Elekta AB (publ)
STO:EKTA B
US |
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
|
US |
Estee Lauder Companies Inc
NYSE:EL
|
Consumer products
|
|
US |
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
|
US |
Church & Dwight Co Inc
NYSE:CHD
|
Consumer products
|
|
US |
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
|
US |
American Express Co
NYSE:AXP
|
Financial Services
|
|
US |
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
|
US |
Visa Inc
NYSE:V
|
Technology
|
|
CN |
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
|
US |
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
|
US |
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
|
US |
Coca-Cola Co
NYSE:KO
|
Beverages
|
|
US |
Target Corp
NYSE:TGT
|
Retail
|
|
US |
Walt Disney Co
NYSE:DIS
|
Media
|
|
US |
Mueller Industries Inc
NYSE:MLI
|
Machinery
|
|
US |
PayPal Holdings Inc
NASDAQ:PYPL
|
Technology
|
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
52 Week Range |
62.55
87.9187
|
Price Target |
|
We'll email you a reminder when the closing price reaches SEK.
Choose the stock you wish to monitor with a price alert.
Johnson & Johnson
NYSE:JNJ
|
US | |
Estee Lauder Companies Inc
NYSE:EL
|
US | |
Exxon Mobil Corp
NYSE:XOM
|
US | |
Church & Dwight Co Inc
NYSE:CHD
|
US | |
Pfizer Inc
NYSE:PFE
|
US | |
American Express Co
NYSE:AXP
|
US | |
Nike Inc
NYSE:NKE
|
US | |
Visa Inc
NYSE:V
|
US | |
Alibaba Group Holding Ltd
NYSE:BABA
|
CN | |
3M Co
NYSE:MMM
|
US | |
JPMorgan Chase & Co
NYSE:JPM
|
US | |
Coca-Cola Co
NYSE:KO
|
US | |
Target Corp
NYSE:TGT
|
US | |
Walt Disney Co
NYSE:DIS
|
US | |
Mueller Industries Inc
NYSE:MLI
|
US | |
PayPal Holdings Inc
NASDAQ:PYPL
|
US |
This alert will be permanently deleted.
Welcome to the Elekta Q1 report. [Operator Instructions] I will now hand over to Johan Andersson. Please begin.
Thank you very much, and welcome to Elekta's conference call following the publication of our first quarter report for our fiscal year 2018/'19. My name is Johan Andersson, Head of Investor Relations, and I will be the moderator for this call. Here in Stockholm, we have Richard Hausmann, our President and CEO; and Gustaf Salford, CFO. We will start with presentations by Richard and Gustaf and then conclude with a Q&A session. Just a reminder, some of the information discussed on this call, including our projections regarding revenue, operating result, cash flow as well as product and product development, contain forward-looking statements. These statements involve risk and uncertainties that may cause actual results to differ materially from those set forth in the statements.And before we start the presentation, I would also like you -- to remind you that we have a Capital Markets Day here in Stockholm on September 27. If you plan to come to Stockholm and have not signed up yet, please visit our homepage, and there you have all the information on how to register. Welcome.With this, I hand over to Richard for today's presentation.
Thank you very much, Johan, and good morning, everyone. This is Richard Hausmann, CEO of Elekta. Before we go into your questions, I would like to give you my perspective on this quarter, and I see it in 3 points. Overall, I see it as a very good foundation for our future growth dynamics in Elekta. So the first point, this is a quarter where we have truly started to capitalize on the significant long-term growth opportunities we have, both with growth in all of our product lines, and there's a great dynamic in the Unity business. We delivered a quarter with double-digit growth on orders and sales, and I see it as an indication of the true potential we have out there in the market.Secondly, innovation. We are really leading the development of precision radiation medicine, and Elekta Unity is the optimal, I would even say, the most advanced system for this. The first real patient treatment at Utrecht more than confirmed the potential of this solution. For all our portfolio, even besides Unity, I am committed to additional innovations and development to support our long-term success.Thirdly, truly say, I'm not happy with our temporary weak margin and low cash flow in this quarter. We know the reasons to clearly analyze them, and we can go in much more detail later on. When it comes to the cash flow, it's [ due ] to some one-off effect in the transition of our revenue recognition policy now focused on start-up installation, which is very important for us and necessary, as well as the focus of making the Unity introduction to success. And the margins were suffering temporarily of an unfavorable project mix, which is improving during the deliveries, even in Q2 already and the rest of the year. So we are very confident that we will see an improved margin and cash flow in the remainder of the year.So with that, let us continue with some details on the summary of the financials. So order intake was up 12% in the quarter. And I'm happy to report that we are growing all regions as well as services. So importantly, the established market was driving growth in the quarter.In terms of Elekta Unity, we booked 4 orders in the quarter. Net sales was up 10%, driven by strong linac and software sales. Net sales in emerging markets grew with a strong 27% in the quarter, which is all very good.The relatively high emerging market share as well as unfavorable project mix, as I said before, in the quarter are the reasons for a rather low 39% gross margin. We are confident that this gross margin will increase during the remainder of the year primarily related to improved geographic and project mix and also growth in Elekta revenues, which are start-up installations of Unity systems.I'm more than happy to report that, on a rolling 12-month basis, we reported an EBITA margin of about 20% as we always promised. Cash flow was low in Q1, driven by increasing working capital from lower customer advances. This is a transition effect on the revenue recognition side. And in addition, we have also built our inventory of upcoming Unity installations. Gustaf will go into more detail in a few minutes on that one. Some further color on the regional development. Starting with North and South America, order intake increased by 23% in the quarter. I'm very happy to see our performance in the U.S. operations. It's continuing to be very strong, and we are clearly gaining market share. We booked one Unity system in the United States as a research system. Over to Europe, Middle East and Africa. We showed good performance, and the orders were up 15% in the quarter. Markets such as Italy, Poland, Slovakia and Middle East had a good start in the year. The new management in Middle East, Africa is performing very well, so we booked 2 Unity orders in the region Europe, Middle East and Africa. In Asia Pacific, orders are up 2% in the quarter. They're doing a great job in China with orders growing 8%. I'm also very proud that we have turned to growth in Japan, you remember, one of our issue countries. And we continue to be cautiously optimistic about our Japanese market for the future. We have a strong position and good momentum in the global market. We are optimistic and expect a continued favorable global market condition for the future.Now turning to Elekta Unity, and I hope you'll feel my excitement as well in my voice. I think it's really a very positive development. And not only that, we got the CE Mark in Europe, which was, of course, a major milestone. After years of development and investment, we are now ready to [ go with our ] clinical system. Secondly, the first patients -- and that's really what's exciting, have already been treated. And as you can see in the picture on the slide, the system is really producing highest-quality images, MR images, high-field images in really almost realtime and at really targeted treatment plans. So this lymph node is -- to be treated lymph node you see at -- in this red spot, is very close to the bowel, as you can also see, and this shows this potential of the Unity, where you can bring in a mask to target so close with a reduced volume and reduced dose to the healthy tissue or to sensitive organs so that you open up a very promising future for radiotherapy even in parts which are moving -- in parts of the body which are moving, and it confirms basically what theoretically we as the developer, as the physicist and engineers and the doctors have basically foreseen for the system.Elekta -- and thirdly, we have received registration in Australia and New Zealand. And we have also submitted the 510(k) filing for approval and market clearance in the United States. Truly believe that Elekta Unity is the future and a perfect system for delivering persistent radiation medicine, and we want to do that not only in developed markets but also into the emerging markets as well.So we, overall, welcome our 4 new Unity customers to the club in Q1. One was Allegheny Health Network in Pittsburgh, United States, as I said a research system; biggest one in Switzerland's Vevey Providence, L’Hôpital Riviera-Chablais; then in Algeria, the cancer center in Sidi Abdellah; and then also important Genesis Care in Australia, more -- less a University customer, more a chain of provider of top-notch cancer chem. I'm seeing a good mix of customers both from private hospital as well as from academic institutions. In addition, we have a good geographic distribution as well. You see on the graph also that on the red-framed systems allocation that these are the 10 systems which are right now undergoing installation or have been installed already. And you see that the 7 converting members are amongst them and 3 additional ones, which are going clinical now very soon with the CE labeled system. We're on track for installing one system per month for this fiscal year and, next in line, the hospitals in China and Europe. This means that from Q2 we will now start to see a ramp-up in Elekta Unity revenues.Turning to the next slide on recent acquisitions and strengthening our portfolio. We have recently completed 2 acquisitions that complement and strengthen our software ecosystem around MOSAIQ as well as our quality -- integrated quality management system approach. Acumyn is a product or company which adds a integrated quality management systems called AQUA. The other acquisition is PalabraApps, which helps improve the clinical workflow when using our oncology information system, MOSAIQ. So it's based on MOSAIQ software architecture and database and allows customized workflows, whiteboards, et cetera, for our customers, which improve their workflow. A very powerful method to create a real spread of new applications of our MOSAIQ system around the world. I see this as a great opportunity to acquire competence and functionality that we can integrate in our leading product platforms, and we will do these things in the future more so.And with that, I will hand over to Gustaf to run you through the numbers in much more detail. Thank you.
Thank you, Richard, and hello, everyone. This is Gustaf Salford, CFO of Elekta, and I'll take you through the main topics and the reports from a financial perspective. As Richard said, we have a strong top line growth, up 13% in Swedish krona and 10% in constant currency. Emerging market is the key growth driver, up 27% versus last year. At the same time, North America is down in net sales in the quarter.This geographic mix combined with unfavorable project mix is reflected in the low gross margin at 39%. In our projections for the full year, we have the highest share of revenues from mature markets, high product margins and a growing revenue from Elekta Unity, so the model will improve from the current level.I'll come back to expenses in a minute, but the underlying costs are slightly up, which is according to our plan and mainly related to our innovation efforts in Unity commercialization. Amortizations increased following the CE Mark of our Unity system, and we expect to be at the level of around SEK 180 million per quarter in total amortizations for the year.So turning to the EBITA bridge. The positive volume effect compared with last year is on SEK 146 million related to increased installation starts and service growth. As discussed, the geographic and product mix is negative SEK 205 million in the quarter, however, with the improvements already now in Q2.The MEG divestment has a positive contribution of SEK 76 million and is reported in other operating income and expenses. Investments in Elekta Unity and Elekta Digital add up to SEK 68 million. Currency is slightly positive in the quarter, and for the full year, we now foresee a positive EBITA effect of SEK 200 million. And now to the cash flow. The main driver for low cash flow in the quarter is increased net working capital, from minus 20% of net sales in Q4 to minus 14% in Q1. There are 2 main effects. Firstly, we have lower customer advances compared to the end of last year. This is related to high level of installations of already paid project in the quarter. In addition, the number of shipped projects was low due to our continued efforts to further reduce the time between shipment and start of installation. The number of shipments are expected to increase in the coming quarters. Secondly, we have also good inventory for the upcoming Elekta Unity installations. DSO is a good negative 75 days, slightly up from negative 87 days last year. All in all, we continue to focus on achieving a stable and strong cash flow going forward, and our business plan supports negative net working capital levels.Turning to our cash conversion and financial position. Cash conversion during the rolling 12-month period was 78%. We have a strong balance sheet. And during the quarter, we have repaid a U.S. [ pride payment ] of $50 million. Net debt amounted to SEK 1.3 billion, at the end of the period, represented 0.4x EBITDA and 0.2x equity. So with that, I'll hand over to Richard for final remarks.
Okay. Thank you, Gustaf. To summarize the quarter, I'm really proud that we have passed these major milestones with Elekta Unity and the clinical results of patient -- 2 patient treatment results are so promising. First patient has been treated with excellent workflow performance of the system and results. The system is now CE-marked, and we have filed for 510(k) clearance in the United States. With a very strong growth in order and net sales in Q1, and I see it as an indication for long-term growth opportunity as a company. I also see that we are now improving the margin and cash flow going forward in this year already in Q2. So in essence, what we try to do is we're continuing to do what we say.Finally, we have a positive market view in all regions going forward. We reiterate our guidance for the full year with around 7% top line growth, and we expect to reach an EBITA margin of around 20% for the year.With that, I hand back to Johan to start the Q&A session.
Thank you very much, Richard and Gustaf. And we will now start the Q&A session. And as I said in the beginning, it would be excellent if you can limit yourself to one question per participant. So with that, operator, please start the Q&A session.
[Operator Instructions] We have a question from Alex Gibson -- sorry, from Hans Mähler from Nordea.
Yes, Hans Mähler with Nordea. I would like to discuss the gross margin. If you look in the quarter, you didn't have any revenue from Unity booked in the quarter, but I guess the revenue from all this activity will be recognized in the second quarter. Should we expect that to have a meaningful impact on the level of gross margin in the second quarter? And also when you talk about that the gross margin will improve from current levels, do you also believe that the gross margin will improve year-over-year on a full year basis?
Yes. Look, we have the gross margin of 39%. As Richard said, we're not satisfied at those levels, but we understand why, and we also see that's a temporary effect. Unity will be a strong growth driver on the gross margin levels in the coming quarters. We see post CE mark that we're working with the CE-mark upgrades and also the supply chain we have for the rest of the machines. So that will strengthen both in Q2, Q3 and Q4 with a very positive gross margin effect. And then on top of that, we have this mature market effect that we also have with a positive impact on gross margins.
And Hans, maybe an add-on from my side, I mean, as you all know, we are now revenue recognizing on start of installation. And it was, for example, this Hong Kong Sanitorium Unity system shifted from Q1 into Q2 with start of installations so that high-margin system and that would now come up in Q2. You're right, [ children ] is basically at the finish line now for getting clinical now, and -- yes, we will see more and more, as Gustaf said, of this higher-margin Unity installations.
Is it fair to assume that we can keep last year's level in terms of gross margin for the full year? Or what do you see on the full year outlook here?
See, we don't guide on the gross margin levels, but of course, there will be significant improvement during the next 3 quarters here.
Our next question comes from the line of Alex Gibson from Morgan Stanley.
My question is on the pricing for Unity. What was the average selling price for the Unity orders in the quarter? And is there a difference between the markets in the U.S., Asia and Europe?
So in the U.S., we are not commercially selling the systems yet. We are only selling as a research system on a very limited basis, less than 5 in totality. So we don't have an average price for that one on the clinical side yet. Overall, the average price is still in the region between USD 8 million and USD 10 million.
Okay. And just following up on that, where do you see the pricing for the Unity system going in the medium term? The USD 8 million to USD 10 million is obviously achievable for the less budget constrained, but for a commercial rate longer term, do you see this coming down and to what level? Like some of the commercial centers we've talked to seem to be unwilling to go much above $5 million? How long will it take for you to get the cost curve down to below that level, especially with competitors offering at that level already?
Well, we see -- first of all, talking about the competitors, yes, we're having a significantly better solution with the high-field MR and opportunities, which I think you saw it in the image. You won't see that kind of image, which I showed before, from our competitors' side unless they do an MR scan of 2 hours or something, but that's a different story. So I would say the following, I mean, we are continuously working already now after release on cost improvements of our system. Nevertheless, we see still a good price set of between USD 8 million and USD 10 million. I also would say -- want to say that you remember that on this Proton Partners deal, where we sold 5 in 1 deal, we also went to a price of USD 7 million, which is okay at a discount for that kind of deal, but overall, we pretty rigid on our price levels.
Our next question comes from the line of Johan Unnerus from Pareto Securities.
Johan Unnerus from Pareto Securities. One follow-up firstly, and that's -- if you can give us a little bit more on the split between project effect and the emerging market, presumably, hardware effect on the gross margin in Q1?
Thank you, Johan. So the main driver was the emerging market effect that price levels are lower mostly because things by less specification configurations compared to mature market customers on average. So that's the key driver in the quarter. Then on top of that, we had this, we call it, the project mix effect, but we had a couple of projects we delivered in the quarter. There was low margin, and they were parts of larger deals that we have delivered. That will recover in the coming quarters. So down to your question, primarily emerging market effect but with couple of projects with low margins as well.
And then on the North American market, it's -- we had in this quarter and some previous quarter, we had good pickup in order intake but rather slow conversion of sales. Is that -- and this quarter, you also referred to rather solid service and software support. I think it was 7% or 8% growth or something like that. So what's the reason? Do you have longer maturity on these orders? Or do you have rather poor linac sales, hardware sales?
Yes. So looking at the North America and the negative sales development, we also see that as a temporary effect. We have a couple of projects that was actually planned in the end of the quarter for the North American market that came in instead into Q2. So they have already been revenue recognized in the quarter now, but they were -- our time was to have -- our mission time was to have them in Q1. So that's one of the drivers. And we also see a good backlog, the good order growth in U.S. that will play out as revenue in the coming quarters.
Excellent, and then another follow-up. You were -- Richard was talking about research, Unity orders and private. Could you remind us out of the 32 orders, how many are private and not, so to speak?
So I would roughly say that probably 1/3 of those are more trending towards private or high-ambition hospitals like [ Sloan Kettering ], the Proton Partners, the Genesis Care at that, and 2/3 is mostly universities.
Our next question is from the line from Sten Gustafsson from ABG.
Sten Gustafsson from ABG. A question on Unity. Can you confirm how much sales or if there were any sales booked in Q1 on some sort of final installation on Unity? And also then how -- or rather when you can book revenues on those systems that has already been installed? I believe you have 10 installations now. When we can expect final payments from them to be booked?
Thank you, Sten. So on Unity revenues in the quarter, as we know that 3 more came in the middle of the quarter and then mid-July. And then after that, we have worked with the CE-mark effects, and that's why we didn't get a lot of revenue in this quarter, but it will come in the coming quarter, and that will help both revenue and good margin coming in, in Q2 to Q3. So that is the main driver for the quarter and the sect. And that is when we also upgrade the machines -- the consortium machines, the clinical machines of those CE-mark rules to get revenue when that's done.
And is that coming in Q2? I mean, I believe you have, of the 10 systems, how many will be revenue recognized in Q2 then?
We don't disclose in specific numbers on that, but it will be in all 3 quarters.
Sure. And in Q1, it was a very low number. Is that correct?
Correct.
A very low number, yes.
Our next question is from Romain Zana from BNP Paribas.
I will keep it to one. My question is on the order growth. So following up to the average selling price that you mentioned and even taking the lower end of the range, if we sweep out the 4 Unity orders, so again assuming USD 8 million a machine, it would imply that the underlying legacy business is not growing, if I'm right. And I think it was also the case last quarter. Is that due to persisting cannibalization from clients? Or is it rather your strategy to allocate most of the filling forces on Unity, which would come at the expense of the other machines? If you can give us more color about that.
Thank you, Romain. I think the key thing is that we also had 2 Unity orders in Q1 last year from Hong Kong. So you need to include those when you do the growth calculations here as well. And then we got 4 in this quarter as well. But if you factor that in, you see a smaller effect on the total growth. So we still see a strong underlying growth also in our -- the rest of the product business and service business.
I will add, particular on the linac side and the TPS software side, it'll increase bundling with a very good dynamic in this field.
So on the order growth, is it not fair to say that the absolute incremental amount is pure linked to Unity?
No.
Our next question is from Veronika Dubajova, Goldman Sachs.
I want to start about the competitive dynamics. If I look at the revenue development and the order development in the quarter, there was some -- that your very strong emerging market growth from revenues, that orders were disappointing and [ start to pour to the Americas ]. What kind of dynamics are you seeing via the Varian? And how are you thinking about maybe of the opportunities that you might see the results of the new tariff issue between China and the U.S.?
Well, I mean, we see overall a strong development against Varian, to be honest, globally. I think we believe we win against Varian globally. Regionally, we have to differentiate. We're strong in the United States. Order growth of -- in U.S., for example, is clearly showing that we are winning against Varian in Europe. In China, we are strong market leader, as we have seen these independent numbers now being reported. And in Europe, I believe, particularly in Q1, Varian has had a few larger deals which they reported out, too, that was a bit challenging for us, but we see already that recovering quite well.
And just as a follow-up to that, Richard. I guess, I meant China, in particular, has been a big focus for Varian for the last couple of years. Are you seeing big reflect from them on -- in China now than you had previously? And how do you think about the impact from Halcyon there?
Yes. So at the moment, we still see a very strong development of us in China. We have clear market leader. We have [ ipsos ] numbers -- independent numbers confirming that. And we focus in China, in particular, on educating and training our customers, helping them to really perform with their systems in an incredible -- even compared to other countries around the world, they have productivity. They like our MOSAIQ system. They really move forward. We have not seen too much activity on the Halcyon side, frankly, or too much success, actually. So we keep, of course, our eyes open, but we feel extremely well underway in China. And on top of that, Veronika, there's also Unity, which comes along and there's a huge interest in China on Unity. as you know, China is not just a market for kind of representing an emerging market for low-end or lower-end systems, it is a market which is very much top-notch market for the many, many universities which the country has. And that we -- there's a huge interest on Unity. The clinical study will start soon to get the release in the country. We see dynamics even that some customers try to get it earlier. And there's a very positive momentum there.
Any opportunities with the tariff regime? Or you're saying that's not going to be...
Sorry. I didn't understand acoustically.
I was just asking about the consumer China tariff...[Technical Difficulty]
You're breaking up.
We have a bit of a bad line, Veronika. Can you repeat once more?
Can you hear me, sir?
A bit, but yes.
Sorry, I was just asking about the tariff regime between China and the U.S.? And -- or the fact that [indiscernible] very negatively [indiscernible]?
Yes. So I mean this is what obviously is happening now. And I mean, this is definitely an opportunity for us, which are a challenge for our competitor to get their products into China. And we're feeling quite confident right now that we have added advantage there.
Our next question comes from Kit Lee from Jefferies.
I just have a question on the phasing of the installations of the Unity system in China. Would it be spread out over the rest of the year for the 5 systems? Or would you loan the 5 systems together within a certain period?
The 5 systems which go to China are used for the clinical study, and they will not be revenue recognized this year. We communicated that already in the last quarterly call. Cannot be revenue recognized because they are used for a clinical study. And they will be revenue recognized then after the study is finished next fiscal year or even the year after.
Yes. No, I get the revenue recognition part. I'm just wondering what the installation phasing will be?
Installation. They are on their way already, or actually, built in the country already, some of them. And the goal is to, until the end of this calendar year, have all of those 5 installed.
And then would it be spread across the year? Or would it be lumped together? Would you do one installation right after another in China? Just wondering, what you're activities...
We are doing right one after each other, partially and [ part of it all ] to be ready for start of the clinical study end of this calendar year with at least 3 of them. And then I think of 1 or the 2 going early next calendar year. Yes, but they go after each other.
Our next question is from Sebastian Walker, UBS.
On cash flow, if I could. So where do you expect net working capital to settle at the end of the year? You said negative but maybe that minus 5% is still a good guide. And then just in terms of the volatility, I mean, the efforts to reduce time between shipment and installation, you said that had an impact over the quarter. Do you expect that to continue over the rest of the year?
So actually, we have to go through the quarters. We'll continue to focus also next year -- next quarter on reducing this time. However, the shipments will increase compared to Q1 levels. So -- and then that will drive positive effects on revenue and also cash flow. If you look at the full year levels, we're on minus 14. We will continue to be negative. We have stopped guiding on a specific number there. So it depends a bit on what happens in Q3 and Q4 but continue to be negative, and as you mentioned, minus 5%. I think that's not something we guide, but it will continue to be negative.
Maybe just a follow-up. Is this trending towards that minus 5% or kind of stable at the current levels?
It's not something we forecast and project in that way and communicate externally, but we will update you in the coming reports here that working capital level and how we see it coming quarters.
Our next question is from Scott Bardo from Berenberg.
So could you please comment on like-for-like pricing? I appreciate there's a geographic mix here but, obviously, a relatively weak gross margin. Any indications of price pressure in any regions? And can you just confirm also with respect to guidance, so I expect -- I appreciate that you reported this SEK 76 million gain this quarter as well as highlight a more favorable transactional impact than when you set your underlying guidance at the beginning of the year. So are we to expect this extra SEK 50 million and the SEK 76 million gain to be incremental to your 20% margin as you guided previously?
Thank you, Scott. And if I start with the pricing question and if I understood it correctly what's the difference between mature and emerging markets and if we see more price pressure there but not really effect. It's more and more type of configuration that customers buy, and it is a bit lower in the emerging markets if you take on the average. Then we see a bit of price pressure quarter-over-quarter, but how we compete -- we don't compete. Price is more an innovation. So when we add new features, functionality, like Palabra or like Acumyn, that will drive additional price as well. Then of course, Unity will increase the overall price level of our portfolio. If you look at the one-off effect on the divestiture, the main business of SEK 76 million in the quarter, we foresaw that in our EBITA guidance of around 20%. So that is included. What we have done is we have removed bad debt adjustments from our guided EBITA. So the EBITA you see now in the report is the one that we guide on. So -- and we keep today around 20% for the full year.
It's all in now. So it's -- there's nothing which we not have included in our EBITA number.
Okay. But there is a slightly better currency tailwind than you foresaw at the beginning of the year. So that should be slightly more incremental perhaps.
Yes. So we said SEK 150 million in beginning of the year. Now looking at the current exchange rates, we are SEK 200 million on that EBITA level.
Good. Just one follow-up then, please. Richard, within your comments -- your prepared comments, I think you mentioned that the global market growth of radiotherapy was around 7% over the last 12 months. So that's obviously quite healthy. Can you comment a little bit about your views on the sustainability of this growth? And also are these the benchmarks potentially for you when you're considering outperforming the market going forwards?
I think the 7% is not the last full year. I think it was more the last 2 quarters, which shows quite good dynamics on the market. And I think our competitors are also reporting that. I personally am very convinced about radiotherapy market in overall for the future to come for various reasons. The obvious reason is, of course, that the cancer burden is growing. We reported many times that there's a huge gap between existing linacs and necessarily linacs to ensure, so to say, a level of patient care, which we would like to see globally or which was our -- people in the developing markets would like to see. We have clearly stated that we as a company want to bring radiotherapy into the emerging market as well by use -- by ease of use and appropriate development and innovations. We are on our way to do that. We see a huge opportunity to create market with the MR linac technology, and its pricing also visible in the numbers, which we see now in reality. New technologies, typically, new applications relating to technologies typically are creating market and in particular when they are so, I would say, effective and obvious as they are in the MR linacs case and Unity case. So in that point of view, I'm quite optimistic on our performance as a company in this market because we offer, unlike the competitor, this technology to the market.
The next question is from Kristofer Liljeberg from Carnegie.
I have a question on -- coming back to this working capital issues. So I think you were -- last year, with the new accounting -- sorry, you were at minus 20% and now you are at minus 14%, and at the same time, you say you're expecting improvement of working capital in coming quarters. So is there any reason why it would trend down from the current level?
No. I mean, it is the fact as we see now with additional shipments driving invoicing and further improvement in the supply chain. So that is what we're driving for absolutely. So we don't see any other factors that would dramatically increase the net working capital level.
I mean, the 5% level you talked about before, is that really relevant any longer with the new accounting?
No, that was based on the previous accounting standard. And you saw the kind of reset of the levels due to the new IFRS 15. So we changed a lot on how we look at revenue and plan for revenue.
And I would add -- Kristofer, I would add also that our organizational sales regions, they also have to learn a little bit or adapt to this new way because now, for example, it's essential that the start of installation is ensured. And start of installation has a different -- the customers, for example, have some licenses or whatever, nuclear license registrations. So those kind of things are now suddenly relevant. And I think what we saw at the end of the quarter, one, that there were some slippages also happening because of that, that our organization was completely prepared for that shipment was very easy, right. Revenue recognition on shipment was easy. And this was an effect in Q1. We see that already getting better now. And so from that point of view, the shipments will improve. Start of installations will also improve. So it will move forward positively.
So the reason I'm asking is, is the big drag it had on the cash flow in the quarter, have you been guiding for the cash conversion for the full year?
We don't really guide on cash conversion, but we've often talked that we should be above the 70%.
And that is something you expect for this year as well?
Yes.
Good. And talking about certain balance sheet items, you have a lot of cash and short-term debt. So are you planning to pay down more on the debt?
Yes, we have some more short-term debt during the year. We also, as I mentioned, paid $50 million in Q1 that was maturing. So yes, we'll continue doing that according to our schedule but nothing out of the ordinary. So we are following the schedule we have.
And the financial net you have lost this quarter, is that a good level for coming quarters as well?
Yes. So we were on minus 25 in the financial net in the quarter, and I foresee that, that would be the level that we are currently at. And we have a bit positive effects on the interest rate in the U.S. And then we'll have a bit lower financial costs from the reduction in the debt levels.
We have another question from Alex Gibson from Morgan Stanley.
It's just on realtime adaptive radiotherapy. I was just interested in knowing if this is the main selling point for you at the moment? The CE mark was delayed in order to get this ready, so it's clearly important, but maybe you can quantify how much of a topic this has been for customers when you're talking -- when you're in discussion?
As we already said that the CE level was a very important milestone just to release a product for clinical uses, of course, it's essential. We went through that. A very important milestone was now recently that, on a CE-labeled product, the first patient was treated very successfully, actually a few patients were already treated and [ released. ] Amsterdam will treat soon. The first patient treating [indiscernible] installation will have that also happening during the September time frame. So -- and we will upgrade now on our systems. This was very important now also for our customers and potential prospects to see clinical treatments really done. And so the CE label was the first step and now these patient treatments are the second step. And I -- we had a very good region meeting recently. Huge interest, of course, that was after the CE label that also helped us to create momentum. So yes, we will see -- this was a major -- this was a major phase now where the pickup is happening.
And -- sorry, maybe I didn't clarify, in terms of the realtime adaptive radiotherapy treatment, how much of that -- how much of your discussion is revolved around that being a key selling point of this system, rather than just being able to image?
We have to differentiate between realtime adaptive and adaptive treatment. So the adaptive treatment is completely integrated and is, of course, a very important part, so that you can really adjust the treatment region when the patient's on the table, and that is exactly what happened at Utrecht's case that they were to able to shift a little bit to close it down further on this one I showed before, when it was coming to this lymph node. And this is a product, this is workflow standard. Now if you then -- in the next step, the potential of the Unity is, of course, also going to, what you might call, realtime, realtime in the sense that you even adapt to reading a moving target, yes. That's the next level of system integration and software. But I would highlight -- I'd like to highlight that one reason for the delay of our system for CE label was the final fixes on the realtime linac control system, which exactly is enabling that for the future release of software. So there's a lot of potential on top of the adaptive things which we do already and not just anatomic visualization but really adapting the treatment and replanning it where the patient is on the table in a few minutes. That is happening as we speak.
Okay. And to follow up on that, is there some comments about development from some peers around creating adaptive radiotherapy techniques that do not require an MR linac? Do you have any thoughts on those?
As long as the images which you create and use for adoption are good enough and have the necessary structures and contrast and anatomical details available, you could think of other methods as well and believe me, we do, too. Cone beam CTs definitely in the present stage not the ideal way of doing it. There might be other ways of moving in that direction. I think, in particular with the contrast potential of MRI types and MRI in particular, this is a huge step forward, and I'll -- we'll have to see how -- if people will really go for a compromise on that one. So that's open for the future.
We have a question from Sebastian Walker, UBS.
Just related to the beginning of your response to Alex' question. So following the CE mark in June, I guess, I'm kind of surprised with just the 2 orders of Unity in Europe. So can you maybe talk about whether you've seen a step-change in activity levels in Unity for Europe? And then maybe kind of when you talk about an increasing level of interest, how do you define that?
As I said, I think CE label is an important milestone for us as a vendor as we release the clinical product. But for a customer, it's very important to see the true clinical treatments being done. So that happened now. So that point of view, we have quite a few customers who wanted to see that, also Utrecht in Amsterdam, and these are the prospects which are now -- we're seeing coming up. And that's why I believe -- per se, I believe that this patient treatment, it's a little bit like buying a car. You want to test drive it. You want to at least see the car being drivable. So that's a little bit the message. And we see very positive customers, which is right now Utrecht and others. It's just much better than showing just in the lab with no clinical cases and so on. That is -- I find the true milestone for us in accelerating our prospects to real deals as we speak.
Great. And then maybe just separately, you mentioned U.S. proposals to increased reimbursement numbers. Could you just give a comment on that what stage and what kind of impacts you'd expect...
Our approach for the reimbursement changes, which we are doing, is a so-called momentum project. So what that is, is our consortium members plus a few additional earlier doctors, which have other systems like tubing and a few other sites. They formed this Momentum study or Momentum project, pooling all the data which they acquired together with us, so we're a partner of that. We also have the rights for the data. And putting that together, so that, in a shorter period of time now when they all go clinical, we can get together a significance in our database to prove or to at least make proposals for reimbursement changes on particular applications, anatomical applications. Or to show, for example, that anatomical -- that applications are possible which have not been usually used for radiation therapy treatment, for cervical cancer or liver is one particular case; of course, prostate is straightforward; pancreas with the high contrast and signal differences on MRI and the moving situation of the pancreas. So there might be those kind of things coming up. And we'll have data to grow our customers and go to their particular authorities for reimbursement changes. It will certainly take 1, 2 years to have the significance of the data together, but I just wanted to mention that because we have a procedure for that. And we are pushing that right now to move to this data collection as soon as we have clinical systems running.
Our next question is from Oliver Reinberg from Kepler.
Oliver Reinberg from Kepler Cheuvreux. Just wanted to come back on the profitability. Given the importance of the region mix, can you just give us an idea what is the normalized margin GAAP in terms of gross margin between mature and emerging markets? Are we talking about more than 10% here? That would be helpful. And also if you just look at the kind of second reporting, North America or America as a whole, I see it's in the first quarter this last year were about the same, but the contribution margin was quite significantly down from 41% to 33%. Can you just talk about what drove this?
Yes. So I'll start with the first question. So I understood that's why North American or Americas margins went down in the quarter compared to last year. And that is what we have referred to part of this project mix effect we had. We have the capital over low-margin days in the U.S. that come in the quarter. I don't see that as an underlying trend. It will recover during the coming quarters here. So that's the main driver of it. If you look at the price differences between emerging and mature market, it is this what we talked about the configuration of the machines and sometimes a bit lower market pricing in some markets. It varies between quarters, so we don't talk about a specific level there.
But can you just give an indication what is roughly a gross margin average? I mean, obviously, you always have left a software and services revenue potential in emerging markets. I mean, is the gross margin normalized the emerging market business compared to mature market business more than 10%?
No, it's not more than 10%. And then I think important factor here is also service revenue. Since we have a lower install base -- growing installed base in emerging markets and more mature stable one in mature markets, we get more service revenues on the mature markets. But we're building up, and it's in markets we also have distributors from our service. And there's additional procurement is to drive margins from emerging market service as well going forward.
Okay. And the decline in the market's profitability is purely down to the product mix.
Yes.
Yes.
And if I finally may, I'm not sure if I understood that correctly. Your guidance was for the amortization cost. Is this going to change going forward? Or was it still SEK 120 million quarterly run rate?
No. So if you look at the quarter, we came in at around SEK 150 million, and what I mentioned earlier was that we foresee for Q2 to Q4, SEK 180 million per quarter. So SEK 30 million up.
Question from Johan Unnerus, Pareto Securities.
Just a follow-up for clarity. In your full year guidance for 20% EBITA and that's including the main contribution in Q1, is my understanding.
Yes.
Correct. I think we have a final question from the audience. Operator?
Yes. We got one more question from Scott Bardo from Berenberg.
I think prior to the CE-mark approval of Unity, you referred to more difficult called bundled tender deals in the region. I just wonder if that dynamic has changed at all now that you got CE-mark approval. Any comments about tender activity in the market would be helpful. And just a follow-up of slightly different nature. I see that you filed some patents for realtime treatment planning. I wonder if you could comment a little bit about the potential for development activities there, please.
I mean, it's truly enough. We have now with the CE label the possibility to basically in Europe or Australia/New Zealand, as I mentioned, to participate in any tender, which we didn't have before. So that's definitely the change. There's activity going on. There's a significant interest. I mentioned that, and we are happy to participate in this. Yes, you're right that we are very active in the field of realtime treatment planning. We see that as already the next step in the implementation of what I would call realtime adaptive treatment. It's a challenging -- that's, of course, a challenging approach, both from the computing power as well as from the algorithms. And our team is very active in that. We're also using artificial intelligence methodologies for that. You might have seen those things as well for this realtime adaptive planning because, the faster you want to get, the less totally manual interactions you can allow there, and we're very active on this one, yes.
Okay. Thanks very much. The clock has been 11 here in Stockholm. And we'd like to thank you very much for participating in the call today. And of course, we're looking forward to see you and meet you at the Capital Markets Day here in Stockholm in late September. So with that, thank you very much for the call today.
Thank you.
Thank you.
Thank you. You can now disconnect your lines.