Earnings Call: Q2 2020

May 11, 2020

Good morning, ladies and gentlemen, and welcome to the Carl Zeiss Meditec AG Analyst Conference Call on Six Month Figures 2019 and 2020. At this time, all participants have been placed on a listen only mode. The floor will be opened for questions following the presentation. Let me now turn the floor over to your host, Mr. Sebastian Frerichs, Head of Investor Relations. Yes. Good morning, ladies and gentlemen. Thanks for joining us today. Welcome to our half year analyst conference call. I'm Sebastian Freerichs, Director of Investor Relations. And with me, as usual, are our President and CEO, Doctor. Ludwig Mons and our CFO, Justus Wehmer. Let me now hand over to these gentlemen to introduce our financial statements with some prepared remarks. And afterwards, we are looking forward to your questions. Yes. Good morning, ladies and gentlemen. Also welcome to our analyst conference from my end. These are very unusual times given the COVID-nineteen crisis. I hope that you and your families are well and you are not impacted by the coronavirus pandemic so far. Yes, on Slide two, you can see our agenda of today's call. I will start with an overview of the results. And as usual, my colleague, Jesus Wiehmer, will go into more detail of the financials in the next section of the presentation. We will address the impact of the COVID-nineteen pandemic in our business in all sections of our presentation, obviously. However, in the highlights section, I will provide you some more insight in what we are doing to manage the situation. Yes. And finally, I will talk about our outlook. So let's have a look at Slide number three. Carlsat's Meditec was able to grow again in the first half of our fiscal year compared to the same period of prior year. However, although we started with a very strong first quarter into the business year, our business was probably not unexpectedly impacted by the COVID-nineteen pandemic significantly in the second quarter. In late January and February, there was the lockdown in China, followed by European countries and parts of North America beginning in March. Although not included in the H1 results, I would like to note that the business slowdown even accelerated in April with a decline of 20% to 30% for order entry and revenue compared to the same month in prior year. But back to the revenues of the second quarter of the business year. As a result of the slowdown, revenues ended up roughly on prior year level in Q2 stand alone. But revenues of the first half of the year reached €715,000,000 Good contributions came from both SBUs in terms of regions, both Americas and APAC contributed well. Year to date growth rates for the first half were 7.2%. At constant currency, the growth rate was 5.8%. Jesus will discuss these results a little bit more in detail in a minute. Yes, the EBIT margin decreased to 14.3% versus 16.5% in prior year. This was mainly caused by the lack of growth in Q2 despite of ongoing investments, for example, in research and development. However, I would like to note that the comparison base for our R and D costs in prior year was extraordinarily low due to a onetime effect in last year, which we discussed a year ago in this call. Caused by the COVID-nineteen pandemic, margin was negatively impacted by both the product mix and also the regional mix. The decline of our business in China reduced our consumable business in Q2, in particular. Yes, our net income reached about €64,000,000 which corresponds to earnings per share of €0.71 Last year, it was 0.65 So EPS increased due to the absence of hedging losses that occurred in prior year. Yes. So much for the overview. I will now hand over to my colleague, Justus, who discuss the results in more detail. Justus? Thank you, Ludwin. Good morning, and a warm welcome also from my side. I'm now going to give you a more detailed overview of our financials, starting with the performance of our strategic business unit of Talmik Devices or OPT. Revenue came in for OPT with €517,700,000 compared to prior year. Reported growth was 5.5% or currency adjusted 4.2%. As already discussed, the corona pandemic really impacted our Chinese business since late January, early February, whereas most other world regions still developed relatively well until early March, but entered then a significant downturn when national lockdowns were implemented and nonessential surgeries were largely canceled. This is why the start into April has also been rather difficult with new orders substantially down, as just mentioned by Ludwig. OPT EBIT margin decreased compared to last year's. There was a negative mix effect as our strong consumables business declined in February and March due to the situation in China. But there was also some negative operating leverage. While growth was slowing, our R and D investments continued to grow as planned. Let's take a short look at Microsurgery. Our strategic business unit, MCS, delivered overall positive performance with revenue of €197,000,000 which is plus €20,000,000 versus prior year, though also quite clearly, there was a slowdown late in the last quarter. The start into Q3, as measured by the month of April, has been rather tough, particularly for new order generation. Revenue increased by roughly 11.7%. Currency adjusted, this is still 10.1% in the half year reporting periods. Up until March, there was still continued strong revenue growth in neuroENT, supported by our robotic visualization systems, Kinevo as well as a good trend for the new TiVato 700. EBIT margin remained strong in the reporting period. So at least we are entering what likely will be a weaker quarter from a very profitable position after six months. Let's now take a look at the regional trends. The revenue split across the three regions remains pretty well balanced. In The Americas, we achieved $2.00 €6,000,000 of revenue, which is an increase of 13.6% or currency adjusted 10.8% over last year. The U. S. Business grew with 10%, currency adjusted 77%, sorry, a positive development in the region, supported by the introduction of especially our Diagnostics products, Clarus 700 and Cirrus 6,000. We also saw positive contribution from our MCS business. However, we had a weak start into April as most of the country has been affected by lockdowns, shelter in place orders and cancellations of elective surgical procedures. EMEA experienced overall a slight decrease of minus 2.3% to $2.00 €9,000,000 of revenue with mixed developments across key markets, mixed developments mainly also an expression of the various changes in the timing of the lockdowns. We have seen in markets like France, Italy, Spain accentuated decreases, followed then also by Germany and also U. K. I should note, however, that Europe has started April on a very weak note. It remains to be seen how fast Surgical Procedures and Equipment business will return to more normal volumes as restrictions are slowly beginning to be lifted and offices and clinics open their doors again. Finally, APAC increased revenue by 10.3%. Currency corrected 8.8% to a total of $3.00 €1,000,000 China was only on prior year's level due to the corona situation during Q2. However, China is now beginning to ramp up business again and has embarked on a more positive trajectory in April. We are still cautious as economic activity has not yet fully returned to pre crisis levels, but our early indicators at least look quite positive. Similarly, South Korea is holding up well and has managed to grow rather consistently throughout the difficult months of February we see very weak activity out of other Asian markets such as Japan, India and the Southeast Asian countries, including also Australia in April, which is more in sync with the weak performance that we see in Europe and in The U. S. Let's have, on the next slide, a look at our P and L. Slightly decreased gross margin with 55.6%, which, particularly in Q2, suffered from a reduced volume of consumables business in China still relatively strong microsurgery performance, which was supportive. We expect gross margin to continue to be under pressure as the number of surgical procedures in Europe, particularly, remains down to very low levels in April, and it is not clear yet how quickly it can recover. OpEx in terms of absolute numbers increased mainly in R and D. We are pushing ahead with our strategic investments, for example, in digital solutions, as we have mentioned in the past as well as in strategic topics such as, for example, the Yantech technology that we acquired. We are already seeing a slight reduction in sales and marketing expenses, which will become a bit larger still as we move forward due to concerted saving efforts and also helped by the reduction in travel and the cancellation of some major trade shows and congresses in the remainder of this year. EBIT came in at €103,000,000 so slightly lower than previous year. EBIT margin achieved 14.3%, down from the 16.5% previous year. But I'd still say that I would consider it a fairly healthy level. Near term outlook remains, however, extremely difficult due to the weak start into Q3, and likely, we will face significant negative operating leverage at least in the near term due to lower revenues. A quick look at the adjusted EBIT margin, which reached 14.7%, which is 2.1 percentage points down versus prior year. And as you know, it's only rather small effects related to purchase price allocation in those periods. And here, the increase is mainly due to the PPA of Eantech. On the next slide, a quick shot at the cash flow statement. Operating cash flow is down to €41,000,000 from €89,000,000 previous year, which is due to increased working capital, mainly inventories as we increased some safety stocks to secure delivery sorry, deliveries in this rather difficult to predict environment. Mainly in China, we have taken some strategic inventory decisions in the light of the, at that point in time, clear, very unclear lockdown situation in Germany, out of which we decided to ship goods as long as they could be shipped. Cash flow from investing activities, you basically see here mainly the difference to previous year affected by the Jantech acquisition. And cash flow from financing activity is mainly influenced only by changes in receivables and payables in our treasury accounts. And with that, I hand it back to Ludwig. Yes. Thank you, Justus. As you can imagine, the current situation, which is caused by the COVID-nineteen pandemic, is really demanding for the global organization of Carl Zeiss Meditech. On the next slide, which is Slide 12, I would like to discuss how we manage the current situation and how we prepare ourselves for the recovery of the markets. As the COVID-nineteen pandemic has been spreading around the globe, we have been focused on three priorities: the safety of our employees business continuation with a focus on production and customer service and thirdly, financial stability of the company, which means cost and cash flow management, in particular. Yes. In terms of safety, we follow the respective country specific shutdown directives. This means, in particular, that we had to move a large majority of our employees into work from home in basically all countries. However, we want to keep our facilities open for those functions that cannot work from home, such as production, obviously. In order to reduce infection risk, we systematically reduced the number of people in our buildings. We introduced hygiene and organizational measures and ensured the required social distancing. Furthermore, we use at least two separate teams or shifts within the function, and these teams must not mix up. The idea is to at least have one of the teams operational even if the other one would be quarantined due to an infection. However, I'm glad to say that so far, the number of COVID-nineteen infections across all of the Zeiss Group has been fairly low. There have been no significant business disruptions anywhere. In order to continue customer service and generate at least some revenue, we have been committed to keeping production open at all times. A particular focus has been on the supply chain as our suppliers are dealing with restrictions as well. Furthermore, we closely monitor financial stability of our suppliers in order to anticipate potential dropouts. In some cases, we have built up safety stock, as Jesus was just saying, for both production materials and also finished goods. For now, there has not been any critical interruption of our supply chain, and we do not anticipate problem in this field. Yes. The third priority is our financial stability. Although we have significant liquidity in our balance sheet, we are doing what we can to avoid excessive cash burn in this really challenging environment. The two levers are working capital and cost management. In terms of cost management, we have decided to make use of flexibilization schemes such as Kurzarbeit, short time work here in Germany. The instrument allows us to temporarily reduce the payroll costs, and similar schemes are being used in other countries like France, Spain, Turkey as well as the so called furloughs in The U. S. Yes, OpEx can be reduced, particularly in the areas of sales and marketing, where some major congresses have been canceled and the surrounding professional education and advertising activities have largely gone digital. There's also a substantial amount of variability in our sales and marketing spend as it includes certain distributor fees and variable bonuses for the sales reps. Yes. Lastly, we keep an eye on managing net working capital tightly while maintaining customer support at a high level. However, we try to avoid any undue escalation of DSOs and manage inventory actively. Yes. Now the look forward on Slide 13. This slide is about the preparation of the end of the crisis, and we focus on three areas, which shall allow us to ramp up business as quickly and as effectively as possible. It's obviously important to realize that most ophthalmologists have reduced their medical services and only provide emergency treatments. In particular, interventions such as cataract surgery or refractive surgery are not being performed in most clinics. The same is true for neurosurgery, which is limited to emergencies as well. But even during the shutdown, we engage closely with our customers. And for example, in order to allow for the treatment of patients under very tight hygiene requirements, we provide consumables like covers, drapes and shields for our diagnostic devices. Furthermore, we offer a wide range of digital services, such as an extensive range of webinars for medical professionals or digital consulting services. The offerings have been quite successful and encouraging as many ophthalmic surgeons, for example, simply have more time than usual. There are clearly some learnings here and on how to reach out to customers digitally and on how to best provide digital customer support. Now secondly, we prepare for our customers resuming their medical services. We have learned from China that procedure volumes in certain areas might come back quickly, but it needs a thorough preparation. Devices need preventive maintenance and consumables need to be on hand. We actively support our customers with these preparations. Then thirdly, we closely monitor market changes. We expect digital solutions and telemedicine to play a larger role in the future. The health care systems already have or will open up for remote services. With the deployment of our digital strategy ongoing for some time, we have expanding our solutions for just that, and we believe to be right on track for a post crisis market. And that will likely look somewhat different, for example, in Optimal Diagnostics and chronic disease management. In this context, it remains to be a priority to drive our long term R and D road map. We believe that the crisis is an opportunity to win relative to our competition on this front. Due to our financial stability, we can afford to push ahead with innovation where others likely will have to make bigger concessions. This brings me to the last agenda item of today's presentation, the outlook. And I apologize, it's different than usual. As we said before, Q3 has started with a weak month of April, unfortunately, which is perhaps not surprising given the global COVID-nineteen situation. We have highlighted some of the measures which we have taken in order to mitigate the impact of the crisis. But clearly, visibility, particularly for the next couple of months, is extremely limited. We have, therefore, already warned you on April 2 that an outlook is not feasible in this environment for the time being. At the beginning of the fiscal year, we had really ambitious targets for both growth and profitability as we expected further growth across our portfolio and made deliberate investments, particularly in research and development. As revenue trend has turned negative in April due to the COVID-nineteen crisis, this business plan no longer looks achievable and realistic, unfortunately. We will update you as soon as we feel there are clear market trends and there's enough visibility, which allows us for a new forecast. Yes. With that being said, let me reiterate that we believe in the attractive market, which we are in, and we also believe in our favorable strategic position, as we have discussed with you many times. We are in a strong shape financially, and we are sure that we will weather this storm. We are ready to return to our growth path once the crisis is over and markets recover. That's so much for our presentation. Thank you for your support in these turbulent times. And we are now looking forward to your questions. And I hand back to the moderator to explain the procedure. Thank you. And we have few questions coming in. First is from Scott Bardo from Berenberg. Please go ahead. Yeah, thanks very much for taking my questions. So the first question please just relates to experience in China. And I wonder if you could be a little bit more explicit and quantify for us for the month of April where you are with refractive correction procedures and cataract procedures, some sense of how much they are down or up relative to the prior year would be helpful. And I wonder if you could also further comment here on any changes in operational activity at these centers amid the containment of the coronavirus. Have these centers changed the way that they deal with patients making higher volumes more difficult? Perhaps some discussion there, please. I'd also, as a second question, like to understand your perspectives on the recovery for the equipment side of ophthalmic devices and microsurgery? Do you believe this will be somewhat late cycle, waiting for patient volumes to normalize? Or would you anticipate an uptick prior to that? And third point please, apologies if I missed it, but I just needed to understand, does the company feel confident in the medium term outlook that you set at the beginning of this year? And in which case, would it be a reasonable assumption to resume return to that trajectory, both from a top and bottom line perspective in the next fiscal year? Wonder if you could lay some comments there, please. Thank you. Yes. Thank you, Scott, for the questions. I simply start answering, and then Jesus can fill in. Yes. First one on China. Well, what happened in China was that the treatments of patients in both refractive and cataract dropped to zero. And that happened within a couple of days. And so really all refractive clinics, for example, were closed. And then step by step, they opened up. If I recall it correctly, now more than 90% actually of the clinics are open again. The procedure numbers also have somewhat recovered. However, they are not at the same level. So they might be at seventy percent, eighty percent in that range currently. We were to be honest, we were surprised how fast the recovery was. The clinics really did a great job to ramp up, and we did what we could to support them with the supply of consumables. But also, as I mentioned, maintenance of devices is critical. A laser, you cannot switch off and switch on again. It needs maintenance. And that really worked well in this case. Cataract, actually, I don't have numbers on China. But my suspicion would be that this is a little bit slower. But again, I don't have numbers and would need to investigate that. Then your the second question was on the equipment side. In China, we see that actually a lot was just postponed, right? And because the deals which have been negotiated just they were just carried out a little bit later. So I in China, I believe there will not be a big dip also on the equipment side. We will probably just have lost certain time. However, I would be careful to make the same assumption for the rest of the world because in if I look at Europe or also The U. S, situation is a little bit different. Because here, it's about hospital budgets. And I could imagine that certain funds were just reallocated and spent in other areas given the crisis. But that's speculative, Scott. I really don't know yet. And of course, we hope that a lot of the deals are still up, and we do not have any indication otherwise yet, but we need to find out, right? But regarding the procedures also in Europe and America, I would expect also rather fast recovery because most of these clinics really live from these procedures. So they have a big interest to ramp up. So I believe that's going to be fine. The midterm outlook is just difficult because we don't know how long the crisis will last. There's no reason that we could not return to the same level as in the past. But the only question is when will that happen? And that I cannot answer. Nobody can say that. But our fundamental position and the fundamentals of the market are unchanged. So why shouldn't we return to the growth path where we had been for so long? So I think that will happen. But again, I don't know by when. Thank you very much. But just to understand then, the midterm outlook has not been retracted at this point. It still holds until you have heightened clarity. Exactly. So we can't tell whether that is happen as planned and well when the growth path will be resumed. So for the time being, there is no possibility to say that more clearly. Understood. Thank you. I'll jump back in the queue. Thank you. And the next question comes from Falko Friedrichs from Deutsche Bank. Please go ahead. Good morning. Thanks for taking my questions. I would have three, please. Firstly, you mentioned the 20% to 30% order intake and sales decline in April, and I expected it to be worse. Can you also provide a rough split for the three different regions potentially? Then secondly, can you share a bit more color on the different growth dynamics you noticed in the countries in the EMEA region, both in Q2 and in April? And as lockdowns are listed currently in this region, are you already noticing a slight uptick in your order book here? And then thirdly, do you think that the pandemic changes your time lines for the IOL approval in The U. S? Yes. Thank you, Mr. Friedrich. The let me just make a note here. First, April, 20% to 30%. Yes. I mean if you look at Europe, you would expect that it's worse, right? And in Europe, probably, it is worse. And in fact, actually, it is worse. But unfortunately, we've got China. So China already was coming out of the crisis. South Korea was not well, Korea somehow managed to avoid the crisis. I don't know how that is. So South Korea is still fairly stable. And The U. S. In April and also in March, I believe they have not reached the really the maximum impact of the crisis yet, right? So there were still also quite some business in The U. S. The U. S. Is a continent, right? And so while there is a huge impact of the pandemics in the East Coast and also West Coast in South California, in particular, The center of the country, the Midwest, is, some extent, less affected or not affected at all, and there's still some business. So The U. S. Also was going okay. So region wise, I would say U. S. Was so so. Europe was really bad. And Asia, some key markets actually were quite strong. Also Asia, one more note, Japan actually is also a concern. We had really good business in Japan also in March. March is a key month in Japan. But going forward, Japan has weakened, and the crisis really now impacts Japan more than this was the case in Q2. So yes, what I'm trying to say is the dynamics in the countries is really very different. And that's it's difficult to give a number. But the total 20% to 30% in April, this is the result, and that's the mix of the countries. So the second question was on the growth dynamics in EMEA. And you asked whether we already see some positive signs after certain measures have been lifted. The clear answer is no. That's just too early. And I believe the first hopefully, first effects we will see here in Germany. But outside Germany, France, Spain, Italy, U. K, I mean, these countries are still in lockdown, and there's basically no business whatsoever. And it will certainly take weeks until we see things improving. So it's too early to answer your second question. Third question on the time line in The U. S, I would say, no, we do not expect delays. The clinical trial is going well. The data collection is more or less complete. So that's going well, and I would not expect an impact on the time line. I hope that this stays. But from what I've heard, we are well on track. Okay. And just a small follow-up. Do you think that China can reach a flat level in the third quarter year over year? Well, I would not exclude that, yes. I guess that's realistic. But again, it's speculative. Thank you. And next question comes from Mr. Markus Gola from MainFirst Bank. Please go ahead. Yes, great. Thank you. So my first question is related to your equipment business in The U. S. Indeed, it seems that there's kind of an unprecedented financial distress on hospitals due to the lack of elective procedures. And you already mentioned that as a response, U. S. Hospitals are expected to cut their CapEx. And I wonder whether you could share some discussions you had with your U. S. Clients around this or whether you even saw cancellations for the microsurgery equipment business? And my second question, question also a bit related to that on the ophthalmologist side. Could you share your discussions with your clients here, with U. S. Clients here, how much appetite is to invest into a brand new Visumax given the skyrocketing unemployment rates in the country? And as a response here, will you backpedal on your U. S. Expansion? Or how will you adapt to this situation? Yes. Just a note. So it's too early to tell, actually, for both of the questions. On we have not had indications yet that hospitals would postpone investments or reallocate funds in The U. S. That's probably too early. We keep in very close contact to our clients and but I've not heard of indications that things are postponed or shifted. It's just that in some states and counties, there is simply no access to customers because hospitals are in emergency modes and you know how it is better than I do. So that's difficult. But from the discussions I'm aware of, there's nothing into that direction which you are asking, which could hint at postponement or even reallocation of funds. That's not the case. Regarding same is true regarding VisuMax. For the time being, most refractive laser clinics in The U. S. Were shut down. However, what I have heard is that now some have reopened, and I would expect that it will be more and more going forward. Same is true, by the way, for cataracts, ASCs, ambulatory surgery centers. They also start reopening. And regarding our expansion strategy in The U. S, of course, no change. I mean the market has not changed, right? It's the market has come to a standstill, more or less. But I'm optimistic here that this will recover at some point in time. The only question is how long will it take. But of course, we will continue to expand. Great. Good to hear. Thank you. The next question we have is coming from Mr. Daniel van Doors from Commerzbank. Your line is open. Yes, good morning. Thanks for taking my questions. Two, if I may. Again, on the decline in revenue and order growth you observed for April, the 20% to 30% you mentioned. Can you talk a bit more about what this meant for your different product lines, I. E, Lenses, equipment, refractive surgery treatment packs, Excedra? And that would be my first question. My second question would be, you mentioned the significant negative operating leverage you see. Would this mean that your margin will likely fall then in the single digits maybe in Q3? And maybe the postponement of travel expenses or maybe your reduced operations will result also in lower R and D cost lines. So any more color you could provide here on the development of your cost lines versus pre crisis levels in absolute terms? That would also be helpful with regard to that second question. Yes. Thanks for the questions. I'll take the first one on the decline in April and the split by product lines. So what we learned, and that's the same basically in all countries, that when hospitals stop treating patients, we immediately see the impact on the consumable or the implant side. That's not a surprise, but it is really true, and we saw that, right? So the both IOLs and refractive treatment packs dropped sharply when hospitals stopped treating patients. That's simply the case. While equipment, it's a slower reaction, right? And in equipment, definitely, I hope that things are just postponed. In with the procedures, hospitals really try to somehow treat more patients after the crisis when they have reopened, but they are clearly capacity limits. So they can only do that to a certain extent. So what I'm trying to say is that decline came from all categories, but the implants and consumables reacted fastest. That's basically it. Justus can Yes. So Daniel, this is Justus. Your question was on operating leverage and margin expectations for Q3 and lower R and D potential lower R and D cost lines. Let me first of all, we don't give a quarterly guidance here. So please understand that I you were asking, is our margin going to be single digit or whatever? It remains to be seen. What I clearly would say is that Q3 with if you look at what we shared with you in our presentation, the outlook for Q3 is clearly that it's going to be a challenging one. On the other side, we have, as Ludwin explained, basically three programs in place: the cash protection, where we clearly have a focus on conserving our operating cash flow, keeping it positive, managing our inventories especially. We also look, of course, on our spendings. And we do have the, let's say, the appropriate measures taken When it comes to personnel spending, we have mentioned that we have used for Germany here the instrument of Kurzarbeit. And we besides the personnel expenses, we also obviously cut back on discretionary expenses. So this is clearly a double digit million package in total for the Q3 where we counteract towards what might be the negative impact on the top line. However, there's so much uncertainty that I really don't give you here any indication what it then will ultimately mean for the margin. But clearly, Q3 is going to be a difficult quarter. But I think with the levers that we are taking or have put in place, we will manage robust through the next three months. The next question comes from Mr. Patrick Wood from Bank of America. And two on my end, please. Just kind of curious within the cataract business and specifically on the IOLs, how should we be thinking midterm about the mix between standard and premium? Do you think the change to consumer finances changes that equation for some people? Or is it just that people have already set their hearts on a premium lens and so they're unlikely to change? So that's the first question, outlook for mix there. And then the second question, obviously, you're having to manage your cash a fair bit at the moment, just like everybody is. But more midterm, you're in a far stronger balance sheet position than some others. I guess on the question of M and A, there may be some assets that have become cheaper. It'd be handy just to get a sense of what kind of things you're looking for on the technology side, just a refresher of the kinds of assets that interest you, that would be great. Yes. On your first question, I would not expect that the customer preferences would change very much. I mean one guess could be, well, if consumers have less money to spend, they just go for standard lenses. But honestly, I don't think so. Because this is I mean, cataract surgery, you do once in your life, right, or maybe twice for the left and the right hand eye, and that's it, right? So you think about this carefully, what lens to choose. And I just can't imagine that this will have a big impact here. I wouldn't expect that. For size, both standard and premium IOLs are important. We have grown in the standard segment strongly over the last years, really strongly. But clearly, the premium segment is also a very profitable one. So both segments are important for us going forward. But I wouldn't expect a big change of the market patterns. Yes. Regarding the second question, M and A. I mean I have not seen actually desperate targets being around, which look for acquisition. It's right now, the large players in our industry, they will easily survive this, no question, and they are strong. It's really about the smaller companies, technology companies, as you said. And but even there, right now, they seem to be well financed and somehow manage their way through. But regarding M and A, the same holds as always. We will we are not so much driven by the acquisition price, right? To me, the most important thing is the strategic fit, right? So we really look at what is it that we are acquiring. Will that help us going forward in implementing our strategy? So we look at technologies that complement basically what we have in house that would expand our offering and strengthen our position. And so no strategy change there. We our strategy has always been and again, also no change in this field, our strategy has always been to build around our core strength, to build around the products that we already have, the segments because we understand the application, we understand the customers, we have access to the customers. So it just makes sense to use that and expand by acquiring around these competencies. So we continue to scan markets. And should the crisis lead to availability of more targets, that's fine. And if they are available for relatively low valuations, that's even better. But that's for us not the main driver, to be honest. Super. Thanks for taking my questions. Thank you. And the next question comes from Mr. Alexander Halitsa from HNA. Please go ahead. Yes. Hello. Thank you very much for taking my questions. Most of them were already addressed. But I was wondering if you could provide any more color in terms of your consumables business. How do you see the inventories within your customers at the moment? Is it more or less in line with what you typically would have in a normal year? Or any more color would be appreciated. You are asking for inventories, is that right? For inventories in terms of consumables, so IOLs and, I guess, treatment packs. Yes. Well, there's nothing unusual there, right? It's just that because the consumption has dropped, it's rather more than the level might be a little bit higher, right? But really nothing unusual. So we've used the last weeks and months also to carefully refill stocks, but just to a level that is needed. So for the time being, nothing unusual except that the demand has dropped. And because of that, in the one or the other area, there might be excess stock in our warehouses, but it's really nothing unusual. Okay. That's helpful. And then maybe if you could add any color on the ENTTEC. I understand that it's probably a sensitive topic, but whether you have been able to build on this technology and whether we can expect any commercial products anytime soon. Any color on that? Yes. As always, we don't publish time lines on our R and D projects. But the iNTech acquisition, has been made because the company owns IP and has plans of development of new technology. To some extent, it's public, what they are doing. So it's really exciting technology. There's no news I could talk about for the time being. But I should also say there's no change in what direction ever of the plans, right? So everything is going according to plan. And so we are quite optimistic on that end. Awesome. Thank you very much. Yes. And we have one more question coming from Mr. Scott Bordeaux from Berenberg. Your line is open. Hello, can you hear me? Yes, yes. Perfect. Thank you. Thanks for taking the follow ups. So, I wonder if you could, help us understand a little bit the exposure of your equipment business via the channels, the ambulatory surgical centers or private sector and hospitals, whether you could provide them some sense of both for ophthalmic devices and microsurgery, the exposures of those businesses, please? And also on the equipment business, can you give us a flavor for what the typical book to bill is for these business areas? I guess the nature of this question is if you are seeing order declines currently, which you've explained whether that's more of a revenue impact for your fourth quarter than your third quarter? And last question please. I just wonder if you could comment a little bit about expectations surrounding prospective dividend. You mentioned the use of some government subsidies in this crisis, which is clearly understandable. But does that impact your dividend distribution expectations for the prospective year? Thank you. Yes, maybe I start and Youssef, you can fill in. The equipment business public versus private, I would expect that in the private hospitals, they stick to their plans and their budgets are not reallocated, which might happen in the public sector. But again, too early to tell. So we do not have indications yet that this actually would happen. And so I can only guess here in this field, but there's nothing in particular. Regarding the dividend and Justus, you can take the second question. Regarding the dividend, I can only say that for the time being, there is no clear regulation regarding dividend if you use public monies. So I believe we still have the options, but there's a political discussion going on in Germany, and we don't know how that will end up. In the end, it will be a decision also of our Supervisory Board what to propose to the shareholder assembly, and that decision has not been made. So it's still open long term, our dividend policy. But on the short term, we have to protect our company, and this is why we have to manage our costs and take all options we have to reduce the cost base. So yes, I don't know yet regarding the dividend. Jesus? Yes. Not much to add, actually. As Ludwig said, in the end, it's our Supervisory Board who needs to make that call. On the book to bill ratios and your questions referring the sectors, maybe just a couple of things. First of all, I think what's really important to mention for everybody is factually, we have not seen any single order cancellation or anything of that nature. That's you can, on the other side, argue whether that in itself means all orders are healthy and will be taken as per their original schedule. Fair question. But on the other side, as a clear factual indicator, none of our customers has approached us basically saying that he would walk away. So that's the one thing. The second was on the impact. Of course, again, Scott, that's tough to say. I we would clearly believe that, yes, some of the lower order entry will materialize also within Q3. And with all our assumptions, hoping that then Q4 would actually see then some improvement on deliveries for our equipment, assuming that at some point, the book to bill ratio reverses again. Okay. And so apologies if I didn't phrase the question correctly. But with respect to the exposure, the rough exposure percentages, is your equipment business roughly half hospital, half private sector? Have you any sort of waiting sense for the various different categories? And maybe just very lastly, it's actually quite encouraging to see then some return in refractive correction procedures in Asia. I think you said maybe 70% or 80% volumes down on the prior year. I just wonder, do you have good data here that this is in a sense send out volume rather than stocking volume? Can you track that these procedures are being done? Or is this just a sense of what you're selling out to your end channels in China? Thank you. China, actually, we have good visibility now how many procedures are being performed, right? And so that's we really believe that right now, it's the as we said before, let's say, 80% or so of the procedures are back and being performed. Public versus private, fifty-fifty is probably a fair estimate. But that's a big average. It really depends on the sector. In refractive, it's more private. And in cataract, it's I would say there is also in some countries a lot public. But if you go to The U. S, it's all private. So it really depends. But the average fifty-fifty is probably a good assumption if you want to model a little bit the market. Thanks very much. Mr. Fredericks, there are no further questions in the queue. Okay. So ladies and gentlemen, thank you very much. This was an unusual call about unusual subjects. I hope that next time, we will return to normal a little bit more. I wish you all personally and your families all the best in these times. And thank you for your interest in Carlsbad's Medical, and talk to you after our third quarter. Thanks, and bye bye.