Getinge AB (publ)

Mattias Perjos - President and CEO Reinhard Mayer - CFO

Scott Bardo - Berenberg Kristofer Liljeberg - Carnegie Lars Hevreng - Danske Bank Annette Lykke - Handelsbanken Hans Mähler - Nordea Michael Jungling - Morgan Stanley Chris Cooper - Jefferies

Thank you very much. Good morning and welcome to all of you.

Thanks for joining the call today. As usual, the presentation is accessible via link in the report and it’s also available on our web page under the Investors section under Presentations.

Together with me on the call I have our CFO, Reinhard Mayer, who will support me and also go through the detailed financials in a moment. On page number two, you can see the agenda for today.

We will start off with a short business overview for the performance during the Q2. We will also go through the financial performance in a bit more detail, have a quick outlook and summary before we move to Q&A.

We can jump directly to slide number four and start talking about the takeaway number one for the second quarter. To start with, we still have the challenges that I addressed in Q1 and we will continue to work on this during the whole year of 2017, the first three, our multiyear challenges, actually they will continue for a number of years.

First and foremost, we see continued challenges when it comes to organic topline development, which I addressed already in the first quarter call. It’s most obvious in surgical workflows, I mean Americas after the second quarter.

Our estimates for the full year however remain the same as in the previous quarter, which means that we keep the outlook for the full year unchanged. Let me talk about continued efficiency enhancement.

Our Big 5 program continues to deliver according to the plan that we set out. The overall direction of the content of the program remains firm; there is no change in this regard.

As mentioned though in the first quarter report, the spinout process related to patient and post-acute care has added a layer of complexity, which we need to take into account as we execute on the program. When it comes to the quality remediation program, this has continued with the really high intensity at the different plans covered by the Consent Decree with FDA.

In both vein and also Hudson Merrimack, we’ve made good progress and basically progressing according to the earlier communicated plans. As you may remember though, I mentioned after Q1 in the call that we’ve been undertaking a re-planning in Hechingen and the result of this re-planning is SEK 488 million additional provision in order to make the necessary changes to go through with the remediation program.

Those are the three top challenges on the page four. The two, second one, which are little bit more short-term in nature.

We’ll have first the distribution and listing of patient and post-acute care. The preparation for the proposal here is progressing very well, according to the plan.

It does add a layer of complexity in the short-term, but in the long-run, we do see positive effects for both businesses with improved focus for both of them. We reiterate the estimates of the cost that we made associated with the separation; it’s in the range of SEK 400 million to SEK 500 million; we’re close to half or non-recurring.

Finally, as announced during June, we are planning for a rights issue in order to pay down debt and the notice for the EGM was published earlier to take care of this. And with that, we can move over to page five and takeaway number two, which then focuses on the remediation.

The Consent Decree that we have with FDA is a truly complex one; it’s one of the most complex in the history of the FDA actually. This is because both external and internal factors.

One complicating factor is that it comprises sites both in the U.S. and in the Europe where normally FDA operates only inside the U.S.

Secondly, the regulatory demands have grown more rigorous compared to the size and scope were established. And thirdly, Getinge has the history of decentralization with no common quality system which means that we have different starting points for the different sites when comes [ph] to Consent Decree.

So that’s also part of the explanation or the difference in progress between the sites. We can take a look at where we stand after the second quarter.

There has been an intense activity during the quarter at all of the sites, in different phases, as I mentioned. Hudson now is closed.

We’ve completed the move to Merrimack and the remediation for Hudson-Merrimack is going according to plan. And the same thing goes for Wayne; we see a good progress in the right direction also there.

When it comes to Hechingen though, it is the most complex site, which has led to the replanning that we mentioned after the first quarter. Here we had to make an additional provisional of SEK 488 million in order to make the necessary changes to adjust and speedup the remediation program at the sites.

The costs for -- SEK 488 million are primarily attributable to increased staffing and product and process validations at the site. During the first half of 2017, we had SEK 141 million of the provision utilized for improvements; SEK76 million of this was for the -- was done in the second quarter and at the end of the quarter, we had a provision of SEK710 million altogether for the remediation program.

That gives an overview where we stand when it comes to remediation. And with that we can move over to page number six and takeaway number three.

The overall conclusion there is that our business performance for the second quarter was not satisfactory. Our net sales and order intake declined organically compared with the year earlier quarter.

However, as gross profit and EBITDA level, this trend was offset also by currency effect and also by internal efficiency improvements, so even if we see an increase in OpEx due to the spin-off related cost and the strengthening of the quality R&D and sales organization. Then if we move further down to profit and loss statement, the provision of SEK 488 million for Hechingen has a significant impact on EBIT.

We also see decline in cash flows from operations and lower cash conversation and it is mainly as a consequence of higher inventory level and DSO, which has built up working capital during the quarter. At the same time, we do see a positive trend when it comes to leverage that we had a further reduction of this compared to previous quarters.

With that overview, I guess we can move to page seven and takeaway number four. Here we can conclude that the improved gross profit and also consequently EBITA 1 is to a large extent attributable to FX.

We had SEK 235 million of the SEK 282 million and increased gross profit comes from the FX and the balance of SEK 47 million comes from internal efficiency and also partly a favorable product mix. And same story as on the previous page, the SEK 488 million provision, obviously has a significant impact on the EBIT and net profit which meant that the earnings per share decreased to SEK 0.01.

With that overview, we can move to page number eight and the overall distribution of our top-line between the business areas and the different regions. If we look at the organic topline development in the second quarter, you can see this on slide number eight.

The order intake here amounted to SEK 7,539 million. Organically, this meant we had a decrease of 3.8% in the quarter.

The decline is most pronounced in surgical workflows where we had organic decrease of 8.4% in the quarter. Within surgical workflows though, we had Integrated Workflow Solutions reporting growth in all the regions while the other product segments noted declines in the organic order intake year-on-year.

The weak performance in surgical workflows also experienced a big portion of the continued weak order intake in Americas. Here we also had a contribution -- a negative contribution from the performance of patience and post-acute care.

So, Americas was down 3.6% in the quarter. If we then move to look at acute care, we had the organic order intake falling by 0.4% in the quarter compared to the previous year.

This is primarily due to lower order intake in cardiac systems and in vascular systems. In cardiopulmonary though, we saw a strong order intake for the quarter.

So, this mitigated the decline in EBIT. When it comes to the organic order intake for patient and post-acute this fell by 2.2%.

This was related to soft performance of DVT and also wound care in both leasing and in capital goods Asia Pacific, there was a slightly increased order intake for the quarter due to robust growth in acute care therapies while EMEA we had a downturn in order intake, mainly related to the surgical workflows. Looking at the net sales perspective, we had a decline of 0.5% from the quarter.

Sales of capital goods fell by 2.3% while net sales in disposables increased by 1% year-on-year. Organic net sales increased by 4.8% in acute care therapies and this was then primarily the result of good performance within cardiopulmonary.

If we look at surgical workflows, the net sales declined organically by 6.5%, mainly due to a somewhat soft quarter for life science and the negative trend that we saw in surgical workplaces. Net sales for patients and post-acute care fell organically by 0.8%.

This was the result of lower sales of capital goods and leasing but in hygiene and wound care this was partly offset by higher net sales in medical beds and the bariatric product range. If we look at the robust trend in acute care therapies, this contributed to an organic net sale increase in Americas of 2.4%.

In EMEA, we had a net sales decline -- organic net sales decline by 2% as a result of low sales in surgical workflows. Asia Pacific, we had a net sales declined organically by 3%, also here mainly as a result of soft performance within surgical workflows.

With that summary, I think we can move to page nine to take a closer look at acute care therapies. We do see a slight decline in order intake, to a large part offset by the positive development in Asia Pacific, and this is mainly due to strong performance in cardiopulmonary in China.

Net sales increased organically by 4.8% in the second quarter, cardiopulmonary here also representing the largest increase followed by critical care. From a regional perspective, all regions reported growth.

Growth in Americas was mainly attributed to solid performance in the U.S. and in Canada.

East Asia, Australia, New Zealand reported particularly favorable performance within Asia Pacific while the trend in EMEA was primarily the result of the increased sales in cardiopulmonary and critical care in Central and Western Europe. We also had strong sales development and the combination of product mix, foreign exchange and supply chain improvements, and this helped the increased gross profit and lead to the solid or positive development when it comes to EBITA 1.

Below EBITA 1 however, we had the impact of the Hechingen and provision of 488 million, so that brought it down significantly on EBIT level. We can then move to page number 10 and look at surgical workflows who had a tougher quarter than acute care.

As I mentioned earlier, we see a significant decrease in surgical workflows, both in order intake and in net sales, and it flows both for actuals and organically. The comps organically for Q2 2016 were order intake up 3.3% and net sales 2.4%, but there was some impact of more challenging comps as well but underlying it is a challenging trend for surgical workflows.

Despite the negative topline, the impact on gross profit is mitigated partly due to combination of FX and efficient supply chain but the EBITA 1 in surgical workflows was negatively impacted by increasing OpEx, mainly within R&D but also in sales. Then we can move to our third business area which is patients and post-acute care.

Here, we see a decline in organic order intake, mainly attributable to the Americas and related to products for prevention of DVT, deep vein thrombosis and also wound care, and this goes both for rental and for capital goods. Net sales also declined organically, primarily as a result of reduced rental and lower sales of capital goods, and hygiene and in wound care.

This was offset by higher sales in medical beds and in the bariatric product range. Patient handling had a positive contribution to the quarter and the main reason for this was good growth in EMEA.

On the pitch the page, the drop in APAC looks dramatic but it represents actually only SEK 7 million in actual; it’s not a large amount of money in absolute terms. The growth in actual net sales in combination with the efficiency enhancement in the supply chain function contributed to a substantial increase in gross profit and EBITA 1; this is despite the increase in OpEx and increase in OpEx is very much related to spin-off costs when it comes to PPAC.

We can then move over to page number 12 and we’ll talk a little bit about the performance in our efficiency enhancement program, also called Big 5. We can see here from the graphics that the program is progressing according to plan.

The savings for the quarter amounted to just about SKE 100 million, mainly because of good progress within direct and indirect sourcing. If you look at the total savings in 2016 and the first half of 2017, this amounted to just about SEK 600 million here.

And as we mentioned earlier, we would like to reiterate, we do allocate a large portion of these savings to fund the product development and to strengthen the quality organization and also for some of the spin-off related cost. The program as such is moving according to plan.

And that takes us to page number 13 where we talk a little bit R&D, quality and the spin-off related expenditures with that. As I mentioned earlier, we fund or channel the savings from Big 5 largely as a product development, and this is really to secure future growth and margins for the group.

During the quarter, we have increased the spending in R&D, both in actuals and in relation to net sales. We are making all efforts to do this in efficient and in focused manner in order to reach critical mass in each of the product that we decide to go forward with.

So, this means being selective on all of the opportunities that we have in hand. Where we see the possibility or the need, we will also use strategic corporations in order to enhance the output to complement our product portfolio to mitigate risk for us.

Few words on quality as well. This is obviously a crucial area for us going forward.

As a consequence, we are strengthening the organization. And this is -- we do it by creating a global quality management system and thereby ensuring best practice in all regions and all the sites going forward.

So, we are moving from the dedicated structure with different quality systems and different starting points to one more homogenous set up in the group. In the short-term though, this adds cost for the group.

So year-to-date, we have added approximately SEK 100 million of cost when it comes to the quality structure in the group. Large portion of this by hiring new staff, but there are some reallocations in FTEs from supply chain as well to make sure that we have a consistent setup in the group.

As I mentioned earlier also, the spin-off process consumes some resources. The total cost for the first two quarters adds up to approximately SEK 100 with a lion share attributable to Q2.

This is expected to be a ramp up during the coming two quarters and the estimate that gave earlier of SEK 400 million to SEK 500 million on the full year is still valid. That really summarizes the main overview and I’ll leave over to Reinhard Mayer to give you a more detailed review of the financials.

Thank you, Mattias. So, let’s move to our results, slide 16, performance on group level.

As Mattias mentioned, we report a negative growth in organic top line but increase in actual figures both order intake and net sales, thanks to strong support by favorable foreign exchange rates. The increased sales contributed to good gross margin; it was also supported by higher efficiency in supply chain and a favorable product mix.

We have an increase in OpEx due to strengthening of R&D, quality and sales but all spin-off related expenses. We show a slight increase in selling and admin development in relation to net sales.

All in all, this contributed to an EBITA 1 growth of 9.6% in the quarter; for June year-to-date, we are up 19.5%. Let’s move to page 17 and the foreign exchange effect.

Our currency transaction exposure relates to when the group’s factories [ph] are selling to the group’s foreign subsidiaries, which we hedge for. These current attributed with SEK 56 million for Q2 and with SEK 133 million for June year-to-date.

The translation exposure relates to run the group company results are translated in the Swedish krona, this is not hedged. You can see that on EBITA 1, the transaction impact was SEK 56 million and the translation effect was SEK 71 million, resulting in the total effect of SEK 127 million for Q2.

It is also worth mentioning, the currency transaction effects are expected to have a positive impact of approximately SEK 250 million on the group’s earnings for the full year 2017. Let’s move to page 19 and the net debt.

Net debt amounted to SEK 22.6 billion at the end of the period. The adjusted increase in net debt amounts to SEK 56 million versus last year’s increase of SEK 497 million.

This led to net debt to equity ratio decreasing to 113%. Our leverage, net debt to EBITDA before restructuring ratio decreased from 3.99 to 3.59 for the period which is calculated on a rolling twelve month basis.

Finally, I’ll go to page 21 and the cash flow. If you take a look at the cash flow, the group’s cash flow from operations amounted to SEK 223 million for the quarter corresponding to a cash conversion of 29.1% which was 44.7% in prior year.

The change is, Mattias mentioned, mainly attributable to an increase in working capital explained by capital and inventory and sales receivables outstanding. During Q2 2017, we have seen net investments of SEK 390 million, which is a decrease of 2.7% which results in a cash flow after net investments of minus SEK 208 billion.

This represents a decline of 36.8% versus last year. With that said, I’ll leave over to you, Mattias.

Thank you, Reinhard. Before summing up, I just like to give you a few comments to our outlook, and we are now on slide number 23.

Despite somewhat soft second quarter, we still expect slight growth in organic net sales when it comes to the full year of 2017. Reinhard just elaborated on the currency transaction effects and we do expect a full-year positive impact of about SEK 250 million on the group’s earnings for 2017.

I reiterate as well that the estimated cost related to the potential distribution and listing of patient and post acute care amounts to between SEK 400 million and SEK 500 million, half of these are onetime costs. So, in essence, the outlook is unchanged for 2017 compared to what we mentioned in the first quarter.

With that, we can move to the summary and that is page number 25. So, before we open up for questions, I just like to make a brief summary of what we covered in the call.

We do see improvements in gross profit and EBITA 1. We can see continued efficiency enhancements when it comes to direct and indirect spend.

We do channel this mostly to strengthen our R&D quality but some of the savings are also consumed by cost related to the spin-off of PPAC. We see a strong development in acute care therapies when it comes to net sales.

When it comes to [indiscernible] for acute care, obviously on EBITDA, a lot of these benefits are eaten up by the provision of SEK 488 million to account for the re-planning of the remediation in Hechingen. The challenges that I mentioned in the Q1 call, they remain; they will continue during the full year; there is no question about this.

We see challenges when it comes to the top line. However, we don’t see any need at the moment for adjusting the outlook for the full year.

When it comes to the remediation process related to the consent decree, it is a complex situation, will continue to be substantial challenge for a long period of time. We will continue with efficiency enhancements through Big 5, even if we have some additional complexity due to the spin-off.

And we will of course focus on working capital in order to free up resources to invest in the areas where we can create values for our customers. So, R&D is an example of this.

I also want to mention the planned rights issue. If gets long-term, very good for the group; short-term, it adds a little bit of work, especially in some of the central functions here, but believe that it’s a good thing to do for the long-term.

When it comes to a little bit longer-term perspective, I also would like to mentioned that we are working on the long-term plan for Getinge, which I’ll really look forward to present later on this year. We’ve said that during the fourth quarter we would be able to elaborate a little bit more on the longer-term plans for the group.

So with that summary, I open up for questions.

Thank you very much for taking my questions. First question please relates to what appears to be relatively persistent weakness of the surgical workflows division.

So, I wonder if you could talk a little bit more please as to what is actually driving this weakness. I would imagine you’re contracting of and failing to grow in line with the market at the moment.

So, has there been any sort of fresh competitive dynamics we should be aware off or is this some inefficiencies from your side? Following up on this, I think you were very positive about growing this business this year and with some new product launches.

So, perhaps you can provide a little bit more detail there. So that’s question number one please, surgical workflows.

Also please, I’d like to understand a little bit more about the heightened remediation costs for re-planning at Hechingen. I think now we’re approaching to 2 billion Swedish krona for FDA related remediation plans.

It seems that this heightened cost going into this German facility. So, what’s actually is this cash being used for?

And do you anticipate any disruption to operations? And is FDA fine encapsulated within this sum of money?

Perhaps if you can just give a little more background as to what exactly you’re doing with this money would be very helpful. And third question from me please, just relates to the closure of the Hudson facility and move over to Merrimack.

This seems to be a positive step. Can you please quantify what savings you might now expect as a result of this cessation of double running costs and whether this now paves the way for you to launch new products or get certain PMA approvals in the North American market which could add to growth?

Thank you.

When it comes to surgical workflows, it’s two main things I would say that explains the performance. One of them is internal.

It’s really clear when talking to our units around the world that we’ve had a lot of internal focus, both because of the one getting a roll out and the changes that were related to this, but also due to the spin-off now has add a little bit of complexity, as I mentioned and also internal focus that’s always being diverted away from the market. So, I think that is part of the explanation of the performance.

The second business as you mentioned, we do have some good product launches this year. And we can see when you take a more granular look at this, we do have some nice progress with, for example the [indiscernible] that we launched earlier.

We also see on the software side, we also have some positive development there. But it’s clouded by the overall trend when it comes to the product ranges as related to tables, to lights and to pendants when we see a little bit quicker decline than we had expected here.

We are still the market leader, like to point that out, but there is also a more competitive environment out there. And we do have higher pressure from competitors on parts of the product range within surgical workflows.

So, that’s a bit more granular view on this. When it comes to your question on remediation for Hechingen, you asked whether FDA were okay with this.

I think they don’t really care about the amount of money that we spend. They care about the timeframe and the actual changes that we make.

And this is something that we communicate to the FDA and we have a dialogue with them ongoing. I’m not going to elaborate more on this.

When it comes to the SEK 488 million provision, this is used mainly for external resources to support with the actual work that needs to be done when it comes to the remediation. The main change from earlier is that we had to rescope the remediation, take a more holistic view instead of just fixing the findings that came up from the FDA audit and the third party audit.

We needed to take a complete process view on this in Hechingen, which wasn’t done in the same way as in Wane and Hudson-Merrimack before. When it comes to the closure of Hudson, I do agree that it’s a really good step to have completed the move now.

However, we don’t provide any more detailed insights on the cost related to the move and savings related to this.

Okay. And just if you can clarify, is it still your anticipation that you can grow surgical workflows or these pressures that you referred something that’s going to persist for some time and challenge that business?

I think you’ve referred to a lot of competition growing in that business at the beginning of the year. I just wonder if anything’s changed now.

Long term, I think this is a business that we will be able to grow, absolutely. I think in the short-term, this year and part of next, until we’ve gone through the spin-off process and we see some better traction on the new products, there is -- you need to be aware whether there is a same cycle related to this.

I mean some products take longer to get launched and for customers to want to. I do think that long-term we will see benefits from this.

We also will continue to work on what we call the tier 2 segment within surgical workflows as well. This time, even if we have talked about it for a while, it is still in its infancy when it comes to developing and launching the actual product.

So, there will be some time before you see positive effects from this. So, in summary, a little bit of a struggle in the short-term but I think the longer term prospects for surgical workflows are still positive.

A couple of questions for me as well. First, could you expand a little bit more why you are still -- to be positive for the full year, given the flat development year-to-date and continued weakness in order intake?

Second question on the separation cost. How much of that was booked as non-recurring here in the first half of the year?

And also, now, on the product mix that has been pretty positive for the gross margin both in the first and second quarter, it seems what order momentum acute care deteriorated a bit here in the second quarter. Does this mean we should expect a less positive product mix in the third quarter?

Kristofer, this is Reinhard speaking. I mean, to the outlook, I mean I’ll leave that to Mattias.

But, you asked a specific question regarding what is in Q2, the spin-off related onetime cost. And yes, I can say it’s around SEK 22 million, which also is a non-recurring and one-time related.

[Multiple speakers]

When it comes to the outlook, this is us maintaining the outlook, we are keeping it unchanged. It’s really based on when we look at the pipeline and opportunities that we have with the customers now.

So, we still get some confidence when we look at this and the opportunities in the coming two quarters. So that’s really the reason for maintaining the outlook.

Of course, the risk has gone up little bit compared to the first quarter, based on a slightly softer second quarter. But we try to look at some leading indicators when assessing the complete outlook.

And in terms of product mix, it would be speculative I think for us to make any statement on this. We don’t see any predictable changes in this, I would say.

So, Reinhard, you said SEK 22 million in non-recurring for the separation this quarter. So, you have almost SEK 80 million then, hoping the adjusted EBITDA figure from the separation.

Is that correct?

Well slightly below 80, but that’s correct.

Okay. Was that -- all of that in PPAC or did you have the cost in the other businesses well?

It is spin-off related cost assigned to PPAC.

Okay. And could I ask one more question?

When it comes to the increased competition you see in surgical workflows. So, I was just curious to hear a little bit where that’s coming from.

Is it mainly the that you are too exposed to the high-end segment or something else?

Traditionally, as you know, we have a very strong position in the premium segment and the faster growing for the market is on the tier 2 with the value segment part of the market. So that’s really where we see the weakness.

Is there any possibility to guide on the FX effect to measure sales for the full-year, but should we expect similar [ph] positive impact in the third quarter and then a negative impact in the fourth quarter? Is that how we should see it?

The other question is and if you just could clarify the working capital development in the second quarter? Is there a contrast here to the first half performance or the second quarter performance in previous years, do you have some, if you could clarify that again please?

Yes. As the last part, working capital, I mean basically I think there we need to allude two areas, one is the inventory increase and clearly -- it has to be been [indiscernible] one that should hold in Q2 on some of the products that has to -- some products going out and leaving effect to withdraw on the cardiac assist side, one effect.

Second effect is that we basically are streamlining our operations; hence as we still pursue growth for this year, some of the stocking up is related to foreseeable growth. And then the third piece is really that the DSO side became a bit difficult in the two areas within the actual business, which we are working on and in Middle East, on the other side of the business and there we have some mitigation plans in place.

Hence the working capital growth especially on the inventory side will improve and the receivable side also coming forward. We have indentified some plans in place that side.

To the foreign exchange, I mean the SEK 250 million, if it is a positive impact overall -- that is what for sure see, if positive surprises come, we will give you an update on that.

Okay. Should we assume the majority of the -- the remainder for the year will impact to the third quarter, not the fourth?

That’s true because that’s when we have a lot of transaction happening between the factories and the companies.

Thank you very much. I would like first of all to hear about the FDA related cost where you are taking a provision, you said that this was mainly external.

I’d like to hear, is there any reason to believe part of this will be ongoing as you have to ensure that you are compliant with FDA request and you will have to basically lift your quality -- QA, quality assurance to a completely different level than you have now? Also, can you tell us if there is any meetings with FDA and dialogues, any sort of approval or so in accordance to the changes to your remediation process?

And then in respect to your R&D, are you going to change that a lot? I mean my question is that, it is less focused and if your own spending around 3 percentage points of your cash flow, it has to be very dedicated there focus, efforts in my eyes to make sure that you get any sort of major leads in terms of products out of this.

How will you this compared to how you’ve done it in the past? Thank you so much.

When it comes to the dialogue with FDA, this is between us and the FDA. So, this is not something that we comment on publicly.

When it comes to the cost, you’re absolutely right. They are external for the most part, and this is needed to get the actually work done, the detailed work with the remediation.

The ownership of the program is still with local management and to a higher extent it has been in the past as well. This was one of the changes that we informed about in the previous quarterly call.

So, there will be some cost. When you go through a process like this, you do have bend up [ph] for cost compared to where you were before; that’s really normal and this you can see in other companies who’ve gone through remediation as well.

Once you’re through remediation and you have a stable system that works the way you it’s intended, you can start to work it down a little bit again. But this is again, it’s a longer-term process.

So, there will be some of the cost picking with us. But one of the reasons we’re going external as well is to make it easier to reduce this gradually, once we are in a good position when it comes to our quality system.

When it comes to the R&D bit, I think it’s a good observation. The resources that we spend on this, we need to be more selective compared to the past.

That’s really clear. I think one of the things that we’re trying to improve is to look at the comparison across the Company.

I think as you, it was organized more of a holding type of structure where there was less comparison between R&D products and within the difference the business area. And we’re trying to do a better job now of comparing the returns for different initiatives and in that way be bit more selective going forward.

Okay. Can I ask the follow up FDA?

In connection with your Q1 results, you were stating that -- you were highlighting that we could be in a situation that we were now where you have to do additional provisions to -- because you were not satisfied. At that time, you said it was mainly based on your own internal -- you were behind your own internal target of progress.

Is that changed? Has there been sort of a demand from FDA to do this or is it still getting or management to think that behind where they want it or wish to be?

This is entirely internal decision from us. We were not happy with the progress that we saw towards the end of the first quarter.

So, we’ve decided to make additional efforts to speed this up. We had no further instruction or demand from the FDA in this regard.

Yes. Good morning.

A follow-up question on your guidance. Historically, you typically guided, both on revenues and orders.

You already implied that the revenue guidance is also valid for orders. And in this case order is now lagging a bit.

Should we still expect that orders could be positive for the year as well or is it only revenues you’re talking about? And secondly I also wonder if you can talk a little bit more about your sort of market position, if you look on the three different segments, how you’re performing compared to the market, which area losing most market share and the way you see sort of a real weakness in the market and not on the problems with the FDA?

[Ph] Thank you.

Thanks, Hans. On the guidance, we don’t change; we guide on the sales.

So, now, we don’t intend to change this. As you know, we have a mix of recurring revenue and revenue based on capital goods and especially in the capital goods you can have some significant fluctuations.

But we guide on sales and the outlook for this is unchanged. And when it comes to -- let me just clarify, your question about the segment, was that related to the three business areas or something else?

Yes. Just little bit more color on how you performed compared or how you performed compared to the market in the three different business areas?

Okay. I think the overall view, we’ll come back to this little more detailed when we’re talking about the strategy for getting in the fourth quarter.

I think the overall summary though is that obviously in surgical workflows, we’re not growing with the market in total. As I tried to explain during parts of the presentation, we do see good growth when it comes to our software business, for example; here we’re growing above the market.

In some of the other areas when it comes to surgical workplaces for example, we’re clearly not growing with the market. In acute care and PPAC, especially PPAC, we’re on the wide portfolio; if you try to build out, it’s difficult to make a summary view.

But on overall level, we’re also not growing with the markets there. In acute care, we have a portfolio where some of the niches we’re active are low single digits growth and here, we’re keeping up with the market.

Others are higher, even double digit growth segments, and here we’re a little bit behind. But in acute care, I guess it’s the area where we’re keeping up best with the market pace, overall.

But still underperforming or?

It really depends on the different niches, it’s more or less in line I guess on an overall perspective, but we’re not outperforming the market.

And then just lastly, in terms of pricing, have you seen change in trends when it comes to the pricing environment currently?

No major change. I think there’s some price erosion on the more mature parts of the product ranges but there’s no significant change in the last couple of quarters here.

Three questions, please. Firstly on order intake, the decline in the Americas of minus 7.5% for capital equipment, how much do you feel is driven by poor execution versus the Obamacare repeal threats?

Secondly, on sales force stability, can you talk about the stability of your sales force, retaining good people? I suspect I think the organization and revenues and also in orders it’s difficult to do so.

And then thirdly on the capital market day that you had highlighted previously, when you will you be in a position to announce the date and is the agenda still going to include giving a midterm outlook? Thank you.

Thank you. When it comes to -- I’ll talk with the -- I’ll start from the bottom actually with the capital markets day.

We will announce the date for this in September and it will be held -- we will announce the date in September. When it comes to the sales force stability, it’s quite a varied picture.

If you look at some of the business that we are under the Consent Decree and we have some supply constraint, we have quite a large problem when it comes to the sales force especially in the U.S. When it comes to the other businesses, it’s very, very stable I would say.

So, it’s quite a different picture depending on where you look. Can you repeat the question on Americas order intake?

I wasn’t quite sure…

The question was, is the decline for capital equipment in the Americas of minus 7.5%, how much of that is self incurred, if you like or poor execution versus the threat of Obamacare repeal, which may be impacting hospital decisions and in buying capital expenditure for those doubtful debt concerns?

I think the short answer is that we don’t have that -- we don’t know this. There is an element of both probably but I can’t give you 50-50 or any ratio in this regard.

When it comes to CMD, and thanks for giving us the month of the announcement, but can you comment on whether the intention is still to give us mid-term and guidance, revise mid-term guidance?

What do you mean by mid-term guidance?

Let me rephrase it. What is your intention for the CMD?

What do you want people to get out of the CMD?

We will -- the intention is to give you a good overview of the mid to long-term prospects for getting our plans going forward. That’s really the idea.

In terms of granular financial targets, we will come back on that.

And brief question please on disposable sales and orders. How long does it take for all capital goods orders to eventually also show up in declining disposable sales?

Does it take six months to show up, is it three months or a year?

You can’t really relate that to an area. [Ph] We need to relate to this in [indiscernible].

We do talk here I mean capital equipment, if we talk cardiac assist and installed base it stays there between eight to ten years. Hence fluctuation in capital equipment recycle can take a couple of years until you actually realize that in disposables.

[Indiscernible] one can say, I mean we have seen some positive movements in the past with basically replenishing complete cardiac assist fleet of in the aorta balloon pumps. This is [indiscernible] approach.

That doesn’t mean really that we do see an impact, it’s more that the capital equipment sales and order side is slightly impacted. So, very difficult to say, unless installed is taken away, which we don’t see.

It does not have an impact on disposables right away.

Just firstly on sales mix please. Can you provide an update on how much revenue is generated by capital goods and how much is disposable for each of the three business segments and also how you expect the trends going forward, just at the high level?

Next, on Hechingen, what are your expectations for when this latest remediation program will be completed? Apologies if I missed this.

And given also, secondly to that, given that the charge taken during the quarter relates certainly employee costs and process validation, would it be prudent to ask to expect further charges in the coming quarters? I’m not looking for numbers there but just obviously confirming whether the deficiencies in the previous programs didn’t extend beyond those two areas?

And just lastly on cash flow when you provided updated color on the working capital builds, the cash invested and inventories in particularly maybe doubled year-on-year and I’ll just be curious to your thoughts on what you believe to be the new normal run rate and how quickly we can expect that to normalize? Thank you.

Okay. Thanks Chris.

On the first question, we don’t provide more detail than what’s stated in the interim report. So, I would not be able to shed any more lights on this in this call.

When it comes to FDA, we’ve taken a provision now based on what we can see the work in the coming years. You did not miss anything on the timeline because this is something we communicate with the FDA on.

So, we don’t give specific on any updated timeline for this. We’ve just provided the information now on the provision that we believe is needed to go through the remediation program.

And when it comes to the cash flow, I leave that to Reinhard.

I mean your question related to inventory increase, and one of those assets, [ph] is it now come down and normalized, yes, I mean towards the end of the year. I mean as said, with our stated operations planning, we have mitigated somehow the demand from a factory [ph] to stabilize the inventory side but also let’s say take the balance sheet to prepare for the growth and here it is swing between the quarters.

We do absolutely foresee that the inventory levels will come down in Q3 and Q4 going forward. And my feel is there is development in one way or the other line but let’s say the channel event will decline and we will see the improvement there.

Okay, thanks. So, just a quick follow-up on the Hechingen question.

So, previous to when the plan was withdrawn, I believe you didn’t expect in the first quarter 2018 as sort of reasonable benchmark for when remediation may have been completed and obviously you’ve gone that on drawing board to some extent. But would it be unreasonable to think that maybe a year, given that previously the expectation was for year would be a sensible expectation for when the remediation will be completed?

I think we need to be clear here that we don’t -- for us to say remediation is completed the Consent Decree; this is for FDA to say. We can only work on the remediation as such and make sure that we have the system that lives up to the demands of the FDA.

And I think it’d be a mistake to give specific timelines for this in this quarter. It’s really something we communicate with the FDA and it’s not up to us to say when we’re finished with remediation.

Okay. That was the reason for the question.

I mean you said earlier in the call, these -- the new times you’ve drawn were entirely an internal decision as a result of communications with the FDA.

Yes, that’s correct. It’s still correct.

When it comes to communication …

How much longer do you think until your remediation is complete? I mean, I appreciate it’s more difficult to know when the FDA is going to be happy?

Yes. And then it’s really -- I don’t know, it’s not very fruitful to even have an internal perspective on this, because it’s only the external perspective that counts really.

It doesn’t matter what we think internally unfortunately; I wish it did, but it doesn’t.

Thank you very much and thanks for your attention here during this call. Just to sum up, I reiterate what we said in the summing up here that we -- on a high level, we’ve had a challenging second quarter, a number of short-term challenges that still remain, but we do keep the outlook for the full year intact; there is no change to this.

So, with that, thank you very much for the attention. I wish you a good rest of the day.