Carl Zeiss Meditec AG
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Carl Zeiss Meditec AG
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Good morning, ladies and gentlemen, and welcome to the Carl Zeiss Meditec AG conference call regarding the analyst conference 9 months' figures 2019/'20. [Operator Instructions] Let me now turn the floor over to your host, Sebastian Frericks, Head of Investor Relations.
Yes. Good morning, ladies and gentlemen. Thanks for joining us today. Welcome to our analyst conference call. My name is Sebastian, and I'm Head of Investor Relations. And with me, as usual, are our President and CEO, Dr. Ludwin Monz; and our CFO, Justus Wehmer. I will now hand you over to the gentlemen to give you an introduction to our financials for the first 9 months. And afterwards, we look forward to taking your questions. Ludwin, please go ahead, sir.
Yes. Good morning, ladies and gentlemen. I also would like to welcome you to Carl Zeiss Meditec's analyst conference. We will give you an update on our 9-month figures of this fiscal year '19/'20. And as you will see, our third quarter was clearly impacted by the COVID-19 crisis, probably not a surprise. So on Slide 2, you see the agenda of this call. So first, I will provide you with a first overview of our results, and then my colleague, Justus Wehmer, will give you more details on the financials in the next section. In the highlights section, I will talk about a rapid product development. That development is meant to help with the treatment of COVID-19 patients and, hopefully, interesting for you. Furthermore, I will talk about our priorities in crisis management. And then in the last section of the presentation, I will talk about our outlook. So let's turn to the overview. As we indicated in our Q2 call, we did expect a weak third quarter. The results, which we already announced in mid-July, were heavily impacted by negative effects from the COVID-19 pandemic. Revenues reached EUR 968 million. We saw a reduction in both SBUs. Regionally, the decline came from both EMEA and Americas while APAC was stable overall. Year-to-date revenues declined by 5.8%. On a constant currency basis, it was minus 6.9%. However, the impact of the COVID-19 pandemic is most visible when comparing Q3 solo of this year with Q3 of prior year. In Q3 solo, our sales was about 30% below prior year. Justus will go more into the details of the revenue development in just a moment. Let me mention that the EBIT margin decreased to 11.6% versus 17.9% in prior year. The decline was, of course, mainly caused by the drop of our revenue. However, in addition to the comparison base of last year was very high as we had a positive impact from capitalization of R&D expenses in prior year. We'll come back to that point later in the presentation. The good news is that Carl Zeiss Meditec was able to maintain a positive EBIT in Q3 solo despite the significant sales reduction. And we worked really heavily on short-term cost reductions and also on resilience measures. Our net income reached about EUR 69 million, which corresponds to earnings per share of EUR 0.77. Last year, we had EUR 1.22 at this point in time. So overall, the development of our business was impacted by COVID-19 strongly, as I said. And this is clearly a crisis of the health care systems and unfortunately, we are in the middle of it. Yes. I would like now to hand over to my colleague, Justus, who will give you more details on our figures.
Yes. Thank you, Ludwin, and also good morning and a warm welcome from my side. Yes, I'm now going to give you a more detailed overview of our financials starting with the performance of our strategic business unit, OPT, Ophthalmic Devices. Revenue came in for OPT with EUR 709.1 million compared to prior year, a reduction of minus 7%; and at constant currency, minus 8%. This is significantly below Q2 growth rates. Q3 solo year-over-year growth rate was minus 30% due to the almost global overlap of local lockdowns. Nevertheless, among all the pandemic-related negative business impacts, we could clearly see some positive effects from innovations. We've launched like CLARUS 700 or CIRRUS 6000 benefiting our diagnostics portfolio or the ARTEVO microscope in our surgical business. SBU OPT EBIT margin decreased compared to last year due to the sales development and, as Ludwin mentioned, last year, was affected by R&D capitalizations. On the other hand, we were able to reduce our discretionary expenses significantly in Q3 to support our EBIT margin. SBU MCS, so Microsurgery, delivered good performance with revenue of EUR 259 million versus EUR 265 million last year. However, business was equally heavily negatively affected in Q3 like OPT. But mainly due to a very strong Q1 and Q2, the numbers after 9 months look somewhat better with a revenue decrease of around minus 2.3%; at constant currency, minus 3.6%. This year has seen continued positive revenue development in neuro/ENT, supported by our robotic visualization system, KINEVO; and a good trend for the new TIVATO 700 just, however, until the lockdowns hit then our business. Remarkably though, EBIT margins are still very strong as a consequence of a positive product and regional mix and utmost cost discipline in recent months. So let's take a look at the regional development, which is quite heterogeneous due to the COVID-19 development. Americas achieved EUR 272 million of revenue, which is a decrease of minus 6.9%; or at constant currency, minus 9%. The U.S. revenue shrunk by minus 9%; at constant currency, minus 11%, heavily impacted by the corona infection in the U.S. in Q3. Latin Americas were overall stable, but this is only due to some positive effects at the beginning of our fiscal year. As you know, the COVID-19 situation is especially difficult in the U.S. and it remains very hard to predict when a sustainable recovery will kick in. EMEA came in at EUR 269 million of revenue, which is overall a significant decrease of minus 12.8% due to the Europe-wide local lockdowns. It is a continued heterogeneous picture in EMEA where Germany and Spain saw so far only minor decreases of minus 2% and, respectively, minus 3% while France with minus 23% and U.K. with minus 42% were hit much more severely. In Asia Pacific, we invoiced approximately EUR 427 million, almost identical with previous year's figure. China is only slightly below prior year's level at minus 2% and has seen a remarkable recovery in recent months. However, other markets are still heavily affected like India, Australia and Southeast Asia. One positive exception, however, I'd like to mention, all year through, we have seen strong double-digit revenue growth in South Korea. So let's now have a look at the P&L. We see a slightly decreased gross margin at roughly 55% mainly due to a somewhat lower consumable portion. OpEx, though, in terms of absolute numbers increased. On the other hand, there's a significant reduction in OpEx for travel, entertainment, advertising, trade shows and also, to some extent, in personnel expenses. With a series of cost measurement programs, reducing both labor and operative expenses, we were able to reduce our monthly run rate in Q3, which was at roughly EUR 128 million, by minus 6.4% versus Q3 of previous year and by even minus 12% compared to the Q2 of this fiscal year. Short-term work, or in German, kurzarbeit, was broadly implemented in May and June in Germany. Furlough and similar programs in the U.S. and rest of the world were also applied, so contributing a double-digit million savings effect. Some words on the increase in R&D ratio. First of all, as mentioned before, there was a significant R&D capitalization in previous year. In this year, as we had communicated before, we drove our strategic development projects mainly in the field of surgical ophthalmology, including phaco; the acquisition of IanTECH that drove higher R&D expenses this year as the projects have advanced; and finally, our significant investments into digitalization. So EBIT resulted then to EUR 112 million, well below prior year. But please keep in mind that last year's Q3 was outstanding, strong in terms of sales and profitability. And as Ludwin mentioned before, in this year's Q3, our target was to keep EBIT and cash flow positive, which we managed to achieve. And last but not least, year-to-date EBIT margin now at a level of 11.6% versus prior year's 17.9%. Let's take a quick look at the adjusted EBIT margin, which reached 12.1%. And as you know, there are only rather small effects related to purchase price allocations that we have to mention here, and the increase mainly comes from the IanTECH acquisition. So then finally, a look at the cash flow statement. Operating cash flow is at EUR 63 million versus previous year's EUR 124 million mainly due to the reduced EBIT. Working capital, we have seen significant reductions in accounts receivables, of course, due to the sales development and we have put intensified focus on our cash collection. On the other hand, however, we do see increased inventories and repayment of liabilities. Cash flow from investing activities, please keep in mind here that was previous -- in previous year, heavily affected by the IanTECH acquisition and cash flow from financing activities is mainly influenced simply by changes in receivables and payables in our treasury accounts. In the current period, I'd still like to mention that we had a mid-single-digit million amount for capacity expansions in our surgical business, mainly our new IOL factory in Guangzhou, China. Net liquidity is at a record level, but please keep in mind that the dividend payment is still due for Q4 as the shareholders' assembly is going to take place tomorrow. So with that, thank you for your attention, and I hand it back to Ludwin.
Thank you, Justus. Now we come to the focused topics. As I said before, there are 2 today. The first one is on the rapid development of product for the treatment of COVID-19 patients and the second, on our crisis management. So let's have a look at Slide #12, and let me start with presenting of ZEISS NURA. That's a product that is meant to contribute to the fight of the COVID-19 pandemic. As you probably know, patients with a severe course of the disease need artificial respiration. In order to do so, a ventilation tube is inserted into the trachea of the patient. For the Germans, that is [Foreign Language]. But the process of inserting this tube is called intubation. However, the intubation of a COVID-19 patient course is an infection risk to the doctor as he or she has to move very close to the mouth of the patient in order to see the trachea. This is the reason why the treatment guidelines of COVID-19 patients suggests the use of a so-called video laryngoscope. And this is a device that allows the doctor to see the epiglottis and the trachea on a video screen and thus to intubate the patient while keeping a safe distance. Nuva is a single-use video laryngoscope. It was developed in just 4 months for the treatment of COVID-19 patients. We have successfully tested the device in first patients and will now make it available to clinics which treat COVID-19 patients. We are really excited about this product as we are convinced that we can make a difference in critical care of COVID-19 patients. Needless to say that the economic impact of this product will be minimal and that was not the purpose of this development, it was really meant to help with the treatment. Okay. Now Slide #13. I would just like to comment now on the crisis management. Our priority is to protect and grow the long-term value of our company, and this has clear implications for the management of the COVID-19 crisis. So in the first phase of the pandemic, we made sure that our employees were safe and manufacturing and supply chain were not interrupted. We used work-from-home extensively, but kept all manufacturing lines open. We used the manufacturing capacity to build up safety stocks for certain product categories for an eventual recovery of the business. So that all went well. In the third quarter, we implemented a comprehensive package of measures to ensure maximum financial stability. We did maintain positive free cash flow, as Justus mentioned, even under the very difficult circumstances of the past few months due to the tight working capital management, both on receivables and inventory management. OpEx reductions, mainly in sales and marketing but also due to furloughs and short-time work across all functions, contributed more than EUR 20 million in savings in Q3 from the previous quarter's run rate. This allowed us to defend a positive EBIT level in the quarter despite the heavy pressure on the top line. We expect costs to rise again in the fourth quarter as activities across the business pick up again, but so should revenues, as implied in our guidance, and more on that in a moment. Yes. As we told you 3 months ago, it was our priority not to jeopardize our long-term R&D road map. Given our financial stability, we can afford to push ahead with also our innovations, and we firmly believe that this is the best way to create value even in the current environment. Therefore, we have largely ring-fenced the key strategic R&D projects and protect them from cost-reduction measures in other areas. Unfortunately, nobody can predict the post-COVID-19 world. However, we believe that it is rather likely that the digital technologies and telemedicine will play a more important role in the future. And as we have been deploying our digital strategy for some time already, we feel that we are well prepared and right on track for post-crisis market. Now that brings me to the last agenda item of today's presentation, the outlook. On Slide 15, you basically see our current thinking. Although focus on demand of health care has shifted during the COVID-19 pandemic, the system will certainly return to its previous path once the pandemic has been mastered in a few years from now. Long-term market development will be driven by the well-known megatrends. And therefore, we believe that the growth drivers for the medical market in general and the microsurgery and ophthalmology markets, in particular, are fully intact and should lead us to further profitable growth long term. The well-known long-term trends are unchanged: aging of population and growing affluence, better health care awareness and knowledge of treatment options through an improvement of the access to information. And this all will lead to more patients, growing patient loads to the health care systems and, of course, to higher health care costs. The development in the rapidly developing countries is driving into a similar direction as more people get access to health care and can afford treatment of diseases. Demand in these countries will also continue to grow.Regarding the impact of the pandemic, the number of elective surgical procedures is down significantly. More surgeries in ophthalmology, namely cataract and refractive surgeries, fall into the elective category. However, as the COVID-19 containment measures are being scaled back in many countries, a recovery has set in. The equipment business, on the other hand, is expected to need more time for recovery. We see customers focusing on optimizing processes for infection prevention and patient safety. Furthermore, they work on reestablishing their patient flow and managing the procedure backlog that has built up over the last few months. As mentioned before, going forward, we expect digitalization of ophthalmology to speed up. Therefore, it is one of our priorities to invest in our digital strategy. We will continue to dedicate significant R&D resources to this program over the next years.Now to the outlook. As we announced last month, we expect a full year revenue of around EUR 1.3 billion. This implies a revenue level in Q4 of around EUR 330 million, which is about 30% higher than the absolute level of revenue achieved in Q3. However, as many of you will have analyzed already, that still means Q4 sales could be down by more than 20% versus last year.Aside from the still weak markets, a key reason for this expected gap in Q4 is the very high comparison base. Last year, we had a really spectacular finish with top line growth exceeding 20% to a new record high. And obviously, that cannot be repeated this year.Usually, the fourth quarter is particularly strong in the U.S. As you are aware, the U.S. is still facing major challenges on the COVID-19 pandemic, more severe containment measures. And thus, even an increase of the impact on our business cannot be entirely ruled out. Therefore, we are modeling a weaker contribution from the U.S. in September as we would usually see.Regarding our midterm guidance of the EBIT margin, we ask you for your patience in light of the current environment. We continue to have the ambition to get back to a level sustainably above 18%. However, recovery will critically depend on how fast the top line will recover. Also, we have to account for OpEx levels, particularly in R&D that have risen to a higher level than in 2018/'19 by now. Therefore, we confirm the guidance as a midterm target, but we cannot specify right now by when we will be back on track as this will depend on the recovery of our revenue.Yes. Ladies and gentlemen, this concludes our prepared remarks, and we are now happy to take your questions, and I hand back to the moderator to explain the procedure.
[Operator Instructions] And the first question comes from Daniel Wendorff from Commerzbank.
Two, if I may. My first one would be, how should we think about margin development quarter-on-quarter in Q4 now? And in light of your full year sales expectations, is maybe Q4, 2 years ago, a helpful indicator in that regard? And my second question would be, how do you see short-term work arrangement develop during Q4 and maybe also going into next fiscal year? So i.e., until when do you expect that no short-term arrangement agreements unnecessary anymore?
Okay. Justus, maybe you start.
Yes. I mean after the initial comments that we made on the difficulty for this quarter to predict and I once again want to repeat the importance of the U.S. for our Q4 numbers, I'd say we would expect, hopefully, a positive trend on margin. But please accept that I'll leave it there. There's definitely not enough data at this point. And on the other side, too much uncertainty in terms of product mix and regional performance to get -- be more precise on that.
Yes. I just can add to that. Of course, it critically depends on revenue. Revenue is down, right? And then, yes, like Justus just said, it's just very difficult to predict the mix, and that's critical for the margin.Regarding short-time work, kurzarbeit, we have actually heavily reduced short-time work. We used short-time work very strongly in May and June. But now we are mainly out of short-time work with just a little bit remains in the production areas where we basically adjust our capacity to the demand. But all other functions are out of short-time work. So the cost reductions, if that's the background of your question, the cost reductions by short-time work will be much less in Q4 than they were in Q3.
The next question comes from Falko Friedrichs from Deutsche Bank.
I would have 3 questions, please. Firstly, could you share the exit rates in July compared to the prior year and maybe you could give us some color how that looks in the different regions? And then secondly, on the equipment business, do you know the significant hesitancy of your customers to place orders currently? You did mention in your prepared remarks that it does take a bit longer to recover. So is that business something that worries you going into the next fiscal year? Or do you already notice that orders have started to pick up again? And then thirdly, where do you currently see IOL procedure levels compared to the prior year in the different regions? And do you expect a significant catch-up effect of those over the next couple of months?
Yes. Thank you, Friedrichs, for your questions. I was not sure if I got the first one. What rate are you talking about?
The exit rate in July. So where you have been spending in terms of sales levels compared to the prior year, roughly speaking?
I'm not sure what you mean with exit rate.
So where you believe your sales levels are compared to the prior year, whether they are 10% down, 15% down? Maybe you could give us a rough indication.
Yes. Okay. So this is very heterogeneous, right? And it's -- even if I give you a number for a region, that is, as we say in German, [Foreign Language] as we always joke. So in other words, you would average countries where -- which are actually in a recovery state and others which are still severely impacted, and it's just a matter of the weight of the countries what the result will be. But in short, as we said, the -- in Q3, the APAC region was at about the same level as a year ago. And within the APAC region, China was strongest. South Korea was -- they even were stronger, but certainly smaller. But all other countries declined. So for example, Japan is really in trouble. They are in the midst of a second wave. So that's very difficult. And then the Southeast Asian countries, Indonesia, Vietnam and so on. So Thailand, that region is also still heavily impacted. India, disaster, right? The infections go really very high. So it's really impossible to give just a number on this region. It's highly diverse.Now Europe, as Justus was saying, we see a positive trend. And so I would expect that Europe actually will improve also in Q4. However, if we would see a second wave, there's a lot of talk about that, for example, here in Germany, then this would not happen. So also, even there, some uncertainty. And the biggest unknown, no doubt, is America. And within Americas, it's the U.S. where the -- we even see differences from state to state. So it's not only -- it's not a homogeneous country. So in some states, the infection rates go up, some states tried to enforce a reopening of the economy and then have held back. So also here, to give a prediction is really impossible. So that's -- I hope it helps a little bit, but that's a very difficult question.Regarding the equipment business, your second question, I can say that there is a specific sales cycle for equipment. So it starts with a product demo where the customer is shown the device, where the customer can use the device for a while and try it out, and then the customer would make a decision and order and we would ship. And that process, if you look at that process that depending on the kind of device, but that can take several months. So typical, between 3 and 6 months such a cycle.Now while we were mainly in a shutdown in most countries for almost 3 months, that funnel basically has stopped. So we did not further fill the funnel and now need more time to now build up sales projects. And so the time constant, and this was the reason why it really takes longer is in that order of magnitude. So you could say, maybe 3, 4 months later, that will pick up simply because of this effect. The IOL procedures, there's an interesting thing here about the IOL. So first of all, as we said, elective procedures were postponed, right? And now the cataract clinics are reopened and quickly, the IOL procedures increase. However, that does not happen at the same speed like the refractive procedures. So you could say, well, what's the difference? Well, the difference is the cataract patients are old and the refractive patients are young, right? And the older patients are more threatened by COVID-19. And this is why there is still more hesitance, right, on the cataract side than there is on refractive. So we saw a fast recovery of the refractive procedures but on cataract, it's a little bit slower.Overall, in the third quarter, and there is, from market scope, actually data on this, I believe the procedures were down 66% globally. I don't have a split by country. I can only say that Germany is recovering and most West European countries are recovering. So the numbers are getting smaller. But again, that's very difficult to say by country.
The next question comes from Markus Gola from MainFirst Bank.
Great. So my first question is a follow-up actually on Asia. As you said, it seems that China and South Korea are doing fairly well, but all the other Asian markets still seem to suffer from COVID-19. So what are your expectations on these markets like China and South Korea for Q4? And what percentages of your Asian sales do they actually represent? And my second question is on the U.S. Could you elaborate a bit on your underlying assumptions for the U.S. that have been baked into your guidance? And do you expect a stronger year-on-year decline of the U.S. in Q4 than in Q3 given that you probably worked down your order book in Q3? And my last question is on SMILE in the U.S. Do you see appetite from you have to buy new Visumax machines in this environment? And do you make any progress to market this technology to the U.S. military?
Yes. Thank you for your questions. Regarding Asia, I can only say that China, we don't publish individual numbers by country. But China is the, by far, largest country, I should say, if you compare the country by country on a global level, right? China, in the meantime, has become really #1 or 2. So it's at about the same level like the U.S., right? And so it's massive, right? It's -- the massive majority of Asia is China. South Korea is also relatively large for us. And then the third substantial market in Asia is Japan, right? And as I said before, Japan, right now, is severely hit by the pandemic. And it was -- Japan could even grow in the first half of the year, but now they have a massive impact and that might also continue. Southeast Asia is also a significant region, although it's not that substantial. And that region, again, I have done really details on that, I can only say when I look at the total of this region, it's strongly affected right now. So yes, that's roughly the split of Asia. But if you take the 3 countries, China, South Korea and Japan, that makes up the vast majority of Asia, right, for us. And in these countries, 2 are growing and 1 is declining, right?Now the U.S., as we said, we expect that the impact -- the positive impact of the U.S. on our fourth quarter, which we usually see, will not be that significant this year. And so we are a little bit careful in our forecast there. So yes, I can't quantify but -- in percent what that really means. But the U.S., as we now said multiple times, is really the region which is most difficult to predict. And I don't have a good feeling there could be rather a overperformance, but there could also well be an underperformance, right, when compared to our current estimate, and that's impossible to predict.Your third question is on SMILE in the U.S. and here, it's actually going well in many regards. So first of all, we see that now the refractive clinics are opening. And as I was saying before, also in the U.S., refractive procedures are recovering faster than cataract. That's the population of patients which is much younger. And so we see a nice pickup of the SMILE procedures. And actually, just, I believe, in the last month, we had our highest treatment number ever in the U.S. So that's actually going well. The same is true also for placements of lasers, that's also developing nicely. So we are actually quite optimistic. As we always said, U.S. takes time because that's a new market which needs to accept SMILE as the new standard or the new premium procedure. But it's really going well. The same is true for our activities with the military. The military has started to treat patients with SMILE, and they will -- and that's our expectation for the ramp-up. So that, overall, is really going well.
The next question comes from Scott Bardo from Berenberg.
I wonder if you could share with us please what proportion of your revenues stem from hospital sales and what proportion stems from private practices or ambulatory surgical centers. And furthermore, is there any particular end market that you're more apprehensive or nervous about in terms of the shape of the recovery next year and beyond? So a bit of discussion about end-market channels and dynamics would be helpful.The second question, please. I guess it must have been tempting to somewhat moderate R&D spend at the time of EBIT margin pressure. You've not done that. In fact, you've further expanded your R&D efforts, which I think is very forward thinking. But would you be kind enough to please highlight some of the major buckets of investment in R&D currently and why you think that this is such a priority for the future? Perhaps you could comment a little bit about where we are with the phaco project for the North American market.
Yes. Thank you, Scott, for your questions. Yes. It's obvious that the dynamics might be different in hospitals, on the one hand, compared to ASCs or other private practices, on the other hand, because the ASCs and private practices are more entrepreneurial, more driven by out-of-pocket procedures. So the problem is this really varies strongly country by country. So there are countries where ASCs make up a substantial part. For example, the U.S., right? In the U.S., most cataracts are being operated in ASCs and only a small portion in hospitals. If you look at Europe, that's very different, right? U.K., Germany, most is in the public health care system and very little on the private side. So it's really different country by country. Overall, I would say that's mainly refractive. But also, the premium cataract that is being done in private practices, and they recover faster. And that has an impact in the U.S., although we are not in the U.S. regarding the IOLs. But at least with refractive procedures now, we also see that here in Europe and clearly in China, right? In China, as I said, the -- it was really amazing how fast the refractive procedures recovered and cataract is a little bit slower. And I believe the explanation is what I said before because the patients are simply older and more at risk regarding COVID-19. So yes, I hope that's useful. I can't quantify. That's just very difficult because it's so different country by country.Regarding R&D spend. Yes, it's true that we did not slow down R&D. And that actually was done on purpose. We announced a year ago maybe that we wanted to -- when we had a discussion about our margin. We said, well, we want to accelerate R&D, and here we go. But we did not stop that. We did not anticipate the COVID-19 crisis, but we did not stop the investment.So what do we do? As you correctly mentioned, one focus is on the surgical ophthalmology side. And yes, it's phaco and also IanTECH, as Justus was saying, that goes into the same direction. It's also about cataract removal. In both projects, we are actually making good progress. And so we are still optimistic here. COVID-19 has, however, some impact there because now access to clinics for clinical trials is just restricted. And we don't know exactly what that means now in terms of delays. I hope it will not be overly significant. We still stick to our time lines regarding the U.S. where these technologies will play an important role. The other part, which also cost some money and is strategically important, is our IOL approvals for the U.S. That's also going as planned. No delays there, but just at a cost.So that's the 1 focus of our activities I can talk about, and there are others actually I don't want to talk about because that would be a competitive problem. There's 1 more field we can talk, and that's digital. And we also said a year ago, we will intensify our investments in digital technologies, and this is exactly what we are currently doing. And that has also caused some increase -- caused some cost increase here. We believe that digital technologies will be more and more important. And the COVID-19 crisis actually has shown that already, although I believe that the full potential will only be visible in a few years from now. And we want to be at the forefront of this and that's why we really invest into this. So these are the 2 I can talk about this. One or the other thing more we are working on, but I can't announce.
Understood. Perhaps a quick follow-up. I think as we look at the market today, it is one that's underpinned by strong recurring revenues aligned with the consumable component. Is this something that you're actively developing and plan to manufacture yourselves? Does this -- is this a more difficult approval process because of the high consumable content? Maybe you can just comment a little bit further there. And lastly, please, just on your comments on the funnel management for capital equipment. I think you've had, by and large, a pretty resilient performance in microsurgery, albeit the shocks of Q3 somewhat underpinned by your order book and your development activities this year. Do you think that the demand landscape at all changes for otherwise big-ticket medical capital equipment such as microsurgical devices post-COVID? Or are you confident in the robust dynamics of this industry as we look forward?
Yes. So first one on consumables of phaco, yes, we'll do this ourselves, right, mainly at least; also, the major parts like the cassette. We already have a phaco in our portfolio today, right? And also there, we make the cassette ourselves. It's at least -- we own it. And that will not change. Of course, it's a significant part of the business model when it comes to phaco. But it's not only the cassette, it's the combination because phaco business drives IOL business. And that's -- so it would even further accelerate the consumable business, not only the cassette itself, but also the related IOL business. But yes, of course, that's part of what we are doing.Regarding capital equipment, yes, as I was saying, there is now some delay with the funnel. But we are confident that this will recover because the fundamental need has not changed, and that's a market that's very receptive to technological progress. And this is why we are so successful with our innovations there. And I don't think that this will fundamentally change. There might be the 1 or the other hospital where they slow down investments now because of COVID-19. But I just hope that this will only be a matter of, I don't know, maybe a year or so, and then things will come back.Just one word of caution, the -- regarding microsurgery. We had a very strong start into the fiscal year. We saw some major decline in third quarter and that will definitely go on also in the fourth quarter, right, so -- because of this pipeline thing, right, the funnel. As I said, there is just -- the order books are not as full as they used to be because of the shutdowns which we had.
The next question comes from Patrick Wood from Bank of America.
Perfect. I have 2 left, please. The first would be on the introduction of infection control measures, whether it's in ASCs or hospitals. And just how you think that could change the business over time. I mean I'm thinking about things like within MCS, the ability to -- in the future, do those demos and get into the hospital or alternatively, if you're thinking about OBT, if the utilization can get back up? Or if there's going to be a longer turnaround time for surgeons? Just sort of some of the implications of that. So that would be the first question is on infection control. The second, in sort of a follow-up to Falko's. I couldn't tell whether the numbers you have given geography there were for the Q3 or July. So maybe if I just say at the group level, and apologies if I missed it, could you give us an idea of how revenue broadly developed year-on-year within July?
Yes. Thanks for your questions. So the first, infection control in ASCs is, of course, a major concern. So what we see right now is that the ASCs really rework their processes, how they channel the patients through their clinics. And so it's a matter of -- yes. It's a matter of how they set up the diagnostics and treatment chain. If you've ever been -- and you certainly have. If you've ever been to an eye doctor, you will have noticed that the doctor is very close to the patient, right, by -- in the examination. So first focus is on really setting up this diagnostic set up such that this physical distance between patient and doctor or other staff who performs the examination is actually safe. And ZEISS has done a lot to provide certain materials like shields and -- but also covers and treats all kind of stuff to really make it more safe for the patient and more safe for the personnel of the ASC. But that's a big concern, right? So that's really worked on, and the clinics want -- and the personnel of the clinics wants to be saved themselves, but they also want to give the patient a feeling that it's safe to come and get treated.The -- it clearly has also an impact on companies and the access to clinics. So access during the shutdown period was really restricted and was difficult to do demos. That has become a little bit better, but I believe it will not go back to the original level. We've started to do virtual demos. So through digital video conferences and things like that, which worked reasonably well. It's, of course, not a full replacement, but it will still be a part also going forward.Back to the ASCs, you mentioned turnaround times and things like that. Yes. I think it's more a matter of how patients are diagnosed and treated. I would not expect that this has a major impact on turnaround and -- because they just can't afford it, right? So they will figure out ways to, on the one hand, ensure safety of the patients and, on the other hand, have high turnaround. So I hope that helps.The second question was on revenue in July. And yes, I mean there's good news and bad news. The good news is, well, we see a improving trend. Clearly, that continued also in July. However, and that's the bad news, we are still significantly behind prior year. And when I say significantly, I mean double-digit percentage behind prior year. And so it's -- yes, it will not be the same as years before, right? And the crisis is definitely not over. In the end, as always, September will be decisive. So we have to wait until the September numbers come in to really know what's going to happen. And as I said before, usually, in that strong September, U.S. plays a key role. And that's the big unknown this year. And this is why we are really uncertain where we will end up, and we will only know very late in the fourth quarter.
At the moment, there are no further questions.
Okay. So if there are no further questions, ladies and gentlemen, then I would like to thank you for participating in our analyst conference. I hope the information was useful for you. Wish you and personally, your families all the best, stay well in the corona times. And yes, looking forward to talking to you again after the fourth quarter. Have a good time and bye-bye.