the 100% levels. And I don't think we will be back to 100% level also before the end of this year now. So I think it will be a bit more prolonged recovery of the backlog or working down of the backlog than maybe we expected in the second quarter of this year.

[Operator]

Next question comes from the line of Annette Lykke of Handelsbanken.

[Annette Lykke, Research Analyst]

First of all, on the ventilators, you have now delivered almost 18,000. Can I -- is it as simple as the total order book is 26,000? So would you be able to deliver all of your ventilators during the fourth quarter? Or will there still be some element of delivery by the first quarter of 2021?And then to Life Sciences, assuming that we sometimes during 2021 will reach a vaccine for COVID-19, how do you see a potential within the BetaBag for that part of your division?

[Mattias Perjos, CEO, President & Director]

Now when it comes to the order book, we did fill the order book during the third quarter as expected, so the 26,000. The order book, as we speak, is actually a little bit higher, but we do expect to deliver the 26,000 during this year. There's no change to that. We have the capacity to do that, and we have no cancellation. So we will deliver at least 26,000 vents this year. When it comes to the Life Science part and the questions on vaccine impact, I think this is one of the areas where that makes the prediction for 2021 difficult because we've had a really good momentum during 2020 in this part of the business. We can see now that we are in discussions with most of the companies that have vaccines under development. And depending on who succeeds, we've had different magnitudes of impact on us. All very positive scenarios, but quite a big difference in the potential outlook.

[Annette Lykke, Research Analyst]

Can you then -- just to follow up on the first question, in respect to Q1, should we expect any delivery of ventilators? Or will we basically, based on the information you have right now, going down to 0?

[Mattias Perjos, CEO, President & Director]

No, no, it will not go down to 0. It's -- we expect to deliver 26,000 this year, and we expect to deliver quite amount of ventilators in Q1 next year as well, but I can't give you the amount. But it's certainly -- it's not a saturated market, and we have some in the order book also for Q1.

[Operator]

Next question comes from the line of Kristofer Liljeberg of Carnegie.

[Kristofer Liljeberg-Svensson]

I have a couple of questions. First, just a clarification. Did you say it was uncertain how much sales would grow in Q4, I didn't hear so well?

[Mattias Perjos, CEO, President & Director]

Yes. Yes. Correct.

[Kristofer Liljeberg-Svensson]

Okay. And then regarding Slide 9, cost savings, is this only part related to COVID? And if so, could you update us a little bit about the other type of cost savings from the restructuring and the status of closing the margin gap versus international competitors?

[Mattias Perjos, CEO, President & Director]

The SEK 100 million plus SEK 100 million that we show there, obviously, COVID-related impact. If you look at the other productivity improvements, these are different numbers. So we did mention the other restructuring of SEK 130 million impact starting in the second half of 2021. So all those initiatives are going on as well under the surface. And I think if there's one thing that I think makes -- is difficult when it comes to -- from numbers perspective with the pandemic is that a lot of the good progress when it comes to productivity is kind of overshadowed by everything that's happening here. So we're trying to provide a bit more granular information. But to answer your question, the -- what you saw on the slide there is the COVID impact and then there's additional restructuring impact that you see from the second half of this year.

[Kristofer Liljeberg-Svensson]

Okay. So one very quick one. You talked about the excessive amount of cash. Are you planning for it…

[Mattias Perjos, CEO, President & Director]

Sorry, you broke up there. Can you repeat the question, please?

[Kristofer Liljeberg-Svensson]

Yes. It was mentioned that you have a high amount of excessive cash on the balance sheet, so -- and that would be adjusted. So is that going to come in extra dividends or paying down debt?

[Mattias Perjos, CEO, President & Director]

That's a discussion for the Board, but we've paid down debt already now in the third quarter, and we'll continue to do that for sure. But then, of course, there needs to be a discussion. I mean, our priorities -- capital allocation priorities haven't changed, otherwise. It's -- M&A is still a potential area of cash allocation as well. But then, of course, a dividend discussion may need to take place in the Board also. But that's too early to say, and it's a question for the Board.

[Kristofer Liljeberg-Svensson]

Okay. And a very quick one. Considering your commentary about ventilator demand picking up now again, does that mean we could see -- or what will that mean, you think, for 2021 and the likelihood of selling less or more than ventilators than in 2019?

[Mattias Perjos, CEO, President & Director]

Okay. We've seen a change in trend when it comes to order pattern in ventilators, so a little bit up again towards the end of the quarter, but it doesn't really, at this stage, at least, change our view on 2021. We still think that 2021 is a year of more back to normal for our Critical Care business. That's the main scenario that we have.

[Kristofer Liljeberg-Svensson]

Okay. But of course, it's a rather big difference if you sell 8,000 or 12,000, okay, but that's too early to tell.

[Mattias Perjos, CEO, President & Director]

Yes. Exactly. You're right. It's a big difference, but it's too early to say what the realistic…

[Operator]

Next question comes from the line of Peter Testa of One Investments.

[Peter Testa, Analyst]

I've got a couple of questions, please. One is you've highlighted the time lags on surgical workflows and also some of the mix changes that you have within the Acute Care business and different divisions of equipment going at different paces. Can you give some sort of sense as to how you're thinking about cost alignment with this and the flexibility that you have to, say, manage the margins in Surgical Workflows or the cost structure in the production side of Acute Care?

[Mattias Perjos, CEO, President & Director]

Yes. You're mixing a little bit, I think, Surgical Workflows and Acute Care. If I start with Surgical Workflows, as you -- as I mentioned in the call earlier, there's a lead time of normally 6 months when it comes to -- between order and delivery of Surgical Workflows equipment. So of course, we manage capacity in the factories to the best ability when it comes to these fluctuations. So we've made some temporary reductions to cope with the lower activity period that we are in at the moment.When it comes to other cost adjustments, we're more or less following our original plan. There was a solid plan before the pandemic already to restore profitability in Surgical Workflows with the aim to arrive at a double-digit EBITDA margin. So all those activities are still being implemented. We are continuing the factory transitions that we had initiated from Ankara to Poznan, for example, that's been going on despite the pandemic and other transfers we're doing of product part of the portfolio as well.Quality value engineering initiatives are still going on despite the pandemic. So overall, there's good work being done in Surgical Workflows related to the original improvement plan that we launched a couple of years ago.When it comes to Acute Care, it's, of course, also capacity balancing in many aspects with the ventilator production. We are ramping -- we still have a plan to ramp down during November and December to more -- towards more normal levels. But we maintain some flexibility, especially when it comes to component sourcing to be able to respond to potentially higher demand, but without risking entering 2021 with too much of a cost structure.And then for the other parts of Surgical Workflows, when it comes to capacity, we've adjusted that a little bit on the elective surgery exposed products as well while being in a factory move situation as well, where I think the team has done an exceptional job here in the middle of the pandemic. So we do make adjustments there as well, and we have some -- we have a rather flexible setup already in the first place here. So that's less of a challenge, I think, for us.

[Peter Testa, Analyst]

Okay. And then the other question I had was just looking at the consumables trends, I was wondering if you could give some sort of view in the different divisions as to what the consumables trend has been like through the quarter or maybe exit rate for some sort of understanding as to where you are. It's held up pretty well. It's better -- Q3 is obviously better than Q2, but just getting some sort of sense of exit rate would be great, please.

[Mattias Perjos, CEO, President & Director]

Yes. I can't give you an exit rate at the end of the quarter. That's not something that we disclose. But the overall dynamics is -- first of all, you should be aware that ventilators and Sterile Transfer, they are capital goods, both of them. So that's clearly reflected in the numbers. When it comes to ECMO, there is a hardware component, but it's also largely a consumables business. This has continued to trend positively during the quarter. It's still more of a situation that we are the bottleneck with our manufacturing. So we're continuing to implement the investments that are already decided to take out some of the bottlenecks and increase capacity here, so -- and I expect that to be the picture going forward as well. We have now, in addition to COVID-19, the normal flu season coming up. So it's going to be a very busy fourth quarter for us from a cardiopulmonary perspective, I'm sure.And then when it comes to consumables in Surgical Workflows, for example, this is one category in the process SW portfolio that has held up reasonably well. It's quite linked to elective surgery development actually. So I think that's probably the best indication I can give.

[Peter Testa, Analyst]

Maybe just to elaborate on that, given the link of elective surgery for some of these and the fact that it's picked up from, obviously, the low periods coming after Q2, does that mean that you probably finished the quarter better than the average? Or do you think they're pretty average in the elective surgery exposed businesses across the period?

[Mattias Perjos, CEO, President & Director]

I really -- I can't -- we've chosen not to provide guidance on this because there are a lot of moving parts here, but we are optimistic about the fourth quarter, feel very comfortable with the situation that we're in. But we've -- since it's such a big difference between the best case and the good case, it's -- we've decided not to provide a forecast.

[Operator]

And our next question comes from the line of Oliver Reinberg of Kepler Cheuvreux.

[Oliver Reinberg, Head of Med Tech Equipment & Services Research]

Three, if I may. And firstly, coming back to the split you've provided between COVID and non-COVID business where we have seen a 15% decline in the 9 months, can you actually share with us the numbers what you've seen in Q3? And also, how this changed versus Q2, which probably was a trough? And to what extent you also see that clients are pushing back here not only on priorities, but also because it's like a funding?And secondly, coming back on vents, if I may, when you're saying that 2021 will trend down towards a normalized year, the way I would read that is, however, that still 2021 vents should be above the level of 2019. Is that correct? And can you also talk about the service attachment rate of these ventilators that you're currently selling?And then lastly, on ECMO, you mentioned there's still obviously some kind of supply constraints. Can you talk about what kind of capacity increase you plan and how you're ramping up on that currently? And is the demand also still expected to be strong next year?

[Mattias Perjos, CEO, President & Director]

Okay. Well, it's quite an amount of questions. So when it comes to the first one on Q3 split, I can't give you that off the top of my head in the call. We've done a year-to-date split, so we would have to look into that tepidly.

[Lars Sandström, Chief Financial Officer]

What we could mention there is that, of course, Q1 was more of a normal quarter, and this COVID impact was increasing in Q2 and Q3. And so that is, I think, clearly -- especially, when it comes to the capital equipment, that was more impacted during the Q2 and Q3 compared to Q1. So that will help you a little bit, I think.

[Mattias Perjos, CEO, President & Director]

Yes. When it comes to the reasons for surgery delays, it is -- most of the areas that I touched on, battling the COVID-19, both end of first wave and the beginning of the second wave, there's patients' anxiety. There is the lack of physicians trained staff. Finance, I would have expected it to be a little bit higher on the agenda, but we don't hear that much of that. It's mostly in the U.S. where you see some hospitals holding back, much less so in Europe and certainly not much in Asia.And the question on the 2021 vent level, I can only say it's more or less back to normal. But again, there is, say, quite a big span on the different scenarios there as well. So it's just too early to say. With attachment rate, I'm not sure what you mean, if you would mean service contracts. But this is, in general, I'd say, the installed -- working with the installed base is a key priority, not only when it comes to service contracts and the attachments of those, so service work and spare parts, but also, there's a training element here, there is a connectivity element, there is a software upgrade element. So there are many different ways of working within 4 days compared to 5, 10 years ago, when ventilator was a more mechanical than electromechanical and software-driven product.And then I think the final question was on the ECMO ramp-up, which is going well, really, both keeping up production levels in the normal setting, so to speak, while making this capacity expansion. We do believe that this growth is sustainable and that also next year, the growth should be above 10%. So in line with the historic level before COVID-19 basically.

[Lars Mattsson, Head of Investor Relations]

Thank you very much, Oliver, for that question. Lars Mattsson here, Head of Investor Relations. This -- we are running over time at the moment, so I would say that this was the last question and the last answer for Mattias this time around. I would like to thank you all for participating, and please contact me if you have any follow-ups.

[Mattias Perjos, CEO, President & Director]

Very good. Thank you, Lars, and thanks, everyone, for listening in today. I wish you a good rest of the day. Thank you very much.