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Edited Transcript of IBAB.BR earnings conference call or presentation 22-Aug-19 1:00pm GMT

Q2 2019 Ion Beam Applications SA Earnings Call

Louvain-la-Neuve Aug 26, 2019 (Thomson StreetEvents) -- Edited Transcript of ION BEAM APPLICATIONS SA earnings conference call or presentation Thursday, August 22, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* 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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* 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 Associate

* Stéphanie Put

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

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to the IBA Half Year 2019 Results Web Conference. I'm pleased to present Mr. Olivier Legrain, CEO; and Madam Soumya Chandramouli, CFO. (Operator Instructions)

You will find the details on the Investor Relation page of the IBA website. (Operator Instructions)

I will now hand over 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 for joining us on 2019 Half Year Results Call. I am Olivier Legrain, the CEO of IBA, and I'm here with Soumya, our CFO.

Before we begin, as always, I would like to draw your attention to the company's disclaimer on the forward-looking statements. As usual, I will summarize the group performance over the first half of the year and remind you of our income strategy of growth. Soumya will then take you through the company financials before I close with an update on the photon business update and our Other Accelerators business as well as the Dosimetry business. Finally, I'll highlight our outlook for the 2019 financial year, we'll then be very happy to take your questions.

We remain committed to our threefold strategy of growth combined in our (inaudible) debt to continue to grow our services business, which has been achievable thanks to the strong increase in our proton therapy install base. We are pleased to see a high level of customer satisfaction, something that we will continue to account as we extend the range of services while focusing on increasing the profitability of this part of the business.

At the same time, we believe that proton therapy has still a lot of potential for growth, and we focus on 2 things in order to grow the proton therapy market. The first one is encouraging the adoption and awareness of the benefits of proton therapy through education and facilitating the generation of robust supporting data. Secondly, we are looking to increase our market share. We believe that we can continue to achieve this by focusing on system performance and showing we maintain our superior clinical technology, reliability, upgradability, and last, but not least, speed of delivery. Our strategy is supported by our strong global network. We have sold now 54 proton therapy centers of strategic partnerships and collaboration. Business network is integral to being able to provide a full spectrum proton therapy offering that will remove barriers to adoption and enable further acceptance and market growth.

Looking now at the overview of the first half of 2019. As highlighted in the statements this morning, we experienced a strong order intake across all business line, more than doubling from the first half of last year. We were pleased to see an increase in demand for proton therapy compared to last year with the sales of 2 ProteusONE solutions and one 5-room ProteusPLUS in China. We also experienced particularly strong half for the Other Accelerator business with a record of 9 machine sold globally and actually the summer was pretty busy as well because year-to-date we have now -- we are now sending 15 Accelerators sold in Other Accelerators. Our equipment and services backlog is at all-time high, EUR 1.1 billion.

Our services business continue to grow, and we are pleased to report 13% increase relative to the same period last year. Services, by the way is now accounting for 48.2% of the segment revenue as 3 new proton therapy contracts started delivering operation and maintenance revenue in the first half of 2019.

We remain committed to the ongoing cost control measures, which have been successfully implemented so far, while continuing to invest in strategic research and development initiative, which includes, and we will come back to that investment into Flash, well maybe first ARC therapy and then Flash Technology.

Finally, the Dosimetry division remains held for sale at the end of June as discussions are ongoing. However, Dosimetry performed well, and we saw an increase of the top line of 4% with an order intake remaining at the same level than last year.

Looking ahead to the full year, based on the high level of activity in the second half, we reiterate our guidance of a positive REBIT.

I will now hand over to Soumya, and she will take you through our financial results in more details.

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

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Thank you, Olivier. Before I take you through the half-year results for 2019, I just wanted to remind you that the Dosimetry division is included in the P&L as a discontinued operation. Now looking at the headline numbers for H1. Proton Therapy and Other Accelerators, H1 revenues were up 13.8% compared to the same period last year. The H1 number now includes a revenues from 3 new program projects, the Milan and Kansas, ProteusONE systems and the Shenzhen 5-room contract, which was signed by both parties before the end of the period. REBIT loss for the first half was down EUR 1 million from H1 2018 to minus EUR 7.1 million as we increased investment in R&D. The Dosimetry business, as a discontinued operation, had a net profit of EUR 2 million, up 196% driven by strong sales and continuing cost controls.

The total group loss decreased EUR 1.7 million to EUR 5.3 million from a EUR 7 million loss in the first half of 2018.

You'd notice that IFRS 16 on leases positively impacted REBIT by EUR 0.1 million and REBITDA by EUR 1.9 million. There was practically no impact on net result.

Our combined equipment service and upgrade backlog has now reached an all-time high in H1 at EUR 1.1 billion, giving a strong indication on future revenues. As Olivier also mentioned, our equipment and upgrade backlog was a record EUR 342 million, up from EUR 278 million at the end of 2018, thanks to the PT and Other Accelerator sales in the first half, with 2 ProteusONE solutions, 1 ProteusPLUS solution, 9 Other Accelerator machines and several upgrades in H1 2019. Year-to-date, we have sold 6 Other Accelerator machines that will further add to this backlog over the second half.

PT service backlog also reached a record level of EUR 747 million from EUR 691 million at the end of 2018, while 3 new PT contracts began to deliver operations and maintenance revenues.

Now some more detailed summary on the PT and Other Accelerator business. As we already mentioned, PT and Other Accelerator revenues was up close to 14% compared to this time last year. First of all, this increase was due to an increase in Other Accelerators sales from new prospects as well as from backlog diversion from last year's order intake in this division. Secondly, proton therapy sales increased to EUR 73.8 million mostly from service and upgrade revenues, but with equipment installation activity expected to be skewed heavily to H2.

With the decrease in the REBIT, highlighted earlier, reflects a slower PD backlog conversion in H1, some extent of pricing pressure from competition and increased investment in R&D as we invest in the future growth of the business.

As mentioned previously, equipment revenues for the first half were down from last year, mostly due to slower activity compared to H1 last year. We expect these to pick up very strongly over H2 2019 where installation starts from 6 rooms and more than 10 rooms are expected to be delivered to our customers. Other Accelerator equipment saw 121% increase from last year, thanks to the conversion of the high order intake and activity of 2018. Services continue to increase strongly as 3 PT contacts started to deliver O&M revenues and 6 other contract revenues ramped up from 2018. Services now represents close to half of the revenues for this segment.

I'll now hand back to Olivier to take you through the proton therapy market update.

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

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Thank you, Soumya. On Slide 12, as mentioned in the first half of the year, IBA sold 2 ProteusONE solutions and 1 ProteusPLUS, all of which started to generate revenues. In addition, we sold 9 Other Accelerator. As a result, order intake for proton therapy and Other Accelerator was EUR 134 million compared to EUR 63 million in the first half of last year. The 7 rooms sold by IBA in the first half represent 1/3 of the rooms sold to-date in 2019. We are pleased to see that there has been a global pickup in the proton therapy market with 21 rooms sold in Europe, Asia and the U.S. in the first half compared to 5 in the first half of 2018, and if I remember well, 12 for the full year. You will see from the chart that to-date IBA sold 42% of the 293 rooms sold globally. Our market dominance is well balanced across other market in which we operate, and we have a 43% market share in the U.S., 43% in APAC, excluding Japan, and 56% in Europe and the rest of the world.

Our experience in installing, testing and maintaining systems remains second to none, underpinning our status as a global market leader in [the business.]

At this slide, highlighted a range of proton therapy center in operation and development. We are delighted that our proton therapy solution are widely used across the globe with a number of prestigious centers using IBA technology. There are 53 proton therapy centers in total, with 29 centers in operations and 24 under construction, comprising 16 ProteusONE and 8 ProteusPLUS solutions.

We are pleased to have reached several significant milestones from a -- of IBA's PT centers in the first half of 2019. In the period, the first patient was treated in the Apollo center in Chennai, India; 2 more U.K centers were open, 1 in Reading close to London and 1 in Northumberland which is New Castle, I believe. And the rigging of the cyclotron in Guangzhou center was completed and the installation of 3 rooms has started over the summer.

If you look at the data from PT curve, we clearly can see here the growth of the proton therapy market. Globally, the long-term fundamentals of the PT market remain very solid and from 2020 onward, there will be 46 centers in operation in the U.S., 49 in Europe and 48 in (inaudible). We believe that our superior product offering of compact and multi-room solutions optimally position IBA to capture the projected goals of the proton therapy.

This slide, which is to me even more important, it gives you a sense of the growth in proton therapy patient number since 2007. So we can see that to-date, over 190,000 patients have been treated with proton therapy worldwide, and of this, IBA has treated 56%, which is more than all competitors together. We see by doing many of our older center reaching close to full capacity.

This half demonstrates IBA's expectations for the number of patients to be treated in 2021. Based on data from PTCOG and a proprietary data, we expect a total of over 130,000 patient by 2021. On the right-hand side of the slide, we have outlined examples of the facilities of IBA's technology in terms of clinical excellence, reliability, upgradability as well as faster-than-average transfers time. So far in 2019, we have seen several example of this. With 2x more patient treated at the Beaumont center in the first year than originally anticipated, an impressive mean treatment time of 16 minutes per patients at Willis Knighton. 99% uptime achieved over a 6-month period at the Northwestern center in Chicago. And finally, the center such as Massachusetts General Hospital, the cutting edge of PT treatment, even after 20 years in operation, thanks to the upgradability of our system.

At IBA, we are constantly working with our partners to innovate, including in the methodology used for patient selections. The University Medical Center of Groningen has seen positive initial results in the first year using the model-based approach for patient selection. This approach has resulted in a significant reduction of radiotherapy-induced complications and it resulted in 2 approved national indication in Head and Neck, which is a very important indication for the future of proton therapy as well as for breast cancer in the Netherlands. For example, up to 40% of Head and Neck patients are being treated with proton therapy using this model. Further implementation is anticipated for lung cancer, esophageal cancer and lymphoma. We are pleased to see an increasing number of institution worldwide beginning to show greater interest in this model of patient selection.

IBA remains focused on future technological breakthrough in the proton therapy field as well as shaping product roadmaps and promoting the acceleration of proton therapy solution. In April, the second meeting of the Victoria Advisory Committee took place, where clinical experts from the world-leading cancer centers specializing in radiation and proton therapy defined, together with IBA, the future of proton therapy care such as Flash therapy or ARC therapy. This year, IBA hosted its 8th Annual Proton Therapy User Meeting in Miami, welcoming more than 165 participants, representing 40 sites from 17 countries, taking IBA's proton therapy community to the largest expandable experience in the history.

IBA's research program is centered on 3 axes, motion management, moving tumor; proton ARC therapy and Flash therapy. Each axis is underpinned by a focus on upgradability, so we want the install base to be able to benefit from it. ARC therapy has the potential to low proton therapy practitioners to improve dose conformity at the tumor while further reducing the dose to surrounding tissue and increasing patient treatment effectiveness. IBA delivered the first radiation of its first scanning proton ARC plant at the Beaumont center on the ProteusONE in Michigan, United States, and there is a high level of interest from IBA customers in this technology, which will soon be added in our catalog of product.

In terms of technology innovation, we're particularly excited to about the future of Flash therapy, which has the potential to dramatically change the landscape of radiation therapy. We call it disrupt and patient care, cancer care, making it more effective, cheaper, and therefore, more accessible. Our equipment is Flash-ready, and we are the only company to have demonstrated a flash-compatible dose rate in a clinical environment. In March, we successfully performed the first Flash radiation in the ProteusPLUS treatment room in the Netherlands. And in June, the first procedure was performed in the ProteusONE compact gantry treatment room at the Rutherford Cancer Center in Reading.

With this demonstrated leadership in Flash therapy on dose solutions, we will continue to develop the technology alongside fast-moving opportunities within the user community.

Moving on to Other Accelerator, the Other Accelerator business showed a strong order intake for the first half, as I said, with 9 systems -- new systems sold and additional 6 in the summer driven by demand for production of new radioisotope and for medical device sterilization when it comes to Rhodotron. The sales included 2 Rhodotron electron beam accelerator to American company called NorthStar Medical Radioisotope for production of the radioisotope molybdenum-99 and several machines for sterilization.

Post-closing, 6 additional systems have been sold bringing the total 15 further reinforcing IBA's market leadership. This has include high-energy Cyclone70, which is a significant contract for us equivalent to a ProteusONE to the Institute for Basic Science in South Korea. On top of this the service pipeline for the Accelerator business continue also to be worldwide as promising.

I will now talk briefly about Dosimetry. Dosimetry had a strong first half, with an increase in net sales of 4% from H1 2018. Order intake was in line with the previous year, supported by the growth of conventional radiation therapy sales and strong EMEA market. REBIT in Dosimetry grew 66%, thanks to a strong cost control to reach 10.7% of sales.

As mentioned, the segment remains held for sale as management actively examine the most value-enhancing option for this business, and we will provide an update to the market as soon as significant milestones of -- a significant milestone is reached.

I now hand back to Soumya to go through the financial statements in more detail. And before I finish up by talking about the outlook for the group. Soumya?

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

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Thank you, Olivier. Now looking at the P&L for the group. As mentioned, revenues were up 13.8%, reflecting the strong Other Accelerator performance and growth in PT services. Gross margin as a percent of sales was down 2.7% compared to the first half of 2018. Now this was predominantly due to pricing pressure on new PT contracts as competitors dropped prices in order to gain market share. In spite of this, all of our contracts remain profit-making, and we're working on further optimizing installation time on our systems and improving overall service margins.

Sales and marketing and G&A remain stable, even beating inflation, despite the several one-off cost-saving measures that were taken in 2018. R&D expenses increased in order to support the major strategic projects in the period, including ARC and Flash therapy that Olivier talked about. As we invest to ensure that we maintain our superior offering. We remain committed to the cost control measures, which have been successfully implemented whilst maintaining these strategic initiatives. Other operating income included mainly restructuring costs from the beginning of this year, the reversal of a provision for a long-term contractual obligation and the gain on the sale of intangible assets related to Carbon therapy. The financial expenses mainly included interest on credit lines and foreign exchange fluctuations.

Moving on to our cash flow statement. Operating cash flow continued to show an improving trend from H1 of 2018, principally as a result of a high level of customer payments and sustained inventory buildup. CapEx investments remained low in the period. The other investing cash flows, as you see, mainly relate to commitments on the financing of an investment for Carbon therapy.

And finally, financing cash outflow was due to repayments on long-term borrowings and short-term credit lines as well as interest paid on the same. Now back to Olivier to discuss outlook.

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

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So looking ahead to the remainder of the financial year, based on our current market outlook, we have reiterated our guidance of delivering a positive REBIT for full year 2019 driven by a significant second half weighting. High level of activities anticipated in the second half of the year, with installation starting for 6 rooms, high production activity on the Other Accelerator backlog and more than 10 proton therapy rooms being delivered to customers and related service revenues ramping up.

In our view, the fundamentals of the proton therapy market continue to be solid as demonstrated by the numerous prospect IBAs pursuing across all global markets and the quality of the equipment and service backlog.

We remain focused on driving goals despite the continuous lumpiness of the proton therapy market by looking to absorb the unpredictability through continued cost control and maintaining the world's more competitive and attractive proton therapy offering.

This is concluding the first part of our call. I thank you very much for listening, and 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) We have one first question from Mr. Kit Lee from Jefferies.

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Nyeok Lee, Jefferies LLC, Research Division - Equity Associate [2]

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I have 3 questions, please. And I guess firstly on your China order, on the 5-room system order, which will activate in the first half. I guess, in your statement, you say that you haven't received a down payment for it. So I'm just wondering what -- the accounting mechanism there, just on recognizing that order in P&L without receiving a down payment?

And then secondly, just on the 3 orders from PPI last year. I guess are these orders still I guess with the company? Or have they been canceled? Just what's the progress there?

And then my third question is on your net debt position. I think it's currently it stands at around EUR 58 million. I was wondering what's the room for, I guess, more debt-to-finance working capital just given your current credit lines and so -- also some of the debt financing in place. What's the -- I guess, what's the unused amount there?

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

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Okay. Kit, Soumya here. I think I'll try to answer, probably, all 3 of the questions. Firstly on the China order. As per IFRS, we can start to recognize revenues as soon as we sign a contract, but we're usually always very prudent, and we wait to get the first down payment from the customer as a sign of them actually having the skin in the game before we start to recognize on our end. Now in this case, this is the Chinese government, basically, we've signed a contract with and the only glitch is a little bit of an administrative issue to get the cash to IBA. And so we consider that in this case there was absolutely no risk of not getting the cash, and we have recognized -- started to recognize revenues, basically, based on the accounting standard.

On the second question, on PPI, well, today, we are concentrating on delivering the systems that we have already signed with PPI and which have already been financially activated. We just delivered the third of the systems -- of those systems to PPI, and we are now ramping up to start treating patients in the third of those systems that's Reading in England. So on future sales and on these 3 projects, let's just see how things go, and we continue to concentrate on delivering those projects which are already in our order intake.

And finally, on the net debt situation. Well, first of all, it's a picture at June 30. And as you know, it can be very much affected by some of the big milestones that we have in terms of invoices. Now given the structure of our debt on the balance sheet, today, we have EUR 67 million in credit lines, and we have used around EUR 30 million of those. And so we have quite enough space to be able to go up if we require to draw more of our credit lines. However, what we're doing indeed, is to have discussions now with our bankers to restructure the financing completely because, today, we are pretty dependent on the short-term financing, and we have got nearly no senior debt on our balance sheet. And so we're looking at how to revise that structure and bring some longer-term financing into the balance sheet, so that we can match it with our working capital needs, which can swing quite a bit. And which are the main reason for us needing any level of debt.

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Nyeok Lee, Jefferies LLC, Research Division - Equity Associate [4]

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Okay. I guess just the follow-up on the PPI orders. I'm wondering if these are still in discussion? Or are they sort of putting that 3 systems, I guess, into the backlog now? And maybe this property will be brought forward at some point in time in the future? Just trying to understand the situation there.

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

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Well, on our side, we have not included them either in our intake or in our backlog as of today, anymore. And so we will just wait and see how things evolve with the existing systems that PPI is now starting to operate.

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Operator [6]

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(Operator Instructions) We have no further questions by phone.

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Olivier Legrain, Ion Beam Applications SA - CEO, President, MD & Executive Director [7]

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Okay. Then we'll start to take questions in the hall.

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Matthias Maenhaut, Kepler Cheuvreux, Research Division - Senior Equity Research Analyst [8]

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Matthias Maenhaut, Kepler Cheuvreux. First question from my end, as you've said we have seen a revival of order intake and also in the market. Could you maybe elaborate a little bit on what's driving this? And also could you give us a little bit of a more view of how many tenders you actually did and how many you still have outstanding that hasn't been replied?

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Olivier Legrain, Ion Beam Applications SA - CEO, President, MD & Executive Director [9]

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So I think it's a question of alignment of cycle to see all the orders we took in the first half and, basically, all the market -- all the orders that were placed in the market is our project that we are following for a while. I think -- if I look at the pipeline, I think, it -- we still see a lot of activity. There's many, many tenders open. Soumya just told here saying we don't give a number of tenders that are opened but certainly it's a lot, and thank you, Soumya. And one thing I wanted to mention though, is that I -- even though I had explained it is a cycle, I think the business case for proton therapy is getting more and more robust. And we were touching upon the number of patient treated in the number of facility, and I think what we've seen over the last few years is a little bit of an easier ramp-up for our customers. So I think, as the -- we still see some headwinds on adoption, no doubt about that, lot of denial in the U.S., et cetera, et cetera. But I believe, slowly but surely people are getting more confident that proton therapy makes sense for them and that it's a business case that they can meet their report and indeed, the ProteusONE, as we can see in many instances, is not a crazy capacity that you cannot quite quickly fill with this station equipment. So we are seeing ProteusPLUS coming back, but it's fairly driven by China, and we will come back on China, of course. But the number of prospect we have on ProteusONE is actually quite significant as well, and I believe part of it is due to what I've just explained. I think the business case is getting -- it's not easy but it's getting a little bit easier. And then, indeed, you have a revival of the Chinese market definitely. If you look at the order intake, 21 rooms, I believe about 10 are coming from China. We disclosed last year, I think, that finally, China came out with a new Regulation 10 licenses, and we start to see the result of that as new project are becoming reality and China is back on the map, let's say. So this has really helped us and our competitors to place more orders in China.

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Stéphanie Put, Banque Degroof Petercam S.A., Research Division - Analyst [10]

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Stéphanie Put from Degroof Petercam I wanted to know if you could give us a bit more detail on the pricing pressure you see in proton therapy segment. Maybe if that's regional? Is it more linked to the ProteusPLUS? With China coming back strongly, can we see an improvement again -- margins in the second...

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Olivier Legrain, Ion Beam Applications SA - CEO, President, MD & Executive Director [11]

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I think today, it's mainly written by competition. I think the reality, and we can discuss it forever, is that when it comes to technology competitive advantage, IBA is by far the preferred solution, which is actually confirmed by many tenders output. So when competitors are serious about being a player in the U.S. in the market, they actually have to decide if they want to buy some deals. So I think that's what we have seen in the first half of the year. How long...

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Stéphanie Put, Banque Degroof Petercam S.A., Research Division - Analyst [12]

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Is that mainly (inaudible) in China and the world?

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Olivier Legrain, Ion Beam Applications SA - CEO, President, MD & Executive Director [13]

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Well, China is not well known for being a premium market, let's put it that way. But we see more -- I would say, China is not the worst. We see more competition on a number of tenders in Europe and in the U.S. driven by competition.

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

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And on your question about whether gross margin can improve. Well, today, we recognized gross margin on a project, it's based on our estimate of costs as we know them today. Now you know we're spending a portion of our Indian, improving ARC. And so we're working on how to bring those costs down over time. But any improvement in the margin that would come from a cost decree will have to be recognized over the duration of the project, and so we cannot reflected it already today in our numbers. So potentially yes, there might be some cost decrease despite the price decrease, but it will be recognized over the duration of the project, let's say.

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Olivier Legrain, Ion Beam Applications SA - CEO, President, MD & Executive Director [15]

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I've said it in the past, if one company has a cost advantage, it's IBA, I mean, if only you take the speed of installation or let's say, also the -- by design, I believe, and also by experience. So the question is, indeed, how long are the competitors going to play that because if you look at their numbers it doesn't make a lot of business sense.

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Lenny Van Steenhuyse, KBC Securities NV, Research Division - Financial Analyst [16]

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Lenny Van Steenhuyse, KBC securities. Perhaps picking onto that question on pricing pressure. And we know that Varian is very aggressive on pricing as it's actually -- the pricing trends that you see across competitors? Or is it specifically Varian? You also see that with Hitachi because of course, they were mainly in Asia and now you see them also popping up in the U.S. market. Is there a sense of...

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Olivier Legrain, Ion Beam Applications SA - CEO, President, MD & Executive Director [17]

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We see mainly Varian and Mevion.

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Lenny Van Steenhuyse, KBC Securities NV, Research Division - Financial Analyst [18]

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And perhaps looking to the Other Accelerators, which are clearly very strong performing. The trend going forward, I think, we can agree that, that it seems quite sustainable now after a year. What is actually really driving this market?

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Olivier Legrain, Ion Beam Applications SA - CEO, President, MD & Executive Director [19]

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So the -- 2 different things. One is for RadioPharma Solutions, you might remember that the application is mainly for a nuclear medicine, radiopharmaceuticals. The biggest one is the so-called FDG for cancer diagnosis. And then for many years now there is a new product in the market that needs another type of radioisotope called rubidium. It's for cardiac exam. Rubidium supply chain that is very unreliable, so to speak, and many years ago already IBA sold 70 MeV cyclotron for -- it was more like for a research purpose but they were able to demonstrate of -- to become a reliable source of Strontium/rubidium, let's say. And actually, this is what the market needed. It was really a reliable source of Strontium/rubidium. So many people picked that up and started many -- a number of people picked that up and really said, okay, there's a business case here to basically grow this Strontium/rubidium opportunity, which is very badly needed by the patient based on this technology. So we -- I think, it was 3, 4 years ago, we sold no, maybe more, maybe 4, 5, 6 years ago, we sold one system in the U.S, which actually has performed very well. Then we sold a system in Russia. And then we sold a second one in the U.S. And now I think, we see people -- the last one we sold is in Korea. So it looks like this is, indeed, picking up a bit. We should not expect a crazy big market, but I think, as I said, it's always a very significant contract for us. It's about the same then the ProteusONE, and I'm confident we'll see more of them. So -- and it's a big game changer for RadioPharma. I think the KIUBE is a great business but it's maybe a EUR 1 million per unit, and we sell about 10 unit every year. We have nice service business but when we sell a 70 MeV and what did we disclosed the price?

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Soumya Chandramouli, Ion Beam Applications SA - CFO [20]

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Between EUR 12 million and EUR 15 million.

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Olivier Legrain, Ion Beam Applications SA - CEO, President, MD & Executive Director [21]

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Between EUR 12 million and EUR 15 million. It's a significant jump for RadioPharma Solutions. So that's going very well, indeed. And on -- and this clearly show, also, quite a good news. And as you follow IBA for a long time, you know we have always been quite excited about the potential for electron beam in the field of medical device sterilization as a substitute to gamma irradiation and EtO. Gamma irradiation having also a little bit of a supply-chain challenge as well as some security challenge, and EtO being quite under pressure for environmental effect. And I really believe that we have started to see the line moving and people really -- what we have seen in the past is growth was captured by electron beam, but the medical device market is not going like crazy. So it was like more incremental growth. We could sell 3, 4, maybe a good year for Rhodotron. But what we have seen -- really started to see now in the -- in late in 2018 and early 2019 is really people doing the switch. And we don't -- we're not going to refurbish our gamma irradiation center. We're going to invest into an x-ray center. And actually I was in -- there's a professional meeting, scientific meeting about irradiation, in the past it was all about gamma irradiation. It was back in May, in Saint-Hubert and it was all about x-ray and E-beam radiation as a substitute for gamma and EtO. So we're quite -- we were a visionary maybe, 10 years ago it was a bit of a leap but now it looks like it's finally happening. And indeed, for us, IBA is very well positioned, there's only another player in this field, it's a Canadian company, but we are very -- I think, we have -- it's not an overcrowded market in terms of competition and IBA has quite a very competitive offer today. And as you know, we've shared it in the past as well, we have invested in smaller Accelerators, so we have also a very, I would say, versatile offering. So I'm quite happy about the development. And as you mentioned, it's probably not just a bubble, it's probably like more of a long-term plan. Thanks.

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Matthias Maenhaut, Kepler Cheuvreux, Research Division - Senior Equity Research Analyst [22]

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Matthias Maenhaut, Kepler Cheuvreux. I had a follow-up on the previous question actually. You already touched upon it and just the competitive environment and also the barriers to entry because this business is growing very rapidly, could you maybe also elaborate, are you taking share? Or is this really market growth? And how do you assess the barriers to entry because with such a market growing that fast, it could be very interesting for other players to enter that market.

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Olivier Legrain, Ion Beam Applications SA - CEO, President, MD & Executive Director [23]

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So I think it's -- we're probably taking market share, but it's not overwhelming, let's say. So it's market growth. I think our Canadian competitor is doing quite well. When it comes to barriers to entry, I think it's LINAC or, let's say, electron beam accelerators are very -- there's many, many uses for electron beam accelerator but the level of energy and power, we are, I think it's a challenging technology. And so I think it will take some time for some competitors to be at the level of quality required to basically sterilize medical device because it's not only about the beam, it's also about the under beam and how you deliver it and so on and so forth. It's also a very highly regulated industry. So I think the knowledge, the barriers to entry is not only technological, but also field specific. I can use an example, I think, one Chinese company actually copied one of the old technology of IBA for many years, and they have been successful in China with low end of the market, but never really reached the specification of our accelerator. So in that case, they will never be a threat for the medical device sterilization business. And then the other thing that we -- of course, it complicated things a bit but this agreement with NorthStar is also quite interesting. As you know there's a big shortage or let's say, the molybdenum-99/technetium-99 isotope supply chain is also very, let's say, shaky or uncertain or unstable. So this could be a big potential for us. And I link it to Rhodotron because we take the technology a step further with this NorthStar, and we will learn from it for the medical device sterilization industry. So I think we are years and years ahead. Rhodotron is -- I think, I joined IBA the year we started the Rhodotron business, so it was back in 1996, so there's a huge learning curve there.

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

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Any other questions?

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Lenny Van Steenhuyse, KBC Securities NV, Research Division - Financial Analyst [25]

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Perhaps, I'll ask one again. Lenny Van Steenhuyse, KBC Securities. Service revenues have been ramping up nicely, now nearing 50% of the total revenue, you mentioned there are also some efforts to increase profitability on service. Could you perhaps elaborate on any specific efforts there? And what really the extent of these improvements could be in the longer term?

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Olivier Legrain, Ion Beam Applications SA - CEO, President, MD & Executive Director [26]

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You go first and then I will because we take a risk if I go first.

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Soumya Chandramouli, Ion Beam Applications SA - CFO [27]

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Okay sure. No, I think in terms of improving the service margin, well, the first we're trying to do, of course, is to reduce the number of people on site because that would be a big change, not just in the number of -- in the overall cost basically of the service business, but also in making it more efficient for the -- on the customer side.

On the ProteusONE, in particular, we are working towards, at some point maybe in time, certainly not very soon now, but looking at how it's possible to do more and more remotely and not have people on site continuously. So that is one portion of the cost improvement.

The other thing, of course, is then making sure that the systems continue to remain reliable to the level where we are today that is giving highest uptime possible to the customer, which also allows them to be able to treat patients for a maximum period of time, that will also be an improvement of the service for the customer and, of course, then potentially it will be good for us.

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Olivier Legrain, Ion Beam Applications SA - CEO, President, MD & Executive Director [28]

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That's what I wanted to say. I think, we're still in the phase where uptime is the most important thing. So -- and especially with ProteusONE, it's a new machine. We have, I think, on-site treating patients. We will go up to 10 by the end of the year. So we're still learning a bit the behavior of this machine. So uptime is our focus right now, and there's a point -- ProteusPLUS is a different phase, there's a point where optimization becomes the focus. And I believe, today, we are not at the optimum. We would probably have too much inventory because we want to meet uptime. So as now we are growing the installed base, we have more and more center, we collect the data live actually, and could show you we have a software where all the centers are connected. It's a new device we have put in place, I think late last year. We start to run some AI in the data and so on and so forth. So we expect to do more trending. So we will move from preventive maintenance to predictive maintenance, et cetera, et cetera. I know this will, I believe, bring a lot of productivity in our service business.

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Soumya Chandramouli, Ion Beam Applications SA - CFO [29]

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And maybe one thing to underline is that when we talk about service business on the whole, it's service and upgrades. So we have more and more upgrades happening now in our systems as the older systems are ramping up to the latest technology, whether it's pencil beam scanning, whether it's imaging with cone beam CT or whether it's lighting or software upgrades. So we keep adding on to the service also with this upgrade business. Of course, the thing with the upgrade business is that it's more upbeat in terms of revenue recognition because it's more on the format of the equipment revenue recognition. But then, on the whole, backlog is increasing. I think we've reached close to EUR 20 million in backlog now for upgrades as well as also a nice revenue stream that will continue to add to profitability and revenues on that service.

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Olivier Legrain, Ion Beam Applications SA - CEO, President, MD & Executive Director [30]

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Thank you very much. And actually I'd like to invite you to our Capital Market Day. It's going to be in September in Chicago during the ASTRO meeting as well as we'd give business updates in November. And we will hold a call for our full year results 2019 in March 26. So thank you very much, and have a great day.

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Soumya Chandramouli, Ion Beam Applications SA - CFO [31]

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Bye.

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Operator [32]

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