Elekta AB (publ) (EKTA-B.ST) Earnings Call Transcript & Summary

Good afternoon, everyone, and a warm welcome to today's strategy update presentation by Elekta. My name is Peter Nyquist, and I'm Head of Investor Relations at Elekta. With me here in different time zones around the world, I have Jakob, our CEO, in the studio here in Stockholm. In Cawley, just outside London, we have Christopher Busch, Chief Product and Technology Officer. And in Beijing, China, we have Anming Gong, Head of the region China. And finally, we have our Head of North America, Ardie Ermers speaking from Atlanta U.S. So today, we will talk about 4 priorities. We call them must-win battles. The first one, Simplify, Empower and Speed. That was one we presented actually as we report our Q2 numbers. And today, we will go mere into how we established our new operating model and talk about the SEK 500 million in yearly savings that generated from that new operating model. But we will also present further 3 must-win battle. One is focused innovation; the second one is win in the U.S. and expand in China; and the third one is continuous COGS reduction. Today, the presentation will not include any new financials. We will host a Capital Markets Day in Stockholm on June 17, where we have the opportunity to go into the financial plans and present targets in more details. Today's presentation is only about Elekta's strategic direction and ongoing transformation. We will not talk about the current trading conditions in quarter 3. Then you have to wait until March 5 when we present our Q3 earnings. So please, when you do your Q&A or questions, think about that and focus on the topic and the discussion we have today and not have questions around Q3 and the short-term issues. So if we look at the agenda, we will start with Jakob, who will give an historic view of the market and also of Elekta and some reflections and challenging going ahead. And then he will present the overall must-win battles, 4 of them. And then he will actually go into more details when it comes to the Simplify, Empower and Speed, the first of those. And then we will have Christopher talking about the second one, which is focused innovation and then expand in China must win in U.S. will then be presented by Anming and Ardie. And then Jakob will come back and conclude the presentation by talking about continuous cost reductions. And after the presentations, there will be time for questions. And again, as I said before, please focus the questions around the topics we have today. So before I start, I want to remind you that some of the information discussed in this call contains forward-looking statements. This can include revenues, operating results, cash flow, product and product development. Since these assumptions or statements involve assumptions and estimates, there are subject to risks and uncertainties, results could differ materially for those set out in this call Certain of these reason you can actually read about in the annual report under the section as uncertainty or certainties, risks and uncertainties. By that, I will actually hand over to you Jakob to kick off the presentation.

All right. Thanks, Peter. Yes. First of all, a warm welcome to all of you. It's great to listen in. I would also say we really appreciate every feedback question. We have had the opportunity to engage with many of you. And actually, it really shapes our thinking as well. At our November call, we said that Elekta, we are not operating at full potential, that still stands. So we needed to transform, that also stands, and then we need to change with a high sense of urgency and high execution pace. The latter I leave for you to decide whether we are living up to that commitment. But I would say when I look at Elekta our colleagues, employees, the leadership team, that's really a strong commitment and understanding that to fulfill our mission and fighting cancer, we need to change, and I'm really grateful for all the support we are receiving throughout the organization, also from colleagues now leaving Elekta to do other things. But with that, let me get into it. And I just want to say that when we look at the radiation therapy market, historically, it has grown at a very respectable CAGR. I would say a bit notch above MedTech average. And it's important to understand when we also look ahead it's not a sure sum game where we take a bit from our competitors, and they take a bit from us with the innovation that is happening within radiation therapy, and it's really coming at quite a fast pace. We see radiation therapy being more and more relevant for treatment. So I say, yes, we have competitors, but we are also having the opportunity to substitute in radiation therapy instead of surgery or other ways of treating. So there is a potential for market expansion. In doing so, there's also -- we have an aging installed base. So there are replacement opportunities, obviously, with that upgrade opportunities for more innovative solutions. So example, I was in Holland a few days ago, and they only install now adaptive solutions into the market. So obviously, that's something that we can offer for. And then we still see many markets being underserved. Anming will come later on, but when he talks about the systems we have in China, they operate at 22 hours a day, 7 days a week, that's not sustainable. It's not good for patients. And that's why we need to have more installations. And then we do see back to innovation and Christopher will come into it that there is a potential for getting more accuracy guided by AI imaging solutions and with better accuracy, you can deliver a higher dose and with higher dose, you can do more patients on the same system with fewer fractions or treatments and better patient outcome. So in many ways the industry is attractive. Then at the same time, when we say that we -- the market has grown by 6%, and we, as Elekta, have grown 3%. It's clearly not satisfactory. And we have been -- we have chosen to be very open about that we have challenges at Elekta. I think that's part of the improvement process to voice it out very directly, both internally and externally. So we have been losing share over the last decade really accelerating the last half decade. We think we know why. And we have -- and part of the must-win battles are exactly to address that because, of course, over time, it's not sustainable to lose market share, particularly when there is systemic demand for having a strong Elekta in the market providing a strong competitive alternative. No one wants to see the industry monopolize. We also -- if you look to the right, have seen in our numbers that the gross margin has come down pre-COVID, it used to be in the mid-40s, you can say. It came down to the 40s and then it has been stopping around 38% or 37% which is low for a company that invests 12% in gross R&D spend to deliver innovative solutions to the market. So we know we have a challenge when it comes to gross margin. If we then go in and we look at why we state that we are not at full potential as a company. Then I would -- before getting there, start to say that we are well positioned. We are clearly #2 in the market, we have chosen to be in and let's not forget that we have very strong solutions for brachytherapy and with our Gamma Knife for neuro with global market leadership positions and a good margin profile. Then geographically, outside U.S., we'll get back to U.S. We have many geographical strongholds, one of them being China that we will address. The portfolio logic is strong. Christopher will illustrate it. So we don't need to go in really and do hard core pruning of the product portfolio. We have a direct sales force. So we are really in control of our own commercial execution, do a bit of distributor sales, but really vast majority is directly from us, and we have built over more than 5 decades, a very strong brand within our industry. We continue to invest. We have invested a lot in R&D. So when we look ahead, we look at the current level and maybe we can even prune that a little bit. But we feel that the current spending is more than sufficient to deliver best-in-class competitive solutions to the market. And then we have, if you will, a razor and blade model. So we sell equipment, very sophisticated equipment and with that comes software upgrade opportunities and not least service opportunities during the lifespan of the equipment. So a very attractive -- inherently attractive predictable business model. But as we said, we do have challenges evidenced in the financial performance. And we last time stated that we have had a layered organization, I said had because we have addressed it now. So we have moved the organization from 9 to 6 organizational layers. We have reduced the number of material positions within Elekta dramatically to have a higher doer to manage ratio, if you will. When you lose market share, of course, you have to take a very critical look at how you execute your product -- commercially execute your product portfolio. And so we have done quite some changes. Part of that is the [indiscernible] flattening out. They get our leaders closer to the commercial action decentralized decision-making and they will get back to the U.S. But clearly, we are not at full potential with only a bit more than 20% of our revenue coming from U.S., which as a global MedTech company is too low. We have had long innovation cycles. It's complicated what we do, but Christopher will talk to some of the changes dependency on single suppliers sometimes needed, but it can also be costly if we start to see cost inflation. And then I personally feel looking at Elekta, we can crank up the cost discipline within the organization, and we are in that process. And lastly, and I think also voiced by many of you in this call, we would like to see a stronger link between reported EBIT and cash flow generation, so less capitalization going forward. So that's where we are. But then maybe more importantly, what we're going to do about it because I do think we have some exciting years ahead of us. And we collectively as a team was really a long, painful, very, very interesting 360 forensic exercise we did as a team, and we came up with what we believe are 4 must-win battles that will really move the needle on our financial performance, but also from the eyes of our customers and colleagues. So the first one, I'll give color on Simplify, Empower and Speed, as you said, Peter, right? And I'll give you some additional details where are we in the process? I think we are well under way in terms of execution. Christopher, you will talk Focused Innovation, quite some changes, actually. We'll discuss our expand in China and win in the U.S. strategy from Beijing and Atlanta. And then I'll give you an update on continuous COGS reduction. You told me I couldn't call it relentless, but that's what we are going to do because we need to get those costs down. But a little bit on Simplify, Empower and just to tell you, so where are we? Some of you have said, "Oh, it's a cost out." And I start I said, "No, it's not." What this is about is really resetting Elekta's operating model to increase the velocity throughout the organization really get us moving faster and make the right decisions. So we are decentralizing to regions, we'll decentralize the ownership of P&L to regions, but we will also decentralize and empower our business lines and functions. So we really take decisions much closer to customers and product ownership. So what we have solved for is clear accountability, speed, speed, speed, agility, of course, cost discipline. And then, yes, just get very, very close to our customers. And I think, Christopher, you will share some very concrete examples of what that means in Elekta real life. If we then do a status on where we are I would say we are on plan. I'm quite happy with where we are. I have to say we feel good about it when we announced it in November that we had a firm plan and nothing deviates from that. So we restate that it will have full run rate effect Q4 or Q1 next year. So what we say here is that it will lead to recurring net cost savings of more than SEK 500 million. We are now at a point where we have a good estimate of the restructuring costs between SEK 450 million and SEK 500 million, we expect to incur it this fiscal year. And then in terms of process status, more than 60% of the workforce have been notified and have agreed. And then the remaining part has actually also been notified, but then we are through consultation in particular, in U.K. So we are very confident that we'll see it through by the end of this fiscal year. And then keep in mind, we're also rebuilding our leadership team. We had new CFO starting first of March. We'll have new Head of HR. Eventually, we will also have the COO joining the company. So a lot of things are changing, but it's moving at the pace we in fact, hope for. So with that, Christopher over to you.

Yes. Thank you, Jakob. And I will give you a few examples of some of the things that Jakob has already mentioned linked to must-win battle one. But I will also a little bit more in detail on what we want -- what we mean when we talk about focused innovation and how we believe we will have a winning portfolio now already and moving into the future, an even stronger portfolio for our customers. So if you move to the next slide. So you see based on where we are, we have a very strong and solid existing portfolio both from a logic perspective, but also from a value proposition that we offer to our customers. You see from the left, you see our image-guided Gamma Knife for brain surgeries. Then you have our image-guided brachy therapies, suite that we call Elekta Studio. And then, of course, our 2 flagship image-guided and adaptive MR NCT Linacs, Unity and EVO, respectively and then very important and under-proportionally shown in the real estate of this page, our Elekta ONE workflow solution. This is really important to point out because here, we see a significant growth. What we also -- you can read, we are, of course, in the past, have been building up products from the ground up whether that was in Europe, whether it was in the Linacs or whether it was in software. And what we are now doing, you see us increasingly building software based on workflows and workflow outcomes, efficiencies, ease of use can have different meanings for our customers, but they are the things that they experience in everyday life and also how they measure their own performance, how fast is it for to treat a single patient, how easy is it to train a new RTT and so forth. So while we, of course, still build our products to some degree, bottom up, we increasingly have a logic that is both top down based on our workflows. So this will also be a competitive differentiator, we feel moving forward in the age of increasingly integrated and adaptive radiation therapy treatments where you specifically need to have deep integration between the devices and the software that together make the real difference in outcomes and efficiency. This will be, I think, 2-point solution providers, specifically on the software side, a key differentiator. If you move to the next slide, a very important statement that also Jakob has already made, but here it's a little bit more quantified. We, as Elekta, we have traditionally been investing a lot in new into innovation, whether it was at the origin of the company with the invention of the Gamma Knife or when we introduced ConeBeam image guided CT in the early 2000s or the introduction of the high-field MR-guided radiation therapy with Unity in the late 2010. Now we do it with major innovations on the software side, Elekta ONE planning. And we are committed to continue to do this at the levels around that you see here, which is over the average in the MedTech industry. But we believe it is intentional because there is a clear need from our customers, either providers and clinicians, but also, of course, our cancer patients where the gap between what society needs in efficient cancer treatments with the number of people of trained clinical staff to actually provide that and increasingly complex treatment methodologies is growing every year. And innovation is one of the key ways to address this gap. So there is a huge desire and need to have high levels of innovation. And we see that the innovation pace in radiation therapy is growing, and it's growing exponentially based on the compute power, the ongoing AI breakthroughs and the ever-improving imaging capabilities. So the technology enablers are all there. There, then the question comes, what do you invest in? Because you cannot invest in everything and all. So this is the second bullet point that we increasingly are spending where we really address these gaps that I just mentioned between providing care and the need for care, driven by customer workflow requirements, I mentioned it before, and the technology advances are very important, has enabled us but the key performance indicators at the end are increasing patient throughput, elevating treatment outcomes while keeping patient safety high and even improving moving forward. And that is really, for us, these criteria will determine where we put our talented innovation people and our money are at moving forward. If you go to the next slide. The next slide -- this slide is actually addressing Must-win battle one, and it's a little bit detailed on the left side, but I will explain the logic here. We want and need to become more efficient as an innovation team. So what we have we done? First of all, we created actually a new function, a product and technology office that didn't exist before. And what we did then because the functionalities did the roles did exist, we moved 1 business layer in the vertical hierarchy of the company and have this new function integrated and report directly to the CEO. One vertical layer less, faster decision-making and the innovation function is now sitting at the executive table as part of the Executive Committee. So this is a vertical change we made. At the same time, you see on the right side of the chart, our regions, our commercial people here in this call represented by Anming and Ardie. And in the past, we had a business line Linac and software solution team layer organizationally between the innovation function and the regions. There were good reasons to do it like that, but it also meant that the regions talked to innovation and the other way around, a little bit through an intermediate managing layer and that has been removed as well. So now there is nothing between the innovation team and the regions. And the regions, of course, act as the voice of the customer inside of Elekta. So this brings us also closer to the customer directly. And lastly, there is, of course, a necessary part of this. By doing so, we also removed managerial layers, teams, leading to a more streamlined and simple organization and of course, that has also associated cost efficiencies. But driving this was to bring innovation up to the Executive Committee layer, removing one business layer and bringing it very close to the regions, removing another one. If you go to the next slide, yes, here, it is about what is now actually our from and to? And what are the expected outcomes. Traditionally, in Elekta, but also many other MedTech companies, our innovation agenda has been very strong -- has very strongly relied on our engineering team to create new technology options and to work on them and when they were ready to bring them then to the market through our businesses. And this, of course, as I mentioned before, high-tech MedTech radiation therapy industry, this will not go away. But the decision on to how to evolve our portfolio and where to focus our innovation and innovation investments needs to be much more based on real, what we call, customer decision criteria. So what is truly important to our customers, where are they willing to spend their money and with the customers increasingly, it is not just the clinicians, very important now in the future, but also the payers and the providers who are running operational health systems that need to be profitable at the end of the day. And these different customer segments have also different criteria sets. And these are considerations that you cannot ask a technology team to drive this must come from the markets and from the business. Second one is that in the past, our portfolio has depended very much on big bet initiatives, which are large long-term development programs that are betting a lot of our investments for a very long time that we make the right choice. So that is still something we will do, but very, very selectively because a Unity concept, you don't bring out onto the market in small incremental steps. But for the majority of innovation programs, we are switching over to a strategy of compounding innovation cycles that are much faster. So where big bet might take 8 years to develop in a very large team, now we are talking about maybe 1 to 2 years for a device development and maybe less than a year. And software down to a few weeks when we talk about topics like cybersecurity, where you need to immediately respond. And that changes the organization set up, that changes the processes of how you drive innovation. So this is a fundamental change in our behavior. And this is not only bringing value to the market more predictably and faster, but it provides us also the feedback from our customers much quicker about what works, what has to be improved and then we can adjust our development and our innovation strategy accordingly. So it's also a much closer, faster feedback loop from our customers. So the third one is that we do, of course, as was also visible on our overview slide regarding our portfolio, have a proud history of device innovation. And we, as Elekta, often still perceived to be a device-driven company. And devices, of course, are absolutely necessary if you want to provide treatment that you cannot do in software alone. But we are now in a world increasingly of software enabled and even software-defined treatments and devices or software solutions themselves. So high quality and fast software innovation is going to be key for us now and increasingly in the future because this is then in the end focus on the workflow, the service, the solutions. And let's not forget, life cycle management because when a customer chooses for Elekta, either in OIS or on the device side, this is a partnership for the next 10 to 15 years. So we have to keep our customers up to date, up to speed in the age of increasing innovation speed where the world changes now in 5 years more than it did change maybe in the past in 10 or 15 years. So we need to make life cycle management a very key value proposition visible to our customers. And the last point that I want to talk about is the expected outcomes. Best customer-led innovation, speed, faster cycles already mentioned. I also indicated that the predictability of our road map will increase because we don't have to have these 8-year bets, but we can do it in 4 x 2 kind of cycles or even faster when we talk about software. Overall, this will lead to an increased R&D efficiency. But most importantly, at the end of the day, it will result in a higher return on investment on our R&D investments. And that, of course, is, first, very importantly, a higher return on investment for Elekta, but also for investors and most importantly, for our customers because every euro, yen or whatever currency they spend on Elekta is then also an investment in the future of what their equipment and their software will do. So for them, going with Elekta, knowing that we increase our innovation efficiency is going to be a very important asset that we have. I know this is still a very high level. We will go in more detail in the Capital Markets Day in June. But with that, I want to hand over to Anming, Head of our China operations, who, of course, we work very closely together to innovate also specifically in and with China. Anming?

Thanks, Christopher. Good afternoon, ladies and gentlemen. My name is Anming Gong, Head of Region China. It's my pleasure to have a chance to introduce Chinese RT market and Elekta business operations in China. We started the sales activities in China, from 1982. It is almost simultaneously with China's reforms and the opening up to the world. Thanks, Larry, board and the executive management team made a wise and originally decisions, we started to build up facilities in China 25 years ago. Now we have the most competent sales, marketing, service, R&D, productive and the training and education system in China. We also become the market leader of Linac, Brachy, TPS, oncology information systems and the [indiscernible] also become very strong, #1 total RT solutions provider in China. Within 3 years, in order to adapt the changes in market development, especially the Chinese government health care policy changes. We have established a joint venture with China largest pharmaceutical company, Sinopharm to further improve our public penetration and provide financing solutions to lower and the private segment market. We also established a software joint venture in Beijing to further strengthen our total solutions provider positions in China. At the end of 2025, we also completed all regulatory clearance to manufacture and the sales of Brachy, Gamma Knife in Beijing to secure the market leader position. Growth in China, we will focus -- we will continue to do the investment in training and education, localizing manufacturing and the supply chain work together with our local partners to be more competitive in China. Next slide. Chinese market is quite transparent market. Because it is mandatory for all public institution to go with the international bidding process to purchase over $100,000 medical equipment and all radiotherapy equipment is managed by license. And also Chinese market is a very competitive market. It has a very high market, similar with Europe, the U.S. at the same time, they are also a very big emerging market, similar with some other emerging market. In the past 3 years, China's RT market has declined very quickly, especially from July 2023, 7 ministries and commissions decided to conduct a anti-corruption review of China's health care systems, which has a great impact on the entire market, but to the needs of users have not changed. Starting May 2025, the market is starting to recover significantly. And according to the statistics from China medical equipment association radiotherapy equipment is recovering significantly faster than imaging and ultrasound. At the same time, we also see that the government is actively promote even request to establish oncology departments and purchase radiotherapy equipment in county and city hospitals. This gives us much more opportunities to develop RT segment. Next slide. China revenue in the past has -- Elekta in China, we still maintain a very high market share, but only for Linac also for Brachy for TPS for oncology information system. But in the past -- in the last fiscal year, you can see that in the past 2 years, just I mentioned that the market decline is over 40% to 50%. But China revenue has only fallen by 4% to 5%. But at the same time, the EBIT continued growth. It is still, but we are working very hard, not only for the Linac also getting very good business for the people to continue double-digit growth for service. And also in the past 4 years, we also installed 16 units of Linac. So in general, that this market still continue very big potential for the future. Next slide. To further reinforce Elekta market position in China, we will focus on the several priorities: number one, deepen localization of Elekta portfolio and supply chain. Just I mentioned that China is very mixed market, also very complicated. So we needed to very localized some portfolio to meet the marketing expectations to strength within the market. Number two, strengthen innovation partnership across China's RT ecosystem to further reinforce Elekta market position and drive double-digit service growth. Number three, advanced China-focused product innovation to expand into the underserved segments, especially for private segment, county and the city segment in line with national healthcare investments. So thanks for your time. Now I hand over to Ardie, the Head of North America. Ardie?

Thank you, Anming, and great job. I'm really envious of your market share position. So I look forward to see how we can do the same thing in the United States. Thank you, everybody. My name is Ardie Ermers. I'm the Head of Region Americas. And I'm going to talk a little bit about how we're going to address this market share position of Elekta in the United States. Next slide, please. So if you look at the performance of Elekta over the last 5 years, like Jakob said, we cannot be happy as Elekta with this performance. Our revenue over the last 5 years has seen a slight decline and if you then look at the position of Elekta's share across all the other regions, like Jakob said, we cannot be happy about our position. I've been in MedTech almost 30 years, and the U.S. market is the biggest market for MedTech, and that's the market where you need to win, where we have good margins and obviously a lot of innovation. And as you can see on this slide, we have been underperforming in this specific market. If you analyze why this is, you can actually see the clear focus area that we have been missing. Because if you look at our performance, for instance, in Brachy, which is market leading in Gamma Knife, which is market-leading, introduction of MR-Linac with Unity really driving market acceptance and a good share in OIS, you see that the real area that needs to be improved is our CT-Linac space. And so I'm very happy now that we can obviously announce some big news that you probably have seen in the news is that we have received clearance for our Evo platform in the United States. So as soon as we got 510(k) clearance, our customers are calling us where we have been able to showcase Evo already in Europe where we have seen those market share gains where we have seen the expansion of margin. We are now happy to say we're going to start doing this in the United States. Like I said, the high interest from our customers because they see that this platform is going to enable them to do the future of radiotherapy. And that opens up not just installed base opportunities and upgrade opportunities. But we also see that there is a high interest from our competitive customers. And so we already can celebrate some customers that are willing to switch to the Evo platform because they see that market-leading adaptive therapies that Elekta showcases with Evo and also with Unity can now be applied in the United States, which is a very highly competitive marketplace. So we are in the process right now to upgrade our reference sites so that we can take our customers to showcase this in the United States instead of having to fly them over to Europe and showcasing how we can do this based on U.S. workflows. And we are currently already working with our manufacturing and get those products produced so that we can start the installations in Q4 and already see a revenue impact based on Evo installations. So you can imagine the U.S. team is very happy now to go to market and be able to sell the new Evo platform. What is the opportunity for us? I just alluded to the fact that we have a big installed base. And that big installed base is looking for a replacement. And if you look at the average years of Linacs in the U.S.A. you see that the average age is between 12 to 14 years. That means that we have a great opportunity to go to those customers and start replacing those older Linacs with the Evo platform. Now why are they interested? They're interested because with this platform, you can start doing hypofractionation. And in this marketplace, where we see aging population and a bigger incidence of cancer they are looking for better ways to treat. And we know with adaptive therapy, you can unlock hypofractionation with more accuracy and better patient outcomes. And those workflows are something that can be combined with our Elekta ONE platform. So the combination that Christopher talked about, by combining the device with an integrated software suite is really what makes Evo shine. We believe that this is going to have a big impact for our patients, but also from a competitive standpoint for our customers. And last but not least, the focus on bundled payments in the U.S. will remain. The pay per fraction model is starting to change, but we're already happy to report that there are very successful ways to treat and to also build for SBRT treatments. So we believe that the combination of good technology, good clinical outcomes and obviously, the financial impact is going to create a winning success formula for us to turn this market share position around in the United States. We have a competitive portfolio. Like I said, let's not forget that this is not just about, Evo. I mean while we are very happy about Evo being cleared, where we can showcase these proof points like we are showcasing in Europe, where you can do online and adaptive treatments in a very fast and efficient way. We are paving the way with our technologies in this space. For those are customers that are now used to using our Unity for MR-Linac, they are showcasing why adaptive therapy is so important. And what we have learned in that platform, we are now translating into our CT-Linac platform, which makes this really a leading platform for the future. Like I said, while Rocker is still in motion, we already see that customers are doing a great job with SBRT treatments and the financial incentive system is in place. So we have customers that are able to make actually some good money by applying these capabilities. We are market-leading in Brachy and Neuro, and we're going to continue to be market-leading in Brachy and Neuro. The new innovations that we showcased on our Esprit platform with our Flexitron platform and the new applicators is showing that by keep innovating in this space, you also can keep a market-leading position. And last but not least, like Christopher explained, Elekta ONE is crucial to integrate all these workflows into the department make it easy to use and make sure that the best treatment can be selected for the patient based on the perfect therapy that needs to be matched. So when you add this all up, you can sense my excitement that we are now starting to really turn the corner in the United States. So to summarize. Next slide, please. We are going to attack this must-win battle with full force. We're energetic about it. We now have wind in our back with the approval of Evo and we believe that over the next coming months, you'll see more and more news about our installations and the excitement that our U.S. customers have for the Evo platform. So with that, I hand it back over to you, Jakob. Thank you so much.

Thanks Anming. Thanks Christopher. So just to supplement innovative product portfolio with commercial execution, we just got it demonstrated from China and U.S. Clearly, we also need to be able to offer our customers a cost-competitive solution. And that really rests by having a cost structure internally, so we can pass that benefit on to our customers. If you look to the left, as I said in the beginning, we have seen our gross margin decline. And it's not linked to pricing. It's really linked to higher bill of material cost, higher service costs. So the way you should think about Elekta is that roughly, roughly 2/3 of our cost of goods sold. Be that 60% in totality of revenue, 2/3 of that, i.e., 40% relates to components we source in. And then the remaining 1/3 relates to manufacturing, logistics, installation and not least the service. Keep in mind, we are actually asset-light company. So we have simply really more than manufacturing in U.K., in China and in Holland. Holland for our Brachy business. And we are now committed to have a, I would say, a continuous strong focus on sourcing at lower cost our bill of material, but also introduce excellence into how we manufacture, probably not that much potential, but certainly a lot of potential into how we install logistics and not least, service our very large installed base. So we will, as a company, do a structural change. We are lifting in the LSS operation into the Executive Committee of Elekta really to ensure that at the executive committee level, we have equal partner to you Christopher and to the commercial who will safeguard cost and safeguard the quality of our products, and we're in the process of looking for another high-caliber executive to join the Elekta journey. So the way I would like you to think through what our mindset is we will over time, transition from single source supplier dependency to either deliver it low-cost alternatives, but with long-term contract duration or dual source to ensure that our suppliers, like we are exposed to competition, they will be exposed to competition. We as part of our re-org, we are moving from centralized operations to decentralize the ownership of the installation and service of our business with our 5 regions. And then lastly, we are rolling out actually quite exciting AI tools to our more than 1,500 field service engineers to ensure they have knowledge at a fingertip, and we can move more into preventive, predictive maintenance and less reactive. So what I would like you to take away is that there's more to be done at Elekta in addressing our cost of goods sold. We just got started, but we can see a lot of potential. So I think, Peter, I'll close here if okay.

Yes, sure. That's correct.

Just to reiterate, we most certainly believe and I think data supports this radiation therapy is a niche, large niche, very attractive market. We have identified 4 must-win battles for Elekta that is now under way of execution. It also means there are a lot of things within the company, we are saying to our colleagues don't do it. Here, we have really the transformation focus. We have a new leadership team in place. We have many great leaders already, but there's been a lot of change announced some of them also a few months ago. So we have a team in place during our first half this calendar year. We will have our new operating model established by the end of our Q4, i.e., end of April. And then we have our new ways of working built into both our budgets, our incentives with certain guardrails to the organization. So we are good to go. I mean that's really the things should be done this fiscal year, and then we are ready for next fiscal year and we are excited about that.

Yes. And that sort of concludes then later on with the Capital Market Day that we are planning for in June where we will have much more financials. And most but not least, we will also be able to present new financial targets at that point.

I think that's important, right, Peter, that you say give us a little bit of time. Right now, we just focus on execution. But I think it's important lets have the new members of the leadership team to join, give us a better time to really build a financial outlook for the next couple of years and make sure it's activity based. And it has ownership, not only for me, but it's really from the wider leadership team. So we feel we can stand by it, and we support it and we can see a clear direction. So we -- yes, already now, even though it's cold in Stockholm, we look forward to June.

Okay. By that, actually, we can start the Q&A session and use your rise hand functions, and I will try to distribute the questions here. And after you asked the question, please then take away that function, so we can go to the next person asking questions. So let's start. And if I was correct, I think the first question here comes from, see here from Jonathon Unwin at Equity Research. So Jonathon, please.

I have 2 questions, please. The first 1 is on gross margin. You spoke a lot about potential to reduce the cost of materials, but could you like perhaps quantify what impact increased software sales and Elekta ONE could have on the gross margin, could we realistically see a gross margin above pre-COVID levels if you reduce costs and change the mix. And then my second question is on China. You said you've maintained share in China, but local competition is gaining share. Who do you think they're gaining share from and do you think that United Imaging or the local competitors can gain share in Europe? That's my questions.

I guess, Jakob, could you start with the mixed question?

Yes. Yes. And I can also take in China. In terms of gross margin, as I said, we will have focus on reducing our cost. Clearly, the more software sale that comes at very high gross margin, the more we do the higher improvement we are going to see in our gross margin. We don't want to quantify it at this stage. We will come back to that at the Capital Market Day in terms of what is a realistic ambition. So give us a bit of time, and then we'll get back to you on what we believe is realistic for Elekta. And then on China specific, Anming, please comments from your side.

Okay. Just I mentioned that the Chinese market is a very transparent market because it's a big market, and also the Linac even the radiotherapy equivalents managed by license. So we -- yes, there we are very clear market leader. Of course, even though we lost some market share to the local competitors. And also, as you know that -- everybody can see that, now the Chinese government also give more favorable policy to local branded. This also give us some impact. But now we also very hard, we still maintain a very high market share. So in general that we are quite clear, the market leader in the market here.

Exactly. So we are a clear market leader. We lost a few percentage points that could change up or down. As you saw, it's roughly 200 units, it doesn't take a lot.

We are in the Brachy in the oncology information systems and also in the Gamma Knife in [indiscernible] we also make that big progress. So that's a little bit compensated some market share lost in the Linac. Thanks again.

Thanks, Anming. Thanks, Jakob. Then we'll move to the next question, and I think that is from Veronika Dubajova from Citi.

I will keep it to 2, please. Just the first one, and thank you for all the content you've given us. But just in terms of this kind of more faster-paced incremental innovation, I guess, I'm just curious what your views are in terms of the future direction of the industry, and whether -- if indeed, it is sort of in the direction of AI and also imaging, whether you think you have all the skill sets and all the know-how that you need within the business? And just thinking, obviously, relative to Varian, that is part of a much larger imaging complex. So that's kind of the first one. And the second one, I just want to follow up on the comments around Evo that you've made in the U.S. Obviously, you've only been in the market for a couple of weeks. So just curious to what extent those kind of competitive wins are coming from folks who have been waiting for a product for a long time. Are they coming from folks who had a very old Siemens machine? Just if you can sort of help us understand where those kind of hard to win conversions have come in such a short time frame?

Thanks, Veronika. We'll start with your first question, Christopher. You can take that one, and then the U.S. question is for Ardie. So please, Christopher.

Yes. Thank you. So regarding the question of where the industry will go with faster innovation cycle, I think it's inevitable set the gap between what is needed in care and what can be provided with the current methodologies becoming too large to bear for societies. So there needs to be an increase in a faster innovation cycle to bring to close the gap or at least reduce the speed of how it widens. So that's I think is a given. Secondly, as I said, there is the underlying technology revolution, not evolution that makes these things also possible. So the innovation speed will increase significantly, that's a given. Of course, healthcare systems have to adapt to that, also reimbursement has to adapt to that. We see that what Ardie was talking about in the U.S. So this is still a process where society needs to catch up, I think, with the -- on demand and as well the technology advances. To your point about does Elekta have the skill sets to address this? Of course, Elekta will never be a company that can do everything and anything and that probably can -- our competitors can also not do? Because there will always be new ideas, new things coming up, specifically in these revolutionary times that you don't have in your skill set baked in yet. So what we are doing, and there I think we are quite nimble as a smaller company compared to a few of our competitors to have really important partnerships, whether that's with other companies or with also very important with our key opinion leaders in the academia that do have these skill sets. And they do have these -- the hunger to try new things as an exploratory thing before a bigger company like Elekta or others can make a big leap and say now we are betting the future on that. So for us, and Jakob alluded to it, we visited a very important partner of our this week in the Netherlands, and they are very, very eager to partner up with us even more so than in the past to bring their skill sets, but also their innovation hunger to Elekta. And also here, in the end, radiation therapy is a boutique industry compared to some others. So we don't need to invent new AI large language models. We don't need to invent new CT or MR-based imaging methodologies. We can leverage what is being invented in other industry, whether it's the car industry, autonomous driving, whether that's in AI basic LLMs for service, for example, support or whether it's an imaging in radiology. So I think we have the benefit of a fast follower in the industry, not as a company, we will make choices where we want to be leading, where we are going to be a fast follower. But I'm very confident that with these sets, we are going to be in a good position to compete very efficiently with our larger competitors.

Thanks, Christopher. And Ardie, on the U.S. question?

Yes, Veronika, thanks for your question. And I think the RT industry is actually a pretty tight net community on a global basis. And I think customers obviously been following how Evo has been performing in Europe, where we showcased that these online adaptive capabilities are fast and integrated. And I think also based on our leadership on the Unity side, they have been following us closely. But we were not in a position, obviously, to promote and to actively sell Evo until we got FDA clearance. So these customers are basically waiting for us to get FDA clearance. So as soon as we got that we engage with them and convert obviously those PLAs and making sure that we can move forward with Evo orders. So that's the reason why we saw some pent-up demand, and then we are now able to convert into Evo orders. Hope that answers your question.

Anything to add Jakob? or Veronica you're happy?

I guess just I'm kind of curious if you can characterize the types of customers who are interested in Evo? Is this hospitals with multiple Linacs that have historically not a hyperfractionation that are moving to hypofractionation. I don't know if there's sort of a common theme that you have this early on, but I'd be curious to see what those look like?

Yes. So those are customers that are indeed looking at adaptive therapies, Veronica. So if they want to do hypofractionation, they want to benefit from this new trend in radiation therapy. So really, their specific ask is we want to do adaptive treatments.

Thanks, Ardie, and thanks, Christopher. We'll move to the next question. I think that is from Richard Felton at Goldman Sachs.

Two questions for me, please, both going to be on China. So first of all, in terms of market size, the slide that you showed had between 310 and 340 units per year in 2021 and 2022. Do you expect the market to go back to that size? And if so, over what time frame? Then the second question, sorry, if I misheard, I think you did reference a few points of market share losses specifically in Linacs in China. Given that you are framing China is a must-win market? What are you doing as an organization to address those market share challenges now that United Imaging is in the market?

So if we start with you Anming on these 2 questions, did you hear them?

Thank you. It's really good questions. Yes, before the anticorruption, in China, the -- every year, the units is going to the over 340 units. Just I mentioned that this is a very transparent market. Yes, absolutely. And also from last year in the middle of the 2025, the market is very quickly recovery. And also, I think in this calendar year, they should be going 260, 280 is very possible. And I think that we still need another 2 or 3 years could back to the 340 because you know that the Chinese government now is doing a lot of motivation and a lot of the investments trying to promote even request the county or city level, they must have their oncology department. It means that if they want to promote to the Class III, must get the oncology department and Linac systems. So but at the same time, in China, we also face some challenges about the professional bottlenecks. So this will come back slowly, step by step. And also in Chinese government, the Chinese market, all radiotherapy equipments managed by the license for the Unity be classified by the central government for other equipment licensed by the local government. So in general, that absolutely a step by step to recovery to over 300 units. About your -- you mentioned about the competition. Yes, United Imaging is the only 1 of the local supplier in China actually in that is over 15 local suppliers. So United Imaging, yes, because they are successful in the imaging diagnosis even in the ultrasound. So they've got a good branding, they're more competitive and got a very good supporting from government side. So they're getting some market share. But in general, if you look at the performance outcomes, clinical that, absolutely, we are very strong in the market as a clear -- very clear market leaders. At the same time, we also maintained a very good market share for the Brachy, for TPS, for oncology information systems. Also you know that in China, the proton is very active. So we have more than half we got the oncology information from Elekta. So we also have a very big installation base. So we can continue to do that. At the same time, from this fiscal year -- from this calendar year, the government adjustment -- the reimbursement, but they just slow down for the operation treatment, but they clearly increased the reimbursement for as well as SBRT even attractive. So in general that for this market absolutely motivates the high technology, high-performance system. Elekta in this part is quite strong.

Thanks Anming. Thanks, Richard, for those questions. We'll move to the next question, which I think is from Erik Cassel at Danske Bank.

First, I have a question for Ardie. When it comes to gaining market share in the U.S., I guess, for it to be meaningful, you'd need to convert customers from, I guess, mainly using Eclipse and ARIA to sell Evo to those sort of customers since you're sort of ring-fencing the online adaptive. My best guess would be that you have sort of a smaller market share in software than you do in hardware, which comes to U.S. at least for customers using us as main sort of TPS. So could you talk about how you're planning to win customers over on the software side and get them to use your TPS systems more? Because that seems to be fairly sticky and also sort of a leading indicator for where hardware market share is heading.

Ardie?

Yes. Thanks for your question. Yes, I think we are in a very interesting phase. If you look at the ecosystem to do adaptive treatments, and so when we launched Elekta ONE planning, we basically made a choice to go with a market-leading contouring company called MEM, which is, in this case, really what's driving a lot of the preference of the physicians. And we tied into that a very good and very fast dose planning engine. So the combination of those 2 together and then putting that into the, let's say, ecosystem of adaptive planning. We actually see that customers, while they are still using for off-line their main TPS, they're starting to move into the Elekta ONE planning environment. For them, I think the key is that they can do fast, reliable and accurate treatments. And so what we're seeing, the same thing as with Unity, where we have built this integrated solution, including Monaco, we see that customers are starting to use that. in an integrated fashion. So how do you win market share in that case? We are starting to see transition for people to say, hey, we want to do this treatment, and we're not just focused on the individual boxes. And so Elekta ONE planning is the answer to this puzzle, but also integrating that within the OIS. And we see that our footprint in OIS is still very strong, but the combination of the device in this case, the treatment planning and the OIS, that -- those 3 pieces together, that's what's driving that acceptance. And so I think what you'll start to see is that customers are going to say, yes, we still have a main treatment planning system like Eclipse but we are starting to work within this Elekta ONE environment to do adaptive treatments. And that's how we think we can start really penetrating that position.

Thanks, Ardie.