Elekta’s (EKTAF) CEO Richard Hausmann on Q4 2020 Results – Earnings Call Transcript

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Elekta AB (publ) (OTCPK:EKTAF) Q4 2020 Earnings Conference Call May 29, 2020 4:00 AM ET

Company Participants

Cecilia Ketels – Head-Investor Relations

Richard Hausmann – President and Chief Executive Officer

Gustaf Salford – Chief Financial Officer

Conference Call Participants

Sebastian Walker – UBS London

Annette Lykke – Handelsbanken

Kristofer Liljeberg – Carnegie

Carolina Elvind – Danske Bank

Veronika Dubajova – Goldman Sachs

Cecilia Ketels

Good morning, everyone, and warm welcome to the presentation of Elekta’s Fourth Quarter and the Fourth Fiscal Year 2019/2020. My name is Cecilia Ketels. I’m Head of Investor Relations at Elekta. With me today in the slide presentation from Stockholm, I have Elekta’s President and CEO, Dr. Richard Hausmann; as well as our CFO, Gustaf Salford.

And today’s agenda, Richard will start off by presenting our latest innovation, acquisitions and some other highlights after the fiscal year has closed. Then, we jump up off and talk about the Q4, followed by concluding the full year performance. Gustaf will give you some more details on the financials. And at the end, Richard will conclude the highlights and say some things about the outlook. At the end, there will be time for questions. However, due to COVID-19, we have no audience here in Stockholm. So all the questions have to come from the conference call.

Before we start, I want to remind you that today’s information include some forward-looking statements. And these statements can be projections about results, revenue, cash flow, projects and product development. And these statements involve risks and uncertainty, so that the actual results may materially differ from those set forth in the statement.

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

Richard Hausmann

Thank you very much, Cecilia, and good morning, everybody around in different locations to this, yes, quarterly and year-end call of Elekta. So we named it performing in different – difficult times and I think you will all agree with me that these are difficult times and very uncertain times. And a lot of leadership is necessary to drive through these times right now.

We have a clear strategy and I would like just to highlight that again, that we are sticking to that even in difficult times. We feel we are the – we see ourselves the leader in precision radiation medicine. And these three words are important for us, position for really hitting a tumor in the right way and know a lot about it from our oncology information system, so the precision by knowing. Radiation is our core competence.

And medicine is covering the aspect that we are not only managing the treatments, but we’re also – with radiation therapy, but we’re also managing treatments with medical oncology, with our oncology information systems and managing the patient. And a large part of that is our digitization effort, which interestingly enough, in times of COVID-19, get a lot of attention because digitizing, remote use, et cetera, is, in a way, a form of social distancing as well and the requirements and the request for our solutions, in particular, on that side has been quite interestingly high.

A very typical example of what we mean with success in precision radiation medicine is our recently renewed or enlarged partnership with GenesisCare when it comes to the U.S. market. GenesisCare, as you know, is one of our biggest customer already. A chain originated in Australia, moved into Spain and U.K. and other countries. And now, with the acquisition of 21st Century in the United States, a chain of 120 oncology centers, acquired a company, which is actually bigger than themselves – than they have been before. And the goal of this acquisition as well as the partnership, which we have done to upgrade, to create precision radiation medicine in those centers as well.

So the largest-ever order for Elekta was $200 million in total, numerous linacs, 11 Elekta Unities and service contracts related to each system. And Dan Collins, the CEO of GenesisCare, you see the citation from him. He focus a lot actually on precision radiation medicine, a lot about Unity in itself because that brings another level of precision to patients, which come to these centers in the United States. And that whole partnership, it’ll go over the next five years. So that’s an inroad for us also as Elekta into the U.S. market.

If we look together with this partnership with GenesisCare on the total number of Elekta Unities ordered now, so the 11 GenesisCare orders are now added, we are now reaching a totality of 80 systems as of May 18. So a few days – a few – a week ago, with 27 now in the United States, a bit more in Europe with 31, and 22 in Asia Pacific. Overall, quite balanced, with a little bit more focus on Europe, where actually everything started, in particular, you recall the Netherlands, Utrecht, and that’s where the, so to say, the first sites have been using the system. And we’re very proud about that, reaching that goal of our target of 75 systems a bit faster that even in these difficult times of COVID.

One other aspect of precision or what I would call, data management also is the strengthening our digitization effort is the acquisition of Kaiku Health. Kaiku Health is a company, small company, but a very agile company, a very innovative company in the whole world of intelligent personalized digital health interventions. Patient-recorded outcomes, guiding – or let the patient interact with the referring physician then caring physicians or care teams, creating a real-world data so – and using artificial intelligence to guide the patients on to – ask the patient for side effects, et cetera, depending on the particular situation of the patient with deep-learning modules behind it.

And this company, Kaiku, also probably not known widely, is the market leader – the leader actually, in this application globally with more than 110,000 patients running under their software in various customer and clinics all over Europe. So that’s an example of our strengthening portfolio in the digital world.

But we also, of course, do a lot in our call it more hardware-product-related world. And there, we strengthened our portfolio with two innovations, which have been now digitally launched already. One is a new applicator for Brachy, so-called Geneva. Now we went from Venezia, which was a gynecological applicator for the advanced-stage cancers.

Now into the more broad application, Geneva, for the same type of cancer, but in early stages with the same advantages. And it’s interesting to see that its digital launches, which was where, of course, be – pushed by the COVID-19 situation have shown even more success than just going to a show, yes? So in that sense, I would like to say and highlight a bit that there are also things, which kind of bring us to other levels of performance using digital methods in the future.

The Lightning is a new way of using the Gamma Knife and planning the treatment with the Gamma Knife, which results in a reduction of treatment planning time significantly as well as a reduction of beam-on-time. So efficiency of the system is improved. And that’s a very big breakthrough, also launched digitally.

And last but not least, what is released on plan, and this is coming now, is the high-productivity in linac. This is a new platform of linac moving forward. We designed, in particular, balancing the patient interaction and making the workflows better and footprint better. So that’s all on track. And I think despite the fact of lockdowns and social distancing, I think we are moving with our marketing and sales efforts in these areas forward with these new innovations.

With that, I would like to come to our Q4 and the full year performance. You can imagine that our – probably I always say this, we are one of the first companies coming out with a report where a full quarter was now affected by the COVID-19 situation. So the full February, March and April, yes? And of course, that hasn’t had an effect on us in Q4 as well as on the full year performance.

If I go to the orders in Q4 first, on a regional basis, the pandemic actually resulted in a 10% reduction of global order intake as a whole. If you look at the different regions, we see a little bit of an unequal behavior in the quarter. And it’s interesting to note that in North and South America, we almost saw no reduction. It came to the fact because we had quite some good success in the last quarter in the United States, a certain rebound despite the pandemic. There’s a good performance of the new management team.

So we got some bundled deals, Covenant HealthCare in Tennessee. And our Elekta Unity was purchased by American Shared Hospital Services. Canada, a large order of 18 linacs in Québec and the first Unity was also sold to Mexico. And also some successes on inroads in new customers like Albert Einstein in Brazil – in São Paulo, Brazil, which is not even on the slide.

Europe and Middle East, Africa was hit in Q4 stronger by the COVID effect, and there we saw minus 17%. Nevertheless, we also had quite good success in some of particular countries, for example, another additional Unity for the Netherlands, which is now biggest, say, accumulation of Unity orders around. So several linac orders for MedEuropa, it’s a chain, which good sites in Romania and other countries around there. The NHS order for linacs in the U.K. and some linacs for Alexandria University Hospital in Egypt, we have a good inroad into this market. But then after, I would say, the first two months of the quarter, there was a significant drop in Middle East, Africa from the order side due to COVID-19.

Asia Pacific was hit fully, and we’re all aware of that, that China was the first country fully affected by the significant reduction of order intake. But still, we won several public tenders in the quarter in China and stayed clearly market leader in this country. I’m very happy about the first Unity order in Japan after the release in this country, and we see good dynamics on Unity in Japan and overall good behavior and recovery in Japan as well for Elekta.

There was a bundled deal in Canterbury District Hospital in New Zealand. It might be – sound a little small. The only important thing is what a complete turnaround from our competitors over now several years where we first won the linacs and now we basically changed everything out, and they’re very happy with our systems also on the Brachy side. And then an OIS and linac deal in Korea is worth mentioning as well. So you see it’s unequal situation. North America in the last quarter, okay-ish, of course, no growth, but zero reduction. Middle East, Africa and Asia Pacific, heavily affected by the COVID-19.

If you look for the full year, it’s the opposite. So you see that in the full year, Asia Pacific has, despite the disastrous last quarter, still good growth of 8%; Middle East, Africa and Europe, a little bit of a growth; North and South America had a bad first three quarters, and you remember that from the calls – previous calls, that’s why they had minus 6% in total, despite a rather moderate last quarter – good quarter last quarter. So that’s to show you some transparency on the regional situation of the order incomes.

Now when it comes to the – all the numbers, so not only orders, the Q4 was, of course, increasingly impacted by COVID-19. There’s no question. As I said, all three months were affected. Order intake, minus 10%; net sales, minus 6%. So we managed to install quite a bit of – a lot of systems with all the lockdowns. Nevertheless, it got more and more difficult to do it. Hit is particularly also our Gamma Knife business, where we have a international team to go into the countries and do the necessary work, both on the sales, as well as on the order fulfillment side and that hits them more than others. So the Gamma Knife didn’t grow last year because of this effect.

The gross margin was affected as well because of the less sales to 42.6%. EBITA margin was actually quite decent with 22.1%. You remember our last quarter typically has a higher EBITA margin of all. So another reason why it’s also, of course, significant for us that COVID-19 basically spread the whole quarter, EBITA margin ended up with 22.1% compared to 24% the last year.

If you look then at the total year, we managed somehow kind of with – despite this last quarter being affected so significantly, to get to a very moderate growth of order intake of 1%. The net sales grew 3%, as I said, in all areas, except neuro. The gross margin stayed more or less the same on a yearly basis. The EBITA margin came out a little bit higher, as we have guided a month ago, with 17.3%. And the growth of the installed base is – at the installed basis, now 4,500 from 4,300 a year ago. So we are growing our installed base.

So overall, over the last few years, you can imagine, I’m not happy about the performance in the last fiscal year. That’s clear. I mean the orders on 12-month average go a little bit down and net sales got stuck, and the EBITA is kind of on a 17% level, which I feel also that we have more potential. So the net sales growth was 3%. We guided 1% a month ago. A lot of things came together. The U.S. had a speed up in the end with start of installation. So there was a few positive effects coming together. We’ll come into that in the Q&A more and in the financial section. The EBITA is 17.3%, a little bit higher than what we guided for. There was some special effect, which Gustaf will go into as well. But overall, a good performance going through this quarter, especially at the last few weeks of the quarter.

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So far, the numbers, what I would like to highlight before I hand over to Gustaf is our Unity situation. Despite the fact that we have reached and overshoot this target now with the May GenesisCare order, what excites me more and more, and I said it several times but it’s – I have to say it again, is the clinical applications and the feedback we get from our customers. We have more than 1,000 patients now done on the MR-linac from all different sites. 500 patients are completely documented into our MOMENTUM study, which, as you know, is one of the tools to prepare for dedicated reimbursement.

This is now an example of a pretty difficult case, a lung cancer treatment, a cancer which is very close to the trachea and the esophagus. So it’s not so much about hitting the tumor in this case, but avoiding the sensitive organs to be able to treat this tumor, otherwise you couldn’t. And you can see the dose distribution on the lower picture, which shows that this excellent dose distribution. And it’s an avoidance of the sensitive organs to an extent, which you could not assume if you wouldn’t have this kind of pictures, MR pictures and MR contrasts available. So it’s quite an interesting case in itself.

If you look at the installed and clinically running systems, we have now 21 systems. The last one, which went clinical was in New York, which was very difficult, of course, as you can imagine, it’s Memorial Sloan Kettering. And probably see the happy faces of the teams around there on the pictures.

With that, over the statement, I will give over to – hand over to Gustaf, keeping social distance.

Gustaf Salford

Thank you, Richard. So I will run through the financials for the quarter. And if we start with – let’s see here, if we start with the P&L perspective on the quarter, you will see that we were impacted by COVID throughout the full quarter, as Richard mentioned. What was positive, though, is we had a really strong finish in the end of April. A lot of the installations that we planned for and pushed for, they happen out in installed base.

And I think that’s a very positive sign that our organization can get access and our organization can install the machines, so we also can take revenue. But all in all, net sales was down 6% in the fourth quarter primarily driven what we call solutions, so our devices, so to say. That was minus 11% versus a strong quarter last year. Service, 4%, a bit lower than run rate, but that was also a difficult comparison. And we are quite pleased with that number as well in this difficult quarter.

North, South America on minus 1%, and it’s positive to note that U.S. had a low single-digit growth in the quarter when it comes to revenue. Europe, Middle East, Africa at minus 2%. And Asia Pacific, of course, fully impacted, with some difficulties yet, I mean, the logistics chains, the supply chains and installation of the minus 14%, especially in the beginning of the quarter in China that we highlighted in the last report.

Gross margin declined. It was partly volume, but it was really about the product mix as well. And it is difficult now in COVID times to install products where we need to have installation teams going across border. So Gamma Knife was especially hit in the fourth quarter when it comes to revenue. EBITA, 22.1%, quite a strong number. We were below last year. That was on 24% in the isolated quarter, but we’re quite pleased with the EBITA levels as well. I’ll come back to a couple of the one-off effects we had in the quarter as well.

If we then take the full year perspective, then revenue growth came in at 3%, and this is where we updated you a couple of weeks ago on the 1% growth, what we saw in the April time frame, but the installations went very well in the last couple of weeks. So therefore, the higher 3% and then EBITA level on 17.3%. North, South America on minus 6%. And Europe, Middle East, Africa, plus 9%. Asia Pacific on this 6% number as well. And then you see the difference between the solutions on plus 1% and service on a full year number on 6% growth, often quite linked to the installed base growth of the company. Gross margin levels at last year’s level and then EBITA, 17.3%.

We have been very active on the liquidity financing side during the last quarter, and it had some impact then on increased financial costs. So the increased debt liquidity drives a bit additional expenses on the financial side. We also saw a bit lower return on the investment funds we have. And then you have the IFRS 16 effect on net profit level as well.

If you move on to expenses, you see a couple of changes and a couple of areas that developed in the quarter. You can see that selling expenses increased in the quarter. We invested more in digital solutions, digital launches to get access to the customers where we cannot really meet them in a marketing event and so on. But we also took some additional provisions, proactive provisions when it comes to COVID-related bad debt and so on. It’s not that it has happened already, but we want to be prudent going into this situation over the next couple of quarters.

Admin expenses, significantly down in the quarter, minus 20%. Of course, we don’t travel. We have less external consulting spend, those type of areas, less litigation cost as well, impacting the admin expense. And then R&D net going down in the quarter as well with minus 8%. All in all then, you come to minus 6% in the quarter.

The main reason for the net R&D development is what you see to the right-hand side of the slide that the capitalization increased in the last quarter. So now amortization on R&D and capitalization is almost at the same level. And driven really about later- phase R&D projects, more projects going into this capitalizable phase that we’re often talking about.

If you look at the EBITA bridge on the next slide here, you see 17.3% EBITA. If you look in absolute terms, we’re actually showing a growth of 2% between the two years. The key reason is volume with – volume in terms of more installed projects, et cetera. You have a bit more R&D expenses and sales expenses that we talked about. FX rate differences was a big effect in Q2, as I’m sure you remember. And then you can see a one-off effect in the quarter, and it’s this revaluation of the initial share of Palabra that we now acquired 2/3 of in the quarter. That’s almost the same amount as the MEG impact we had in the previous year. So they take out each other in the quarter. So it’s SEK 66 million positive effect on P&L and EBITA level from the Palabra acquisition.

The FX effects, we’ve often talked that we expected around flat or zero effect on EBITA level, if you take – go through the full P&L on FX, but there was a lot of moves, as you know, in the last couple of weeks and quarters in FX. So the full year FX is now minus SEK 37 million.

Moving on to working capital. We’ve talked a lot about the inventory during the year. We built up inventory in the beginning of the year, Q1, Q2, kind of peaked in October because of Brexit. Then we – the plan was to bring it down to zero, this Brexit inventory. And I would say we did almost half of it in light of COVID. So we couldn’t install as much as we had in the plan, but we were able to reduce inventory with around SEK 200 million. And then our collection processes and invoicing processes, we have fixed a lot of those issues that we had in the previous quarters now in Q4, and you see a positive effect there on AR as well.

Customer advances, big reduction in the quarter. It is about those products that we now have installed in the quarter and not to the customers in the last couple of months and weeks. Cash flow impact of all of this and the negative minus SEK 6 million of net working capital as a percentage of sales is that we came in – the quarter came in at around SEK 1 billion, a bit lower than last year on SEK 1.4 billion. But I would say we’re quite pleased under current circumstances that we see that the customers are paying, the cash is coming in. So we feel that we have that under good control. And we’re monitoring very closely now going into these COVID times in the coming quarters.

One area under lot of activity for Elekta, as I mentioned before, is, of course, raising additional fund liquidity. We were very active in the initial phase of the COVID situation. And now we have an available cash position of more than SEK 6 billion and the leverage is at 0.6x. And you can see that we have quite a well-balanced maturity profile over the coming years. So the average maturity is at around 3.4 years. So we are well positioned, well prepared for any additional COVID effect over the next couple of quarters.

Capital allocation. What have we done on the capital allocation side during last fiscal year? So we had a dividend that you’ve seen in two payments, August and February on SEK 1.8. We continue the geographic expansion, strengthening our office network in emerging markets that are so important for us and for our future growth. We also done selected acquisitions, investments of ViewRay, ProKnow, we took the remaining stake in Palabra and then we have also repaid some of our debt throughout the year on SEK 1.2 billion.

So with that, I would like to hand it over to Richard.

Richard Hausmann

Thanks, Gustaf. Let me have a short outlook for you. I think you – first of all, for the dividend decision, I want to announce that this decision will be taken on July 10. And due to the fact that the uncertainty is, of course, still extremely high, and we don’t know is it a U, V, W shape recovery, if we really are honest to ourselves. And we expect also that we are still not through the whole, of course, not through the whole COVID-19 situation. Q1, Q2 will be affected, that’s for sure. So we don’t have a guidance for you until a better quantification of that effect as possible. It’s both for the short-term guidance as well as for long-term guidance.

Overall, if I look at the COVID-19 effect in May now, if you – running month, still tough order situation. So there’s still a lot of shutdowns. Although, in Europe, there is a certain tendency of opening, people get unpatient, of course, travel restrictions might be going down, but still, there is a tough situation. It’s interesting actually to see that in China, the situation is getting already bit – quite a bit better. And we observed a bit also that in terms of our usage of the systems, which we can monitor remotely globally, we had a dip – we saw a little bit of a dip during the hot phases of COVID-19 in China as well as in other areas of the world.

But we are now back to 100% normal global treatment volume on our systems during week 21. So we monitor that every week. And that is a positive situation. We see that in China because, obviously, there was a certain pent-up demand to be treated – patients to be treated, we are above 100%, even.

We haven’t seen – we don’t see any major impact on the supply chain. It’s worth mentioning, I think, for you that despite other companies, which have shut down there, for example, manufacturing places, we have never stopped producing linacs in Crawley. We had a little bit elongated Chinese New Year in our Beijing factory, but even then, already in end of February, we started that again. So from that point of view, you can see that there is ongoing business – very good business activity in that.

We are focused on executing installations, strong backlog is there. Gustaf mentioned the strong last weeks of April, which, in the United States, for example, and other areas of the world, there’s a sometimes heroic efforts done from our team all around the world, and I’m very thankful and grateful for that to the whole team globally around – from Elekta and also from our customer side, in many cases, to be able to install those systems and get patient treatments, actually hand over systemic and patient treatments time. Cash flow, as was also pointed out, we see a normal payment. We monitor that closely, but we see a more or less regular payment coming in. So no major effect on that side as well.

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We are accelerating initiatives also to strengthen our competitiveness and resilience, actually, in this time. And I think that is what everybody would do – some responsibility for company like Elekta. So what we are doing right now is reinforcing our simplification initiatives, adapt our ways of working, do a lot through digitization in the light of COVID-19, and employing Elekta Digital internally also quite a bit, which is the way to create productivity.

At the same time, our COGS and cost of quality reduction projects are improved and further strengthened so that, in a way, we are running in parallel to our normal business work improvement progress, which are particularly looking for the whole cost side, COGS side and ways of doing our business through digitization and through better cost positions.

In summary, Q4 was negative, fully affected by COVID-19. We ended up with a modest growth for the full year. We exceeded our Elekta Unity order target in May after the year closed but before we have actually promised it. Strong liquidity and financial situation. I think our finance team did a great job in that area to have us, so to say, well set up for future challenges. We are strengthening our product portfolio, both through our innovation internally, but also through an M&A activity in a difficult time of lockdown, doing due diligence, et cetera, is also not trivial. And there we have a strong underlying demand still, as you can see in the utilization of our systems and other systems, too, of course, for RT and cancer care around. I think it’s – it will be existing even beyond COVID-19, of course, because cancer will be there for much, much longer.

So in a way, if I would summarize it in total, again, we have been, of course, challenged by – a lot challenged and hit by COVID-19, but we didn’t get stuck with it, yes? So we used it all, in other words, to modify ourselves, and we’re still using that, and we manage it diligently through – with the whole team around the world.

With that, we go to Cecilia and the Q&A.

Cecilia Ketels

Yes, and we directly open up the question-and-answer session. And I will hand over to the operator to tell you how to ask a question and then open for the first question in line.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Sebastian Walker at UBS London. Please go ahead. Your line is open.

Sebastian Walker

Thanks for taking the questions. I’ve got two, if I could, please. So the first one, just on orders. Could you talk a little bit about the exit rates on orders after the quarter and whether you think the 10% decline is the trough in your view?

And then the second question is on cash flow. So I’m struggling to reconcile that – the strong P&L performance with the weaker cash flow development. So I was just wondering, what do you see as a sustainable cash conversion ratio for the business? And when should we expect it to get to a more normalized level going forward?

Richard Hausmann

Sebastian, could you just repeat the first question? You talked about ex – can you state it again, please?

Sebastian Walker

Sure. So the first one was on orders and the exit rate in terms of orders for growth for the quarter. So what kind of orders did you see in April? And whether you think the 10% decline that you had in the quarter is the trough in your view.

Gustaf Salford

I can start. But on the exit rate in April, so what was the order situation in the last month, so let’s say, over the quarter? We saw a positive development. I mean it’s a long – the order process in Elekta is quite long and it’s over months, quarter and sometimes years. So we saw a positive development there, of course, not as good as last year, but we still see activity out in the sales situations, but we need them to go through digital channels in many situations. But we were able to close deals on Skype and Zoom and Teams and all those digital tools as well throughout the quarter. But of course, not as last year’s level.

So this is a big topic for us right now, how can we get access to the sales – from the sales force to the customers, how – when do we see the marketing activities coming up again, we see a lot of delayed or postponed marketing events. So that’s, of course, a bit of unknown. So the order situation is very difficult to judge now over the next couple of quarters. So what we’re focused on is really about taking the order backlog and getting the revenue and getting the access to the customer.

Richard Hausmann

You have to realize, maybe to add on that, that, of course, even in a year without COVID, the April would have been one of the strongest – well, the strongest month of the year. We typically have this seasonality, both in the quarter and in the year. And of course, that was hampered now by the accessibility of the customers.

Gustaf Salford

Okay. Cash flow-wise, we are quite pleased, not fully pleased, but quite pleased with the performance in the last quarter. The problem this year was more the buildup in Q1, Q2, especially in Q3 and was a difficult starting point for the quarter. So cash conversion right now, 35%. We often talk about around 70% as our long-term target and I think that is where we should be over the cycle. If you go back a couple of years, we have been significantly over 100%, but the 70% is where we see a long-term good level, so to say.

When that would come? When I look into next year, and we talked a lot about inventory initiatives, we’ve taken down maybe half, a little bit more of what we call the Brexit inventory, so more to be done there, of course. And then on the AR overdue situation, you saw good performance in Q4, but that’s also something we will drive into next year in order to free up cash to come to those levels that I mentioned.

Sebastian Walker

Great. So just a follow-up, would you expect to be around that 70% next year – or sorry, in the coming year? And then just separately on orders. I guess the question is ultimately, should we be thinking Q1 is going to be worse than the down 10% we saw this quarter? Or do you think it will be better?

Gustaf Salford

If I start with the kind of a cash conversion question, I don’t see that as a guidance, anything like that, for next year. It’s more – it’s been what we’ve been talking about that’s where we believe that we could be. The difficult part into next year is, of course, to see how the COVID situation impacts the cash flow throughout the year. But we have a lot of opportunities to improve, and that’s what I tried to describe on the inventory side, but also on the AR side.

Richard Hausmann

And on the order, the Q1 will definitely not be stellar. That’s – we are in the middle of it, I would say. Is it better or worse? Hard to say. It all depends a bit on how effective the openings are, what the countries’ lockdown situation, et cetera. So you have to really – it’s hard to say that there is something even on that short notice.

Sebastian Walker

Great. Thanks, both.

Richard Hausmann

Thank you.

Operator

Thank you. And our next question comes from the line of Annette Lykke of Handelsbanken. Please go ahead. Your line is open.

Annette Lykke

Thank you very much. First of all, in respect to the improvement of installations and the better sales performance you had towards the end of April, do you see this as a coincidence? Or is it a sign of you having a little bit better access to the hospitals, sort of is it sustainable?

Also, on the GenesisCare installations, on the linacs and Unity. Would these be different compared to, how do I would say, usual hospitals where the cancer departments are within a hospital also having ICU and COVID-19-related issues? Or will it be different because they’re more like a single-standing cancer clinics?

Richard Hausmann

Yes. Let me answer the first question about the installation starts. I mean first of all, we, of course, try to do as much as we can in – towards the end of the year. And you never know because we have this criticality that the start of installation in our new revenue recognition scheme has to have, of course, a lot of conditions, yes? Licenses and whatever, yes? And so in that sense, we were always a bit now, after this change of revenue recognition, a bit more sensitive on that one.

But obviously, what happened was that a lot of positive effects came together and we were able to execute on more than we have thought on average, that was an effect, which is driven a lot by the year-end effect, too. I mean I wouldn’t say that this is now ongoing in an equal way because April is, of course, also the end of the fiscal year and a lot of the, what our fulfillment people, salespeople, et cetera, our account managers are pushing and trying to do as much as they can. And they did that this year, too, but of course, not at the level of the last year, but they try to do it. And we came positively to together.

And the second question on GenesisCare. These are more freestanding cancer center, cancer therapy or even medical oncology centers, but not typically fully hospitals, okay? So they are not general hospitals. So in that sense, they are less affected by – potentially less affected by the COVID-19 situation. But as you can imagine, the whole COVID-19 situation is affecting even normal situations like traveling, et cetera, so that depends a bit on that one as well.

Annette Lykke

Yes. Can you then say, Richard, a little bit about if we look at how the access to hospitals are right now? Is it easing up in some markets, Ireland or Germany, Denmark and Sweden? And then it’s still difficult in New Zealand, so are you seeing any sort of improvement?

Richard Hausmann

Yes, I would say the – where we see improvement, I mentioned that in the presentation, is China, for sure. There is an obvious – also, if you would like to say, a political will to show that the system gets back to normal, and we hear positive signs from our team in China.

Europe is still very, I would say, questionable. There is a lot of lockdowns even in Scandinavia, as you know, in that sense, travel restrictions, et cetera. But also Germany also opening up now more for tourism, kind of in Southern Europe. But still, there is quite some problems existing there. I would not be too positive about Europe.

U.S., we had, as I mentioned also earlier, in New York, of course, was a terrible time, and still probably is extremely challenging for the hospitals. We have projects going on that side as well, additional projects on the Unity. It is, of course, extremely difficult right now to keep the focus on this topic when hospitals having to manage the COVID patients.

Gustaf Salford

And I think it’s important to say as well. It depends on what group from Elekta you’re talking about on the service side. Our service engineers, still, to a large extent, get access. It’s local employees, and they get access to get the machines up and running. And we can do a lot of remote fixing, that has been increased.

On the order fulfillment installation side, to a large extent, we still get access. So it’s more on the sales, marketing, sales rep side that the access is more restricted or say in that many countries. And the global interactions in installations that we refer to, for example, on the Gamma Knife. So you need to break it down a bit to ask this question.

Richard Hausmann

I think the widespread local presence of Elekta helps, of course, us a lot, in particular, in Asia, where more or less, every country is having two weeks quarantine if you go from one to the other one, including Australia to anywhere or into Australia, as you know, so that is something when you have local people on service or even order fulfillment installation teams in the countries, which we have, in many cases, also through our distributors in many cases then, at least, the direct service and direct things which can be handled locally can be done, and that’s one of the strengths of Elekta in that time.

Annette Lykke

Okay. Thank you. I have few more questions, but I’ll jump back in the queue.

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Operator

Okay. Our next question comes from the line of Kristofer Liljeberg of Carnegie. Please go ahead. Your line is open.

Kristofer Liljeberg

Yes. Thank you. I have three questions. I hope that’s okay. So the first one, your commentary about sales and orders. Do I read you correctly, if it’s mainly order intake that is a problem for you in the first and second quarter, while sales should be relatively fine because of the strong backlog? That’s the first question.

Gustaf Salford

Yes. If I start with the order question, absolutely, yes. Because of the reason we mentioned, I mean, lots of uncertainties in the procurement process, it’s difficult to get access with sales meetings and so on.

Revenue, we have a large, healthy backlog to deliver from. But still, there is some issues, of course, to go over the borders to get access to the hospital. So of course, there’s friction in that process due to COVID as now. So we’re not back to normal levels there yet, I would say. Probably with the COVID situation, a couple of more quarters. Sorry?

Kristofer Liljeberg

Yes. Is it reasonable then to assume that the sales decline, which were 6% in Q4, that, that sales decline in that first quarter will be less than so?

Gustaf Salford

I think that’s too early to say.

Richard Hausmann

Too early to say.

Gustaf Salford

We cannot really see that at this point in time.

Kristofer Liljeberg

And when it comes to orders, I think you said before it was difficult – on a question, that was difficult to say whether the order decline – or if orders would decline more in the fourth quarter will be better than in – that you saw in the fourth quarter. But does this comment reflects the big Genesis order? Because that alone in the first quarter was, on top of my head now, maybe adding 25% – 20%, 25% or so.

Richard Hausmann

Yes, but don’t forget that last year, first quarter, there was also a rather large GenesisCare order with nine linacs, Synergies. So the comparison is also a tough one.

Gustaf Salford

Yes. We grew 32% Q1 in isolation last year. So it was a big quarter.

Kristofer Liljeberg

Okay. So just to make sure, so including the Genesis order, you can’t say today whether order growth will drop less –?

Richard Hausmann

It would be early to say it today, correct, yes.

Kristofer Liljeberg

Yes. Okay. And then just two short ones. When it comes to Unity installations, how many did you finally do in last fiscal year? And what to expect – sorry?

Gustaf Salford

Nine. We did nine, finally.

Kristofer Liljeberg

Okay.

Gustaf Salford

So three in the last quarter.

Kristofer Liljeberg

And what do you expect for next fiscal year?

Richard Hausmann

More. More. And as we always said, we have a capability to do two a month. And of course, in the COVID situation that is not – that would not be the normal, yes? So let’s see how far we get there. But we have – the pipeline, as Gustaf said, is, not only in Unity but also in Unity, strong. And we expect a significant increase of these installations, of course, this year.

Kristofer Liljeberg

Okay. And just finally, the financial net was some SEK 20 million, SEK 40 million higher than what we have seen in previous quarter. Is this the level we should expect now around minus SEK 75 million per quarter, given the higher debt level?

Gustaf Salford

I think it’s more on the full year levels that you should expect for the next year. So what you will see, there will be more financial expenses due to the liquidity position we have. And then you need to factor in this IFRS 16 effect that we had this year as well. But that will be the two key drivers, but it was high in the last quarter, I would say. So more on the 50% to 60% – sorry, SEK 50 million to SEK 60 million level by quarter.

Kristofer Liljeberg

Okay, great. Thank you very much.

Operator

Thank you. And our next question is from the line of Carolina Elvind of Danske Bank. Please go ahead. Your line is open.

Carolina Elvind

Hi. Good morning. I have a question about orders in the U.S. So Americas orders in total was flat in the quarter and then it’s a significant improvement since the last quarter. Could you specify any numbers in the U.S.? You say it contributed positively to this development, but what kind of growth or decline rates are we talking about year-over-year? And how does that compare to the last quarter?

Gustaf Salford

Yes, so U.S., on the order side, if you look at the full region, it was good development in Mexico, of course, because of the Unity. Very good development in Canada as well because of the big orders. So U.S., in isolation, it declined on the order side. I think still, we had activity. We mentioned a couple of deals that came into the quarter. So we still have a positive view on U.S. And then, of course, with the Q1 Genesis coming in – GenesisCare coming in, that has a big inroad for us into the U.S. market as well.

Carolina Elvind

Okay. Thank you. That was all I had.

Operator

Thank you. Our next question comes from the line of Veronika Dubajova of Goldman Sachs. Please go ahead. Your line is open.

Veronika Dubajova

Good morning, and thank you for taking questions. I have three, please. The first one, I just want to start a little bit with sort of lack of guidance or why you’re not providing guidance for the year. I guess – of the companies that we follow, you should have some of the best visibility, given that you have order backlog, you have a sense for what converts. I know there is some uncertainty around installations in the short term but presumably, that gets resolved as we move through the year.

So just curious kind of what’s driven the decision not to give the guidance. Is it concern around the pace of orders that you’d expect to get in the year and fulfill in the year? Is there something else that’s going on in your mind? And maybe, Gustaf, if you can kind of give us a sense for, as you look at the backlog, what proportion of that as of today is scheduled to convert this year? That would be helpful. So that’s my first question.

My second question is I just want to confirm that you’re still expecting to recognize the five Unities in China in this fiscal year or not. And then my third question is on R&D capitalization, it ticked up quite meaningfully this quarter. Is this the new run rate? And then I’ll have a quick follow-up after that, if I can squeeze that in at the end.

Richard Hausmann

Yes, okay. Let me start. Veronika, thanks for the question. On the first one, there’s really a – it’s the COVID-19 uncertainty at the moment. And we are not saying we never guide again. But at the moment, it’s extremely difficult to guide, even on a yearly basis. So give us a bit time to see how the recovery and – or how it goes on, yes? We are not sure if it’s already in a recovery mode. So everything is pretty uncertain. So we will come definitely back with that topic to you. It’s not over this guidance on Elekta, okay?

Gustaf Salford

No. And Veronika, it’s key to get the start of installation dates from the customer, firm date, so we can start the process. So that, we’re going through on a daily or weekly basis with our – and there’s uncertainty there because of COVID what the feedback we get from the customer when they can start the installations due to the lockdown, et cetera.

Then, you talked about – sorry, the second question, Veronika, that was…

Richard Hausmann

Unity in China.

Gustaf Salford

Unity in China, that’s scheduled for revenue when we get through the full regulatory process. On the R&D capitalization phase, it increased in the quarter due to projects that we mentioned. I think it’s quite on high levels in the isolated quarter. If you go back a couple of calls, I said it will go up initially up to the SEK 150 million and a bit higher than that, so maybe somewhere in between those two numbers we’ll see going forward as well. Of course, it always depends on what innovation projects we kick off and start over the next quarters and months.

Richard Hausmann

You had one more question, Veronika?

Veronika Dubajova

Yes, it was just understanding how much of the order backlog is scheduled to convert for the year.

Richard Hausmann

When you look at how much of the revenue in a year, forward-looking, that comes from the backlog, it’s 80-20. So 80% comes from the backlog into the year, and 20% is then an order that will also be delivered in the year.

Veronika Dubajova

Okay. And I think historically, you sort of said that about 1/3 of the backlog is due in the following fiscal year. I don’t know, do you think that number for – as you look at 2021 is higher or lower?

Richard Hausmann

We need to – that’s – I mean, that’s the difficult question, of course, and it’s linked to the guidance question as well. That’s the biggest unknown. But I think this kind of 80-20 rule gives you some kind of guidance for how we work with our backlog and get it into the next year.

Veronika Dubajova

Okay. And Gustaf, you said that the China Unities will be recognized when you complete the process. I think in the past, you’ve been fairly confident that, that process would be completed in the next 12 months or so. Should I read your comment as change to that or no change?

Gustaf Salford

Yes, we are still extremely confident that this is happening. We have always talked about the autumn, and then it’s when in the autumn, but this fiscal year, Veronika, yes.

Veronika Dubajova

Okay. Fine. And then my kind of final question, if I can, and Richard this is probably more so for you. I’m kind of struck when you talk about the conversations you have with customers, you’re talking about difficulty signing deals because you can’t go to market. But when we speak to hospitals, that doesn’t seem to be their concern. Their concern seems to be their earnings are down, their cash flows are down, their patient visits are down. And that means not that they’re postponing orders because they’re busy, but they’re postponing orders because they cannot afford them anymore. So maybe just – I’d love to get your comment on this.

I look at the public statements that the U.S. hospitals have made, they’re talking about kind of CapEx this year, 40%. So it doesn’t seem to me like this is a timing problem. It seems to me like this is a financing problem that’s here to last. So maybe crystal ball, how are you thinking about that?

Richard Hausmann

I don’t know whether this was one of the reasons why we couldn’t sign them, but you are totally right. And I think this is a true statement. You’ll say that the CapEx budgets are very much looked after and are slim in the situation. We also hear, as you say correctly, that the income on the private side on hospitals, in particular, when it comes to elective procedures, is extremely down. Mayo Clinic, I think, published $900 million of lost income, so to say, in the last – in the COVID time. That is certainly an effect, yes?

I think there are positive and negative effects, which we have to consider looking forward, and that’s the difficulty out of it. This is what you say is one of challenging effects and I would say, radiotherapy, large capital equipment is certainly on – typically on a little bit on the later stage of recovery in such a curve. That’s true. At the same time, you see – we see all around the world, huge, huge kind of money flowing into the market also into health care programs. So the question there is, of course, how much of those will go into the radiotherapy or the cancer treatment area, and I include also the software side. So I would say this is now the balance between those different positive and negative views or challenging views, which we have to manage through.

But one thing for us is also clear that the radiotherapy or the cancer treatment demand will not go down because of COVID. And the need for, in particular, also high-end equipment, meaning precision systems, which can cope with, for example, in the U.S. with the hypofractionation technology, et cetera, that is certainly necessary to be on.

Cecilia Ketels

And I’m sorry to say, time is flying when we have fun. And the time is up. And I want to thank you all for listening in today. And if you have more questions, don’t hesitate to contact us. So thank you for today. Bye-bye.

Richard Hausmann

Thank you. Bye-bye.

Gustaf Salford

Thank you.