Getinge Industrier's (GNGBF) CEO Joacim Lindoff on Q3 2016 Results - Earnings Call Transcript

| About: Getinge Industrier (GNGBF)

Getinge Industrier AB (OTC:GNGBF) Q3 2016 Earnings Conference Call October 18, 2016 9:00 AM ET

Executives

Joacim Lindoff - Acting President and Chief Executive Officer

Reinhard Mayer - Chief Financial Officer

Analysts

Peter Östling - Pareto Securities

Sten Gustafsson - ABG Sundal Collier

Johan Unnerus - Swedbank

Scott Bardo - Berenberg Bank

Kristofer Liljeberg - Carnegie Investment Bank

Richard Koch - SEB Equities

Hans Mähler - Nordea Markets

Annette Lykke - Handelsbanken Capital Markets

Patrik Ling - DNB Markets

Oliver Reinberg - Kepler Cheuvreux

Michael Jungling - Morgan Stanley & Co.

David Adlington - JPMorgan

Peter Testa - One Investments

Paolo Mortarotti - Tower House Partners

Operator

Good day and welcome to the Getinge Group Q3 Report Conference Call. Today's call is being recorded.

And at this time, I would like to turn the conference over to the Acting President and CEO, Joacim Lindoff. Please go ahead, sir.

Joacim Lindoff

Thank you very much, and a warm welcome to all of you and thanks for joining the earnings call today. We have slightly extended call today to cover all the topics and to allow enough time for questions. We will try to stick to the announced time schedule which means that, we will try to attempt to close the conference at 4.30. The presentation for today is accessible via a link in the report, and is also available on our webpage under the Investors Section.

Together with me I have our new CFO, Reinhard Mayer who will support me during today’s call and he will be presenting the Q3 financials and obviously who will also join me during the Q&A session. And we will do our best to take you through the financials and provide all of you with a business update.

I would like to start with Slide number 3, which gives you the quarter three in brief and just as a starting point I would like to highlight that it has been a quarter with focus on both short-term agenda and the long-term direction of the Group. We have continued the transformation program and in parallel been reviewing our long-term strategic direction and I would obviously come back to that during today’s call.

I want to share with you my personal overall message for the quarter. It is now my eighth week as Acting President and CEO of the Group and it's been weeks characterized by change, but also high activity. Despite a challenging development with a negative order intake in almost flat net sales. We have delivered an EBITA of SEK963 million which is an improvement of 16.3% versus last year.

This is very much thanks to our Big 5 efficiency-enhancement program where we continue to perform according to plan. We had high activity levels in Hechingen and the improvement work there continues. We have assessed that additional investments of SEK400 million will be required to get a successful setup, which is the main reason for the increased restructuring cost in the quarter.

The total restructuring cost in the quarter increased to SEK732 million and had a substantial impact on profit before tax. In addition to the provision of SEK400 million cost of write-off of an R&D project and also cost related to the management changes were included.

During the quarter we also concluded on a strategic review to clarify our long-term strategy that captures growth opportunities for all three business areas. Based on this, we have decided to focus in the long-term on two business areas; our current Business Category Units, Acute Care Therapies and Surgical Workflows.

In light of this and with the knowledge that our third business area Patient & Post-Acute Care potential and the Board and – I would say the Board of Directors has tossed us in the management to prepare for a distribution and listing of Patient & Post-Acute Care. And splits would increase the ability for the two future companies to realize the strategies and continue to develop attractive products and solutions within their respective areas.

If I may summarize already now the quarter has been very encouraging with both short-term and long-term perspectives. We have gained substantial operational efficiencies. Thanks to our Big 5 program and we have made some key decisions in ensuring our long-term profitable growth.

So if I then try to break this down step by step and move over to Slide 4. The order intake in the quarter was not on a satisfactory level and it's below our expectations, but it should also be viewed in the light of a strong corresponding quarter last year where we had an organic order intake growth of 5.2%.

The order intake in the quarter declined organically by 3.2% with a negative trend in all Business Category Units. EMEA reported organic growth of 1.6% while both Americas and APAC had negative development of minus 5.5% and minus 9% respectively.

If we then now move over to net sales, we are more or less flat in the quarter with a modest organic increase of 0.2%. Acute Care Therapies continue to grow while Surgical Workflows and Patient & Post-Acute Care remained similar to the same period last year. The organic sales in EMEA region declined by 0.7% and increased by 1.3% in the Americas region. The development in APAC was flat compared to the same period last year.

Moving over to Slide 5, and I will now try to give you a high level update on the performance in the respective Business Category Units and I will start with Surgical Workflows. The order intake for the quarter declined in Surgical Workflows organically with 1.1% year-over-year.

The organic order intake in EMEA increased by 6.6% organically, which is very nice to see while the trend was weak both in APAC at minus 4.4% and the Americas minus 12.7% mainly due to very strong comparable Q3 in 2015 where some major Life Science orders were booked.

Net sales for Surgical Workflows decreased by 0.1% organically compared to last year as a result of lower invoicing in the old Surgical Workplaces and the Infection Control healthcare side. However, we can see a strong performance in both Life Science and our Integrated Workflow Solutions area both that was reported in the quarter.

The gross margin increased in the quarter to 40% compared to a 38.8% Q3 last year, mainly due to better capacity utilization in supply chain. The selling and admin expenses were down in the quarter and contributed to an improved EBITA which amounted to SEK293 million compared to SEK228 million last year. The EBITA margin improved by 2.8 percentage points.

Then moving over to Acute Care Therapies on Slide 6. The order intake for Acute Care Therapies totaled at minus 4.1% mainly as a result of lower order intake in Critical Care and Cardiopulmonary. All geographic markets posted a negative performance with the most small change in the APAC region.

The net sales increased organically by 1.3% due to positive growth in both Americas 2.2% and EMEA 4.8%, while APAC declined with 7.1% mainly due to weak development in Australia. The EBITA before restructuring increased by a healthy 13.4% amounted to SEK541 million and this increase is mainly due to higher gross margin and lower SG&A expenses.

The restructuring cost increased in the quarter and are attributable to the provision of SEK400 million for the FDA-related remediation program and the write-off of an R&D project of SEK158 million.

Moving over to Patient & Post-Acute Care on Slide 7, where we can see that the order intake declined organically by 4.9% in the quarter versus last year. The main reason for this trend was the weak performance in the APAC and Americas region and a lower demand in both Rental and Capital segments. The rental and service were down due to large orders last year.

Net sales fell by 0.9% in the quarter as a result of the weak performance in Service and Rental segment. The Capital segment posted a positive development with specifically strong performance in patient handling at plus 10%.

Gross profit declined as a consequence of the lower sales volumes. EBITA however, increased by 8.1% to a SEK187 million compared to SEK173 million and this is mainly due to good cost control and thanks to the ongoing efficiency program Big 5.

And moving on to Slide 8, and as you know, we are working hard and dedicated with our remediation program. The improvement work in Hechingen has continued at the same robust rate as before and we have now made the assessment based on the available information that additional investments of SEK400 million are required to meet the expectations of the FDA.

The cost has been booked as provision in the quarter and the utilization of this provision will be reported separately when it will be utilized like the way we have done it before.

Moving on to Slide 9, and I would like to take the opportunity to take a step back and revisit some of the information that we issued when we entered into the MAQUET Consent Decree with FDA in February last year.

Firstly, I just want to repeat what a Consent Decree means, a Consent Decree is a legal agreement entered in voluntarily by a Company and the U.S. government and set forth a process for completing the required improvements. Secondly, the Consent Decree applies to four legal entities. That's Atrium Medical Corporation in Hudson, New Hampshire, MAQUET Cardiovascular in Wayne, New Jersey, MAQUET Cardiopulmonary in Rastatt and Hechingen, Germany, and MAQUET Medical Systems in Wayne, New Jersey.

The initial investment of SEK995 million met our milestones to achieve a stable baseline for compliance in our new quality management system, while initiating remediation of findings identified in the Consent Decree. Under the terms of the Consent Decree, an annual inspection will occur all designated sites listed in the injunction. These annual inspections will determine whether further investments will be needed until such time as we meet and exceed the expectations of FDA.

In line with the FDA normal procedures being under a Consent Decree implies that the Company needs to commit to normally a minimum of five-year remediation plan. First phase to establish the plan and in dialogue with FDA agree on the remediation plan followed by some years of normal business with annual third-party inspections being carried out during this time.

Getinge is still in Phase I, while we anticipate that the Consent Decree could last up to seven years. Given the complexity of the Consent Decree, we cannot speculate or exclude any potential further actions from the FDA. With that said, we are obviously doing our utmost to complete the remediation program, but we cannot at the current time rule out that additional sanctions will be made or cost incurred.

By that moving to Slide 10. And as you read in today's press release, we have over the last few months performed a company-wide strategic review to clarify the most optimal long-term strategy for the Company to ensure sustainable and profitable growth that captures the growth opportunities that we have for all business areas. In the process of our ongoing transformation program it became obvious to us that we need to clarify the vision and the identity of the Group to guide both strategic and product decisions, something that we now have done and concluded on.

We have decided to focus on core competencies that are really unique and position the Company as a natural leader in its chosen playing fields. We will therefore focus our business long-term on two areas, Acute Care Therapies and Surgical Workflows which we see our characterized by good prospects based on clear customer needs and growing demand.

We believe that Patient & Post-Acute Care has the same type of possibilities and opportunities, work delivers that are different to the two others to be successful. This is the reason why deemed to be better off as an independent unit and the reason why the Board of Directors is suggesting a listing of PPAC. And I will come back to that a little bit more in a minute or two.

Let me first give you some more insides to Acute Care Therapies and Surgical Workflows and we are then moving on to Slide 11. The current Acute Care Therapies offering include solutions for cardiac, pulmonary and vascular therapies and a broad selection of products and therapies for intensive care. In this area, we will continue to improve outcome by a specifically cardiovascular and risk recovery therapies in selected areas with a growing unmet need.

The Surgical Workflows business developed products and solutions for Infection Control, equipment for Surgical Workplaces and advanced IT systems for hospitals. In this area, we will continue to offer integrated solutions to meet customer needs in capital, services and consolidated knowledge and IT. In summary, inventing solutions for patients and instrument flow in a hospital.

If we then on the next Slide, Page 11. Take a look at the PPAC business. While conducting the strategic review, we also identify strong business opportunities for PPAC. However, we believe that this business could better realize its potential if operated under a different strategic approach and focus given the need for different business levers which are different from the two other business areas. This is the reason I said why it's deemed to be better off as an independent unit.

Some key fundamentals worth mentioning. This area has a large addressable market with reoccurring revenue and with favorable drivers like aging population, increased incidence of chronic diseases et cetera. We have a comprehensive care offering and category leadership across acute and long-term care settings. We have a global footprint, well established customer relationship and large install base and a focused approach to manage this business unleashes true potential and would drive sustainable profitable growth.

If we look at Page 13, where you can see the current PPAC portfolio, where the aim of the Patient & Post-Acute Care business is to improve the life of people affected by reduced mobility. The offering as you can see encompasses a broad number of products and solutions for Safe Patient Handling, Prevention of Venous Thromboembolisms, Medical Beds, Intensive Care Units, Early Mobility, Hygiene Systems, Bariatric Care, and Pressure Ulcer Prevention. And we possess world leading market positions in many of our categories.

Based on long-term strategic direction that we have now decided on, the Board of Directors has tossed us and management to prepare for distribution and listing of Patient & Post-Acute Care. The proposal is subject to a decision by the shareholders at an Extraordinary General Meeting during the fall of 2017 most probably should the EGM approve the Board’s proposal. The aim is to complete the listing no later than during the first quarter of 2018.

Before I leave over to Reinhard and that will then leave us to the next slide. I would like to update you briefly on the transformation program and that is what you see here on this slide. As stated in the report our work on the transformation program continued with intense focus during the quarter. The Big 5 efficiency program continues according to plan and we have achieved major improvements since we launched the program last year.

Savings in the quarter amounted to SEK95 million to SEK100 million and accumulated we have delivered savings within the program of SEK255 million to SEK270 million. This very much confirms our commitment and demonstrate that we have solid plans in place for lean sales and admin as well as the initiatives around direct and indirect purchasing.

To conclude my first section, I want to underline that the one Getinge transformation program continues with ACT/NSW Surgical Workflows. While further a new integration activities related to PPAC will be post. This obviously is a natural effect of today's announcement on the intention to prepare for the listing of PPAC.

By that I hand over to Reinhard Mayer for a financial overview and I will come back with the summing up and outlook. Reinhard.

Reinhard Mayer

Thank you, Joacim. So let us move to our results Slide 17, performance on Group level. As Joacim mentioned the order intake in the quarter was below our expectations. However this will be viewed in the light of the strong corresponding quarter last year. Geographically EMEA showed organic growth while both Americas and APAC at a negative development.

Looking at net sales, they had a modest organic increase of 0.2% in the quarter. Due to positive currency transaction effects the reduction of a medical device tax and good cost control in supply chain we see a growing GP margin. One can say Big 5 is on plan with selling and admin expenses down by 2.1%. EBITA before structuring increased with 16.3% to SEK963 million which leaves us with EBITA margin of 13.9% compared to 12% for the same period last year which more or less the same net sales.

Let's move over to Slide 18 and the restructuring costs, [recyclers] have made a material impact on our restructuring costs during the quarter. First, we had a SEK400 million FDA provision, which adds to the SEK995 million provision made during 2014 related to the remediation program mainly referring to Hechingen. Then we have a write-down of an intangible assets related to a lung resection tools that is out of focus for our core Acute Care Therapies portfolio. We have tried to sell the IP since 2015 without [success]. Therefore, we have now made the decision to write it down.

Finally, we have a cost for changes in the Getinge Executive Team amounting to SEK70 million, which is reflecting the major part of the increase in costs related to Group function which can be seen in the segment overview in the Q3 report. This obviously affects the outlook for our restructuring costs of the year. The new guidance for financial year 2016 amounts now to SEK1.26 billion. Earlier, we have guided on restructuring costs amounting to SEK800 million.

Let’s move and change to Slide 19 and the foreign exchange effects. Getinge has two dimensions of exposure. The first dimension is currency transaction exposure. This relates to when the Group’s factories are selling to the Group’s foreign subsidiaries which we hedge for. The other dimension is the translation exposure. This relates to when the Group company results are translated into Swedish Krona. This effect is not hedged.

I am not going to go through all the details, but you could see that on the EBITA before restructuring costs, the transaction impact was SEK61 million and the translation effect was minus SEK29 million resulting in the total effect of SEK32 million for Q3. It is also worth mentioning the currency transaction effects are expected to have a positive impact of approximately SEK150 million on the Group earnings for financial year 2016.

Then we move to Slide 21 and our balance sheet. Net debt amounted to SEK23.293 billion at the end of this period. Adjusted change in net debt amounted to minus SEK690 million and the net debt to equity ratio decreased to 121%. Net debt to EBITA before restructuring ratio decreased from 4.0 to 3.9 for the period.

Finally, we go to Slide 23. If you take a look at the cash flow, the Group’s operating cash flow was inline with last year and the cash conversion increased to 89.5%. Cash flow from investing activities amounted to SEK376 million and cash flow after investing activities increased to SEK349 million compared to last year.

And then I hand over again to you Joacim.

Joacim Lindoff

Thank you very much. And before I'm summing up, I would like to give you a few comments to our outlook where we have made some changes. Let me move to Slide 25, where the overall trend in order intake in net sales has contributed to our adjustment of the organic sales growth for the full-year from moderate organic sales growth to moderate negative organic sales growth.

As stated before, the currency transaction effects are expected to have a positive impact of approximately SEK150 million for 2016. When it comes to the restructuring cost, we have updated the numbers as a consequence of the increased cost for the quarter and the restructuring cost for the full-year are now expected to amount to approximately SEK1,260 million. When it comes to the financial consequences of the Consent Decree with FDA excluding cost for the remediation program. It remains at the same level as previously communicated, which is SEK130 million on the Groups 2016 operating profit.

So finally before we open up for questions, I would like to do a brief summary. In the quarter, we focus both assets on the short-term agenda and also on the long-term direction of the Group. If you look at the order intake and net sales development in the quarter, it was not on a satisfactory level. For the remainder of the year, we continue to focus on older generation and to transform these orders into revenues.

As you all aware of we do have a heavy Q4 in terms of seasonality more or less every year, which is obviously also true for this year. Our efforts on the cost side is clearly reflected in the positive trend in EBITA before restructuring, which on a flat net sales was increasing by 16.3%. This is a clear proof that our Big 5 efficiency program is delivering and contributes to solid base for the future.

And as always, our focus on quality remediation program has been and remains a top priority and we are putting the necessary resources in place to meet the FDA’s expectations. I am also confident that with our long-term strategic direction in place and the future listing of our PPAC business, we will continue to build sustainable and profitable businesses.

With that summary, I open up for questions. Please operator.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] We will now take our first question. And first question comes from Peter Östling from Pareto Securities. Please go ahead. Your line is open.

Peter Östling

Yes, thank you. It's Peter Ostling from paretosecurities.com. I just wanted to ask you a little bit about the split up of the Company and what will actually happen with the Post Acute Care operations. Is there any part of the business that we showed on one of the slides that will be sold off or will you work actively to try to restructure that it before you make the final decision a year from now? And now second question is why will it take so long to do this spin up it's picked up since I guess the operator that to be deserve more or less functioning independently already today? Thank you.

Joacim Lindoff

Yes. Thank you, Peter. And I believe that I will take this question here. And what will happen to PPAC and really why will it take so long to put it. In terms of the timeline, when we have been analyzing this one, we believe that the timeline now indicated is a very realistic one based on how the organization is set and the steps that we need to take. And we are going to look into this timeline during Q4 to put a very thorough project timeline in place.

When it comes to how PPAC will look when being a separate company. We will actively work to make sure that PPAC becomes a viable standalone company that can act on itself and being a sustainable and profitable company going forward. During that work, we would obviously analyze the product categories within there and take decisions needed.

Peter Östling

Okay. Thank you.

Operator

We will now take our next question from Sten Gustafsson from ABG. Please go ahead. Your line is open.

Sten Gustafsson

Yes. Good morning. It’s Sten Gustafsson from ABG. So a year ago you told to the market this idea that more integrated company was the best way forward both from a sort of cost perspective and also a commercial setup. And now you’re making this big strategic [yield turn] and you will use your management resources to come up with a sort of a complex curve out with application of central costs and loss of scale.

So my question is what will happen over the coming 12 months? How will you tackle the real issues with a business with this sort of lack of management stability, lack of innovation and the rather poor capital structure? So how will you prioritize and come up with a critical credible plan for the two separate companies. That is better than the one you presented to us a year ago.

Joacim Lindoff

Yes, thank you Sten for the question. I will try to answer as good as I can, given that we will use Q4 to plan this in great detail. I would also like to emphasize that the One Getinge Transformation journey is still very valid. We have implemented a lot of the initiatives that we started in the One Getinge Transformation and those programs will continue both within the One Getinge and the future span of ArjoHuntleigh or PPAC.

We will during the planning make sure that we are as I said quoting sustainable companies and profitable companies with a possibility for future profitable growth on the market and that will be a part of the planning that will now start as of tomorrow. And we do believe that said, that with the separate listing of PPAC we will create better opportunities for that part of our business to grow profitable going forward.

Sten Gustafsson

All right. And can we get any sense of – how much extra costs that we should assume going forward for this?

Reinhard Mayer

Yes, this is Reinhard speaking and as you understand I mean this is part of our process now in the Q4 to exactly evaluate what additional costs would we need to incur to put this company completely on a standalone basis and what it costs us to carve it out as you have alluded to. We cannot at a moment really say what the pure fact, but we can also could not say what are positive drivers are, we see much more positive than negative drivers, but that is to be assessed. And once we really know we will then inform the board and also inform the market there after.

Sten Gustafsson

Okay, thank you. If I may add an et cetera question here and that's related to the SEK400 million provision? How did you come up with that number and what's included in there that would be helpful? Thanks.

Reinhard Mayer

This is a very good question and basically this SEK400 million is a composition of the attachment from our quality assurance and quality management organization in working with each and every side being effective mainly the [hedging] one. We have identified in the aftermath of the inspections which have happened in Q1. What activities and actions do we need to take place in order to get with all FDA questions remediated. We have put aside here for cost for consulting, costs for additional validation activities.

So its external costs but also some incremental personal expense on boosting - there is a - our quality management organization in the various sites. Very detail breakdown which we have actually shared and had been validated although with our auditors who confirm the validity of those SEK400 million.

Sten Gustafsson

All right. Thank you. Do you also expect some sort of a charge or penalty or fine to be on top of this SEK400 million or is this it? Thanks.

Reinhard Mayer

I think that is something which Joacim explains.

Joacim Lindoff

I mean if we are under a Consent Decree, we are in very close contact with the FDA. The SEK400 million that we have now put aside is based on all the information that we have as of today.

Sten Gustafsson

Excellent. Thank you.

Operator

We will now take our next question from Johan Unnerus from Swedbank. Please go ahead. Your line is open.

Johan Unnerus

Thank you. Johan Unnerus here from Swedbank. Thanks for taking my questions. Yes, PPAC is obviously in focus and it’s clear now from 2016 that is pretty broad based softness on that business both in orders and sales. And I think in this quarter, I think capital goods was doing a bit better. What should we think about that the ability to stabilize that business? And to – but obviously you are going to do a review on Q4, but perhaps you can give us a bit more flesh to this headwind and softness during this year?

Joacim Lindoff

I think it’s a – has been stated before, very good question. Again, and obviously one of the reasons why I believe that this strategic decision is absolutely the right one. We need to regain focus in the PPAC area, we need to make sure that we fully understand where we should invest and how we should invest and how we should drive this business forward and we believe that this is done best as a standalone company.

So I believe that we buy this decision or framing that problem that you are putting the question on. We will during Q4 and onwards continue with the plans. Again, as I said to create a long-term sustainable company that will then be spun off in Q1 2018. We will also obviously continue with the Big 5 plans in PPAC and that will continue also after a possible spin off. Those plans are planned in a very solid way or under implementation as we have seen from the results so far and will continue.

Johan Unnerus

Thanks. That’s useful. I guess we should take that as we will get feedback of the Q4 during – on the back of Q4 on part of this process or is that too early. And the follow-up question also related to PPAC. The gross margins on the Group aggregate it’s improving, I think half from FX and half seems to be partly better execution. But in PPAC it’s softer; could you give us some flavor on the price pressure for PPAC? Is there a considerable price pressure on that division?

Joacim Lindoff

If I start with the information that is obviously something that we will continue to share with you as soon as we have things to share, as soon as there are material things that would be of interest. When it comes to price pressure, I will say, we do have price pressure in our entire business and PPAC is nothing where I would say we have more price pressure than we have in any of the other businesses.

Johan Unnerus

Thank you. And finally, what should we think about the net debt with the context of the spin off? I believe to ensure that you can move that PPAC forward, should we rule out any refinancing or any supporting financing in the spin off process or is that excluded?

Reinhard Mayer

Well, first of all let me say, I mean the net debt is representing the net debt of the Group and we need to split it up going forward. How we split it up? We don’t know yet. This is part of the planning forward. And then also take into account how we have shown the ability to reduce the net debt further by the time we finally spin it off. So this is now taking a couple of variables into account which I cannot comment on, because it takes time and our probability movement going forward into account. Hence this is very much also a question to be refer to a later stage, once we have timeline and further input on our operating profitability in the various businesses we pursue.

Johan Unnerus

Thank you very much.

Joacim Lindoff

Thank you, Johan.

Operator

We will take our next question from Scott Bardo from Berenberg. Please go ahead. Your line is open.

Scott Bardo

Okay. Thank you for taking my questions. So first question related to the strategic review and decide decisions to make PPAC an independent company. Can you confirm whether during this period you considered or floated a notion of potentially selling this business outright rather than spinning the business as a separate listing?

Joacim Lindoff

In this process not been an option to us, no.

Scott Bardo

And further on from that point, could you discount the possibility of still potentially selling this business, outright should you receive an adequate proposal?

Joacim Lindoff

That is a question that the Board at such time will need to discuss.

Scott Bardo

Yes, thanks for that clarification. It certainly seems to me that it's the fiduciary duty of the boards unlock shareholder value for all shareholders and so that's why I asked the question. If there is a proposal to acquire the business and that potentially is the more valuable whether that would still be considered or whether the Group is weighted to spinning out this business?

Joacim Lindoff

There is no such proposal.

Scott Bardo

Okay, thank you. And just to understand as you currently understand the structure, and the Chairman, Carl Bennet is also to maintain his current holding of 18% in the equity of getting a Group also a similar holding the spun out organization should it take that part?

Joacim Lindoff

Yes.

Scott Bardo

Okay. Thanks. That's all for PPAC and then on to the Big 5. I'm encouraged to see some of the costs coming down, but I acknowledge that the majority of the savings to come from this outline proposal out to come both in next year and the year after, many of which were to better integrate the organization for which clearly now you've highlighted potential independence of PPAC going forwards.

So what I wanted to understand actually was some of the central cost buckets for the Big 5, particularly in shared services were if my understanding is correct you were looking to make some 700 or so redundancies next year as part of the shared service initiatives in Poland and in Costa Rica.

Is that still going ahead entirety? And also, could you please confirm that the cost, significant restructuring costs that we're all modeling over the next couple of three years relates to this plan or all of those still to be included, it seems very difficult to make that assessment given where you are with the Group structure? Thank you.

Joacim Lindoff

Yes. Thank you for that question. I would like to state very, very clearly that the focus on Big 5 continues. We have solid plans in all the areas where we have – that we are addressing. And I was especially like to point out to be continued focus within the lean sales and admin within the direct sourcing and within the indirect sourcing. And our view is that we are on track with this plan and that we will continue to implement obviously with a good view on what the spin off ArjoHuntleigh will mean in terms of which programs and the initiatives we can run short-term.

So there I feel very comfortable that we will continue to see the same types of improvements that we have seen up until now. And remember that we so far have done 255 million to 270 million as improvements based on this program so far this year which is at least on plan and in some extends also ahead of plan. When it comes to the other question in terms of the restructuring cost, we don't have any I would say news in that area right now.

Scott Bardo

Okay. Thank you. And next question please potential also for Reinhard. I think your previous answer try to give us some indications of what be the full-year EBITA delivery from the Group, and obviously the prior year, had a lot of one-off costs and we spent quite some time in the pains to get what was deemed to clean base this year to Getinge Group. So I appreciate you're now expecting some multi-sales decline and what I'd like please is some guidance on where you expect adjusted EBITA for the full year please?

Reinhard Mayer

Thank you, Scott. Well, firstly, I have to say I mean as Joacim stipulated we expect slight decline on our revenue position as you mentioned this will also have an effect on our earnings. On the other side we have also – there is a good momentum on our Big 5 both the effect outcome of all that though mean I cannot actually stipulate at that very moment and I am too young in this position, it really has over crashed all dimensions there. We will come back to that at a later stage.

Scott Bardo

Okay. Thank you, but and I am sorry, to try and push a little bit on this, but clearly there's a lot of volatility and uncertainty in numbers at the moment. Are you in a position to at least provide some sort of floor earnings for 2015 or maybe comments about how you see margins in Q4 versus the prior year? Can you give at least some sort of feel in this so we can better gauge full-year delivery?

Joacim Lindoff

No, I would actually not be in a position to properly give you a good guidance there and also not on a floor level. As I said I mean we will see that impact from the revenue side how this will completely flow through and what the additional momentum we can generate from our savings program. I cannot conclude at the moment with good solid numbers.

Scott Bardo

Okay, thank you. Last question from me, please. You highlighted about the on-going remediation and you suggested your some where you can see the phase one through this Consent Decree.

I'd like to understand a little better please because it was my understanding that the facility in Hudson had a positive inspection also that Wayne, and then if anything by now you should have almost shut that Hudson facility and transfer all products to Merrimack. So that that in terms of previous discussions that the management board has given, which is, yes, that certainly for those facilities your moving North to phase one.

So I'd like a little bit of an update please as to where you are with those facilities. And I'd also like to understand a little bit more your thoughts as to why it's taken so long nearly a year for the FDA to come back and prove and the current plan for Hechingen and I would like to understand how many times you've had meetings and discussions with the FDA and potentially what are the sources of contention? Thank you.

Joacim Lindoff

What I would like to say first is that we are in very, very close communication with the FDA around this. I would also like to state that we had moved from Hudson to Merrimack is going according to plan. And on Hechingen what I would say there is that we as said are in close communication with the FDA we cannot govern when FDA is coming back to us we are providing FDA with all the information that they are requiring from us and we are waiting for necessary responses from FDA on in all the discussions that we're having. So I believe that we are truly trying to fulfill all the requests that are coming from the FDA and then waiting for their response.

Scott Bardo

And when do you think that your remediation for Hechingen will be complete as per your current plan. And have any discussions with the FDA taken the course of in junked in product into North America. They are my last question. Thank you.

Joacim Lindoff

We believe and hope that we would be in the first of year of 2018 through with the remediation in Hechingen, obviously based on the information that we have today.

Scott Bardo

Okay. Thank you very much.

Operator

We will now take our next question from Kristofer Liljeberg from Carnegie. Please go ahead. Your line is open.

Kristofer Liljeberg

Yes, thank you. Some follow-ups here on the PPAC business mainly. Could you maybe explain a little bit more in detail what has changed since a year ago now? Then it was focused on integration, now it's more in a spinning off this Extended Care business. Is it due to that you have seen more negative impact on the topline for example or is it something else? That's my first question.

Joacim Lindoff

Yes. And I would like to answer that as I've answered the question before Kristofer and that is that the Big 5 program runs as planned. We will continue with the [certain plants] that we have put in place also in a new structure. The synergies, I mean during the One Getinge transformation journey, we saw a big need to analyze our strategic intent and create a clear vision for the Company. That is what we have done.

And in that analysis, we have come to the conclusion that spinning PPAC off would give that part of our business the necessary and needed focus that we need to have to drive that to become an even further sustainable business going forward. But reassuring you that the Big 5 program will continue during 2017 and also onwards according to plan.

Kristofer Liljeberg

What I wonder is, if something has changed to really because I guess since a year ago, I guess you have laid off most of the [indiscernible] managers already for extended or for this PPAC business and now you need to hire them again, I guess because if you want to do this as a separate business. So I still have not understand what has changed really, if maybe nothing has changed.

Joacim Lindoff

I think you should see this as – from a One Getinge journey, very little has changed. Yes, we have taken the strategic decision to plan for a spin off of PPAC and we will during the analysis phase make sure that we are putting a plan in place that takes care of the questions around how are we selling our products? How we’re developing our products? How do we make sure that we create a long-term profitable Company going forward?

We will – in the parts remaining in Getinge, continue the One Getinge journey and we will make sure that we bring out the synergies there. So it's more a review of our strategic intent and thereby conclusion that this part of the business will be better off as a focus standalone part.

Kristofer Liljeberg

Okay. And how much more integrated is PPAC into the rest of Getinge today than compared with a year ago?

Joacim Lindoff

It is more integrated, but we can through a good project and a good planning and bring this out as a standalone company, and again with good analysis around what we need to invest in sales as we would do with any part of our company, and also when it comes to the analysis around our product generation plans based on a strategic intent for this unit.

Kristofer Liljeberg

Okay. Thank you. The other thing you talked a little bit about the Big 5 program going according to plan. If it that so, does this mean we should still expect additional SEK500 million, SEK600 million in savings next year that has been guided for previously?

Joacim Lindoff

What we are looking at is a good start of the Big 5 and we have very little reasons to believe that we would not execute according to those plans for 2017, 2018 and 2019.

Kristofer Liljeberg

Okay. So even if you stop the integration of PPAC, it’s the still the same amount of savings for next year?

Joacim Lindoff

That is something that we're analyzing during the Q4 and I would say Q4 analysis phase and if there are changes we will make sure to comeback to you.

Kristofer Liljeberg

Okay. Great. My last question is you talked about FDA inspection et cetera that you're still in early phase. Have you have any recent inspections by the agency that has made you more nervous about this or?

Joacim Lindoff

So as I said with all the inspections takes a lot of work, takes a lot of focus and with all the inspections we are in close cooperation not cooperation, but coordination and discussions with the FDA. And as soon as we get any information from them, we handle that information and we answer and act accordingly.

Kristofer Liljeberg

Okay. Thank you.

Operator

We will now take our next question from Richard Koch from SEB. Please go ahead. Your line is now open.

Richard Koch

Hi, Richard Koch at SEB. I have questions on management changes. Could you please comment now a bit more on why Alex Myers was leaving, is it fair to assume that that was related to the spin off of his – sort of the case all that kind of care?

Joacim Lindoff

No. And this is actually a question that you need to discuss with the Board and we don't have more input on that discussion then we had when Alex was leaving.

Richard Koch

Or you didn't comment very much when he left out project that we would at some point [indiscernible]. And then turning to you that there are [companies] - I mean when can we expect a permanent solution or is it likely that you can stay as a permanent CEO?

Joacim Lindoff

Unfortunately I need to have the same answers I had a few weeks ago. There is a process running that the Board is running around both internal and external candidate and there is a process that is run completely by the Board. So I can only refer to the Board there.

Richard Koch

Would you be open to stay as a permanent CEO?

Joacim Lindoff

Absolutely.

Richard Koch

Turning to PPAC again, I mean so if you're wanting to spin this off or possibly sell it. It’s in a very bad shape, it’s a negative organic growth for the past nine quarters. So I'm not seeing some – if I'm correct. Why has it been under performing so much and then why do you think it's possible to turn this around?

Joacim Lindoff

Well, there are many factors for what we also would underline is an under performance, what we can say is that based on the strategic review and the analysis that we have made. We believe that we by doing this will put this Company long-term back on track, this part of the Company back on track.

And we are a strong believer that the fundamentals in this both when it comes to this strategic intent and the possibilities to as a standalone really focus on the business will give us opportunities to long-term turn this trend around, which would always require a good plan, the investments needed both in terms of organization and also in terms of R&D. So we wouldn’t have done it unless we thought that we could build a long-term sustainable Company.

Richard Koch

Okay. Why has it been underperforming? Has it had products that hasn’t been in demand or has it been overly exposed to UK or what’s the reason for this underperformance?

Joacim Lindoff

As I said there are several factors into this one that I believe that the main part here is focus in the organization and possibility to drive and develop a strategy that is working in this area.

Richard Koch

Okay. Thank you.

Operator

We will now take our next question from Hans Mähler from Nordea. Please go ahead. Your line is now open.

Hans Mähler

A question on the mode operational performance in the quarter, if you look on the weak orders was it throughout the quarter or did the weakness come off the management change? And also secondly, how did a disruption in Hechingen affected the sales during the quarter?

Joacim Lindoff

The order development has been the same throughout the quarter, has nothing to do with the management change and the Hechingen has not affected us in any extraordinary way during the quarter.

Hans Mähler

During the second quarter, you said that that it held back some growth because you had some bottlenecks in the quality secular facility. Are they now gone or how would you describe it?

Joacim Lindoff

I would put it has we are improving on that one and we believe that we are getting out of that one during this quarter.

Hans Mähler

Okay. So would you expect that to support growth in the fourth quarter or is it not meaningful in that perspective?

Joacim Lindoff

I wouldn't put too much emphasis on it now.

Hans Mähler

Okay. Very good. Thanks so much.

Operator

We will now take our next question from Annette Lykke from Handelsbanken. Please go ahead. Your line is now open.

Annette Lykke

Thank you very much. Well I'd like to – if you could elaborate a little bit again on the expected savings for 2017 and your original targets were I think 40% of the EBITA savings of SEK2.5 billion to SEK3 billion that is approximately SEK1 billion to SEK1.2 billion. When you made these assumptions you are also highlighted that you expected topline growth of 2% to 4%, what assumptions do you have now for – and when you are saying that you feel very confident in terms of achieving financial target for 2017, 2018 and 2019. Does that mean that the topline is not impacting on this at all?

Joacim Lindoff

Again what I stated was that I feel comfortable with the plans that we have in Big 5. And that we what we can see so far in the Big 5 program is that we are delivering on or above plan for 2016 and we do feel comfortable with the plans that we actually have in place that we will continue to deliver according to that program. For the year we are guiding on net sales on moderately negative. On the Net sales side we will need to come back to you with further guidance on 2017 and onwards.

Annette Lykke

Yes. My question is more that the savings of - next year saving of SEK1 billion to SEK1.2 billion. And are they not related at all to how much did you want, faster so to speak in terms of your savings to compensate for the lack of growth in your topline?

Joacim Lindoff

What we have done is that I mean I would be possibly lying if I would say that a huge transformation program like this one is not putting focus internally instead of externally. But I would also like to emphasize that given that we have now planned very well these different parts of the program. I believe that we can step by step continue to turn our focus to external while delivering on the Big 5.

Annette Lykke

Okay. Then in terms of PPAC should we expect due to the new strategic situation for this segment to see additional disruptions or have there been disruptions at all in this division it is more price pressure and tough market condition as such, that is sort of impacting on the negative topline?

Joacim Lindoff

It is - the fact is that you're mentioning is focus, but I will say that as in any plan if it's a One Getinge transformation journey or if it's the PPAC spin off. There are a number of factors that we need to take into consideration and we need to make sure that we are building a plan that is mitigating the risks for internal focus and making sure that our organization is focused externally driving sales in the way it should do.

Annette Lykke

Okay. Thank you very much.

Operator

We will now take our next question from Patrik Ling from DNB. Please go ahead. Your line is now open.

Patrik Ling

Yes, thank you. Can I ask you about your FX guidance, you said that it will have a positive impact on SEK150 million for the full year? Could you just remind me how much have you seen in positive FX this far for the first nine months? Or is if you could give us some sort of feeling for that?

Reinhard Mayer

Well, as I alluded in the Q3 report basically we have seen SEK61 million for the Q3 and there is a SEK150 million guidance you can basically calculate yourself what the difference now is what you get for Q4. So those numbers stay as I have speculated.

Patrik Ling

Okay. So the transaction effect that you talked about SEK61 million that is for the - not only the third quarter that for the first three quarters?

Reinhard Mayer

It is the effect of the quarter and there has been – there is a - of course also effects in earlier quarters, but the starting base to which I refer and the guidance of the SEK150 million going towards year-end is give you the indication on those transitional effects going forward.

Patrik Ling

Okay, great. I also had other question regarding the FDA here. I mean, to me, it sounds like you haven't got that far in the remediation program and that the FDA by not really coming back to you and discussing the plans that you have might be dragging this process out making it a little bit more complicated than you initially thought?

When you release the news about the Consent Decree you also commented a little bit about what you expected the running costs of having all this remediation’s in place would be. Would that estimate that you had in early 2015? Would that still holds true or is it significantly higher now given a development that we've seen in Germany and the fact that you're taking SEK400 million more in costs sale?

Joacim Lindoff

First of all I would like to just emphasize that we are in very close communication with the FDA and we're responding to the FDA in a – as diligent way as we possibly can. I would say that we have used and we have built up our quality system as I stated before very closely and we have closed a number of those gaps that we had before. What we are saying now is that our analysis gives that we will need an additional SEK400 million to make sure that we meet and exceed the demands from the FDA.

When it comes to the running cost, I believe that the level that we are on right now are how we could be seen as I would say from a running cost perspective the levels where we'll be going forward during the time we're on the Consent Decree.

Patrik Ling

And that is for another three and a half years approximately?

Joacim Lindoff

Possibly even more.

Patrik Ling

Possibly even more. Okay, great. Thank you.

Operator

We will now take our next question from Oliver Reinberg from Kepler. Please go ahead. Your line is open.

Oliver Reinberg

Good afternoon. Oliver Reinberg from Kepler Cheuvreux. Three questions if I may. And firstly, can you just talk about the separate listing of PPAC? Is there any kind of synergies involved, I mean, I would assume that you need separate HR functions, IT, finance, separate cost of listings. If you just can talk about that a bit that will be helpful.

Secondly, I fully understand that you can’t comment on the management changes, but something opposite drove that, so can you just elaborate this a bit on is there any kind of changes to expect under your leadership in terms of the strategy as it stood so far. We expect to see the execution of the strategy. And then thirdly, I understand from the press release let’s say you were going to present financial targets for both entities. Can you just give us an idea will this be early-late or mid 2017? Thank you.

Joacim Lindoff

Thank you, Oliver. I will leave the cost on this outside the listing and the separate cost to Reinhard. When it comes to the management changes, as I've stated after when Reinhard joined his new position, is that my intention is not to do any further management changes at this time. The management in the new entity those decisions will be taken as we go along and as soon as decisions are taken we will obviously make sure to inform you.

The new financial targets or aspirations for both the remaining parts of listing in this spun off company will be a part of the analysis phase. And we obviously hope to be able to communicate those to you in a realistic timeframe whether that is in Q2 or Q3 in 2017 I am not sure. Reinhard?

Reinhard Mayer

Thank you, Oliver on the question. I mean the topic for the moment is really we cannot guide you on what is additional cost or what is the synergy. We have not really completed our planning in that respect. We of course have clearly the idea that we will continue with the number of shared service agreement which will then entail that we will have synergies from the Big 5 going forward. We also will definitely need separate functions as you have alluded, for instance a treasury function or a central accounting function.

How much those space you weigh-in and how much additional volume and additional focus will provide one cannot say at that very moment in time and we will give you updates once you have good solid numbers and plans which we can share.

Oliver Reinberg

Okay. Thanks. [A brief my] follow-up and so can you just confirm there will be no additional changes to the earlier communicated strategy or its execution beyond the spin off of PPAC? Is that correct?

Reinhard Mayer

I didn't quite understand your question Oliver. Can you repeat or rephrase it please.

Oliver Reinberg

Sure. Can you hear me?

Joacim Lindoff

Yes, yes.

Oliver Reinberg

Okay. I was just asking and obviously just coming back to that that there was some disagreement obviously with regard to the old management team. Can you just confirm that outside the spin off of PPAC that there will be no changes to the execution of this strategy that was started a year ago with respect to the way this was executed?

Joacim Lindoff

I can confirm two things and that is that the One Getinge do only absolutely continues. And I can also confirm that this decision on proposal is very well aligned with the Board of Directors.

Oliver Reinberg

Okay. Thanks so much.

Operator

We will now take our next question from Michael Jungling from Morgan Stanley. Please go ahead. Your line is open.

Michael Jungling

Great. Thank you. Hopefully you can hear me. I have three questions. Firstly, the breakup of getting into two entities, it is the broader initiative of perhaps telling Getinge by division going forward? Secondly, when it comes to the split out, have you spoken to the debt holders already and are they supporting such a spin out. And thirdly, when it comes to PPAC, and I really can't understand why suddenly a spin out would improve the results.

It seems to be a little bit like management consulting talk because in the end that the business was still benefit from improved cost savings. So therefore take and for me the topline, to me spinning it out. I don't see how I split out. It's still right would solve the problem. To me, it's more about getting the right people on Board to make sure it works. So, can you explain to be a bit more detail? Why spin out suddenly solves all the problems in PPAC? Thank you.

Joacim Lindoff

Yes. Thanks for the three questions Michael. I will address the one and the three and Reinhard will take number two. And when it comes to further selling off of different divisions that is not only agenda right now. So then moving quickly into three and why this would be the right way to do it, I would like to maybe first underline the fact that I believe that rather I would put it like this is absolutely not a management consultant idea.

This is a work that has been conducted by the Hechingen management team under my leadership and Reinhard’s leadership. We believe that the increased focus over time will give further possibilities for PPAC to grow. We also believe that it needs a different strategic direction. There are growth opportunities and possibilities outside of the current strategic intent for Hechingen that I believe that PPAC under the current organization will have difficulties to address.

Reinhard Mayer

Good and I take the question is regarding whether we have talked to the banks and they told us – we really can say that not yet talked to them. That will commence post this call and in next day.

Michael Jungling

I mean to announce the spin off of course uncertainty wouldn’t have been perhaps it will talk the banks first and see whether they will allow you to do so without infringing covenants?

Reinhard Mayer

Well, let me may rephrase all of the thing that the spin off with first only will not in danger anything of covenants breaking, but of course we need to look into our contractual obligations and of course look into that. And in that bank, we will continue our discussion with the banks shortly.

Michael Jungling

Okay. And maybe follow-up questions on the midterm targets. And if I look at the reasonably poor performance so far in the spin out, it seems to me that the risk is clearly increasing that the midterm guidance that you had given to us as a capital markets today is probably no longer relevant, but yet there is no mentioning in the presentation that you are lowering the expectations when perhaps it's most probable. And when will you know that the guidance that you've given to us previously is no longer relevant?

Joacim Lindoff

Well, what we have said is that we have given you guidance on topline for 2016 and we will if needed come back with new targets for the two entities once we have done our analysis. And we will obviously in that work review, the financial terms for both entities and asset come back to you as soon as we have more information.

Michael Jungling

I understand that, but in terms of being accurate and timely with your disclosure, I mean is the risk not now or the message now that the margin guidance and the targets that you have given us initially are no longer relevant. Is that not the message from today?

Joacim Lindoff

No. And I would like to come back to this topic once we have done our thorough internal analysis regarding the targets and guidance for the two companies.

Michael Jungling

The reason I'm asking is that people are relying on the guidance and then everything indicates that things are on the downside, yet you're not indicating that and therefore, some people may still be relying on the old guidance.

Joacim Lindoff

Well. Again, we will come back to this and until something else is communicated, we stick to the current targets.

Michael Jungling

Okay. Thank you.

Operator

We will now take our next question from David Adlington from JPMorgan. Please go ahead. Your line is open.

David Adlington

Hi, guys. Thanks for taking the questions. First one is on PPAC, again I’m afraid. Just wondering why you draw the gate for the spin off rather than outright sales. Is there some tax situation we need to be aware off with respect to let’s say around the spin off? And secondly, just in terms of base, why announce it now given there's a lot of uncertainty I would have expected that part of the investment and thought processes around the strategic decision. You need to have some numbers around the additional costs to see whether it would stack up or not. Let’s get your thoughts there in terms of why now, because it sounds like there is far lot to be decided with respect to the numbers? Thanks.

Joacim Lindoff

I think that timing is – if I would put it like that as good as any we have done a thorough strategic overview. And we have come to the conclusion that what we have presented today is the best solution for the continued improvement of this Company. So I would say that is the answer to that question and I believe that we are fully aware of the things that we need to take into consideration when we are doing this both from a strategic and obviously from a tactical and product planning perspective. And we will do that during Q4 and Q1 and we’ll revert to all of you as soon as we can with detail plans. With the tax part, Reinhard would you like to comment shortly.

Reinhard Mayer

Yes. I think the – I mean your question was it a tax driven guidance from the both, on this dividend distribution. Yes, I can also answer there was a tax related issue. It is a strategy going forward which would be tax neutral for the given shareholders and it is one way to pursue that and I think there has been reasonably very good examples on that. But yes, that has not been a specific tax issue driving this decision.

David Adlington

As far as the question was would a sale have triggered a taxable event and therefore resulted in low returns to shareholders.

Reinhard Mayer

We have not assessed this.

David Adlington

Thanks.

Operator

We will now take our next question from Peter Testa from One Investments. Please go ahead. Your line is now open.

Peter Testa

Hi. Thanks very much. There are three questions as well. Maybe I’ll ask a question on management side definitely. If you look at the direction of the restructuring plan and the planning of the savings around that plan, can you give some understanding of how the management changes have influenced to alter that?

Joacim Lindoff

They haven’t alter that all. We are continuing with the thorough plan that we are having. And what I have done is obviously to review those plans and make sure that we have – I would say solid plans and action behind it, but there's nothing changed since the management change.

Peter Testa

Okay. So your review has not come to any different conclusion that was preexisting. I mean even on the timing of taping, re-consolidating asides any of these sorts of things now.

Joacim Lindoff

What we are doing is that we are constantly reviewing to make sure that we are putting programs in place that takes care of obviously operational efficiency. But at the same time is to make sure that we can have full external focus and that is what we will continue to do.

Peter Testa

Okay. And then looking at Surgical Workflows and Acute Care, I was wondering if you could give us some understanding of maybe how backlog stands currently, some color between the divisions and maybe – and you made some comments earlier that all business is under price pressure and obviously volume will be lower in the fourth quarter, how you think that might affect gross profitability?

Joacim Lindoff

Can’t really comment on the GP margins separately, but what I would say is that we have seen some very, very positive sales synergies when moving together Surgical Workplaces and Infection Control into Surgical Workflows and setup that in a very direct way it takes care of patient flow and instrument flow in a hospital. And we can see continued good traction in ACT businesses, so I would say both businesses are showing positive signs going forward.

Peter Testa

Okay. So when looking at backlog and business, do we say short-term business development even despite the change in guidance as you make that comment. That strikes from me that also the change in guidance as now?

Joacim Lindoff

The change in guidance should be seen in light of the weak Q3.

Peter Testa

Okay. And last question, just on the FDA provision. It utilize virtually all of it by the end of the third quarter and now we have another 400 million and you gave it a Group of different categories. Some of them include consulting and also even product, quality, cost and which would seem to be ongoing costs of the business and you said we may have this situation which is out for some years. Can you give a sense as to how the charges have been decided the late and agreed to what they are relating to say running costs as opposed to capital spending or special projects?

Reinhard Mayer

I have to say I’m not quite – whether I understood your question in a proper way. I mean we have not put the CapEx into those costs. We have frankly put in specific cost related to the remediation program. It’s external consultant, it specifically hire people to remediate the program. It is validation costs are setting up new procedures in place. So that is what we have done and what we have also reported into.

And of course in the remediation program as such we have used internal resources to comply with documentation requirements and so forth it was the knowledge is there. Those cost to an extent also charge to this program, but not more. And I hope I gave the impression that the FDA provision is very much around this very specific activity and has been calculated in that way; want we have so far incurred and what we will need to pay these spend and complete the program in the given timeframe. And Joacim alluded to that that it goes up to Q2 2018.

Peter Testa

Okay. This is 165 million spend this quarter and you would have been down to 34 million of provision left. And I'm just trying to understand the degree to which maybe this is all to the Hechingen or the other sides essentially spending down or is it still part of this provision covering quality, control, costs and other such monitoring activities required?

Reinhard Mayer

The lion share clearly is to heading in remediation activity, the other side have take some closer activities to perform, but the lion share of the provision is related to hedging.

Peter Testa

Okay, great. Thank you for the answers.

Joacim Lindoff

We will then I believe to take the last question now.

Operator

Our next question comes from Paolo Mortarotti from Tower House. Please go ahead. Your line is now open.

Paolo Mortarotti

Yes. Good afternoon gentlemen. Thank you for taking the question. Today we learned that your intent to spin out a division which is far and we're also learning that effectively no plan has been made yet from a cost standpoint from a tax standpoint or a capital structure standpoint for what it's worth. So we cannot help feeling a bit confused. I would guess that from a stack holder perspective so whether the shareholders or debt holder or main employee. First, do you think the deal is good enough guys?

And then secondly on the strategy side will you keep saying [indiscernible] to enhance focus on the organization, frankly speaking in everything and anything. Are you least prepared to share more details on the output of this strategic review in a little bit more concrete details with us today. Thank you.

Joacim Lindoff

May I ask you to repeat the first question because I did not really get that? Sorry for that.

Paolo Mortarotti

Yes, no. I just asked if you think that the process is good enough because in a normal world the company would come up with a plan make an announcement and execute on the announcement in a relatively short period of time. What you're doing today if anything is heightening volatility and lack of focusing organization for the next 15 months which is probably not really where the doctor would prescribe to getting that in this situation?

Joacim Lindoff

What I would say is that what we have analyzed so far gives us confidence that this strategic decision is absolutely the right one and we will continue to develop detailed plans around this but we strongly believe that today’s decision is the right one from a strategic point of view and also the possibility is to build a long-term sustainable company.

When it comes to the strategic question if there are more things to run through I would say that we have been hopefully fairly detailed in this one with the reasoning around why we believe that ACT and Surgical Workflows should stick together and that we believe that PPAC from a strategic point of view from a focus point of view as a better future as a standalone company.

End of Q&A

Joacim Lindoff

Okay. Then if there are other - time is running out. We would be obviously happy to take more questions in our one-to-one meetings. But with that, I would like to conclude the Telco up today. And thank you all very much for the attention.

Operator

That will conclude today’s conference call. Thank you for your participation. Ladies and gentlemen you may now disconnect.

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