Good morning, ladies and gentlemen. Thank you for joining us today. Thanks to those who made the trip out here to Oberkochen to be here in person today. We really appreciate it. I know it's a little bit far out, so thank you for coming. Thank you for everybody joining online. We are very happy to present our full year 2021-2022 results to you today, and have, hopefully, also a nice and insightful discussion on the location here in Oberkochen on the microsurgery unit, so we're happy to have a special guest here, along with the executive board. Magnus Reibenspies, who's head of the microsurgery business unit, is here and will talk later.
Going through the agenda a little bit, we'll start with the gentleman to my left, Markus Weber and Justus Wehmer, who will lead you through the financials of the full year and take your questions on the results and on the outlook. After that, we have a Q&A that's centered around the financials. In the second part of the presentation, then it will be Markus' turn to present the microsurgery business unit. After that, we have a lunch break. After the lunch break, we look forward, and that's the part, unfortunately to those joining online, that you cannot be a part of then anymore, when we do a showroom tour here in Oberkochen and also take a look at the manufacturing.
Of course, those who are missing out now, we welcome you to come another time because we love to have people here. It's always a lot of fun, and we like to show and explain our business to you. With that, I'll hand it over to Markus to go ahead with the presentation. There you go.
Yeah. Thank you so much, Sebastian, also a very warm good morning from my side. Actually, I'm quite happy to have at least a hybrid meeting, some of you are here, also warm welcome to Oberkochen. It's a little bit of foggy day, hopefully the sun will come out and will give you a better view on the manufacturing also on the demo room. I would like to welcome you to the 12 months 2021-2022 analyst conference of Carl Zeiss Meditec AG. It's my pleasure to greet you all here and on-site in Oberkochen, now leading you through the presentation. The agenda is a rich one. First, I will start off with an overview of the results.
As usual, Justus will give you more details on the financials. In the focus topic section, I will talk about the results of a clinical study on the digital cataract workflow and what it can mean in terms of efficiency gains for our customer. Maybe you remember, there was Euan Thomson last year showing you actually the benefits of this workflow solution. I will also highlight the development of our recurring business, which made great progress last year. Finally, in the last section of the presentation, I will give you an update of our outlook for the current fiscal year, including also an important comment on the environment in Q1. This will conclude our presentation on the financials of last fiscal year. Afterwards, we will be open as usual to your Q&As.
I'm happy to report the record revenue and earnings figures for the last fiscal year. In the fourth quarter, the positive trend that we had seen for most of the year continued. It's worth mentioning that last fiscal year was a year of full challenges. First, we were subject to very difficult macroeconomic conditions through the year. Despite all these difficulties, once again, we saw a strong performance of our consumable business. On top of that, our device business continued stable growth. Also, the supply chain constraints affected us heavily, for example, through component shortages, freight bottlenecks, extra procurement costs. And I think that's also very nice, a strong team effort helped us to get through all of this with the strong results what we see today. Our revenue reached EUR 1.9 billion. That's a significant increase compared to prior year.
Adjusted for currency effects, this number corresponds to 13% growth. As we will point out a bit later when we discuss recurring revenue, this growth includes a mid-double digit EUR million amount of increased stocking in the sales channel in China that mainly materialized in the second half of fiscal year 2021-2022. This is to diversify against the risk of future lockdowns, what we see now already in the first quarter, and ensures that, while some regions might shut down, overall the deliveries can continue to function in open regions, unlike what we experienced in Shanghai in the spring. As a result of supply chain constraints, we have a larger than usual order backlog. Our order intake was over EUR 2.2 billion, also a new record high, which is also very nice and substantially higher than revenue.
As you will see later, all regions were able to grow, with APAC in the lead. Both SBUs have contributed to this growth as well. EBIT reached nearly EUR 400 million, and EBIT margin was on a fairly high level of 29%, 20.9%, which is a bit lower than in prior year. This did not come unexpected, as we already reported, and actually is at the high end of the range we provided to you last year. The continuously growing share of recurring revenue had a favorable impact, while on the opposite side, the OpEx came in higher, mainly due to the new product launches, return to physical trade shows, and also, quite importantly, research and development projects for our long-term growth strategy.
Please keep in mind that last year's margin level had been really outstanding in large parts due to an extraordinary low level of OpEx in the context of the COVID-19 pandemic, as we have clearly flagged at the time. Net income reached EUR 295.4 million, representing a net profit ratio of more than 15%. Earnings per share was EUR 3.29 over prior years to, or EUR 0.64. There was a non-operating positive effect in the financial results due to the re-evaluation of the purchase price liabilities from the IanTECH acquisition. These are mainly due to the delays in the business plan we had already disclosed with this year during our half-year results. There's another impact in Q4 due to the accounting for a specific milestone and higher discount rates.
These effects pretty much offset the negative hedging result and also led to a lower than usual tax rate. We propose, quite importantly, to pay out EUR 1.10 per share as a dividend. Overall, I'm really very happy with the results, also with the team making that happen, especially under these very difficult conditions. I would like to hand over to Justus, who will provide you a more detailed background of the financials and will discuss the figures in some more depth.
Thank you, Markus, also a warm welcome to everybody here in the room and everybody who's dialed in to be with us here this morning. I can only share with Marcus my excitement on the good results that we can present and share with you this morning. Do I have to press the button? Oh, you did it already. Thank you. Okay, Sebastian is taking over. To give you now a more detailed overview of our financials, starting again with OPT. Revenue came in for OPT with EUR 1,469 million. Compared to prior year, the reported increase was 17%, and at constant currency, 15%. Growth continued to be driven by our consumable business.
Also, device sales managed to grow under difficult supply chain circumstances, whereas devices order intake demonstrated a strong demand. Especially in our refractive and surgical ophthalmology businesses, we see continued strong development. SBU OPT EBIT margin declined a bit compared to last year to now 20.7%. Gross margin remained at an excellent level due to the, once again, strong product mix, with high share of recurring revenue as well as positive currency effects. As Marcus mentioned, we clearly see the resumption in sales and marketing activities to the range of pre-COVID levels. Not really, how should I say, to the pleasure of the CFO, but it is what it is. Trade shows take place physically, and travel is picking up again. This is, however, fully in line with what we had been expecting and forecasting, as you will remember.
On top of it, we invest, of course, in the sales and application teams for our global phaco rollout and other marketing initiatives. We also significantly, again, invested in R&D to support our strategic initiatives, like our digital health data platform and the ZEISS Medical Ecosystem, as well as other ongoing innovations. Due to the high relevance to procedures, OPT especially demonstrated more resilience amid supply chain constraints. Its weight of group sales already surpassed now 77%. Let's take a look at MCS. MCS, again, delivered a strong performance, with revenue of EUR 434 million, versus EUR 391 million in the previous year. This represents a revenue increase of around 11%, at constant currency, 8%. Business overall significantly improved in the second half year. Please remember that, the MCS business is a bit late cyclical, so to speak.
After corona, after the pandemic, it took a while to rebuild basically the order book, and then in the second half of last fiscal year, we could turn then the order book increasingly into revenue. Supply chain constraints were more pronounced at MCS. Lead time of some core devices extended to more than 6 months, we had to significantly increase, and we will see that reflecting in our cash flow statements, our stocks for critical components. On the other hand, we saw a pretty strong order intake. EBIT margin is still at a strong level of 21.5%. Increased procurement costs, material and payroll costs, expenses, especially in sales and marketing, weighed on the margin. Positive currency effects, however, provided some tailwind. Let's take a look at the regions next.
First of all regions, again, contributed to the growth, with once more strongest momentum from Asia-Pacific. Let's start with a look at Americas. Americas achieved sales of EUR 487 million, which is an increase of 8.4%, and at constant currency, actually a slight decrease of 0.1%. Among which the U.S. grew by +7%, though in constant currencies, only flat, as the U.S. does not have as much of a consumable business yet as other regions and was therefore more supply-constrained. Latin Americas, and here in particular Brazil and Mexico, on the other side, saw a really strong rebound of growth of +21%.
In EMEA, excuse me, we noted revenues of EUR 459 million, an increase as reported of 6.1%, at constant currency 6.5%, with solid development in core markets like Germany, France, UK, and Spain, where we saw growth rates from lower to high single-digit rates. Once again, as I mentioned before, we saw the strongest growth in Asia Pacific, yielding EUR 957 million of revenues, which is an increase of +25%. Please note that sales in Asia Pacific is mainly calculated on euro-based, therefore, there is no difference in the currency corrected number. China, including Hong Kong, were again outstanding with 37% of growth.
India, with +41%, and Southeast Asia with +10%, performed excellently. Japan and South Korea, however, demonstrated rather sideways developments. In South Korea, we began to see actually some headwinds from a reduction in the premium IOL business connected to the unfavorable reimbursement strategy for multifocals being applied now in Korea. That is going to be a topic that will continue to weigh on growth in this important country in the first half of the new fiscal year. Let's have a look at the P&L. We see an increased gross margin with 59.3% compared to previous years, supported by positive currency effects and product mix effects. OpEx came in notably higher, mainly impacted by the fading COVID-19 development in most countries on the one hand, and strategic investments on the other.
R&D increased due to continuous investments in our strategic development projects, mainly in the field of digitalization and IOL development. Sales and marketing expenses, as I mentioned before, noticeably up, especially for advertising and trade show expenses. Again, let us remember that last year was basically an unsustainably low level of such expenses due to the global corona travel restrictions and hardly any shows taking place as physical events. G&A expenses also had a bit of a notable increase, but that is mainly to be explained by significant investments in new IT and ERP systems. SAP S/4HANA is kind of, you know, as a major project, is now paying its tribute here. It's noticeable that due to heavy inflation, all costs are rising, material, labor, et cetera.
Apart from the support of product mix, we've already adjusted prices in some categories with good pricing power at the beginning of the fiscal year, though its financial impact will first come in in a half year due to the high numbers of order backlog. EBIT rose to EUR 397 million and was, with that, above prior year's level of EUR 374 million, and EBIT margin at 20.9% versus the 22.7% in the last year, remained, however, as I would say, at a very healthy level and actually on the upper end of the margin that we gave you. Quick look at our Adjusted EBIT margin, which reached 21.4%, which is below previous year's level of 23%.
There are rather small effects related to purchase price allocations, related to depreciation in both periods. We adjusted the one-time effect related to the asset sale in prior year, whereas in the current period, a one-time effect is visible related to the donation for humanitarian and scientific purpose in Ukraine. With that, we come to my last slide, which is the look at the cash flow statement. The cash flow statement, as I indicated earlier, reflects, I'd say, the peculiarities of the last fiscal year quite a bit. We see that the operating cash flow is definitely significantly lower with EUR 188 million, almost cut by half versus the previous year's EUR 363 million.
That is mainly due to the investments in working capital development in light of the tense supply chains and higher tax payments. The working capital sees an increase in inventories. We build higher safety stocks because of the tense supply chain situation. In our cash flow from investing activities, we find mainly payments for property, plant, and equipment, the expansion of our especially consumable production capacities globally, so for both IOL and refractive production topics, and then some intangible assets that also go in this line.
Also, we have to mention the acquisitions of Preceyes and Kogent and Katalyst in the last fiscal year. Cash flow from financing activities was mainly influenced by changes in receivables and payables on our treasury accounts with the ZEISS Group and higher dividend payments. However, net liquidity continues at a level close to EUR 900 million, which is slightly down year-over-year due to the weaker operating cash flow, as I just explained, higher dividend payments and acquisitions. With that, I thank you for your attention, and Markus, I hand it back to you.
Yeah. Thank you. Thank you so much, Justus. Now I would like to share with you some focus topics. As you know, their digital platform, the digital health data platform and workflows are quite important for us and this is also the reason that we have been significantly investing in the ZEISS Medical Ecosystem now already for several years, aiming to serve the surgeon with an integrated workflow solution instead of standalone products to improve efficiency and clinical outcomes. The ZEISS Medical Ecosystem includes several key elements, apps, planning and optimizing software, health data platform, what I mentioned already, and intelligent algorithms, and especially then also AI. Almost exactly a year ago, and I mentioned that already, there was Euan Thomson presenting to you the key elements of our cataract workflow.
The question is, and this is really driving us, what does this mean for our customers? What's the value add for our customers? In practice now that it has been launched and rolled out, what does this mean? We would like to share with you a very interesting study, actually recently done by medical professionals of the university hospitals of Munich and Frankfurt, the results are quite interesting. What they did, they did the toric intraocular lens procedure for a group of people. The methods are rather easy to describe. In total, 48 eyes of 24 patients were divided into two groups. 24 eyes were evaluated using a traditional manual approach, whereas another 24 eyes underwent a full digital lens surgery ZEISS workflow.
Both digital and manual workflows comprised the same process steps, as you can see on the slide, from data check to diagnostics, IOL calculation, to image transfer, to image matching, IOL alignment, then surgery, and finally post-OP diagnostics. We are happy to see that using a software-based digital approach to the procedures substantially creates time savings achieved in each process step as well as in the total procedures. The time went down roughly to 20% in total. At the same time, error rates have been minimized while the procedures became more convenient for the surgeons and thus more economical than a manual workflow in surgery practice.
These are highly significant results that we are confident can be replicated in additional clinical samples over time and will send a very compelling message to our surgeons that digital integration is the future of the image surgery. I'm also happy to report another year of progress with our recurring revenue business, also very important for us. As you know, it has been a strategic goal of our company to grow the share of recurring revenue as it is not only more profitable than equipment business, but also have a different dynamic in a crisis, being more independent, more robust from the budget process of the hospitals. The COVID pandemic and supply chain constraints led to a strong outperformance of our consumable business. Our revenue with consumables and services advanced by 5 percentage points to now around 46% of total revenue.
Our most important consumables are refractive treatment packs, IOLs, surgical instruments, also SMARTDRAPE for surgical microscopes. As you can see on the left chart, our recurring business grew substantially throughout the pandemic, contributing to our resilience during these very difficult periods and difficult times. The growth is even more impressive over long term. Since Carl Zeiss Meditec was spun off out of the ZEISS Group nearly 20 years ago, the recurring revenue share has become a significant part, as shown on the right. I want to point out some special effects accelerating the growth of in the fiscal year. Important for you to know, some recovery effects of delayed procedures were still in place. Secondly, the proportion between consumables and devices was more distorted for supply chain difficulties.
Moreover, in the light of zero-COVID policy in China, consumables have been stocked up by a mid double-digit million EUR amount in the sales channel in China to prevent actually the shortages during the lockdown, mainly in the second half year. This is to diversify against the risks of future lockdowns and ensure that devices, some regions are shut down. Overall deliveries can continue to function in open regions, unlike what we experienced in Shanghai in the springtime. Some of the recent developments in our largest Asian consumable markets of China, as well as the headwind of Korean premium IOLs, could signal a weaker start to fiscal year 2022-2023, as we will discuss in a moment. This has the potential to also negatively impact EBIT margin in the near term as the pendulum might temporarily swing back more towards device business.
Generally, though we strongly believe and expect further growth, this ratio and invest accordingly, some of our recent product introductions, such as the phaco business as well as consumables attached to surgical microscopes, are specifically targeting further growth of the consumable business. With this, I would like to come to our outlook for the new fiscal year, and then as usual, to the Q&As. As you all know, unfortunately too well, we are again starting the year with a long list of risk factors for our business, and I think we are all facing this. The tension in the global supply chain remains substantial. Hopefully getting it done or getting it better over the year. The impact of inflation is hitting our operating expenses and procurement costs.
There is fear of a recession and a sting from inflation to the consumer. We are also looking at the uncertainties of China's COVID-19 policy, as well as the ongoing Ukraine war with its consequences for energy. In the short term, we are therefore expecting some pressure on our margins at the beginning of the year. While we can confirm that revenue growth continues quite strongly in our first quarter, we expect our EBIT margin to come down substantially from last year in these first three months of the year. This is mainly due to a weaker start in the consumable business and the escalating lockdown situation in China, and also the pressure of the South Korean premium IOL business. It is also connected to the impact of inflation on our bottom line and the time it takes to implement price increases.
However, we remain positive for fiscal year 2022/2023. If history is any guide, our consumable business in China is likely to recover quickly, so this kind of V-shape, and sharply from the lockdowns as it has several times before. The seasonality of the business is biased towards the summer months, so that any shortfall incurred early in our fiscal year can typically be recovered in the second half. The best example of this was in 2020 when our Chinese business managed to achieve growth for the year despite everything that happened back then. We are confident in our performance for 2022/2023. We want to once again outperform our markets in terms of revenue growth. We are targeting an EBIT margin for this running fiscal year in the range of 19%-21%.
Actually, the same target range that we gave to you last year. Midterm, we continue to have significant investment needs as we already disclosed to you with a long-term strategy, as we want to further broaden our global presence and want to continue our innovation strategy with a high level of R&D investment. 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 high level of recurring business, we are very confident that we can achieve midterm EBIT margins sustainable above 20%. With that, we have come to the end of our prepared remarks on the financial. Let me pass back to Sebastian and the moderators and to take your questions. Thank you so much.
Yeah. Thank you, Markus. For the Q&A, just quick information. We will do a first round of Q&A here in the room, and then afterwards, if you who join online want to ask a question, please raise your hand in the Zoom meeting, and you will get in the queue. We'll do a few rounds of those and see that we get everybody covered. Opening up to the room first, please raise your hand physically if you have a question, and after that, we go to the online meeting. Yeah, Julien, please.
Does it work?
Yeah.
Thank you. Julien from Bank of America. First question quickly: Could you give us a bit of granularity of the impact from supply chain, higher component costs, et cetera, for this fiscal year? I have very two quick questions on the guidance. Could you give us some, like, more color about what you expect in terms of market growth, like for next year? Like you said, you will be at least at market growth rate. You mentioned cost inflation in supply chain and wages could be an additional burden. Could you give more details on your, let's say, bear case scenario, and does it imply a lower EBIT margin than the 19% in the lower end of the range? Thank you.
Julien, I'm happy to take the question with the market growth. I think supply chain and the details there will be provided by Justus. With the market growth, actually our order entry and also their, the order book is really very full, as you can see in the figures. Overall, this is quite positive. Nevertheless, this order, let's say, dynamic and turbulence is currently in the market. It's really hard for us to predict what will come. Coming up is now the COVID, potential COVID lockdowns over the wintertime, all of these things. This is the reason that we say currently we believe that we can grow at least with the market, well knowing that there's always potential and we are in best phase of this.
Our, let's say our prospectus for this year is the scenario, the base scenario is to grow with the market.
Okay.
Just.
Yeah.
Just a quick follow-up. Sorry. Is it possible just to give a number about the, just like the market growth or?
I think so around 5%.
Okay.
Yeah.
Okay.
This is going to be what we see. Yeah.
Thank you.
Yeah.
Okay. Yeah. First on the impact of the supply chain, I'm not sure whether I fully understood in which direction you asked. Let me try to cover the dimensions that I see. It's twofold. On the one hand side, there's obviously a delay in supplies. That means that we therefore, and we reported about it in previous calls, have seen the lead times for our deliveries
Increasing quite significantly, which in return also explains why we have a higher than typical order backlog. Which on the one hand is nice in terms of planning for the new fiscal year and knowing that there's a lot of revenue already, so to speak, covered. Obviously our objective is to have shorter lead times. The other impact, the other dimension of the supply chain is, of course, that the scarcity on some components basically has kind of driven markets towards price increases. Brokers that are asking for quite significant premiums on some components.
I think we have reported in earlier calls that these brokerage costs for us throughout the last fiscal year certainly added up to a double-digit million dollar hit. I hope that covers supply chain. On the cost inflation wages, to give you a bit more color, again, you know, in mind, I mean, inflation is not static. We have to see how things develop. What we already can anticipate, especially from the tariff negotiations here for Germany, we will see there are some increases on our payroll during the course of the year on top of other expected cost pressure on our input factors.
I'd say, again, with a lot of caution, anywhere between, you know, 1,500 basis points on margin pressure, I think for the year, on the assumptions as of today, is probably a reasonable guess. Yeah. Okay. Any more questions from the room? If not, I can do a round online. Anybody else? Okay. Then I'll go to Oliver Reinberg. Oliver, can you unmute yourself, please, and ask your question? Thank you.
Yeah. Thanks so much for taking my question. Three if I may. The first one would be on operational leverage. Obviously quite impressive for Q4 sales performance, EUR 100 million more sales sequentially. I was just a bit surprised that we have not seen a kind of higher drop through to the kind of margins. Can you just talk, is there any kind of things to be aware of, or is there any kind of potential catch-up effect if this kind of sale that we're going to warehouses, to external warehouses, will finally make it to the end market? That would be the first question. Secondly, just on VisuMax, can you provide any kind of color on the placement in the end market in Q4 in China, probably also globally, and if lead times have improved here?
Finally, on order growth, I mean, it's still very strong, I guess, in Q4, probably around 9% in constant currencies. I'm not so sure about the kind of base effects here, but can you just talk to, it is obviously declined from what we've seen the first time basis. How has order growth developed over the course of the quarter, and what do you see currently? Is there any kind of pockets of business where the current challenges are also providing you with more challenges and softness? Thanks so much.
Thank you so much, Oliver, and also warm good morning from my side to you. I will take the VisuMax question, and the other questions will be covered by Justus. VisuMax overall, we have seen a strong demand coming in and also strong growth. We actually have increased significantly our capacities in manufacturing. And this has then, or has also led to a triple digit or then unit number in terms of the VisuMax. Nevertheless, what we see is that the lead times, due to the strong demand of the new VisuMax 800, 600, that the lead time is still pretty high and has increased significantly. This is exactly the reason.
On the one hand, we see that we can cover the capacity in that way, but since the growth is so strong, is that we are actually always trying to catch up with our manufacturing and then we see again that there is a strong growth coming in, which is wonderful. That means lead time is currently around a year, which is quite significant. Nevertheless, we, or we have a clear action plan for this year to double our capacity again, and this will help us actually to mitigate these long lead times, so that we expect that the lead times will come down significantly over the fiscal year.
Okay. Oliver, to your questions on operational leverage. First of all, absolutely fair observation. Wanna give you a couple of explanations here why you haven't seen a higher drop-through. First of all, please keep in mind, Q4 is typically always the quarter where we have the highest OpEx hitting us for various reasons. There's always this kind of end of year effect, especially in the R&D budgets and so on and so forth. That's number one to keep in mind. Secondly, I mentioned the brokerage fees and also brokerage fees hit us especially then in Q4, where we made extra efforts to also turn orders into revenue. That again, you know, with the price ticket associated to the brokers.
We clearly have invested last year in a headcount increase. As you are fully aware, we are building up for the global phaco rollout, and that buildup also shines through in the payroll in Q4. Last but not least, I briefly mentioned that we have these IT investments. There's a mid to high single digit EUR million amount of expenses associated with this ERP rollout, and that was also in Q4. That probably helps you to bridge a little bit your model. Oh, yeah, and the other question was on order growth. Again, if I didn't grasp it correctly, then you can give potentially add on the question.
I understood whether we see some decline, and there, I can clearly say, no, we don't see that. We are, you know, without being able to disclose too much on the current new fiscal year, but overall, I can clearly say that across the portfolio, and that's true for both devices and for consumables, we still see healthy demand from all regions. I'm not sure whether that covers your question completely. If not, then please, you can raise your hand again. Thanks.
Okay. Next one would be Falko. Falko, please go ahead and unmute yourself.
Hey, good morning. Can you hear me?
Can you hear me?
Yeah. Yes. Yeah.
Perfectly. Thank you for taking my questions. The first one is on the stockpiling effect in China. How should we think about this destocking phase now? Is it realistic that this double-digit million amount could be completely missing in the first quarter now, or is that likely taking a bit longer than just one quarter? My second question is, can you provide a bit more color on your phaco rollout, and also update us on the latest timeline for your new IOL launch in the U.S.? Thirdly, can you provide some color just on the general refractive laser procedure demand that you witness across the different regions? Thank you.
Yeah. Thank you so much, Falko. Also, warm good morning. The first question concerning stockpiling and the last one takes Justus, I take happily the topic about phaco and IOL in the US part.
I take your question on the stock or destocking, as you said, Falko. Again, you know, the mechanics, I think, is understood. We had learned our lesson after the first lockdown in April, May, once we were basically shut down in our own warehouse and couldn't supply to our customers in China. The management decision after China was reopening was that we have for the benefit of our customers, who obviously should not run short of treatment packs because this is basically their daily, for their daily cash flow, an absolutely necessary item, that we basically run a kind of risk mitigation strategy by building up three warehouses in China. That gives us some independency.
As you know, these local lockdowns in China are a little bit unpredictable. With that, we kind of have then had, you can argue, kind of an artificial increase in Q4 in order to provide for those warehouses to be then prepared. Now to your question of the so-called destocking, we would probably think, and we actually see it right now, that we have a somewhat softer market in China, not surprisingly, because the total number of local lockdowns in China by now is almost exceeding what we have seen in April, May of this year.
We would expect to have the associated consumptions in China lower at a range of whatever, anywhere between 15% and 20% for this quarter. However, let's all remind that then in February, the Chinese New Year provides basically the first peak of the year for consumption. We would think that with the Chinese New Year, assuming that it is basically performing according to our typical patterns, we will see basically then eventually an easing up of this stocking situation. I hope that covers and answers your question. The third one was on refractive demand globally.
I think from the numbers and that you have seen for last year, you already got the answer when it comes to Asia-Pacific. The current situation, in particular China, I just explained. What's left over is US or Americas and EMEA. There I'd say what's especially encouraging is actually the situation in EMEA, not that we do not continue to grow our re-refractive business in the US. What was kind of the positive surprise in the last or in the fiscal year that we just closed was that Europe is actually picking up. Markets like Germany and also other countries apparently do see after 2 years of COVID-19 a meaningful pickup in requests and demands.
Therefore, we see in various countries here in EMEA, actually a quite higher number of laser installations than we have seen for many years.
Now coming to our cataract strategy of U.S. and the current status there. As you know, Falko, we are actually launched the QUATERA, so our phaco in U.S. this year in April. There actually the resonance was quite good. We have been on the AAO just a couple of weeks ago, and there was a super resonance coming in from the from our customers, from our doctors and the cataract surgeons. Overall, this is good. Our strategy is actually, first of all, to provide systems to our KOLs, so the key opinion leaders, actually to get the publications done and then actually also for marketing reasons. Then to have demo systems running in U.S., and this is exactly what is happening now.
That means we are filling our sales channels and we had from this regard, we are starting now actually to sell these tools, and the resonance is quite good. We expect to see a high rate in this year and the next year coming in with high QUATERA sales. This is the first part, is the QUATERA. Second part, IOLs are also on a good track. As you know, that's always a bigger challenge to get the FDA approval for the IOLs in the U.S., starting with the LUCIA or normal monofocal hydrophobic IOLs. The hydrophilic is a different story. I think that's an ongoing portfolio which is working. The hydrophobic topic is now starting.
We see that our, let's say, supply chains and all the things are in good place, expecting now to get the first IOLs then in the market. This is a long-term strategy also to make that clear, because we see that our trifocal and multifocal and also our toric solutions. This is something which will take us for the next five to 10 years to get the full approval for our full portfolio. This is an ongoing topic, actually full in process and actually also fully in sync what we have imagined in terms of the product roadmaps.
If any question from the room in between, please raise your hand as well. I will proceed now to Alex. Alex Halitsa from Hauck. Please unmute yourself and ask your question, please.
Thanks, Sebastian. I just wanted to ask you on the sort of product mix. We have seen EUR 250 million incremental revenues this year, and I think EUR 200 million thereof comes from consumables. Having said that, I think, like, I would've expected to see sort of a more accretion on the gross profit margin. You already spoke to the detractors, but I think most of them have been sort of relevant for the OpEx. You could kind of concentrate on the cost of goods sold, what have been sort of the major detractors that prevented you to realize more accretion of the gross margin. Thank you.
I think I try to answer that, Alex. I mean, I think I made that comment that we clearly see the inflationary and input factor costs on our device business. Let's not underestimate here the importance of that business even though the consumable portion of the business is further growing. That is one portion. There's also a bit of pressure on the gross margins due to the expansions that we are currently doing on our production sites for consumables. There's basically no site in the world for our IOL or treatment pack business where we are not, as we speak, building up basically capacity.
Some of that capacity, of course, being built up is generating, costs but not yet have, the full associated additional revenue that goes with it. I think, these two factors, so input costs on the one hand side and in parallel, the basically preparation of the ramp-ups for the further growth of the business are two factors to keep in mind here. Thanks.
Thank you. If I just may, a second question to squeeze in. On the research and development expenses, looking from today onwards, sort of how do you see this to develop? We have seen significant growth, until now, for obvious reasons. What do you see those two have? How do you see them trend over the next three, five years, maybe if you could talk to it?
Yeah. Alex, actually, we see that this will stay on a high level R&D because of our long-term strategy, because of we want to heavily invest especially in ophthalmo and here in the cataract and digital workflows. This is an ongoing project in our IOL portfolio, but also in refractive. That's one part in ophthalmology. I think the team here and actually our guests here will see also then in the showroom what's ongoing in microsurgery.
Here is a high level of R&D necessary actually to implement the digital workflows and making sure that robotics and AI will bring us actually to the next stage when it comes to efficiency, because this is really something what we see in the market. A high demand on efficiency. I've just been yesterday in a clinic here in the south of Germany, and they highlighted again, say, efficiency because of the scarcity of technical staff. That efficiency and automation becomes more and more important, and it's exactly where we want and where we will invest because we strongly believe that we can actually win here against competition for our patients.
That means, in a nutshell, just to say it in one sentence, R&D will stay on a high level because this is exactly what we need to stay on top of the things.
Okay, very good. Thank you. Marcus, just quick reminder, I see a few people who are dialed in through the phone. If anybody who's dialed in through the phone, I cannot see your name, unfortunately, in the Zoom, but if anybody on the phone wants to ask a question, this would be a good moment to squeeze it in. I wait for a second and then go to the next in line in the Zoom meeting. If there's no question from the phone, I go next to Graham from UBS. Graham, please go ahead. Graham, can you hear us? Please unmute yourself if you can hear us. I think there seems to be some issue there. We can take it up later. Next would be Saskia from HSBC. Saskia, can you please unmute yourself?
Good morning. Congratulations on the good results. Thanks for taking my questions.
Thank you.
Yeah. I have two, please. First of all, do you see any indications on any changes in your reimbursement rates, where you're seeing more of more of a rate that can balance the inflation? Second of all, in terms of single supplier components, if you compare your situation now to the times prior to all the supply chain bottlenecks, do you still have areas where you are bound by a single supplier or just two suppliers where you see a risk? Have you been able to implement significant reduction in terms of single supplier dependency on this front?
Okay. Good morning, Saskia. Justus will take the first questions concerning the indications. I would happily take the second one concerning suppliers.
Okay. Yeah. I mean, honestly, I do not have that much information on changes on reimbursements, due to inflationary pressures. I cut that rather short. Sorry if there's no, not more flesh on the bone that I could share with you. Apart from what we commented on Korea, in, let's say, the meaningful markets to us, I'm not aware, and hopefully not for lack of, internal communication, I'm not aware of any meaningful changes.
Yeah.
Yeah.
Yeah. actually, I see it in the same way.
Yeah.
This is made to come because I think it's just too fast now since the inflation and the gradient of inflation was so high, that if there's a reaction in the reimbursement schemes, most likely we'll see this maybe then in the next months or years. Nevertheless, I also believe since the dynamic is so high in inflation, that maybe this is just averaging out. Coming to the supply chain, and indeed, Saskia, this is a complex topic because, as you know, our systems has a rather a lot of different components, and this is actually the, let's say, the challenge and also the challenge for the team to cover that worldwide.
That means what we did indeed, also now with their, let's say, the trends, of decoupling of political systems, what we did is indeed now starting to build up several supply chain strategies on the one hand to localize production or is to have more production in different regions. You can see that, for instance, for our IOL factory in China, in Guangzhou, but also parts of our operational microscope activities in Shanghai. This is then also sourced, this local supply.
On the other hand, we are building up indeed also a second and third supplier strategy where it makes sense, where actually where we have, let's say, where we see that there is a benefit for our business. On the other hand, and this is also important to mention, our tools are very often have very specific components, and we have actually also a modular supply chain. That means there is a strong collaborations then between smaller companies, little suppliers, very specialized suppliers, where we have a long-lasting relationship to make sure that these specific components are then exclusively for us so that we can integrate this in our tools.
This is something, well, knowing that we are on a top-notch, this is something where we are used to and what we will follow further on also for the future to make sure because this is a differentiator to competition here.
Thanks very much. That's very helpful.
Thank you. Thank you, Saskia. I'll take one more question very quickly from the chat. There was basically a question to comment a bit more on the pressure on the Korean IOL reimbursement topic, if possible.
Maybe we can squeeze that in now.
Actually, there's not much more to say as this, that their reimbursement strategy in Korea has been changed for the premium segment. Actually they are cut it significantly down the reimbursement schemes for premium, which has an effect on the entire market because now people are starting to go more for monofocal and cheaper IOLs. This is something we have seen and actually where we actually work together with market contributors to influence the market and to lobby here in the market to get back then also their, let's say the government, for the reimbursement here. This is an ongoing topic, but currently this is the status, and we don't see now that this is changing in that way.
actually we have to live there in the situation.
Okay. Thank you, Markus. Next one would be Andrej Levak. Andre, please go ahead, sir.
Yeah. Hello and thank you for opportunity to ask my question. You were mentioning continuous growth as well as strong balance sheet. Regardless of this, I would like to ask if there will be still some funding opportunities, and if so, where could potentially interested candidates to participate contact you at? Thank you in advance.
Andre, I'm not sure whether I really understood it. Have you said M&A activities or funding? Funding? Can you?
Yes.
say that please?
Yes, sure. Again, you were previously mentioning a healthy balance sheet as well as continuous growth. I would like to ask if there will be some funding opportunities, and if so, where on which direct channel could potentially interested candidate contact you at for the proposal of participation?
Yeah. Andre, I can take that. You will understand that we obviously do not discuss in public here our strategic targets for potential acquisitions. What I can assure you is that we make use of our balance sheet, have made use of our balance sheet in the past and will continue to do so for acquisitions that either provide us with access to technologies that we deem interesting and attractive for shaping our workflows. We are also not shy of more disruptive investments in technologies that may have horizons that go beyond five years and more before they come to full fruition. Please allow me, if I leave it there, I get quite repeatedly that question because our balance sheet continues to be strong.
That should not, kind of, misguide anybody that we do and as we commented in this call, have already in this year continued to make use of it and make acquisitions. Yeah. Maybe that gives you some ideas.
Thank you for the answer. The question was not aimed at those acquisition targets, but the question was the funding opportunities where you would welcome additional capital for possibly beyond M&A deals. Will those be any opportunities? Are there any such plans?
I'm still not fully really sure of what you mean, but I can just tell you in terms of funds, both leveraging or using funds of the group, of the ZEISS Group, I think we have plenty of battle power, so to speak, even for more significant moves if we intended to do some.
Yeah. We can maybe have that discussion also afterwards.
Please reach out to IR, if you need to contact them.
Will do. Thank you.
Thank you. I think there's a follow-up from Oliver, and then after that I go back to you, Graham. Oliver first and then Graham.
There was also a question, by the way, here in the room.
Okay. Put you up in there.
Yeah. Okay. Yeah, thanks so much. Three quick follow-ups. Firstly, because you mentioned South Korea so specifically, can you just provide any kind of color what the share of the IOL business is in South Korea, and just confirm that this has no implication for the refractive laser business in South Korea? Secondly, on pricing, can you just give us any kind of sense what is the average price increases or less discounts that you had in the past that we should expect for the full year? Any kind of ballpark, 3% rather 5%. The last question on the outlook, considering that you continue to plan for higher OpEx to build more resilience, what is the minimum top-line growth that you would require to make the midpoint of your margin guidance?
Basically, can you reach to get the midpoint if there's less than 10% sales growth? Thank you.
Okay. I do my very best, Oliver. On, on Korea, what I understood is whether you see there potentially some, how should I say, spillover from the IOL reimbursement policy that may negatively affect our refractive business, which I do not have indications for that as we speak. I could even speculate that it might be even the opposite, that the clinics will then potentially try to compensate.
Do maybe even more actively promotion on the refractive business. In terms of the IOL share in Korea, we obviously do not disclose any market shares per country, per product. Please understand that there I have to remain somewhat vague, but it is an attractive growing market, has been for quite a while, and we just hope that after this slump, the business in Korea, once the market has somewhat adapted to this new reimbursement policy, will return to grow again. Price increases was the second question. We have done price increases throughout the last fiscal year across the portfolio, and I'd say on average, probably anywhere between 3%-5% is a rough indication.
We have done a price around now with the beginning of this fiscal year, in a similar of a similar size, unfortunately, I should say we have kind of already pre-alerted the market that if need be, we may also have to adjust further along the second half of this fiscal year. Let's see how inflation is developing. In terms of the resilience respectively, the growth that we would need in order to make our guidance, yeah, I think I can pretty much confirm your calculation that probably, you know, a high single-digit growth rate or a double-digit growth rate, that is probably what we would need to achieve in order to be in the mid-range.
Again, Oliver, we are early in the year, and so many unknown factors that can still play a role. I think that is a rough confirmation of your calculation. Yeah.
Super. Thanks so much indeed.
Okay. I believe there were question in the room. Anybody had a question in the room? Thomas, please go ahead.
Thank you. hello?
Yeah.
It works.
Yeah.
Wonderful.
Yeah.
Question on some KPIs for the current business year, please. Your CapEx you are planning for, and the specific, you know, issues in the CapEx field, and the headcount, of course. To your comments on the R&D investments, did I get you right? It's on a high level still in the new business year indeed. Does it mean in absolutely terms or a quota to sales or both? If so, that will go on further in the future, this high quota, I guess. Doing business is becoming more, you know, more expensive. Is there any need for a change in R&D structure and organization?
Up to now, you are splitting your some of these R&D works is done by your mother company, some is done by yourself. Is this appropriate in the future? Will that be appropriate in the future? Thank you.
Okay. Thomas, thank you so much for these questions. I think I will take the R&D questions. The other questions will be covered by Justus. First of all, yes, the R&D quota, also relatively to cost of sales will stay on a high level. Yeah, just to make that clear. That means percentage-wise, we will be on the same high level here. Again, we are always opportunity-driven. This is quite important. That means in the moment when we see an opportunity for us really to shape the market and to win significantly, markets and market share, then we will grab this opportunity.
This is either this M&A or this R&D or other innovations could be also business innovations, and this is exactly what we have in mind. In terms of reshaping or developing our organization and structure, this is indeed a topic what we do currently, but as an ongoing process because we are preparing ourself, our entire organization to scale the growth what we intend to do and to have and also to focus on workflow solutions so that really that we are actually moving from a pure transactional business to a solution-driven business, which is creating also new business models. This is something what we have in mind, and that is also causing indeed other competencies and skills.
We have spoken about digitalization already, so this is something where we are heavily investing, and this is when you're looking to the R&D ratio, so that means the share of people with a software background, then this is something where we are heavily investing and where we are actually significantly growing. This is also indeed in sync, these activities which are ongoing on Carl Zeiss AG level, because Carl Zeiss is also investing in digital very much because this is not only for Meditec an important thing, that's also for the rest of the segments and businesses for Zeiss a topic, especially when it comes to AI, for instance. We see a strong need for advisory and expert systems in the future, combined also with robotic systems.
This is something which is in common interest for ZEISS, but especially for Meditec. This is good for us because we can actually benefit also from the activities there. We see also, for instance, in India that India has a strong potential when it comes to software, for instance, and this is something where we are all still investing and making sure that we get access here. Overall, Thomas, yes, our R&D will stay on a high level because we are a innovation-driven company, and so from this point of view, this is clear. Again, this is quite important for you to know, our strategy is a long-term strategy, as you know, and this is something what we definitely will follow further on.
Also what Justus mentioned concerning M&A, we see all these opportunities. As you can see also now looking back of the last fiscal year, we have grabbed a lot of opportunities, acquiring Kogent and acquiring Katalyst, acquiring Preceyes as a robotic company. This will definitely be ongoing and we will also seeing now what is happening maybe when the market caps are going down and these things, these are acquisition targets, what we have in our normal acquisition strategy.
Maybe just briefly, Thomas, we do not disclose details on our CapEx and headcount planning, but I can tell you that you will see us continuing to invest in our global production footprint. Asia Pacific, EMEA and US, they all, as we speak, are actually currently in capacity ramp ups for the especially the consumer business. With it goes, of course, also an increase in headcount. As the business growth grows, we obviously do the associated investments also in people.
As usual, Thomas, we are I think a very traditional company who takes care of the money also. That means, really carefully, investing in new resources, making sure that we always take people on board which can really drive the value of the company. We are currently strongly investing in the growth, for sure, but it's a careful investment. Always it's a long-lasting investment. Yeah.
Okay.
Okay. Thank you. We need to probably have 5 more minutes. I will now, Graham, try to get you in. Graham from UBS, please, if you can. Then I have some more from the chat. Thank you.
Hopefully you can hear me now.
Yes.
Yeah.
Yes.
Hey, Graham.
Hi.
Perfectly.
Perfect. Great. Thanks a lot for taking my questions. I actually think I was embarrassingly on mute. Just one question for me around revenues. I'm gonna kinda push on Oliver's question and Julien's question to start, which is sort of if you think about what's just happened in 2022, you delivered 13% constant currency revenue growth. You've given us a guidance, which is always a little bit vague, but we think about going forward, you've got a very, very large order book. China might be difficult now, but I think there's a general view that it should be easier over the next 12 months than it was in the previous 12 months. The supply chain, again, it feels like it shouldn't be harder than it has been.
You've got some US contribution from cataract at some point next year as well. Is a similar level of growth not perfectly reasonable to assume? Low double digit, at least into 2023. That's the only question for me. Thanks.
Okay. Graham, I like these questions because, of course, I can't say no to your reasoning. However, you know, the truth is, on the field, so to speak, yeah? Conceptually, we hope exactly for what you described, that the supply chains will rather stabilize, you know, that freight costs and freight, overall freight capacity is there, in abundance, that the apparent correction of the Chinese policy on COVID is going to be sustainable and not only a short-term tactical move. Putting all that together, then, yes, I would confirm that we strive as hard as we did last year against all odds, to make again a good fiscal year happen.
Yeah, with some self-confidence, I'd say, this team is committed to do so, you know?
Yes.
I hope that answers your question.
No, that's perfect. just on.
Graham.
the headwind-
We couldn't hear you. Could you repeat again? Now we can hear you again.
Yeah, sorry. Just on semiconductor chips. I know that was a headwind this year using third-party brokers, and I sort of estimate it's around 100 basis points maybe on margin of 2022. Are you still using third-party brokers, is it the same rates or any update on that?
Graham, indeed, semiconductor chips, especially FPGAs, have been one of our growth limiters last year. As Justus already have spoken about is that indeed the broker cost has been super high. I can tell you there has been crazy activities actually to get access to these FPGAs as other industries did the same and faced the same. This is getting or this is easing in a way more now. Nevertheless, this is what I mentioned before, our supply chain and our, let's say, list of parts is pretty large. For instance, one of the big issues currently for us is also mechanics and then also optics.
And this is something where the teams are working on also with second, third suppliers to ensure this. Overall this year it's a little bit. To be honest, it's a little bit to have, let's say little bugs, and you have to keep all of these bugs together because every time there's then another part going on the critical path, and we have to consider and to take actually into account that we are planning for growth. The entire supply chain also have to grow. It's not on the same level, it's on a growth level. Actually all the suppliers have to increase their capacity, and that's quite important to understand.
That means the entire tier one, tier two, tier three, suppliers have to increase their capacity. This is a challenge because, some of them are really, let's say, highly booked, and we have to make sure now that we get the priority or that we are building up other suppliers to make sure that they can deliver our quality, what we need for our systems.
Super clear. thanks a lot, guys. Appreciate the time.
Yeah.
Yeah, welcome Graham.
All right. I have some on the chat, which will be the last one for this session. Apologies for that, but we need to move on now. These ones, group them into two buckets. The first ones are on China. Can you please remind us the contribution of China to OPT, to ophthalmic devices? This, connected to that, the stocking in the three China warehouses, is that mostly consumables?
Can you say the first one again?
How much is China as part of OPT?
Oh, okay. Justus, do you want to take this?
I can take it, yeah. Fine. We start with that one. That is roughly, you know, you have, you have seen our numbers. I think we showed that we had last year EUR 950 million or so revenue from the Asia Pacific region. Now specifically talking about OPT, then probably around anywhere 40-ish% of this is associated to China. That's question one, and the second was on.
Warehouses, is that mostly consumables?
Warehouses is, it's a mix, but of course, consumables weigh heavy for China, and I'd say, yeah, they are a significant portion of it.
The two last ones are on margins. First, Q1 2022 was already the weakest quarter of the past year in terms of the EBIT margin. How bad could Q1 2023 be in terms of top line and margin?
How bad? I'd say, we have, in terms of top line overall, as I said, the order backlog. Just have to refer to what Graham just listed. The backlog is good. Overall, the markets right now are open. In terms of, you know, accessibility, there's a bit of an ease on supply chain, so I'm not overly concerned for revenue. As we are explaining, we will see some contraction in the consumable business. You will see a meaningfully lower margin in Q1 of this year compared to Q1 of last year. Again, let's always remember that the first quarter is typically a rather low margin quarter anyways.
The seasonal pattern is that we then for the remainder of the year, have actually then increasing margins. I would expect the same.
Last topic. You mentioned an increase or a dilution from inflation, 100 to 200 basis points possibly. Is that net of price increases that you're implementing, and how much are you raising prices?
I think the price increase I explained, so again, product by product, that can vary between 3% to 5%. The question on the net impact, again, you know, we are talking about moving, so to speak, moving targets here. We would hope that in the end, you know, the impact that I said is a net impact, yeah. But whether it's going to materialize like that, yeah, remains to be seen.
All right. Thank you, Justus, and thanks for everybody participating in the Q&A. Hope you don't mind, we went a little bit over time, but these were some good discussions. We now move on to Magnus' part, for the second part of the presentation.
Yeah. No, that's good. That's good.
Fast for you?
No, it's fine. Thank you. I'm pressing. Yeah. Good morning, everybody. I'm the last, at least in this, in this table here, to welcome you, out of or for the esteemed ladies and gentlemen here that made their way to Oberkochen in Oberkochen. This is really the primary home of the strategic business unit Microsurgery, that is in short MCS. I think you're very familiar with that. And I am leading this division. I have the pleasure today to present the SBU MCS to you. We'll go through a little bit through the long-term performance of Microsurgery before we walk into the concept of workplaces and workflows, which we introduced with our organization, addressing our customers through different business sectors.
Lastly, I want to give you sort of a preview, actually, at least for the group that's sitting here in this room, on the ZEISS tumor workflow in your surgery, because you will have the opportunity to see not only the ZEISS tumor or cranial tumor workflow with the respective product managers here live in the Medical Solutions Center, but we'll also show you another workflow, which is the cataract workflow out of ophthalmology, so we can see the similarities and but also the differences in terms of the stages where we are. Now, let's start with the historic performance, and you see, as Markus said earlier, a very stable contribution of MCS towards the overall performance of MET.
You see a spike in there in 2018-2019, particularly, when you look at the EBIT ratio, and that's sort of the majority coming from a renewed portfolio that we have started to push out into the global markets in 2017-2018, and it came into full swing in 2018-2019. Despite the COVID-19 pandemic and supply chain constraints, which evidently also hits particularly microsurgery because it's very CapEx based and very much on capital and capital investment or capital goods, coming along with services, we have been very, very stable and actually very profitable, if you look at our EBIT margin.
As I said before, the portfolio has been consolidated in the year 2017-2018. We went from a very high range, a variety of different products to less products, which also helped during the pandemic in terms of delivering a better result. It reduced complexity. The numbers that we're looking at finally have the underlying assumption of a visualization market that you see in the pie chart on the upper right, which is really surgical microscopes in the medical disciplines that we are, that we're serving, and we estimate our market share overall, over all these medical disciplines throughout all regions at over 50% being the dominant player in all areas that we play in.
I was talking about where all the revenue and EBIT was coming from, and that's really from capital equipment and predominantly, as of now from surgical microscopes. You see on the vertical there is a very strong stronghold for these microscopes, whether it's in the neuro-neurosurgical space, in spine surgery, in ENT, but also in dentistry. However, if you look at our assisted division at OPT, there's a very big opportunity, strategic opportunity to grow further and expand across different workplaces and not only look at visualization, but look at other aspects of treatment. We do that in the realm of microsurgery with the in vivo pathology suite called CONVIVO.
It's really intraoperative imaging and tumor recognition, but also in the, in the, in the therapy space when it comes to intraoperative radiation for specific tumors, particularly in the brain. Lastly, what we also want to add, and I think Justus said that before, we want to have a fair and profitable share between capital equipment and recurring revenue through consumables or, yeah, recurring revenue through consumables that comes along. We did the strategic acquisition of Kogent Surgical and Katalyst Surgical to increase our ratio in the long term, adding surgical instruments that are used in neurosurgery, that are used in ENT and other medical disciplines to increase that share moving forward.
You see already a little bit the concept of what is a workplace and what is a workflow. Maybe we can do a bit of a deep dive in terms of how we're thinking about it. If you look at a patient that has a certain issue and doesn't know what it is, they would first go probably to a doctor, you know, your main doctor, and get a diagnosis. That doctor would then say, at least for the disciplines we are in, they would refer you to a hospital where again, there's a check-in and there's a diagnosis. For most of the medical disciplines that we're working with, this is not a visual inspection. It requires a preoperative imaging that comes through a CT, through MR technology, ultrasound.
it's gonna be 2D or 3D data that is going to be acquired, and that sets the foundation for the decision on the further treatment along the way. For all of our, let's say, 80% of these treatments that we're looking at, those require surgical planning. Before somebody would walk into an operating theater and perform surgery, you would plan what to do, how to do it, when to do it, in what sequence according to the data that you have created. Think about a brain tumor. Nobody wants to have a brain surgery by a surgeon who hasn't planned this out, right? so there's a planning portion to that. The patient walks into a surgical theater, and then the surgery is performed.
There's a couple of workplaces or couple of technologies that are actually used. It's not only the microscope, which is currently for neurosurgery and a portion of ENT right now, the dominant instruments because it provides magnification and light. It sounds simple, but it's difficult to reach because the deeper you go surgically, you know, in a surgical situs, which is really the area you're working in, the more difficult it gets to get it into this magnification without obstruction, number one, but also the light to the, to the area that you want to perform surgery on. Now looking at the name of microsurgery, the intention is to do this as minimal invasive as possible, right? You don't wanna damage any structure that are healthy.
You don't wanna impose additional pain or healing issue for patients. There's a couple of workplaces in there, again, with starting with a microscope moving on along the therapy with instruments, navigation, implants and consumables and so forth. Lastly, you would have to check, right? Typically in all of these treatments, you have a postoperative imaging, you have a check on, you know, your functional areas, you know, if the eloquent areas for in the brain, for example, are still working. If you can speak, if you can, you know, if you can feel things and if you can move. That really ideally concludes the treatment.
What we know and what we see through some of the mega trends of getting older, getting more access to healthcare, acute and potentially also terminal diseases get chronic. You walk through this workflow a couple of times, and ultimately what is important gets strength into a workflows combined of different workplaces is the data that you carry along, and that is integrated from one workplace workplace, moving to the next one, so you don't lose information, okay. That is probably the most critical aspect of healthcare, at least for the medical disciplines I'm talking about today to you, to have relevant information at the time when you need it. There's not any more a lack of information. It's just the right sequence at the right time to make the right decision.
That's what you ensure through a workflow and having all the information available. At one point, work with AI to automatically segment that information that is necessary at a certain step. That ultimately builds a medical ecosystem. How does that translate into what we're doing? We basically have three business sectors in microsurgery, and they are assorted along distinct customer groups that share multiple workflows they're working on. I'm starting with the first one, but I'm telling you the other two already. The first one is neuro and spine. Why? Because it's combined through the central nervous system, so the spinal cord and the brain that creates one organ. These two somewhat belong together.
If you go to an to a surgical or to a neurosurgical OR, you will find a lot of neurosurgical, surgical approaches actually treating the spine because a lot of diseases are coming from there. For example, a lot of tumor variants go through the spine, have a primary tumor somewhere, but then go through the spine as a metastasis into the brain, and we'll have a look into the cranial tumor workflow later on. The other one then is cranial vascular. Another set of diseases really limited or focusing to the brain, which is about the issue of blood vessels getting blocked or clogged or obstructive. Mainly the diseases around AVMs and aneurysm that pose an immediate death threat to the patient and it needs critical care at the moment.
You need advanced imaging to visualize it, to see once you clipped that vessel that creates the issue, is there still enough blood flow to the eloquent areas of the brain? Do I really get everything? It's not only the microscope that you're using, it's fluorescence technologies, but it's also important to look around the corner because obviously you only have through a microscope one angle to look at the surgical area. For these things, but also for the cranial tumor, obviously, you need to reduce tissue, you need to extract tissue. If you extract tissue, you will see bleeding. For that, the instrument portfolio of Kogent comes in very handy because it's a bipolar forceps that run electricity through the top.
If you hold it and hold it together at the tip, it'll heat up and basically stop bleeding. Okay. That's how it works then together. Lastly, for spine, it's much about tumor decompressions and fusion. If you look at spine treatments today, every treatment, literally every treatment ends up with a stabilization of the spine. Whoever has a spine treatment wants to go out straight, obviously. If you have a, you know, disc issue, you'd replace the disc. You know, you fuse vertebras. If you have a tumor in there, the tumor typically is connected to bone, so you have to remove the bone, but then you stabilize again. In there, if you look at the different workplaces that you have, there's a high degree of implants, cages, screws, fusion plates and so forth.
Next business sector is ENT and PNR. ENT, a medical specialty. PNR is plastic and reconstructive surgeries. Come to that in a second. Maybe we start with ENT. A very interesting domain is hearing loss. Hearing loss, again, is along the mega trends of our societies. People get older, and similar to our assisted vision in OPT, where with age, your vision degrades, also your hearing ability degrades. That's a natural, that's a natural process and just happens. There is exception of course, but in a general trend, that's happening. There's another trend which is again, access to healthcare. With access to healthcare comes a certain demand on an aesthetic solution. Whereas in the past, you know, was just the functional result. Today, if people, for example, lose their hearing, they don't wanna necessarily wear hearing, like, visible hearing aids.
The aspect of middle ear, inner ear implants, depending on the disease, getting more important. Also, if you think about what's possible in terms of technology, how do you miniaturize technology to make it less visible, is of essence. That's something we really wanna focus on in the future. The second one is larynx and tumor resection. Larynx is this area around the throat. You might think, well, ear is somewhat here, throat is there. The combined aspect of that is knots or tumors that have to be removed. In the larynx, you use a laser. In, you know, ear tumors, for example, you would use other technology, but it's all starts again with magnification, light and fluorescence.
Lastly then, plastic and reconstructive is a domain of specialties, and it's mainly based on a clinical treatment, which is called anastomosis. Anastomosis is not more and not less than combining vessels or structures with each other. The smaller, the more complex obviously. In this case, we're talking about microstructure that have a millimeter in diameter. That happens in the hand area, that happens particularly in the area of the face, also in the area of the breast. Whenever you need to transplant living skin from one place to the other, it's very technology-driven, highly specialized, but used in a lot of areas of the body, and obviously, again, requires not only magnification, but everything that comes along with it, like minimal invasive tool, like very small and tiny instruments that go along this workflow.
Lastly, third business sector is for us is dentistry. Completely different customer group, also different buying behavior, if I can say that. All the groups that you have seen before are typically working in a hospital environment, a very controlled environment, so your customers are also it's B2B, B2G, B2I. It's, it's an institutional partner that you work with. Whereas in dentistry, you have a lot of dentist practices that do the majority of the work. Yous also have a different interaction, a different go-to-market approach, different requirements from that customer group in terms of their self-marketing and their competition in their own, in their own city. There's two workflows that we look at. One is endodontology, fairly established on a global scale, and that's the treatment of root canals. Again, magnification of importance.
Small instruments are important. what is essentially done is that a tooth is opened and the dentist will try to find the three root canals that are part of the tooth. Typically, there's no issue in finding two. Sometimes there's an issue in finding the third. Nobody who ever had a root canal treatment wants to go back for the same tooth, that's pretty clear. The solution for that is essentially, you know, increasing magnification. Make sure you get all the nerves out of the third root canal, number one, and you don't forget one of these files that typically breaks. It's a very manual process to get this out. If you leave it in, you have a new infection, you have a new pain.
The instruments that we're providing support with the magnification, but again, if you look at it from a workflow perspective, in a workflow mind, you would see that there's a lot of things that come along with this type of procedure, which we now also want to install in another, in another workflow, which is the whole care about implants and restorative. Again, following a mega trend of having an aesthetic desirable result. The more precise you are as a dentist, obviously, the more successful you will be and will be respected by your patient base. We'll have a quick look into the ZEISS into the ZEISS cranial tumor workflow. We call this See, Check & Treat. The concept of different workplaces forming a workflow.
I think it's fair to say that we're really at the beginning of this journey with a very solid foundation in the visualization side. That is the KINEVO 900, and what you see on the lower part is the cable, sort of a micro inspection tool with which you can look around the corner. I want to get you a little bit into the journey of what happens, you know, when a patient gets some of that diagnosis. We're talking about, actually a horrific disease, which is for literally every patient who gets this indication terminal. That's a glioblastoma. It's probably one of the most aggressive tumors somebody can catch in the body.
Again, it's absolutely lethal, and not only that, the treatment of that particular disease hasn't changed and hasn't shown any progress over the last 40 years. We call that PFS, progression-free survival, is about 6.7 months, which is rather low. What we're trying to do is to improve that, and you do that by multiple ways. Number one, you remove as much tumor as you can. Obviously, the tumor's in the brain, the way it spreads is difficult to catch, and you have to make a distinction at one point, how much do I remove, how much do I leave in? To make that assessment, you number one need to know what's the critical structure I'm actually touching.
Is that the portion of the brain that a patient needs to breathe, so there's no point in taking it out? Or is it an area where it can progress? If I progress, is there still tumor? Because some of the tissues are hard to differentiate. What helps with that is the second workplace called Check. What a surgeon typically does today, they would run histology during the operation. What that means, typically we would say, well, any minute in an OR is very expensive. In these cases, that's a minor issue. What they do is they take a pathology, they take a sample out of the tumor bed that they have removed, send it to pathology. They will create what is called frozen section.
The neuropathologist will analyze it and will send the result back. That's a process that takes you 30-45 minutes in a hospital that has neuropathologists. Neuropathologists are rare, so not every hospital that performs these kind of surgeries will have that because the specialty of a neuropathologist is based on repetition, so you have to have enough cases. Now, there's a bottleneck in the assessment. What the CONVIVO that you'll see later on is doing is number one, it's splitting the necessity of having a physical sample, sending it in a physical way to a pathologist sitting somewhere in the same hospital, you know, to be fast, into a sequence where you do everything virtually, so the pathologist can sit anywhere, and it's real-time. One aspect. You reduce time.
The second aspect that comes with the virtualization of this histological assessment is that you can do multiple samples actually as often as you want without any time delay. That's the big thing that CONVIVO provides to this workflow is that, you know, you can take multiple images in a non-invasive way. You just, you have a probe, and that's taking a picture of the tumor bed, you know, magnifies it to a cellular level, and it's a digital image, and the digital image is sent to the pathologist that, you know, adds some stain to it, so a different visualization technique, and then the pathologist will be able to detect if it's tumor or not.
The third one is then an add-on, and that's similar exploratory like the CONVIVO, is immediate radiation within the tumor bed. Typically, a patient with that kind of indication would go through a long and extensive external beam radiation. For the brain, that means you're sitting in a, in a linear accelerator, and, you know, the beam is basically going through the entire brain. What they do to reduce that in a very well and very sophisticated manner actually is that they rotate the patient and the linear accelerator to limit the damage of the, of the outer region that you don't wanna touch. You maximize the radiation dose in the area where the tumor sits.
What INTRABEAM does, it adds to this procedure, and it adds by giving sort of a boost, and that boost is applied directly in surgery. We have a device that's called INTRABEAM, and that INTRABEAM 600 will be, with its applicator that you see there on the lower image, will be put into the tumor bed, and then there's immediate radiation. The radiation that is sent out is very low, so you don't need additional shielding or caging in the operating theater. What is important is that the, that the radioactive fallout that's coming, it's very dense, and it's very short. Within a centimeter, you basically don't have any issue for the surrounding tissue anymore. For the last two workplaces in that workflow, again, highly exploratory. With CONVIVO, we just started.
With INTRABEAM, we're running a bigger study for particularly the treatment of glioblastoma that will, you know, phase 2 trial that will come out in the next years, where we see initial results that are very promising and significantly with the entire workflow, significantly support to increase life expectancy. I'll show you a quick video on that, but that is really only a teaser and also the outlook for the hands-on demo, and you can try and see how it works. That's obviously how the brain is structured. You have synapses and, you know, different areas that holds the information that is needed to operate our body.
What typically happens with these tumors, they are not, you know, on the surface of the brain. They're typically in the brain, which requires an approach where you carefully, you know, open up, don't take anything out, you just push to the side. You find the right approach. You get through the areas of the brain that are less affected if they're touched or harmed. You remove that tumor with the support of the KINEVO 900. Again, magnification, light, fluorescence technology to distinguish between the tumor and normal tissue. Once the tumor is out, we come to the check phase, where that in vivo pathology suite called CONVIVO comes in. You see that probe, and that probe is only touching the tumor bed. That's the area where the tumor has been before.
Take multiple images of the tissue microstructure. That's a very important step, particularly if you don't have a neuropathologist in the area. You know, we have seen cases where people fly that histology to another hospital, so it's also very expensive. Ultimately, once you realized, okay, I took out as much as I could, you apply radiation immediately after the surgery before external beam radiation. That's only again, it's only a boost. That's the tumor workflow where we are today. We have just added, as you heard before, we have just added the instruments.
The instrument are crucial not only from a business perspective in terms of adding recurring revenue, but it adds, you know, a workplace again where you can actually have the opportunity to reach for the, so to speak, for the surgeon's hands and not only the eyes that we already have, so to speak. With that, I thank you very much for attention. I hope I could get a little bit of excitement for microsurgery as well. Yeah, looking forward to your question, obviously, to our session later on here in the afternoon. Thank you.
Thank you, Magnus.
Okay.
Thank you, Magnus. Again, the room has first right to questions, but then also we can take, of course, take online questions as well. Online folks, please raise your hand. Can start with you, Thomas, here in the room.
Thank you. A question on this INTRABEAM project. You are heading for a second line, I guess, second line treatment for glioblastoma. What are the experiences so far? You are in phase II, I guess. Are there interim data available or what is your publication schedule on that?
Yeah. Typically these, the way these studies work is obviously blind studies. As a, you know, manufacturer of these devices, we actually refrain from even asking for results, right? What we've seen so far in terms of patients that come back for more treatment, which is really the indicator if it works or not, has been promising. You know, in the field of radiation or radiotherapy treatment, clinical evidence is absolutely key. Believing is not enough, so you need these data to actually perform in the market and start to get a grip on, you know, imposing this type of treatment to a selected group of patients. We're dependent on the results of the study first.
Do you have KOLs on that treatment or is this more or less academic or on a academic level, so to speak?
Well, you have prominent leaders that are using this technology and using it for multiple years already. The technology itself has been around, has also been applied for different application. If you look at the way how the radiotherapy departments are structured in a hospital, they typically treat all kind of tumors, not only tumors in the area of the brain. They're familiar with that technology. In that sense, yes, we have on the one hand KOLs, but on the other hand, we have PIs that run the study. Yes.
Final question. Is there a robotic tool in this glioblastoma treatment to help the surgeon to extract the tumor?
If so, is it fair to assume that in the future this robotic will do the treatment itself?
Yeah.
not, and only overlooked by the surgeon in the future? Thank you.
Right now there's no robot or robot assistant in terms of removing the tumor. The KINEVO, that robotic visualization system, has robotic functions for moving in or moving out and moving the arm away whenever you need it. There is robotic assistance. There's no robot that would help you to remove the tumor. That's a highly manual and also specialized process for the moment. Typically, you would use AI but also robots for repetitive treatments, right? You can learn the robot how to do that, but that's a very specific type of tumor. It's a very specific type of procedure that you're performing, which requires the expertise of the surgeons. Is there potential for the future for AI support in defining and giving decision support of what to do now?
Yes, probably the same applies for tools that have robotic support. It's very unlikely that, at least my lifetime, I think, that there is a full robot that would perform these surgeries.
Thomas, maybe to add on this. As Magnus said, the KINEVO is a full robotic system, and you will have to, you know, the opportunity to check it out by yourself. It's really. The entire planning actually goes to the microscope and is then assisting actually the surgeon to come really to the tumor. This is the first thing. Secondly, the CONVIVO is, and we are very proud of this, is the first tool who got an FDA approval for an AI algorithm, and you will see this also here on the workplace. It shows actually our activities in digital and also the market shaping activities here.
The combination is indeed, and we all have this in mind, you know, to have a full robotic system and just people are moving in and you have diagnostics and treatments and all of these things. This is definitely the long-term vision, like in any V's, you know, obviously e-mobility, but we are actually following exactly the same pattern and even this more of, let's say, safety, as already happened in automotive. Overall. This is exactly why we are investing so much in R&D. We strongly believe in these things. We strongly believe in automation, otherwise there will be no way actually to treat this aging society. Yeah.
From this point of view, we really feel very well prepared actually to be part of the market shaping here and be an integral part. Welcome.
Okay. Thank you. Thank you very much, Thomas, for your question. Next one would be William from Comgest. William, can you unmute yourself, please?
Yes. Thank you and good morning. Thanks, thank you very much for the presentation. I've got three questions, if I may. The first one is kind of an easy one, but just when it comes to R&D to sales ratio for the microsurgery division, is it more intensive in terms of R&D than OPT or not?
It, it-
Yeah. We are just discussing who is answering. It is actually not so much distant from OPT, and we clearly can say that we have a higher ratio than on our competitors for exactly the reasons that Marcus explained earlier.
Yeah.
I hope that is enough to answer your question. Thanks.
Yeah. Maybe a second question more on INTRABEAM, which is quite interesting. Obviously you are running clinical trials, just trying to understand what sort of PFS improvement do you expect so that, you know, in the practice, they adopt the INTRABEAM laser? Obviously it can reduce the cycles of chemotherapy and save significant costs to the system, but it comes with a CapEx investment. What sort of PFS improvement do you expect so that we can see, you know, that revenue opportunity to materialize in the medium term?
Thanks for the question. I think it's difficult to give out a certain number right now. If you look at the current progression-free survival and you look at the zero improvement on that over the last decades, any month would be tremendously important and valued by the market particularly. Also from a process perspective, it also again adds to the treatment and doesn't change anything of what they're doing today. The expectation is also there's wide acceptance of adding another tool to the toolbox of surgeons and healthcare providers to provide for patients. I can't give you an exact number on progression-free survival expectancy. That's really up to the study.
Again, any month would be significant and probably has a significant impact to the market as well.
Just to add on that, William, as Magnus already mentioned and pointed out, we see a significant increase, really there are promising results. As Magnus said, you know, this goes along with the study. We are all physicists and engineers, this is the reason that finally, the one thing is maybe perception, the other one is then having the facts on the table, that's exactly the reason that we are supporting this study very much. Hopefully then having a workflow solution which will expand the life then of these patients significantly.
Okay. Maybe a last one on CONVIVO. Obviously, it's a new product launch for you. Can I just understand a bit what's the incremental revenue opportunity if all KINEVO machines were attached with a CONVIVO? What sort of additional revenue opportunity do we talk about, and what's the ASP for CONVIVO? Just trying to understand how incremental this can be.
Yes. CONVIVO is sort of in the launch phase. As you know, this is a device that is related to medical classes and therefore you go through certain regulatory processes along the way. Particularly for the big markets, that takes time, and we're expecting that to be completed only in a, you know, in a couple of years to have. And then obviously the treatment itself needs to develop the same standing in the overall treatment like a microscope does today. Potentially, if you're asking for ASPs of CONVIVO, as a microscope, they're highly configurable, depending on what kind of software and algorithms you want to have.
You could probably also compare ASPs from our microscope business to the CONVIVO. If, you know, if in your calculation, one matches one, I think, you can do the math from the first slide. The potential is big. There's also no competition, as Marcus said. This is a very new technology, first to the market, fairly secured with a great IP strategy, I think. Yeah, we're looking forward to the years to come to implement this product and this technology into the surgical treatment.
All right. Thank you very much. Quite promising.
Thank you. Okay. We have the next one. Next one would be Sezgi from HSBC. Sezgi, please go ahead.
Hi, thanks very much for this very interesting presentation. My questions will be on, first of all, the sales model. Would you be planning to do an outright sale or kind of bundle it or go for a rental model? I know it's initial phases, but how does that look going forward? Second of all, in this area, how do you see the competitive market alternatives? Obviously, this is a new technology, but when the time comes and everything is approved, what kind of decision will the doctors be making in terms of replacing this with its predecessor?
Okay. Yeah, on the sales model, you asked about outright rental or subscription. The answer is yes, it's a combination of those. Microscopes, typically in the vast majority of the markets, are sold as a CapEx, so it's an initial invest. Some of those are finance, sort of a finance lease. What we're looking into, particularly on the software side, is subscription models that add to the recurring model. There's also, particularly on the INTRABEAM but also on the instrument side, a significant portion of consumables that you will need to have that will add to the revenue streams.
Typically from a commercial perspective, that is then bundled for certain consumption over a given time in the markets that favor that method. That's one. The other question was about competition in the market. You may have heard that one of the biggest competitor in microscopes will leave the market in 2023. We believe that's to a good portion because of our dominance in the visualization sector, where we make space very narrow for probably the smallest competitor. That's really the competitive space we're in right now.
For the other portions of the portfolio, again, INTRABEAM, but also CONVIVO, we're starting in this market, so there's not much competition there in terms of competitive devices.
If I may follow up, which model is likely to outweigh the others in terms of the sales model?
Sesgi, I think currently we are still following a transactional model.
Yeah.
So that means really selling devices indeed, and I think that's quite important. Our idea is really to provide solutions and then to actually to give the customers a full ecosystem in their hand so that they can run then efficacy but also efficiency. Efficiency is one of the key aspects here, as mentioned before. As Magnus has already pointed out, this is not only in the neuro part. We see it also in ENT. We see it also in dental.
We have great control points here. That means actually we have a really good starting point, in a way to start to own the respective organs and to find good solutions for the, let's say, age-related and strong diseases. This is the plan behind always this, the digital platform. I think that makes it a little bit unique for us because we have great systems in the markets with very important control points. This combined with the right health data platform, where we can actually shuffle the data, this gives us a wonderful opportunity actually to move ahead and to follow our strings of pearl strategy and approach.
Perfect. Thanks a lot.
Okay. I think we're perfectly on time. I don't know if there's another question in the room. Anybody? If not, I think that's the moment to say thank you to everybody who joined the call and the great discussion. Thank you, Magnus, Markus, Justus for the presentations.
My pleasure.
As I mentioned, we have another offline showroom part coming up now after lunch. Thanks for all of you who joined online, and look forward to our next discussions in the next quarterly call or individually. We'll also be at conferences early on in the new year, so looking forward to meet as many of you as possible in the next couple of months. If we don't speak again before then, happy Christmas break and Happy New Year to everybody. Looking forward to hopefully a successful year for all of us in 2023.