Elekta AB (publ)

Good morning, everyone, and warm welcome to the presentation of Elekta's Fourth Quarter and our Fiscal Year 2021-2022. My name is Cecilia Ketels, and I'm Head of Investor Relations at Elekta.

With me here in Stockholm, I have Gustaf Salford, Elekta's President and CEO; and our CFO, Tobias Hagglov, who will be presenting the results. And today's agenda start off with Gustaf presenting some highlights of our development, and then Tobias will give you details on the financials, and the presentation ends with a view on Elekta's outlook.

After the presentation, there will as usual be time for your questions, but before we start, I want to remind you that some of the information discussed in this call contains forward-looking statements. And these can include projections regarding revenue, operating result, cash flow, as well as products and products development.

And these statements involve risks and uncertainty that may cause actual results to differ material from those set forth in this statement. And with that, I hand over to you, Gustaf.

Thank you, Cecilia and hello everyone. Thanks for joining the call here on our results on Q4 and also the full-year.

And I would like to start with ACCESS 2025, our strategy and how we delivered on it in the full-year, but also in Q4. So, over the last year, we have truly accelerated our innovation investments to support the long-term growth and margin expansion of Elekta.

And it has resulted in many product launches of versatile solutions across our portfolio. We continue to build strong customer partnerships.

And in Q4, we signed a 10-year agreement with the leading Netherlands Cancer Institute NKI/AVL. The agreement is focused on co-creation adaptive and personalized workflows and treatment delivery solutions.

Also in the UK, the NHS or the multiple licenses for Elekta’s ProKnow, a software solution with centralized and analyzes radio radiotherapy data in a secured scalable platform accessible to the NHS radiation oncology facilities throughout England. We also drove partner integration across the cancer care ecosystem with IBA to optimize quality assurance, QA solutions, and with GE Healthcare to enable us to provide hospitals with a comprehensive offering across imaging and treatment for cancer patients requiring radiotherapy.

Kaiku Health, our leading cancer care digital therapeutics platform; and Roche, a leading global healthcare company entered a strategic partnership in digital patient monitoring and management. We are also driving adoption across the globe.

And we are well on track towards our ambition of giving 300 million people access to better cancer care before 2024, 2025. This year, we installed Linacs in underserved markets that gave access to more than 60 million people.

We also expanded into Indonesia, Turkey, and the Philippines with direct operations. We have truly, truly fantastic people at Elekta.

And I'm so proud of how Elekta’s employees and partners have dealt with all the headwinds in the year. And I’m very pleased to see that our employee satisfaction and engagement also increased.

We have driven several resilience and process excellence initiatives across the value chain, which has enabled us to successfully install and serve our solutions, driving order and revenue growth also during restrictions and lockdowns. It is vital for Elekta that we deliver our solutions and services in a sustainable way.

And in order to track performance over sustainability initiatives, we have developed our science based targets that are now ready for submission. And if we now turn to our order and revenue situation in our focus areas, you can see that we're growing orders with 2% in the quarter and 4% for the year.

And if you exclude the largest deal ever for Elekta last year, the underlying growth rate would be 8% for the years on orders. Our order backlog increased almost SEK 40 billion.

During the quarter, the geopolitical situation changed with the war in Ukraine, as well as COVID-related lockdowns in China, but our installations came in better than planned and revenue grew by 5% in the quarter and 4% for the year. To continue this development and drive profitable growth going forward, we are focusing on continue to mitigate the COVID and the supply chain disturbances, but also to address inflation by high pricing and cost reduction activities from our resilience and excellence program, and driving cost measures and productivity initiatives across our processes.

And if we now take to reading our perspective and turn to the order situation by region, you can see that Americas declined with 6% in the quarter. U.S.

having challenging comps. Canada continued to show good order growth for the fourth consecutive quarter and South America was impacted by exchange rates and financing.

EMEA had a very strong growth of 16%. We received the first order from the reading on Spanish hospitals that was linked to the large public tender.

And the Middle East in Africa continued to grow strongly. The success of Elekta’s geographic expansion strategy continued as Egypt and Turkey remain the main growth drivers for the region.

Order intake in APAC decreased by 5%, driven by weak development in some countries in East Asia and in India. And in China, Elekta continued its market leading position, but order intake was somewhat softer than last year due to an overall slower market.

The strong order growth in Australia continued and Philippines where Elekta opened our direct operations also showed good growth in the quarter. And you can find some exciting orders in the bottom here of the slide.

If you now take a look at our portfolio of solutions and products, you can see that Elekta has truly most comprehensive portfolio in the radiotherapy industry. And if you look across our business line, you'll find Oncology Informatics, Linac, Brachy, and Neuro Solutions.

We've also made these recent launches in all business lines with MOSAIQ, Elekta Harmony, Elekta Studio, and now most recently Elekta Esprit. During the year, we have accelerated our innovation and our gross R&D as a percentage of sales has increased, but will stabilize and reduce over time.

The focus has been and will continue to be on the investments in our family of Linacs, the unity platform, and software solutions across the portfolio and the business lines, but now I have to say a couple of words on our recent launch of Elekta’s free that we did at the conference ASTRO here just a couple of weeks ago. And it is in the same year that Elekta is turning 50 year.

And this launch is very important for us because it's the latest and most advanced radiosurgery solution and it enables more personalized radiosurgery with sub-millimeter accuracy and treatment planning in less than 60 seconds. It is more patient friendly treatments and the degree of precision is able to protect the mind and the person and is truly enabling a higher quality of life.

I'm also proud to say that we actually received our first order now for Elekta Esprit from Sheffield in the UK. And now to an update on the momentum around Unity.

So, Unity as you know is a ground-breaking cancer treatment solution giving clinicians the ability to visualize tumors during the treatment, and the system is the world's first and only high-field MR-Linac. During ESTRO, more than 70 clinical abstracts were published relating to Unity.

And I would like to highlight three out of these. Firstly, the latest update from the momentum study reported outcomes on over 40 different disease sites in 1,800 patients.

One paper showed that the patients receiving full online adaptive personalized treatment, there was no severe toxicity that was recorded and that's a very strong result. Secondly, an abstract from Odense in Denmark reported on the feasibility of treating pancreas cancer patients with a dose that is nearly double what is typically used for this treatment resistant tumor type.

There were no severe side effects in the patients treated on Elekta Unity. And we take this as more evidence that indeed seeing what you treat matters.

Thirdly, a team from Princess Margaret Cancer Centre in Toronto demonstrated how MR guided adaptation resulted in more favorable protection in a prostate treatment. There were no acute toxicity with MR guidance.

And these reassuring results give our user community the hope that the MR guidance will enable them to push high [perfectination] [ph] even further in the care of prostate cancer making treatments even more cost effective than they already are. Our MR-Linac consortium, which will have their semi-annual meeting here in June have 16 clinical trials ongoing, and the first ongoing trials will be completed here in 2023.

And I must also say that we reached a key milestone when we presented our comprehensive motion management at ASTRO. This is the first non-invasive true 3D target tracking on the market.

It is also important to stress that we track the tumor in three place, not only vertical, but also horizontal and in depth. So, how is the continued rollout of Unity growing across the globe?

And here I'm proud to announce that in total, more than 120 MR-Linacs had been ordered since the launch. And despite the challenging circumstance of having global installation teams during the pandemic, we managed to install another 17 Unity systems since our Capital Markets Day in June last year.

And we now have more than 60 systems installed or under installation with relatively even distribution among our three geographic areas as you see here on the map on the slide. And with that update, I would like to hand it over to Tobias.

Thank you, Gustaf and good morning, everyone. I will start with the Q4 financials.

With a strong finish of the quarter, revenues grew by 5% despite the challenging market conditions. Americas and APAC had strong growth of 11% and 8% respectively.

Growth in Europe was in-line with previous year, adversely impacted by the war in Ukraine. Our solutions operations grew by 6% with good growth in our Linac and Brachy businesses.

Gross margin in the quarter was 37%, resulting in a sequential improvement from the third quarter went down year-over-year. I will come back to this gross margin development in more detail.

Our operating margin declined by 150 basis points while earnings per share increased driven by higher EBIT and a lower finance net. Let's turn slide and look into our gross margin development.

As I mentioned, our gross margin fell by 150 basis points year-over-year. Higher revenues from both our solutions and service operations contributed positively by 200 basis points.

FX mainly driven by the strengthening of the U.S. dollar had a positive effect of 60 basis points.

Higher prices of components and cost inflation had an adverse impact of 300 basis points. And finally, the relatively higher sales or solution versus service and an adverse product mix had an unfavorable impact of 110 basis points.

Now, let's turn slide and talk about our expenses in the fourth quarter. Selling expenses increased by 15% in the fourth quarter, partly as a result of more customer related activities.

In addition, we have also made a provision of SEK 18 million related to the war in Ukraine. Our administrative expenses declined sequentially, as well as year-over-year as a result of increased cost control.

Net R&D decreased, capitalization was higher since more projects had moved into capitalization phases while amortization declined year-over-year, mainly as a result of the fully amortized Unity software. All-in-all, expenses grew by 1% year-over-year in constant exchange rates.

Let's look into our R&D development in more detail. In-line with our strategy, and our plan.

We have accelerated our investments in innovations. For those of you that participated at ESTRO Conference you could recognize the launch of the Elekta Esprit.

You could also recognize our emphasis to further strengthen our product portfolio. Gross R&D as a percentage of sales amounted to 14% by the end of this year.

And as you noticed from the slide presented by Gustaf, this will, as a percentage of sales first stabilize and then come down in coming years. Now, let's look into the full-year financials.

For the full-year, our revenues grew by 4%. All regions grew and sales of solutions, as well as services increased year-over-year.

Our gross margin has been adversely impacted by inflation and higher cost within supply chain logistics and service. This was partly offset by higher net sales and a slightly negative FX impact.

All-in-all, our gross margin amounted to 37.4% for the full-year. OpEx increased by 3% in constant exchange rates.

Our EBIT margin came in at 11.3% with net currency impact or close to zero when comparing to last year. Net financial items improved mainly driven by a lower gross debt and the income tax rate decreased in the year to 21%.

All the items just mentioned led to an earnings per share or SEK 3. Let's turn slide.

Our net working capital continued to follow a normal seasonal pattern. Net working capital decreased to minus 6% in the quarter, resulting in a similar level as Q4 last year.

Due to current market conditions in the freight market, we continue to hold higher inventories with early shipments to mitigate the longer lead times and secure time plans for installations. The mitigation of extended supply chain lead times have also led to higher customer advances and accounts payable.

Let's turn slide. Cash flow from operating activities amounted to SEK 1.9 billion.

EBITDA for the full-year was SEK 2.7 billion. Taxes paid were approximately SEK 450 million was broadly in line with previous year.

Net interest was substantially lower than last year. And the cash flow from operating activities amounted to SEK 1.9 billion, resulting in an operational cash conversion of 69% for the full-year.

Finally, continuous investments amounted to SEK 1.4 billion, mainly driven by investments in our innovation pipeline and a strengthening of our product offering. All-in-all, our cash flow after continuous investment was SEK 450 million.

Now, let's turn slide and look into the dividend proposal. The Board of Directors has proposed a dividend on SEK 2.4 per share, and this to be paid out in two installments.

This is enabled by our strong balance sheet. Over to you Gustaf.

Thank you, Tobias. And I would just like to say couple of words on our outlook for Q1 for the next fiscal year.

So, what we see currently is, of course, this uncertain macroeconomic environment with continued supply chain challenges and it's impacting installations and costs and margins, but we also see a very strong long-term market trend to support growth and investment in high-end radiotherapy equipment and margin expansion. And I would like to reiterate our mid-term outlook until 2024, 2025 and that's really about the more than 7% net sales CAGR.

The margin of EBIT percentage expansion over the period, and as you saw a capital allocation of more than 50% of annual net profit in dividend. And to summarize the last quarter Q4, we saw the strong finish of Q4 and we also saw improved margins versus Q3.

We had growing orders and revenue in the quarter and we reported out more than 120 Unity orders and more than 60 Unity installations. We are delivering on ACCESS 2025 by forming new partnerships both with vendors and with customers, and we're also well on track with a targeted installed base in under certain markets.

And we’re also shown our comprehensive portfolio in – now also including Elekta Esprit and our focus on accelerated innovations going forward. And yes to sum up, I would just like to say big, big thank you to all our employees, customers, and partners for a fantastic job and efforts during the year.

Thank you.

Thank you, Gustaf. And so for the Q&A session, I would ask the operator to open the lines for questions.

Please operator, over to you.

Perfect. Thank you very much for taking them., I'll keep it to two please.

I guess the first one, I'm curious for the order book and the backlog that you've got. Best guess on your end, how many of those do you think are new sockets versus replacement systems?

I'm trying to get a sense of how the overall installed base is likely to grow over the next few years? So, just curious on rough sense of how much is replacement versus new installs?

And then the second one, obviously supply chain, little bit tricky Access a bit tough, but obviously in EMEA, there's quite a few contracts over the, let’s call the next 12 months to 18 months to satisfy. How should we think about the ability to actually install and fulfill those contracts whether it's Spain or Italy or potentially [as well] [ph] Poland and Croatia over the next, let's call it whatever, year or two?

How quickly should you think you guys can get those installations done? Thanks.

Thank you, Patrick. Two good questions.

I must say, I don't have the exact numbers on the ratio and the order backlog between, kind of new systems versus replacement, but of course, a lot of the growth comes from new market. So, there will be relatively high proportion in, kind of green field sites and so on.

That's also very strong side of Elekta that we have a high share of those. However, you see the replacement site as well in the U.S, in Europe, and also in China now with the aging of their installed base.

So, we see a continuous growth on that to increase the installed base in those markets to take care of the bigger cancer backlogs as well. But I think we need to get back and take a look at the exact numbers there.

So, maybe we can come back here on the call as well. So, on the other question, on the installed base and especially on the larger tenders for example in Europe, we see a big need.

We see that they want quite recent installations. So, we foresee that we will continue to install and get that growth from those larger tenders here in next year’s, month or years, I would say, maybe third year as well, but it's quite recent installation date.

And we see that in other parts of the world as well, because of the cancer backlogs again that you need more Linacs around the world to treat more cancer patients that has been growing now, and finally now diagnosed after COVID. Then, of course, we have the supply chain challenges.

We have the logistics and component shortages and so on, but I think we have shown Q4, we dealt with that well, but overall issues are not gone away and will not do so here in Q1, and either as I mentioned. But I think over if you take a little bit longer time perspective, I expect the logistics situation to stabilize.

And I also expect the component short to the situation to stabilize as well, but it's quite difficult at this point in time to say exactly when. And I would [Technical Difficulty].

Super. Thanks for taking the questions.

Hi, good morning. I will limit myself to two question this morning.

So, last quarter’s profit warning was partly on missed installations of Unity and Gamma Knifes. And now you said that you had a strong finish to the quarter.

I mean, is there a component of supportive revenue recognition in that, I mean actual the last quarter came in early Q4 and then also that you had some luck in installations that could have possibly be in Q1 installations, but now happen in end of Q4 instead. So, basically what I'm asking is, is there a component of supportive timings to the Q4 results?

No, I wouldn't say that to large extent. We always have a couple of spill overs, but I think we have that every quarter.

We had a bit more; I would say last quarter. Now, we were able to deliver those in this quarter.

So, I don't think – I don't see any special impact from that in the fourth quarter.

Okay. Thank you.

And then on R&D capitalization, I mean that keeps rising up 20% QonQ basically, but if we look at the side from a CMD and also in this presentation, I mean, it seems like this quarter should be the peak. I mean, first of, is that correct?

To be [indiscernible] it's stabilizing at higher level. And then how should we think about that delta going into Q1, and when could we see capitalization start to declining?

Thanks.

Thank you, Erik. Yeah, I can take that question.

I think what you would see and what we have said is that our gross R&D as a percentage of sales will stabilize and that is to see here into next year and then the coming years you go down. And what we actually, but that is also related to the sales development, so that is what we see.

So, a stabilizing effect here and I would maybe not look specific into one single quarter [rather] [ph] the trend here into next year.

Okay. So, should we interpret that as a run rate of about 350 million per quarter next fiscal year, and then it starts to decline?

Around that to start with and in absolute terms here for the fourth quarter, it might go up a little bit.

Okay. Thank you very much.

I'll jump back in the queue.

Thank you.

Hi. You’re spending quite a lot of time talking about R&D [indiscernible] etcetera, but I'm a bit surprised about you talking more about what you're doing here trying to improve [indiscernible].

So, I have a few questions related to that. First on the mid-term guidance, what's the starting point when you say that you will grow EBIT expansion as a percentage of stage [over time] [ph]?

Yes. So, I'm happy to talk about that.

And I think it's a very important question Christopher, because we have seen a dramatic pressure on gross margin from primarily external factors throughout the year, especially in later quarters. So, we have a lot of initiatives now and we see it as an excellent program.

To one address, I mean, the production, and logistic chains of Elekta to make them more efficient and cost effective, looking at our manufacturing footprint as well between UK [indiscernible] factory and Beijing factory. Look at how we service our installed base that I think is very important there to find more efficiencies in, in order to support.

All of those factors would support gross margin expansion. If you then look at the rest of our expenses, if we start with R&D.

If you start then with the gross margin, this is something that you talked about for a number of years. I understand there's a lot of external factors, but what's required here for the gross margin to start improve.

What you're doing is got adjusted enough to compensate for even higher inflation. So, what's needed for those more than to start to improve?

And when is it reasonable to assume that happening?

Yeah. So, if we take your first question, I mean, we set off in this new outlook as we know mid-term outlook look at the Capital Markets Day.

And that was also the baseline. Those margin levels where we started there from 2021.

That's the baseline for our outlook until 2024, 2025. Then a lot of additional costs came in throughout the year as we all know with inflation with the component shortages with supply chain costs and more build-up of working capital relating to that as well.

So what we're doing now is addressing that item by item to come back to the similar gross levels that we had in the past. And if you remember the Capital Markets Day and you look at historical past, we have been at around 41% historically.

So, of course, that's the ambition to get back to those levels as we also said in Capital Markets Day. And then we should have leverage on the rest of the cost items.

If it's R&D, marketing and sales or admin cost in order to show an improvement higher than 2021 on our EBIT line.

And also, Tobias here, maybe adding here to what Gustaf said, I mean any scope with that, I mean, we will work very hard on this and address it. I mean a combination of both sales and costs and also the quality of sales [indiscernible] we look at the sales contribution as such, but also specifically on pricing initiatives and also work through the cost base.

So that is hard work [indiscernible] recognized what you also have said. We have had closed stocks into our P&L in this current year and that is for us to work through going forward.

Okay, when should we start, I understand if [indiscernible] about the inflation [will land] [ph], but [Technical Difficulty] when will you start to see that having a positive effect on gross margin?

We see headwind in Q1 as we mentioned more continued inflation, continued potential lockdowns, it hasn't happen yet for Elekta, but we don't foresee it, but of course, there’s risks always, and continue the component shortages due to that. I think what we are looking at the working lot with is, of course, the cost impacting gross margin, that's logistics cost to quite a large extent and what it costs us to serve the installed base.

So, I think throughout next year, you will see that improvement just offer, but we see risks in the Q1.

Okay. And on operating cost, are you doing any more significant cost cutting, reducing number [indiscernible] inflation?

Yes, we're targeting our overall cost as I mentioned with sales and marketing administration as well, so below the gross margin line, and there we need to work more efficiently with the resources we have, but also work with digitization, centralization, and shared service centers as we’ve done a lot in the past. And also new ways of working, for example, remotely diagnosing the [said] [ph] installed base and digitalizing our processes when it comes to sales as well and administration.

So, we still have a lot of things to address and as we're doing right now, and we have this resilience and excellence program addressing those initiatives. And that should result in lower costs going forward.

You think it's reasonable to assume that you would be able to keep operating cost in a flat if you adjust for the – if you look at selling and amortization combined, will it be possible to keep it flat to try to accept the pressure you have on the gross margin?

So, I think we want to recover the gross margin. It's more the trajectory when it will happen.

Of course, it has an impact on inflation and so on. If you look at the rest of our cost areas, like sales and marketing an admin, you should see a good, kind of leverage on that based on the revenue growth we're driving on top line throughout next year, but those are the years ahead until 2024, 2025 that is our outlook here.

And of course, that, I mean that we target to – that the cost growth is slower than the sales growth and resulting in this targeted margin expansion.

Okay. Thank you.

Thank you.

Right, good morning. Thank you for taking my questions.

So, a bit more on the outlook here for Q1. You mentioned unchanged macro environment and continued pressures, should we expect similar impact dynamics that you highlight in the quarter in terms of gross margin pressure as we saw here in Q4, should we expect any improvements here excluding FX in Q1 or can you give us any more flavor on thinking here?

I think now we've seen May as well a bit of it and it's not that things has kind of improved. If you look at the macroeconomic environment, if you look at – maybe a bit of improvement, at least from Elekta’s point-of-view in China.

I would say, but if you take the global situation, it's still a lot under pressure. So, I don't see any big step change under Q1 when it comes to improvement of those factors.

Then Elekta, internally is doing a lot of things to secure the installations we have for the quarter to address our expenses to protect margins and so on. So that's what we work to offset some of those negative effects from external factors, but no significant change in the environment is what we see currently here in May.

Alright, great. Thank you.

And a little bit more, you mentioned in report at a plant in Beijing remained operational in the quarter, but can you quantify the impact from contracting demand in China in the quarter? And can you give us any more flavor on what your hearing and seeing so far in China?

Of course. First I would like to say, I'm proud that we have been able to continue to produce both in Crawley and [indiscernible] in Sweden and in China throughout the full COVID pandemic, the last couple of years.

But if we take a deep dive into China right now, I'm also happy that we can continue to both develop our products, but also of course, produce and ship from China into China, but also other the parts of the world. And we have continued to do that during Q4.

But as we wrote in a report, if you look at the order environment in China during our Q4, you will see a bit of a slower market due to all the lockdown out there. But actually installation have been quite good in the quarter as well, compared to the situation we see out in the different provinces and so on.

It's of course not my role to predict how the development channel would go, but at least when I talk to our teams locally, we've seen a bit of improvement over here in the last couple of weeks and months, I will say. That's the feedback I get from the ground.

Yes.

Perfect. Thank you.

I'll get back into the queue. Thanks for taking my questions.

Thank you.

Thank you very much for taking the questions. I'll start on the R&D side again and regarding the current spend, it is certainly looking as you said to stay elevated throughout the coming fiscal year, which would perhaps be even higher than you guided for one year ago.

And if so what has driven this incremental increase compared to your initial plan you would say? And also please if you could elaborate on the net R&D effect as well?

Since you have a quite clear view on the growth side, but chose not to illustrate that in your presentation, how the net impact will affect the P&L over the coming quarters would certainly be interesting to hear from your side?

Thank you, Victor. I'll start, you can have the innovation investments compared to plan.

And if we start that, one year ago at the Capital Markets Day when we launched this accelerated innovation plan, you can say, and you've seen the curve gross R&D going up stabilizing and then going down, compared to that plan, I should say that the revenue has not fully been there, compared to what we guided for more than 7% throughout the period on our CAGR basis, not year-on-year guidance, but still throughout the period. So, I think that's one of the reasons where the gross R&D as a percentage of sales is a bit higher, compared to that initial plan throughout – in June last year.

But it is important for Elekta with the strong balance sheet we have to continue our innovation investments quarter-by-quarter year-by-year to protect long-term growth when it comes to our Linac solutions Unity and our software platform. And it’s a long-term project.

It takes years to develop some of these products. So, I think that's also important to say and we continue with that innovation.

If you then look at stabilization and decline in next or relatively decline, compared to revenue in the next year, yes, that's what we expect from the year. And on the net side, I leave that to you to Tobias.

Yeah. Sure.

I think what you would see here is, for the amortization it will be flat here into next fiscal year, while we will see a bit of an increase on the capitalization side. Net impact here on the R&D into our P&L will be fairly limited.

And to me, at least how I interpreted it is like, I mean the balance then will continue to expand even for the coming fiscal year and that is not part of, I mean, what we talked about one year ago. So that's my key reason for asking this question is that this net balance over your results will remain at these levels for next fiscal year as well.

Is that the way we should interpret it?

I think you should, what I said here, you might have in absolute terms, slightly increase into the fourth quarter, but then what we say that we see leveling out here and a stabilizing impact of the R&D.

But that means that you won't see any sort of organic growth on the R&D expenses line for the latter part of this year?

That is what we have communicated and what we stick to, yes.

Okay. Thanks.

Secondly, on the backlog in the situation, primarily related to solutions mix that you currently have, since a lot of recent order growth has stemmed from China, if we look one back, which is yet to have [harmonical] [ph] market cleared, it would be interesting to hear if you're at all worried about the coming quarters, not only that the current order backlog might be mis-priced to current inflationary environment, but also that new solution sales could come with a negative mix impact from older Linac systems, what's your thoughts around that?

Specifically on China Victor or globally?

I mean, impacting full group of course. Yeah.

Okay. So, if we start with China, China has quite not so long timing in between order to revenue and that kind of order backlog conversion into revenue is quite quick, I would say compared to some other markets.

So, that's a positive. I think we continue to have a healthy backlog in China and we continue to install well also during the lockdowns etcetera.

And then I think when the situations improve in China, we get even better access to the customers. Yes, we can drive that revenue growth.

And then for overall market conditions, I think all of us and the market is also waiting for the coming then kind of healthcare investment plans for the coming, I think five year period and I haven't so far seen that and I think that will also be an important driver for Chinese orders, but also for installations in the coming years to come. So, I think that's something we all may [Multiple Speakers].

May I just rephrase it then, instead, are you sort of seeing a mix within solutions negatively tilted towards sales of, I mean, the synergy system, for example, or comparing that to Harmony?

No. And we haven't – as you said, we don't have Harmony cleared in China either.

So, we haven't seen that effect yet.

And I might just squeeze in a final one. I appreciate the Unity data points given here today.

What about the investments into more local installation teams? How is that progressing?

How much of an investment will that be for you? And what are we seeing right now?

So, effectively what type of costs will you have to take initially to improve that internal capacity?

That is improved already. I mean, we're invested in some of the teams that has been difficult to deal with when it comes to local installations in China and some other parts of the world throughout COVID.

So, I think we are well invested in our order fulfillment and service operations to take on more volumes of unity installations. And we've done that as we talked about over the years here throughout the last year setting up that for at least now than 24 units and then more – they can take on more volumes than that.

So, I think we're well invested in that area.

Okay. Thanks a lot.

Thank you.

Thank you.

Hi, guys. Thanks for the questions.

I might probably get three actually. So, first, I just wondered how big that Spanish order was and [Technical Difficulty] that European growth in the [quarter delivery] [ph], the margin on that business was going to be accretive or dilutive to your margins?

Just in terms of the reversal of the provision on the purchase that you recognize in the quarter, the contingent considerations gone down, I just wondered what hurdles did that acquisition not meet in terms of paying that contingent consideration? I just [indiscernible].

So, there was two question, did I miss the third question?

[Technical Difficulty].

Sorry, breaking up a bit David. So, I have a bit problem hearing you, but it was on the Spanish order how big and more levels and then the provision.

Can you hear me?

Perfect.

Okay. So, if we start with the Spanish order, it was the first, we didn't disclose a specific number, but it was a significant order and was the first part of that larger Spanish tender.

So, it was not the full amount, but we haven't disclosed any specific numbers there. On the margin levels, yes, it's primarily Linac bundle in.

So, I think overall, maybe a bit lower than average Elekta margins, but good Linac margins, I would say. On the provisions side, yes, I think during the last two years, it's been a challenging environment and we had, kind of [indiscernible], that was an aggressive plan to achieve.

So, when we saw that, we didn't receive that plan, we released that provision. So, it's more under the market conditions, but we're still happy about the development and the future potential of that acquisition.

Maybe just follow up into the slightly bigger picture one. The expecting guidance today, but do you expect to initiate giving the market guidance at some point, because you should have pretty decent visibility on revenues given your order backlog?

Not for this year. So, I think what you see us talking about here is not guidance for next year.

We have a lot of uncertainty as we're guiding or discussing for the outlook for Q1, but we maintain our mid-term guidance. So, you shouldn't expect any new guidance for the fiscal year of 2022, 2023, but we will give the highlights for the coming quarter in all our quarter reports throughout the year.

And then maybe just taking a fourth one in, just in terms of Q1, in terms of how we should be thinking about modeling it, should we be thinking about gross margin being down, you're potentially making a loss in the first?

You broke up there a bit, but how should you think about the gross margins in Q1? I think the question was, and if I take a step back and look at what we are describing on the outlook side, we are saying that all the factors impacting gross margins will continue in the first quarter.

That's the transparency we can give today in the challenging market environments we have around us when it comes to inflation supply chains and logistics costs.

Yes, thanks so much for taking my question. The first one is trying to get EBITDA of a better feeling how you thinking about the full-year.

I mean, I fully appreciate that you don't guide, but maybe we can talk about a bit of the, kind of tail and headwind. So, if I start on sales, you obviously, you have some rather and demanding comp from the last two years very strong order book and obviously demand doesn't seem to be the big issue, while installations and supply had been part of a change last year before.

So, is it at least fair to assume that the, kind of sales growth in line with your mid-term guidance is something that's something that we can expect for or what are the kind of key incremental headwinds that we should bear in mind?

Oliver, of course, a great question. And I think if I start on a positive notes in the drivers and factors, we have a SEK 40 billion backlog to deliver from.

So, I think there's a huge demand as I mentioned for installations in the coming quarter and year. And I've talked in the last years about this what I call extend EU recovery.

And I think Elekta didn't drop that much on revenue quarter into last year, but it's kind of an extended EU recovery. And now we get to enter a situation where we have a big order backlog, we have a big demand, but now it's more to get the machines out there and installed at the customer side.

And then part of it is customer readiness, they need to have the bankers and the preparation work done for us to install and part of visit on our side, how to install or product managed and get the machines and Linacs out to the customers. And I think that will improve throughout the year, maybe not in Q1, but throughout the year.

And then I think also it's difficult to predict, but at least high logistics cost has stabilized on high levels. So, at some point in time, that will go down and then we'll get actually tailwind on our gross margins from that effect, that's kind of hurting us right now.

And that could happen throughout this year, but it's very difficult to say exactly when.

Okay. But that means there's no reason to not assume at least the kind of sales – [6%, 7%] [ph] sales growth for the full-year, correct?

No, of course that's absolutely ambition with the backdrop we have and to drive revenue growth for sure for the full-year.

Perfect. And then on – brilliant.

And then on the margin, I mean, obviously, when you get a kind of a better top line you're working on efficiencies. You just talked about that logistic costs in the full-year may at least probably come down year-on-year and [not currently] [ph] as we just learned amortization is not yet challenged for this year.

So, does that mean that it's reasonable to you also assume the kind of EBIT margin improvement year-on-year? Or should we be a bit more careful simply in terms of the overall inflation pressure and the supply chain pressure may also get a bit worse?

Yeah, very good question. And obviously, we do not guide specifically here as we have mentioned, but a few points on that.

I mean. Gustaf was talking about the [EU from] recovery.

And I think that is also here looking at margin development ahead of us. I think role that you look this on a sort of sequential development.

And obviously, we don't have a crystal ball that can evaluate all the macroeconomic factors here impacting us, but to your point here if – we are targeting sales growth. We see challenging condition here in Q1.

Obviously that logistics that Gustaf mentioned here starts to flatten out that is positive for Elekta. So, yes, we are driving towards margin expansions, but as we said here looking into the first quarter, we do not see substantial changes in the market conditions.

Perfect. And the last question if I may, just in pricing, can you just update us on your pricing initiatives just on solutions?

And also can you talk about in your order book? Is there any ability for any, kind of price adjustment clauses or can you ramp up the order book probably to Harmony, Harmony Pro to get some kind of a price offset there?

And that has been, I would say, the focus area for many of our discussions over the last quarter, of course, because of inflation. We have done quite a lot of studies.

We're talking to customers doing surveys. And the customer's willingness to accept higher prices is quite good actually.

They also have an understanding that the macroeconomic environments are changing. So, for new orders as we placed here in Q4 and we continue going forward, yes, we have price increases there, kind of implemented, but the key thing is, of course, to bring value to the customers.

So, with the new launches as I mentioned with Harmony, with Elekta Studio with Elekta Esprit with new software solutions that's the best opportunity to raise prices because you bring value to the customer. So, then we talked about the new orders that would translate into revenue often with around a year's lag, order to revenue.

If look back in the backlog of Elekta, you had the SEK 40 billion, around 50/50, I would say was, I think it's 55% solutions, and 45% service, out of those 45% service, you have CPI or inflation clauses that you will then increase linked to index year-over-year. For the rest of the 55% in the backlog, that's more difficult because that's often public tenders and we don't have any, that's when the price that you negotiated at that point in time and we need to deliver on it.

Of course, we look into opportunities can replace synergy with Harmony, can do some more off the sales or the other products we can offer to those customers, but it is according to contract. So, new sales price up service part to backlog, price according to CPI clauses, lots of effort in the rest of the backlog to see price of margin improvement factors, but that's more difficult I would say.

So that's just to give you some of the dynamics there Oliver.

Thanks so much. That's helpful.

And if I can squeeze in last one. I mean, a big discussion point these days is also personal cost inflation.

I think there was so far not part of your discussion, is it something you're seeing or are you concerned about?

Personnel cost inflation, salary increases or…?

Yes.

Yes, there is some salary increases or inflation impacting salary increases as well. I think it's very different country by country, I must say.

So, if you say the U.S., you will absolutely find it less so in Europe because the inflation is more driven from energy prices, etcetera. If you go into China and APAC is not that much inflation pressure on salaries, what we experienced at least.

So you need to take a geographic perspective there. We try to offset that by being more efficient, doing more activities in low cost countries and shared service centers.

So that's our plan to offset that effect with more efficiencies and lower cost country operations.

Super. Thanks so much for the color.

Thank you.

Yes, good morning Gustaf, good morning, Tobias. Thanks for taking my question.

I just have one, it is just whether you could provide some more color on your order book in the U.S. basically, I understand that you were facing tough comps from last year, but we've obviously had some mixed comments from various category equipment companies in the quarter as to the attitude of U.S.

Hospitals in the context of rising bound yield and wage inflation. So, just curious what you, what sort of discussions you had in the U.S.

specifically in the past few please?

Yes. Great question.

If you take the U.S. situation and probably seen a lot of other companies as discussing it, maybe a bit more impacted by interest rates, more private initiatives you can say and to some extent salary inflation as well impacting the operations of the clinics.

At the same time, they need to optimize – do optimization of the processes and we can help with part that making the clinics more efficient with software solutions or workflow initiatives. And as I often say, U.S.

for Elekta is not so much market growth market, but the market share gain market. So, with Unity, with new solutions, with partnerships I think we have a great opportunity to take share in the U.S.

going forward. So, I think that's how I see it.

But of course, some of the private initiatives is then impacted by the factors you mentioned with inflation and interest rates.

Thank you very much.

Thank you.

Thank you.

Yes a quick one on the Unity installations. I think you said the total of 61, if I do the math correctly, but how many of those are currently being installed, is it possible to give a figure for that?

I guess, you haven't been able to finalize around 20 installations this loss [indiscernible]?

Sorry, just a clarification, because, what do you mean by the last comment, the 20?

If you have done 61 installations, now and you must have done around 20 this last fiscal year, if I’m not totally wrong here. [Indiscernible]

Yeah. So, to your question, I think the delta is, if you compare to the material we presented over the last year’s update on installations, is now [17s] [ph] that are under installation or installed throughout the year, so to say.

So, I think that's important to say. And out of those, I think it's a capital that are under installation.

So, we started the installation on those machines. So, of course, we wanted that to be a higher number.

So, you have been able to do around 15 or so?

17.

Yeah, but – okay. And it's the ambition out to be [indiscernible] before going forward?

Absolutely. Absolutely.

So, I think we said that during the year. It's been a more challenging product together with the Gamma Knifes to install throughout the COVID impacted years.

However, we worked – I mean, we always want more, but we're quite pleased with the 17. The ambition is to quickly come up to the 24 and higher in the coming years here, of course.

That's how we set up the supply chain.

And what about – if you look at the demand situation for new orders, my impression is that, you’re starting to see more demand from smaller clinics also, do you expect [lot of] [ph] momentum to pick up there now after the pandemic for Unity?

Yes. I mean at the recent ESTRO Conference, there was a huge interest for Unity.

We had a great traffic with customers we haven't seen before and having discussions with them around Unity. And the type of discussions we now have is, if you are comprehensive cancer center, you should have a Unity.

You would have other Linacs as well, but that would be part of the bundles. And I think that's great discussions for us to have and we see that opportunity with MR-Linacs, but of course, especially with Unity that will be becoming in more kind of a standard of care going forward.

And we see big opportunities there not just on the academic KOL sites, but also more regional or provincial hospitals throughout the world. So, I think we are at the very important part of our journey with Unity.

We also see the clinical evidence coming and you see a bigger ramp up of it and a huge interest from the customer community around it.

Okay. Thank you.

Thank you, Kristofer. Thank you.

Yes. And we have reached the hour.

So, if you have further questions that you didn't have time to – that we didn't have time to address in this call, please don't hesitate and reach out to us and we take those questions separately. And with that, I thank you for participating today and wish you a further good day.

Goodbye.

Thank you. Bye-bye.

Thank you. Bye-bye.