Yeah. Good morning, ladies and gentlemen. Thanks for joining our call today and, welcome to our six months, 2021-2022 analyst conference. I am Sebastian, I'm the Head of Investor Relations, and with me as usual are our President and CEO, Dr. Markus Weber, and our CFO, Justus Wehmer. I would like to hand over to our management now to give you an intro to our financial statements of the first six months, and afterwards, we look forward to your questions. Markus, over to you.
Yeah. Thank you so much, Sebastian, and also a very warm good morning and warm welcome from my side to our six months analyst conference of the Carl Zeiss Meditec AG. As usual, I would like to give you a brief overview first of the half year's numbers at a glance, and afterwards then Justus, my colleague, will take over giving you a more comprehensive analysis and details of the last six months. Afterwards then I would like to share some exciting highlights in this case an M&A activity what we just have executed. Then finally I will give you an outlook and then ending with a Q&A session and enough time for Q&A .
Having this said, I would like to start with the financial figures and yeah. Overall, we are looking back to a good H1 year. A very solid revenue growth of 11.5% to EUR 855 million. This is quite nice, but it's also clear that the macroeconomic environment becomes more and more tense and tight also for us. I think everybody is currently facing this, and we see this also especially in our supply chain and there in our global supply chain.
Overall, we see a very strong order intake of more than EUR 1 billion. This shows also the powerful team and also the good product placement of our innovations in the market, more than 30% year-on-year. This is quite impressive. We see also a growth in all regions, and I come to this in a second again. Both the strategic business units, so that means ophthalmic devices and microsurgery, has contributed in a positive way to this good half year result. Ophthalmic devices went up to EUR 650 million and microsurgery then to more than EUR 200 million. This goes along with 10.5% and 14.8% respectively. Justus will give you more details on this and with a more elaborate analysis.
Also important to know that the business here is also affected, highly affected by the supply chain, also shown by the book-to-bill and the high order entry in comparison now to the revenue part. Also important to know for you is that ophthalmic devices, that the recurring business has been not so much affected by the supply chain instead of the devices.
Having this said, we see then in the regions overall in APAC a very good revenue growth, especially also in China and India, now impacted also by the COVID lockdown in China. That means this will be an issue then also for the upcoming half year, but we will also talk about this in a second. Japanese market is back to growth for us, so this is also nice.
The European EMEA has a strong demand from our core markets, also in South Europe, a very strong, actually demand, and also Americas shows a good development. Overall, this is nice and we see actually that overall there's a good progress. Going now to the earnings. The earnings also, we are actually happy to report this here, has a slight increase to EUR 177 million. The EBIT margin is more than 20%, 20.7% in direct comparison to 21.2% of last year.
There's a slight decrease in the EBIT margin, actually also already as predicted as you know. The reason for that is also as we forecasted, is first of all, we are heavily investing still in R&D, and this will continue over the next years as we discussed, because we believe to stay on a growth path. That also means we will go in digitalization. I come to this later on again. That means that we are investing also in our leading products. We are investing in new markets, we are investing in workflow, and we are investing in digitalization.
Overall, this is then also reflected in our R&D investments. We see this also in sales and marketing efforts. Sales and marketing is then new products what we brought to the market, like the QUATERA, but also that our team in sales and marketing are now going again into a let's say pre-COVID status, talking more to our customers, having trade shows, having these let's say hands-on market introduction of the products. This is also something what is reflected in our OpEx in the sales and marketing expenses.
Also supply chain and here also working capital is a topic where we are investing to ensure that the supply chain is as much as possible stable. This is also something which is affecting our P&L. Having this said, EBIT is on a good level, and you see this also in the earnings. Earnings is also on a high level, with some special actually effects coming in.
Overall also here, a good earnings per share of EUR 1.44, which corresponds to 27.9%. Having this said, overall this is a good status of the H1 year. I think we will come then also to the outlook, and with this, I would like to hand over to Justus. Justus?
Yeah. Thank you, Markus. Also a warm welcome from my side to all of you. I'm now going to give you a more detailed overview of our financials, starting with the performance of our SBU Ophthalmic Devices. Revenue came in for OPT with EUR 652 million. Compared to prior year, the reported increase was 10.5%, and at constant currency, 9.7%, especially due to a high contribution, once again, of our recurring revenues. Especially in our refractive business, we continue to see a very strong development with, again, a strong performance in Asia Pacific. I'm very happy to report that last month we have obtained the clearance of our new phaco system, QUATERA 700, by the FDA. We had a highly successful congress.
As Markus just mentioned, face-to-face shows are basically back, and at ASCRS in Washington in April, we had very strong interest in this new device and are looking forward to the rollout over the next few months. SBU OPT EBIT margin decreased slightly compared to last year due to increased expenses, but EBIT increased in absolute terms as a result of our continued business expansion. As guided earlier this year, we clearly see the recovery in sales and marketing activities to the ranges of pre-COVID levels. Trade shows, as we just mentioned, take place physically, and travel is also picking up significantly. This is in line with what we had been expecting and forecasting since last year.
On top of it, we invest in the sales and application team for our global phaco rollout, as we had also guided prior. There's also an increase in R&D expenses to support our strategic initiatives, like, for example, our digital ecosystem, the ZEISS Health Data Platform. Yeah, with that, let's move over to MCS. MCS delivered a very strong performance with revenue of EUR 204 million versus EUR 177 million a year ago. This represents a revenue increase of roughly 15%, at constant currency, 14%. This is really good growth given the difficulties in our supply chains.
I'd like to point out that the faster growth compared to ophthalmology is at least partially related to the slightly lower base for microsurgery from last year. At that time, this business was still recovering somewhat slower from the pandemic than ophthalmology. EBIT margin is still very strong and has actually further improved despite increased expenses in sales and marketing. We had some positive currency effects that also supported the EBIT margin as most of the cost base in microsurgery is in Europe. Yeah, let's on the next slide look at the regions. I only highlight a few things here.
The strongest momentum, again, we saw in the Asia Pacific region, but let's start with a few words on Americas, which achieved sales of EUR 212 million, which is an increase of 7.6%. However, at constant currency, this is only roughly 2.6% versus prior year. We are though still pleased with the development in the market in the U.S., where we grew 8% and at constant currency, 2%. Latin America, and here Brazil and Mexico in particular, rebounds nicely with increases of, in both markets, roughly 9%. In EMEA, we noted revenues of EUR 229 million. Overall, an increase, as reported, of 5.8%, and at constant currency, a bit more accentuated at 7.1%.
The development in Europe is somewhat heterogeneous. Some of the core markets are at last year's level or slightly below. Some other markets, southern Europe, for example, with significant growth versus last year. It's in total a somewhat mixed performance by country. As I said before, growth in Europe overall very satisfactory. As I said in the beginning, once again, the strongest growth we saw in the Asia Pacific regions yielding EUR 414 million of revenues, which is 17.1% up, and at constant currency, 17.3%. China, including Hong Kong, again, with an outstanding growth of 25%, but also India very strongly rebounding 68%.
Let's also remember here that India at this point in time a year ago was in the, let's say darkest hours of the pandemic. Japan, which is a meaningful market for us, also back to growth, 6%. I think in the other countries for Asia Pacific, it's again a mixed picture with growth and also some markets which are rather slower. With that, let's move then at the P&L. The increase in the gross margin with 58.6% compared to previous year was supported by some positive foreign exchange effects, mainly Asian currencies are here to be mentioned. The product mix effect, as I mentioned earlier, the recurring revenues again were growing strongly.
The OpEx increase, I think we explained it now in detail. Markus and myself made some comments, you know, the increases in sales and marketing for advertising and trade shows and traveling of course, on the one side, R&D with our, as you know, continuous investments in our strategic priorities. In the prior year, that's just to remember here, we had a one-time effect in selling a property that is in relation with us moving in a few years into currently under construction a new building in Jena.
In total, the EBIT of EUR 177 million is above prior year's level, which was at EUR 163 million, and the EBIT margin comes in at 20.7%, slightly lower than the 21.2% that we saw a year ago. The adjusted EBIT margin, you see on the next slide, it reached 21.2%, and here you see the effect of this property sale, and considering that we have EBIT margin level, which is almost at previous year's level. With that, I think we can already move on to the next slide.
The cash flow situation, that obviously looks really quite different from a year ago, and the operating cash flow, which was up by 75%, but which is basically half of what we saw a year ago. That is clearly an expression of the investment in our working capital. We really are investing here in inventories to secure our operations and assemblies in order to maintain basically operations up. That is something that we need to consider.
Obviously, we also have quite a number of products which are unfinished yet because we are waiting for the one or the other missing part or component, and that is all putting some pressure here on our operating cash flow. Those safety stocks, so to speak, are, as I said before, actually an investment that we see to secure then hopefully continued supplies to our customers in the H2 of the year.
Cash flow from investing activities consisted mainly of payments for property, plant, and equipment. As you know, especially, the expansion of our consumable business, both for IOL and refractive products, is here in the focus. We also have here a recent acquisition that is showing in these investing activities. Cash flow from financing activities is mainly influenced by changes in receivables and payables on our treasury accounts and lease payments. Net liquidity once again is increasing and well above the EUR 900 million threshold.
Yeah, we have added an additional slide as just discussed in the cash flow statement, and with the comments that I made, with regards to the working capital. The current global political and pandemic situation causes clearly some concerns in the supply chain. We want to share a few more details on how we are affected and how we are managing the situation with you. The unprecedented supply chain pressure we are facing pushes our order backlog to record highs, and we have put in here a graph illustrating it. The chart on the slide gives you a rough idea what categories are most affected. What you see here is the breakdown of the categories and the growth of the order backlog and where it comes from.
The absolute growth was quite massive, amounting to more than EUR 200 million compared to March 2021. I'm anticipating already questions about it, but I can assure you, and I have discussed this with our sales management, we consider this to be an order backlog of good quality, meaning that these are serious orders and not any kind of what should I say, reserve bookings or whatever you wanna call it. That just as a side comment here. A significant portion of this backlog comes from surgical microscopes, both on the microsurgery side as well as on the surgical ophthalmology side, but also the diagnostics and refractive laser equipment is affected here.
There is an underlying piece of good news, however, and that is that, as you can see, the consumables business is not really impacted in any meaningful way, as reflected in the only very negligible increase of the consumables backlog. I would also wanna share a couple of words on the two big geopolitical crisis that are playing out in front of us. First, the one in Ukraine. We can confirm again that direct revenue impact has so far been limited to the impact on our Russian business, which contributed between 2%-3% of our total sales in a year before the war, and is now declining very sharply as one might expect in this situation.
Carl Zeiss Meditec is not hit by the E.U. or U.S. sanctions and continues to deliver to our customers in Russia, ensuring that patients receive medical treatment as needed. However, and that is important, to be mentioned here, the management has clearly decided to donate any profits from the continuation of our Russian business to charities that are active in the Ukraine, and the first such donation has actually been just a couple of days ago.
At this point, our supply chain largely continues to work without major disruptions, though we have to build additional safety stocks, as I mentioned before. Let's now talk about China, which is clearly of high interest for you. The situation there is much more complex. There are several ongoing lockdowns related to the zero-COVID policy. Most prominent one, obviously, in Shanghai.
The Shanghai lockdown has enormous ripple effects on transport and logistics, as well as warehousing of our products. This means that, again, surgeries are being delayed, although the number of hospitals being locked down, and that's important for all of you, is only minimally affected. It's from the counts that we do regularly only in total China, anywhere between 10%-15%. Keep that please in mind. As in previous COVID-19 episodes, yeah, surgeries are being delayed, but even outside of the lockdown areas, some products, however, are currently not reaching our customers, and this is because of the logistical problems that we have, of course, once we cannot operate a warehouse which is in a lockdown area.
However, we are looking with some positive optimism in the next couple of weeks and months, seeing that just lately, over the last two weeks, the situation seems somehow to ease up. We have, however, experienced a low double-digit million EUR impact on our revenue so far, meaning especially during the month of March and April. It is helping us that in our consumables business, particularly in refractive, we are currently not in the busiest season of the year. Many of you know that the summer season is actually between June and August. Therefore, the current shortfall, we are still considering it something that is manageable.
It is hard to predict, though, if all of this is recoverable once the lockdown ends, because nobody knows once it's really going to end, and we cannot obviously predict when this is going to be the case. Although I think this is something to also remember because it's not too long ago, I'd like to point out that even in 2020, where we had several months of a total lockdown in China, a very vast majority of that lost business was actually recovered shortly after reopening. Learning from that experience, we also have some positive optimism looking forward.
Yeah. With that, I thank you for your attention and hand it back to Markus.
Thank you so much, Justus. Let's come to the focus topics, and I'm very happy to announce that we have recently successfully finished the acquisition of two companies, Katalyst Surgical and Kogent Surgical, and both are US-based manufacturers of surgical instruments and located in Chesterfield, Missouri. Both were founded by Craig Scheller, and Craig Scheller is a key innovator in this field, in this market, very well known, and actually we are very happy that he's also now after the M&A very committed to stay on board after the integration, becoming a part of ZEISS and actually acting also as an innovator within ZEISS, which brings us additional value also there. We have already a relationship with Katalyst.
Katalyst has been supplying our surgical instruments business, FCI, France Chirurgie Instrumentation, part of our surgical ophthalmology division. As you can see, that Katalyst has a very strong focus on ophthalmology, and the product portfolio is particularly complementary to the current retina and vitrectomy business. This is quite nice. It's actually completing also our portfolio here and goes along also with our workflow approach. On the other hand, Kogent's innovative and growing electrosurgical portfolio, especially also in bipolar forceps, with a strong development pipeline, also enables us to enter new market segments and adding recurring revenue to our SBU microsurgery business.
As you know, this is also one of our strategic goals, to increase our recurring revenue, in microsurgery, and this is helping us here, where we see a wonderful combination also actually to implement this in our workplace solution strategy. Those products are going to expand our solution offering in all regards, so in surgical instruments and serving our surgeons with a one-stop shopping convenience. Again, this is, in addition to our, aspiration to provide workflow solutions.
As agreed, this is important for you to know with the target, we are not disclosing exact size and valuation of the deal. However, it's also clear, it does not have a material impact on our P&L. You will, of course, find all mandatory disclosures in the notes to our financial statements and in the full year 2022-2023 report.
We are really very happy to welcome the Kogent and Katalyst team to ZEISS, and looking very forward now to the next steps in the next months and to a successful joint activity here. Yeah. This is actually our focus topic of today, and with this, I directly would like to come to the outlook. Lastly, let me comment on our fiscal year and the upcoming half year of the fiscal year. Our industry is still very impacted by the global supply chain difficulties, and Justus has mentioned that in detail and all the regional lockdowns.
We believe that it will continue to benefit from highly favorable long-term growth trends. This is quite important. We see this, what currently happening is the VUCA world on this. This is on short and midterm. On the long term, we are very well positioned here, and these trends are actually four in the hand. The first one is the aging of the population. Second one is the growing wealth in large parts of the world, and a rising access to healthcare in the RDE and rapidly developing economies. Finally, and last but not least, increasing information access to digitalization.
These trends lead to a growing number of patients, and thus also a higher load to the healthcare systems. That means there's a high demand then coming from the digital solutions, telemedicine, also, artificial intelligence-driven features, and this becoming more and more relevant for ophthalmology and, but also microsurgery. This is exactly where we are investing our R&D, so that we are prepared and that we are actually shaping the market here.
The outlook for 2021, 2022 is positive. In spite of all the difficulties we are facing in the short term, we aim to grow and to outperform our markets. Not only ZEISS but the entire industry is impacted by the tense situation of the global supply chain, and Justus has explained that in detail. The disruptions are likely to continue for the remainder of the fiscal year. There's a high uncertainty. As we have pointed out, we are having a substantial order backlog, so the market is there, the market is healthy for us, and it is very hard to say how long this situation will last.
Nevertheless, we estimate our EBIT margin for 2021- 2022 to be between 19% and 21%. Goal remains achievable for us if there's no further material revenue loss from supply chain disruptions and no further material impact from, for example, an extension of the regional COVID-19 lockdowns in China. This is the high uncertainty we are all facing.
As we have seen already in the current quarter, we expect more normal levels of operating expenses. That means return to pre-COVID situation, particularly in sales and marketing. This applies even more so in the context of our upcoming product launches. Midterm, we continue to have significant investment needs as we want to further broaden our global presence and want to continue to drive our innovation strategy with a high level of R&D investment.
This goes along also with labors and new colleagues coming on board. However, on the other hand, we consider the high level of recurring business as mostly sustainable. Profitability will clearly benefit from this trend. As a result of higher costs, but more also a higher level of recurring business, we are confident that we can achieve in midterm EBIT margins sustainable above 20%. That means really beyond 20%.
With that, we have to come to the end of our prepared remarks on the financials. Let me pass it back to the moderator to move into the Q&A session. Happy to answer.
Thank you. We will now begin our Q&A session. If you have a question for our speakers, please dial zero and one on your telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you find your questions answered before it is your turn to speak, you can dial zero and two to cancel your question. If you're using speaker equipment today, please mute the handset before making your selection. One moment, please, for the first question.
The first question is from Oliver Reinberg of Kepler Cheuvreux. Your line is now open.
Oh, yeah, thanks very much for taking my question. The first one is actually on China. Can you give us any kind of color, what kind of growth have you seen in Chinese sales in the H1 ? And I guess it's tough to say, but do you have any kind of view, like, how the kind of zero-COVID policy in China is going to continue?
And specifically, how do you think about the midterm risk on China in terms of if at some stage the zero-COVID policy would be reversed, what would be the risk on elective volumes? And also, have you done any kind of work on the potential economic sensitivity of the demand in the refractive laser business in China?
And the second question would just be on the U.S. You talked about a kind of stable development. Can you just talk about what kind of headwinds have you seen there? Does the order backlog suggest that there may be a kind of acceleration going forward? Thank you.
Yeah, Oliver, just to say, I try to give you a couple of answers as good as I can. The growth rate for China actually has been in the H1 year pretty much a continuation of what we have seen throughout the last year. Clearly, in a high, you know, double-digit area and so not too much difference actually to what we saw before.
The key drivers of the business across the portfolio, being at both our MCS business but as well, of course, our refractive and surgical businesses, have continued the growth of the installed base for lasers for refractive surgeries and the consumption of consumables, have actually continued on a pace that was very similar to what we have seen throughout the last year. The COVID policy question, I mean, there's too much speculation.
Of course, we do not have any how should I say, a better contact or information. I can only simply factually share with you that in the last two weeks our company has been part of that second wave of companies in the Shanghai county that could basically restart the operations, which was very helpful to us because that meant that we could actually start shipping again out of our warehouse. As we all know, however, there is still a good number of employees locked away and has to work from home. I think the only good news here is that there's obviously some practice and experience after two years of Coronavirus that means that we can somehow conduct our business.
The elective procedures, I mean, let me only share with you here data point. As I mentioned before, it is not that it is, you know, like in the first lockdown. The clinics, in its vast majority, are open. We have currently, I think, we are counting that every week only 15% of the clinics who are our customers are down. So it's more an issue of, A, getting product to those clinics, especially consumables, and secondly, that the patients can leave their homes.
I mean, our experience of the past has been that we saw that especially in China, there was a lot of activity to catch up in terms of the pent-up demand. We see there still for this year an opportunity that this can happen. Again, let's remember that those months, March, April, are anyways rather slow months in terms of elective procedures.
Yeah, U.S., I'm not sure whether I understood your question completely. I wouldn't actually particularly be aware of any meaningful headwinds in the U.S. That's not the case. I mean, especially the U.S. is also normalizing more. We just had the trade shows in the U.S. with good participation rates, with actually good level of bookings at the show.
Overall, I'd say especially when I look at the sheer order numbers in terms of devices being sold, that actually looks pretty positive. From that perspective, I may not have fully understood your question, but I cannot confirm that we have any headwinds right now hitting us there. Yeah, I'll leave it there. Thanks.
Perfect. Can I just follow up the economic sensitivity of refractive in China? Do you have any insights there?
The economic sensitivity to what extent or in what specific context, Oliver? I'm not clear where you are hinting at.
Sure. I mean, based in China, if the kind of whole situation gets worse and it's the kind of economy basically built on a lot of debt. If there's a slowdown, to what extent have you done any kind of work to capture, if this kind of slowdown may also impact the demand for refractive laser treatments?
I mean, we, you know, that is the effect that we expected almost for two years, but haven't really seen materializing. From that perspective, it appears as if that customer group is one which, in terms of it, discretionary expenses, is somewhat independent from that. Again, you know, with all caution, but at least we haven't seen a strong correlation, even in the previous lockdown periods. You know, it is right now, at least from the numbers that we see from the investment policy of our customers, it does not right now appear as if somebody would expect a general slowdown or reversion of the trends.
Perfect. Thanks so much.
Thanks.
The next question is from Falko Friedrichs of Deutsche Bank. Your line is now open.
Thank you. Good morning, everyone. My first question is on the QUATERA, and whether you have everything in place now to start the full commercial launch of the product? If that is the case, can you share some insight on the expected contribution to the P&L this year from this product?
Secondly, can you share some color on your ability to pass all these inflationary pressures onto your customers in the current market environment? My third question is on a potential gas or energy embargo, and how this could potentially affect your European operations, especially in Germany, and whether you're starting to prepare for such a potential situation. Thank you.
Okay, Falko. This is Marcus speaking. Good morning. Maybe to start with the QUATERA, indeed, with the FDA approval, we started now the launch during the ASCRS show, which has been quite successful. We created and generated a lot of leads for the QUATERA. Nevertheless, I think also we combined with the lead times, we don't expect for this fiscal year, significant contribution to this. Even that the KOLs gave us really is very, very positive feedback.
Also important for you, and I think this was already reported in the last quarterly calls, and I think this is unchanged in that way. We are on track in terms of the way how actually to implement the QUATERA to the market. It's important to know also that, especially in U.S., that there are always these bundle deals, and this is also something what is on our plan, what is also expected.
There's more to come. As you know, there's this hydrophobic lenses, the CT LUCIA, and this is something which will come in the next months and years then for the hydrophobic portfolio of the IOL lenses. When we have this fully actually integrated, then actually we can unleash the full potential. There's more to come. This goes along also with the entire cataract workflow, the workflow that has been presented by you, and I think during one of our last calls. I think it was October.
December.
December, yeah. Hopefully to answer this question, Heiko. In terms of inflation, we don't see currently that the customers are highly affected by this effect. I can also say that for instance, in Turkey, that there is a super high inflation on that. This is something. The demand is still there. Nevertheless, what we are thinking also is it depends on also on the supply chain, actually, how to arrange this then also in terms of the sales price. This is something which has to be decided on the local level, on a regional level, and this is an ongoing process.
Overall, the inflation itself is not currently affecting directly already our business. We will see if this is now getting accelerated and if the inflation would increase further on, then we have to react accordingly to this. In terms of the gas embargo, this is something where we are embedded in the entire Carl Zeiss AG activity and strategy there. Actually this is a kind of bundling effect. Just important for you to know, it's not like that our manufacturing is heavily energy consuming, let's say, so the processes are not heavily energy-consuming. That means that the gas embargo is hitting us, I would call it like every industry in that, but not in a special way. We are preparing on that from a ZEISS, Carl Zeiss AG perspective on it, and we are embedded in this.
Okay, thank you.
The next question is from Graham Doyle of UBS. Your line is now open.
Morning. Thank you very much for taking my question. Just one on, I suppose sort of the outlook in the H2 . If I do some sort of quick math, the Q2 in the H1 was so strong that it looks actually that consensus numbers imply an actual decline in EBIT in the H2 . If I sort of work through what China could do, and I take a sort of bearish view, it sort of implies to me that if the business ex-China can grow mid to high single digits, then actually you can get to sort of where consensus is.
I suppose the question is. Is there anything we should be aware of that would make that sort of level of growth for the ex-China business difficult to achieve? Or actually is that fairly straightforward? Thank you.
Yeah, Graham, I can take that. Yeah. First, your analysis is correct and logical. The difficulty is of course, especially, what is hitting us on the supply chain. The demand side, as you have seen from the order backlog and from the regional spread, we are growing in all regions quite nicely. If China was to be hit harder and to answer your question, if we can compensate that then by sales into the U.S. and the EMEA markets, is ultimately a function of our ability to ship and to get the supplies in that we need. Frankly, that is right now, let's say, the biggest question mark.
Let's just remind this situation in Shanghai with this huge number of vessels being piled up there, you know, the bullwhip effects out of that, I think are hard to anticipate what does it mean for some products that some of our second or third tier suppliers may need to integrate into their shipments to us. It is not such a simple, straightforward exercise. I would continue to generate some optimism. As I said, just lately, the last actually two weeks have shown a good reaction from our bookings and especially invoicing in China, and assuming that even a Chinese authority cannot continue to basically lock away people for months.
Yeah, I mean, we're talking about 40 days now, and we are in constant exchange with our expats over there. I mean, assuming that during the course of this quarter, there must be some relief in that situation, then we would actually believe that China can return rather swiftly to a solid business performance. Yeah. That's currently our expectation. If we are wrong with that, okay, then it's a different game, but too early to tell.
Sure. China, look, it's clearly an issue. At some point that will get resolved. Whether or not it's resolved in time for this fiscal 2022 or it takes a little bit longer, it sounds like the business certainly versus our expectations is performing quite well, and that should be broadly fine, but perhaps actually it's probably even performing stronger than you might have expected a few, you know, 6 months, 7 months ago.
Where do you think you guys are in terms of the sort of broader cycle? You know, we saw Alcon report really strong numbers, J&J. Do you think this is just a big increase in market growth overall, and perhaps this is something we should see for the next, you know, 1 years, 2 years, 3 years?
I mean, as Marcus said before, we are certainly considering ourselves to be privileged being in a very healthy, robust industry. I'd say frankly, if it wasn't for these supply chain issues that we have, that we mentioned in depth, I would probably share with you the optimism, if not euphoric, perspective on the H2 of the year, because as you know, traditionally, the H2 of the year for us has typically even been stronger than the H1 . With that strong start and that order book, I think I agree with you. We certainly would have no reason to worry whatsoever. Yeah.
Yes, but you know, I'm here to give you a kind of a firm guidance. I think my message is the uncertainty levels have risen so much lately that I don't wanna kind of make commitments here that we cannot keep and hold. You know, that's why you can hear from Markus and my statements that we are extremely happy with the H1 year performance, but we have to be cautious now whether the already today difficult supply chain situation may even get worse in the H2 and then potentially hit us in a way that we cannot recover before the end of the fiscal year.
I think that's our difficulty here. If that moves over into the Q4 , and then out of this fiscal year, then of course it can have significant impact and that's our difficulty here. Yeah.
That, that's super clear. Thank you very much, guys.
Yeah. Pleasure.
The next question is from Sven Kürten of DZ Bank. Your line is now open.
Yeah, thank you. My first question is on the microsurgery margin, which was obviously very strong in Q2. What's your expectation there for Q3 and Q4, especially against the background of the difficult supply chain situation? The second question is on the sales and marketing expenses in H2. As you said, trade shows are starting again and salespeople are out at the client, and so they should be significantly higher than the EUR 160 million which you recalled in H1. Could you please give us sort of quantitative guidance for the sales and marketing expenses in H2, please?
Yeah. Thanks for your questions. I mean, microsurgery, I think it was on my backlog slide. The perspective is a very positive one. You can actually see that the MCS equipment, I think is the biggest stack in that the chart in terms of a buildup of additional backlog. I think that answers at least the first part of your question. From that perspective, our outlook for the MCS business for the H2 of the year is very positive. The portfolio is competitive. As you know, it has been basically completely renewed over the last two years to three years.
Both our high end as well as our, let's say, mid or entry class products are seeing really good response in the market. Yeah. However, again, I cannot right now tell you to what extent we may see here lead times being further extended due to yet another wave of shortages in the supply chain. That's why. In theory, we are certainly continuing to be very happy and positive on that business. As I said, you know, the transferring order book into revenue is the big challenge.
On sales and marketing, yeah, you are right. We typically see in the H2 an increase, you know, without having now already made a full calculation. I think you can expect on that number for the H1 year, typically in the H2 , a notch further up, you know, that can be anywhere in the neighborhood of, you know, of 5+, 5 or plus, let's say, mid-single-digit % on the number that you have seen in the H1 . Again, let's remind that sales and marketing is also correlating to the sales volume, of course, because there are the commissions included there. Yeah. That number will breathe basically with what we will be able to invoice.
Okay. Just to clarify, if the situation stays as it is, the microsurgery margin will probably still be very strong also in Q3 and Q4. Is that the correct interpretation of what you said?
I'd say, you know, we have discussed all the cost drivers right now. You know, we are seeing inflationary pressures. We are seeing additional costs in the supply chain. I'd say overall, it will stay on a good level. I would not guide you here that we can maintain or even exceed the current levels. I would rather assume that cost pressure is growing. Given that MCS is on a healthy margin level, I'd say they will stay on a healthy margin level. I right now wouldn't have the optimism to see it even growing further. Yeah.
Okay, thank you.
As a reminder, if you would like to ask a question, please press zero and one. The next question is from Daniel Wendorff of Oddo BHF. Your line is now open.
Good morning, and thanks for taking my questions. Maybe a follow-on question on the microsurgery margin. Is it possible to quantify what the potential positive benefit from currency effects here was on the margin? That would be my first question.
The second one is on the trends you see in the U.S. for the different products group you're offering. Maybe you can talk a bit more about what is going particularly well, what is rather a flat business. Any more color you can provide here would be much appreciated. Lastly, a clarification question, and apologies if I missed it, but what proportion of your sales do you generate in Russia? Thank you.
Let's start with the last one, because that's an easy one. Proportion of sales in Russia is for a total year, somewhere between 2%-3%. Yeah. Just to give you a flavor and of course in this year, you could argue the H1 year was still pretty much unaffected. That gives you a flavor of what might be the remaining effect for the H2 of the year. Let's move the currency benefits that we have seen. I'd say I'm not sure you were asking it in particular relation to microsurgery. Is that correct?
Yeah, that's correct, because you mentioned that you have here, well, the highest cost base in euro, so in the presentation. From that, I concluded that might be, yeah.
Yeah. It's a, let's say, a minor single digit impact here. Yeah.
Okay.
That's if that is good enough for you as an but small single digit as I would like to leave it. The second part was trends in the U.S. Is that correct?
Correct. Yeah.
Yeah. Trends in the US, just really cursory here. I think overall, MCS doing very well in the US. We have continued good business in refractive. As you have heard us explaining in the last year, the volume of SMILE treatments has gone up and that is obviously also contributing. We also see a good demand for the ophthalmic microscopes. I think these are highlights. ODX is also traditionally doing good in the US, although they are typically the H2 of the year is the stronger part. I'd say across the board, it's fairly well distributed.
Okay. Thank you.
Yeah.
The next question is a follow-up from Oliver Reinberg of Kepler Cheuvreux. Your line is now open again.
Oh, yeah. Thanks so much for taking my follow-up. The first one on pricing. Of the price increase that you intended to implement, can you just talk to what share of these have been implemented by the end of the Q2 ? Any thoughts to what extent the kind of strong order intake has also been benefited from the expectation of increase of pricing?
Secondly, on the QUATERA business in the U.S., the CT LUCIA is coming a bit later. Can you just share with us what is normally the kind of share of equipment sales versus bundled deals? The last quick question, in the cash flow, there was a EUR 26 million outflow related to fair value of contingent purchase price obligations. Can you just share what this is about? Thank you.
Yep. Okay. Oliver, I start with the last one. The position there is a correction of a contingent liability with relation to the earn-out of one of our acquisitions that we did a while ago, that we have a delay in a product introduction. That in reverse means that for the earn-out calculation, we basically have a shorter period of time that runs into that earn-out, and this is the one driver. The other driver is that the interest rates with which you basically have to calculate the contingent liability have increased, which in return means it basically has a positive effect in our balance sheet. Both together are explaining basically here the effect that you are referring to.
Now trying to get through the list of the other questions. On the I start with the pricing. Pricing, I think you wanted to know how much have we already done in terms of price increases. We have basically an annual price increase on our total portfolio which is more in the neighborhood, you know, of anywhere between 2%-3% that has been conducted. As Markus just said before, depending on local market situations and of course, depending on further input factor cost increases, we obviously reserve the right to do other price increases where we feel that necessary.
As you know, we at least for a good portion of our portfolio, we have market positions in which we are confident that we actually can drive that price increase into the markets. The order entry, you were asking whether we are benefiting here from, so to speak, orders that are anticipated or let's say that have been earlier placed in anticipation of potential further later the price increases. I mean, that's again a lot of speculation in there.
I would not rule that out completely, but I do not think that this is explaining overall the bookings. I mean, especially the bigger ticket items have a rather long lead time if you look at the conversion rate of the individual sales projects. I mean, that's again speculation whether somebody who six months ago or so started to engage in buying a device, whether he did it already in anticipation of price increase later on. I would be careful, and overall would not believe that this is really the major reason behind the good order entry that we have seen.
You were asking about the proportion of the bundle deals in the U.S., and in line with that, of course, what does it mean for the fact that our IOL, our hydrophobic IOL is only coming in early next fiscal year. Frankly, I mean, since we have, I think, always told you that you should not expect any significant revenue contribution out of the phaco in the U.S. For this fiscal year, I'd say it's nothing that anybody should alarm here, that we now basically have to wait until next year for that lens.
We actually have already a double-digit number of letters of intent for the Phaco without bundling it with lenses. I think that speaks for the apparently good reception of the product by those surgeons in the US who tested it. I'd say, of course, we need the bundling then for the long-term success in the US market. For any means of valuation or estimates on growth in the, let's say, next six months or so, I think it's really not relevant. Yeah.
Thanks.
As there are no further questions, I hand back to the speakers for the conclusion.
Yeah. Thank you very much for joining our call today. Looking forward to discussions with you here over the next few weeks and months. If any questions, please reach out to us. Everybody, have a good day and a nice oncoming weekend. Thank you very much.