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Edited Transcript of IBAB.BR earnings conference call or presentation 26-Mar-20 2:00pm GMT

Q4 2019 Ion Beam Applications SA Earnings Call

Louvain-la-Neuve Mar 27, 2020 (Thomson StreetEvents) -- Edited Transcript of ION BEAM APPLICATIONS SA earnings conference call or presentation Thursday, March 26, 2020 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Marc Van der Burght

* Olivier Legrain

Ion Beam Applications SA - CEO, President, MD & Executive Director

* Soumya Chandramouli

Ion Beam Applications SA - CFO

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Conference Call Participants

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* David Vagman

ING Groep N.V., Research Division - Research Analyst

* Lenny Van Steenhuyse

KBC Securities NV, Research Division - Financial Analyst

* Matthias Maenhaut

Kepler Cheuvreux, Research Division - Senior Equity Research Analyst

* Nyeok Lee

Jefferies LLC, Research Division - Equity Analyst

* Thomas Guillot

Banque Degroof Petercam S.A., Research Division - Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to the IBA web conference. I am pleased to present Mr. Olivier Legrain, CEO; and Madam Soumya Chandramouli, CFO, for the first part of this call. (Operator Instructions) I would like to now give the floor to Mr. Olivier Legrain. Sir, please go ahead.

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Olivier Legrain, Ion Beam Applications SA - CEO, President, MD & Executive Director [2]

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Thank you very much, and good afternoon. Thank you, everybody, for joining us on our 2019 full year results call. I'm Olivier Legrain, the CEO of IBA. And with me today, we have Soumya Chandramouli, our CFO; and a special guest as well, Marc Van der Burght, our Chief Operating Officer.

Before we begin, as always, I would like to draw your attention to the company's disclaimer on forward-looking statements.

First, I would like to say a note on COVID-19, which is at the forefront of everyone's mind at the moment. IBA's first priority remains the health and safety of our employees, our customers and our suppliers, and we are making decisions in light of this. At IBA, of course, patients are at the heart of everything we do, and we are committed to supporting our customers to ensure that patients can continue to receive diagnosis and treatment with the least disruption possible. We are particularly aware of the importance of business continuity, and we are pleased to confirm the successful measures that are being taken across all the business lines.

During the presentation, I will talk you through our business strategy across our 4 divisions and summarize the group's performance over the last year. Soumya will then take you through the company financials before I close with an update on market dynamics and our outlook for the 2020 financial year. Soumya, Marc and I will then be happy to take your questions.

IBA's core is our world-leading expertise in particle acceleration. This unrivaled understanding, combined with more than 30 years of operational applications, has seen IBA build 4 robust business line: proton therapy, dosimetry, RadioPharma and industrial solutions. Driving our success in these businesses has been 3 central elements: know-how, execution, innovation.

If I move to know-how, with 550 accelerators in operation for sterilization of medical devices, production of radiopharmaceuticals and with the treatment of almost 100,000 proton therapy patients worldwide, IBA has created a significant lead and barriers to entry in the applications of particle accelerator technology to profitable business models. This will be a significant driver of our future success as we continue to leverage this knowledge to provide the most attractive offering in all of IBA's business lines.

Number two is execution. At year-end, there were 21 proton therapy projects under construction or installation, comprising 14 ProteusONE and 7 ProteusPLUS solutions. In 2019, IBA delivered 8 proton therapy system to its customer compared to 5 in 2018. We now have a total of 37 operating sites internationally. In addition, 14 machines were delivered to RadioPharma and industrial customers, further increasing IBA's footprint worldwide. Several dozens upgrades have also been made. IBA's continued focus on seamless execution and even more efficient service will continue to be core drivers for success in the tendering process as well as IBA's ability to improve margins in the future.

Finally, last but not least, innovation. To continue to execute and lead the markets in which IBA operates, the company must innovate to stay ahead. IBA currently employs 200 engineers and experts in R&D working to increase the affordability, proven clinical benefits and ease of use for our customers. IBA can also count on more than 500 patents, close to half of which are protecting IBA proton therapy technology.

The technological road map of IBA proton therapy is focused on 3 areas: Motion Management, ARC therapy and Flash irradiation. And I will have the opportunity to discuss these in more detail later in the presentation.

Looking now at the overview of 2019. As highlighted in this morning's statement, during 2019, each of our 4 business lines saw a strong order intake, which, coupled with significant backlog conversion in the second half, helped IBA to deliver an encouraging rise in group revenue of 10%. This increase was supported by the sale of 9 proton therapy rooms across all major geographies and a record 25 new orders in Other Accelerators. Our services business also had another excellent year with a double-digit growth to EUR 100 million with this revenue stream continuing to evolve and positively contribute to group performance.

We are also pleased to note that we ended 2019 with a very strong gross cash figures of EUR 46 million, which will enable us to further invest in future growth. Furthermore, as of today, that number has practically doubled with our cash position close to EUR 85 million, further strengthening us.

Now to talk a bit more detail on the 2019 order intake, which show the highest ever value, more than doubling from last year. In the year, we sold our ProteusONE solution in Italy, United States, Georgia and Indonesia and one 5-room ProteusPLUS in China. The 25 machines sold in Other Accelerators were across Asia, Europe and United States. Our equipment and service backlog remain at all-time high of EUR 1.1 billion. And as I mentioned before, services had another strong year with 14% growth from last year.

In terms of other financial and structural updates, let me pick out a few points from the slide. We have continued to be committed to cost efficiency measures to streamline expenditure while also ensuring flexibility, in particular, for strategic R&D investments. This flexibility measures allows us to continue into 2020 confidently, especially in light of the current COVID situation. As we previously communicated, dosimetry has been reintegrated into the numbers following the decision to retain the business, and this business line continue to perform strongly. We particularly encourage -- we are particularly encouraged by the gross cash position reach by year-end and also the further improvement since year-end. Based on the 2019 results and this strong cash position, we will be proposing to maintain our dividend policy of 30% of net profit.

I will now hand you over to Soumya, who will take you through our financial results in more detail.

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Soumya Chandramouli, Ion Beam Applications SA - CFO [3]

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Thank you, Olivier. Let's take a look at some of the headline numbers for the financial year. As Olivier mentioned earlier, group revenues were up 10% versus last year, boosted significantly by the PT service revenues and the Other Accelerators conversion -- backlog conversion. Strong margins in service and Other Accelerators partially compensated for the weaker margins in PT equipment, which were attributable to pricing pressure and the project mix. Dosimetry continued to perform strongly with almost 7% growth year-on-year in terms of revenues, while the decrease in REBIT to EUR 0.1 million is mostly reflective of the aforementioned gross margin weakness and increased R&D investments to maintain our technological lead. Total net profit was a significant increase on last year. The sale of RadioMed, of course, was an important part of the EUR 7.6 million figure.

I mentioned the revenue increase for 2019 was also partly thanks to an excellent order intake for PT and Other Accelerators. We were pleased to see an increase in demand compared to last year with the sale of 9 proton therapy rooms and another year-on-year record order intake in the Other Accelerator business with 25 machines sold worldwide.

Our equipment and service backlog remains extremely high at EUR 1.1 billion. And as you can see, this comprises record equipment backlog for proton therapy and Other Accelerators of EUR 379 million. Our compact single room Proteus solution, the ProteusONE, now represents around 41% of the equipment backlog.

As mentioned earlier, our service business also continued to show strong growth, crossing the EUR 700 million backlog mark with double-digit growth in both PT and in Other Accelerators. The service division growth positively contributed to the group's performance, including almost half of the total group revenues -- sorry, the accelerator revenues for the year. We are also pleased to note an increase to 37 PT sites generating revenue worldwide.

Now on to cash. We were very pleased with the increase of gross cash, which stood at EUR 46 million at year-end 2019. We're also reporting that the balance sheet significantly strengthened in general with net debt down to a mere EUR 3 million (sic) [EUR -3 million] versus EUR 47.1 million (sic) [EUR -47.1 million] in the previous year. As it stands today, our unaudited gross cash position is more than EUR 85 million. And in addition, the completion of the refinancing of the company's credit lines provides further flexibility and enables the continued investment in innovative technologies to drive future growth. We today have another EUR 37 million of undrawn credit lines.

Now let's take a closer look at the PT and Other Accelerator business. Total net sales for proton therapy and Other Accelerators were up 10.5% year-on-year to EUR 228.7 million, largely driven by significant sales in Other Accelerators from new prospects and backlog conversion of the good order intake from 2018 and, to a certain extent, already 2019. We've already discussed the positive impact of backlog conversion on Other Accelerator contracts as well as the strong performance of PT services. Overall, there are currently 21 PT systems under construction or installation.

Do note there's a decrease in REBIT of EUR 4.8 million, which is impacted by price pressure on contracts as competitors attempted to gain market share from project mix and also an increase in R&D to preserve IBA's technological leadership.

Now looking more closely at the equipment and service portions. We see a broadly positive picture with the decrease in PT equipment revenues on the one hand, but Other Accelerator equipment revenues up 85%. Overall then, equipment and service revenues were up 8% and 14%, respectively.

For 2019, services made up 47% of total PT and Other Accelerators revenue, progressively contributing to higher revenues with strong margins. Moreover, as mentioned previously, the company works -- continues to work on its multiyear service development road map to further improve margins. The 8 new PT service contracts already started generating revenues in 2019.

I now hand back to Olivier to take you through the proton market update for 2019.

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Olivier Legrain, Ion Beam Applications SA - CEO, President, MD & Executive Director [4]

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Thank you, Soumya. The proton therapy market show encouraging signs of growth in 2019 with 31 of rooms sold in total, up from 11 rooms last year. You'll see from the graphic that while there is a sizable potential market, it remains inherently lumpy. We are, however, very confident about the long-term growth drivers for this business line.

IBA's continued order intake last year was good. We sold 9 rooms globally in the U.S., Europe and Asia, including the first system in Georgia and Indonesia. At year-end, there were 21 proton therapy projects under construction or installation, comprising 14 ProteusONE and 7 ProteusPLUS solutions. We continue to see competitors attempting to gain market share. As at the end of 2019, IBA continues to lead the market in terms of proton room sales and operating rooms. We believe that our superior offering will enable us to maintain a strong market share going forward.

The clinical experience is expanding rapidly. As the number of patients treated with proton therapy increases, so is the field of research with 589 publication in 2019. 100,000 patients will have been treated on IBA PT solution in 2020.

And turning to the next slide. Here is a snapshot of some of the key recent publication in proton therapy. You will see, for example, that there is a particularly interesting publication in the Red Journal on Flash, and the Netherlands are extending the use of the model-based approach to breast and lung cancer. We encourage further research, which might increase our understanding of innovative technologies such as Motion Management, ARC therapy and Flash, which we'll discuss shortly.

Now moving on to IBA's particular expertise in terms of products and innovation. Many of you will be familiar with properties of IBA's ProteusONE, which remain the only truly compact single home proton system in the market. In terms of others with comparable solution, IBA is the market leader for both sales and in terms of operating sites, equipped with the latest technological innovation to ensure that we remain on the fore -- on the front foot in terms of leadership.

The technological road map of IBA's proton therapy is focused on 3 areas: Motion Management, ARC therapy and Flash irradiation.

Our Motion Management tools are being designed to ensure accurate treatment delivery by managing the challenges caused by tumor motion. It's estimated that around 20% of patients who are indicated for radiation treatment can benefit from proton therapy, yet in 25% of these eligible patients, tumor motion can occur during treatment delivery. IBA is therefore dedicated to offering an integrated solution for Motion Management that cover all the patient needs.

Proton ARC therapy, with its continuous radiation dose while the gantry rotates has the possibility to further improve the quality of treatment and increase the numbers of patients treated at proton therapy centers. This technology offers patients numerous advantage, including an enhanced dose conformity at the tumor level and reduction of the total dose received by the patient while enabling simplified, faster treatment. We have already seen the attractiveness of this technology to our customers and are working to offer it to all of our installed base through an upgrade program.

Flash therapy. The final strength to our technology road map is Flash, something we have discussed in detail on previous calls and which we are particularly excited about. Flash therapy, with its ultrafast delivery of radiation treatment at an ultra-high dose rate, has the potential to dramatically change the landscape of radiation therapy and patient care, making it more effective and more accessible than conventional radiation therapy. After publishing the first finding that demonstrate the effect of Flash proton radiation therapy earlier this year, the University of Pennsylvania is conducting a clinical trial evaluating Flash proton therapy in dogs with osteosarcoma.

As the industry leader, IBA is collaborating with several leading proton therapy centers in their pioneering research to better understand the mechanism of Flash irradiation. This early development work has resulted in IBA delivering Flash irradiation on both its current single and multiroom proton therapy platforms in a clinical environment in research mode. We have demonstrated that our machine can deliver both ARC and Flash on existing equipment in a clinical setting. This further improves -- further proves our technological lead with the potential to improve patient outcome and affordability of our proton therapy solution.

Moving on to Other Accelerators. 2019 was a record year for our Other Accelerator business with 25 new orders globally, reflecting strong radiopharmaceutical demand, especially in emerging market and a growing market in accelerator-based sterilization solutions. In RadioPharma in particular, 3 high-energy machines were sold, including 2 70 MeV, 1 in South Africa and 1 in South Korea, while several CycloneKIUBE systems were sold in key markets such as China, Russia and Turkey, showcasing the strength of IBA's market-leading technology in radioisotope production, which I just want to talk about in a little more detail in Slide 32.

Our new generation, CycloneKIUBE and Cyclone70, are key components to the growth we saw in Other Accelerator business in 2019. The Cyclone70 is our high-energy cyclone that enables the study and production of new, rare isotopes used in the diagnosis of cardiovascular disease, another critical illness. While the Cyclone KIUBE is a cyclotron with the highest radiopharmaceutical production capacity and is upgradable to enable the increase of production capacity, giving its user access to a large variety of radiopharmaceuticals.

The development of our technology and improved performance has allowed us to reach new markets, including oncology, neurology and cardiology, and gain market share and give us access to the latest applications, including theranostic, a hot new field which combines specific targeted therapy based on specific targeted diagnostic test.

In Industrial Solutions too, a record number of system was sold reflecting the changing market dynamics in the sterilization sector with an emerging shift towards accelerator-based sterilization. In 2019, IBA benefited from strong interest in our new generation of Rhodotron for sterilization. This unique accelerator allows an ecological, cost-effective alternative to cobalt and ethylene oxide for sterilization, and we are very excited about its growth potential. In addition, we also sold 2 high-energy electron beam accelerator to NorthStar Medical Radioisotopes, production of the radioisotope molybdenum-99 that offers a more efficient way to deliver diagnostic isotope to patients

I will now talk to you a little bit more about IBA dosimetry. As you are all aware, in December, we announced the conclusion of our strategic exercise with the decision to retain the remainder of the dosimetry division within IBA group following the sale of RadioMed Corporation to E (sic) [IZI] as this provided the most compelling strategic rationale for the company and its stakeholders. Those metric continue to see excellent sales performance in 2019 with an order intake up 4% to EUR 48.7 million and revenues up 6.7% to EUR 53.8 million driven by strong conventional radiation therapy-related deals. REBIT margin was maintained as a result of careful spending and ongoing initiative to streamline the business while continuing to invest in both hardware and software innovations. Dosimetry backlog was at a high of EUR 17.7 million versus EUR 15 million at the end of last year.

During the year, dosimetry booked to record sales in its traditional water phantom business, and the launch of several innovative products such as myQA Daily and myQA iON that are receiving increasing traction in the global market, in addition to an ambitious program to renew patient QA for the conventional radiation therapy offering, has been launched and is expected to further consolidate IBA dosimetry competitive position in order to continue to expand its already large customer base worldwide.

I will now hand you over to Soumya, who will run you through the consolidated financial figures.

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Soumya Chandramouli, Ion Beam Applications SA - CFO [5]

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So moving to Slide 38, let's take a look at the P&L for the group. We've covered some of this ground already, but in summary, we saw a top line increase of 10% with 8 new PT service contracts getting operational and record order intake in Other Accelerators. Gross margin was down for the reasons already explained in detail.

We also saw a marginal increase in sales and marketing and general and administrative expenses reflecting increased global operations. R&D stayed at around 11% of sales as we prioritize investment in future growth, while there was a positive dollar FX impact on the financial income line.

Finally, we saw a significant increase in net profit of EUR 7.6 million compared to a loss of EUR 4.4 million in 2018, mostly from the sale of the RadioMed business.

Moving on to cash flow. We've seen a significant improvement here. The strong increase on last year resulted from stringent inventory management, coupled with strong cash collection from customers. The cash flow from the investing line was largely driven by the sale of RadioMed. And you'll also see that CapEx is back down to more normal levels following a number of larger investments in 2018 for a new factory, infrastructure and software costs.

On to the balance sheet, we highlighted significant strengthening here with net debt down to EUR 3 million versus EUR 47 million in the previous year. We also completed our refinancing in 2019, and of the EUR 67 million of credit lines that we rebalanced, only EUR 9 million were drawn down at year-end.

I now hand back to Olivier to finish the presentation with a brief discussion on guidance.

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Olivier Legrain, Ion Beam Applications SA - CEO, President, MD & Executive Director [6]

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Thank you, Soumya. As everybody is well aware, we are operating in unprecedented times. IBA's international presence allow us to mitigate some of the impact of the COVID-19 crisis to some extent. We continue to monitor the situation proactively and try to limit possible disruption as much as possible. But with -- as I've said, the protection of our employees, customers and their patients are at the forefront of our minds. As we have discussed and very importantly here, IBA's strong balance sheet and an excellent cash position, putting it in a good position to face the challenges of the current situation. As of today, all of IBA's operating proton therapy center continue to diagnose and treat patients, and we are focused on ensuring that this continues.

As part of the efficiency measure launched in 2019, we have already enhanced our remote technical support, and we have now doubled the capacity of our remote technical support centers to face the current situation. We are seeing some encouraging signs of the return to normality in some countries such as China, and discussions are ongoing in this market and others as normal for ongoing tenders. Our manufacturing activities are continuing, and we benefit from our new facilities opened at the end of 2018, where the additional manufacturing capacity allows us to work while respecting current social distancing measures. We are currently experiencing some limited impact in the supply chain. Installations are ongoing with some limited impact, but with the rapidly changing nature of the current global crisis, we cannot rule out that our ability to operate efficiently may be hindered at some point. We continue to focus on delivering value to our stakeholders while maintaining a prudent stance on the evolution of our market in the midterm.

While we are in a strong position to weather the challenges ahead, given the COVID-19 situation, we feel we cannot reliably guide to our projected 2020 performance at this time. But we'll update the market on this situation as soon as possible.

Thank you for listening. We will now take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Matthias Maenhaut from Kepler Cheuvreux.

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Matthias Maenhaut, Kepler Cheuvreux, Research Division - Senior Equity Research Analyst [2]

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Can you hear me?

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Soumya Chandramouli, Ion Beam Applications SA - CFO [3]

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Yes.

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Matthias Maenhaut, Kepler Cheuvreux, Research Division - Senior Equity Research Analyst [4]

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Yes. I have 3 questions, if I may. I will ask them one by one. First question is actually on competition and the impact on gross margin. How do you see that actually going forward? How do you see that evolving? And we had a quite significant impact on gross margin this year. The projects are now in execution. Do you think that next year, we can again go up with the gross margin? Or will we go down even further? And looking at competition, is that still equally intensive as it has been previously? Or do you see it abating slightly? That's my first question.

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Soumya Chandramouli, Ion Beam Applications SA - CFO [5]

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Okay. So maybe I can take the first portion of the question on gross margin. So our gross margin was indeed affected by the proton therapy equipment, margins down while, as you may have noticed, margins and our revenues on the service portion of all of our business continues to progress strongly.

The evolution of our gross margin will really depend on the mix between progress on the proton projects and the proportion of service revenue that we will continue to deliver in 2020. So while I expect that we will not see any deterioration or maybe potentially even some improvement on the service side of things, of course, on the proton equipment side, it will really depend on how competition continues or not to act into 2020 as we sell more contracts. Olivier, maybe you want to...

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Olivier Legrain, Ion Beam Applications SA - CEO, President, MD & Executive Director [6]

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Yes. I think if I want to add something, if it's -- I'll touch a few points on gross margin, I'd like to remind everybody it's unsustainable for competition. They are showing a negative gross margin or close to negative gross margin. So for us, it has an impact. But for them, it basically -- it's unsustainable in the midterm. So I don't know when it will stop, but I'm sure it will stop.

Once again, if someone has a cost advantage in this market, it's IBA because of our design, thanks to our capacity to execute. So once again, as we are all looking at building a sustainable business model, which we do, I think competition will have to revise their aggressiveness in this market.

And by the way, we didn't give any details, but if we had to face some significant price pressure on some deals, we were also able to close some other deal with, I would say, business as usual gross margin when we were able to actually make our point and personal under good -- that a good price in proton therapy is maybe not the best you can hope for in such a complex long term, not really to execute project. We have a fantastic track record in terms of project execution but also in terms of being able to bring the latest technology to the installed base. And at this stage, it's still not met by competition. And when the customer understand that actually the price, even though it remains important, is only a small part of the reason why you select a provider.

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Matthias Maenhaut, Kepler Cheuvreux, Research Division - Senior Equity Research Analyst [7]

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Okay. If I just may follow-up on that. This is only the PT equipment margin that's under pressure. Is there any pressure on the services margin from competition?

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Soumya Chandramouli, Ion Beam Applications SA - CFO [8]

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Well, overall, when we negotiate these, of course, the customer is faced with competition. We try to reduce price on the overall deal so that they can kind of capture the deal. As you're aware in most protons deals, we also sell multiyear contracts. And in most cases, I would say that the overall cost of the equipment and the service revenues for, let's say, 5- to 10-year deal are more or less equivalent. So we do face some level of pressure also on service margins.

But again, I think as Olivier mentioned, it's the technological lead that really helps us in terms of uptime, in terms of the quality of the service that we can ensure and also in terms of the upgrades that we can provide to our customers. Because Olivier we mentioned it earlier, all of the technology we are working on, all of this is upgradable on all of our systems, and that's certainly something which is extremely important when a customer makes a long-term investment at a proton therapy, where they basically tied up with the provider for several years and therefore have to ensure the best quality of service and improvement of that service also over the coming year.

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Matthias Maenhaut, Kepler Cheuvreux, Research Division - Senior Equity Research Analyst [9]

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So all right. Second question that actually I have is with the tendering activity. I see you mentioned that tendering activity remains as it was before. But how do you judge the risk that -- with the present, I would say, disruption that is emerging on the back of COVID-19? It will be very, very hard for these projects -- new projects to get financing. Do you see that as a threat? Or do you think that this will not be an issue at all?

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Olivier Legrain, Ion Beam Applications SA - CEO, President, MD & Executive Director [10]

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I can say one thing is that I don't see it as a good news. So -- and I don't have a crystal ball. Certainly, it's not the best we could offer. But once again, the only thing I can comment, which was the sense of our comment here, we indeed continue to answer to tenders. We are actually called upon answering questions related to these tenders. We are signing a memorandum of understanding, letter of intent. So I would not say we are at business as usual level, but we see enough, let's say, vitality in the market as we speak to actually -- being unable to say if 2020 will be dramatically impacted or only marginally impacted in terms of order intake.

But I don't see 0 activity. I see a lot of activity. But as you say, I mean, things can change. Take China, they reopen right now. They monitor the number of COVID-19 cases. It looks okay as we speak. If they shut down again, then it's a different story. If they are really back up and continue to be back up for the remaining part of the year, I'm quite optimistic that we will see some order in China. But once again -- and that's why we feel we are not really able to give a guidance at this stage. We're in the middle of this crisis. And before we see an end to it, it will be very difficult to -- for us to give a guidance.

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Matthias Maenhaut, Kepler Cheuvreux, Research Division - Senior Equity Research Analyst [11]

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If I can just follow-up. The competition on those Chinese contracts, is that a very intense competition? And is there not any chance that pricing pressure will actually even increase now that there is such a difficult external environment?

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Olivier Legrain, Ion Beam Applications SA - CEO, President, MD & Executive Director [12]

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It's competitive. I would say it's -- yes, it's a competitive environment. Having said that, if you look at the Chinese market, IBA is really a leading position. On top of that, we are the only one holding operating licenses in China. So I believe there's also a number of reason why it's -- well, let's say, let's put it -- that's why IBA has a genuine competitive advantage everywhere in the world, but particularly in China, with our track record. So yes, we are not the only one. And the last tender I have in mind, 3 players who did answer to the tender. So it's a competitive tender. But it's not a bloody war, if it's the sense of your question. And by the way, we have proven in the past that when it doesn't make sense, we don't go for it. There's a number of deals that we decided not to follow because we feel no deal is sometimes better than a very bad deal.

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Matthias Maenhaut, Kepler Cheuvreux, Research Division - Senior Equity Research Analyst [13]

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Okay. Understood. Maybe then, one last final housekeeping question. Are there any maturities on that next year? Or subordinated debt?

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Soumya Chandramouli, Ion Beam Applications SA - CFO [14]

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On debt? Yes. So the 5-year term loan that we have negotiated year-end is amortized in term loans. So it's a linear amortization. So it's [rough] but it's very low. I think the overall debt servicing in 2020 is approximately EUR 3 million of [subordinated debt].

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Matthias Maenhaut, Kepler Cheuvreux, Research Division - Senior Equity Research Analyst [15]

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Yes. Okay. So there's no subordinated debt that needs to be refinanced?

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Soumya Chandramouli, Ion Beam Applications SA - CFO [16]

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No, no, no. No refinancing. We extended the duration of the subordinated debt. So we just reshifted the payment terms to 7 years from the current term.

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Operator [17]

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The next question comes from David Vagman from ING.

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David Vagman, ING Groep N.V., Research Division - Research Analyst [18]

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Yes. I've got a couple of questions. Maybe first, coming back on the gross margin development in particular for PT for 2020, maybe 2021, and thinking about this pricing pressure and the mix. And maybe also if you could explain, let's say, what was your view, excluding if it's possible, the impact of COVID, what would have been your assessment of your -- the development of your profitability in the past that you saw for 2020 and 2021? Do you have a bit of a feel of what you could have said in a different world, let's say? I don't know if you can...

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Soumya Chandramouli, Ion Beam Applications SA - CFO [19]

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I'm not answering that because you're basically asking me what the guidance that I don't give here. Good try. As you know, but I think it's suffice to say that because we have decided not to give any guidance, I won't really mention anything on that. It's just that the things are so uncertain that while, as Olivier mentioned, we are not seeing a lot of disruption right now. Things can change very quickly, both one way or the other. And so it will be better not to, not hypothesizing on what things will be without the actual conditions. To go back to your question on margins, I'm not sure I understood exactly what the question was on the margin.

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David Vagman, ING Groep N.V., Research Division - Research Analyst [20]

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The margin is on the development of the gross margin based on what you have, the pipeline that you have. Okay, I understand that your services will help. They will continue to ramp up and they have a very decent margin. Now on the other hand, PT equipment, I understand. Actually, the situation keeps on deteriorating because you are delivering older system and you're starting to work on new ones. Is it the right way to look at it?

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Soumya Chandramouli, Ion Beam Applications SA - CFO [21]

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Yes and no. I think -- because -- you're right, as you said that the newer contracts have had lower margins. But at the same time, Olivier also mentioned earlier, we have also been able to sell certain contract at market margins. So that mitigate the extent of the margin impact in the coming years. I would say that every year's overall gross margin really depends on the mix between lower-margin contracts and the higher-margin contracts and which contracts make most progress over the year. So it's a bit complicated to give you a definite guideline. But let's say that if you take an average mix, we should obviously remain in the same region in terms of margin at 2019.

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Olivier Legrain, Ion Beam Applications SA - CEO, President, MD & Executive Director [22]

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Exactly. So the average gross margin sold in the backlog is actually identical or sometime even slightly better than what we have seen in the past. But as Soumya mentioned, the mix of execution will have an impact on our gross margin, actual gross margin in the P&L, if you understand what I mean. This -- to take the worst case, so to speak, let's say, all the low-margin project progress very fast and the high-margin project progress lower, then we'll have an impact. But in average, actually, the gross margin should be stable in the future. So...

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David Vagman, ING Groep N.V., Research Division - Research Analyst [23]

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Okay. That's very clear. Very interesting. Second question on the cash development. So you were -- I think at the end of last year or so, you get quite -- you got some quite on prepayment. You have not done a lot of -- you have done a bit less purchase of, let's say, component and so on. I see that with no end of March, you -- the cash position has continued to improve. What -- would it be logical to expect in terms of cash position and working capital in general? Should we expect this cash position to deteriorate because you have to purchase equipment? Would you actually rather wait and see a bit how the COVID situation develops? Because, I don't know, the client is -- and you're always stuck, you cannot build the hospital. It's tough to make any installation. Would you sit on the cash, so to speak? Or would you still order some component? So what should we expect in terms of working capital and cash development for 2020?

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Soumya Chandramouli, Ion Beam Applications SA - CFO [24]

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Yes. I think it's a mix of everything that you just mentioned, David. So on the one hand, indeed, I think we have a very high position today because we've had a lot of cash collection, not just from the contracts that were completed over 2019 but also from the downpayments on the newer contracts and also to some extent from the ongoing ones where certain milestones were reached. Now indeed, we've been very careful in our cash expenditure over 2019. We have managed inventory very possible, and you see let's say, to make sure that we really only order the inventory that we needed. Keep in mind that we did send 25 accelerators in RadioPharma Industrial Solutions, and those deals have shorter delivery cycles. And so over there, we will continue to need to buy equipment in order to install them in time.

I can't again say what will happen with COVID. Certainly, if the situation continues, then we will have to modulate the way in which we order equipment and procure our parts and the supply chain. Let's say that at the same time, we're probably at a high today in terms of cash. And while we don't expect a dramatic deterioration of the cash situation, I would expect that the working capital will slowly reverse itself and not see the same level over the rest of the year, and we'll go back down to slightly lower levels of operating cash flow.

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Olivier Legrain, Ion Beam Applications SA - CEO, President, MD & Executive Director [25]

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Yes. And I can add that, indeed, I think in this COVID crisis, of course, we have definitely switched to a cash management mode, which we have somehow adopted also last year. We got the question earlier saying, well, you could have converted more backlog in 2019. Yes, because we were driving the business with cash in mind. So we could have accelerated revenue recognition, but then it would have consumed some cash. And we decided to manage the business on a cash base, of course, keeping the deadline of the customer in mind. We don't want to miss a deadline. But -- and I think it's even more true now with the COVID-19. So I think we did a fantastic job. And here, I don't speak about me, but the team did a fantastic job to manage working capital last year. And that's why we're much stronger to face this crisis, and I want to keep it like that. And once again, where we could accelerate revenue recognition now, we will certainly look at the cash very carefully as we did last year.

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David Vagman, ING Groep N.V., Research Division - Research Analyst [26]

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Very true. Last question. It's a bit 2 questions in one. It's about the potential slowdown that you could have in installing your equipment -- or sorry, your systems. The clients struggling with the construction, so all these delays. It's a situation that you faced in 2017. How could you -- what could be the impact? And how variable -- or how could you be flexible in terms of costs? Basically, what could be the impact if you need to insure the 3 months delay for most of your project or end them maybe even longer? Yes. How variable is your cost base, basically?

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Olivier Legrain, Ion Beam Applications SA - CEO, President, MD & Executive Director [27]

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Well, we have some variability. And I think that's what we did in '18 and '19 is to make sure we have build up flexibility in our cost base. Where are we going? It's very difficult to say. Once again is I use the example of Mumbai. Mumbai, we were okay, we were okay until last week. And now they have locked down Mumbai, so we are completely stuck there. Obviously, it will create some delays. Hopefully, it will be marginal because once again, it's not -- it's Mumbai, and we have other installations that are continuing to progress as planned. But it's very difficult to basically comment on that. I think we have flexibility in our cost base. We have potentially the possibility to go call for economical or even how the -- temporary force majeure unemployment, that we will have to do if we have to do it. So we have also a way to mitigate that.

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Soumya Chandramouli, Ion Beam Applications SA - CFO [28]

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And maybe one more thing. And Marc, if you want to add something on that. Maybe one thing which helps us on the installation, ongoing installations right now is that on the ongoing installations, we have shipped the equipment which is on site. So the question mostly is about whether we are able to get people to work over there. And as Olivier said, yes, in Mumbai, it's a bit complicated right now. But on other sites, we don't have the people. In China, people are on site. So I think that's exactly...

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Marc Van der Burght, [29]

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Yes. If I may add to that. It's Marc here. It's really depending on the phase of the installation. I think the first phase of the installation is relatively labor-intensive. And so we need there to call it for local labor, which we have last in Mumbai, for example, this week. And at the same time, after the first few months, then we rely upon our own team. And our own teams are onboard, and they can progress with their installation, I would say, at least the remotable capabilities we have developed. So the situation is very fluid now, and we need to see how that develops further.

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Operator [30]

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The next question comes from Lenny Van Steenhuyse from KBC Securities.

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Lenny Van Steenhuyse, KBC Securities NV, Research Division - Financial Analyst [31]

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My first question is also a bit more theoretical question, I would say. I was just wondering what your expectations actually were in terms of the numbers of installations initiated and deliveries of installations and systems that you were expecting actually for 2020 pre the COVID impact. Could you perhaps comment on that?

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Marc Van der Burght, [32]

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This is Marc here. I think that we are currently with 5 installation now ongoing, and we had planned to start 2 further installation in 2020. And at this stage, this remains or go.

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Soumya Chandramouli, Ion Beam Applications SA - CFO [33]

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Let me just add something. There might be even some potential upsides right now that we are seeing interesting enough. Of course, this was -- this might change if things continue in the longer term. But it's interesting to see that actually we're seeing some of our customers wanting to start up installation slightly faster than scheduled.

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Olivier Legrain, Ion Beam Applications SA - CEO, President, MD & Executive Director [34]

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We have slower installation, but we have also people that are asking us to accelerate.

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Lenny Van Steenhuyse, KBC Securities NV, Research Division - Financial Analyst [35]

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Yes. Since there's still a lot of question marks around the gross margin and around PT, I would say, let's take a look at the other businesses. For instance, of course, the Dosimetry business was decided upon to be retained. Could you perhaps elaborate a bit on the strategic outline for the future of the division? As I can imagine, now that the strategic decision has been taken that there will be some changes for the division. And then further on that, could you perhaps comment on any investment of CapEx that you are anticipating for that division specifically?

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Olivier Legrain, Ion Beam Applications SA - CEO, President, MD & Executive Director [36]

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Yes. Okay. I think in Dosimetry, and I don't know how familiar you are with the business, but there is what we call machine QA, where IBA historically has always been the leader and where we have a very strong product portfolio, which is part of -- it's about maybe half of the market. The other half of the market is what we call patient QA. And in patient QA, one has to accept that we have missed a strategic opportunity a few years ago. We were focusing on, let's say, the wrong product. And basically, we lost market share in that segment. With the, let's say, IBA reintegrating Dosimetry, one of the key decision point was indeed that we believe we have a fantastic concept to become competitive again in the patient QA segment. And as we speak, we are developing both software and the hardware in the field of patient QA, where we believe is -- will give us a potential to become very competitive in that segment and regain market share, hence, grow the business.

So that's -- if there is only one thing to focus on in Dosimetry is how can we turn around our competitive position in patient QA. In order to do that, indeed, we are looking at potentially acquiring some technology, and I believe it will take something between 18 to 24 months in order for us to start to see a significant impact on our numbers.

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Lenny Van Steenhuyse, KBC Securities NV, Research Division - Financial Analyst [37]

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Okay. And perhaps, last question from my side. Of course, you had a fantastic year in the Other Accelerator business. Yes, growth has been impressive. How do you see that going forward? Is it something that will stabilize as -- of course, you already had a larger jump. How do you anticipate the market to continue to evolve? And in terms of also numbers, of course, this year, you grew with 5 more systems delivered. But of course, within the mix, you had some very large systems. Again, the 70 megaelectron volt systems that were sold. So how do you see this going forward for this year?

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Olivier Legrain, Ion Beam Applications SA - CEO, President, MD & Executive Director [38]

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I think, first of all, we start the year with a huge backlog. So we were very successful in terms of order intake in 2019. And to a certain extent, we have seen the impact of that in 2019 numbers. We will continue to see the impact of the strong order intake. And you were mentioning the 70 MeV cyclotron will continue to be converted into revenues over the next -- actually more than 2020, probably 2020 and part of 2021. So we'll see the RadioPharma Solution division continue to grow somehow stable-ish in 2020 and grows in 2021 based on the 2019 backlog. I believe when it comes to industrial solution -- sorry, just to finish on RadioPharma solution, it's very difficult to see if we're going to be able to sell much more. We believe we'll continue to sell additional higher energy cyclotron. We have a few prospects. But I see it a little bit as a step. The market is building capacities in step. So here, we did a big step. And probably the world supply chain is now -- or will be as soon as we will have installed the 70 MeV cyclotron is probably fully equipped for a few years. So we'll have a timing effect as we will recognize the backlog. So it will continue to help RadioPharma Solution to grow. Are we going to be able to refill the backlog as we recognize revenues? I'm not sure. So we will probably see a decrease, a slight decrease of the backlog as I don't think we will continue to sell 70 MeV, a couple of 70 MeV per year.

For industrial, it's a different story, I believe. I really believe that we start to see a shift, a technology shift towards electron beam and X-rays. And it's not impossible, it's actually a fantastic growth opportunity for us to be a major player in this emerging market. So I don't know if it will happen over the next 12 months. But not only we have sold a lot of Rhodotron in 2019, but the pipeline remains very strong. I would say, very strong to very, very strong. And of course, all this is subject to COVID-19 effect, even though COVID-19 in this specific case might help. As once again, we are contributing to the sterilization, medical device sterilization effort with our Rhodotron. So here, (inaudible) out as well. But I see the growth in industrial as much more structural than the one in RadioPharma Solution, where we will continue to see a very good year and good year where in industrial, if we succeed with our strategy, we might be on the verge of the market acceleration in electron beam and X-ray sterilization. So once again, I see this business unit of IBA playing a more and more important role in our business growth.

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Operator [39]

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The last question comes from Kit Lee from Jefferies.

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Nyeok Lee, Jefferies LLC, Research Division - Equity Analyst [40]

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I just have 2, please. Just firstly, coming back to pricing pressure on the proton therapy market. Just looking at the 2019 order intake of 31 systems, can you talk about the level of pricing pressure you saw in these orders? And I guess, how did these tend to play out in terms of what you (inaudible) price and the final bid price? So any color on that would be very helpful. And I'll come back with my second question.

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Olivier Legrain, Ion Beam Applications SA - CEO, President, MD & Executive Director [41]

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I'm not sure we want to disclose that, Kit. I think it's -- yes, I think it's probably something we don't want to disclose.

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Nyeok Lee, Jefferies LLC, Research Division - Equity Analyst [42]

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Okay. Yes, I guess I...

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Soumya Chandramouli, Ion Beam Applications SA - CFO [43]

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In these cases, the information is also confidential. It's not a public tender.

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Nyeok Lee, Jefferies LLC, Research Division - Equity Analyst [44]

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No, sure. I guess, I mean, just wondering what's the general level of pricing pressure that you saw. Is it mid-single digit, high single digit, double-digit level of sort of pricing pressure?

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Soumya Chandramouli, Ion Beam Applications SA - CFO [45]

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Well, let's say that you see at least a few million euros of reduction of the cost that driven in EBITDA. I'm not saying we have...

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Olivier Legrain, Ion Beam Applications SA - CEO, President, MD & Executive Director [46]

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I would say, look at the gross margin of our competitors, and you can imagine what it should be. And...

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Soumya Chandramouli, Ion Beam Applications SA - CFO [47]

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But all -- just maybe just taking up on that question, Kit, maybe I have one on that because you spoke about the 31 rooms that were sold. I also wanted to mention that we have ensured that in those -- in the sales that we've made, we've taken the quality deals. So yes, maybe in some of these deals, we have had to concede some gross margin in terms of -- or the compromise to be able to get those deals, and we decided that it was really capital for us to be able to get that deal for whatever reason. But at the same time, it's not been the case everywhere. And Olivier had mentioned it during the call itself, there are several deals that we do make with fair margins also. It really depends on 2 things: one, which competitors are present on the deal; and secondly, how heavily the customer weighs technology versus price. And the both of these can have an impact on the overall price.

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Olivier Legrain, Ion Beam Applications SA - CEO, President, MD & Executive Director [48]

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Also, I think just to add to that, we'll start to see our stories in this market, people that got a cheap deal. And maybe a cheap deal, you look very smart upfront. And then ask to some of the centers that are not able to operate after 5 or 6 years of installation, if they still feel they have a cheap deal or a smart deal. And I think, once again, we're -- it's not that we manage to isolate customers so we can maximize our price. I think that we can educate customers and see, show them the value of 1-month or an 11-month installation time or show them the value of the gradability of uptime. I think suddenly our price becomes less of an issue and therefore, people are ready to pay the fair price for proton therapy. So I think this our story. Unfortunately, they will exist, but they will also make sure that some people will think twice before taking the cheapest deal.

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Soumya Chandramouli, Ion Beam Applications SA - CFO [49]

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And if I may on that color on the deals. So there are several things which make us feel extremely comfortable on our backlog. We ensure that we work with customers who have proven clinical partners who are able to bring their expertise to the deal. And there are some deals again, you spoke about 31 rooms sold in 2019. There are certainly some of those deals without mentioning which ones, in which, frankly, we are not sure who the clinical partners or if there's even one who is valid. And so we have seen in the past write-offs taken up certain deals and even some deals getting canceled with competition. We had, on our end, try to make sure that when we're saying that we have 9 rooms sold, these are 9 rooms that are going to be installed and that are going to operate in the future and treat large numbers of patients. It remains to be seen if that gets set up all the deals that will go in 2019.

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Nyeok Lee, Jefferies LLC, Research Division - Equity Analyst [50]

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Okay. That's helpful. And just on your OpEx spend for 2020, how should we think about the level of spend for this year versus last year? Is it mostly going to be flat? Or are you increasing investment into R&D or some other initiatives?

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Soumya Chandramouli, Ion Beam Applications SA - CFO [51]

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Well, in terms of R&D, we try to remain more or less in that range of 9% to 11% of top line. And so we expect that there will not be any drastic change over there. We are also able to work on R&D to be able to shift projects around so that depending on how things evolve over the year, if we see that things are accelerating, then we can also increase our spend. But overall, I'd say that we should remain in the same range. In terms of the rest of the OpEx, there is always some level of inflation, and we are going to have a little bit of increase due to new operations. Marc mentioned earlier that we have 5 ongoing installations and also 2 new ones. We'll be starting out more and more installation in new countries in 2020, and so we need to develop our operations in those new countries. So a little bit of an increase over there, but nothing major.

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Operator [52]

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Your next question comes from Thomas Guillot from Degroof Petercam.

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Thomas Guillot, Banque Degroof Petercam S.A., Research Division - Research Analyst [53]

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Okay. My first question was on Dosimetry. Just looking at your EBITDA margin at the moment. On your EBIT margins, do you see any rooms for improvement for this activity? And my second question is linked to a previous division. Do you still have a stake actually in Curium Pharma through IBA Molecular? It is for sale for now, and I just wanted to know if you still had a stake and if it could be monetized in the near future.

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Olivier Legrain, Ion Beam Applications SA - CEO, President, MD & Executive Director [54]

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Okay. For Dosimetry, I just mentioned that we potentially see ways to actually improve the profitability of the business. But our intention is to invest, at least for the next 12 months into this new product portfolio in patient QA. So whatever profitability improvement we can do, we'll invest in the business. So I expect it to be -- to remain flat going forward. And when it comes to Curium, no. We actually sold -- I don't even remember how many percent we used to hold. Was it 30%...

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Soumya Chandramouli, Ion Beam Applications SA - CFO [55]

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We sold -- 40%.

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Olivier Legrain, Ion Beam Applications SA - CEO, President, MD & Executive Director [56]

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40%, yes. But we sold it in 2016, so we have no -- it's a good customer of us, but we don't have any equity in Curium.

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Operator [57]

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We have no more question. No more question.

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Olivier Legrain, Ion Beam Applications SA - CEO, President, MD & Executive Director [58]

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Okay. Excuse me, I have many papers in front of me. But okay, thank you very much, and thank you for your time. And as discussed, we will continue to keep you posted on our progress and certainly come back to you as soon as we have more clarity on where COVID business -- 19 will take all of us. And once again, if you have any questions, please do not hesitate to contact us. And we'd like to wish you all and your family and your close one to stay safe. And thank you again for joining the call.

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Soumya Chandramouli, Ion Beam Applications SA - CFO [59]

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Thank you very much.

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Marc Van der Burght, [60]

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Thank you.

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Operator [61]

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Ladies and gentlemen, this concludes today's web conference. Thank you all for your participation. You may now disconnect.