Welcome everybody to the IBA Half Year 2022 Results Conference Call. At this time, all remote participants are in listen only mode. The question and answer session will follow the formal presentation. I would now like to turn the conference over to Olivier Legrain, Chief Executive Officer of IBA. Olivier.
Thank you, Olivier. Thank you, and good afternoon, everybody. Especially our two guests here in the room and more to come. Thank you for joining us for our IBA results call. I'm Olivier, CEO of IBA, and I'm here with many people that will give the presentation today, together with Soumya Chandramouli, our CFO. Before we start, I'd like to draw your attention to the standard company disclaimer on the forward-looking statement. First of all, today, I think I'd like to especially thank the entire IBA team for their continued hard work over the first half of this year.
Even though it has been more of a normal year, it's still a bit challenging for many reasons that I think everybody knows, especially our colleagues in China that are still sometimes in lockdown, and that we have had time to visit so far. I'm confident it will change soon. We are pleased to see that the hard work is paying off with the incredible resilience of our business, and I'm delighted to report on our positive progress over the year. As always, I will give an overview of our business and progress in the first half. Soumya will then summarize our financial statement, and then after I will discuss the outlook, and we will be happy, of course, to take any questions. We had the overview of the numbers.
As you know, the group is founded on our expertise in particle beam technology. We have four core business lines: Proton Therapy, RadioPharma Solutions, Industrial Solutions, and Dosimetry. Each of these businesses continue to perform extremely well. We see actually quite an acceleration of the demand across the board for our products. They will all be profitable, or they were all profitable in the first half of 2022. The key drivers for the business unit. Well, for key business unit, we made progress. We have increased our share of the patient QA market with order intake from Dosimetry in the first half.
You have seen that we have announced yesterday also, a partnership, a strategic partnership with ScandiDos in Sweden, which will further strengthen our product portfolio in the patient QA segment. As you may have seen, we come on top of another acquisition in the first half in Canada, Modus. We have fully integrated it, so I think we forget the original name. In Proton Therapy, we have seen an acceleration in the condition of the backlog, which we anticipate will continue in the second half. I'm very happy about the partnership with CGNMT, and the first result we can witness there. We have announced already some sales of the first Proton Therapy center CGNMT was able to complete.
In Proton Therapy, we were pleased to be able to partner with very, very strong names in academia and industry through the recently launched ConformalFLASH Alliance, with the aim of bringing ConformalFLASH Proton Therapy to the clinic. Our radiopharmaceutical partnership with SCK CEN in the development of Actinium-225. [Inaudible] . Our business there for the production of isotopes continues to evolve positively. We continue to develop new areas for our business with the Cyclone IKON, new 30 MeV cyclotron for the production of medical isotope. Last but not least, on the medical device sterilization side, the IBA Rhodotron is supporting a very strong increase in order volume and is confirmed, let's say, or even more so important strategically for IBA.
Now, let's take a look at some of our key highlights for the first half of the year. I will now take you through the key operational highlights. In terms of the business unit progress, we were pleased to sell four new Proton Therapy systems, one Proteus Plus in China and three ProteusONE machines in the US and Europe, which is an excellent start of the year. For our accelerator, we've seen record order intake. Twenty-one systems were sold in the period, and one announced already post period. This was compared to 40 machines sold at the end of last year. A significant growth in the demand for our product.
Our new Proton Therapy installation and nine other accelerators started in the first half, despite the pandemic-related restrictions, with two new Proton Therapy centers starting to generate revenues. As mentioned, backlog is at a record high, and while there has been good conversion with Proton Therapy, conversion across the business, especially in other accelerators, remains. Pandemic-related restrictions. Backlog is at EUR 1.2 billion with equipment backlogs reaching another record high at almost EUR 500 million. Dosimetry has proved a resilient business unit, with order intake up 11% on the same period last year. The acquisition of the Canada-based Modus Medical Devices Inc. completed earlier this year, supplementing our dosimetry portfolio and increasing our dosimetry footprint in North America.
Our strong performance is, confirmed, let's say, by a strong balance sheet with two hundred and two million gross cash. The first time we are above two hundred million, I believe, and one hundred and thirty-seven million net cash. It is also worth highlighting that we completed the share buyback program initially initiated in 2021, representing a total over 300,000 shares. Moving to first period end highlights.
Recently we announced a multi-year research collaboration with the Hutch, or let's say, Fred Hutchinson Cancer Center at the University of Washington in Seattle. More recently, we shared the news of our selection as the only bidder qualifying for the second round of the so-called Spanish Ministry of Health tender to supply 10 Proton Therapy units in the country. This is clearly a very significant and very exciting opportunity, and we really look forward to sharing further updates in the future. Radiopharma side, this week we were pleased to announce a fourth Cyclone IKON sale since the product launch to Chengdu New Radiomedicine Technology Co., Ltd.
Finally, yesterday we announced our latest dosimetry news with the agreement of a strategic alliance with ScandiDos, including IBA acquiring 90.1% stake in the company. Now we'll pass to Soumya to focus on the summary of financials. Soumya?
Thank you, Olivier. Hello, everyone. You see a quick snapshot here as usual of the financial highlights as announced this morning. A few highlights that I will mention. Group revenue was EUR 160 million, up 17% versus the last year, with the excellent order intake, of course, as activity picked up. You've seen that we've reached EUR 175 million in gross order intake for equipment versus around EUR 228 million last full year. We are really on progress towards beating our last year's order intake levels and of course, reaching a record order intake this year. Gross margin was at 9%, which is an improvement of versus the 33% last year.
This was influenced on the one hand by increased activity in Proton Therapy backlog conversion by a rather high margin product mix, but also by indemnities recognized following the bankruptcy of Rutherford Health in the UK and Forex gains on the strengthening of the US dollar. Group REBIT was EUR 0.6 million, increased from last year, reflecting all of the above, but also influenced by inflation, investment in OpEx, and some write-offs with a net loss of EUR 1.7 million. Order intake was very strong, and in the period there were four Proton Therapy rooms and 21 other accelerator systems sold, as Olivier already mentioned earlier. That's quite a record. We reported another record equipment and service backlog of EUR 1.2 billion, and the pipeline continues to remain extremely strong across all of our businesses.
Finally, our balance sheet is very strong with EUR 137 million net cash, and that provides us with significant stability for the future periods despite the current economic situation, as you have seen. Looking at some of the numbers in more detail. The group sales in the first half were EUR 160 million, up 17%, as I said, from last year, largely due to increased activity and accelerated backlog conversion as well as the Rutherford impact. REBIT profit increased to EUR 4.6 million from EUR 3.9 million last year, reflecting strong top line and improved gross margin and the indemnities on the Rutherford bankruptcy, offset by increased investment on inflation, which led to higher OpEx. We've been catching up quite a bit on investment since COVID, and that certainly has an impact.
We increased FTE by more than 4% over the period to support growth and increasing operations in our businesses. That's around 50 hires over the period. Total group loss increased to EUR 1.7 million, an improvement of EUR 0.2 million from last year. Our balance sheet, as I already mentioned, we reported a gross cash position of EUR 202 million. That's an absolute record, I think, since the history of IBA and EUR 137 million net cash.
We also have EUR 37 million undrawn short-term credit lines available, so significant capacity to be able to invest in the future too. In Proton Therapy and other accelerators, sales were up 20% from last year, reflecting all the things we just spoke about earlier, despite some travel difficulties and as Olivier mentioned, the fact that in China we're not completely out of the lockdown yet in all regions. With four new sales in Proton Therapy and 21 new sales for other accelerators in H1, with one more machine sold in other accelerators and actually more if I count today, after end of period and the pipeline continues to remain very promising. This compares with one PT sale last year for the same period and 13 sales for other accelerators in H1 2021.
On the Proton Therapy equipment front, if you look more in detail, backlog conversion resulted in revenues improving by 15%. four new orders were received in H1, with a total of 24 projects in progress now, and services, which are of course an important revenue stream for us, we're also seeing very strong performance with two new PT centers starting treatment in Asia and in the U.S. 9 new installations started in other accelerators and 18 new subscriptions in H2. As some of these issues are resolved, we really expect revenue recognition to catch up significantly in both Proton Therapy and other accelerators.
As you look at the group order intake a little bit more in detail, indeed, it's extremely high at EUR 175 million already at the end of H1, and we can see that we're approaching 2021 year-end levels after the six months. The same goes for the number of PT rooms sold and for order intake of PT and other accelerators, where we've already exceeded the previous year and are approaching year-end 2021 numbers. We also have a very high book-to-bill ratio in both PT and other accelerators, as well as in dosimetry, if you look at it, to the extent that we are seeing higher order intake than we are building backlog. That's obviously very positive for us, and we hope to be able to maintain that into 2023.
We have growing sales in Rhodotron, especially for medical device, disposable medical device and bioprocess of sterilization, as well as radiopharmaceuticals equipment, thanks to the newly developed machines that allow us to sell a larger range of isotopes for our customers. Now looking more specifically at backlog, this has increased to an all-time high of EUR 497 million, as you can see, up from EUR 449 million end of 2021. Of this, ProteusONE now represents 37% and other accelerators an impressive 38%. On the services front, revenues were up more than 11% to EUR 51 million, growing for the sixth consecutive year despite the Rutherford bankruptcy. Services backlog is now at EUR 661 million, a big decrease due to the reduction of the Rutherford sites.
Thirty-eight IBA PTC sites allow generating service revenues worldwide, and these sites have remained fully operational. Now taking a look at our Dosimetry business unit, which had a very strong H1 driven by the Modus acquisition on top line, conventional radiation therapy and medical imaging performance. Order intake also was strong at EUR 30 million and increased 11%. Backlog grew to a record EUR 20.8 million versus the end of 2021, and we announced a strategic alliance with ScandiDos that Olivier already explained.
However, revenue did decrease to EUR 1 million versus last year, partly as a result of inflation, but also due to additional investments that we've been making in supply chain management to support future orders, the high order intake and high cost one-off purchases related to the shortage of electronic components in the worldwide market. Now I'll hand back to Olivier to take you through a more in-depth business update.
Thank you, Soumya. If you look more closely at Proton Therapy performance, you can see the geographical split between four contracts signed in the first half, one in China, one in U.S., one in Milano, and one in St. Petersburg, and one new installation started in the U.S. As already discussed, the ConformalFLASH Alliance was launched in June of this year, including the University of Pennsylvania, UMCG Groningen, among others, and we look forward to providing update in due course. DynamicARC developments have also been made with the recent clinical presentation showing the potential for Proton Therapy in the head and neck cancer when using DynamicARC.
Looking more broadly at the Proton Therapy market, we have seen the resurgence in the Proton Therapy market, it continued throughout 2022, and IBA is maintaining its market leading position with 60% market share. IBA has also maintained its leading position of 44% of the Proton Therapy rooms in operation and 41% of the total market share in proton rooms. We continue to work hard on innovating in Proton Therapy technology, which is key to IBA Proton Therapy strategy and comes under basically three main activities, motion management, DynamicARC and ConformalFLASH. With motion management, we enable the treatment of more patients with confidence.
Development for DynamicARC a more efficient and simple way to deliver Proton Therapy are ongoing at Beaumont Proton Therapy Center. ConformalFLASH is a potential game changer in the radiation therapy market. In June this year, we launched the alliance, first collaboration of its kind between academia and industry to accelerate the delivery of the technology to patients. Recently, a further collaboration on the technology was announced with our friends in Seattle. As part of the collaboration, IBA will equip its Proton Therapy system and the proton gantry treatment.
We have decided some cancer center with functionality which will enable pre-clinical research on FLASH therapy. Looking more closely at the radiopharmaceutical business, where IBA leads the market for radioisotope production accelerators, including high energy machine. January saw the launch of the low energy cyclotron, the Cyclone T, increasing accessibility for small and medium-sized hospitals to diagnostic solutions and enabling them to develop radiopharmaceutical in-house. Our Cyclone IKON, which was launched in 2021, has seen a good adoption. Earlier this week, we announced our latest IKON sale.
The agreement was signed with CNST, a Chinese manufacturer and provider of medical isotope for oncology. The ongoing partnership is progressing well, with several technological achievements and strategic milestones on the horizon. More broadly, we are seeing growing demand for radiopharmaceuticals, and we'll keep the market updated on the latest milestone. Moving to industrial solutions, the high power electron beam accelerator continues to be key to this segment. Since the start of 2022, we have seen great progress with the accelerated adoption of E-beam and X-ray-based sterilization methods by key players.
There continues to be interest in X-ray and E-beam solutions as alternatives to gamma, which is under supply pressure, and EtO, which has been impacted by toxicity issues. The collaboration with NorthStar Medical Radioisotopes continues with two beam lines for the production of I-131. In dosimetry, we have seen a particularly busy front on the collaboration and acquisition, with a QA agreement signed in March with Elekta and the acquisition of the Modus we have already talked about. This week we announced the acquisition of 9.1% of ScandiDos, as part of a strategic alliance. Elsewhere we have seen strong order intake for patient dose monitoring device from original equipment manufacturer, which has been the results of forward planning with by the OEMs to build strategic products.
Finally, we remain focused on growing and strengthening competitiveness of our product offering, particularly in patient care. This slide will be familiar to you and outlines our commitment to acting as a responsible corporation. We'll be updating on the progress made to our impact, social and governance goal at the event. Now over to Soumya to talk about numbers in more details. Soumya.
Thanks, Olivier. As mentioned earlier, group sales were up 17% in spite of the macroeconomic challenges, with an exceptionally strong order intake and strongly improved backlog conversion for Proton Therapy. That also included the indemnities on the Rutherford contract. In other accelerators, backlog conversion weakened versus last year as a result of pandemic restrictions and some supply chain challenges, but also due to timing simply related to the order intake. In the second half with a strong increase and a doubling in the number of installations versus H1.
Gross margin improved in absolute value as well as a percentage of sales versus 2021, thanks to product mix revenue recognition on some high margin contracts and a positive impact from the Rutherford indemnities. The 31% increase in OpEx reflects a rise in activity and an acceleration of large investments in R&D for future growth. Alongside this, there was also an increase in sales and marketing costs as activity returned to pre-pandemic levels. There were also increasing levels of inflation which impacted the cost line. We are seeing around 5% increase in personnel costs from inflation, but also to some extent in material costs, which impact higher up in P&L.
As a result of the above, IBA reported group revenues of EUR 4.6 million and a net loss of EUR 1.7 million. Turning to the cash flow statement, there was a positive cash flow from operations driven by higher order intake and related down payments. There was increase in cash flow used in investing at higher CapEx as we invest in infrastructure and R&D, as I explained earlier, and some M&A related cash outflows from the Modus acquisition. The cash outflow used in financing activities basically the repayments and borrowings on the pre-payable shares.
Now I won't go into the details of the balance sheet, but it's worth reiterating that both its gross cash position and net cash position remain very strong. We have an all-time high backlog for Proton Therapy and other accelerators. We have been optimizing our working capital to ensure that we use our cash for this as possible. I'll now hand back to Olivier to discuss the outlook.
Thank you, Soumya. I think we had a good flow of review. I think the strong performance of IBA has been seen across all business lines. The prospects continue to be quite good. The order intake has rapidly accelerated across all business lines, and there is potential for this to further accelerate, especially in Proton Therapy. We have talked about the Spanish tender, and also in the sterilization business with E-beam X-ray being in very high demand across the globe.
The pipeline remains extremely active in the U.S., in Asia and in Europe. It provides us with significant visibility for the period ahead. The growing service business provides further visibility as a stable recurring revenue stream and the momentum remains high. Alongside this, our robust LNC and maybe we can start with these in the room. Yes, we'll start with people in the room. They deserve it.
All right. Maybe we can go then with results. It's very strong activity in my opinion. My first question will be this, according to that front, you have these massive backlogs, almost EUR 500 million equipment. What I'm wondering, going forward, it seems almost certain if the situation does not deteriorate, and it improves, most likely, you have very strong top line figures in the second half of the year and 2023, 2024. There were 18 systems starting installation. How should we look at the cost line? The margins, you think remaining around the 24% mark maybe. At the operational costs also, we see some traditional investments, some labor. How should we model this, looking forward? Because I would expect there to be very strong operational leverage coming in the outcome.
I, you know, we don't give guidance, so it's of course a difficult line to walk. Maybe I'll start, and then Soumya will join. Hopefully show you, I think, you know, we're going to grow, but that's kind of obvious with the book-to-bill ratio. And indeed, I think we will potentially, and especially with the 10 orders in Spain, are going to continue to experience some growth. Hopefully so as well we'll see some operational leverage, definitely. Some of it will have to invest in the growth, and some of it will have to deal with additional inflation, even though, you know, with what we can also pass on to our customer y ou know, we don't give guidance, but in a normal world, indeed, I think we'll see some improvement to our numbers going forward.
I recall that in the past, you mostly said that your operational costs should grow in line with inflation.
Mm-hmm.
I mean, first half, it was a bit more than that. I'm just wondering, do you stick with this in line with inflation, or are there some additional investments to be done because you have such a strong backlog? Or maybe give some examples of the investments.
No, I think. I mean, what are the different areas? First of all, if I take industrial application, I think we'll have to pivot on our service capabilities. We need to hire people. When we hire people, we need to train them. This is additional, let's say temporary, overhead, let's say. We see some of it. You have seen the order intake for other accelerators, so we can expect very significant growth into this segment, which will come with, let's say, a significant hiring program to be able to service and install this going forward. That's one of the investments.
In the other part of the investment, we continue to invest into digitalization, you know, across the board, being for R&D purposes or expansion, ERP going forward. That's why I think the OpEx will grow slightly more than inflation to basically cover the costs. Once again, we don't give guidance on this, but indeed I think with growth, as we see, once again, it's a good book-to-bill. Hence, in a normal world, try to evaluate what this growth will be. We'll have to have an increase of our OpEx slightly above expectation.
Let's not discount the impact of IFRS. You know that a lot of software-related investments now potentially have to be put into OpEx rather than into CapEx. Up to now, we've not had too much of an impact on that. Going forward, I don't know. We need to see how the future investments will hit the OpEx. On the other hand, it's an accounting issue more than a strategic issue itself, because it's basically putting in CapEx and amortizing it, or else directly taking it in OpEx when as the costs come. Let's see how that works out. Indeed, as Olivier said, there's quite an expensive investment plan, and we can give you a little bit more color maybe at year-end on how much we plan to invest once we have a better view on that.
Okay. Well, that is clear. The second question on the second big topic, of course.
Mm-hmm.
The Spain tender.
Mm-hmm.
You know, the slides with the market share, no Varian in there. So, I'm just wondering what's happened there.
They don't have Varian, so you can ask them the question. I think.
You are in the same contract as them, so.
Yes.
Regarding that, maybe on the tender in itself, how come that you are the sole supplier, selected as the sole supplier? Also, I know you're still in the process. But looking at the capacity, 10 systems, how fast could you provide these systems? Normally you make them in two and a half years. But okay, the cost has been taking a bit longer here and there. If it happens.
Mostly because of the customer side. I think maybe historically, we have always been on time when it comes to being in a position to ship the equipment. I think the building on the side of the customers are, let's say sometimes more challenging. I think in this case, you know, the factory that you're about to visit has been designed to produce, if I remember well, 20 ProteusONE in one go. It's not only ProteusONE we produce here, we produce ProteusONE as well, and with this machine. So we have a very good use of the factory. We have also a very good network of suppliers. I'm not so concerned about our capability to deliver.
The Spanish tender needs to be delivered over a period of five years, if I remember well. Therefore, it's something we can cope with on top of, you know, business as usual. We continue to intend to sell more therapy systems on top of the Spanish tender. I don't see any big issue on the capacity here, including the one of our supplier. When it comes to, the only thing I can comment is our competitive positioning in Proton Therapy. I think what you see in the Spanish tender is significantly, let's say, superiority of the Proteus One value proposal. We keep hammering for a long time that compactness is very important, and Proteus One is the most compact system.
We keep hammering that standardization is very important in Proton Therapy, and ProteusONE is the closest you can get from the product standpoint. Otherwise, in Proton Therapy, most of the time you speak about project. Which means that indeed we are very competitive into this segment, whereas other competitors in that bid are stuck from being there. Therefore, I believe, are potentially challenged from a profitability standpoint much more than we are.
The focus on maybe on Proton Therapy for a long time has helped us also to develop a significant network of suppliers that are fully committed behind us to you know being able to provide whatever the demand will be. Which might not be the case of other suppliers. There may be more R&D trials to be done, more profitability, let's say constraint, that we have had into this tender. It's not that we were the only bidder, we were the selected bidder.
I think maybe just to add to that, you must remember that when we decided to build this new production facility, it was also to ramp up number of sales we were having on an annual basis. It came bit delayed, maybe it's coming now, but it was already a ramp-up basically to deliver more than what we were already delivering. Five, six, seven centers, yeah, was absolutely no problem. If we have to double that, it will be.
Okay. It's clear for me. Just 'cause you mentioned a bit about the profitability, would you assume that, you know, Siemens doesn't want to see any losses from Varian in the Proton Therapy?
I think nobody likes to lose.
I mean, strategy has changed.
Maybe I think, you know, once again, that Varian is a very good company, and Siemens is also a very good company. Proton Therapy is also a business, and maybe they took some assumption in the past that they are not realizing now, and they correctly price recovery. I think it's potentially that is efficiency. I can assume, but I don't see it.
Thank you very much.
Thank you.
Thank you for the presentation and for taking my question. A question regarding Proton Therapy. You mentioned before that 2022 was about installation, but that these will accelerate in 2023. To what extent do you expect these installations to be impacted by supply issues, as we saw with other accelerators this semester?
Almost everything that we're doing in 2023 is or shipped or about to be shipped. Most of it. A lot of it will happen in China. From that standpoint, I think we're pretty much in good shape. I think overall we're in good shape. It's like I think we can say that lead time has increased, you know. It's not that we cannot provide. It's just that it takes a bit more time. Indeed, as Soumya alluded to already, we have, you know, sometimes shipment constraints or things like that. As you know, there is much less shipping lines available.
Yeah, exactly. One of the things that we try to do is we try not to ship in several lots because the cost of shipping it so far away is expensive. We wait until all the supply has been procured before we ship it. Obviously, sometimes things take a little more time, and that impacts revenue recognition, and that has been the case for PT as well as for the other accelerators. It's, it's timing mostly, right?
Yeah, mostly timing, I think. Indeed. When we say impacted by COVID, it. Your global supply chain has slowed down, if only because of one thing, the shipping into China. They had to quarantine.
Plus, of course, the Russian war, which means that,
Russian war.
All the Russian companies that were in Japan are, you know,
Coming back to the question, I think we have a pretty good view on this. What will happen in 2022, second half and early 2023 is all in the books here or already on its way to the customers. We have pretty good view on that.
Okay. Thank you.
Which does not remove all the uncertainty because indeed, our conversion depends also on the capacity of a supplier to provide the next wave of it. I think overall it's with a little bit slower turnaround, it's coming back quite nice.
Okay. A question regarding other accelerators. You said in the past that you were expecting normalization plus level, but we see now that these things are decreasing quite a lot.
Yes.
What's your view on that for the future? What do you expect to change?
I think that the very different drive from one to the other. I think what we see in RadioPharma Solutions is I would say three drivers. One is a huge big demand coming from developing countries. China is definitely moving. India is moving. Even Africa is moving. We are starting to sell cyclotron in Africa, which is a very good news for all of us. So under equipped countries are, you know, moving. That's number one drive. Number two drive is new isotopes, whereas IBA develops a unique competence in providing the higher energy cyclotron like the Cyclone IKON. The reason behind the Cyclone IKON is Germanium-68. Here I'm not good with numbers, so it's Germanium-68, which is also in high demand for some people that develop generator.
The supply chain of germanium is in very high demand, and our Cyclone IKON is the answer to that. Then you have a scandium rubidium, also with 70 MeV, where the demand is increasing, and people need to buy higher energy cyclotron to do that. But that's in RadioPharma Solutions. In Industrial, you know, I work for IBA for 26 years. 26 years ago, we already said one day, medical device sterilization service provider will need to build the capacity for, sterilization using E-beam because there's some limitation to alternative technologies such as gamma irradiation and ethylene oxide. We were right, but 26 years too early. But the good news is, still today we're so far ahead of competition and it's really happening.
I think big players in the field have decided to move. They are building up capacity. The reason why they are doing it, we mentioned it in the presentation, is that there's strong, let's say, concern with the use of EtO. I think I've seen another recall recently of, you know, food products that were infected with EtO. Plus the gas is very dangerous. It can explode. We have seen a few accidents. There's a lot of scrutiny over EtO and lately also people believe that they will be able to expand the existing capacity, but they will have no new product to complete their capabilities. On gamma irradiation, you need to use cobalt sources. There's a huge shortage globally of cobalt, so there's no choice.
It happens at a time where there is a huge increase of the demand for sterilization, among others, due to COVID, because of the need to sterilize syringes. Therefore, they're kind of in a hurry to expand their volume. IBA seems to be. It's not that we're only one, but we have a very mature technology, and we have a huge competitive advantage when it comes to the level of energy and power that we're able to develop with the Rhodotron on the market.
Yes, we see a massive increase of demand. Your question was about the future. I think it will continue for a while. Is it going to go like this? I don't know, but maybe it could stabilize at this level. Physically, we are preparing to significantly increase our capacity in proton for sure, and to a certain extent to Cyclone.
A part of the OpEx increase is also related to the ramp-up on that.
Yes.
You see, you know, it's always the same story. You have to ramp- up before you have the revenue, so there's a time difference between the two. Yes, we have Matthias on the line. Matthias, hi.
Yeah. Hi, can you hear me?
Perfectly.
Yes. Mathias.
Yeah. Hi, good afternoon, and thank you for taking my questions. Maybe, yeah, to start with, on the topics that have already been touched upon, but it's a bit of a follow-up questions. Specifically on the operating leverage, could you maybe just elaborate a little bit on your personnel costs? How much does it actually contain of the OpEx, and how much sits in Belgium? And how should we think about inflation going forward? And then also, probably importantly, if you look at inflation, how well are you able to pass on that inflation towards your customers? So what is the cost pass-through mechanisms in the existing and the backlog, I would say, if you could elaborate on that.
Second question maybe on the Spanish tender, could you maybe give us a little bit of an indication on the timeline actually? And what still needs to be, yeah, I would say decided, given that you are now the only contender that goes into the next phases. It's a bit of, yeah, abstract maybe that there's still a second and third round. Could you maybe elaborate a little bit on that? On the execution of the contract, how should we see this, how should we think about this falling through into sales? If you could give us some guidance on that, it would be great. Thank you.
On the inflation, if I remember well all your questions, first of all, when it comes to people, we have about half of our people here in Belgium and half in the rest of the world, with the main jurisdiction being Germany, U.S., and China. Then the rest is basically spread. With Belgium, U.S., China and Germany, we cover probably. Yeah, we probably cover like almost 90% of our people or 85% of our people. You know the number probably as well as I know them in Belgium, when it comes to to index that we are going to face. I think we speak more or less of 10%. That's as easy as that. In the rest of the world, there is no mandatory index.
There's also a fight for talent, so you can assume that inflation in these countries are probably the number we are looking in terms of of salary increase. When it comes to mechanism for passing it to to the customer, when it comes to service business, it's contractual. I would say most of our service contracts have an indexation clause that we basically apply. When it comes to backlog, equipment backlog, I would say that most, not all our recent contracts have an indexation clause. Some older contracts has no indexation clause. Now most of them are about to be rebuilt or let's say the purchase is set to run.
We have orders to supplier, and still we have the intention to open the dialogue with the customer to basically see or negotiate additional price increase if they are significant. I'm not aware of any significant price increase in the backlog. I would say we're overall quite protected. I still expect to see an impact, but it's not going to be very significant. We have anticipated some of it already. We have already adjusted with our number, let's say some kind of reserve for increase of supply chain.
You also asked what's the proportion of our OpEx that comes from salary.
Yes.
It's between around 70%-80%, depending on. A big chunk of the OpEx is indeed.
When I look at this dynamic, I think that there's basically going forward three things that will happen. One, we will grow. We're already anticipating that. We'll see some operational leverage. The second thing is we're going to see some inflation, so we'll have to increase prices to compensate for these price. We need to work on the operational leverage, but also our efficiency across the operation. So overall, one second. We don't give guidance, but we can expect how do we say this, profitability expansion or how do we say. That's all right. I'm allowed to say it, thanks to the growth despite the context, so.
Okay.
Everybody's looking at me now, very upset.
Not at all. Sorry.
Yeah. No, no. Go ahead, please.
Okay.
No, no. The second question was on the Spanish tender, effectively on the,
The tender is quite simple. There is three envelope. One was. You have to help me maybe. One was on the qualification criteria, let's say.
Yeah, all the criteria. For example, you had to have a certain number of Proton Therapy centers working, [Inaudible] . Basically on what you already do in Proton Therapy.
This one is open, and we passed this number one step. We have already submitted the three envelopes. Nobody else can submit three envelopes. Everybody has submitted the three envelopes. They have opened envelope number one, and based on what they read on envelope number one, we are the only qualified supplier. They have opened envelope number two. Envelope number two is technical specification. They have opened it, they've looked at it, they say, "Oh, looks good." Still they have a committee that is supposed to go through the technical specification of our offer. I expect it to be almost certain, but you never know, they will say, "NDA complies with the technical specification of the tender." They will open the third envelope.
It's the most important one, the price. They will basically open our envelope. They will look at our price. They will look at other envelope price. I know there is no other envelope price. I think I expect this one to go through quite well as well. We will contractualize all this. How long will it take? That's a very good question. I think there's some, let's say, will to make it fast because The Amancio Ortega Foundation gave a timeframe for it to happen. They don't want it to take 10 years before we can start to work on this. They want to have a good, let's say,
Sorry. A good addition to this. Yes, the end of the year is a good estimation on having the tender envelope open and NDA confirmed as a supplier for the 10 system. We'll start to deliver them. I think, I guess you know very well the kind of timing we're looking at. They will have to build 10 buildings for Proton Therapy. We'll have to build 10 ProteusONE. You know, standard, let's say, lead time to produce a ProteusONE is 18 months. We'll start to produce them in 18 months, and we'll start to deliver them one after the other, with a few months space between.
There's a gap between.
There's a gap between all of them. 18 months, we deliver one. A few months later, we deliver number two, three, four, five, six If I had to do a business model, that's how I would look at it. Starting to work on it in January 2023, 18 months lead time. One delivery every three months, let's say. Let's say something. Starting month 18, going forward. Then that's, I think that's the standard plan, let's say. We'll see what happens. If somebody lags on the building side or is fast on building side, we'll try to. I mean, we will work in full sync with the MOH. We spoke about 10 systems, but it's nine. Nine. It's not eight single room and one double room.
The double home will be a double ProteusONE. That's why we say ProteusONE. We will work with the nine customers, nine region, basically sync our delivery and installation with their building. We can expect some of them to be fast. We can expect some of them to be slow, slower. That's really a bit uncertain. A little bit of variability on the model.
Well, I think anyway, first we need to win the tender, and then we need to negotiate. Once we have that done, then when that happens, we'll be able to give more color on that.
Yes. Overall, that's how it will look like.
Okay. Clear. Maybe just one short follow-up. You might have said it, or I might have missed it, but in terms of services contract for these 10 rooms, this makes, how we say, subject to the present tender and negotiations or will that still be negotiated afterwards?
Well, in the tender, if I remember well, we had to give an indication of price and service. It will be negotiated with every client later on.
Okay. All right.
To see the usual level of services for the nine or the 10, if I have understood. Let's say the 10 machine.
Yeah. Okay. That's clear. Thank you.
I think we have another question. I'm sorry, I don't know who it is. Please introduce yourselves. Were there any other questions? Please raise your hand and we can take them.
Otherwise, we have one more question in the room, I think. One more, one more question?
It's on mute.
Oh, it's on mute. Okay, okay.
I still have some questions in the meantime, maybe.
Mm-hmm.
Maybe on Dosimetry in general. Acquired Modus, Canada. Now, yesterday again, a few years ago, you were willing to divest the business.
Mm-hmm.
Changing your minds on this front?
Oh, I think we changed our mind a few years ago. I think a few years ago, we've looked at you know potential strategic, let me call it strategic alliance with someone else. We are a big shareholder for those investments in IBA, but we didn't think it was a good thing to do. As soon as we decided to, let's say, keep the business, we also decided to continue to invest into it. What we have said is basically we believe this business can significantly grow providing we complete the product portfolio. That's what we do.
We develop new products, and we believe we are well-positioned to come with a killer application, or we buy products that are nicely adding to our product portfolio. This is what we did with Modus and what we are going to do with ScandiDos. Sometimes it is an acquisition because people are cleaning their portfolio. Sometimes it's more of a strategic alignment. It can be just because they want to stay as an independent company.
That's our focus. Continue product portfolio. We are very strong in Pharma. AI. You remember in Dosimetry, basically there's three segments, okay? Machine QA, patient QA, and more of a diagnostic application and mainly OEM. Very strong in OEM, very strong in machine QA. We have significant gap in our product portfolio in patient QA. This is our focus now.
Maybe we take one last question. I think Matthias still has one question.
I'll keep it short. It's a housekeeping question. The impact of the acquisition in H1 and what you expect for the full year in Dosimetry, so Modus Medical ? And..
Yes. We haven't disclosed it separately from the rest of Dosimetry, but I think you will see the IFRS report will be out soon, and you'll see the value of the acquisition, which was, I think, mentioned. I don't remember if you mentioned, but you will see it in the IFRS report. On the impact on the P&L, it's already accretive. We already have a positive impact on it, but we're not disclosing the amount right now.
Yeah. Okay.
It's the way to plan. Basically, we wanted to ensure that we would have a positive impact on the first year of acquisition. By the way, it's going. It's very short, but for H2, we'll see that impact too.
By the way, it's working very well. I think we can see that.
We are about, uh-
The commercial synergies. The idea, once again, is take a product like ourselves, basically a stand-alone for the company, which it can be close to. Modus had a very nice product portfolio, but they didn't have the full range. Adding the two portfolios together, we were much more competitive. We have seen. We're able to push through our commercial channels the product of Modus much better than they used to do it, and we have seen quite a significant uptake of their sales volume.
Okay. Thank you. That's clear.
Great. If there are no more questions, I think we can close the call. Thank you everyone for attending, and we shall speak to you very soon.
Thank you. Bye-bye.