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

Good morning, everyone, and warm welcome to the presentation of Elekta's Fourth Quarter and our Fiscal Year 2021/'22. My name is Cecilia Ketels, and I'm Head of Investor Relations at Elekta. With me here in Stockholm, I have Gustaf Salford, Elekta's President and CEO; and our CFO, Tobias Hägglöv, who will be presenting the results. And today's agenda start off with Gustaf presenting some highlights of our development. And then Tobias will give you details on the financials, and the presentation ends with a view on Elekta's outlook. After the presentation, there will, as usual, be time for your questions. But before we start, I want to remind you that some of the information discussed on this call contains forward-looking statements, and these can include projections regarding revenue, operating result, cash flow as well as products and product development. And these statements involve risk and uncertainties that may cause actual results to differ materially from those set forth in the statement. And with that, I hand over to you, Gustaf.

Thank you, Cecilia, and hello, everyone. Thanks for joining the call here on our results on Q4 and also the full year. And I would like to start with Access 2025, our strategy, and how we delivered on it in the full year but also in Q4. So over the last year, we have truly accelerated our innovation investments to support the long-term growth and margin expansion of Elekta. And it has resulted in many product launches of versatile solutions across our portfolio. We continue to build strong customer partnerships. And in Q4, we signed a 10-year agreement with the leading Netherlands Cancer Institute, NKI-AvL. The agreement is focused on co-creation (sic) [ company-creating ] adaptive and personalized workflows and treatment delivery solutions. Also in the U.K., the NHS ordered multiple licenses for Elekta's ProKnow, a software solution which centralized and analyzes radiotherapy data in a secure, scalable platform accessible to the NHS radiation oncology facilities throughout England. We also drove partner integration across the cancer care ecosystem with IBA to optimize quality assurance, QA, solutions; and with GE Healthcare to enable us to provide hospitals with a comprehensive offering across imaging and treatment for cancer patients requiring radiotherapy. Kaiku Health, our leading cancer care digital therapeutics platform, and Roche, a leading global health care company, entered a strategic partnership in digital patient monitoring and management. We are also driving adoption across the globe. And we are well on track towards our ambition of giving 300 million people access to better cancer care before '24/'25. This year, we installed linacs in underserved markets that gave access to more than 60 million people. We also expanded into Indonesia, Turkey and the Philippines with direct operations. We have truly, truly fantastic people at Elekta. And I'm so proud of how Elekta's employees and partners have dealt with all the headwinds in the year, and I'm very pleased to see that our employee satisfaction and engagement also increased. We have driven several resilience and process excellence initiatives across the value chain, which has enabled us to successfully install and serve our solutions, driving order and revenue growth also during restrictions and lockdowns. It is vital for Elekta that we deliver solutions and services in a sustainable way. And in order to track performance of our sustainability initiatives, we have developed our science-based targets that are now ready for submission. And if we now turn to our order and revenue situation and our focus areas, you can see that we are growing orders with 2% in the quarter and 4% for the year. And if you exclude the largest deal ever for Elekta last year, the underlying growth rate would be 8% for the years on orders. Our order backlog increased to almost SEK 40 billion. During the quarter, the geopolitical situation changed with a war in Ukraine as well as COVID-related lockdowns in China. But our installations came in better than planned and revenue grew by 5% in the quarter and 4% for the year. To continue this development and drive profitable growth going forward, we are focusing on continued (sic) [ continuing ] to mitigate the COVID and the supply chain disturbances but also to address inflation by higher pricing and cost reduction activities from our resilience and excellence program and driving cost measures and productivity initiatives across our processes. And if we now take the regional perspective and turn to the order situation by region, you can see that Americas declined with 6% in the quarter, U.S. having challenging comps. Canada continued to show good order growth for the fourth consecutive quarter, and South America was impacted by exchange rates and financing. EMEA had a very strong growth of 16%. We received the first order from the regional Spanish hospitals that was linked to the large public tender. And the Middle East and Africa continued to grow strongly. The success of Elekta's geographic expansion strategy continued as Egypt and Turkey remain the main growth drivers for the region. Order intake in APAC decreased by 5%, driven by weaker development in some countries in East Asia and in India. And in China, Elekta continued its market-leading position, but order intake was somewhat softer than last year due to an overall slower market. The strong order growth in Australia continued, and Philippines, where Elekta opened our direct operations, also showed good growth in the quarter. And you can find some exciting orders in the bottom here of the slide. If we now take a look at our portfolio of solutions and products, you can see that Elekta has truly most comprehensive portfolio in the radiotherapy industry. And if you look across our business line, you'll find on oncol (sic) [ oncology ] informatics: linac, Brachy and Neuro Solutions. We have also made these recent launches in all business lines with MOSAIQ, Elekta Harmony, Elekta Studio and now, most recently, Elekta Esprit. During the year, we have accelerated our innovation, and our gross R&D as a percentage of sales has increased but will stabilize and reduce over time. The focus has been and will continue to be on the investments in our family of linacs, the Unity platform and software solutions across the portfolio and the business lines. But now I have to say a couple of words on our recent launch of Elekta Esprit that we did at the conference ESTRO here just a couple of weeks ago. And it is in the same year that Elekta is turning 50 here. And this launch is very important for us because it's the latest and most advanced radiosurgery solution, and it enables more personalized radiosurgery with submillimeter accuracy and treatment planning in less than 60 seconds. It is more patient-friendly treatments, and the degree of precision is able to protect the mind and the person and is truly enabling a higher quality of life. I'm also proud to say that we actually received our first order now for Elekta Esprit from Sheffield in the U.K. And now to an update on the momentum around Unity. So Unity, as you know, is a groundbreaking cancer treatment solution, giving clinicians the ability to visualize tumors during the treatment. And the system is the world's first and only high-field MR-linac. During ESTRO, more than 70 clinical abstracts were published relating to Unity, and I would like to highlight 3 out of these. Firstly, the latest update from the MOMENTUM study reported outcomes in over 40 different disease sites in 1,800 patients. One paper show that the patients receiving full online adaptive personalized treatment, there was no severe toxicity that was recorded, and that's a very strong result. Secondly, an abstract from Odense in Denmark reported on the feasibility of treating pancreas cancer patients with a dose that is nearly double what is typically used for this treatment-resistant tumor type. There were no severe side effects in the patients treated on Elekta Unity. And we take this as more evidence that indeed, seeing what you treat matters. Thirdly, a team from Princess Margaret Cancer Centre in Toronto demonstrated how MR-guided adaptation resulted in more favorable protection in a prostate treatment. There were no acute toxicity with MR guidance. And these reassuring results give our user community the hope that MR guidance will enable them to push hypofractionation even further in the care of prostate cancer, making treatments even more cost effective than they already are. Our MR-linac Consortium, which will have their semiannual meeting here in June, have 16 clinical trials ongoing, and the first ongoing trials will be completed here in 2023. And I must also say that we reached a key milestone when we presented our comprehensive motion management at ESTRO. This is the first noninvasive, true 3D target tracking on the market. It is also important to stress that we track the tumor in 3 planes, not only vertical but also horizontal and in-depth. So how is the continued rollout of Unity [ growing ] across the globe? And here, I'm proud to announce that in total, more than 120 MR-linacs have been ordered since the launch. And despite the challenging circumstance in having global installation teams during the pandemic, we have managed to install another 17 Unity systems since our Capital Markets Day in June last year. And we now have more than 60 systems installed or under installation with relatively even distribution among our 3 geographic areas, as you see here on the map on the slide. And with that update, I would like to hand it over to Tobias.

Thank you, Gustaf, and good morning, everyone. I will start with the Q4 financials. With the strong finish of the quarter, revenues grew by 5% despite the challenging market conditions. Americas and APAC had strong growth of 11% and 8%, respectively. Growth in Europe was in line with previous year, adversely impacted by the war in Ukraine. Our solutions operations grew by 6% with good growth in our linac and Brachy businesses. Gross margin in the quarter was 37%, resulting in a sequential improvement from the third quarter while down year-over-year. I will come back to this gross margin development in more detail. Our operating margin declined by 150 basis points, while earnings per share increased driven by higher EBIT and a lower finance net. Let's turn slide and look into our gross margin development. As I also mentioned, our gross margin fell by 150 basis points year-over-year. Higher revenues from both our solutions and service operations contributed positively by 200 basis points. FX, mainly driven by the strengthening of the U.S. dollar, had a positive effect of 60 basis points. Higher prices of components and cost inflation had an adverse impact of 300 basis points. And finally, the relatively higher sales of solution versus service and an adverse product mix had an unfavorable impact of 110 basis points. Now let's turn the slide and talk about our expenses in the fourth quarter. Selling expenses increased by 15% in the fourth quarter partly as a result of more customer-related activities. In addition, we have also made a provision of SEK 18 million related to the war in Ukraine. Our administrative expenses declined sequentially as well as year-over-year as a result of increased cost control. Net R&D decreased. Capitalization was higher since more projects had moved into capitalization phases, while amortization declined year-over-year mainly as a result of the fully amortized Unity software. All in all, expenses grew by 1% year-over-year in constant exchange rates. Let's look into our R&D development in more detail. In line with our strategy and our plan, we have accelerated our investments in innovations. For those of you that participated at the ESTRO conference, you can recognize the launch of the Elekta Esprit. You can also recognize our emphasis to further strengthen our product portfolio. Gross R&D as a percent of sales amounted to 14% by the end of this year. And as you noticed from the slide presented by Gustaf, this will, as a percent of sales, first stabilize and then come down in coming years. Now let's look into the full year financials. For the full year, our revenues grew by 4%. All regions grew and sales of solutions as well as services increased year-over-year. Our gross margin has been adversely impacted by inflation and higher costs within supply chain, logistics and service. This was partly offset by higher net sales and slightly negative FX impact. All in all, our gross margin amounted to 37.4% for the full year. OpEx increased by 3% in constant exchange rates. Our EBIT margin came in at 11.3% with a net currency impact of close to 0 when comparing to last year. Net financial items improved, mainly driven by a lower gross debt, and the income tax rate decreased in the year to 21%. All the items just mentioned led to an earnings per share of SEK 3. Let's turn the slide. Our net working capital continued to follow a normal seasonal pattern. Net working capital decreased to minus 6% in the quarter, resulting in a similar level as Q4 last year. Due to current market conditions in the freight market, we continue to hold higher inventories with early shipments to mitigate the longer lead times and secure time plans for installations. The mitigation of standard supply chain lead times have also led to higher customer advances and accounts payable. Let's turn slide. Cash flow from operating activities amounted to SEK 1.9 billion. EBITDA for the full year was SEK 2.7 billion. Taxes paid of approximately SEK 450 million was broadly in line with previous year. Net interest was substantially lower than last year. And the cash flow from operating activities amounted to SEK 1.9 billion, resulting in an operational cash conversion of 69% for the full year. Finally, continuous investments amounted to SEK 1.4 billion, mainly driven by investments in our innovation pipeline and the strengthening of our product offering. All in all, our cash flow after continuous investment was SEK 450 million. Now let's turn slide and look into the dividend proposal. The Board of Directors has proposed a dividend of SEK 2.4 per share and this to be paid out in 2 installments. This is enabled by our strong balance sheet. Over to you, Gustaf.

Thank you, Tobias. And I would just like to say a couple of words on our outlook for Q1 for the next fiscal year. So what we see currently is, of course, this uncertain macro environment with the continued supply chain challenges, and it's impacting installations and costs and margins. But we also see a very strong long-term market trend to support growth and investment in high-end radiotherapy equipment and margin expansion. And I would like to reiterate our midterm outlook until '24/'25, and that's really about the more than 7% net sales CAGR, the margin of EBIT percentage expansion over the period and, as you saw, a capital allocation of more than 50% of annual net profit in dividend. And to summarize the last quarter Q4, we saw the strong finish of Q4, and we also saw improved margins versus Q3. We are growing orders and revenue in the quarter, and we reported out more than 120 Unity orders and more than 60 Unity installations. We are delivering on Access 2025 by forming new partnerships both with vendors and with customers, and we're also well on track with a targeted installed base in underserved markets. And we've also shown our comprehensive portfolio, now also including Elekta Esprit, and our focus on accelerated innovations going forward. And yes, to sum up, I would just like to say a big, big thank you to all our employees, customers and partners for a fantastic job and efforts during the year. Thank you.

Thank you, Gustaf. And so for the Q&A session, I would ask the operator to open the lines for questions. Please, operator, over to you.

[Operator Instructions] And our first question comes from the line of Patrick Wood from Bank of America.

I'll keep it to two, please. I guess the first one, I'm curious for the order book and the backlog that you've got. Best guess on your end, how many of those do you think are new sockets versus replacement systems? I'm trying to get a sense of how the overall installed base is likely to grow over the next few years. So just curious on a rough sense of how much is replacement versus new installs. And then the second one. Obviously, supply chain, a little bit tricky. Access, a bit tough. But obviously, in EMEA, there's quite a few contracts over the, let's call, the next 12 to 18 months to satisfy. How should we think about your ability to actually install and fulfill those contracts, whether it's Spain or Italy or potentially as well Poland and Croatia over the next, let's call it, whatever, a year or 2? How quickly should we think you guys can get those installations done?

Thank you, Patrick. Two good questions. I must say I don't have exact numbers on the ratio and the order backlog between kind of new systems versus replacement. But of course, a lot of the growth comes from new markets, so there will be a relatively high proportion in kind of greenfield sites and so on. That's also a very strong side of Elekta that we have a high share of those. However, you see the replacement cycles as well in the U.S., in Europe and also in China now with the aging of their installed base. So we see a continuous growth on that to increase the installed base in those markets to take care of the bigger cancer backlogs as well. But I think we need to get back and take a look at the exact numbers there. So maybe we can come back here on the call as well. So on the other question, on the installed base and especially on the larger tenders, for example, in euros -- Europe, we see a big need. We see that they won quite recent installations. So we foresee that we will continue to install and get that growth from those larger tenders here in next years -- 1, 2 years, I would say, maybe a third year as well. But it's quite recent installation dates. And we see that in other parts of the world as well because of the cancer backlogs, again, that you need more linacs around the world to treat more cancer patients that has been growing now and then finally now diagnosed after COVID. Then, of course, we have the supply chain challenges, we have the logistics, the component shortages and so on. But I think we've shown in Q4 we dealt with that well. But overall, it's -- issues are not going away and will not do so here in Q1 either, as I mentioned. But I think over -- if you take a little bit longer time perspective, I expect the logistics situation to stabilize, and I also expect the component shortages situation to stabilize as well. But it's quite difficult at this point in time to say exactly when and I wouldn't want.

Our next question comes from the line of Erik Cassel from ABG Sundal Collier.

I'll limit myself to two questions this morning. So last quarter's profit warning was partly on missed installations of Unity and Gamma Knife, and now you said that you had a strong finish to the quarter. I mean is there a component of supportive revenue recognition in that linacs from last quarter came in early Q4 and then also that you had some luck in installations that could have possibly been Q1 installations but that now happened in end of Q4 instead? So basically, what I'm asking is, is there a component of supportive timings to the Q4 results?

No, I wouldn't say that to a large extent. You always have a couple of spillovers, but I think we have that every quarter. We had a bit more, I would say, last quarter. Now we were able to deliver those in this quarter. So I don't see any special impact from that in the fourth quarter.

Okay. And then on R&D capitalization. I mean that keeps rising up 20% Q-on-Q, basically. But if we look at it aside from the CMD and also in this presentation, I mean, it seems like this quarter should be the peak. I mean first off, is that correct? Tobias talked about it stabilizing at a higher level. And then how should we think about that delta going into Q1? And when could we see capitalization start to -- declining?

Thank you, Erik. Yes, I can take that question. I think what you would see and what we have said is that the -- our gross R&D as a percent of sales will stabilize. And that is to see here into next year and then the coming years go down. And what we actually -- but that is also related to the sales development. So that is what we see. So stabilizing effect here, and I would maybe not look specific into one single quarter, rather the trend here into next year.

Okay. So should we interpret that as a run rate of about SEK 350 million per quarter next fiscal year and then it starts to decline?

Around that to start with. And in absolute terms here for the first quarter, it might go up a little bit.

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

You're spending quite a lot of time talking about -- on the initiatives, et cetera. But I'm a bit surprised of talking more about what you're doing here, trying to improve margins. So I have a few questions related to that, yes. First, on the midterm guidance. What's the starting point when you say that you will grow EBIT expansion as a percentage of sales over time?

Yes. So I'm happy to talk about that. And I think it's a very important question, Kristofer, because we have seen a dramatic pressure on gross margin from primarily external factors throughout the year, especially in the later quarters. So we have a lot of initiatives now in the resilience and excellence program to, one, address, I mean, the production and logistics chains of Elekta to make them more efficient and cost effective, looking at our manufacturing footprint as well between our U.K. Crawley factory and Beijing factory, look at how we service our installed base, that I think is a very important area, to find more efficiencies in, in order to support -- all of those factors would support gross margin expansion. If you then look at the rest of our expenses, if we start with R&D, I think...

So I think -- so if you start then with the gross margin because this is something you have talked about for a number of years. I understand there's a lot of external factors, but what's required here for the gross margin to start to improve? What you're doing is not just enough to compensate for even higher inflation. So what's needed for gross margin to start to improve? And when is it reasonable to assume that happening?

Yes. So if we take your first question, I mean, we set off in this new outlook, as we know, midterm outlook, at the Capital Markets Day. And that was also the baseline, those margin levels, where we started there from 2021. That's the baseline for our outlook until '24/'25. Then a lot of additional costs came in throughout the year, as we all know, with inflation, with the component shortages, with supply chain costs and more buildup of working capital relating to that as well. So what we're doing now is addressing that item by item to come back to the same gross margin levels that we had in the past. And if you remember the Capital Markets Day and you look at historical past, we had been at around 41% historically. So of course, that's the ambition, to get back to those levels, as we also said in Capital Markets Day, and then we should have leverage on the rest of the cost items, if it's R&D, marketing and sales or admin cost, in order to show an improvement higher than 2021 on our EBIT line.

And also here, Tobias here, maybe adding here to what Gustaf just said, I mean -- and I'll just copy that, I mean, we will work very hard on this and address it, I mean, a combination of both sales and costs and also the quality of sales force when we look at the sales contribution as such but also specifically on pricing initiatives and also work through the cost base. So that is hard work. And also to recognize what Gustaf said, we have had cost shocks into our P&L in this current year, and that is for us to work through going forward.

Okay. About what -- okay, when should we start -- I understand it's difficult to know about where inflation will end, but the initiatives you're doing now, when will we start to see that having a positive effect on gross margin?

We see headwinds in Q1, as we mentioned, more continued inflation, continued potential lockdowns. It hasn't happened yet for Elekta, but we don't foresee it. But of course, there's risks always and continued component shortages due to that. I think what we are looking at and working a lot with is, of course, the cost impact in gross margin. That's logistics costs, to quite a large extent, and what it cost us to serve the installed base. So I think throughout next year, you will see that improvement, Kristofer, but we see risks in the Q1.

Okay. And on operating cost, are you doing any more significant cost cutting, reducing number of employees or anything to -- trying to offset the general inflation?

Yes, we're targeting our overall cost, as I mentioned, with sales and market administration as well, so below the gross margin line. And there, we need to work more efficiently with the resources we have, but also work with digitization, centralization and shared service centers, as we've done a lot in the past. And also, new ways of working. For example, remotely diagnosing the, say, the installed base and digitalizing our processes when it comes to sales as well and administration. So we still have a lot of things to address and -- as we're doing right now. And we have this resilience and excellence program addressing those initiatives. And that should result in lower costs going forward.

And do you think it's reasonable to assume that you would be able to keep operating costs flat if you adjust for the -- or if you look at selling and amortization combined, would it be possible to keep it flat to try to offset the pressure you have on the gross margin?

So I think we want to recover the gross margin. It's more the trajectory when it will happen. Of course, it has an impact on inflation and so on. If you look at the rest of our cost areas like sales and marketing and admin, you should see a good kind of leverage on that based on the revenue growth we're driving on top line throughout, yes, next year but also the years ahead until '24/'25. That is our outlook here.

And of course, you know that, I mean, that we target to -- that the cost growth is lower than the sales growth and resulting in this targeted margin expansion.

Our next question comes from the line of Rickard Anderkrans from Handelsbanken.

So a bit more on the outlook here for Q1. You mentioned unchanged macro environment and continued pressures. Should we expect similar impact dynamics that you highlighted here in the quarter in terms of gross margin pressure as we saw here in Q4? Should we expect any improvements here, excluding FX, in Q1? Or can you give us any more flavor on thinking here?

I think now we've seen May as well a bit of it. And it's not that things have kind of improved. If you look at the macroeconomic environment, if you look at -- maybe a bit of improvement, at least from Elekta's point of view, in China, I would say. But if you take the global situation, it's still a lot under pressure. So I don't see any big step change under Q1 when it comes to improvement of those factors. Then Elekta internally is doing a lot of things to secure the installations we have for the quarter to address our expenses, to protect margins and so on. So that's what we're working, to offset some of those negative effects from external factors. But no significant change in the environment is what we see currently here in May.

All right. Great. And a little bit more. Now you mentioned in the report that the plant in Beijing remained operational in the quarter. But can you quantify the impact from contracting demand in China in the quarter? And can you give us any more flavor on what you're hearing and seeing so far in China?

Yes. Of course. First of all, I would to say I'm proud that we have been able to continue to produce both in Crawley and Veenendaal in Sweden and in China throughout the full COVID pandemic the last couple of years. But if we take a deep dive into China right now, I'm also happy that we can continue to both develop our products but also, of course, produce and ship from China into China but also to other parts of the world. And we have continued to do that during Q4. But as we wrote in the report, if you look at the order environment in China during our Q4, you will see a bit of a slower market due to all the lockdowns out there. But actually, our installation have been quite good in the quarter as well compared to the situation we see out in the different provinces and so on. It's, of course, not my role to predict how the development channel will go. But at least when I talk to our teams locally, we've seen a bit of improvement over here in the last couple of weeks and months, I would say. That's the feedback I get from the ground, yes.

Our next question comes from the line of Victor Forssell from Nordea.

I'll start on the R&D side again. And regarding the current spend, it is certainly looking, as you say, to stay elevated throughout the coming fiscal year, which would perhaps be even higher than you guided for 1 year ago. And if so, what has driven this incremental increase compared to your initial plan, you would say? And also, please, if you could elaborate on the net R&D effect as well since you have a quite clear view on the gross side but chose not to illustrate that in your presentation. How the net impact will affect the P&L over the coming quarters would certainly be interesting to hear from your side.

No. Thank you, Victor. I'll start with kind of the innovation investments compared to plan. And if we start at 1 year ago at the Capital Markets Day when we launched this accelerated innovation plan, you can say -- and you've seen the curve of gross R&D going up, stabilizing and then going down. Compared to that plan, I should say that the revenue has not fully been there compared to what we guided, for more than 77% throughout the period on a CAGR basis. Not year-on-year guidance but still throughout the period. So I think that's one of the reasons why the gross R&D as a percentage of sales is a bit higher compared to that initial plan throughout -- in June last year. But it is important for Elekta, with the strong balance sheet we have, to continue our innovation investments quarter-by-quarter, year-by-year to protect long-term growth when it comes to our linac solutions, Unity and our software platform. And its long-term projects. It takes years to develop some of these products. So I think that's also important to say. And we continue with that innovation. If we then look at stabilization and decline in next -- or relatively decline compared to revenue in the next year, yes, that's what we expect from here. And on the net side, I leave that to you, Tobias.

Yes, sure. I think what you would see here is, for demonstration, it will be flat here into next fiscal year, while we will see a bit of increase on the capitalization side. Net impact here on the R&D into our P&L will be fairly limited.

And to me, at least how I interpreted it is like, I mean, the balance then will continue to expand even for the coming fiscal year, and that is not part of, I mean, what we talked about 1 year ago. So that's my key reason for asking this question, is that this net balance over the -- or your results will remain at these levels for next fiscal year as well. Is that the way we should interpret it?

I think you should -- what I said here, you might have, in absolute terms, a slight increase into the first quarter. But then, what we say, that we see a leveling out here and a stabilizing impact of the R&D.

But that means that you won't see any sort of organic growth on the R&D expenses line for the latter part of this year.

That is what we have communicated and what we stick to, yes.

Okay. Just secondly on the backlog and the situation primarily related to solutions mix that you currently have. Since a lot of recent order growth has stemmed from China, if we look 1 year back, which has yet to have Harmony market cleared, it would be interesting to hear if you're at all worried about the coming quarters. Not only that the current order backlog might be mispriced to current inflationary environment but also that new solution sales could come with a negative mix impact from all their linac systems. What's your thoughts around that?

Specifically on China, Victor, or globally?

I mean impacting full group, of course, yes.

Okay. So if we start with China. China also has quite not so long timing between order to revenue, and that kind of order backlog conversion into revenue is quite quick, I would say, compared to some other markets. So that's a positive. I think we continue to have a healthy backlog in China. We continue to install well also during the lockdowns, et cetera. And then I think when the situations improves in China and we get even better access to the customers, yes, we can drive that revenue growth. And then for overall market conditions, I think all of us and the market is also waiting for the coming then kind of health care investment plans for the coming, I think, 5-year period. And I haven't so far seen that, and I think that will also be an important driver for Chinese orders but also for installations in the coming -- years to come. So I think that's something we -- or maybe...

Hey, Gustaf, if I...

Yes?

May I just rephrase it then instead? Are you sort of seeing a mix within solutions negatively tilted towards sales of -- I mean, the Synergy system, for example, or comparing that to Harmony?

No.

No.

Okay.

And we haven't -- we -- as you said, we don't have Harmony cleared in China either, so we haven't seen that effect yet.

And I might just squeeze in a final one. I appreciate the Unity data points given here today. What about the investments into more local installation teams? How is that progressing? How much of an investment will that be for you? And what are we seeing right now? So effectively, what type of costs will you have to take initially to improve that internal capacity?

Yes. That is improved already. I mean we invested in some of the teams that has been difficult deal with when it comes to local installations in China and some other parts of the world throughout COVID. So I think we are well invested in our order fulfillment and service operations to take on more volumes of Unity installations. And we've done that, as we talked about over the years here and throughout the last year, setting up that for at least now then 24 units and then more. They can take on more volumes than that. So I think we're well invested in that area.

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

I'm not sure -- we had three, actually. So firstly, I just wondered how big that Spanish order was and maybe so that European growth in the quarter, delivery. Do you call that -- that the margin on that business was going to be accretive or dilutive to your margins? Just in terms of the reversal of the provision on the purchase that you recognized in the quarter, the contingent consideration has gone down. I just wondered what hurdles did that acquisition not meet in terms of paying that contingent consideration. I assume that it hasn't.

So there was two questions. Did I miss the third question?

Third?

So you're breaking up a bit, David, so I have a bit of problem hearing you. But it was on the Spanish order, how big, and the margin levels and then the provision.

I think it was on [indiscernible].

Can you hear me?

Perfect.

Okay. So if we start with the Spanish order. It was the first -- we didn't disclose a specific number, but it was a significant order and was the first part of that larger Spanish tender. So it was not the full amount. But we haven't disclosed any specific numbers there. On the margin levels, yes, it's primarily a linac bundle in. So I think overall, maybe a bit lower than -average Elekta margins. But good linac margins, I would say. On the provision side, yes, I think during the last 2 years, it's been a challenging environment, and we had a kind of [ PPA ] that was an aggressive plan to achieve. So when we saw that we didn't achieve that plan, we released that provision. So it's more under market conditions. But we're still happy about the development and the future potential of that acquisition.

Maybe just a follow-up into the -- so a slightly bigger picture one. We're expecting guidance today. But do you expect to initiate giving the market guidance at some point? Because you should have pretty decent visibility on revenues given your order backlog.

Yes, not for this year. So I think what you see us talking about here is not guidance for next year. We have a lot of uncertainty as we are guiding or discussing for the outlook for Q1, but we maintain our midterm guidance. So you shouldn't expect any new guidance for the fiscal year of '22/'23. But we will give the highlights for the coming quarter in all our quarterly reports throughout the year.

And then maybe just sneaking a fourth one in. Just in terms of Q1 in terms of how we should be thinking about modeling it. Should we be thinking about gross margin being down. Are you potentially making a loss in the first?

You broke up there a bit. But how should we think about the gross margins in Q1, I think the question was. And then -- and if I take a step back and look at what we are describing on the outlook side, we are saying that all the factors impacting gross margins are -- will continue in the first quarter. I think that's the transparency we can give today in the challenging market environments we have around us when it comes to inflation, supply chains and logistics costs.

Our next question comes from the line of Oliver Reinberg from Kepler Cheuvreux.

The first one is trying to get a bit of a better feeling how you think about the full year. I mean I fully appreciate that you don't guide, but maybe we can talk about a bit of the kind of tail and headwinds. So if I start on sales. You obviously -- you have rather an undemanding comp from the last 2 years, a very strong order book. And obviously, demand doesn't seem to be the big issue, while installations and supply chain have been part of the challenge last year before this. So is it at least fair to assume that the kind of sales growth in line with your midterm guidance is something that is -- is something we can expect for? Or what are the kind of key incremental headwinds that we should bear in mind?

Oliver, of course, a great question. And I think if I start on a positive note, the drivers and factors, we have a SEK 40 billion backlog to deliver from. So I think there's a huge demand. As I mentioned, four installations in the coming quarter and year. And I've talked in the last years about this, what I call extended U recovery. And I think Elekta didn't drop that much on revenue quarter -- into -- last year, but it's kind of an extended U recovery. And now we get into a situation where we have a big order backlog, we have a big demand, but now it's more to get the machines out there and installed at the customer side. And then part of it is customer readiness. They need to have the bunkers and the preparation work done for us to install. And part of it is on our side, how to install or product manage and get the machines and linacs out to the customers. And I think that will improve throughout the year, maybe not in Q1 but throughout the year. And then I think also, it's difficult to predict. But at least the high logistics cost has stabilized on high levels. So at some point in time, that will go down, and then we'll get actually a tailwind on our gross margins from that effect that's kind of hurting us right now. And that could happen throughout this year, but it's very difficult to say exactly when.

Okay. But that means there is no reason to not assume at least the kind of sales -- 7% sales growth for the full year, correct?

No, of course that's absolutely ambition with the backlog we have and to drive revenue growth for sure for the full year.

Perfect. And then on -- brilliant. And then on the margin, I mean, obviously, when you get a kind of a better top line, you're working on efficiencies, you just talked about the logistic costs in the full year may at least probably come down year-on-year and, apparently, as we just heard, amortization is not a challenge for this year, so does that mean that it's reasonable to also assume a kind of EBIT margin improvement year-on-year? Or should we be a bit more careful simply in terms of the overall inflation pressure and the supply chain pressure may also get a bit worse?

Yes, a very good question. And obviously, we do not guide specifically here, as we have mentioned. But a few points on that. I mean Gustaf, was talking about a U-form recovery, and I think that is also here looking at margin development ahead of us. I think the road that you look at this is on a sort of a sequential development, and obviously, we don't have a crystal ball that can evaluate all the macroeconomic factors here impacting us. But to your point here, if we are targeting a sales growth, we see challenging condition here in Q1. Obviously, the logistics that Gustaf mentioned here starts to flatten out. That is positive for Elekta. So yes, we are driving towards margin expansions. But as we said here, looking into the first quarter, we do not see substantial changes in the market conditions.

Perfect. And the last question, if I may. Just on pricing, can you just update us on your pricing initiatives just on solutions? And also, can you talk about in your order book, is there any ability for any kind of price adjustment clauses? Or can you ramp up the order book probably to how many [ pro ] to get some kind of a price offset there?

Yes. And that has been, I would say, the focus area for many of our discussions over the last quarter, of course, because of inflation. And we have done quite a lot of studies. We're talking to customers, doing surveys. And the customers' willingness to accept higher prices is quite good actually. They also have an understanding that the macroeconomic environments are changing. So for new orders, as we placed here in Q4 and we'll continue going forward, yes, we have price increases there kind of implemented. But the key thing is, of course, to bring value to the customers. So with the new launches, as I mentioned, with Harmony, with Elekta Studio, with Elekta Esprit, with new software solutions, that's the best opportunity to raise prices because you bring value to the customer. So then we talked about the new orders that would translate into revenue often with around a year's lag order to revenue. If you look back in the backlog of Elekta, you had the SEK 40 billion, around 50-50, I would say -- it was -- I think it's 55% solutions and 45% service. Out of those 45% service, you have CPI or inflation clauses that you will then increase linked to the index year-over-year. For the rest of the then 55% in the backlog, that's more difficult because that's often public tenders. And we don't have any -- that's one price that you negotiated at that in time, and we need to deliver on it. Of course, we look into opportunities. Can we replace Synergy with Harmony? Can we do some more aftersales? Are there other products we can offer to those customers? But it is according to contract. So new sales, price up. Service part of backlog, price according to CPI clauses. Lots of effort in the rest of the backlog to see price or margin improvement factors. But that's more difficult, I would say. So that just to give you some of the dynamics there, Oliver.

That's helpful. And if I can squeeze in a last one. I mean a big discussion point these days is also personnel cost inflation. I think that was so far not a part of your discussion. Is it something you're seeing or are concerned about?

Personnel cost inflation. So salary increases or...

Yes.

Yes. Yes, there is some salary increases or inflation impacting salary increases as well. I think it's very different country by country, I must say. So if you say the U.S., you will absolutely find it. Less so in Europe because inflation is more driven from energy prices, et cetera. If you go into China and APAC, it's not that much inflation pressure on salaries, what we experience at least. So you need to take a geographic perspective there. We try to offset that by being more efficient, doing more activities in low-cost countries and shared service centers. So that's our plan to offset that effect, with more efficiencies and lower-cost country operations.

Our next question comes from the line of Julien Ouaddour from Exane.

I'm left with one, just whether you could provide some more color on your order book in the U.S. specifically. I understand that you were facing tough comps from last year, but we've obviously had some mixed comments from various capital equipment companies in the quarter through the attitude of U.S. hospitals in the context of rising bond yields and wage inflation. So just curious what you -- what sort of discussions you've had in the U.S. specifically in the past few months, please.

Yes. Great question. If you take the U.S. situation, and probably you've seen a lot of other companies discussing it, maybe more -- a bit more impacted by interest rates, more private initiatives, you can say, and, to some extent, then salary inflation as well impacting the operations of the clinics. At the same time, they need to do automation of their processes. And we can help with part of that, making the clinics more efficient with software solutions or workflow initiatives. And as I often say, U.S. for Elekta is not so much a market growth market but a market share gain market. So with Unity, with new solutions, with partnerships, I think we have a great opportunity to take share in the U.S. going forward. So I think that's how I see it. But of course, some of the private initiatives is then impacted by the factors you mentioned with inflation and interest rates.

Our next question is a follow-up question from Kristofer Liljeberg.

Just a quick one on Unity installations. I think you said a total of 61, if I do the math correctly. But how many of those are currently being installed? Is it possible to give a figure for that? I guess you haven't been able to finalize around 20 installations this last fiscal year.

Sorry, just a clarification, Kris. What do you mean by the last comment, the 20?

Well, if you have done 61 installations now, then you must have done around 20 this last fiscal year, if I'm not totally wrong here. So I think it's a...

Yes. So to your question...

Quite a high figure.

Yes. So to your question, I think the delta is -- if you compare it to the material we presented over the last year's update on installations, is now 17 that are under installation or installed throughout the year, so to say. So I think that's important to say. And out of those, I think it's a couple that are under installation. So we started installation of those machines. So of course, we wanted that to be a higher number, but...

So you have been able to do around 15 or so?

17.

Yes. But -- okay. And is the ambition now to be at 24 going forward?

Absolutely. Absolutely. So I think we said that during the year, it's been a more challenging product together with the Gamma Knifes to install throughout the COVID-impacted years. However, we -- I mean, you always want more, but we're quite pleased with the 17. The ambition is to quickly come up to the 24 and higher in the coming years here, of course. That's how we set up the supply chain.

And what about -- if you look at the demand situation for new orders, my impression is that you're starting to see more demand from smaller clinics also. So do you expect order momentum to pick up here now after the pandemic for Unity?

Yes. I mean at the recent ESTRO conference, there was a huge interest for units. We had a great traffic. We had customers we hadn't seen before and having discussions with them around Unity. And the type of discussions we now have is if you're a comprehensive cancer center, you should have a unit. You'll have added linacs as well, but that would be part of the bundles. And I think that's great discussions for us to have. And we see that opportunity with MR-linacs, but, of course, especially with Unity, that will be coming in more kind of a standard of care going forward. And we see big opportunities there not just on the academic KOL sides but also more regional or provincional (sic) [ provincial ] hospitals throughout the world. So I think we are at a very important part of our journey with Unity where you also see the clinical evidence coming and you see a bigger ramp-up of it and a huge interest from the customer community around it.

Yes. And we have reached the hour. So if you have further questions that you didn't have time to -- that we didn't have time to address in this call, please don't hesitate and reach out to us and we take those questions separately. And with that, I thank you for participating today and wish you a further good day. Goodbye.

Thank you. Bye-bye.

Thank you. Bye-bye.