Earnings Call: Q4 2020

Dec 11, 2020

Dear ladies and gentlemen, welcome to the conference call of Carl Zeiss Meditech AG. At our customers' request, this conference will be recorded. As a reminder, all participants will be in a listen only mode. After the presentation, there will be an opportunity to ask questions. May I now hand you over to Sebastian Head of Investor Relations, who will lead you through this conference. Please go ahead, sir. Good morning, ladies and gentlemen, and thanks for joining us today, and welcome to our full year twenty nineteentwenty twenty analyst conference call. I am Sebastian Frecht, the Head of Investor Relations. And with me, as usual, are our President and CEO, Doctor. LeBlanc and our CFO, Justus Wehmer. I would like to hand over to our management now to give you a short introduction to our financials for fiscal year twenty nineteentwenty twenty. And afterwards, we look forward to taking your questions. Yes. Good morning, ladies and gentlemen. Welcome to Carlsbad's Meditech's twelve month twenty nineteentwenty twenty Analyst Conference also from my end. This fiscal year was for sure very unusual and challenging. However, we feel that we've achieved a respectable result in light of the very difficult circumstances. And we are looking forward to presenting our insights to you, today and to discuss with you afterwards. On slide two, you can see our agenda. I will provide you an overview of the results in the first section of the presentation. And afterwards, my colleague, Jesus Wehmer, will present some more details of the financials. I will continue with some interesting charts which illustrate the impact and the dynamic of the COVID-nineteen crisis. And finally, I will provide an outlook for the new fiscal year and beyond, obviously also considering the uncertainties which we have to deal with. So please have a look at Slide number three, which is the overview. As we already indicated in the course of the year, our business in twenty nineteentwenty twenty was heavily impacted by the COVID-nineteen crisis. As we will show you later, the development followed the pandemic both geographically and also time wise. While we were still growing double digit in the first quarter, we declined slightly in the second quarter and were heavily hit in the third quarter, but we saw some encouraging recovery in the fourth quarter. Revenue reached €1,336,000,000 which is 8.5 percent below prior year. And currency effects played an insignificant role, decline at constant currency would have been minus 8.7%. We saw a decline of both our SBUs, Microsurgery and Ophthalmic Devices. Regionally, EMEA and Americas both declined, while APAC remained stable overall. And there are some interesting developments within the regions and SBUs, Justus will discuss these in just a minute. Given the sales decline, our EBIT margin margin decreased as well. However, we introduced heavy cost reduction measures and could maintain profitability at an EBIT margin of 13.3% versus 18.1 in prior year. When comparing these numbers, please recall the extraordinary impact of R and D capitalization, which we had in early twenty eighteen-twenty nineteen, which is our reference. This effect had a positive impact on the EBIT margin in twenty eighteen-twenty nineteen. And this year as R and D capitalization was back to normal, we are quite satisfied with the EBIT margin of 13%. Please also note that CALDAS Meditech was EBIT positive in all of the four quarters, including the third quarter where our sales had declined heavily. Our net income reached €122,000,000 which corresponds to earnings per share of €1.37 In prior year, we were at €1.79 So I believe that Carl Zeiss Meditech benefited from a robust business portfolio, a well balanced regional setup, but also a cost structure which is more variable than it might have appeared. Yes, my colleague, Justus, will discuss the year end results now more in detail. And I would like to hand over to you, Justus. Yes. Thank you, Ludwig, and a good morning and warm welcome also from my side here from Jena. I'm happy to give you a more detailed overview of our financials now, starting with the performance of our strategic business unit, OPT, of Talmik Devices. Revenue came in for OPT with €991,000,000 compared to prior year, a reported reduction of 7.3 percent and at constant currency, 7.5%. This, of course, is due to the impact of corona crisis related global lockdowns affecting both public and private health care providers. Nevertheless, we clearly could observe positive contributions in of the fiscal year from innovations we've launched prior to the pandemic, like the Clarus seven hundred or the CIRUS six thousand, benefiting our Diagnostics portfolio. Especially in our Refractive business, we benefited during the summertime into autumn from recovery and pent up demand in China and South Korea after the earlier lockdowns. SBU OPT EBIT margin decreased significantly compared to last year due to the sales development. And as Ludwig mentioned, last year's EBIT was positively affected by significantly higher R and D capitalization. More details to that in a short moment. On the other hand, we were able to reduce our discretionary expenses significantly to support our EBIT development. Let's take a look at Microsurgery. The MCS business was more negatively affected by the lockdowns than OPT. Revenues dropped to roughly €345,000,000 from previous year's €391,000,000 This represents a year to date decrease of around 11.7% and at constant currency, 12.1%, While we closed the first half of the year still with double digit growth rates, Q3 and Q4 solo reductions were at levels of minus 30%. Since hospitals around the world shifted focus on intensive care for corona infected patients. While orders were typically not canceled, deliveries and installations were postponed. Generation of new sales projects was also hampered. However, more recently, we can observe positive trends, especially for our robotic visualization system Kinevo and for the new TiVato 700. EBIT margin came in still very strong at 23.7, supported by positive product and regional mix and extreme cost awareness in our So let's take a look at the regional views. The regional revenue development reflects fairly accurately the differences in pandemic trend patterns among key markets. Americas suffered a decrease of minus 13.2% at constant currency, minus 13.8% to €384,000,000 of revenues. The U. S, with a reduction of minus 14%, was heavily impacted by corona in Q3 and Q4. Also, Latin Americas decreased severely. EMEA dropped at a similar rate of minus 13.1 at constant currency, minus 12.7% to €362,000,000 due to the local lockdowns. We saw a very heterogeneous development, where the level of effectiveness varied vastly country by country. In Germany or Spain, we saw only single digit reductions versus prior year, whereas in France and U. K, these amounted to significant double digit amounts. Performance in APAC was remarkably stable at €589,000,000 representing only a minor reduction of minus 1.8% or at constant currency, minus 2.3%. The V shaped recovery of China, in particular, yielded even a 6% year over year growth with significant contribution from the recent Q4. Even stronger relative revenue growth we saw in South Korea. On the other side, however, in countries like India or Japan, we have seen significant double digit reductions year over year. So now on the next slide, let's talk about some of the key financials in the P and L. So as you can see, we slightly decreased gross margin with 56% compared to previous year, benefiting from the rather stable recurring revenues. Total OpEx in terms of absolute numbers, almost identical with previous year, however, with a different composition. R and D increased mainly due to less R and D capitalization in the current year versus previous year, which amounts for a change of roughly €13,000,000 and continuous increasing investments as we have regularly guided in strategic development projects, mainly in the field of surgical ophthalmology and digitalization. Sales and marketing expenses in the opposite decreased significantly, Some of it like freight and commissions simply as a function of lower sales volumes, others like travel, entertainment, advertising, trade shows due to lockdowns and additional cost measures. While we did not reduce our global headcount, we made use of furloughs and short time working regimes, Kurzarbeit, as we call it in Germany, in a good part of our organization. Thus, lower revenue levels at stable gross margin and stable OpEx yielded an EBIT of €178,000,000 versus €265,000,000 in the prior year. The resulting EBIT margin, as Ludwin mentioned earlier, came in at 13.3% versus the 18.1% in previous year. On the next slide, we see the adjusted EBIT margin at 13.8. There are only rather small effects related to purchase price allocations related depreciation in both periods. And finally, a short look at the cash flow statement. Operating cash flow came in at €179,000,000 versus €220,000,000 in the previous year, mainly due to the reduced EBIT. In the working capital, we had a significant reduction in accounts receivables as a result of sales development and our intensified focus collection. On the other hand, we saw an increase in inventories since we decided to not pause our consumable productions during the lockdowns, anticipating higher than normal demand after reopening of clinics. Cash flow from investing activities was last year heavily affected by the Antec acquisition in twenty nineteentwenty twenty. It's mainly some payments related still to Jantech and CapEx. Cash flow from financing activities, mainly influenced by changes in receivables and payables on our treasury accounts. And despite a difficult year, we could further grow our cash balance to €707,200,000 And with that positive note, I hand it back to Ludwig. Yes. Thank you, Justus. I now would like to talk about a couple of focus topics today on the impact of the COVID-nineteen crisis on our business. On this slide, I would like to discuss recurring revenue. And I believe it's very important to note that the dynamic of our consumables and implants business in the crisis was and still is very different from the dynamic of our equipment business. Consumables and implants are sensitive to surgical case numbers. In other words, the moment the number of surgical cases drops, we see this immediately in our consumables revenue. The moment surgical cases increase again, our recurring revenue follows immediately. On the other hand, equipment business has much slower dynamic. The reason is the purchasing cycle of equipment, which is relatively long process steps are the allocation of the investment budget, the selection of the product, the approval itself by our customer and finally, the order administration with the customer. So pretty complicated and long and this all simply takes quite some time and this is why the timeline in the equipment business is very different. As we have been aware of the benefits of the consumables business for very long and we've discussed it with you many times, It has been our strategic goal to increase the share of recurring revenue. And as you can see from the chart, the share of recurring revenue reached 39% of our total sales in last fiscal year. And this was five percentage points higher than in prior year. But not only the relative share of recurring revenue increased, also the total recurring revenue grew substantially. And for the first time in the history of our company, we reached €500,000,000 of recurring revenue. The growth was mainly driven by surgical consumables. Nevertheless, service, which is also a recurring revenue did contribute significantly as well. The growth of recurring revenue is even more remarkable as the consumables revenue declined sharply in the early phase of the crisis. However, the APAC region fueled a recovery then later in the course of the fiscal year. Okay. Now I would like to focus on our IOL business with the next slide. Cataract surgery is a so called elective surgery, as it can be easily postponed for a while without a negative health effect on the patient. As elective surgeries were canceled in most countries at the height of the first wave of the COVID-nineteen pandemic in spring of the year, IOL markets dropped significantly in that phase. We estimate based on data from market scope that the global IOL market volumes collapsed by almost 60% at the peak of the crisis, and you can see that here in the chart. The recovery began in summer with some Asian countries such as China and South Korea leading the way. Recovery was faster in US and in Germany than in many other parts of Europe such as France, Spain or Italy, which were heavily impacted by COVID-nineteen and they took more time to recover in the first wave. The ongoing second wave of COVID-nineteen in Europe is taking a toll on some hard hit European countries specifically, and though the magnitude of the impact is not comparable to the first wave. So far the impact of restrictions on elective surgeries in the second wave is small overall. Yeah, on the next slide, the positive developments of recurring revenue generation, but also a market recovery have come from the relative strength of the APAC region as Justus also discussed before. This slide shows the relative performance of the three regions quarter by quarter in comparison to the performance one year ago. And therefore, the representation eliminates the simplicity of the business. You can see how APAC as our largest region outperformed in our portfolio throughout the crisis. Please have a look at the gray bar, which is APAC. So APAC grew double digit in Q1 prior to the COVID-nineteen crisis. The region continued to grow in the second quarter despite of the heavy impact on China in Q2. And also in Q3 and Q4, APAC performed better than Europe and The Americas. Looking ahead, we expect the region to generate further growth as APAC is already closer to normality than most of the Western Hemisphere countries. Overall, for the total of all three regions, we have seen an encouraging positive trend in the fourth quarter. As you can see from the chart, as far as we know by now, this positive trend has continued also in the first quarter of the new fiscal year. However, we expect to end the first quarter of the new year below prior year as we also stated previously. Let's turn to the next slide, where last but not least, I would like to mention that Carlsbad's Meditech has was nominated for the prestigious German Future Award. In German, we say Deutsche Zuchenstreis. That's an award by the German President Frank Waldersteinmeier. We had applied for the award with KINEVO nine hundred and reached the final round of the three best contributions to the competition. The award was presented at prime time in German television. Two of our employees and one customer, Professor Andreas Raabe, who is a neurosurgeon and thought leader in his field. They all represented Caldas Meditec in the show. Although KINEVO 900 did not win the competition, The price ended up with another contribution from the Zeiss Group. For the first time in history of the awards, two projects of the same group of companies, in this case the Zeiss Group were nominated for the price. By the way, you'll find some more some comments and insights from Professor Raber on surgical visualization and the KINEVO 900 in our annual report that has been published today. So I would like to encourage you to have a closer look. This brings me to the last agenda item of today's presentation, which is the outlook. We are convinced that the growth drivers for the medical market in general and the microsurgery and ophthalmology market in particular are fully intact. Once the COVID-nineteen crisis is over in the mid and the long term, these drivers should lead us to further profitable growth. Let me mention some of these trends just to remind you. First one and very important one, the aging of the population. Then we have a growing affluence and the surge of related chronic diseases such as obesity or diabetes. And as a consequence, there will be a growing load of patients to the healthcare systems. There will be an increasing access, to information, for people. And as a consequence, higher health awareness and also growing patient expectations. And finally, there will be a better access to health care in the rapidly developing economies such as India and others. So overall positive trends which will fuel our growth also in the future, mainly in the mid and long term. Caldas Meditec will continue to follow the strategy, which has been very successful over the last years. Our strategic priorities are listed here. And let me just mention the further, that we will further expand our recurring revenue. We will try the rollout of the SMILE, refractive laser surgery. We will extend technology leadership in cataract, and we will continue to lead neuro in the ENT market by turning our innovations into business growth. And finally, we expect digital solutions to play an important role in future. For fiscal year twenty twenty one, we are expecting a return to growth in sales and EBIT. However, as we stated in our talk release in October, the first few months are still expected to below prior year. In the midterm, we expect to return to a pre crisis level of revenue and profitability of sustainably above 18% for the EBIT margin. Unfortunately, the exact duration of the recovery phase remains uncertain, unfortunately, given the still unresolved COVID-nineteen situation. Ladies and gentlemen, this concludes our prepared remarks. We are now happy to take your questions. And I hand back to the moderator to explain the procedure. Thank you. Ladies and gentlemen, we will now begin our question and answer The first question received is from Falko Friedrich of Deutsche Bank. Your line is now open, sir. Please go ahead. Good morning, and thank you for taking my questions. I would have three questions, please. Firstly, could you provide a little bit more insight into how the months October and November shaped up? We obviously saw lockdowns coming back in quite a few countries. It would be interesting to hear if you still saw continued sequential improvements over the third and fourth quarter of last fiscal year? Then my second question, very nice to see the high share of recurring revenue you just presented. Could you share your expectations for next year for the recurring revenue, whether we can still expect further improvements here? And it would be helpful if you can provide us with how much of that recurring revenue is the service revenue of that share? And then my third question is, it would be great if you can provide a little bit of insight into the product launches you plan in the fiscal year 2021. Yeah. Thank you for your questions. Let me go through them one by one. Youssef, you might want to fill in, but I just go through them. Yeah. Okay. So first development in October and November. As you could see from the chart which I showed before the quarter by quarter development, we saw a really positive trend from Q3 to Q4. And I'm glad to report that this positive trend actually has continued also moving into the first quarter of the new fiscal year. So there's still a positive trend. However, as I said before, we expect to nevertheless be below prior year level. I mean, it's still a long way to go. But we see overall a recovery, which certainly is good news. The impact of the lockdowns is not as bad as it was in the first phase. And, I believe there are many reasons for this. So for example, clinics have simply learned to deal with the infections and also treat patients without the risk of, you know, subscribing to an infection or you know, transmitting the disease from patient to doctor or vice versa. So this is why surgeries are much more stable. There are very few elective surgeries postponed despite of lockdowns. So things to some extent continue. Of course, there is an impact, no doubt, right? When I'm saying that I'm talking mainly about the ophthalmology business, it's a little bit different in the microsurgery business. Because microsurgery is practiced in multidisciplinary clinics. And multidisciplinary clinics usually, you know, they have intensive care units, which normally are used for example for patients after a brain surgery in neurosurgery. And these beds now are used to treat COVID-nineteen patients. And that explains why there clearly is some impact of the COVID-nineteen situation on our business. It's an indirect impact. But still, I mean, also the microsurgery business will recover although the time will be a little bit longer than in the field of ophthalmology. Your second question was on the share of recurring revenue and service. Yeah, so it's really a positive development. And again, we've been working on this for a long time. And it's nice to see that this strategy actually works and also helps us financially because this has always been the motivating force and the reason why we are doing this. We want to be less vulnerable in a crisis situations. And that's what we see right now that the recurring revenue recovers much faster than the equipment business. Yes, the share now is 39%. That's, of course, that relative share impacted also by a little bit weaker equipment business. So once the equipment business, will grow again, that relative share might, also be, I don't know, go down or remain at 39%, I don't know. But absolute and that's important, the absolute growth of the recurring revenue we expect to also grow in the new fiscal year. And that's as I said, 500,000,000 and we expect this to grow. Lastly, you asked about service. So service, typically I would say it's between 2025% of our recurring revenue. I don't know exactly. So in that order of magnitude. Product launches, obviously I cannot make announcements here. But, as we've stated, our focus has been on surgical ophthalmology in particular where we are driving heavily several projects. It has been on digital products and digital platforms where we are driving. But there is activity all over the board. So we are working in all our business sectors and that is what you can expect for the next year. Perfect. Thank you. The next question received is from Scott Barter of Berenberg. Your line is now open, sir. Please go ahead. Yes. Good morning and thanks very much for taking my questions. So first question, please. I wonder if you could help provide a little bit more granularity about the consumables business and the various different segments of it. Can you help us understand what the growth of your IOL business was for the last fiscal and also the growth of then the refractive consumable business? Perhaps if you would kindly update us on what your current installed base is for the Mivisumax system and whether that grew year over year, that would be helpful, please. Second related question, I think there's been quite a lot of anecdotal evidence throughout this crisis that consumer discretionary expenditure patterns have changed. And perhaps then in this lockdown situation where no one travels or goes to restaurants or so forth, that they put that money towards improving their own health and eye care. I just wonder whether you also saw that dynamic and indeed would expect anything to change to the negative in the upcoming year as hopefully we can all start to travel and go to restaurants and so forth. Could we indeed see a negative shift of consumer spending habits, which act as somewhat of a headwind? So I wonder if you could just discuss that topic a little bit more, please. Last one for Eustace, please. I appreciate you're investing heavily in R and D for the long term strength of the business. You are not providing a situation where you reach an 18% margin floor this year, which I think prior to this crisis was your guidance. Have you completely ruled out that this 18% margin is not achievable this year? Perhaps then give us some sense of what is a realistic profitability for this coming fiscal? Thank you. Scott, thanks for your questions. Regarding the consumables business, well, both the IOL share and also the refractive share have grown, right? So we are seeing growth in both areas. Please understand that I cannot give you specific numbers because this is very sensitive competitive information and we would be vulnerable to communicate that. But what I can clearly say is that growth comes from both areas, right? IOLs and refractive. So we are definitely growing also our market share in IOLs. And you can see that by the way from reports like MarketScope, which also show that. The installed base of VisuMax is also growing. We in the meantime have twelve fifty installed, so a large number. It continues to grow, and that clearly helps us also with the recurring revenue. I'm not sure if I picked up your second question. Overall, we see the demand for refractive surgery grow in Asia mainly, not so much in Europe, but that's not a new trend. It has been like this for very long. If you take for example South Korea, which has been in a recession for quite a while, that has not had a significantly negative impact our business in South Korea. So we don't see the here a direct impact, and I would hope that this it will continue like this. Regarding R and D spending, Yousus? Yes. Think Scott, I think your question started with R and D, but what you were basically asking was for the margin guidance. And please understand that it is really too early in the year to give you EBIT guidance. I can confirm, and I think Ludwig also said that we still are committed to the 18 plus EBIT margin as midterm guidance. Whether this is achievable within the next nine or twelve months totally depends on the pace of global, let's say, economic recovery and pandemic management. And from that point of view, please understand today, not even having ended the first quarter, I feel it's too early to give you here a kind of a substantiated guidance or answer. So I think midterm, as I said, confirmed short term, too early to make here a statement. Understood. And perhaps just one follow-up, if I may. I think actually on the occasion of this call last year, this time last year, we looked at a pretty impressive series of new product launches for instruments and capital that Carl Zeiss was in the market with. And we discussed about the potential for additional innovations in the consumable business where arguably you've had less launches in recent times. Can you help us understand, is there any meaningful and obvious momentum with respect to new innovations in your consumable business that we should be expecting? Yes. As I was saying, our focus is on surgical ophthalmology, very much in innovation. And surgical ophthalmology is very much about consumable business, right? So for example, the IL business itself, but also, FACO has a large consumable part. So and there might be others. So overall, yes, there will also be innovation in the consumables field. The next question received is from Markus Gola of Stifel Europe. I have three as well. And my first is on your monofocal IOL business in China. It seems that the government has drastically reduced prices for certain consumables like stents, and I wonder whether you could give us an update on the pricing dynamics on monofocal IOLs in that country. My second question is on your equipment business. I understand that during November and December, hospitals usually tend to spend their remaining budget on your equipment. Do you see this effect this year as well? Or was it canceled due to the reemerging lockdowns? And my last question is on your premium IL portfolio, which is already in the market for quite some time. And I wonder whether you're still gaining market share here? Or has it become more challenging for you to further expand given the age of the products? Yes. Thank you for your questions. I start with the first one on monofocals in China. Yes, it's true that the Chinese government is trying to reduce the market price for IOLs in China. The way they do this is to offer tenders and large tenders. So there are very tight requirements to these tenders on the pricing side, but also on the origin of the IOLs. So it's the target of the Chinese government is not only to reduce price, but it's also to increase the domestic content. In other words, they want to see domestic Chinese production. And so these are the two goals. Right? Lower prices and more domestic production. And yes, that will reduce prices significantly. That tender process was started in nine provinces. China has, as far as I know, a little bit above 20 provinces. So it's not all over the country yet. And that will for sure result in a lower price level of the IOLs. What will happen after these tenders, they will adjust the reimbursement, right? So the result of the tender will be a lower price, and then they will accordingly adjust reimbursement. And this is why, although these tenders are for public hospitals only, through the reimbursement, it will also have an effect on private hospitals. Because they also get the same reimbursement. So that's what's happening in China on the pricing level. What are we doing about it? Well, as I was just saying, the domestic manufacturing is really important and getting more and more important in China, mainly for consumable products and IOLs. This is why several years ago, we started an initiative to build up a manufacturing site for consumables in China. It will still need some time for completion. But once we have that, it will allow us to offer Chinese manufactured products to the Chinese market, and that will give us a competitive advantage. And the other thing we are doing here is to a little bit restructure our distribution setup. This is a relatively complex setup in China, which I believe is also one of the reasons why the Chinese government is taking influence here. They want to simplify that, take out the number of parties who are involved and thus reducing costs. So we believe that we can reduce our cost also on that end. Then equipment business and the year end peak. Right now, if we look at our pipelines, we still see that positive trend that I was talking about. It's too early to tell whether that peak will be as significant as last year. But when I'm saying positive trend, we are comparing this year with last year, right? And last year, we had the peak. So we assume that this year will also come. So to some extent, will be the same. Whether it will have the same extent, I don't know yet, right? So here we have to wait until the end of the quarter. But again, from what we've seen so far, positive trend continues, but not at the same level as last year. Then you asked your third question was on premium IOLs, our portfolio. It's certainly true that the number of competitors in the premium segment has been growing strongly. So there many companies who offer products in that field. However, we have a very established position. By the way, also in China, right? I also would like to mention that, coming back to the first question, because we not only sell motor focus, we have a substantial, if not even bigger part of multifocals or premium IOLs, which also helps us to be less vulnerable of that price reduction initiative in China. But coming back to the third question, we see the marketplace is getting crowded, but we have an established position. And till now, we've well defended and some countries even extended our market share in the premium segment. So we believe that we are overall here in a good position. And going forward, you can certainly also expect us to further innovate in the field of premium IOLs. So yes, but yes, it's getting more challenging. It's a busy market. Very clear. Thank you very much. The next question received is from Ollie Vendor of Hauck and Aufeuser. Your line is now open. Please go ahead. Yes. Hi. It's Ollie Vendor from Hauke. Could you please share some thoughts on where you stand with the Smile rollout in The U. S? You've always mentioned that this would be rather steady gradual process. So maybe you could share some ideas on the installed base, the dynamics there, maybe utilization rates, if you can touch on that? And maybe in general, how the what's the awareness and perception of this technology is in the region? That would be helpful. Yes. Thanks for the question. Smile in The U. S. Is certainly a growth opportunity. As you were saying, I can fully confirm it's going to be a slow and steady process. So it will need time. Nevertheless, we see some really good progress here. So our installed base is growing. I actually don't know it by heart, but it's growing nicely also in The US. And also the utilization is growing. This is about building up confidence in the procedure, right? Doctors need to gain experience with it and just be confident that they can achieve good result. And then of course, it's about simply replacing the installed base. Because, today, refractive surgeons in The US, they do have lasers from competitors, and they just, you know, want to use them as long as possible for financial reasons and only, you know, only convert to smile once they see a clear business opportunity here. So it'll need time. There is good news also from the military. As you know, the US military performs a significant part of, all refractive surgeries in The US. And of course, everybody is looking at the military because the military has very high standards. And it's, here positive development. The military is using SMILE, is talking about it. So we expect this also to to help us here with the US Army. And we've just closed the deal with the army on on further lasers. So that's really developing well and will support the overall rollout in The US. Thank you very much. Just out of interest if you can share this information, how sizable is the deal with the US military in terms of custom Yes. I don't know if that's confidential. So I would need to check the contract so that I can announce that. So please understand that I cannot share the number. Understood. Thank you very much. And the next question is from Scott Bardo of Berenberg. Just some questions on the capital side of your business, please. Can you help us understand please the order trend in microsurgery or more broadly your capital business throughout the course of the last fiscal? Just trying to understand whether it declined more than the revenues or fared better than your revenue development this year and confidence then into in the upcoming year. So that would be helpful. Second question, please. And I don't know if it's too early here, but obviously, have had some challenges to deal with this year as well, allocating budgets in different ways. Have you had any discussion so far with hospitals about the way that they think about allocating budgets into next year? Are there certain buckets of capital not served by Carl Zeiss Meditech that will take priority in your opinion? Or is it likely that your source of solutions will be prioritized in this sort of allocation of budget? And third question, please. We note that one of your competitors, Alcon has been moving more noticeably into biometry and highlighting quite some momentum in that field. I know that you're a leader, global leader in this space. I just wonder if you could comment on whether the competitive dynamic is intensifying notably. Thank you. Yeah. As you could see from the financial report, the decline of the microsurgery business was a little bit stronger than the decline of ophthalmology. And that's exactly because of the capital business. And as I was explaining, it has to do with the multidisciplinary clinics. And it's just more impacted by COVID-nineteen. And I mean, these clinics actually, it's difficult to get access at all. Right? So when our salespeople want to go there, our service people for installations, that's difficult because this is the places where COVID-nineteen patients treated. And that's different from ophthalmology ASCs, right? So that is an entirely different situation. And that is why, we see more impact in microsurgery and it will take longer to refill the sales pipelines and build up, again the business. The good news is, on the order side, we actually have quite some strong activity in microsurgery. But, sales need a little bit longer because of the installations and, it's just slower. Right? So I would, expect this to recover, but, to take longer time as I was, saying before. Scott, regarding the allocation of, budgets, I actually really believe it's too early to tell. There is some talk, about this, but I've not seen budgets yet. So I don't know, how the budgets really look like. Clearly, hospitals had to invest in other things, for the time being, for example, intensive care. And, that might have some impact also going forward. Hospitals will need some time to recover also financially from the COVID-nineteen crisis. So far, we look at our sales pipeline, I would not be really pessimistic here. So it looks like it's recovering. But again, I do not have really good data on hospital budgets for the time being. So we need to wait a little bit. Regarding biometry, look, the, Zeiss invented, optical biometry, actually pretty exactly twenty years ago, just, not too long ago we had the twentieth anniversary of the IUL master. And believe me one thing, there is an incredible, know how in biometry. And this is really critical. The surgical outcome really relies on the precision of the biometry. And this is why, doctors typically make no compromises on biometry. Because they exactly know if that measurement is not 100% right, the outcome of the patient will be compromised. And that's good for us, because we have the most experience in that field. With the IOL Master 700, we have an incredibly powerful product in the market. Yes, competitors have been trying to move into this field. But until now, what can I say? I mean, our market share is very high. And the IOL Master 700 has been very successful. Yeah, there is some competition, no doubt. But there has been competition in biometry for years, right? And also other companies, have tried. And, I'm optimistic because this is really, so demanding that it will be difficult for new entrants to find that place. Yes. Thank you very much, dear ladies and gentlemen. Thanks for your questions and the good discussion. As I was saying in the beginning, this was really an unusual year. It was probably the most unusual year that I've experienced in my more than twenty five year history with the company. So I hope that you all will stay healthy and safe now the over the holidays. This is really a threatening pandemic and I can only urge you to be careful. And, yeah, stay healthy. Enjoy the holidays also after this very exhaustive year. I'm sure the next year will be better. It will be better for sure for all of us personally, but it will definitely also be better for our company. So I'm looking forward to reporting about these developments in the upcoming quarterly calls. I wish you a Merry Christmas, nice holidays, and talk to you in three months about the first quarter of our fiscal year. Bye bye. Have a good time. Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.