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Edited Transcript of EKTA B.ST earnings conference call or presentation 28-Nov-19 9:00am GMT

Q2 2020 Elekta AB (publ) Earnings Call

Stockholm Dec 10, 2019 (Thomson StreetEvents) -- Edited Transcript of Elekta AB (publ) earnings conference call or presentation Thursday, November 28, 2019 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Cecilia Ketels

Elekta AB (publ) - Head of IR

* Gustaf Salford

Elekta AB (publ) - CFO & Executive VP

* Richard Hausmann

Elekta AB (publ) - President & CEO

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Conference Call Participants

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* Carolina Elvind

Danske Bank Markets Equity Research - Analyst

* David James Adlington

JP Morgan Chase & Co, Research Division - Head of Medical Technology and Services Equity Research

* Johan Unnerus

Pareto Securities, Research Division - Analyst

* Michael Klaus Jungling

Morgan Stanley, Research Division - MD, Head of MedTech & Services and Analyst

* Nyeok Lee

Jefferies LLC, Research Division - Equity Analyst

* Oliver Reinberg

Kepler Cheuvreux, Research Division - Head of Med Tech Equipment & Services Research

* Patrick Andrew Robert Wood

BofA Merrill Lynch, Research Division - Director in Equity Research and Head of the EMEA MedTech & Services Team

* Sebastian Walker

UBS Investment Bank, Research Division - Associate Analyst

* Veronika Dubajova

Goldman Sachs Group Inc., Research Division - Equity Analyst

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Presentation

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Cecilia Ketels, Elekta AB (publ) - Head of IR [1]

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Good morning, everyone, and warm welcome to the presentation of Elekta second quarter in the fiscal year 2019 and '20. My name is Cecilia Ketels, and I'm Head of Investor Relations at Elekta. With me here today in the slide presentation, I have Dr. Richard Hausmann, Elekta's President and CEO; and Gustaf Salford, our CFO.

And on the screen, you can see the agenda of the day. Richard will start by explaining the development and some highlights in the quarter. Then Gustaf will take you through more details on the financials. And at the end, Richard will summarize the key findings and the outlook for the coming quarters. And of course, there will be a Q&A session at the end with questions both on the audience here in Stockholm and from the conference call.

But before we start, let me remind you that the information discussed here today, including our projections on the revenue, on the operating profit, cash flow, product and project development, include forward-looking statements. And these statements include uncertainties and risks, and therefore, the actual result may differ materially from what's set out in the statements here.

And with that, I hand over to you, Richard.

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Richard Hausmann, Elekta AB (publ) - President & CEO [2]

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Thank you very much, Cecilia. Good morning, everybody, here in the room, and good morning, everybody, on the phones and the screens.

Q2 performance, as we already know, as you already know, because of our interim report 2 weeks ago, it was a mixed quarter. Let me go into that in a bit more detail.

But before I do that one, I would like to reiterate what Elekta is really standing for. And we are standing for precision radiation medicine. Actually, we are precision radiation medicine. And that means that we want to provide everyone in need for cancer care with the most precise and most personalized therapy possible. That's our mission. That's what we are standing for. For the precision, gives the ability to really target the tumor only and save as much healthy tissue as possible. I think that we have the best solutions with that one, not only with our Unity but also with our existing systems, even starting with the Gamma Knife and the Brachy systems, for example. And then the personalization comes, of course, and the precision comes, of course, also with our software tools, which gives the right information about the patient at the right point in time to the clinicians, to the technicians, to anybody who is involved in the process of treatment. That we are standing for radiation. That's our core competence. That's what we are really good. Our engineers, their ability to target, to really focus the radiation beam to the spot where it's needed, that's our core competence. That's what we are standing for. That one, we want to bring to everybody around the world, even in the emerging countries.

And the word medicine stands for the idea that our software tools really not only manage the radiation therapy but also other treatment methods like medical oncologies or chemotherapy, monotherapy as well as surgery because we all know that cancer treatment is not a 1-way street into radiation therapy. It is a combination of a lot of efforts and methods. And we bring software tools to the -- to our clients, which really help to manage this complexity very well so.

I just got an e-mail this morning by chance from Australia, a customer thanking us personally, right, for the installation of MOSAIQ, MOSAIQ Plaza system on St. Vincent Hospital in -- chain in Australia, which went still seamless that he really sent me a personalized letter. That's not happen often, and I'm really happy about that, came right in time. So that's what we are standing for.

Now just a few highlights of the quarter in terms of our presence. ASTRO Chicago 2019, a few weeks ago, enormous response on our booth. User meeting with 700-plus people attending, doubling the leads compared to the years before. I'm not saying that every lead leads to a final order, but it gives a tendency of interest into our products. And it's not owned unit. It was the whole spectrum for MOSAIQ Plaza, our new TPS version of Monaco; and our linacs, Gamma Knife, et cetera. So it's a complete spectrum which grabbed attention in the context of precision radiation medicine.

The same happened just a week ago, actually beginning of this week in Japan on JASTRO, which is a Japanese ASTRO, if you will, in Nagoya where there was the first JASTRO where we officially were able, so to say, to offer Unity because Unity got released in Japan in May this year. And the interest there was also enormous. We see Japan as one of our -- one of the major markets for Unity because, as we all know, Japan is a very high-tech, very advanced radiotherapy market, one of our strongholds, for example, also with the Gamma Knife, as you know. And that is the Tier 1 hospitals in this country will definitely have a lot of interest in and showed a lot of interest in our Unity. So that is, so to say, another stone in the MOSAIQ of where we get our Unity now going and the paradigm shift in radiation therapy. So JASTRO.

And just also recently last week as well, the CIIE, this is Chinese International Input Exhibition. It's interesting, you know that China is mostly exporting. But they also want to show that they are importing, and they do, of course. And radiation therapy equipment is one of the major topics they're importing because the local competition is rather moderate in that aspect. So I was personally there last year. This year, Ioannis, our Head of Sales and Marketing, was there, signing around about 30 tentative purchasing agreements. As you know, China is not black and white. It's more also on the gray side. So -- but these are really interesting agreements, not only related to purchasing but also to collaborations with the Academy of Science in China, et cetera, and universities, which is very important and a very big success factor of us as Elekta in China, a huge connection to the education and training efforts of the country to promote radiation therapy and the surrounding software tools. So that was quite a positive event as well.

And then last but not least, I had the pleasure to sign a collaboration contract to this Russian company, ROSATOM. They will actually produce for us in Russia, in Moscow, our Infinity product for the Russian market. A localization of the product, to that extent, to harvest also the quite massive investment plans, which are existing with the new oncology program in Russia. You see the numbers of linacs. They are planning now to implement in the country 2020, 60, and in total, in the next 5 years, around 137 linacs. Of course, there is a need for localization. That's a typical thing. Our main competitor also went that right away before already a bit, and I think that's an enabler for us also in the country to participate in those tenders even more successfully. So that is a thing which we've signed interesting enough in Germany, for whatever reason, between Russia and the Swedish company, Elekta.

That is a little bit marketing in a sense of awards. We are pretty proud, and I think our team should be proud about those various awards. I just want to highlight a few of them, the TSIA award is actually an award for our service innovations, technical service innovations like the preventive maintenance, the artificial intelligence support behind those topics, et cetera, which I'm very proud about because that is something which creates uptime, and it's seeing. There are a lot of design awards, which were more related to the Unity and the user interface and the whole setup of Unity for patient friendliness and user friendliness. And there is the one on the upper right side, which is the IOP, the Institute of Physics Award for Business Innovation on the Unity side for the paradigm-shifting idea of adapting based on high-quality, high-field MRI images and do the treatment planning as well as adaption with that.

So that's just a little bit of summary of what is happening, which I think is a good feedback for our employees all over the world participating in our product development and our service.

Coming to the numbers. I would like to set our quarter also in a context. Our business is not -- is a volatile business in the sense of quarters. But if you look at the overall trend on our growth, both on orders and net sales, I think, over the last 3, 4 years is quite significant. We are -- also on the EBITA margin side, we are on a different level, again, if you hope -- if you will -- want to say that, but we came from a level of 110%. We are now after a little bit of this tweak with the change of our revenue recognition system, so to peak, in 2018, '19, is a little bit artificial. You should -- also the real number, but you should be a little bit interpolate between that, but we are now at an 18% average, 12 months average level, with the perspective, which we'll come to later, to increase it even further.

Coming now to the quarter 2. This was a mixed quarter. I think you remember what I said 2 weeks ago, a mixed quarter in the sense that we had good growth, but we also had one-off effects on foreign exchange rate and delayed installations, which affected our profitability negatively. And I'm not happy about that. That's -- I want to clearly say that.

The organic order intake was plus 5%. This is a growth but also that could be higher, but that's --this is the quarterly changes,I will come to that in a second. The organic net sales growth was 7%., good delivery, good start-up installations. Don't forget that we have now a different systematic, but we are more dependent on delays because we are depending on a fact that the customer really starts installation or we start the installation of the customer, not that we ship it to the -- we ship it off to the factory. This is easy to control. This is not so easy to control then. I'm pretty proud about the 7%. We are guiding for 8% to 10% for this year. That is in line with that. And we have always typically a stronger second half of the year, as you know.

Gross margin development was pretty stable, 41%. EBITA margin was a real disappointing thing that's why we also went out and did this interim report. At 14.5%, 3.5 percentage points lower than expected, mostly affected by foreign exchange rate, 200 basis points, and 150 basis points were related to some shifts in installations, so the installation readiness, start-up installations, mostly on the Gamma Knife side but also a few linacs, which, of course, are only shifts and will come back in the future.

So -- but if we now take this quarter and relate that to the first half year, the same number on the left side, but now look at the first half year. We have a total order -- organic order growth of 17%, which I think is quite satisfactory. Organic net sales growth of plus 8%, in line with our guidance. The gross margin increased by 1.5 percentage points, roughly, compared to last year. And the EBITA margin is, of course, because of the second quarter and also not to optimize the first quarter, as usual, on a low level, but this will recover in this -- in the quarters to come. Not fully and that's why we reguided from the 19% to the 18%, okay, for the full year.

If I look at the regions. Order income-wise, we had pretty good order growth in North and South America as a combined region. Very strong development in Canada, Mexico and Colombia. We had also 3% growth in the U.S. We have not published that number, but there probably comes questions, anyway, 3% growth. It's not what I would really look for. We look for more. But it was still growth in the U.S.-only market. We had an agreement with Premier in Q2, which is a large independent purchasing organization, which is a very good basis starting point for future business. We had 2 new Elekta Unity orders in the quarter. So overall, quite a good and strong development in this region.

Going to Asia Pacific. Good order intake overall. Good development in India, Singapore, Malaysia, Taiwan and Southeast Asia. We're not talking too much about it, but we are always more and more convinced that we have a real good management in that area and a good dynamics in -- and see that it was 23%. We had 3 new Elekta Unity orders in this region and continue gaining market share in China, have strong market share leadership with independent sources. So I'm not doing only marketing, but we're looking at independent Ipsos data in China.

What was not satisfactory was EMEA, so the middle of the -- our view of the world. And that is most -- was mostly driven with -- by a weak Europe. Middle East, Africa was quite strong. And the dynamics with the new management, as I expressed last time already, is very, very positive. But the Europe itself was a weak quarter. But that's seasonal. It's not a systemic thing. It's a seasonal thing. We lost a few orders now there and there. But there are other tenders going on where we have high chances of winning in the quarters to come. There was only 1 new Elekta Unity order in Turkey, so also not in Europe. So we're expecting a few -- quite a few more Elekta Unity orders. There are projects running, which are -- should have been decided a few of them already in Q2, but they're now going into Q3. So that was also missing. That made the Europe not the greatest-performing region this quarter, this last quarter. But as I said, it's the volatility of this project business, which shouldn't astonish us too much but make -- doesn't make us happy.

In terms of first half, it looks different. There, we have 13% in North and South America, 12% in Middle East, Africa and Europe and 26%. So overall, strong growth adding to this 17%, which I mentioned before.

If you look at Unity, the number which we're always tracking, 75 orders in mid of 2020. We are right now at 64 in total. We added 2 in North America, 1 only in Turkey, as I said, 3 in Asia Pacific. You see the distribution. Very confident about a 75 in the middle of next year. I think we will make the 75 already at the end of the fiscal year, to be honest. So that's a good dynamic in the overall Unity order income. But what makes me even more happy is our customers are happy with the Unity, yes? And more and more customers are happy with Unity. And more and more customers say, this is a new way of treating. It's a unique method for strong therapy. This is for German, it's actually easy to translate. The Swedish statement, is a unique method for radiation therapy. There was this -- it was said by Zahra Taheri-Kadkhoda (inaudible) by -- a Chief Medical Section Chief for -- at Uppsala University Hospital where we went live now a few weeks ago.

But that was not the only one. We actually have now added, in total, 5 new clinical installation, I'll come to that slide in a second, in the quarter, 5 new clinical Unitys, which is quite a bit.

This is a slide, which I got from my team because I asked for a slide, which explains why Unity is a paradigm shift. And they gave me that slide, and this slide really tells you the story because that is a rather straightforward application usually for radiations that have been namely prostate. So sorry, it's not gender neutral now. It's just men. And from that point of view, what you see here in the -- is the prostate changes, the size, the shape, actually, everything, location, every single day of treatment. And what happened here, and then that is the case from Negrar in Verona who got the system actually only a few weeks ago also. But they're doing this paradigm shifting way of treatment already, 5 fractions only for prostate. Think about it. In the United States, in the payment model of today, there are 30 to 40 fractions done on a prostate with the same plan the whole time, yes? The whole time. And they are now incentivized with the new payment models to reduce the fractions, which is very good for the patients and for the payers, by the way. This is 5-fraction, 1-week treatment compared to 4 or 5 weeks treatment. Think about the -- going back and forth to radiation therapy. This makes a difference. Needless to say that you can only do that because you adapt every time the treatment volume to the particular situation of the prostate tumor. And in that way, you can enhance -- increase dose, and you save so much healthy tissue and reduce side effects. This is the story. This is the story. It's not even esoteric applications. It's just the prostate, yes? And that is also the reason why the second system in Utrecht, the second Unity Utrecht, does only prostate, only prostate, yes? That's the whole load of the system because it does it so much better, so much faster, so much less fractions and so much less costs, yes? That's the story. And I think this really tells you the story. Needless to say that this also tells you the story that on our system, we basically have 16 beams, so we really optimize the field. It's basically a remap equivalent, so there are so many different directions of beams that it's more or less continuous, yes, so that also shows how we optimize the treatment.

These were the 18 installed Unitys, which were -- these are actually the 11 installed Unitys before the quarter. These are the ones which are now installed after the quarter, plus the 2 which are installed already in the first month of this quarter. And you see the teams -- is getting extremely international. People have now done roughly 510, 520 patients already on the systems. So continuous growth. Installation speed is really outpacing our competition on that side, and the feedback is really very, very positive. So -- and it's a routine system now for all these customers.

I just wanted to stop here and give the microphone to Gustaf for the more financial details. You saw that I'm getting quite excited when I talk about Unity. So let's talk about numbers first, and then I'd tell you a little bit about our future. Gustaf?

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Gustaf Salford, Elekta AB (publ) - CFO & Executive VP [3]

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Thank you, Richard. So I'll briefly take you through the financials, and I will focus a bit on revenue, of course, but also what happened down to the EBITA margin and a bit on working capital and cash flow aspects of it.

So if we look on the P&L perspective. As Richard mentioned, 7% growth. And if you break it down into solutions and service, that I think is a very important way of looking at our business, you see a strong service number, 8%, been driven by the increase in our installed base. That's growing with around 8% on a rolling 12-month basis.

North and South America came in at 1%. We saw good growth in U.S. We saw good growth in Mexico. We saw good growth in Brazil.

If we look at Europe, Middle East, Africa, was 8% up. And drivers were countries like Turkey, South Africa and Egypt, so more emerging markets in that region.

And then Asia Pacific, 13%, a strong number, especially from China that had 20% revenue growth in the quarter and India as well.

And then if you go further down the P&L, we come down to the EBITA of 14.5%. And it was really about this negative impact from FX and the delayed installations.

And if we look at the FX effect, I just want to take this opportunity to explain it a bit better. There was a lot of questions around this, of course, after the really sort of preliminary results. And there are a couple of key drivers explaining it. And if we start with the currency movements in Q2, you see euro SEK was 0.8% up, USD 0.7%. But you see a big increase in the pound versus the Swedish kroner. That was, of course, because of the stabilization of the Brexit discussions in October. So October explains a lot of this change as well.

If you then think about the share of revenue and the share of costs, we have around 25% in euro of our revenue, 50% in dollars in the U.S. but also in many other parts of the world, but only 5% in pounds, of course, only to the U.K.

But if we look at the cost perspective, euro is 22%, dollars is around 20% from our organizations in the U.S. But we have a lot, of course, 25% in pounds relating to our Crawley facility.

With the effect and increase of 7% of the pound, we got negative EBITA impact from these changes. But it was not only that, it was also balance sheet effects. So if you go through the P&L effect of the currencies, we've got a positive impact on revenue because the SEK is weak compared to the dollar and euros. But then you get the negative effect on COGS and expenses, and that was primarily the strengthening of the pound, as you see here. You go further down in the P&L and you get the FX differences in the P&L, what you see in the statements. And that was a big number in the quarter, minus 120. And that was really about the cash flow and balance sheet hedges, but we also have some smaller currencies, like Turkish lira, Indian rupee, South African rand that can be difficult to hedge, and that was a big move in the quarter as well.

In order to get to the EBITA effect in the quarter, you also reverse last year's FX effect in the P&L. So on the EBITA impact in the quarter, it was around minus 50, but you should have expected it to be around plus 20. So that's the SEK 70 million to SEK 75 million that explains the 200 basis points in the quarter impacting EBITA.

If we move on to expenses. You see that selling expenses increased by 7% versus last year in the quarter driven by more investments in capturing market growth, a bit relating to ASTRO as well and more Elekta Digital resources and Elekta Unity resources out in the regions.

Admin expenses sticks out a bit in the quarter, 18% up, but we have a couple of one-offs there, kickoff of IT-related projects when it comes to operational excellence in our procurement divisions but also inventory management and so on. And it's also partly litigation costs for the (inaudible) litigation that was ongoing in the last couple of weeks and months here. So that's the key drivers for admin.

If you look at R&D, net R&D, what you find in the P&L, it's minus 3% in the quarter. And the explanation is really in the graph to the right where you see that capitalization increased from the SEK 101 million in Q1 to SEK 135 million in the quarter, whereas the amortization is quite flat between the quarters because we're amortizing on the Unity project primarily. And we expect that the capitalization will increase a bit as we go along when we launch more projects like around Elekta Digital but also our linac platforms. But gross R&D in relation to sales, a key KPI for us, is still at the 10% level.

Coming down to working capital and its impact on the cash flow, because it is the key driver in the quarter for the cash -- or sorry, the EBITA bridge. I'll come back to the working capital. So if you look at the EBITA bridge and see versus last year, half year now, we came in at 16% last year. But if you adjust for the MEG divestiture, our MEG business in Q1 last year, you're at 14.9%. And then you see the very positive volume and project mix impact on the underlying business. We have additional costs for Elekta Unity and Digital and some additional admin costs, but it's really about this FX rate differences that I talked about previously. You put back the amortization, and then you come to the 14.2% in EBITA.

If I then come to the working capital bridge and the drivers for the cash flow. There's 2 corresponding effects, I would say. You see that the net working capital as a percentage of sales is flat at minus 7% versus the last quarter. You see a big increase in Brexit inventory, the SEK 270 million, relating to our Brexit mitigation plan because end of October was the height on that mitigation plan when it comes to inventory. And now we're focusing on driving that down during the next couple of quarters due to the stabilization of the Brexit discussions. But at the same time, we were able to reduce accrued income, reduce accounts receivable a bit. I would have liked to say a bit more, but you also saw customer advances coming back. So those 3 effects, I would say, are offsetting each other.

So going forward, looking to the next 2 quarters, we're focusing a lot, of course, to bring down the Brexit inventory to 0 and then also to continue to work with our invoicing and collection process that we have seen a lot of good developments in during the second quarter.

So with that, I would like to hand it over to Richard, again, for the outlook.

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Richard Hausmann, Elekta AB (publ) - President & CEO [4]

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Thank you. Yes. And I pick up immediately what Gustaf just said. So in principle, these are the 2 major driver for us for the rest of the year. As I said, we're pretty booked in the second half of the year, so we want to drive our profitability forward, anyway, when I get our cash flow, in particular, this related Brexit things in order.

On the profitability drivers, we see -- we expect and see already in the second half of the year some of our cost of goods sold initiatives kicking in. So that improvements will -- can be start to be harvested in the second half. We will drive strong installation pipelines. We cannot completely compensate the misses probably, but we are trying.

On the cash flow side, we get -- we will get rid of the Brexit inventory. We have been now done twice, so to say, of Brexit mitigation, and nothing happened. So in other words, we think that it's now kind of a hard Brexit will not come. That's our assumption. And even if so, we still have some inventory, but we work it down until the end of the fiscal year, which will release quite some cash, yes? We have kind of 50 linacs pre-produced, yes? I mean to be safe, to be on the safe side, but we will now, of course, install them and ship them.

And we will -- as Gustaf also said, we'll continue to improve our invoicing and collection processes because, I can tell you, we still have a lot of work to do there. We are centralizing a lot in our business center in Warsaw, which I think is the right way to go forward. But of course, there are some glitches and so happening, which we'll sort out.

And then overall, I just wanted to mention one other thing, which we did in the last 2 quarters, more or less in the background without talking too much about it. We have changed our internal organization at Elekta towards a business line-focused organization. So 5 different business lines are now driving the -- our business forward into the regions where basically we do the real business with our customers. But this generates much more accountability, much more identification with the individual business lines, business lines, I come to that, and also make us faster and more customer focused. That's quite a cultural change, to be honest, because we go from, I would call it, a big ship, a big boat going in the direction, to 5 speed boats, going maybe a little off because we will try out something but drive the boats fast and effective.

These are the 5 business lines: oncology information solutions; MR-linac solutions, driving a paradigm shift. I don't get excited now again, but you know what I'm talking about; linac solutions, we have a lot of good things coming out of the linac side. You remember the Value Linac and other things, that's also very important, biggest business; the neuro solution, the Gamma knife with Verena leading it; and the Brachy solutions. And interesting enough, these are small businesses compared to linac business and are sometimes a little bit underestimated in the regions. Now with this more personalized focus and team focus on individual products, we already see that, for example, the Brachy business gets a total different attention now by our own sales force in the regions, highly profitable business, and we see good momentum there already. And so from that point of view, we empower the ownership with really good leaders as well, clear dedication of the people with the products and the solutions, including service, by the way, increased customer focus, being closer to the customer to get the input, what is necessary, how to improve, how to optimize and be more agile. That's a cultural change in Elekta, which I think is necessary to enable us for future growth, profitable growth.

And that brings me to the guidance, which we have changed for this year, but we have not changed for the -- for a further out scenario. We will -- we are guiding for 18%, as I said, not fully see to be compensating what we have missed in the second quarter. We continue the success of Elekta Unity. Very optimistic about that one, to be very clear, in particular because of the customer feedback, yes, and the speed-up, which we see it recently now in installations going clinical, et cetera. Harvesting the MOSAIQ Plaza, platform introductions we have done at the various shows and where, really, we have now basically completely using the face and slickness in the system. Execution of our COGS reduction program, as I mentioned before, secured installation pipeline and continue our cost control, which we are quite good at, but it needs continuous attention. So in that sense, we are basically guiding for the same numbers in the years to come.

And in summary, I think we are accelerating the MR-linac paradigm shift right now. It's really a true paradigm shift. It's more than just another product, believe me. And I think our major competitor will also, at some point, realize that. We have a very good order growth in emerging markets, which I think is a very important enabler for additional installed base and additional service profitability. Profitability is impacted by one-offs. That is an unfortunate thing. And we do have a lot of things to do to omit this, to get rid of these one-offs in the future. But there's a very good underlying business with strong outlook for the total product portfolio at Elekta.

And with that, I just wanted to mention that maybe some of you will join us tomorrow. But tomorrow, we will go to Tubingen to one of our Elekta Unity installations, which have -- they have done a lot of patients or fractions already. And we will be able to watch a live patient treatment there.

Yes. With that, I give it back to you.

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Cecilia Ketels, Elekta AB (publ) - Head of IR [5]

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Yes. Then we open up for the Q&A session. And we start with questions here in the audience. But while we're handing out the microphone, operator, can you state how to ask the questions through the conference call, please?

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Questions and Answers

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Operator [1]

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(Operator Instructions) So Cecilia, Back to you.

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Cecilia Ketels, Elekta AB (publ) - Head of IR [2]

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Thank you.

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Unidentified Analyst, [3]

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Yes. Question regarding your installation capacity and since that seemed to be an issue in this quarter. Could you elaborate a little bit on what you're doing how to increase your installation capacity as we are facing longer installation times for Unity than for other linear accelerators? I mean is it difficult to find people to do it? Is it a question of time or education of these people?

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Richard Hausmann, Elekta AB (publ) - President & CEO [4]

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Yes. Okay, good question. It's actually -- we have to differentiate between the different products. I mean the -- one delays which we had was on the Gamma Knife. On the Gamma Knife, we have a long-time high again on our orders and sales. We have, for example, there, there's a lot of machinery necessary, a loading system to get the sources in, et cetera. We additionally have already now equipped ourselves with an additional loading machine, so we can install more. People are not the issue, but it has to be scheduled.

On the linac side, we are working down our -- there are 2 things. We are working down our installation times now quite significantly by optimizing the processes. And we installed more linacs than we ever did, frankly, yes, and we shouldn't underestimate that. We're on a really high there. But it's not the people. So we have good people working more efficiently.

On the MR-linac, it's a learning curve, I would say. And that's not unusual. Yes, first of all, we changed our principle for installations that we bring together, basically, the components of the MR-linac at the customer side, which is, I think, the right way to do it. But still, we had to learn a bit. But you see in the going clinical sites now 7 in 4 months, 2 a month in a way, that's quite moving. And that pace we keep, and we train more and more people now. We're getting more and more people to be either linac or MR-linac. The business lines will also help a bit because they will focus on their individual business installations. So I think it's not an overall restriction we have, but we are on a high pace right now.

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Unidentified Analyst, [5]

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Can you say anything about how long time it takes to install a Unity and how much people that needs to be committed from your side to do it?

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Richard Hausmann, Elekta AB (publ) - President & CEO [6]

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At the moment, I would say we are probably around 18 weeks or something to completely do it at Unity, with -- and there are different people on site in different phases. For example, there is a logistics company doing the -- bringing the stuff in, et cetera, then our pre-installers come, then the magnet people come, then our tuning team comes, so to say. One or 2 persons are typically on site in this phase.

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Unidentified Analyst, [7]

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And if it's 18 weeks now, what would you be satisfied with going forward?

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Richard Hausmann, Elekta AB (publ) - President & CEO [8]

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That's an interesting question for me, to be honest, because I would say I would go below 10. Realistically, I think, between 13 and 15 will be a good time. It is a complex system, there's no question.

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Unidentified Analyst, [9]

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Two questions. First, for Gustaf, could you explain why total receivables are not improving more sequentially after that increase we saw in the first quarter?

And secondly, on U.S. orders, only growing 3%. I know total Americas were down quite significantly in the second quarter last year. But how would you describe the year-over-year comparison in the U.S. isolated?

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Gustaf Salford, Elekta AB (publ) - CFO & Executive VP [10]

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Okay. So if I start with the accounts receivable, I think it's always important to look at it as a percentage of revenue, to start there. If you look at -- in the quarter, we collected a lot. We worked a lot with our processes. I mentioned previous quarter, the U.S., I think we have fixed that. However, there are some more collections to be done there. We had one challenge in Italy that I mentioned in the first quarter. We fixed that. It's this e-invoicing databases that you have around Europe that you need to get the invoices correctly into the system. We fixed that, but it's also about collecting those volumes. So I think we have seen good progress there, but more to come in the next 2 quarters.

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Richard Hausmann, Elekta AB (publ) - President & CEO [11]

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And in particular, also, I mean if I recall, the automated -- or the more automating and centralized invoicing into the United States customers was also paired with little things which were incorrect, and then the customers didn't feel to -- necessary to pay, those kind of things. And this, we fixed now in the time, of course. It just comes from the centralization also, which I think is the right way to do it. And automization, digitization and the robots also -- kind of robots behind that to make it less manual, less prone for error, but still, you have to kind of get the child sickness out a little bit.

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Gustaf Salford, Elekta AB (publ) - CFO & Executive VP [12]

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Yes. And I think the way to go is to really look at digital platforms. And there are a couple of good ones that we are working with right now to implement across the business to have to connect the customers and suppliers to have that clarity because still, there's quite a lot of paper-based invoicing around the world, and it's not an efficient process. So it's something we are working on.

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Unidentified Analyst, [13]

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But do you think for -- when we end the year, that you could be back at working capital that's minus 10% of sales? Is that realistic?

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Gustaf Salford, Elekta AB (publ) - CFO & Executive VP [14]

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Yes. I mean there are these 2 big factors: it's Brexit, and that's around SEK 400 million; and then it's AR and accrued income, I would say, and that could be an addition of, say, SEK 200 million. That will take you below the minus 10% that we have been talking about, but I think minus 10% is a level where we should be able to operate under the current circumstances.

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Richard Hausmann, Elekta AB (publ) - President & CEO [15]

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For the future, I think I always say, we have, as Elekta, we have to learn to get more even through the year. It's not only we make you nervous, but also we are nervous always at the beginning because our cash flow is behind. Everything is behind -- no reason for that because we have a very constant operative mode now with the revenue being taken steadily and more and more steadily. So I think that's something which we need to be working on and need to fix.

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Cecilia Ketels, Elekta AB (publ) - Head of IR [16]

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Operator, I think we take questions from 2 persons and then we come back to the audience.

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Richard Hausmann, Elekta AB (publ) - President & CEO [17]

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There was on U.S., I think, yes.

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Unidentified Analyst, [18]

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There was question about the U.S. orders.

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Gustaf Salford, Elekta AB (publ) - CFO & Executive VP [19]

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So the question was isolated...

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Unidentified Analyst, [20]

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Yes. How was the -- how was U.S. orders doing in the second quarter last year? Was that also a really bad quarter? Because total Americas was down some 40%, I think.

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Gustaf Salford, Elekta AB (publ) - CFO & Executive VP [21]

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If you remember, last Q2, U.S. is primarily the service. Service was very weak, but the underlying solutions part of the orders were growing. But it was a poor quarter in Q2 in isolation, yes, order-wise.

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Unidentified Analyst, [22]

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And that 3% you talked about now, is that total orders or solution orders?

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Richard Hausmann, Elekta AB (publ) - President & CEO [23]

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Total orders, total orders.

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Unidentified Analyst, [24]

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Okay. And solution, was that up as well in the quarter in the U.S.?

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Gustaf Salford, Elekta AB (publ) - CFO & Executive VP [25]

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Yes, solutions was up. Yes.

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Cecilia Ketels, Elekta AB (publ) - Head of IR [26]

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Okay. Now we hand over to the operator.

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Operator [27]

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We first go to the line of Michael Jungling at Morgan Stanley.

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Michael Klaus Jungling, Morgan Stanley, Research Division - MD, Head of MedTech & Services and Analyst [28]

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So I have 3 questions. Firstly, on the guidance for the EBITA margin of around 18%. Can you give me the specific amount that you are looking into for FX differences in operations, so the amount that is backing up that 18% margin guidance?

Question number two is, can you give us an update on the U.S. proposed new payment model? It appears it may have been delayed for next year, but I would like to get some more details or few, if I can.

And then question number three is Slide 25, the EBITA bridge. I can't get the maths to work, and I was wondering whether you could let me know what I've been doing anything wrong in terms of getting from one side or the left-hand side to the right-hand side. It doesn't seem to quite match up. If you could perhaps provide some clarity.

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Richard Hausmann, Elekta AB (publ) - President & CEO [29]

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Okay. Maybe you start with the FX, and I'm going to take the slide out.

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Gustaf Salford, Elekta AB (publ) - CFO & Executive VP [30]

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Yes. So if you look at the FX, we mentioned the minus SEK 50 million EBITA effect in the second quarter. If you look ahead, Michael, you know that you can reverse the effect from last year's FX impact in the P&L. And there, you will see a positive impact compared to last year in the second half.

So overall, I would say we are -- we have stopped kind of guide for a number for the full year, but it is a positive number that is similar to what we saw in the beginning of the year. So expect positive EBITA impacts in both Q3 and Q4. And I advise you to start with these reversals of last year's P&L effects. If you look...

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Michael Klaus Jungling, Morgan Stanley, Research Division - MD, Head of MedTech & Services and Analyst [31]

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If I could just confirm then -- can I just confirm then, so you're saying that the line, FX difference in operation for Q3 and Q4, that those will be positive amounts.

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Gustaf Salford, Elekta AB (publ) - CFO & Executive VP [32]

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No, I'm not saying that a more -- your question was more on the EBITA effects, and I tried to give you what is visible already when it comes to the effects, and it's kind of last year's P&L effects. Those were negative in Q3 and Q4. You can find it in the reports. And those will be then reversed, so to say, in this year. It's very difficult to see what the revenue impacts on expenses...

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Michael Klaus Jungling, Morgan Stanley, Research Division - MD, Head of MedTech & Services and Analyst [33]

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I was specifically after the FX differences in operation. What is in that 18% margin guidance for the full year? Is that SEK 150 million, minus SEK 200 million? What are you thinking, please, with respect to that line item?

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Gustaf Salford, Elekta AB (publ) - CFO & Executive VP [34]

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So we see it as a positive number in the end of the year. We see positive effects in both Q3 and Q4 from that. So the Q3 and Q4 should offset the negative effect we have seen in the first half.

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Richard Hausmann, Elekta AB (publ) - President & CEO [35]

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Maybe taking this U.S. payment model, Michael, before Gustaf goes into the EBITA bridge. Yes, you're right, I mean there is quite some headwind from different lobbies, including the Proton Therapy lobby, about these new payment models and even others. And it seems to be a bit delayed or a bit more under -- more discussions needed.

I think, overall, we -- as I said it in the other calls, we, as Elekta, pushing the envelope on reduction of fractions, et cetera, anyway with our products and, in particular, also with Unity, as I pointed out before with the prostate case, we see the overall movement positive. And we just have to see how quick it now will be implemented. But I think it favors advanced technologies like MR-linac and similar ones.

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Michael Klaus Jungling, Morgan Stanley, Research Division - MD, Head of MedTech & Services and Analyst [36]

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All right. Which is that your understanding that it's likely now to be pushed out to 2022, the alternative payment model, is that your understanding?

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Richard Hausmann, Elekta AB (publ) - President & CEO [37]

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I have to say, Michael, I cannot judge what it will be now. There are discussions ongoing. I cannot say more on that one. It will be only guessing. Yes. Okay, coming to the...

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Gustaf Salford, Elekta AB (publ) - CFO & Executive VP [38]

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And then the question on the bridge, Michael, I can take that one again, was on the overall adding up of the numbers or was it on the FX rate differences?

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Michael Klaus Jungling, Morgan Stanley, Research Division - MD, Head of MedTech & Services and Analyst [39]

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Also, on Slide 25, we start off with SEK 917 million. And if I sort of add the positives, the SEK 318 million and the SEK 97 million, and then it seems that as we move to the right, these are negatives, we -- you don't get to SEK 987 million. I'm just curious whether I'm doing something wrong or whether there is perhaps something wrong with the calculation.

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Richard Hausmann, Elekta AB (publ) - President & CEO [40]

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The grays are also negative. I mean...

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Gustaf Salford, Elekta AB (publ) - CFO & Executive VP [41]

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Yes. I need to double-check that one. It seems it could be some errors then in one of the boxes, but let me check that one, Michael.

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Operator [42]

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We're now over to the line of Sebastian Walker from UBS.

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Sebastian Walker, UBS Investment Bank, Research Division - Associate Analyst [43]

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I've got 3, if I could as well. So firstly, could you maybe just comment on the lost orders in Europe? What are those? And why did you lose them? Is that just a timing impact? Or have you lost those to a competitor?

The second question is on China. Varian, in the last quarter, mentioned that they're starting to see incremental licenses come online from the quotas. Are you seeing the same thing there?

And then finally, just on the Gamma Knife delays. Have I understood correctly that part of the reason we've also seen delays is, since Q2, you no longer begin installation before you have letters of credit secured? And if that is the case, then why shouldn't we expect that headwind to continue for the remainder of the year?

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Richard Hausmann, Elekta AB (publ) - President & CEO [44]

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Okay. So let me take those one by one. The lost orders in Europe, so there was -- there were 2 or 3. One was in Russia, frankly, where obviously the aspect of local manufacturing was playing a role for our competitor. And that was one of the reasons why they got this order. I think it was Russia as well as Ukraine, I think. The other one I recall is -- was in the Netherlands in Amsterdam, where I think AMC acquired -- or was acquired, actually, or one hospital acquired another one. And we were, so to say, competitive hospitals in the sense of using us and the competitor. The one which had the decision to make was the one which used the competitor, then they changed basically the other hospital to the competitive systems. These things happen. There was no other bigger thing which happened. We are in tenders on other sites right now. We see positive momentum there. So that's a normal way of business.

In China, as I said, we see good dynamics in China. It is a little bit hard for us to judge which of our deals which we get as orders is a part of the "quota." But I think, as I said in my previous presentations as well, these quotas will be materializing. We don't have an indication yet that it's massive, but maybe one or the other of these deals which we have gotten as orders are from the quota.

The Gamma Knife, what was it again? Letter of credit. Actually, letter of credits, we need already for the order, right?

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Gustaf Salford, Elekta AB (publ) - CFO & Executive VP [45]

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That depends on customer by customer, but it's often related to emerging markets like China, Middle East, Africa, South America.

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Richard Hausmann, Elekta AB (publ) - President & CEO [46]

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And the delay is typically not coming from the financial situation, more comes from source licenses are there. We are a little bit more vulnerable with our new revenue recognition model, but we are learning more and more to manage that. And these are typically the reasons that the bankers or the building is not ready. It's nothing really which makes us ultimately totally nervous because we can manage it, but it happened in the Q2 that it was a bit more than normal.

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Gustaf Salford, Elekta AB (publ) - CFO & Executive VP [47]

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And then just coming back on the EBITA bridge there, Michael, it's the admin/other expenses, it shouldn't be SEK 7 million. It should be SEK 74 million. So the bar is correct, but it's missing a 4 on that one, and that should help you to add up the numbers. So apologies for that.

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Sebastian Walker, UBS Investment Bank, Research Division - Associate Analyst [48]

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Could I just follow up on the last question, on quotas? So I guess -- or not quotas, sorry, the delays. What gives you confidence that for the remainder of the year, this isn't going to be an issue?

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Richard Hausmann, Elekta AB (publ) - President & CEO [49]

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Now we looked at -- I mean, as I said, we looked at our projects quite thoroughly overall, and we see that they are quite online. Of course, there can be a delay or not, but we're also working on getting the ones which have been delayed into it. So I think there's quite some -- there's a good mix there so that we are quite confident that we -- the numbers which we are planning for, we are hitting.

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Cecilia Ketels, Elekta AB (publ) - Head of IR [50]

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And then we take some questions here from the audience. Carolina, please, from Danske?

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Carolina Elvind, Danske Bank Markets Equity Research - Analyst [51]

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Two questions from me. The first one, on the COGS reduction program, if you could give some more details on what is it that you still will happen in the coming quarters that will realize those improvements.

And the second one being on -- I know that -- as I understand it, a few more centers opened up for recruiting for the MOMENTUM study during the quarter. And just if you can update on how many patients you have recruited so far.

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Richard Hausmann, Elekta AB (publ) - President & CEO [52]

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Okay. Well, the cost reduction programs are, as I said, are typically kicking in after a certain period when you either have changed the component, and this is kind of the new supplier which hopefully is a cheaper supplier. We have worked on a few of those topics in parallel and for different products, and they are kicking in now towards the end of this fiscal year, will be effective, partially effective; next year, fully effective. I -- personally, I'm still not totally happy about how much we are doing there, so we are reinforcing that more. But there is a certain amount of benefit coming in now for the second half of the year.

On the center -- on the MOMENTUM study, actually, I don't have the number. Do you have the number, Cecilia? How many patients are now in?

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Cecilia Ketels, Elekta AB (publ) - Head of IR [53]

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Yes. It's approximately 250 patients that's been in the MOMENTUM study. And all of our 7 original consortium members are now in the study. But I mean we do expect to have 6,000 patients when it's all done, but 250 are today.

And then we have another question here from the audience from Johan.

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Johan Unnerus, Pareto Securities, Research Division - Analyst [54]

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First, a finer thing. Admin, you mentioned that there were some items that were not sort of recurring. But I presume there's some increase underlying as well. Could you give us a little bit more insight to that? It would be useful.

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Gustaf Salford, Elekta AB (publ) - CFO & Executive VP [55]

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Absolutely. So if you remember, the first quarter was quite low, then we kicked off 3 or 4 significant IT projects. So it's about procurement. It's also about sales and sales funnel forecasting. And it's also about project installation, tracking and so on. So that's 3 key initiatives to support some of the topics we have been discussing here to improve working capital management and procurement and so on. So that's one effect. The other effect is litigation costs. That's a one-off in the quarter, and that's around SEK 10 million to SEK 15 million coming from litigation.

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Richard Hausmann, Elekta AB (publ) - President & CEO [56]

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And by the way, talking about this software program. So these processes which we implement, I think it's important for Elekta to get a complete digital overview of purchases, also for compliance reasons and other things, to be trackable in all these different aspects, sub-suppliers, et cetera. And in the different regions, different legal entities, I think that was very much necessary to really be on top of that one as well. So I think it makes us -- in total, it is an effort. We have to buy the software, et cetera, train the people. But I think it makes us more transparent. It kind of helps us in management also to track things down better. I think that's important. So it's a process excellence aspect.

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Johan Unnerus, Pareto Securities, Research Division - Analyst [57]

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So those parts, the IT, procurement and perhaps project will continue to be a bit higher than the coming quarter as well, presumably?

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Gustaf Salford, Elekta AB (publ) - CFO & Executive VP [58]

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It's often when you kick off a project, then you get a bit of a lump. But there will be resources, of course, working on them for a longer period of time. Litigation cost, that was within the quarter.

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Johan Unnerus, Pareto Securities, Research Division - Analyst [59]

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Yes. And not that we would focus too much on a single quarter, but on the U.S. side or Americas, you had a high margin, good margin in the quarter and the first half of the year. You show that you grow the installation base rather impressively, 8%, I believe. And you have good service support as well. Still, the growth in the quarter is quite low. Is it possible to give any more insight in the mix and perhaps if there is price pressure on sort of traditional linacs and the likes?

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Gustaf Salford, Elekta AB (publ) - CFO & Executive VP [60]

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I think it's important to say, the comment around the installed base growth of 8%, that was globally. That was not relating to the U.S. specifically.

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Richard Hausmann, Elekta AB (publ) - President & CEO [61]

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The margin quality, as we pointed out in the gross margin, actually is quite stable. We -- there's always price pressure, there's no question. I mean there's always competition, there's always price pressure. And as you all know, all salespeople say, it's always the price why we lose. We know that. So no, but we have this configuration management which we have implemented. Now we have quite a good price stability on our linacs. And with the new features that are coming now also from the software side and in next time, cost reduction also with the value linac, et cetera, we find it quite -- we have programs ongoing to keep it that way, let's put it this way.

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Cecilia Ketels, Elekta AB (publ) - Head of IR [62]

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Time is flying, and I know we have 5 people that want to ask questions through the conference call, and we will try to answer those and just extend the time a little bit. So please, operator, go ahead.

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Operator [63]

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So the next one we'll go to is Patrick Wood at Bank of America.

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Patrick Andrew Robert Wood, BofA Merrill Lynch, Research Division - Director in Equity Research and Head of the EMEA MedTech & Services Team [64]

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I'm Patrick. Three as well for me, please. The first would be -- and apologies if I missed this. Could you give us a sense of how many Unity systems are existing in the backlogs currently? Do you expect this to come through into revenues over the next, whatever, 3 years? Just a net number there that is still to come through into the sales line. That's question one.

Question two, just curious, the pushback from the industry, because I also saw that, on the reimbursement change in the U.S. If the shift to SRS and SBRT is a good thing, why do you feel the industry is pushing back so hard against that? It would be interesting to get your views on why you feel others are pushing back so hard on that reform.

And then final one. I haven't talked about it much, but ProKnow had quite a lot of feedback from clinics that, that was a genuinely very good product. I'm just curious whether that could ever become material to you guys and how you would think about it if you were asked.

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Richard Hausmann, Elekta AB (publ) - President & CEO [65]

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Okay. The backlog, we need to calculate quickly. I mean we have 64 orders. We have -- how many systems are now...

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Cecilia Ketels, Elekta AB (publ) - Head of IR [66]

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Installed, 21, and 2 under installation, so 23.

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Richard Hausmann, Elekta AB (publ) - President & CEO [67]

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2 under installation, so the rest is backlog.

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Gustaf Salford, Elekta AB (publ) - CFO & Executive VP [68]

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And then all of them should go out in the next 3 years, if that was your question, because that's also our booking criteria. We don't book anything on the project side that's further out than 3 years.

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Richard Hausmann, Elekta AB (publ) - President & CEO [69]

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The payment model, I don't think that our main competitor is pushing back so much, but ask them yourself. It's not that the industry in totality is pushing back. I think there are some quite massive interest from the customer side which I could see, particular maybe also some freestanding or radiation therapy centers in the United States which work on quite old machines. That is, of course, for them a quite substantial issue because they have to either upgrade or change and go to new technologies.

I think a lot of discussions are related to, as I said before, proton therapy, which is a little bit treated, I think at the moment, not special. And there is a tendency that this should be -- or the wish of both industry in that part and end users to treat it special. I don't want to comment further on that one. There was also a little bit of an issue on the Brachy side, I think, which needs -- the sources, et cetera, need to be discussed a bit more in detail.

But the rest of it, I think, makes quite a lot of sense. It's also not a thing which is only happening in the United States. I know from my home country then, as far as I understand, in January, Germany is also going from the reimbursement towards a more case-oriented reimbursement scheme. Other countries have been already there for quite some time. I think one has to say -- one has to think more in terms of the patients also at a certain point in time. And patients should come into the benefit -- have the benefit of new and less burdening treatment. And these are typically the more precise treatments because then you can do it multiple times and you don't irradiate a lot of healthy tissue. From that point of view, I think at least we, as Elekta, we are not in any form against these new reimbursement schemes.

And then what is the last one? It was...

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Gustaf Salford, Elekta AB (publ) - CFO & Executive VP [70]

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ProKnow.

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Richard Hausmann, Elekta AB (publ) - President & CEO [71]

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Oh, ProKnow. ProKnow is so good. That's why we bought them. It is actually a software which is even used for global competitions in optimizing treatment plans. And it's very much cloud-based, and that's what we also like about this software a lot. So we are integrating that software into our offering for treatment planning solutions, our Monaco product. And I think that's quite well underway.

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Gustaf Salford, Elekta AB (publ) - CFO & Executive VP [72]

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Yes. So it will be a significant part of our product offering, I would say, on the software side. Just as we did with Palabra and SmartClinic, that's a good example for how it can be rolled out in our product offering.

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Richard Hausmann, Elekta AB (publ) - President & CEO [73]

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A lot of these applications, basically, in this flower, so to say, of -- or bouquet of different applications on top of MOSAIQ. And I think this -- it shows more and more that this is the right way to go forward because you need stability on one side on the underlying data structure. That's what the customers appreciate, not to change the whole database and everything. At the same time, we want to have cloud-based, ease-of-use, easy-using workflow and other applications. And that's exactly what we are right now providing. Good dynamic right now.

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Operator [74]

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We now go to the line of Kit Lee at Jefferies.

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Nyeok Lee, Jefferies LLC, Research Division - Equity Analyst [75]

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I have 2, please. I guess, firstly, just on your midterm margin outlook. Just given the lessons from the last 2 profit warnings, what gives you confidence on maintaining that target? And do you think this is as likely a scenario now as before? Maybe just walk us through some of the drivers, that would be helpful.

And then secondly, on Premier. I guess since the announcement, have you made progress into competitive accounts as a result of this deal? Or is this still something that would take a while to work through?

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Richard Hausmann, Elekta AB (publ) - President & CEO [76]

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To start with the Premier, as far as I understand, not yet. We have concrete orders, but I think this is -- this takes a bit of a time because Premier is -- was an account -- is an account which, of course, has other vendors as suppliers as well. So one has to work. And our team in the United States is working on the individual deals now basically within this network. But I haven't seen yet some, as far as I know, which materialized, but that's probably too early also to expect.

On our midterm guidance question, I think that -- yes, it was a moderate quarter, I would say, a mixed quarter, as we pointed out on several times. At the same time, what makes us confident is the overall underlying dynamic of the market is still very strong. The clouds which we saw on the overall economy recently also cleared up a little bit. The trade war stuff and et cetera seems to be at least in a form that people get used to manage it, kind of, yes. It is existing, of course, this kind of trade war situation, but it is managed. And from that point of view, we see that clouds a little bit going away.

We see extremely good dynamics in Unity, which I think is confirming our strategy on innovation, on paradigm shift, on moving a market forward, of course, with another company as well doing the similar idea. But that's not bad. It's good to have a company on also to be convinced about an idea of changing a market. So that's one thing. Then our pipeline, our overall innovation pipeline for the years now to come with the value linac and other things, which we have not yet talked about in detail, gives us also confidence that both from our margin side as well as from our gross side, we can fulfill this midterm and long-term scenario.

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Gustaf Salford, Elekta AB (publ) - CFO & Executive VP [77]

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And from a margin perspective, Elekta Digital is very important as well, kind of the foundation we maybe said last year, build upon on this year and will continue to do so. And that's a very accretive business compared to our other business lines.

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Richard Hausmann, Elekta AB (publ) - President & CEO [78]

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And then don't forget that, at the moment, we're selling Unitys, but we are not yet in the service mode. Yes? So the service contracts, the service margins are not yet contributing, but they will come now also. They're all in warranty still for 1 year. So those things are also adding to it. And so from that point of view, we have not yet seen a reason to change that. Okay?

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Nyeok Lee, Jefferies LLC, Research Division - Equity Analyst [79]

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And I guess then just to follow up on that. In terms of the timing, is 20% in your fiscal year 2021 still a realistic target?

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Richard Hausmann, Elekta AB (publ) - President & CEO [80]

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Well, that's at least the target we are shooting for, yes.

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Operator [81]

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We now go to the line of Veronika Dubajova at Goldman Sachs.

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Veronika Dubajova, Goldman Sachs Group Inc., Research Division - Equity Analyst [82]

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I have 2 housekeeping questions and then one bigger-picture question, if I may, please. On the housekeeping side, can I just confirm, what was the IFRS 16 impact on EBITA in the quarter?

And then, Gustaf, I'd love to understand, to the extent that we do see more GDP strength, which I think is possible at this point in time, do you have hedges in place that can mitigate that? And how long are those in place for? So how should we be thinking about the possibility of that?

I'll let you answer those, and then I'll ask my big-picture question, if that's okay.

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Gustaf Salford, Elekta AB (publ) - CFO & Executive VP [83]

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Yes. So on the IFRS 16, when we started the year, we mentioned that will be SEK 200 million on EBITDA level and around SEK 20 million on EBITA level. And we are there in the half of the year, in the midrange there. So you will see around SEK 50 million per quarter on EBITDA, and you will see around SEK 5 million per quarter when it comes to the EBITA effect. And then you get a bit of a negative effect on the EBIT or net profit impacts. So I hope that answered your questions.

And on the GDP strength, it's different parts of GDP. So we have the organization with our costs in Crawley. But then, of course, we have a lot of working capital and sales through that entity as well. So we are doing hedges, both on the cash flow side and the balance sheet side, to mitigate those risks. I think what you saw in the last quarter, with a very big change in the last weeks and months, that resulted in negative balance sheet hedges. So it's not so much the cash flow hedges on the P&L. So we will work with mitigating that bridge and then hedging it going forward and take care of this one -- maybe not one-off, but these balance sheet items there going forward as well.

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Veronika Dubajova, Goldman Sachs Group Inc., Research Division - Equity Analyst [84]

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And normally, your hedging policy is 2 to 4 quarters? Or are you able to hedge this out further than that?

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Gustaf Salford, Elekta AB (publ) - CFO & Executive VP [85]

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No. That's in line with our policy, yes.

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Veronika Dubajova, Goldman Sachs Group Inc., Research Division - Equity Analyst [86]

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Okay. And then if I can ask a bigger question for Richard. I know you said on the call a couple of weeks ago, you didn't want to look at the business including and excluding Unity. But even including Unity, your growth rate is tracking below Varian. And I am just curious how you're thinking about your competitive positioning. And Unity has been a tremendous success, but I wonder how you feel about the rest of your portfolio and how competitive it is versus the market leader. And maybe give us a preview of some of the things that you were excited about from an innovation perspective that you think might help you accelerate growth.

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Richard Hausmann, Elekta AB (publ) - President & CEO [87]

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Yes. And I didn't change my opinion on that, Veronika. But let me say the following. Number one, we -- every company, if it's our main competitor or us, we're doing developments in one area. We cannot do everything at the same time. We are moving one thing forward and then another one moving forward. I think our overall competitiveness is extremely high. And we have, as I said before, also innovation projects in the pipeline which are related to Elekta Digital, as Gustaf said, which -- to the MOSAIQ Plaza and beyond, yes, which enable us to go that route strong with the new business line, which is OIS business moving forward.

We -- you're right, the Unity is a tremendous success. That is our innovation which -- I'm a deep believer in running a business in a form that you bet on something, you drive this and you make the business going. And then, of course, you do other things in parallel. And we're doing, for example, a quite significant developments in the value linac side, on our other linacs as well, which will become visible soon. So there is a lot of things in the pipeline, which I would say -- by the way, also on the Gamma Knife side. We have a very interesting automated planning tool now for the Gamma Knife, which makes a real paradigm shift as well. Yes? And it is under testing right now on 5 different sites, which reduces -- not only the increases the quality of the plan, but also reduces the time for treatment significantly, I mean significant, 60%, for example, in some cases.

So I think we have a good pipeline of products that makes me confident. But yes, at the moment, we focus a lot on Unity and getting that paradigm shift going because that is something which replaces also other treatments by a better one. I always say the better is the enemy of the good, yes, and that's why we drive it this way.

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Cecilia Ketels, Elekta AB (publ) - Head of IR [88]

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So unfortunately, it's only possible in this call another 5 minutes. May I suggest that we have 3 more callers that want to ask a question. If they can reduce the question to only one, then I think we can do all 3 of them. I'm sorry, Veronika, if you had follow-up questions, we have to take them after the call.

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Richard Hausmann, Elekta AB (publ) - President & CEO [89]

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Yes. Give me a call.

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Operator [90]

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We'll now go to Dave Adlington at JPMorgan.

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David James Adlington, JP Morgan Chase & Co, Research Division - Head of Medical Technology and Services Equity Research [91]

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Just on the European orders again because it's quite a big step down from last year. And on my calculations, roughly, you're down, I don't know, 25, 30 linacs on last year. That seems a bit more than the kind of Russia and Amsterdam you pulled out. Just any sort of further color you can give on that would be great.

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Richard Hausmann, Elekta AB (publ) - President & CEO [92]

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First of all, if you really look in detail, the last year was a very good quarter. So we are -- the second quarter in Europe was very good. So that was one thing we should note. And I don't know if the number is right. I don't think the number is right with 25 linacs because one thing which also we were missing in Europe, and that's what I'm really not happy about, was Unity orders. The Unity orders didn't materialize in Q2. As I said, we are on, call it, 4, 5, yes, very, very strong projects which will materialize soon, but they didn't. So that was another one. It was -- and by the way, it was not Russia only. I said it was Amsterdam, it was Russia, Ukraine. I think these were 2 and -- yes, that was it, basically. I think one in Greece as far as I remember, a hospital which was also acquired by some other hospital chain which changed 3 or 4 linacs.

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Operator [93]

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Well, the final question for today is over the line of Oliver Reinberg at Kepler Cheuvreux.

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Oliver Reinberg, Kepler Cheuvreux, Research Division - Head of Med Tech Equipment & Services Research [94]

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I just want to come back on U.S. book of business. I mean orders last -- into the second quarter last year were minus 41%, and U.S. was also weak. Now you only had 3% growth, and I think this 3% even included 2 Unity orders. So can you just talk about how you feel about your book of business in the U.S.? We had in the discussion some kind of -- in the past some discussion about change in management and new setups that you were planning. So why do we not see this improvement coming through yet? And when do you expect to basically book better sales for the U.S. book of business?

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Richard Hausmann, Elekta AB (publ) - President & CEO [95]

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Okay, I can take that. So I'm not saying that I'm happy with the U.S. yet, okay? But I think we have a good team in place, which we are strengthening also. I think it is an uphill battle in the United States, and there's no question about that. But we are moving. The Premier contract is an example. If we go more into these larger chains also, which we have not done yet, it takes time. So I see growth opportunity there. The Unity is coming now also, and it gives us inroad into sites which we haven't been before. That is another very important part of it. As I said before also, the new payment model is actually facilitating our technology also. So we need to be a little bit more patient at the same time, but yes, we can grow faster. It's true.

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Gustaf Salford, Elekta AB (publ) - CFO & Executive VP [96]

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Yes. And I think U.S. for us is a market share gain market. And Unity, as shown in the quarter, is how we are doing it in a way. Also, we have a large software installed base in the U.S. And having products, like now MOSAIQ Plaza and ProKnow, enables us to have growth opportunities on the software side in the U.S. as well.

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Cecilia Ketels, Elekta AB (publ) - Head of IR [97]

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I'm really sorry to...

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Oliver Reinberg, Kepler Cheuvreux, Research Division - Head of Med Tech Equipment & Services Research [98]

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Do you expect growth in orders in the second half?

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Cecilia Ketels, Elekta AB (publ) - Head of IR [99]

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Sorry, Oliver?

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Oliver Reinberg, Kepler Cheuvreux, Research Division - Head of Med Tech Equipment & Services Research [100]

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Sorry. Then do you expect growth in orders in the U.S. in the second half?

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Gustaf Salford, Elekta AB (publ) - CFO & Executive VP [101]

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We don't guide on specific quarters, so to say, on order items.

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Cecilia Ketels, Elekta AB (publ) - Head of IR [102]

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Yes. Really sorry, but we have to stop for today, but I know that we meet many of you tomorrow in Tubingen, and there will also be time for questions there. So let us save all the remaining question until tomorrow. Thank you for participating today here in Stockholm as well as on the webcast and in the conference call. Thank you, and have a good remaining day. Bye-bye.

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Gustaf Salford, Elekta AB (publ) - CFO & Executive VP [103]

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Thank you.

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Richard Hausmann, Elekta AB (publ) - President & CEO [104]

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Thank you. Thank you. Bye.