Elekta AB (publ) (EKTAB) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the COVID-19 Update Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, Tuesday, the 28th of April 2020. I would now like to hand the conference over to your speaker today, Dr. Richard Hausmann. Please go ahead, sir.

So thank you very much, and welcome to this COVID-19 update call. On Slide 2, your normal important information. I don't want to go into that in detail. Let me start with -- yes, with a statement, which you all will agree with me, the world has changed. The COVID-19 pandemic has severely impacted the public life, as we all go, we experience individually and business life as well all over the world in a really unprecedented way. And in our case, which our special fiscal year we changed in April and start in May, we have, of course, our last quarter being completely affected by this COVID-19 pandemic. So -- and in this quarter, we saw an increasing effect on it. And so from that point of view, of course, it is an important topic for us to update you on the effects of it and tell you what is going on. As this pandemic escalates, it impacted Europe and North America increasingly in April after it started, as you know, in China. And Europe and North America are 2 of our most important markets. So it affected it both in sort of installations or, in other words, in revenue as well as, in part, in orders as well. It is unclear how quick the situation will recover, nobody really knows it. Or if recurrent lockdowns and waves of lockdown, then releases of lockdowns will be the new normal. And we will see that in the coming months and quarters. One thing, however, is also clear, the underlying demand for cost-efficient cancer treatment is still remaining. So I will explain to you a bit more in detail the different aspects of how we cope with the COVID-19 and how the effects of COVID-19 are. So on this slide, as I said, there was an impact, there is an impact and there will be other impacts in the future on our business, those order and revenue and also on costs negatively. But on the cost side, I can also say there are, of course, all the positive effects because if you don't travel, or if you use travel expense to 15 -- 50%, there are then a size of positive effect as well. Nevertheless, the important one is orders on revenue. The supply chain and the production continued quite well, actually very well, under these very difficult circumstances. So we are installing systems. We are producing systems. We are servicing systems. So I'll come to that in more detail. What we have done even before the [ 2 ] COVID-19 hit, so to say, the world that's ongoing during this phase, we strengthened our financial position and increased our available liquidity to quite a significant level. The net effect, of course, of the whole period of COVID-19 is, of course, that we had to change our fiscal year '19/'20 outlook, and also we cover the ongoing uncertainties, how that whole thing will move further into the future. We also wish to our midterm scenario. And I'll come to that in more detail. So the first priority, I have to say, for us as a company, as I swore more than 4,000 people employing -- employees around the world is keep our employees safe. As much as possible, we let our employees work from home. So home office, digital connected. And we are following local recommendation, of course, in all the countries -- in different countries we are active. All travel, except business essential travel, stopped. Production employees are split into secondary shifts, particularly in our main factory in Crawley, so that if there are cases of -- if there would have been cases of corona, which not -- did not happen in the factory, that we would have another shift -- complete shift available. We have increased precaution, social distancing marks, increased hand hygiene, of course, as everybody does. And by the way, I also want to mention that we are right now preparing for returning to office work with special additional precautions, which we expect to be happening in 2 weeks, in mid of May different -- in different locations around the world. If you look at how the wave affected us, the wave of COVID-19, which, of course, started, as you all know, in China was hit first, it moved from East to West in a way and had different timings and impacts on the growth on markets globally. So when I start in China, it hit first. But we see already a public procurement recovery, actually, to a certain extent, and public tendering is also starting again. In March, we saw already the first ones coming back. And April, we will see more. Other Asia Pacific countries, we are still installing systems, in particular, where we have local service installation personnel in the country so that lockdowns are not affecting us. For example, Korea, Vietnam, Taiwan and Australia. Australia is actually quite softly hit by the whole situation. Then the whole thing, of course, as we know, as we recall, moved into Europe, Italy, Spain, France, Germany, U.K. And of course, we saw increasing delays in installations in most countries during Q4, and that was actually also increasing during the quarter. So from February, March to April. It's more difficult to finalize orders right now due to limited physical access of our salespeople to the hospital. It's seen at that moment in time, of course, for example, in Southern Europe or Eastern Europe, not seen as essential personnel for the hospital. So the salespeople at least, the service they are, but salespeople are not. So that led to delayed signing situations, which affected our order income. Then it also, of course, moved into North America, also having been denied there for a certain time. But also now there, the delays in installations has been starting. Also, we see order signing delayed but it varies quite a lot between the different states in the United States. It also moved to South America, significant delayed installations in most countries because -- mainly because of the lockdown situations there. Going back a bit to Asia, it also, of course, hits now India. India is very difficult to access the clinics right now from last 4 weeks. This access limitations will likely to be prolonged as we can see that. We see quite unclear management of the whole situation in India right now. So we expect quite some effects on India. And last but not least, Middle East and Africa, which that they are mainly greenfield installation or new systems installed and there's no access to radiotherapy anyway, we still see actually a relatively strong market. So we see orders coming in. We also see that the installing systems right now, but it might change because Africa, as you all know, will be hit quite significantly at some point. Nevertheless, I think we -- as I said, we see quite some positive development, in particular in Middle East. Nevertheless, installations are increasingly getting harder in April. Many countries completely locked down, like Saudi Aria and others, and others are still accessible. So we are very flexible in that extent. I mean, I remember situations where, for example, delivery to Italy was stopped at borders. We managed with changing trucks, et cetera, to move things further. But there were quite some heroic actually situations happening where our employees and our partners are doing really outstanding work to make things happen. What is very important and what I really would like to highlight is there's absolutely no cancellation of any order in our order book due to COVID-19. And we on told that have won several tenders, which are not yet in the order book because the simple -- the signing ceremony didn't happen or couldn't happen. Not all of the countries are as advanced as the Netherlands, where we recently signed a large deal for several linacs and an MR-linac and Unity on the Teams application of Microsoft. So that was quite a new way of doing business for us. And amongst these 110, there are definitely a handful of Unity orders as well, which we expect to be signed soon. On the next slide, I wanted to show maybe not business of new systems, but the business of the existing systems and our service business and our installed base. And we monitor the usage of our systems, particularly linacs globally by remote access. And it's interesting to see that the radiotherapy treatment continues actually at near-normal levels, 97% in week 16. Week 15, by the way, if you look at the chart was the Easter effect. This is a normal seasonal effect. But we've recovered, as you see in week 16, again, to the 97%, which is almost normal. So that brings me to the -- also to the point that the radiotherapy itself is, of course, an important treatment, which needs to be done quickly after diagnosis. And it seems that our systems globally are really used. And I'm also convinced that, that was a term that we have at the next level until cancer is and then that will be longer than the coronavirus is existing. Coming to the supply chain. We have secured our supply chain, and it's completely operational under very difficult circumstances. So when it comes to the production side and the supply chain in Beijing, it's fully operational. It was only a little bit elongated Chinese New Year break, and then we went back to manufacturing the systems in China. The Crawley in U.K. and the Veenendaal Brachy manufacturing in the Netherlands have the so-called essential business status in the country, so they have also normal production. People are coming -- our factory people are allowed to go to the sites and do their normal work. On the Brachy business, we even see the consumables a little bit higher at the moment because, obviously, there's a little bit of hoarding of hospitals for consumable products, which are also used in the Brachy business. The essential business status also is applied to our suppliers. And due to that and our dual-sourcing strategy, it helps short-term supply. So we don't see any supply issue. On the service side, not only that we monitor the usage of our systems remotely, but we also have an significant increase remote fixed rate. So in other words, that instead of -- when there's a call coming in on some issue on a system, how much can we fix remotely, how much can we fix by just locking into the system remotely? And that increased globally by 12 percentage points, which is significant. In Europe alone, also 20 points. So -- and that's something, which I really hope to keep going even after corona, after COVID-19 because that's true productivity measure, and it is much more cost-effective to do it remotely. Local teams in most markets secure the availability of our -- of the service personnel. So it's -- as long as we have local people in the country, of course, the lockdowns don't really make a difference. So with our cost -- crossing the borders, that works quite well. And as I said, there are really heroic actions in service as well as installation teams happening around the world. And I'm really grateful for all our people and partners doing this work to really secure cancer care in the future. On the software side, it's interesting to see that it's quite highly relevant, not only for the remote service, et cetera, which is all the digital application, of course, but also to allow as little interaction or social contract, I would say. In the process of radiation therapy, it's quite an important part of it. And so we updated our MOSAIQ programs for all our users globally to have quick guys and configurable tasks to -- in actions to avoid this contact and to reduce the time of contact or happening as much as we can. On top of that, we have now also remote access from MOSAIQ, Monaco and the ProKnow application with -- which is supporting sales planning videos and digi webinars, which are very well taken. ProKnow actually is an application, which enables the clinicians to create, modify and release treatment plans fully remotely now. So in other words, the physicists or the doctor, whoever does the individual task, can do that by a remote access and not by physical access and not by physical contact. And it's interesting to see that both the SmartClinic, which is our mobile application as well as the ProKnow are 2 acquisitions, which we have done just like 0.5 year ago, which help in this situation quite a bit. On the liquidity side, it's interesting to note that we have strengthened significantly our liquidity and secured our long-term financing. So if you look at the left-hand chart, you see the net debt-to-EBITA value, which is on a low level, as we have reported in Q3 at 0.71. And if you look at our cash available, which we expect to have at the end of this fiscal year, we are talking about SEK 6 billion, which is really a strong liquidity, very important in this unsecured times. On top of that, it's not only that it's high cash available, but we have also a very positive maturity profile. If you look at it, we have secured 2 bonds with 3 and 5 years maturity, totaling SEK 1.5 billion in March. We had a 7 years maturity, Nordic Investment Bank loan of SEK 1.1 billion, which we just closed, and another SEK multi -- 2 years maturity loan as well as we draw on our credit line in April, SEK 2 billion, which was already existing. So you see the maturity going out to '24, '25, '26, '27, which is NIB, the mid-loan on 7 years maturity. So from that point of view, we are having a good cash equivalents available to run our business. Overall, and that's the purpose of the call, of course, also that, officially, we changed the outlook for fiscal year '19/'20 with the development particular in the last quarter. And also, we disown our midterm scenario because of the uncertainty, which is still existing on how the whole thing goes further. So we have -- we expect now for this fiscal year in total, '19/'20, instead of the original guidance of 8% to 10% on net sales, we still will come out positive with around 1%. And our EBITA margin will be instead of 18% as well as the guidance, which is somewhere between 16% and 17%. Actually, quite satisfactory considering the net sales reduction. The longer-term scenario is, as I said, due to the ongoing uncertainties, we need to come back to you when we know a bit more about it. It's really difficult to see how the lockdowns will be going away, how far they'll come back if the infection rates still go up. So we will publish that later on, both in our call in a month from now as well as during the summer and fall. A few highlights on order intake, and I'm really happy to report that this is the fact that, of course, it's very hard, difficult to sign and to get the business going. We have already, in this quarter, up to now 3 additional Unity booked. The first one in Latin America and the first one in Japan are two, which I would like to highlight in particular. The other one, which I just wanted to mention, because I mentioned that before, that's also 1 deal, which was signed by teams. And that's the seventh Unity in the Netherlands, together with 3 Versa HDs to the register of the Institute of Friesland in Leeuwarden. The seventh order in the Netherlands is quite -- the Netherlands is quite a Unity country. Okay, no wonder it was invented there almost. So from that point of view, it's not so unusual. So I also wanted to say that probably around 5 to 6, we have already -- we have the commitments from the customer, but not completely signed orders on Unity. So it's quite a good dynamic still going on with Unity. COVID-19 also changes the business environment and makes it more digital. And I think this is, obviously speaking, also an opportunity. It's certainly a challenge at first, but the plans it's an opportunity. For example, with this remote software products I mentioned already. And also, we have now done the first really professional digital launch of our Geneva Brachy applicator with an amazing response. And if we would just have -- we just compare that, for example, with the launch at an extra 1 ASTRO, frankly, we probably had double -- at least double the attendance, full attendance, actually, you can monitor that for this launch. And it is, in a way, a very, very interesting way of doing it. And we're most -- very, very likely, we'll do our new linac, which we are finishing right now as we speak, also on the digital launch in the future. Another example is digital order fulfillment. I mean instead of going to countries and checking out everything, in particular in Asia or so in more difficult countries by direct access, we have now created an application, which helps our planners and installers to do this order fulfillment preparations digitally. You see that here, including also the first trains, et cetera, so that in challenging countries, this is actually quite an interesting approach for improvement and productivity for the system. So in summary or in a nutshell, yes, the world has changed and COVID-19 impacts our business in a serious way. There's no question. And we don't know yet how much it will going on and how long it will go on and in what form. Accepted our guidance for fiscal year '19/'20 and withdraw the further scenario. I think we at Elekta manages challenges in relation to the safety of our people, the customer support in terms of service, liquidity as well as the productivity in a proactive way. The productivity measures, which we have already reported on, will definitely be strengthened in the coming quarters, and I will report out on that separately. One thing, however, is also clear, the underlying demand for cost-efficient cancer treatments remain high. And a technology like hypofractionation, for example, which reduces the visits, so to say, to hospitals, is also a very positive application, in particular in times of COVID where you want to have as least as possible contacts to hospital when you be treated. So on that point of view, I'm still saying, as you know me, I'm an optimistic person. Thank you very much.

[Operator Instructions] Your first question comes from the line of Veronika Dubajova from Goldman Sachs.

Can I start with 2? Obviously, I understand if you look at the quarter, just how -- what was the momentum for growth in orders in April versus February? And I know you haven't given any guidance in orders, but if you can maybe help us understand how you are thinking about order growth in the fourth quarter. I know there's a few days to go before the quarter closes. Maybe give us some sense of what you are seeing in terms of order growth so far. That would be helpful. And then I'll have one follow-up after that, please.

Veronika, Gustaf here. So on the order side, I think if you compare to revenue, orders are more affected in revenue because of the procurement processes. They take a bit longer. It's difficult to get access for our sales force directly to the hospital management and so on. So you will see a bigger impact compared to what we're looking for, for the revenue side here. I think it has been throughout the quarter, but of course, different in different regions, and it has followed the way that Richard really described, starting in China, the impact, but we saw that coming back here in March and April. So it was positive. Then Europe, of course, especially Southern Europe, is taking longer. And now more in the U.S. And also impacting certain emerging markets like India. But there's also other parts of emerging markets around the Middle East and Africa that is seeing good order volumes. And that's more of a mix. So that's a bit of flavor on the order side.

And when you say it's much -- it's more effective than revenues, are we talking multiples of that impact?

So just to make it very clear. So our revenue impact in the quarter is around about 11% -- we expected around 11%. It not close now, right, but around 11% negative, yes? So you -- it's a bit more on the order side.

In terms of multiples, we need to get back to that Veronika and once the report is out because, I mean, we're still in the finalization of the quarter and that.

Yes. And we still get orders in. And I just heard this morning about another order, which -- so it's still [ in ] flexible.

Okay. Understood. And then you sort of, Richard, alluded to some performance measures, which you intend to accelerate. I guess what would be really helpful to understand is if we have another couple of quarters like Q4. How much flexibility do you have in your P&L to compensate for that?

I mean we have a really good flexibility when it comes to -- first of all, we have a good backlog. That's maybe order backlog, which is a very important part of it. I mean we have a really strong, clean and to-be-executed order backlog. So it's not that we are relying so heavily right now on book and bills for this -- for the coming fiscal year. Of course, there will be book and bills, but we have also a lot to do from our order book. So that's a positive thing. We -- at the same time, and we do that already, as we speak, we have flexibility to breathe when it comes to our manufacturing place. So we have -- to the Brexit inventory, you remember that one, we had high inventory in the middle of this fiscal year that we racked it down. Now we got this corona effect where some delays in installation happened. So we still have at the end, some of inventory, which we can deliver as we come into the next quarter. So we reduced the manufacturing a bit to save costs from that side. So that's doable also in the form of -- in the U.K. with some special support from the government. So that's also what we are doing. But overall, I think it depends now all on how long and how many waves are sort of coming back and how long this whole thing takes.

Your next question comes from the line of Sebastian Walker.

I've got 2, please. So just one on the midterm guidance, and I know you've withdrawn that there, but could you comment a little bit on what you expect on order cancellations and the length of the sales cycle going forward, given expected economic uncertainty?

I mentioned that in my presentation that we haven't seen any order cancellations right now -- up to now. And honestly, I don't also expect them to happen. There are good order quality, reliable customers right now. And we see more orders coming in as we speak. Of course, there might be one or the other happening, but it's not a major effect, which I see. What was the second one?

I think the sales cycle is prolonged.

Oh, the sales cycle. Yes. It's a bit prolonged, but more on practicalities, I would say, like lockdowns, like coming together and those kind of things, we haven't seen a slowdown of the overall market right now. But we see -- I mean, it depends, of course, on the overall economic development. I mean this is -- we are not naive in that sense, that if -- I mean, this is a economic crisis, which is probably the hardest of the Second World War, and we want to see how the things are moving. That's why we actually pulled this midterm scenario because it's really almost impossible. There are scenarios, which we have seen from different consultants, although there, they have different, yes, severities of scenarios. The recovery happens end of this calendar year or recovery happens in 2, 3 years from now. So somewhere in between, we are, yes. And how this affects in our radiotherapy market needs to be seen.

Great. That's helpful. And then just -- sorry, if I missed this, I seem to be dialed out in the corporate. But on China, could you comment on what you're actually seeing in terms of either order or revenue momentum through February and March? So when you say -- and April. When you say an improvement, what do you actually mean by an improvement?

February was really, really low. I can tell you, I mean, February was -- I call it a shutdown in China for orders. I mean -- and then we also saw, of course, that the installation had more and more deprioritized. But in March, I don't remember there was a recovery.

The March on April, I mean now the public procurement processes are coming up again, we are winning a good share of what we've seen so far in March. So that's very positive. We also get access with our installers to the hospitals. So I would say that the installation volumes now in March, April has been relatively strong for China. And we foresee that ongoing also into the next quarters that we'll have. Okay installation volumes, I'd say, from China.

Then look at it from -- on a growth perspective, now how would I trust the recovery to happen? I would probably say that I would trust the China recovery to be the fastest one because it's more wanted and one driven by the government also. That's my feeling about our own experience in China. So from that point of view, I think that might not be the most critical country for us in the future from that point of view.

Now I think it's important also to say throughout the crisis that getting access for a service engineers to the site, that has been happening even though we have more remote fixed rates. And the same goes, to very large extent, for installers that they continue. So it's more maybe the sales and the predictive maintenance that you don't have to do right now that has been a bit more impacted and therefore, the bigger impact on order side as well. But that will pick up as soon as people come back to the hospitals, and then we can start with the sales processes as well.

Your next question comes from the line of Scott Bardo.

So I think you referred to the fact that you have an order backlog to support this year. I wonder if you could please help qualify how much order backlog do you think can be converted into sales, assuming that you can install unhindered? And how many of these orders are committed, i.e., backed by deposits, that would be helpful to understand, please. Also, clearly, you referred to the lockdown situation and hospital priority shifting in this current environment for some of the negative impact. Can you share some thought on replacement cycles, please? Are you getting any noises or any commentary about standardized replacement cycles being delayed? And is that something we should be mindful of over the coming 12 months? Last question, please. I appreciate that there's been a lot of moving parts for the Elekta story. But clearly, over the last 2 or 3 years, I don't think there's been a single target that management have set that has been achieved. Obviously, this is a difficult crisis that could not be anticipated. But when we think about the midterm, do you now scale back an expectation of transitioning to a high single-digit growth company, more towards an acceptable low-20s margin profile? Is that now something we just simply won't expect from Elekta? Or if that's wrong, can you please just highlight the drivers to get there in a normalized market?

Okay. So I will take the backlog question, Scott. So overall, on average, linac in our backlog takes about a year from order to revenue, if you take the average. And on average, they are -- have a prepayment of around 10%. So that's what you can find in kind of the backlog. So by saying that, they also say that most of the revenue and as we can see into next year will come from the backlog for sure, and we see that going forward as well. What's a bit difficult right now is to see Q3 and Q4 revenue based on the backlog we have because the customers are forced to get back and do their project planning and come up with installation dates that they can stand behind. And therefore, so that's a bit of the uncertainty we see today. On the replacement side of it, Richard mentioned...

I mean it's hard to say at the moment if the replacement cycle is unchanged already. I would say we have to monitor that. There is a need in particular countries more than in others or in particular customers more than in others to replace the systems, to follow, for example, these new guidelines, which are coming with this, I mentioned before, the hypofractionation, et cetera. And it's extremely heterogeneous. I mean we have discussions with large chains right now to replace a significant amount of the systems, and it's really very much real. And we haven't seen any systematic change of replacement cycles right now. Nevertheless, as I said before, the situation is economically so significant that it would be naive to see it as normal, yes. We have to see what is the new normal on that sense as well. On this moving parts, the comment you said, I mean, you're right when it comes to 1 or 2 percentage points of EBITA targets missed or so. But I would like to say there's one thing, which we achieved as Elekta, and that we improved the overall performance of Elekta, it's not only visible in the numbers, but it's also in the way we do our business. And from then -- from that point of view, I'm quite happy about it. On the midterm side, we will come back to you on more guidance on that -- in that way. We are a growth company. We are innovation company. We are not changing at all that philosophy. At the same time, we are realistic enough to say that if there is a certain downturn, we do the right measures to also adapt our cost and productivity targets. So from that point of view, I think we do the right things. And we will share that with you at the right time, not today because it's really so much right open right now that -- and we want to express it also in this call. It's not related to anything, which is maybe not hitting a target or something, it is really such a -- yes, unprecedented situation that there is insecurity in every aspect. We see great examples of business and perfect business going on. We see also some other ones, which were lockdowns and nothing happened. So it's a mix right now, and we'll come back to you with the guidance on that side.

I understand. And maybe, Richard, just to get your feeling. I know you don't have a crystal ball, but it certainly seems that your first quarter of fiscal 2020 or '21 is likely to be the more significantly impacted from standard business operations, given where we are with the impacts to normalized procedures and business at the hospitals. I think a lot of people are expecting some sort of gradual recovery to start from June, and we'll have to obviously see how normalized that is. But what I'm trying to understand is that given that Q1 is your, typically and seasonally, your least relevant quarter with the assumption that hospital activity starts to resume in June, do you still see the prospects for positive growth for Elekta in the upcoming fiscal year 2021 and maybe margins at or above the levels that you just highlighted? Just some qualitative comments would be helpful there, so we have some sense of the direction of the company over the next 12 months.

I have to say that the growth -- the top line growth is really depending very much on the market, and it's really hard to say right now what the market will be and how fast it will recover. You're right that the first quarter now for us will not be so much better than the last quarter, in a way, yes, of this fiscal year because it's still ongoing. We are in the middle of it. But I would say, if you listen to a little bit to the opening-up discussions in various countries getting lockdowns over it, et cetera, the pressure from the people, I just can say also for Germany, it's very strong. So there is a -- I mean, if you look at it as a -- yes, there's no rewaving, so to say. I would say, okay, we are probably in the maximum right now, yes, of the situation, and I will -- maybe I will get also into the first quarter. For the whole year, it's extremely difficult to say how we will come out. As I said, we are doing the right things and the necessary things to react and act on this from the -- when it comes to the margin side and to the cost side, yes. So we should be confident on that one. How much the growth will be? We don't expect a growth rate, which we have experienced like 4, 5 months ago, 6 months ago of 8% to 10%. That's clear. But we have to come back to you with a guidance on that one when we have a bit more of a sight into this situation.

But if I understand your comments that's still in your mind is a prospect that you have some positive growth, albeit not at levels that perhaps we would have seen 5, 6 months ago.

As I said, it's hard to say because it's related to the market.

Your next question comes from the line of Annette Lykke from Handelsbanken.

My first question will be one for Gustaf on the cash collection in the fourth quarter. How we should see that? And also maybe looking forward, is there simply being a little bit longer time due to the COVID-19 situation? And then also, just if you could provide us a little bit of an update on if we still should expect the Chinese FDA approval of Unity, and thereby, sales recognition to up 5 systems you have installed there. And then you didn't say much about the new linac. What should we expect in this respect? Are you maybe waiting to launch this, to see the situation?

Yes. Okay. Thank you, Annette. I'll start with the cash collection question. So if you look at the current invoicing cash collection process around the world, it takes a bit longer. People are working from home, the finance and admin and the hospitals, payment takes a bit longer. We have some examples of customer sales for a bit longer payment terms and so on. But overall, we haven't seen any big write-offs, anything like that. So we still -- the cash is still coming in. We had a very, very strong Q4 last year when it comes to cash flow. So it's a difficult comparison versus Q4 last year, of course. And then my message here is it takes a bit longer, but don't see it as a risk of any maybe write-offs at this point in time.

The Chinese FDA approval is going as planned right now. We have completely finished and handed over the study to the authorities. It was a good milestone. So from that point of view, we're still planning the 5 systems to be -- I mean, as a better -- the CFDA clearance comes in this fiscal year, and we can book these 5 systems, which are already installed. A new linac is a good question because you are right, it doesn't make so much sense, marketing-wise, to introduce a system in the height of a crisis, yes. But the system is, as planned, ongoing and developed and ready to launch. We -- as I said before, we are planning to do a digital launch because we also expect that the ESTRO, which is delayed up to now, I think, for beginning of August will also not happen there. We had some information that this might be delayed again. So we will do some form of digital launch at a time when it makes sense. And I see that is quite powerful. And of course, ESTRO in the fall will also be a good platform to show that system.

Okay. Just one other follow-up question. I had some conversation with a few cancer clinics or hospitals. And some of them is now pursuing more of hyperfractionation treatments sort of to decrease patient contact points and then avoid transmission of COVID-19. Have you noticed this as well? And could this spark additional interest in MRI-guided systems?

Yes. I mean I couldn't say we have noticed it, but it's absolutely logical. And I mentioned that before already. We are always -- we were always a believer of hyperfractionation. MR-linac is a typical and great example for it. But also on normal linacs, hyperfractionation is, I think, a way to avoid contact to the hospital, so -- or to other patients or something, yes. So on that point of view, yes, but that didn't change our underlying beliefs, and it supports in a way our underlying beliefs, yes. Interesting enough, by the way, it brings me to one thought, which I also read recently, and of course, that's very, very early stage. But there was also some reports on some studies where low-dose radiotherapy is used for the COVID-related pneumonia. I think I heard it that some hospital opportunities care in Spain is using that -- is trying to use that and see some positive results. So that is also an interesting situation that there is potentially, and I would say it's very early stage, some additional application due to that.

Your next question comes from the line of Michael Jungling from Morgan Stanley.

I have 3 questions, please. Firstly, on the midterm outlook. I would like to get a better feel what is at most risk here with respect or in comparison to your old guidance? Is it a sales growth? Or is it the EBITA margin? Secondly, when it comes to foreign exchange hedging risk, can you comment on the -- or is it a problem that you now have a mismatch between the hedging contracts that you took out a year ago and the delivery that you expected a year later? And if that is the case, what exposure does the company now have to foreign exchange movements, to your cash flows and also to your earnings? And question number three is with respect to your midterm guidance on the installations, how many quarters or so are you assuming for the delays for you to already revise your guidance today? I suspect it must be many, many quarters. Because otherwise, you could still get to maybe a 10% or so growth rate in 2021 and 2022. So I suspect that you've made a decision around several or many quarters of delays.

Okay. So let me take the first one. Good questions, actually. So the midterm outlook. As I said before, it's really difficult. And I if I would say what is more difficult to predict is probably the sales, the top line. Because the top line or the orders, in principle, are related to the market. And the EBITA, you can always do some stuff to create productivity or cost reduction, et cetera, et cetera, to cope with that to a certain extent. So -- but it's -- as I said before, we cannot go into detail on that one right now. It is what it is and it's extremely unclear. Of course, we know what we want to ship for this year for revenue and to a certain extent, as Gustaf said before, but not everything. So it wouldn't cater to these huge numbers which you have mentioned before, yes. So from that point of view, it's hard to say.

Yes. And on the FX hedging effect, we often talk about FX effect on EBITA level. And Michael, if you take today's rates and looked at this fiscal year, we see it would be negative around maybe 30, 40 something. And then previously, we talked more about the flat impact versus last year on EBITA level. The reason for it is actually the reduction in sales because there we get kind of a boost from having a large proportion of dollars in our sales. And now that's reduced compared to our expenses where we have quite a lot of pounds and SEK, as you know. So there, I would say that's the biggest effect of the hedging if you summarize all the revenue, cost and balance sheet effect. Anything else than that, I don't see as any major driver here in the coming quarters. And then on the...

Because -- sorry. Please, sorry. I'll let you finish.

No, I was going to the third question, but if you have more -- you want more details on the FX...

No, no. Please go ahead to the third question, I'm sorry.

Yes. So the question was, okay, how do we think about the quarterly effect, if I understood it you correctly, Michael, of kind of installations going forward? I think it's important to say that radiation therapy is quite a slow-moving industry in a way. It's CapEx. It's projects. It's long time frames. So what we're seeing and saying here a bit as well in light of the midterm guidance, but we have this longer horizons of 1 year, 1.5 when we look at things because that's when the customer comes back to us and tells us the installation start dates. And we have an uncertainty there exactly when those installations will happen and we see the uncertainty currently seeing at the moment. And thereby, we need to then review our midterm outlook. So that's what we're doing today. So I was saying it's 1, 1.5 to 2 years' outlook, because that's what, to a large extent, the order backlog as well.

Great. And Gustaf, on the hedging side, I think you hedged around 75% of your orders in advance. And I can see why you would do that. But now is there not a naked exposure to those contracts because there is no deliveries on which you would get revenues that you would then perhaps, in a way, net off against the hedging contract. So if we have 2 quarters or so of delays because of COVID-19, does that not put the company at large risk to foreign exchange losses if currencies move?

No, because we have more mix of tenures in terms of our hedging contracts. We can go after 2 years, but we have a mix compared to how we see the forecasted orders and revenue we have in our forecast. So that's something we kind of work with continuously throughout the quarters and the years. So you shouldn't see it as kind of a one-event impact.

Okay. And my last question is, again, clarifying on the midterm outlook. For years, there has been this in the presentation slides of the need of cancer care and the growing need for improved cancer care, hence, the reason why Elekta is well positioned. It is really hard for me to understand why a COVID outbreak that may, for instance, impact the industry by a couple of quarters would suddenly change the need for cancer care and the need for machines. I can see a situation where orders that may have been put through today may now be put through in a quarter or in 2 quarters. Why would COVID-19 suddenly change your midterm outlook, especially when it comes to sales?

But Michael, our midterm outlook was not the outlook that -- it was not the statement that radiotherapy is needed, and we are still seeing that as a very clear point. The midterm outlook was a growth in orders and an EBITA margin, which we have put out. And you say -- you saw it. I mean there are delays. There may be investment uncertainties which will come. I don't know. I mean at the moment, I'm just saying -- I'm not saying that it's nothing or low, very low, I'm just saying it's extremely difficult in this situation from an overall economic situation point of view. And the availability, for example, of money in state-driven, government-driven health care systems, et cetera, and all those kind of things, I mean, you have to think globally what will happen. We are totally convinced there's a need for -- there's definitely a need for this. We are having discussions with large chains on renewing whole fleets here. I'm not saying it's over, I'm just saying it's hard to give a number right now. And yet ask a little bit for patience that in the call later on in -- for the 2 -- Q4 call and later on during the summer, we will give you guidance on that one. And we are not negative in that, don't take me wrong. And the need for radiation therapy as a cost-efficient cancer care is absolutely still there. And also, our innovations are in the right way, as I pointed out, for the digital side, on new linac and the MR-linac, yes? So it's not over, Michael. That's [ a first ].

Your next question comes from the line of Sebastian Walker from UBS.

No questions from my side. They've all been answered.

The next question comes from the line of Carolina Elvind from Danske Bank.

No questions from me either. They've all been answered.

Your next question comes from the line of David Adlington from JPMorgan.

Most of them have been answered. But maybe just a little bit more around the capacity in terms of if the installations -- as obviously, you don't have a great deal of visibility in terms of when those might pick up. But if they do pick up in the second half and particularly maybe the third or possibly the fourth quarter, how much installation capacity do you have in order to be able to catch that up? Can you run as halt as you normally halted your Q4 for more than 1 quarter? And then secondly, just in terms of the -- just before COVID kind of broke, you were beginning to see, I think, a little bit of softening in demand around the U.S. change in reimbursement. Just wanted to get any updates on how hospitals were thinking about that probably just before we went into the COVID situation? And then finally, just in terms of any supply chain disruption. Is there anything out there that is leading you particularly concerned in terms of ending your supply chain maybe from one of your suppliers?

For the first one?

Installation capacity, honestly speaking, I mean, our behavior which we have shown in the past that we are really like crazy installing in the last quarter, typically, we can do that. We don't want it, to be honest. Now we want to have a flatter installation, and we worked for that and we improved on that one quite a bit. But yes, we could do it. And we have enough installation teams. We have partially also outsourced our installation as a variable cost. And from that point of view, yes, that's no problem. The second one was supply and payment model.

It's again -- I think what we've seen on the APM side, there is a formal letter from ESTRO to saying that to postpone the APM implementation to 1st of January. So that's what we see. More than that, we haven't heard any notifications or anything around it. So that would be probably the time line.

It's interesting to -- what Annette said that if you listened to that, we had that before. I mean it is really hyperfractionation is a good thing to do right now in a way because you reduce the contact to the hospital significantly, needless to say, and helping itself additional benefits.

And on the supply chain, overall, it's going very well. I think we have many suppliers that has no problems. We had -- we started this quarter with a high inventory, as we all know, because of Brexit. We had a lot of linacs and be able to install and deliver from. And I think it's important to say, you should expect -- we haven't been able to reduce all of that inventory throughout the quarter and -- because we have a lower revenue growth here. So you see some of that still in Q4. But the supply base, we don't see any major problems. We have a chock-full of discussions with some suppliers when they should come back from their lockdowns and so on. But if you look at the next month and quarters here, we don't see any major issues there.

Your next question comes from the line of Patrik Ling from DNB.

So first, just a clarification. Did you say that sales growth in the fourth quarter was down by 11% year-over-year in local currency?

Yes.

Or did I misunderstand it?

No.

Okay. And was growth down more?

Yes. So Patrik, I think revenue, we should still report and so on, but that's what we see now with all the installations and then the service and some revenue comes around is 11%. Orders will be a bigger impact in the fourth quarter because of the reasons that there hasn't been as many sales discussions going on with hospitals throughout the quarter compared to the last year, of course.

Okay. Good. And when clients that already has placed orders, you say that none of them has canceled orders. But I suppose that some of them will be pushed forward in time, so they will take deliveries later on them. I mean keeping in mind the discussion we had about the delayed installation of Gamma Knife, I mean, is there any opportunities for you to catch up? Or because last time when you had some delays from the customer side's, you were quite clear that your installations team were fully booked. And the installations that doesn't take place now, will you have any capacity to actually install them later? Or will they just have to wait?

No. I think they have -- we have capacity. As I said, we were always a little year-end-loaded with installation, in particular with the Gamma Knife also. The one which were delayed in the previous quarters, they were installed, of course, now. So we will work the -- our order list down, and we have the capacities to do that. And we're also installing our Unitys, by the way, which also need a bit more time. So manpower, it takes a bit more time, so to say. There are 2 installations that also is ongoing. There were really quite amazing works done on countries where you would have thought it's not possible, like [ Curaçao ] or so to do an installation of a linac, we did it. So we have these capacities to go on.

Okay. Then last question. You mentioned that the degree of service where you can actually do digital remote fixes increases. When you look at sort of the normalized assignments that the service technicians get, a large proportion of service do you think can actually be fixed to remotely? And how large proportion do you actually need to have a service person out there on the site to do service?

Actually, it is increased its rate, this remote-fixed rate. And I think it was from 40% to 60% or something in Europe, for example. So we have, of course, through our IntelliMax system quite some access to the systems. And we can look, sort of, say, digitally over the shoulder of the user and we have hotlines and remote support by telephone that can fix quite a lot of things. But if that increases now, like in Europe, by another 20 points, you can imagine there's quite a good productivity for a service. And we will really like to keep that level. And because it shows also it's doable. And we are continuously improving our tools on that one, even with proactive, even analysis of the system as shown a few quarters back in our call. And so in that point of view, that's a good productivity measure. Same, by the way, holds for travel. I think especially when it comes for internal meetings, it makes a heck of a lot of sense to digitize more. And if you keep -- if you can keep only 20% of reduction compared to what we had before, now we have 50%, and of course, we need to travel more again. But it is also productivity, which is important to keep here from that point of view.

Your next question comes from the line of Patrick Wood from Bank of America Merrill Lynch.

I'll be fast. Just on the FX side of things. Obviously, EM currencies relative to the dollar have moved a fair bit. I remember the last time in 2014 or '15, I think it was, when this happened, there was a bit of a demand hit out of EM just because a lot of them purchased in dollars. I mean how should we be thinking about that? Is that something that you think is relevant now? Or am I missing the point?

I think there's kind of 2 effects of it. It's on our balance sheet and also in our kind of a revenue mix. On the balance sheet effect, we have, throughout the last quarter or so, reduced this effect by kind of bringing home currencies we have had in local, smaller currencies to SEK or pounds or dollars. So that's how we mitigate that effect because as I mentioned, after Q3 and Q2, that could be sometimes difficult to hedge for us. So that has been our mitigation effect. So a bit of it, but much smaller compared to what you saw in Q2 and Q3. And then, of course, we are mindful of the currency swings we now see in countries like Brazil and Turkey and potentially, India, to make sure that we have the right contracts and so on to take on those deals as well with a lot of letters of credit and more on the project financing of those projects we are working with to reduce the risk for our balance sheet as well and our P&L.

I mean, I'm less worried about the balance sheet side. I guess the question is for your EM customers who are purchasing in dollars, haven't, in real terms, the linacs become more expensive because the local currency is depreciated? That's the kind of -- that's more the angle that I'm interested in.

Yes. No, so I think we saw that effect in '14, '15, we did. And we are very mindful of it, and we are tracking and looking at the financing of each and every deal, so we don't take unnecessary risks there. And of course, there is a demand risk there as well because the machines becomes more expensive for those customers. And that's an ongoing discussion. We haven't seen, as Richard said, any and big cancellations due to those effects and so on. But that's one of the risks we also see into next year that we need to follow very closely.

Your next question comes from the line of Kristofer Liljeberg from Carnegie.

I'll try to be quick here, but I have 3 ones. First, for currencies. Do you expect it would be a negative or positive FX effect on EBITA next year based on current spot rates? Second quarters, you had some commentary about Unity orders, talked about a handful of commitments. Was that on top of deferred orders, and you expect to sign any of them now ordered in fourth quarter? And the last from me is potential cost savings. Let's say, organic sales growth is up a few percent, low single digits in next fiscal year. In such a scenario, should we assume EBITA margin going up from this year's 16% to 17%?

If I start with the -- thank you, Kristof. If I start with the FX effect into next year, as I mentioned, a bit negative compared to what we saw a quarter ago because of the lower revenue this year. The driving forces are on a positive effect into next year. We haven't quantified it fully yet, and I would like to come back more with more flavor on that question on when we release the Q4 report. I think on the Unity, I think, Richard, your best...

Yes. So this handful there on top of the 3. And if we get 1 or 2 still this quarter, let us see. We are in the middle of those things still. But as I said, there are, I think 5, 6 or so where the tenders are done and the decisions are done and everything is clean, but it's just not completely signed. And from that point of view, I'm also quite okay with the 75, so to say, in the middle of the year. But we didn't -- we will make 75 at the end of the fiscal year. And costs, yes, on the cost savings side, I mean, as I said, we come back with a scenario which we can really believe in also and after more analysis, et cetera. I think, as I said, we are preparing ourselves for better cost positions in the productivity program, which goes on top of what we have started already. So from that point of view, let us work that out and we will also show you that a bit more in detail when it comes to it -- when we have it ready and launched and -- but we are in a preparation phase of it.

Your next question comes from the line of Johan Unnerus from Pareto Securities.

Johan here. I'll try to be quick. First one on the installation review plan, which is you're currently undertaking. And it's my understanding, of course, this is moving material, but when are you expecting to be completed or have the feedback regarding European -- Europe and U.S. for this time? Will you have that by a month or 2?

Yes, Johan. So as I understand, the question was, I mean, installation review of the current plan. I think you're right. It would take a couple of months until the summer until the customers are ready to give us the input on exactly when they can take on some of these installations into Q3 and Q4, all the orders that we have in the backlog. So I think that's the time frame that maybe sometime mid-summer, early autumn that we will have that full input from the customers.

Yes. That's useful. Presumably, you need that sort of input to have to give some more clarity to the guide, both for next year and perhaps also some comment on the midterm outlook.

Absolutely. So I mean the installation dates are the key thing because, as we know, the service revenue is easier to predict. It's really about the solution revenue, and then it's about when the customers are ready to take on the installation. Then I think on our supply side, what we've said in this call is that both from a production point of view, but also supply and installation point of view, we are ready to install that capacity. So that's also a positive signal from our side. So summer, late summer, early autumn, I would say.

And then to get some more flavor to the order dynamics. So sales in constant currencies, 11% down. Orders significantly less. Should we think mid-teens, high teens or even less in terms of orders? Good, if you can provide some flavor.

I think the orders are -- we are exactly in the last couple of days of the fiscal year here, a lot of things happening there when it comes to order activity. So it is a bit early to say. So what we can say is a bigger effect compared to what we mentioned on the revenue side. But other than that, we need to come back when we release the reports.

And after Q4, did that call -- can we expect you to have sort of more regular trading updates during this extreme period?

You meant more regular than every quarter, you mean? Or...

Yes.

No. No. We will follow the quarterly time frame.

Yes. And finally, how should we look at this order sales dynamics? Q4 is, of course, a special quarter during any circumstances for Elekta, and this even more so than ever, I guess. Should we review this -- look at this as a sort of slippage or pause? Maybe that's related to when you get the feedback from your customer in terms of installation plans and so. So, anyway.

I think that's a good summary of the uncertainty that we're currently in. But we don't have that full picture now, we need to have those discussions with the customer when they have come out a bit from this COVID situation, then we'll have a better view on the order side. So that's the most uncertain part of [ all this ].

And remember the customers also don’t know how the local situation will change, the lockdown will be released, et cetera. It's in all major countries, it's quite unclear how this goes on right now. And that we need to of course, also, give the customers the time to understand that and give us a feed -- an account when we then deliver. As I said, there are no cancellations and we will install those systems. The rooms are partially prepared or fully prepared. Sometimes the preparation of the room cannot go forward because those people cannot work in the hospital. So this is what we have to look further into the details now.

Your next question comes from the line of Kit Lee from Jefferies.

Just one from me, please. Just following up on your point about hypofractionation. Just have you seen any changes or shift in customer order discussions to perhaps focus more on systems upgrades or new systems which are capable of performing hypofractionation? Or do you think this is more of a post-COVID topic where things come down a bit and people would be more engaged in this topic?

At the moment, honestly, we don't have too many customer discussions because of the lockdowns, et cetera. But we saw this tendency and we see this tenancy in our Unity business, we see it with our customers on Unity and also, of course, with the new payment model. Like in the United States, there's a lot of discussion in this area. If you're thinking through for COVID situation with social distancing and everything, and of course, it makes a heck of a sense. But I think it's too short term right now to say that there's something really happening because of that from the purchase side. We have discussions, for example, with our customer in GenesisCare, you know that they are involved in an acquisition of 21st Century, where a significantly exchange -- significant exchange of systems will happen because of improved quality and improved capabilities are necessary for the retreat patients from this side. So it's not easy to be fair, but it is absolutely logical that this is a positive way forward.

Your next question comes from the line of Sten Gustafsson from Nordea.

Sten Gustafsson from Nordea. Do you think that the COVID-19 outbreak will impact hospital's ability to afford new systems since they have to prioritize other issues at the moment? It would be great to hear if you have any feedback from your customers. And my second question is more a confirmation. Did you say that you will launch your Value Linac through a digital launch? And if so, when will that take place?

Yes. The Value Linac -- we don't call it Value Linac anymore, but what you are talking about, yes, our new linac is -- will be launched digitally. That's true. And the other thing is it's not -- well, what we see actually is not so much that we are afraid that in the long run, other, I don't know, incubators or whatever respiratory systems are -- will be higher, will be more purchased. I think this is now the hot phase. What we see more is that -- for example, I had this case at NYU, I mean that's a Unity system which is decided on everything. But to close this thing down to make then the necessary detailed discussions with the customer, it was just -- New York was a nightmare and maybe is still, and they had so many patients coming in. The whole hospital is basically blocked. It was impossible. It's more of these kind of things which happen rather than that -- we don't believe, actually, we don't hear it also that there will be less investment in radiation therapy or cancer care in the future. I think cancer, as I said, will survive corona as calling it pandemic, yes, but -- and it's a growing effect in the world. But -- so from that point of view, I don't see that as a long-term effect.

You have a further question from the line of Scott Bardo.

Just quick follow-ups. So if group revenues were down, say, 11% in the fourth quarter, but service was stable, can you confirm that your equipment orders, so to say, your solution orders were more down 20% in the fourth quarter? Perhaps just some flavor actually for the magnitude of decline there would be helpful. Second question. I think that at your Q3, it was also very evident, the slowdown in China. And you reiterated your full year guidance, you're expecting to compensate, if you like, installations in other regions according to your backlog. So I wonder if you can help us understand were there any specific regions that came as a particular surprise here. Was it more U.S. or was it more Europe, Middle East? Or it's equal across the board? Be interested to hear specifically on a regional note. And last question just on Unity. Obviously, pleasing in this environment to see 3 Unity orders. I think, Richard, you were somewhat confident in closing 10 orders in the third quarter. I just wonder, in a sense, what was the biggest issue here? Was it question mark on price on Unity? Was it hospital liquidity measures in this crisis? Have you had any further negative interactions with respect to price which could be limiting conversion?

Let me just -- let me take the Unity quickly. No, it's not about the pricing renegotiations. As I said, it is COVID-19 accessibility and prioritization of finalizing the signature basically. I talked about NYU. We have another deal in Florida, which is the same situation. We have some more, 2 in Italy, by the way, were included in this 10, which I mentioned, the Brescia and Padua. So these are all only delayed from the final, final signatures. They are all decided on. And so from that point of view, I'm optimistic that they will come, maybe not now immediately, but they will come in the course of time right now, and it is just this physical accessibility of the hospitals right now, at the moment. And their heads are sometimes somewhere else, yes? This is what it is. Okay. The other one.

And the solution revenue versus service revenue last quarter. So your observation will be on those levels. I think we need to go through the full reporting cycle, of course, to see the exact split between solutions and service. But what we can say is that last year's Q4 grew by 9% in the service revenue. That was a really high service number. So expect a bit lower, but still a similar level on the service side. So the main effect, you're right, would be on the solution side. Yes, it comes to around 11% in negative revenue effect in the last fourth quarter. And then you had a regional question also, Scott. Was it right that you wanted a bit more flavor on the regional order side? Or was it revenue?

Yes, revenue side. What came as a -- most of a surprise in terms of not being able to fulfill your anticipated order conversion in the fourth quarter? Any particular region that you can call out?

I mean I wouldn't call it a surprise, it was a development in the quarter. I mean if you look at Italy, Spain, the U.K., I mean, there were -- they're simply impossible to finalize or to start and finalize installations that happened during the quarter, as we spoke. And same is true in the U.S., a little bit later than they will be licensed, all delays actually when it comes to revenue of systems to be starting installations there.

Understood. Very quick. How many Unitys did you install in book of revenues this year? I know you're expecting 10 before, can you just at least give us the number that you expect for the full year?

With the 3 ones now in last quarter, we have installed 9 in total. Okay.

There are no further questions.

No further? Okay. Then thanks a lot for all of you who are still on the line. And we'll update you, as I said, in Q4 call again. And we'll be more specific on a few other things, which we'll learn during the time line in the next few weeks. Thank you very much. Have a nice day.

That does conclude our conference for today. Thank you for participating. You may all disconnect.