Okay, so welcome everybody to Frankfurt. Thanks for joining us today. The conference today for our year-end, I think it will surprise nobody if I say we planned it a little bit differently in light of this week's news. I'm delighted to have Andreas with us, CEO of the ZEISS Group, and as of January 1st, our new interim CEO at Meditec as well. And Justus, of course, was always planned to be here today. So no, thank you very much for joining us. Also, warm welcome to everybody joining us online for this year-end conference. Our numbers out this morning will first, as you would typically expect, go through the financials, go through the outlook for fiscal 2025-2026.
And after that, you will have Andreas do a bit of a strategic review on a high level of Meditec, and of course, then you can ask us with questions on both items afterwards, so it's not a very complicated agenda. We'll have the presentation, we'll have the Q&A afterwards, and we can have some lunch afterwards and continue the conversation a little bit. I wanted to let you know that Andreas, because this was all a bit spontaneously and improvised, you will unfortunately not be able to join for lunch, so you'll only be here for the Q&A session to use the opportunity to fire away questions during that period. And Justus and I and the IR team will, of course, be there afterwards as well for you.
We will do in the Q&A. We'll take questions from the room and also take online questions, technical commentary. The microphones need to be switched on so that when you later speak to us, that people who follow us online can also hear you. With no further ado, I'll pass it on to Justus first to walk us through the financials.
Thank you, Sebastian, walking over here and welcome to all of you here in Frankfurt in the room. Thanks for having made the trip over here and of course, a warm welcome to everybody who has dialed in wherever you are, so the analysts and investors, welcome to our annual analyst conference for the fiscal year 2024-2025. Let me begin now with an overview of the past fiscal year. Our fiscal year 2024-2025 results show solid revenue growth and strong order entry, along with a slight uptick in EBITDA. Let's start with a look at the order entry. We achieved EUR 2,288,000,000, representing a growth of 18.2% year- over- year. On constant currency, order entry increased by 19.1% and by 13.9% when adjusted for both FX and acquisitions. We saw a robust order trend across all regions, with the order backlog remaining at an elevated level of EUR 380,000,000.
Let's turn then to the revenue. Revenue reached EUR 2,228,000,000, which is up by 7.8% year -over -year. Breaking it down, equipment sales grew by 2.3%, while consumable sales grew 15.2%. By category, equipment accounts for half of our revenue, consumables 41%, and service 9%, which, and I think that's something to highlight. This is a new all-time high and the first time we achieved 50% of our revenue with recurring, items. FX adjusted growth was 8.6%, and FX and acquisition adjusted revenue was slightly above prior year by 3.3%. In Q4, we saw particularly strong momentum with revenue up by 8.3% and foreign exchange adjusted by 10.4%. Key drivers of this growth included solid VisuMax installations in China, the accelerating ramp-up of the KINEVO 900 S, while refractive procedures in China remaining largely flat overall.
Finally, EBITDA came in at EUR 258,000,000, which represents a 3.5% increase compared to last year, despite, and that I want to highlight, despite headwinds from U.S. tariffs, which have cost us a bit more than EUR 10,000,000 during the fiscal year, and negative foreign exchange effects, which presented an earnings headwind of more than EUR 20,000,000 for the entire year. That, however, is unfortunately continuing into this year, and the absence of a one-off gain of EUR 18,000,000 from last year's Topcon settlement, so this represents an EBITDA margin of 11.6%, slightly below the 12% in the previous year. Adjusted EBITDA margin was 11.6%, up from 11.2% last year. The main adjustment here being Topcon in last year's base. Organic operating expenses was below prior year, mainly due to R&D savings, as we had promised to you.
Let's take a closer look at our strategic business units and regional performance. We start, of course, with Ophthalmology. Revenue reached EUR 1,724,000,000, an increase of 8.5% year -over -year on a foreign exchange adjusted basis that corresponds to + 9.3% growth and 2.3% when adjusted for both foreign exchange and acquisitions. We achieved only modest growth in equipment amid a continued restrictive investment climate. Consumables grew more strongly, mainly because of DORC, but also there was solid volume growth in IOLs, especially in premium IOLs. VISUMAX 800 installations in China progressed well. Refractive consumables in China remained stable with a slightly more favorable mix, even though the overall consumer climate still remained rather weak in our view. EBITDA margin increased by 1.3 percentage points to 10.9%, driven by better operational leverage and full-year DORC consolidation.
In terms of business split, Ophthalmology accounted for 77% of the group's revenue, within Ophthalmology, consumables accounted for 51%. Together with service revenues, recurring revenue now stands at a record high of 59%. Let's move on to Microsurgery. Revenue increased to EUR 504,000,000, up by 5.7% compared to the previous year, and exchange rate adjusted growth was 6.6%. After what had been a really, really slow year during the first six to nine months, we finally saw much stronger momentum in Q4, and I think we had guided for that with top-line acceleration of more than 16% in a very solid order entry as well. KINEVO 900 S ramp-up continued successfully toward year-end, contributing to the strong performance. EBITDA margin declined by six percentage points to 14%.
Main reasons included overall unstable order connection due to delayed deliveries of KINEVO 900 S and also a significant impact of tariffs and foreign exchange. Please, everybody, be reminded that, of course, the U.S. market is extremely important for the KINEVO or for the Microsurgery division. In addition, Ophthalmology were higher due to increased marketing and G&A expenses.
Yeah.
Finally, looking at the revenue split, Microsurgery accounted for 23% of total revenue within Microsurgery. Equipment still represented the majority at 81% of its revenue. Yet we are making good progress here with our recovering revenue as well, with service as well as the drapes and instruments business achieving excellent growth. Let's then move on to the regional development. Overall growth was recorded across all regions, with APAC contributing the largest share at 45%, including 25% from China. Revenue in Americas came in at EUR 579,000,000, up 8.7% year -over -year or 10.4% foreign exchange rate adjusted. Growth was supported by both organic performance and the full-year DORC consolidation. Order entry overall rose, but following tariff-related pricing measures in Q4, we observed some slight weakness late in the year.
As some of our competitors have also been referencing, we believe overall market climate to remain quite weak and price action by foreign companies in reaction to tariffs are certainly not helpful. In EMEA, revenue reached EUR 658,000,000, an increase of 12.5% year -over -year or 13.6% currency adjusted. We saw solid growth in key markets like Germany, the U.K., and the Nordics. APAC revenue was EUR 991,000,000, up 4.4% year -over -year or 4.6% currency adjusted. We had good growth in Southeast Asia, India, and Korea, while Japan declined. As discussed before, it certainly hasn't been a strong year in China, but final results showed some stability in refractive and cataract compared to a weaker 2024. Let's now look at the overall P&L. We delivered stable profitability while keeping underlying operating expenses and impact of U.S. tariffs under control.
We delivered EUR 1.175 billion in gross profit with a margin of 52.8%, essentially stable year -over -year despite headwinds from negative currency movements and U.S. tariffs. Excluding DORC, underlying OpEx actually declined year -over -year, mainly driven by lower R&D spending and reduced DORC integration costs. G&A expenses increased slightly due to the DORC consolidation and higher IT costs. We have mentioned that we are introducing a new ERP system, SAP S/4HANA, and that requires additional expenses in that area. R&D expenses were lower year- over -year, reflecting disciplined project prioritization. Earnings per share came in at EUR 1.61 and adjusted earnings per share at EUR 1.90, down 3.9% year -over -year. Earnings per share declined despite the higher EBIT. This was mainly due to negative currency hedging results and lower interest income.
The prior year also benefited from a one-off positive effect related to reduced contingent purchase price liabilities from the CTI, or formerly known as IanTECH acquisition. Let's quickly look at the adjusted numbers. EBIT increased to EUR 223,000,000, up 14.8% year -over -year. The amortization of purchase price allocations mainly relates to DORC at EUR 26,000,000 and former acquisitions of EUR 8,000,000 in the reporting period. In other special items, prior year included the already mentioned one-off gain from the Topcon settlement. There have been only very moderate adjustments during the fiscal year. Adjusted for special items, EBITDA improved to EUR 259,000,000 with an adjusted EBITDA margin of 11.6%, a slight improvement compared to the prior year. Turning then to our cash flow statement, operating cash flow came in at EUR 210,000,000, slightly below last year.
This was mainly driven by an increase in working capital, in particular higher accounts receivables, as well as higher interest payments. Investing cash flow was significantly lower at EUR 91,000,000 compared with a high outflow last year related to the DORC acquisition. During the reporting period, CapEx was also lower. Tangible and intangible CapEx amounted to 3.4% of revenue compared with 7.4% last year. Financing cash flow was - EUR 109,000,000, reflecting dividend payout and a decrease in treasury payables. By contrast, last year's strong inflow was mainly driven by the shareholder loan associated with the DORC acquisition. Net financial debt at EUR 277,000,000 remained below last year. Now, I'd like to provide the outlook for fiscal year 2025-2026.
And you know me a little bit before we turn to revenue and margin guidance, I would like to highlight the key risks and potential upsides we anticipate for fiscal year 2025-2026. On the risk side, we expect a potential negative currency impact year -over -year at current exchange rates in the low double-digit EUR millions. In China, we foresee continued pressure from volume-based procurement of IOLs, especially in the multifocal category, which could lead to considerable price reductions. As you all know, the second nationwide volume tender is due most likely somewhere in March-April. Last month, Chinese regulators have told us that one of our successful bifocal intraocular lenses needs to be re-registered, and the old product can no longer be sold to public hospitals under the old VBP tender.
While there's nothing wrong with the product, it was initially approved in the year 2015 and then re-approved in the year 2020, and it has been sold for all those years, and safety data is excellent. We have been quick to launch the required re-registration process and hopefully will be there in time for the new tender that we expect in the spring. Our Chinese team is now withdrawing some of the old product from the market, creating a scrap risk for a number of stocks of the old product, also in the low double-digit million EUR. We also anticipate potentially intensifying competition in refractive, though no direct launch preparation by a Chinese competitor is being observed as of now. We continue to monitor government policy changes in that market too. We are very clear-eyed about China, which, as you know, is a very significant portion of our revenue today.
We have to massively speed up localization of product to defend our market access. In addition, potential trade barriers between the E.U. and the U.S., including risk from the Section 232 topic, as well as uncertainty around U.S. healthcare and hospital budgets, remain external factors to watch closely and which could cause risk to our U.S. revenue. On the upside, there are several opportunities that could positively impact our performance. We may see stronger adoption of SMILE pro in China on the back of good growth of the installed base during 2024-2025 and a successful entry into the refractive market in Japan. The start into the new fiscal year has been rather sideways, but we are currently in the off-season for refractive procedures. As you all know, the first really meaningful indicator for the business will be the spring peak around Chinese New Year vacation.
We could further benefit from above-average growth in the DORC business, particularly in APAC, where we are now rolling in the marketing and sales integration. Microsurgery will have more steady performance, in particular from the ongoing product cycle of KINEVO 900 S. And with that, and hoping that our supply chains will hold, that could potentially provide additional revenue upside. All in all, for fiscal year 2025-2026, we expect organic revenue to grow by a mid-single-digit percentage range corresponding to reported revenue of approximately EUR 2.3 billion. EBITDA margin is expected to increase to around 12.5%, supported by an improved product mix driven by higher recurring revenues, in particular from the refractive laser business and the DORC portfolio within Ophthalmology, as well as by growth in Microsurgery.
However, it's important to note that this guidance does not contain a margin of safety for potential impacts from current geopolitical uncertainties, trade barriers, or regulatory changes such as the ones that I just outlined to you. Such factors could require organizational adjustments or measures related to our global footprint and value chain, which may result in additional non-recurring effects. Restructuring-related one-off payments can be expected, but it is too early to provide a precise estimate. We will update you as we move into the second quarter on this topic. Similarly, our ongoing R&D reprioritization, which started already under Max's tenure, could lead to one-off items during the fiscal year if certain projects were to be stopped. We currently expect these non-recurring effects to total up to a mid-double-digit million EUR amount.
As the exact impact remains uncertain, they are not included in the EBITDA guidance that you see here on the slide. We continue to provide updates and transparency as these items evolve. Looking at the midterm horizon of three to five years, we expect organic revenue to grow in the mid to high single-digit percentage range. Over the same period, we anticipate a gradual improvement in our EBITDA margin, moving toward our target range of 16%-20%. And you will hear more to that in a moment when I hand it over to Andreas. But before I do so, let me close on a more upbeat message. Losing Max unexpectedly is clearly a setback for us. And I, as you know, I'm eight years in that role with Meditec, and I can speak here also on behalf of the top management of Carl Zeiss Meditec.
But I can also tell you that in the last days, we, as the leadership team, together with Andreas, have already spent a significant amount of time to ensure that we are now moving ahead and that we are not losing time. We have a plan on how to make the business more competitive, a strategy that we want to execute upon. We are determined to not lose any time in making the necessary changes while a long-term CEO can be found. With that, I'd now like to hand it over to Andreas, our Interim CEO as of January 1st and CEO of ZEISS Group, to talk about the strategic view of where Meditec is today. And let me highlight again that I'm really pleased, Andreas, that you could make that happen today on really, really, really short notice, because, as you can imagine, his calendar is pretty tight. So with that, Andreas, I hand it over to you. Thank you.
Yeah, thank you, Justus. Good morning, good afternoon, good evening, wherever you are on the planet. Well, let me introduce myself. Andreas Pecher, I'm the CEO of ZEISS Group and the designated interim CEO of Carl Zeiss Meditec as of January 1st. Warm welcome. I'm really happy that I could make it happen already to be here today. Well, following the decision of Max's departure, of course, our supervisory board immediately launched the search for a successor. I said that on Tuesday already. And ideally, this process will be completed before the end of this fiscal year.
But as you know, that would be the ideal. And we're working on it to make that happen as fast as possible. My goal as the Interim CEO is, above all, to ensure management continuity, as well as team and strategic continuity. I do highly appreciate Max's contribution to ZEISS Group for many, many years. He's been with the company for 30 years. And during his tenure as CEO of Carl Zeiss Meditec, he did initiate very important changes at Carl Zeiss Meditec, including new sales organization to drive commercial excellence, a review of our R&D portfolio, as well as a review of the global footprint. And from my perspective, these initiatives are entirely sound and need to be continued. And I will ensure that they move ahead at full speed.
As the CEO of ZEISS Group and interim CEO of Carl Zeiss Meditec, I can assure you that the supervisory board and the ZEISS Group fully support these initiatives. So being here also, you know, with the other hat gives an opportunity to talk a little bit about, you know, one of the shareholders. So just briefly, let me talk about that. And given our ownership structure, ZEISS Group is a long-term investor. So our aspiration is to drive sustainable, profitable growth to foster innovations that benefit society. That's what ZEISS Group is trying to do. And just to make sure that everybody understands what ZEISS Group is, I heard the comment I did on Tuesday about, you know, I'm fully aligned with my family to make this interim as short as possible. There were questions whether my family would be ZEISS. No.
The ZEISS Group is not involved at all anymore. Mr. Abbe donated that in 1889 into an endowment completely. The family exists, they're doctors and whatever, but they have no whatsoever connection to the ZEISS Group. We're an AG, German AG setup, fully professional, regular boards, anything else. Just like that, just like Carl Zeiss Meditec AG, except the one share is owned by the endowment. They also own Schott, by the way. So they have two assets. And of course, Meditec is a great business for ZEISS. Actually, it's at the core of the portfolio. See that here with the numbers that we have. And I do fully acknowledge that the last couple of years have been tough. And there is no doubt in my mind that the business is fundamentally sound and operates in excellent markets. And keep in mind, ZEISS is a deep tech company at its heart.
I don't know if anybody heard of EUV. That took us many, many years to get there. And that's one of the, some people call it, choke point technologies in digital. So we're at heart a deep tech company. And we do, of course, have a pipeline of innovations coming all the time. That's our history. That's one of the cores of what we're doing. And that's shown by being 4x the finalists in the German Future Prize, handed over by the German president in the last five years, 2x winning it, having the CES Innovation Award, et cetera, et cetera. It could continue like that. And just looking at the innovation pipeline across our businesses, Meditec, of course, stands out. Also, ZEISS Group remains committed to investing in the Meditec business.
The stock listing provides an important platform for further growth and creates advantages for both Meditec and the ZEISS Group. And well, in the end, it's really all upon us to create more value for all the shareholders. So now let me talk a little bit about the aspirations for the coming years. At Carl Zeiss Meditec, our aspiration is clear. Just like the ZEISS Group, we also want to deliver sustainable, profitable growth while creating long-term value for the patients, customers, and of course, the shareholders. And our aspiration is to not only grow, but to outperform the markets by making disciplined investments, improving commercial excellence, and also by achieving more balanced geographical mix. Just looking at the historical development, you can see that until fiscal year 2022-2023, we had a nice growth pattern and I would say healthy margin levels.
Throughout the summer 2023 and fiscal year 2023-2024, we experienced a slowdown in revenue alongside a significant decline in margins. This was largely driven by macroeconomic headwinds such as, of course, restricted hospital CapEx and low consumer confidence for elective procedures. Additionally, several internal factors contributed to this situation, including the stocking of refractive consumables. Also, regulatory changes and restrictions such as volume-based procurement of IOLs in China and tariffs in the U.S. were headwinds to our business. During the years of strong growth, we also made substantial investments in CapEx and certain R&D projects, as well as targeted M&A with arguably somewhat mixed results. In the past fiscal year, we have returned to a modest growth trajectory. Also, margin levels remain under pressure.
And for fiscal year 2025-2026, as Justus has already spoken, we expect revenues of around EUR 2.3 billion and an EBITDA margin of roughly 12.5%, of course, excluding potential non-recurring items. And for the midterm, over the next three to five years, we're committed to delivering a mid to high single-digit organic revenue CAGR. A key focus will be to increasingly diversify our revenue base by growing faster outside of China to achieve a more balanced geographical mix. At the same time, our surgical businesses, including cataract, refractive, and retina, are expected to grow above the group average and become stronger drivers of group performance. On profitability, our ambition remains unchanged. We aim to reach an EBITDA margin in the range of 16%-20% over the midterm. And this is also what ZEISS Group expects from Meditec.
So let's take a moment of self-reflection and review the environment and markets we operate in. So what you see here is our strategic positioning matrix, which maps our businesses by market attractiveness and competitive strength, both dimensions, high, low, medium. And well, strong product innovations have allowed us to become market shapers in several key areas. For instance, surgical visualization and refractive laser surgery. Furthermore, recent portfolio additions, for instance, with the acquisition of DORC, have significantly strengthened our competitive positioning, giving us access to new markets and improved positioning. However, despite these successes, some selected product categories, including diagnostics, continue to struggle to deliver their full aspired value. And additionally, our focus on commercialization has not been strong enough to capture the full potential of our technology. This has limited our ability to fully leverage the portfolio. In a way, we're ambidextrous, right?
We have, on the one hand, a very, very well-trained arm on innovation, strong muscles. And on the other hand, or the other arm in this case, we have one that still requires a training camp, let's call it this way. So moving forward, improving commercialization and unlocking the value in these areas will be a key priority as we strive to accelerate growth and profitability. Also, allow me to highlight a few key strengths. Of course, our strong presence in profitable, growing markets, our position as a digital first mover, powerful product portfolio and brand, and a highly qualified workforce, global workforce. Our market-leading workflow strategy further differentiates us. It's rooted in customer needs. That's where everything starts. And it strengthens our position and expands our recurring revenue stream. And we'll continue to work on workflow strategy. And I won't go into the details here today.
You know, I always like to focus first on the things that we have directly under control. So we might have many strengths. And, you know, I personally rather focus on the areas where we must improve in order to not only safeguard our financial position, but to also ensure long-term success. And to be frank, our long-term strategic investments have not yet delivered the commercial success we expected. Examples include our digital portfolio and our investments in phacoemulsification. These initiatives are promising, but the returns have been slower than planned. We're also seeing declining innovation efficiency. Our broad and sometimes unfocused investment pipelines have limited our ability to convert innovation efforts into profitable outcomes. Well, isn't that the difference between invention and innovation? That's what I tell our R&D folks all the time. Innovation delivers money in the end. And inventions is great for science.
But we're a company and we want to have innovations that make money and, of course, also benefit society. And I've already stated that we're not fully capturing the market potential that is available to us despite having strong and competitive products. So the commercial focus needs to improve. And finally, our functions remain fragmented across different geographical locations. And there might be good historical reasons for that. The consequence is that the fragmentation leads to lower efficiency and effectiveness. So you can see we have our work cut out for us. And I believe with a disciplined and well-coordinated execution, we can establish a solid basis for reinforcing our financial resilience and ensure long-term success. Now, let's have a look at the outside world. Well, there are a number of megatrends that continue to support the long-term growth of our industry.
We must also recognize that a number of restraining forces are becoming increasingly prominent. So on the one hand, we have aging populations, advances in digital technologies, industrialization of healthcare providers, and the shortage of qualified medical personnel. All that drives demand for more efficient, standardized, and innovative treatment solutions. So that's great for us. However, on the other hand, alongside these positive drivers, we're facing a set of challenges that are growing in scale and complexity. Geopolitical conflicts, I think everybody just needs to open the newspaper every day, and rising local content requirements. These developments are forcing us to adapt our global manufacturing innovation footprint. And they introduce additional uncertainty in our long-term planning. And cybersecurity has become a significant regulatory challenge across the medtech sector. So we have increasing requirements for data protection and system resilience, and that places pressure on product development, compliance, and operational processes.
Then, while risks in China, our key market, are increasing, we are experiencing a growing local competition, tighter regulatory frameworks, and lower consumer confidence in recent years. Of course, all these factors impact both market access of new products and revenue predictability. And the U.S. tariffs continue to represent a notable risk for our growth ambitions in this strategically important market. They influence prices, pricing, competitiveness, and our ability to scale certain products. Also, supply chain risks are rising against the backdrop of geopolitical tensions. And taking all that together, these restraining forces create a more complex environment, requiring greater agility and more deliberate strategic adjustments as we move forward. And of course, we need to drive localization of products much faster. We heard that already before, to be very clear there. So let me walk through the three strategic vectors that will drive our growth and profitability going forward.
They do align very closely with the ZEISS Agenda 2030, which is the agenda for the whole ZEISS Group, and namely, there are four elements: customer at the core, speed, truly global, and high-performance team ZEISS. I think that fits very well with also the challenges and the work that Carl Zeiss Meditec has ahead of itself, so first of all, customer centricity. This means that we will place the customer at the center of all commercial activities we do. It's about ensuring that every function, including sales, marketing, service, or product management, works in a coordinated and aligned way towards delivering real value for our customers. We want a deep understanding of our customers' needs, a faster reaction to their feedback, and a more seamless experience across all touchpoints.
And by driving greater responsiveness to customer needs, we build trust and long-term partnerships, which in turn supports sustainable, profitable growth. The second vector is focus. Here, our goal is to sharpen our priorities and concentrate on activities that have a clear and direct market rationale. This includes placing strong emphasis on innovations that respond to real customer requirements and contribute meaningfully to revenue generation. At the same time, we must be disciplined about reducing or discontinuing aspirational projects that may lack clear strategic alignment. Just to be clear, that doesn't mean we're stopping innovation, but it means that we're doing innovations with purpose and guided by evidence, you know, and by the needs the markets have that we serve. And third, we need to see more speed and efficiency.
To remain competitive, we will selectively optimize our processes and nurture a culture that empowers our people, at the same time expects performance and enables fast decision-making. This is all about removing unnecessary complexity, shortening cycle times, and ensuring that the organization moves quickly. By doing this, we not only improve our internal efficiency and effectiveness, but also become more agile in responding to customers and market shifts. I think that's very important in the setup that the world is these days and can be a competitive advantage. Together, these three vectors will guide our decisions, our resource allocation, and our behavior, and we implement them consistently across the organization, and with that, I believe we will unlock meaningful impact for both our customers and our business, and ultimately then also for our shareholders. If I look at the recent few years, our market environment has changed a lot.
That requires us to rethink how we operate as an organization. This curve that you see here outlines the path we're taking from scaling through transitioning and ultimately back to profitable growth. Up to 2023, our focus has been on scaling for growth. Following very rapid growth in our consumables business in the 2010s years and coming out of COVID, we needed to adapt our structures to counter increasing complexity. And then during this period, we implemented, you know, new organizational structures to support expansion beyond our established anchor products. We made significant investments. You know, e.g., expanded our manufacturing capacity, enhanced R&D to diversify our portfolio, and strengthen our digital capabilities to ensure workflow solutions. We also heavily invested in workforce and talent base. However, not all these investments have translated into the level of strong growth we wanted and expected.
However, it's important to note that this foundational work was essential to prepare us for broader opportunities and to ensure that we have the capabilities needed for this next stage. So since 2024, we began to see a rapid, and I would say initially unexpected, market weakness. And this year, in the next few years, we're in a necessary transition phase. This is where we must adapt to, of course, rapidly evolving market dynamics and increasing regulatory complexity. And our priority here is to revise our existing structures, portfolios, and footprint. And these adjustments allow us to respond effectively to developments that are challenging our profitability. After this, we expect to see the benefits of our efforts. And this is the phase where we expect to return to healthier growth rates and renew our profitability ambitions.
Also, this all will, you know, help us reap additional benefits from our innovation pipeline, and we are confident that in the long term, these strategic actions that we're taking now will bring us back to the strong upward trajectory, so in the end, you know, it's always nice to talk about strategy. That's very nice. What ultimately matters is implementation and results, and that's what we're focusing on. If you look at it, you know, of course, long-term strategy sets the direction. That's important. More important is that several important steps are already on the way, and for us, it's of paramount importance that we do not lose the momentum, and this is a big part of why I decided to take the Interim CEO job myself, even though it's additional work, but it's important.
I want to make sure that no time gets lost and the Meditec management team gets what it needs to move ahead. And as I've described, we have a strong R&D capability. That's really, you know, the core of ZEISS and also Carl Zeiss Meditec, but we don't have yet the equivalent commercial arm. So first, we've taken a major step by introducing a chief commercial officer training camp, essentially. You can call it that way. Effective as of December 1st, we will have a dedicated commercial unit that is fully responsible for driving our global revenue. Now we have a unified customer interface that brings together, you know, sales, sales-related digital and services, and our sales structures are becoming flatter and enabling faster decision and greater efficiency.
Also, this new structure gives us clearer accountability, a stronger commercial alignment across the regions, and the ability to accelerate growth with greater consistency. Second, as a consequence of the R&D review, we have also repositioned our digital organization. Our digital business unit has been reallocated into the SBUs, the strategic business units, which allows us to increase efficiency, strengthen the collaboration, and ensure that digital is embedded directly within our business lines. And this move brings digital closer to customer needs and closer to our innovation cycles. And our operations footprint review has started. I just reviewed it this week. Our goal is to identify opportunities for consolidation and higher efficiency across our network. And as this work progresses, so will we provide updates on the insights that are coming up. So as you can see, our transformation is already in motion.
We already started for a little bit already, and this is only the start. There's more to come. So I'm confident that during this fiscal year, we will share more insights into our strategic realignment, and you will be informed, of course, in due course. So with that, I'd like to conclude my presentation and look forward to your questions. And first of all, say thanks for your attention and pass back to Sebastian.
Okay. Thanks, Andreas. So yeah, Jack, why don't you kick it off?
Hi there. Thank you for taking the questions. It's Jack Reynolds-Clark from RBC. I had two, please. One kind of nearer-term focused and one slightly longer-term focused, both regarding margin. My first question does have a few parts. I was wondering if you could walk through the building blocks for EBITDA margin guidance for next year.
You mentioned that some of the unknown political and regulatory risks are not included, but I wasn't sure if other headwinds around the IOL withdrawal in China and VBP are included. So if you could just run through that. Then a second part to that, VBP, could you just run through what your latest thoughts are on the potential, kind of basically what's going to happen and what the impact is going to be on your business there? And then moving on to the midterm guide, could you talk through your latest thoughts on delivering that 16%-20% EBITDA margin? Did I interpret the slide later on in the deck that actually it might not be till 2028 where we start to see that kind of come through more meaningfully? Thanks.
Yeah, Jack, I think I take that. Hopefully, yeah, you can hear me now. The walkthrough on the building blocks, and I'm happy to do that. So maybe we start with the write-down of some R&D projects that decisions have not been finally taken, but that could amount to a lower double-digit million EUR amount during the course of this year. The restructuring, as you may call it, that still remains to be decided in detail. So we cannot yet share any further quantification at this point in time. It's simply too early. But we will keep you updated on that. The IOL topic that I was mentioning, there is a potential scrapping risk that also can be a low double-digit million EUR amount. And this, however, is still unclarity with regards to the question whether we can potentially sell in other markets this material because we have, that is a little bit the ambiguity in the regulator's decision in China.
While they have basically taken the admission to sell this product under the existing or running VBP, they have not taken away the license for the product. Yeah. So that therefore leaves some room that is currently being investigated on what potentially could be still done and what these lenses could be used for. So, but it could, in the worst case, certainly become, as I said, low double-digit million EUR hit. Your other part of that question was aiming at our expected impact of the next VBP. And there's also related uncertainty. Number one, as we mentioned, we are currently in the process to already run through the re-registration for the product that would replace the one that I was just talking for.
But it looks right now a little bit like a photo finish from the data that we know we will have the approval by NMPA for that lens by end of February, early March. But it is unclear when the new tender is going to be opened. In a worst-case scenario, we could see the tender being opened without us being able to basically pitch with this new lens being included. And that is certainly, again, a headwind that is too early to be, you know, at this point in time quantified, but that's something that we have to keep on our list. I hope that gives you a little bit of color on those building blocks. On the midterm question, I can make a few comments. And Andreas, if you want to build on that.
I think what we want to convey today is basically that we think we have a portfolio that is stronger than ever before. Yeah. We do have, for example, and we didn't really mention it here in the presentation, we have the excimer laser MEL 90 approval in the U.S. since a couple of months. And although you could argue the investment climate in the U.S. has been rather soft, but there's a huge market potential for that laser in the U.S. because, as you know, excimer lasers in the U.S. are widely spread. And the registration for that product we have now in our hands since a couple of quarters. We have, through the DORC acquisition, I think a very nice completion in our vitrectomy business.
Actually, again, although we didn't mention it specifically, but the DORC growth rates in the last fiscal year have actually been above our own expectations. So therefore, there could be some upside out of that business and going forward with it and driving our ever-increasing portion of recurring revenues. I think that will certainly bring us in a position to get into the 16%-20%. So now the question is, in this environment where regulatory policies become more and more weapon in free trade, we have to accelerate the efforts to keep the market access, especially in China, but if need be, and nobody knows how Section 232 is going to end up with, but also in the U.S., we need to provide and maintain the access to these markets. The two markets in total are 50% of our business. Yeah.
And we will make a lot of effort to keep this access because if we are not present in the Chinese market, Chinese competition will come after us in all the rest of the world. And that, Jack, is the, how should I say, the other uncertainty here. We now have to very carefully go through our list of priorities for accelerated localization, as Andreas has laid out in his speech. And that is, let's say, it's a rather complex exercise. And again, to quantify by when all this is going to be completed is a little bit tough.
But the key question is, or the key message for you is, we have a great and admired position in the Chinese market, and we will do. I'm not going to say whatever it takes, but maybe actually I could say whatever it takes, but we do a lot to ensure that we keep that market access for us.
Yeah. Thanks. Maybe I can, yeah, one or two things on that in the midterm.
Yep.
Sorry, we cannot hear the question online.
Now my microphone on?
Yeah.
Now it is.
It's not a question. It's still the answer.
I'm still answering. So first of all, we're in very good markets. That's clear. We have a great portfolio. And this geopolitical topic that is coming up the last couple of years, of course, is a headwind, but it's not necessarily only a downside, right? Because if you are better reacting towards it than your competition, you do have an advantage. And that's just to add that. That's why it's important to also look at the speed, the agility of the organization, and make sure that we are focused on the customer and react better. Ultimately, you don't have to be perfect. You just have to be better than your competition. That's our goal, of course, to support all that, to make out of this great portfolio and the great market something that's actually beating also the competition.
Okay. Falko and then Oliver and Lauren.
Thank you. It's Falko Friedrichs from Deutsche Bank. My first question is a quick clarification on the wording of the midterm EBITDA margin target. Is the plan to increase the margin towards the 16%-20% over the next three to five years, or do you plan to be inside this range in three to five years? My second question is on the phasing of growth and your targeted margin expansion in fiscal year 2025-2026. Will this likely be a more back-end loaded year again, or rather a little more evenly split? And could you give a first glimpse into how Q1 is shaping up? Thank you.
I can take that. So my perspective is I want to be inside, and that's clearly so inside the 16%-20%. And that's clearly the aspiration. And it's, by the way, also in line with the aspiration of the ZEISS Group's perspective. You would have probably said it anyways, Andreas, but just to ensure that it's not only you expecting that, it's him also expecting it in his main role, if I may say so. Yeah.
Other role.
Yeah, in his other role. The back-end loading and the start into the fiscal year, I think we had historically, and I mean, if you have carefully looked at the Q4 numbers, you have seen that Q4 has been crazy, and September has been the craziest of craziness in terms of volume that we have delivered into the markets, and it was simply a culmination of many factors, so not only the typical, let's say, year-end race optimization from sales target achievement motivation, but it's simply also because we had the skewing in the Microsurgery business, which was heavily geared towards the last weeks of the year.
However, like always, once you have done this, you kind of fall in somewhat of a slump, and that is what we are actually seeing right now. So I would probably not expect a miraculously wonderful first quarter. And therefore, the back-end loadedness, and I tell you, Falko, I hate it. I wish for once that I go on summer vacation and I can relax and say we have done it. It simply doesn't happen. It's always photo finish. Yeah. And I'm a little bit afraid that you will see that happening this year again. Yeah.
Oliver.
It's Oliver Metzger from ODDO BHF. Three questions. One first also follow-up on Falko's question. Microsurgery, you had a technically tough year. Now with Q4, you made more positive comments, which sound encouraging.
Could you just describe as a really you see the worst is over now, or we technically have to wait until 2027 until your portfolio in the U.S. is more complete? Second question on China. It's the 25% of sales are still meaningful. Midterm, you target a higher share also of China. So just as a rough understanding how to go there, do you expect that China as a market will remain challenging also for midterm and therefore just the other markets technically grow normally, or do you see China turn to a better, but simultaneously higher growth also for China? And the last one is just to focus on the innovation with more purpose. If you bring that to a more financial perspective, would you describe your R&D spend just as too high, or looking back, your R&D productivity as too low?
Okay. So, Microsurgery, and interrupt me, Oliver, if I don't hit the nail of your questions. So yeah, Q4 was very dynamic, and we see the dynamics continuing. Again, as a little recap, you all remember that we had KINEVO and PENTERO brought into the markets in spring of last year, and then we had a software bug, and therefore we were somewhat stalled for three months to have efficient demoing. And for these products, demoing is basically the first step in the conversion from a lead to an order and then ultimately a revenue. That we have overcome. The funnels are nicely filled now, and the business management is really upbeat that those two products will carry throughout a year. That should see solid growth. And the only caveat is that we need to ensure that the supply chains can keep up. Yeah. Hopefully, that answers your question.
China, I can give a few comments, and Andreas is happy for you to add. I mean, overall, I think this market is going through a transition where you will see much stronger local competitors across the board of the entire portfolio. You have in diagnostics competitors, you have in the implant competitors, and I think it's clearly safe to assume that it's probably only a few years until we will see companies entering the refractive laser business, but beyond your innovation capabilities, let's not forget, especially in the latter businesses that I mentioned, it's your application competence, it's your service, your customer dedication and focus, and if Max were sitting here, he would probably tell you that I think five years in a row, the Chinese organization has won the award for the best service whatsoever.
So what we have also learned in some markets the hard way is that you can have a nice product. If the surgeon doesn't get the training and doesn't feel 100% comfortable with the equipment, you will not get to the rate of utilization of the systems, and you will not see the consumer business kicking in at the levels that you want to have to have this steady stream of revenues and contribution. So having said that, that means I think we have the infrastructure there, and we have a very good acceptance in the market by our customers. Will that make us bulletproof? No, and we can't get complacent, by no means. But I think we are in a pole position, and it's up to us to make use of it. And Andreas.
Yeah, maybe I just add a couple of comments on that. Since in this case, it's called ZEISS. That has the China organization. ZEISS in China has more than 7,000 people. So that's a lot of people, and that's a lot of good people. Of course, they're not all working for Meditec. Specifically, it's a lot of good people. We're super highly recognized. Before April 1st, I started my other role. Before that, I spent a lot of time traveling the world, also spent some time in China and talked to a lot of customers. We're very well recognized in China, outside of China. So we do have this asset. We have very good people. We have the infrastructure to do that. And we have the recognition also of the government to be a company that contributes. So I think it's up to us to do the best out of that.
In the end, if you don't play in China, I think it can be risky. That's our view. We see that in other businesses as well. Maybe some other industries in Germany have seen that as well. You better be there. You better play there. You better make sure you learn there. You grow there. And then at the same time, you grow in the other growth markets, which specifically are Southeast Asia and India. That's sort of the next growth markets. And that's, of course, it's a dual strategy, right? Make sure you grow in China. Make sure you hold the competition at distance, ideally beat them. And then you win in Southeast Asia and in India.
On your innovation question, so first of all, I think it's not only investors listening in here, but the transcripts will be read by all our R&D people.
And therefore, first of all, I will tell you that we have extremely smart, extremely hardworking, and bright people across our R&D organization all over the world. So what we do have, and that's a fact, and this is not a ZEISS-specific problem, that we see since Corona, let's say, a lower productivity if you measure it in terms of patent recognition and so on. And there's some trends that you can clearly see that come, especially in creative productivity, that do not necessarily that are not helped by more home office and things like this. Yeah, that's simply a matter of fact. And this is, I think, where we clearly from our company need to work on to regain that productivity levels. But let me also maybe highlight that it's also a management task.
And I think you have heard this several times today, that we help the teams to focus. Because if you have people stretched over several projects at the same time, you are just losing focus and you're losing productivity. And that is more on management. And that's why some people may not like if we are talking about stopping projects, but I think you will have a return on other projects in the pipeline.
Lauren, please.
Hi. Thanks for taking my questions. I'm Lauren Mitchell from Goldman Sachs here for Richard Felton. I have two on OPT and then one sort of more broader question. First thing on OPT, just in terms of China refractive, what did China procedures end up sort of year on year? Was it sort of in line with the expectation for roughly 2%?
And what is baked into your guidance for next year in terms of China procedures? Same question is on VisuMax. You've done sort of roughly 100 units this fiscal year after launching halfway through. Building on that next year and the pricing premium that's associated with SMILE pro and the consumables, how should we think about the contribution to organic growth from that consumables as the utilization of that procedure ramps? And then a longer-term question, Andreas. Really appreciate your perspectives and observations on some of the endeavors that maybe haven't paid off and appreciate the transition phase that you spoke to.
I think last year when there were sort of changes at the management level of both the ZEISS parent group and of Meditec, there was sort of some hope that maybe there would be sort of scope for more meaningful change, perhaps in terms of both costs and portfolio optimization. I know you mentioned something like diagnostics, which, if I'm not mistaken, was loss-making this year. So my question is, in this sort of CEO transition, how should we think about the company's ability to execute on some more meaningful changes within the business in this period? Thank you.
On China refractive, I think we said it actually in the presentation that overall we have seen slight growth in the procedure numbers in China, but really slight, but more meaningful for us is that we have seen, especially in Q4, then now the pickup of the SMILE pro procedures, and that, of course, is carrying higher margins on the procedures. So having said that, the expectations for the fiscal year that just started would be by and large that we, again, there's no major changes in the global economic environment, no major changes in consumer confidence. But with the investment that has been made in the VISUMAX 800, and Sebastian, correct me if I'm wrong, but I think by the end of the fiscal year, we had achieved almost 100 deliveries into the Chinese market.
So these lasers are now kicking in as they are being, as the surgeons are being trained on. So we would basically, if you want to say so, on the total number of procedures, see a qualitative improvement with a higher utilization of the SMILE pro lasers in the field. So that in itself should give us hopefully a little bit of tailwind on the margin, but in volume, I'm reluctant here to give you any sort of too positive expectation. Yeah, I think I hope I have covered your questions, or do you have any specific further question on the VISUMAX 800?
Maybe just on the contribution in terms of utilization, how you see that evolving throughout the year.
October, November is not a good measure. Yeah, I think the numbers were higher utilization in October on the lasers, November lower utilization. But as I said earlier, the moment of truth is the spring peak. Thank you.
Yeah. And to answer your more broader question, well, the short answer would be yes, that's exactly what we want to do to broaden it. That's what actually Max and the whole team were there to do. And I brought some examples. One is digital. By integrating that into where the business is happening, means into the SBUs, this will be more meaningful, means more effective, potentially reducing the R&D costs, but more importantly, will be driving the results that ultimately our sales folks need. And then looking at the portfolio diagnostics you brought up, it's clear. I mean, just putting that up, you see where your stars are. And the other ones, of course, you have to take a look at.
And that's clearly a focus to look at and make sure that there's a reason why we have a certain business. And frankly, there are all options on the table. It doesn't mean that you sell or not. Certainly, what will be very important, there will be and are already very pointy questions asked to the business to make sure that we have a plan to get the overall portfolio up. And that will also be a means, in addition to many others, to get us between 16% and 20%, ultimately.
Thank you.
Okay, we'll take one more from or two more from the room, actually. Maybe we, yeah, let's start with you, Sven, and then go over. And then we'll take some online questions. And afterwards, we do another round in the room if that's okay for everybody.
Thank you. Thank you. Sven Kürten, DZ Bank. Would you say that the margin improvement for next year is exclusively based on Microsurgery? That's the first question. And secondly, do you think that at the end of your forecasting period in the midterm, it's possible to come close to the very high historical levels in Microsurgery, or is that not on the table any longer?
I would actually not entirely bank my hopes for next year on Microsurgery, if I understood your question correctly. As I said before, I still do see in the U.S. market. I just was in touch yesterday with our head of sales in the U.S. And as I mentioned earlier, with the MEL 90 approval, where we have not yet really benefited from in the last fiscal year, that certainly could become a good driver for an improvement in Ophthalmology next year.
The VISUMAX 800, let's not forget, the 100 systems that we ship to China is not the end of the story, so to speak. The Japan market penetration with refractive is actually only starting now. So there is, I think, more than Microsurgery, yeah, to the entire guidance story baked in. If I understood the second leg of your question correctly, you were referring to when do we see Microsurgery margins hitting + 20% again. It's obviously mainly a mixed question. And I am careful here, but I would obviously anticipate for this year an improvement in the Microsurgery margins beyond what we have seen last year, simply for the fact that we now have a funnel which is filled and hopefully a better mix over the year than we had last year. Yeah, so I hope that answers your question. Thank you.
Okay. All right, Wolfgang, please go ahead with the one more from the room.
It's Wolfgang Lickl from Apo Asset Management. A very much a focused question on refractive business in China on a kind of more long-term view. We are talking a lot about demographic developments, people getting older. I could imagine that means a typical client or patient for refractive surgery being more young, and then we have declining birth rates. So the number of people who could have the service are declining. Maybe we have some increase in penetration. But could that business, because you are an equipment manufacturer and maybe the installed base is still growing, maybe the number of treatments is growing, but the additional number of lasers the market needs is declining, and then you have a declining business as the equipment manufacturer. What's your opinion? Is this a wrong thinking from my side?
You see, first of all, myopia treatment is nothing that is exclusive to people between, let's say, 20 and 30. Yeah, so there is well before until you are 40, 45, people are going for the treatment, and let's also not think statically about laser vision correction because we are focusing right now on myopia. Yeah, why? Because myopia requires a rather, let's put it this way, a rather slim diagnostic investment, and then the treatment itself is typically not requiring a lot of tailoring to the patient's requirements. Of course, you are measuring the eye and do all the biometric work, but then you basically program the laser and shoot two eyes equally with the same focus and done. What we are not considering is the presbyopic market.
And the presbyopic market is basically guys like me and well, it's rather younger people here in the room, but many others in more, let's say, my generation who are actually either wearing bifocal lenses, glasses, or use other means. And this market is pretty untapped. And why is it untapped? Because if, as a surgeon, you have the choice between going for the bread and butter and basically patient always happy going home and never seeing again business with the myopic treatments versus the presbyopics, which are people where you have to exactly understand what is the visual preference profile of a patient where people will say, you know, I am a guy who is doing a lot of whatever. I'm a golfer. You know, I want to see my golf ball on 200 yards out there.
Therefore, I want to have the focus more in the long range and not in the short range and so on. So there's much more diagnostic work and a more demanding patient. And that has been, if you have the choice between myopia treatment and presbyopia treatment, has been a bit of a, let's say, a hurdle. And I would tell you that I think this presbyopia market is a huge untapped market potential that I still see for China.
Yeah. And just to build on that, having an installed base there, of course, gives you an advantage, right?
Yeah.
On the machinery, but also with the relationship with the doctors. That also brings in the diagnostic picture. There is value, of course, of having that. And let me just add another one. It's not only China. Myopia is actually, according to the United Nations, one of the largest, I mean, it's a pandemic, more or less. So there is, besides opportunities in China, we see a lot of opportunities specifically also in Asia because that has to do with the setup of the eye of a typical Asian person. Southeast Asia, India, there's other things as well, like cataract are very strong. So we do see, besides China opportunities, large opportunities outside already.
Thank you.
Okay, then I think we take a moment of pause in the room. If somebody has a follow-up, we'll take another go at it in just a moment, but I'll first ask the operator if there are any online questions in the queue.
Yes, there are. Thank you, Sebastian, and thank you very much for the presentation and your time for the questions, Andreas and Justus. We have two raised hands. One is from John Anwin, and you can start your microphone, John. This takes a moment to unmute. And John, we will come back to you later. I will go over to Davide Marchesin .
Hi. Good morning, everybody. Hi, operator.
Hello.
Good morning. I have four questions. Two regarding the last reported quarter and the other two regarding the full year guidance. So starting with the last quarter numbers, I see that in Ophthalmology in the quarter, you reported 11.6% EBITDA margin. So down sequentially from previous quarter, 13.2%, despite reporting an increase of revenues. I will understand why the margin of this division was down quarter- on- quarter if there is some specific reason. Second question regarding the reported quarter regarding the R&D. You reported EUR 92 million R&D, so significantly up from the previous quarters, which were running below EUR 80 million.
I think the average in the previous quarters was like 78. So I will understand what we should expect going forward. So if the R&D run rate is more like EUR 80 million or more like EUR 90 million, then regarding the full year guidance, the first question is on the mid-single digit organic growth. So in the last quarter, you reported organic growth of more than 10%. In the first quarter next year, you will have a very easy year-on-year comp. I will understand why you are guiding for such a significant slowdown of organic growth if there are some issues you are kind of anticipating in some business of our products. And finally, full year guidance on margin. You reported, I will say, a very low margin in Microsurgery.
So assuming next year a partial normalization of Microsurgery profitability would explain essentially all the 100 basis points expansion of the margin at the group level, so implying essentially a flat operating margin for the Ophthalmology business. So it looks like there is some margin of conservativeness in the guidance on the margin evolution. Tell me if maybe I'm missing some elements in terms of the margin evolution. Thanks very much.
Davide , hello. It's Justus. So I have my go on your first question on Q4. I'll start with the portion on R&D. So you were asking EUR 92 million in the last quarter versus a run rate which was closer to EUR 80 million in the other three quarters. It's a little bit of a historical pattern.
If you look in the disclosures of previous years, you will see that we somehow always have it somewhat skewed to the last quarter when it comes to the R&D run rate. So therefore, I think nothing peculiar to mention here other than simply that, come to the end of the fiscal year, everybody is basically getting final builds from consultants and external partners which are working with R&D. So more importantly, your expectation going forward, EUR 80 million or EUR 90 million you were asking. I pretty much guide you on expecting a rather flattish total R&D expense number for the year to come, and the distribution over the four quarters is most likely to look similar to what you have seen this year. You were asking on OPT, EBITDA level in Q4 and why it was down.
Frankly spoken, I would refer or open it to Sebastian to chime in, but I think there is a little bit of mixture or mixed effect because the last quarter for OPT, and so it was this year, is typically a very strong device quarter, and especially in the U.S., and you have seen that we had good growth in the U.S. last year, and in the U.S., it's mainly a diagnostic business, and then the high portion, especially once you have such a strong Q4 of diagnostic products in the mix, are actually somewhat margin diluting, but Sebastian, anything to add that would be worth mentioning?
Yeah, maybe two details just to add, but the product mix indeed is the main reason.
In the fourth quarter, also, there was an increasing impact for fewer tariffs because we did have the price increase on July 1st and then a second step in August once we knew that it was going to be actually the 15% and not the 10%. But because of the two to three months order time, the backlog time, these prices did not kick in yet economically for us in the fourth quarter. So this took some margin out of our microscope business in particular and the ophthalmology division. And lastly, there was about EUR 2.5 million, let's say, 1x or special impact in terms of scrapping of some therapeutic laser parts. I'm hesitant to call it a complete one-timer because these things can happen every now and then, but we need to clean up a topic there with that impact of EUR 2.5 million.
So these taken together contributed to the weaker margin in the fourth quarter. The stocking pattern for refractive typically benefits Q3, but more than Q4.
Yeah. Thank you. And then your question on the guidance, asking why we are guiding single-digit and after this strong Q4. I mean, again, Q4 is always the strongest quarter in the year, and therefore, we shouldn't basically simply linearly then continue with the same growth rate. But just to bring our own guidance into perspective, I think we clearly have seen from public data, from competitors' data that the ophthalmic market growth is more seen now in the neighborhood of, depending on the currency, around 3%-3.5%. So with our guidance, we are therefore basically saying we are maintaining our market share, growing with the market or even slightly beyond.
And that is pretty much in line with what we have always guided in many, many years. And then you said if MCS is recovering to a normal year, why don't we have then more margin expansion on other businesses? I mean, I think we alluded to it in our presentation that there's a VBP in China, and that has nothing to do with the IOL license topic that I mentioned, but there's a VBP ahead, and that will certainly be putting, again, pressure on prices for our IOLs in China. I think, as I said, there's uncertainty on the question on how is the American market developing in light of this Section 232 and potentially even higher tariffs on products that are coming or that are being imported.
And there's therefore a little bit of carefulness in our guidance that is indicating that maintaining margin levels in this environment may already be somewhat challenging.
Yeah. So I think that's in a nutshell the answer. Thanks.
Okay. So moderator, could we take another try with John from Barclays? He's dialed in through the phone, so maybe if there's a way to unmute the phone. As a backup, I have the questions here, and I can read them out in case there continue to be problems. Thank you.
Thank you very much. That would be nice, Sebastian, because questions via telephone cannot be submitted. We apologize.
Yeah, no problem at all. I'll read them then. So first question from John. Can you confirm that you exited the year with 72% product mix in China, SMILE versus LASIK? Is that also the right split to think about for the new year?
But that out of the 72, a higher proportion will be SMILE pro. That's the first one. The second one on Microsurgery, a bit similar to the question that Davide asked. What is your growth expectation for MCS next year, and how much of that is already in the backlog? And then on margins, is the Q4 level the right level also for the full year 2026 to think about? And the final one on the digital business, has putting the digital business unit into the SBUs resulted in cost savings in R&D yet? How should we think about R&D expense year -over -year?
Okay. Thank you. So first question on the share between SMILE and LASIK. And again, I assume this refers directly to China. Yeah, I would confirm that we have seen the bottoming out of the shift from SMILE to LASIK.
And therefore, I think the assumption of 70%-72% mix is probably the right one. And as I mentioned earlier, now the key is to drive up the SMILE pro portion within that 70-something percent. MCS growth expectation, I think I can keep that rather short. We do expect here up to a mid-single digit growth rate for next year. Then, profitability of Q4 level, right, for next year. I'd say potentially yes with on the and that's why we mentioned the risks and the upsides on it, provided that we are not hit too hard with additional exchange rate issues. And we said there is a risk. Right now, the trends are clearly not in favor of the euro. And you all know that with a high export rate of our products, the currency can make a big difference.
But assuming exchange rates are somewhat milder in their development, then I think a Q4 level or slightly better is probably not the wrong assumption. And R&D expense, I think I answered before. I'd say as a ratio, you should expect it to rather go sidewards.
Okay. So I'll pause for a moment. Just any questions in the room? Yes, Volker, please, and then Richard.
Yeah, I have a question regarding the Japanese market. We saw the yen heavily declining in the last five years. And you mentioned that you want to enter the market with more refractive activities. How should we think about the pricing capability with these exchange rates? And is it then a growth market for the coming years?
I would start with the statement that ZEISS has maybe in Japan an evenly strong, potentially even stronger brand reputation than in China or in many other places.
So that gives us some hope that even though we do see this exchange rate weakness of the yen versus the euro, but that the market perception for our products being at a premium price, that this is not putting us completely out of business there. And then secondly, let's not underestimate that in the Japanese market for our product portfolio, you can argue why didn't you do that prior, but at some point, we are also opportunistically acting. And if you have a great business in China, you are wondering how many millions do I spend on registrations in other countries. But we do feel that there's an underserved market in Japan and that there's an opportunity and that we obviously with our refractive lasers always have some opportunities to bundle and do the pricing a little bit smart so that the cash flow for the clinic is optimized. Yeah.
Maybe add a little bit to Japan on the brand and then also on this market specifically for med. ZEISS was already in Japan well before Nikon was founded. I heard one reason why Nikon was founded was because ZEISS was there and the Japanese government realized the importance of having optical know-how. By the way, the most favorite binocular of the admiral of the Japanese Navy back then was a ZEISS binocular. So there's quite a brand recognition in Japan that certainly helps us. And then just to add what you said, specifically if you look at the laser market in Japan, there had been some issues many years ago. I don't know exactly when they were, not involving us, but involving others. So I think that can be an additional advantage for us that we have actually a solution that is perceived as safe. And so we see good potential there.
Okay, then Richard, and then we'll do another stab at online questions.
Hi, yes. Thank you very much for taking the questions. Richard Hombach from Bernstein asking on behalf of Susannah Ludwig. So the first question on the localization of products, could you confirm what products are currently made in China, what you're considering shifting, and what the timeline to implement the shift would be? Would there be any cost benefit once manufacturing has shifted? Second question, in the 12.5% EBITDA margin guidance, what is the assumption on the incremental impact from tariffs? Is there a net headwind or are tariffs offset by price increases? Thank you.
Okay, I'll start with the second part.
At this point in time, we are expecting tariffs to stay where they are and therefore offset by the price increases that we have gone through last year, clearly, especially referring here to the U.S., and we have three price increase rounds in the U.S. ahead, and the last one just became effective, I think, in October, so therefore, yes, at this point in time, our guidance assumes basically neutral impact of tariffs. On localization, what do we produce today already in China? We produce in China IOLs. We produce in China some of our ophthalmic microscopes. No, sorry, I correct myself on our surgical microscopes, PENTERO. Yeah, correct, and in terms of what do we think we want to shift and until when? Frankly spoken, I'm not going to disclose here what we are going to shift. Our competitors would love to know that.
Yeah, and therefore I leave it here. And how long it's going to take, again, is of course a function of the question what ultimately we decide to do. But you can know or you know we do have both a consumable factory, which is brand new and very capable in terms of the local competencies. And we do have for how many years in Suzhou the assembly? And yeah, so for probably 30 years or so, at least as long as I'm with the company, which is more than 20 years, we do have an assembly where we have a really very capable team that know our products across the ZEISS portfolio. So that certainly can be used.
Yeah. I think it's in the end, we have the R&D team. I talked about it before. Overall, the group level is more than 7,000 people in China. It's a decision to do things, and then we do it.
Yeah. The registration part, however, and that, of course, everybody who knows our business, that is most likely the trickier one. But then again, since we are not talking about having to basically build from scratch, but can basically integrate it in existing facilities, that will make registration somewhat easier. But again, that is the big caution, the piece of caution here, that of course we have to undergo.
Okay. Then I think there might be more online questions. Can we take a look at the queue again, please?
Yes, there are two more online questions. It's David Adlington's turn.
Hey guys, can you hear me?
Please.
Yep.
Yes.
Perfect. Great. Most of my questions are asked, but maybe a slightly bigger picture question and a follow-up. Just given the challenges of the last couple of years, has that changed the way that you've built up the guidance for this year? And then following on from that, what have you assumed in your guidance for Chinese VBP? Have you assumed that your new product will be approved in time for the tender or not?
Yeah, David, I take the question. Yeah, for the VBP, yes, indeed, we have assumed that we have the registration for the lens, number one. And the reason being, let me make that comment, we are already in the final leg of the registration. And there is the regulations by NMPA clearly define the timeframe until then the approval has to be given. And that is 60 working days. And therefore, we know that by the latest at the end of the 60 working days, we will have that registration.
So it's not completely, how should I say, naive that we assume that if the tender comes out in spring, as we have as a working assumption, that we then will have the registration for that product. On the bigger picture, you said with our history and experience, whether the guidance is reflecting some of it, a bit of a nasty question. Yeah, so let me answer it this way. I don't want to convey to you that this is a completely de-risk guidance here and that in fact, we are much more optimistic, and that's not the case to make that very clear, and I took the time deliberately to talk about the risks and the headwinds that we see there, but I also will tell you that in the last four years, I twice had to disclose profit warnings.
And I very well remember the conferences after our profit warnings, and they do not rank among the most beautiful days in my life. So I want to keep it to the minimum to come back and disappoint all of you another time. Although no promises that I can make here, it all depends more on external factors, I think, than on internal factors. But if that helps you to calibrate the guidance, then hopefully it does. Thank you.
Great. Thank you.
And next one.
Thank you very much. Sorry. Thank you very much, David, for your questions. And we will move on to Graham Doyle. You should. Yeah, you should be able to hear this.
Hey guys, hopefully you can hear this.
Yeah, we hear you well, Graham.
Thank you. Sorry, it's a new system for me. Okay, so just one question. Again, it's on the guidance.
So it kind of follows up on David's question and to your last comment. The last few years have been tricky because there's been a number of headwinds and tailwinds. And so it's been hard to kind of forecast and largely H2-weighted. I'm just looking at the numbers. You've done like mid-250s million EUR of EBITDA this year. The guidance implies EUR 290 million , so that's EUR 35 million. There's a EUR 15 million-EUR 20 million headwind from FX on my numbers. And then we've got this China scrappage thing, which may be difficult in terms of the comp of like EUR 10 million. So on that basis, I know there's tailwinds, but it's like EUR 65 million of incremental EBITDA to get to where we're going. What of that's in your control? You just talked about external factors, but what's actually in your control to get us there? It's a big number.
Yeah, thank you, Graham. So your mathematics are, of course, correct. What do we have in our hands? I said to start with that MCS, clearly with the basically rejuvenated portfolio and the KINEVO funnel nicely filled is clearly helping us. You also have seen that we start with a much better order backlog than what we had a year ago. Number two, although we are obviously cautious on the situation in China, but we also felt that considering that everything is in terms of the economic environment, not really much different this year than what it was in the last six months, that we were actually in that market environment delivering almost 100 lasers into the Chinese market, at least as an indication, certainly was rather on the higher end of our expectations given the circumstances.
And therefore, there could obviously be with a higher SMILE pro penetration in the market, there could be a little bit of a tailwind out of that. And as you know, that tailwind can be material. So that could obviously compensate for some of the headwinds. And last but not least, the VBP, I think we could prove that we have been acting pretty reasonably intelligent in the first tender. And we actually intend to do that again. And therefore, it's very early to talk about the result of a tender that still needs to come in. But at least I'd argue, yes, there will be price pressure again. But we have also seen, and we said it two years ago to you all, that it actually could also boost the market share and give us more market presence.
And so from that perspective, maybe there's also a little bit of potential there. So that is some of the thoughts that I can share with you at this point in time.
May I add one comment, Graham, on your question on how to treat the scrap risk? We have not taken that decision yet. If it's the case that we get the re-registration done in time and we fully participate normally in the VBP, and we then may end up, depending on the analysis happening right now in negotiations with the external distributors of having to scrap some old product, we may classify it as a non-recurring item in the sense of the adjusted EBITDA. So it may not count towards the guidance. But we cannot tell you this for sure.
I think we will know by Q2, sorry, by the Q1 report. We will know for sure how we treat it. So just to make that clear for all the analysts.
Maybe just going back to Sebastian. So you would have sold, call it, 10 million last year, which you may scrap now, but the point is, regardless, you won't sell it. It's unlikely you'll sell it in fiscal 2026 if it's not registered, right? So that will be a 10 million kind of headwind. That's more what I mean. The revenue impact.
Exactly. The revenue impact, that is clear. That is not a non-recurring item.
It's just if we basically move to a new product within the year and then we have to scrap parts of the old product, in that case, it may be we will break it down precisely by the time we have done the work and have the exact number. So these two things have indeed to be separated.
Appreciate it. Thank you for all the time today, guys.
I have one more from John in writing, or two more actually from John. The first one, I think we didn't quite fully answer it, is can you confirm if R&D expenses will be flat on a euro million basis or as a percentage of sales this fiscal year? The second one, which price cut are you assuming for the IOL VBP in A, premium, and B, monofocal category?
R&D, I was referring to percentage as a ratio of revenue with the statement that I made, and for IOL, again, it's obviously a bit of guessing here at this point in time. What experience tells you is that for many of those tenders that happened in other medical fields of consumables, I think the strongest hit was typically the first tender, and then it kind of tender by tender, it softened out somewhat, and I think that is probably the answer to your question. Without knowing, of course, who is going to participate and with what sort of tactics, but at least our expectation is, yes, there will be a hit, but we would see it or expect it to be lower than what we have seen with the first tender, just by, as I said, by the experience that we have seen for other consumables.
Okay. Do we have any more online questions? Or if not, we go back to the room for the last chance to follow up.
Thank you very much. No, we don't have any online raised hands. Thank you.
Okay. Looking at the room, don't know if you're ready for lunch yet or if there's any follow-up. Okay. Then I think that concludes the Q&A session. Thank you, Andreas, Justus, for.
Thank you.
And thank you all for the discussion, also to those attending online. Yeah, we'll stay around a little bit longer, Justus and the IR team, to invite you to have lunch out here in the hallway. Thanks again for joining us. The IR team is also available for questions and calls in the next days, of course. Looking forward to keeping in touch. And for those who we may not speak again, wish you a nice pre-Christmas period and then a very restful break. And looking forward to continuing our meetings and talks next year.
Thank you.
Thank you.