Good morning, ladies and gentlemen, welcome to the Carl Zeiss Meditec Analyst Conference six months 2022, 2023 results call. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to your host, Sebastian Frericks.
Good morning, everybody, and thank you for joining our six months, 2022, 2023 call. I'm the head of investor relations of Carl Zeiss Meditec, and with me, as usual, are our President and CEO, Dr. Markus Weber, and also CFO, Justus Wehmer. I will pass over to these gentlemen now to give you some prepared remarks. Afterwards, we look forward to your questions. Markus, please go ahead.
Yeah. Thank you, Sebastian, also a warm good morning, ladies and gentlemen, from my side. Welcome to the 6/22, 23 analyst conference of Carl Zeiss Meditec AG. Let's go to the agenda. Let's just have a brief look. First I will start with an overview of the results. Justus will give you a more detailed view on the financials. Afterwards, I would like to introduce some highlights at the ASCRS trade show that just took place over the last few days. Finally, as usual, also an update on our outlook for the current fiscal year. Then there will be time for you to ask questions, we are happy, actually, to answer them. Getting started with the results.
As we had informed you in our Q1 report and with our pre-release on April 19th. In the first six months, we faced a very challenging environment with a weaker procedure trend in China due to the COVID change for most of the period. A slower than expected recovery of supply chains and amid rising interest rates and rising expenses. Our strategic investment in marketing new products as well as innovation such as digitalization continues, and SG&A based on marketing and research and development expenses remain on a high level. Towards the end of the period, things began to turn around. China demonstrated a recovering during the month of March, in particular. Supply chain conditions are improving, so some operational challenges but still persists. Despite all the challenges, I'm very pleased to report a very satisfying six months results.
In the first six months, revenue reached EUR 975 million, a year-on-year growth of 14%. Constant currency revenue reached EUR 961 million, a year-on-year growth of 12%. Growth was achieved in both SBUs and all regions, in particular in Americas. The device business demonstrated a very robust performance and outpaced the consumable business. Order backlog has been slightly diminished, but is still on a high level of roughly EUR 4,570 million, on which we are ramping up capacities and anticipating a faster progress in the H2 of the year. EBIT margin dropped to 14.8% from 20.7% in the prior year as a consequence of weaker product mix and higher investments. Adjusted EBIT margin was at a 15.3% compared to 21.2% in the prior year.
Our net income reached EUR 113 million, benefiting from positive currency effects on our hedging contracts, corresponding to earnings per share of EUR 1.26 versus prior year of EUR 1.44. The recovery towards the end of the period hasn't fully been able to compensate for the weak start to the year. Product mix is still not as favorable as last year. Conversion of order backlog not yet fast enough, our outlook on the remainder of the year is positive, we expect an acceleration of business. With this, I would like to hand over to Justus, who will provide you with more background and will discuss the figures in more detail.
Yeah. Thank you, Markus, and good morning and welcome also from my side. As Markus said, I'm now going to give you a more detailed overview of the financials, starting, as always, with the performance of our SBU ophthalmology. There revenue came in with EUR 743 million. Compared to prior year, the reported increase was 14% and at constant currency, 12%. Growth was mainly driven by our devices business. As supply chain situation was improving towards the end of the period, our deliveries accelerated and the order book remains still strong. Also, consumable sales managed to grow in a difficult environment, but here in the first six months, mainly driven by our IOLs. As Markus mentioned, we clearly see various factors which affected the EBIT margin.
Weaker product mix due to the slower consumables growth compared to equipment. Heavy investment in strategic R&D projects such as digital surgical ophthalmology, regulatory affairs. Increasing sales and marketing activities such as physical trade shows, advertising and travels. A consequence, ophthalmology EBIT margin declined quite significantly, 7.1 percentage points compared to last year to 12.3%. Let's look at MCS. MCS again delivered a solid performance with revenue of EUR 232 million versus EUR 204 million in the previous year. This represents a revenue increase of around 14% and at constant currency, roughly 13%, which is a strong result given the supply chain strains. Our order book also at MCS continued staying at a strong level. Gross margin slightly improved year-over-year despite rising procurement costs.
Manufacturing efficiency was strong on that high volume, exchange rate remained favorable, we are beginning to see a slight benefit also from better pricing. EBIT margin here is still at a healthy level of 22.6%, down 2.3 percentage points year-over-year, primarily due to higher OpEx, especially R&D investments weighing on the EBIT margin. Let's look next at the regions. All regions contributed to the growth with strongest momentum, this is noteworthy, this time from Americas. Americas achieved sales of EUR 271 million, which is an increase of 28% or at constant currency, 19%, among which, the U.S. delivered 23% growth. Primarily, as you know, this is attributed to our devices business, where we had a good conversion of our strong backlog.
Also Latin Americas, notably Argentina and Mexico, grew significantly above 50%. In EMEA, we noted revenues of EUR 247 million, an increase as reported of 8%, which is the same currency corrected. Core markets remained stable, whereas Southern European countries demonstrated stronger momentum via Italy, Turkey, but also Switzerland were the highlights. Last but not least, Asia Pacific, we achieved revenues of EUR 457 million, which is roughly a growth of 10%, and exchange adjusted roughly 11%. China, including Hong Kong, grew slightly, and that's in particular due to the positive strong momentum towards the end of Q2. India and Southeast Asia also had strong performance and Japan and South Korea are slightly down year-over-year.
Please keep in mind, as we have reported before, that in South Korea, we see a reduction of our premium IOL business resulting from the change in reimbursement policies. With that, let's have a look at the P&L. We notice a lower gross margin with 56.4% compared to previous year dropped by roughly 2.2 percentage points. This is due to the higher portion of device business and the relative slowdown of consumable sales due to the difficult first four to five months in the Chinese market. You know the reasons, first the lockdowns and then the infection waves that swept through China. OpEx are notably higher, mainly impacted by strategic investments. Sales and marketing expenses are higher.
We have expanded our sales force, particularly in the surgical ophthalmology markets in North America. Most of this expansion had happened in fiscal year 2021, 2022. We are also working on several growth initiatives in both the surgical ophthalmology and refractive laser, including investments in product management, marketing and similar sales support functions. Maybe as high as the search appears, if you look at the absolute figures, let me remind you that the sales and marketing ratio actually with this is still 2 to 3 percentage points below our pre-COVID levels. R&D significantly increased due to continuous investment in strategic projects, mainly in the field of digitalization, such as cloud and software development, to build additional features for our workflows, IOL development and rising regulatory affairs costs.
Price adjustments have been implemented across most of our portfolio, but effectiveness is somewhat delayed due to the still elevated order backlog and long manufacturing times. EBIT of EUR 144 million was below previous year's level of EUR 177 million, as already shown and explained by Marcus. EBIT margin is at 14.8% compared to 20.7% previous year, also already mentioned before. Yeah, a quick look at the adjusted EBIT margin, which was 15.3%, below previous year's level of 21.2%. As you know, it's rather small effects related to purchase price allocations related to amortizations on intangible assets in connection with the acquisitions at earlier periods. Yeah. Finally, a short look at the cash flow statement.
Operating cash flow declined to EUR 48 million, versus EUR 75 million previous year due to change in working capital, primarily arising from the ramp up of safety stocks in light of still tense supply chains. Cash flow from investing activities mainly includes payments for property, plant, and equipment. As you know, we have many expansions ongoing of our production capacity for both IOLs and treatment packs, basically all over the world. Intangible assets, here, especially R&D capitalization and acquisition associated payments, are also included in these investing activities cash flows. Cash flow from financing activities are mainly influenced by changes in receivables and payables against our treasury accounts. Net liquidity continues at a high level of over EUR 743 million.
Please note that the dividend payment of almost EUR 100 million happens in Q2 this year, versus in Q3 last year, which is the main reason for the reduction in liquidity. Yeah, thanks for your attention. With that, Markus, I hand it back to you.
Yeah. Thank you very much, Justus, for the detailed view on the financials. Now I would like to share some highlights with you from the recent ASCRS trade show, as already announced. At the ASCRS trade show in San Diego, which took place during the last few days, we presented very exciting innovations. Front and center is the launch of our CT LUCIA 621P monofocal IOL, now being rolled out, and actually we already announced this to you last time. In the U.S. market, CT LUCIA is a very well-established product family in several of our large European and Asian markets, and we are very excited to make it available now for U.S. surgeons and patients. The CT LUCIA comes in a fully preloaded injector for an intuitive, smooth, and controlled injection.
Additionally, the architecture of the IOL is designed to enable easy centering while maximizing direct capsular contact, thus ensuring stability and supporting a consistent position in the bank. The underlying market size for monofocal IOLs in the U.S. amounted to 3.7 million surgeries last year. While it will take time to establish our presence, we are excited to open up this new large market for our consumables. We are also celebrating a new milestone with more than 7 million eyes treated with SMILE worldwide, building on our leading position in laser vision correction industry. Furthermore, we presented VISULAS YAG laser as a modern and compact laser workstation that offers high-precision treatment for safe and effective care following cataract surgery and glaucoma treatment.
As well as the diagnostic device, ATLAS 500, the next-generation corneal topographer capable of the imaging and measurement of the cornea for assessment of various pathologies. The ATLAS 500 provides an intuitive and well-organized interface for efficient operation and workflow optimized visualization. It integrates into both the corneal refractive and our cataract workflow, so very important as one of the cornerstones of our digital workflows. Following the digital cataract workflow we presented at earlier analyst conference, these products are further completion of the ZEISS medical ecosystem to help enhancing our ophthalmic care within the cataract and corneal refractive workflows for improved diagnosis and treatment efficiency of surgical patients. I think a lot of quite exciting news. Let's come now to comment on our outlook for the current fiscal year.
In the pre-release of April 19th, we refined our guidance. For fiscal year 2022/2023, revenue should reach around EUR 2.1 billion. Compared to the H1 year, this implies a significant ramp up in our device business. We are confident in our outlook for future growth beyond the current year, as well as we estimate the market shaping trends to be still fully intact. With the aging population, growing numbers of cataract surgeries, acceleration and prevalence of myopia, and the need to drive both efficiency and quality of outcomes of treatments. EBIT margin is projected between 17% and 20% for the current year, as strategic investment remain on a very high level. Due to the acceleration in revenue, we expect to see some operating leverage in the H2 when compared to the H1.
This year and beyond, we continue to see great opportunities to reshape the market by driving our innovation strategy forward and further expanding our offering of workflows and consumables. This will require continuous investment in R&D, but also sales and marketing. With that, we have come to the end of our prepared remarks on the financials. Let me pass it back to the moderator to take your questions. Thank you so much.
Yes, thank you very much. Ladies and gentlemen, if you would like to ask a question now, please press 9 followed by the star key only once on your telephone keypad. If you wish to cancel that question, please press 9 followed by the star key a second time.
The first question comes from Oliver Reinberg, Kepler Cheuvreux. Please go ahead.
Oh, yeah. Thanks so much for taking my questions. Three FMA. The first one will be on China. Can you just give us more color on the operating trends you currently see? First on Refractive, you indicated that there was a pickup in demand towards the end of the quarter. Is that already stocking for the summer period? Also with the opening of China, have you seen any kind of improvement in terms of demand for the hardware business? Secondly, on a volume-based procurement, can you just provide us any kind of color on timing or procedures that are related to the introduction of VBP for intraocular lenses? Also have you seen any impact on local demand for IOLs in China already? Third question would be on OpEx.
I mean, we have still seen a significant increase, 26% increase on OpEx in the Q2, even 32% for sales and marketing. Can you just be a bit more specific what we should expect for the H2? I guess comps may get a bit easier, but not sure how much of personal cost inflation has already fully impacted your P&L, and you already talked about that the sales to marketing ratio may further went up. Any kind of color where you expect OpEx growth to be in the H2. Thanks very much.
Thank you. Thank you, Oliver. This is Markus speaking. Maybe I start first, and then I will hand over to Justus to give you then the financial details. Maybe starting first with the OpEx and the OpEx development. As I already mentioned, highlighted, also Justus highlighted, we will continue our investments in sales and marketing and R&D, especially here in digital and in the workflow solution development and engineering. This has an impact not only in R&D, but also in sales and marketing, because this is a full transformation of the market, also of the business models.
That really means we are offering a full solution to our customer that has an impact how actually customers approached by sales, especially also the big chains, but also how we cover that with service. That's one thing. The other thing, in terms of digital, we have already heavily invested in that. And we see that the outcomes of the surveys and also the first installation shows us that there is a huge gain in efficiency and also in terms of outcomes, stability and quality, that actually gives us a good indication that our market shaping investments are well done and that there will be, in the mid to long term, a good return.
That means, Oliver, that especially in R&D, but also in sales and marketing, our investments will stay in a high level because we want to shape the market and definitely we want also to keep the innovation pace to make sure that we still win in also in emerging countries, but especially also in countries like China. As you know, with all the decoupling and geopolitical challenges, where innovation is, from our point of view, the key to keep a good presence in the market. With this, we come directly to the VBP. VBP is, to be honest, nothing new for us, because VBP, at least on a regional level, is already something what we are facing, especially for monofocal IOLs.
This is also mainly on monofocal IOLs. It has pro and con. It's not only disadvantages. It gives us also opportunities because it's a little bit the winner takes it all approach. From this point of view, when you are well positioned and when you have a good price level, this helps. Especially also it helps to tighten and actually to shortcut the distribution chain, which is also actually gaining or actually brings some cost advantages to us.
Having this said, there will be definitely VBP coming up, and we will prepare on that, not only in terms of how to position ourselves, but also how to ensure that when the VBP comes for us, that we have the capacities to satisfy then the demand of the market. As I said, then the winner takes it all, so that means big tenders will come in. COVID. COVID, as Justus and myself, as we already mentioned and highlighted.
There was, from a COVID point of view, there was a change, because we actually expected from the beginning that COVID, that there will still zero COVID strategy and politics will remain for at least for the year until COVID is penetrating somehow into the country. This was the reason also that we increased the stock level to ensure when there are lockdowns to cover that. This change in the policy by Xi Jinping beginning of the year, so that actually he opened the entire country at a sudden, then a big infection wave came through China and especially during Chinese New Year.
That has created, I would even call it a kind of black swan event because it was Chinese New Year. Chinese New Year means always that people go to the hospital, especially then for ophthalmology procedures. Most of the people were sick and were not able to go there for procedures. That was actually then the reason that Chinese New Year and the peak season for us in our consumable business was not as high as normally, and that actually also triggered then the ad hoc. Having this said, we believe that by end of now the H2 year, that things are going in the right direction, so that actually everything is now settling down.
We see that this is, actually already happening. You know, nobody of us can really predict what will happen because VUCA world is just increasing. Overall, we are quite positive, Justus mentioned, as I mentioned in the outlook, that there will be a EBIT and profitability recovery. Justus, if you want to.
Yeah.
Your OpEx question, Oliver. I think two things to mention. The inflationary pressures, especially as far as it concerns the payroll, I think there we should have seen most of the impact, plus assuming that overall the inflationary trends seem to somewhat at least now go sideways. However, for the H2 of the year, as you know, our historical patterns are that we typically have a higher expense in sales and marketing in Q3 and Q4 that has to do with there's a lot of variable cost factors associated with commissions and so on. The stronger revenue quarters also therefore incur higher sales and marketing expenses. We clearly will see that again this year.
We also have a bit of a H2 year skewed curve in our trade shows, and therefore, we also see that typically each year giving a bit of a peak in the sales and marketing expenses in the H2 of the year. That would be my answer to your question.
Okay. Thanks so much. Can I just follow up? On VBP, do you have any kind of color on the timing when this is going to initiate? Do you see any impact on IOL demand in China already?
Oliver, it's, and Justus you can.
Yeah.
You can second me. As I said, we see currently on a regional level, there is already VBP established. This is not new. On a, on a national level, if this really comes, this is still open. We have not a full indication that this will be rolled out on a national level. If this would come, we would assume that this would come in 2024, 2025, yeah.
Mm-hmm.
Somewhere in this regime. Again, in China, I think the things what we learn in China is especially that there's always a lot of changes. That means there's always adaptions. We have seen this in the past, and the challenge or the opportunity for companies like us, because we are very well established in China, which is also an advantage, is then to react fast on these challenges and then to turn it in an opportunity. This is exactly what we do. That means we are preparing now with our manufacturing in Guangzhou. We are preparing ourselves to be well established in our national and local production.
We are preparing ourselves with local production capacities in Shanghai and also in Guangzhou to ensure that we can build in local products and local policies. We are also looking for joint ventures.
Perfect. Thanks very much indeed.
The next question comes from Sven Kürten, DZ Bank.
Thank you. First question is also on China. We are hearing from some companies from the medtech sector that local competition and product copying in China is currently increasing. How do you see the risk that Chinese companies are going to copy your treatment packs for refractive lasers? Do you have some technical barriers, like a specific or pack specific coding, which makes sure that your lasers just work with Carl Zeiss Meditec treatment packs? First one. The second one is on microsurgery. The question is, how do you see the current spending environment for microsurgery products in hospitals developing? In most Western countries, the cost pressure is increasing, especially due to wage inflation currently. Thank you.
Okay. Good morning, Sven. Maybe coming first to concern of local competition in China and, I don't know, do you want them to take the second question, Justus? Okay. He's nodding. Okay, good. With the first question, the RTPs. First of all, yes, there are local competition coming up, and I think that for all business fields and markets in China, this is always the underlying plan, yeah? This is also true for MedTech, and the medical technology market. Having this said, and that's exactly what I said before, I strongly believe in innovate or die.
That really means to keep the innovation pace and to make sure that we come up with new innovations which are so appealing and attractive that we are very well positioned and that it's not easy for local competition really to keep that pace. This is not only in technology. Be aware of that, especially in refractive laser correction, that the application knowledge and applicative knowledge of the KOLs is super important. We have a very strong, very good network where we have a good understanding what's the job to be done and how we can convert that in technologies, in workflows, and in workflow solutions. The entire ecosystem combined with the respective devices makes it so unique for us. That's the one thing.
The other thing is, indeed, we have a strong IP portfolio, and the team is continuing to work on that. That's also the reason that for the current competition, not only in China but also worldwide, it's not easy to catch up because of, first of all, application knowledge, but also because of our IT situation, which blocks our competition to penetrate in this technology. Thirdly, it's actually that we also have a license code so that when it comes to treatment packs, that it's not possible now to copy these treatment packs and to use it with our VisuMax. Yeah.
That really means, that our VisuMax has a hard coding to the treatment packs and a clear license program so that we can cover that. With this concerning OPMI, I would like to hand over to you, Justus.
Yeah. Honestly, Sven, can you repeat your question? I'm not sure whether I fully got it. I understood that you are concerned whether tenders may kind of be capped in terms of pricing and that this could put pressure. If you could maybe.
No, no. The question was rather, we have a lot of wage inflation going on in the hospital sector. We have a lot of cost pressure in hospitals. The question is, this impacts the spending for your microsurgery products in any way, currently?
Okay. Yeah, thank you. Then I totally misunderstood it. I mean, what I can tell you is we don't see that in our project pipeline and in the order book so far. That's the short answer to it. I could elaborate, but if that's your concern that basically the hospital budgets for hardware investments are kind of cannibalized due to the wage inflation, it's not an issue that we see on a global scale. Let's also remind you that maybe it's a bit of a German discussion too. The German market is an important one for us, but it is not the most meaningful for the overall growth of MCS.
Okay. Thank you.
Yeah.
The next question comes from Sezgi Oezener, HSBC, and I'm very sorry, I probably mispronounced that.
No worries at all. Sezgi Oezener , HSBC here. Thanks for taking my question. One on order discrepancies. You have quantified it a few quarters ago. How much more do you think we have? A second on VBP, please. You've already mentioned that you went through national VBPs over the few years. Can you maybe give us some color on whether that led to the elimination of distributors in the middle segment and what kind of margin impact that had? Do you think that can be replicated on a national level? One more thing related to that. Given your current market share in China, how much more upside could you do with and without a joint venture in terms of capacity, if you were to win this tender?
Okay. Good morning. It's me, Marcus. Unfortunately, it was really hard to understand you, so we will try our very best to answer it. Otherwise, please correct us and give us a maybe a better indication whether we are on the right path, what you would like to know. What I understood now in VBP was, or that you asked, is this, do we see a kind of margin erosion in the VBP currently, which may affect this or which would be engraved by a national VBP? The VBP, as I said before, has its advantages and disadvantages.
I think what we see is that the distribution channels, what is normally necessary to go to the customers and actually to activate it and then maybe to go to dealers and so on, it's shortcutted. That means our sales and marketing expenses are reduced. On the other hand, the selling price, because of VBP, is also reduced. That means that's a kind of competing effect. For us, what we see, and Justus, you can give them in more detail, but we don't see now a big margin erosion in this regard. More to come because it's now really a process which is just established, and we will see how this will continue.
Once again, we really believe that we are very well positioned also with the partnerships and with the local production, and be aware of we are the only Western company who has local production here. From this point of view, we are well positioned for the future. Not today, but for the future, to be able to serve this important market.
Yeah. I mean, the only thing I can add is that factually, I can confirm that the VBP that are already in place have not been at our expense, so to speak. Checking our margins on those products, we clearly can see that we have been able to defend them. However, at the same time, going forward, you know, there's still a lot of uncertainty on the modalities on these nationwide tenders will work and, you know, let's look at it once we have more details on this, yeah. I don't rule out that for a nationwide tender, of course, the impacts might be bigger.
My biggest concern is rather, you know, if it is a winner takes it all kind of tender, then the question is how do you operationally prepare for that? I mean, we're talking about China, yeah. I think everybody understands that this is massive if you win such a tender. It's also massive if you lose it. Yeah. I'd say that this impact is potentially even more meaningful than the question, how much margin we may lose once we win a tender. Yeah.
Okay. Please forgive me, but can you repeat the other question again? It was really loud.
Sure. Sure. Sorry for the acoustics a moment ago. The other question is on destocking. You had given us a number a few quarters ago. How does that number look now? Actually my first question was, you understood pretty correctly. Thanks for the answer. Just wanted to check if national tenders override the previous regional VBP deals.
Okay. so maybe
On the, yeah, on the, on the stocking, I think you're referring to the RTP stocking. I think we are slowly progressing. As I said, the pick up in the Chinese demand was mainly only kicking in late in the Q2. That's why I say by now there's only a minor change. The H2 of the year is the more meaningful one and with the highest summer peak season. I think we can have a more meaningful update once we are behind that.
Concerning the VBP and the national versus regional tenders, as I mentioned before, we have not seen national tenders so far. The regional tenders are increasing, and it might be if the Chinese government sees that this is not efficient and is not supporting their strategy, then it can really happen. We have seen this also in the past, that they are changing this directly again, yeah. I would not say that this is written in stone that it will happen. Again, Justus Wehmer mentioned that very nicely. The biggest challenge for us is this winner takes it all thing.
Mm-hmm.
In both directions, because on one hand, if you don't make or if you don't win, then it's bad, yeah. Then at least some of the IOLs, because it's also clear it's not all of the IOLs. We are talking about the governmental funded IOLs, not the private funded, and 50% of the business goes actually in private hands. That's the one thing. The other thing is then that's when we don't get a business. The other thing is, if we get the business, then we need the capacities, and that's the reason that we are building up capacities around the world actually to have a full network, that we can provide, let's say, stability.
Some of the countries have peak tenders coming in because of the change of their procurement of these things. It could also, for instance, happen in India and other big countries.
Okay, thanks very much. Very helpful.
The next question comes from Falko Friedrichs, Deutsche Bank.
Thank you. Good morning. I have two questions on China first. The first one going back to VBP, how likely do you think that the refractive laser business could also be included at some point? Is there any sort of indication for that at this point in time? My second question on China is, can you provide a bit more color on procedure growth at the beginning of Q3, so in April, essentially? My third question is on your EBIT margin going into Q3 now. I'm aware you can't say too much about it, but is it a fair assumption that you should be at least back within your guidance range in the Q3 on the EBIT margin? Thank you.
Good morning, Falko. This is Markus speaking. I will take.
Falko .
Falko, sorry. I will take the first, I will take the first question, and Justus will cover the second and third. Concerning RTPs and whether this falls under the VBP policy. Hard to say, Falko, but we believe this will be not the case because the license, or let's say the RTPs are heavily connected to the installed base of the refractive lasers. That means the Chinese government cannot change just that RTPs because then actually there's installed base and they don't have actually then the lasers installed. Yeah. This is first.
Actually the main number of the procedures are paid by private, so this is not reimbursed now by health insurances in that way. Overall, we believe that the RTPs of the refractive business as we know today, it's also clear, is not affected by this. Okay. Falko , you were asking about procedure growth in April. I mean, obviously, I can't disclose here any figures. What I can tell you is that the positive momentum that we saw kicking in in March is certainly continuing. I'd say I leave it there, but I think it gives you an indication that we see actually now the positive impact of a country that has abandoned the lockdown policy.
The clinics are open. The utilization per laser are on very high levels. Or should I say, all the ingredients are there, that there's capacity and a higher installed base than ever before because even, you know, throughout the last year, of course, we could grow our total number of lasers. I think the third data point that may give you a little bit of confidence is that actually consumer spending in China is on record levels.
Yeah, you can read that, you know, after these awful years in China of people basically being deprived from any, how should I say, social, and personal, you know, entertainment, that there apparently right now is a big, how should I say, return of people spending their money on things that they just enjoy. We see that also bringing patients back into the clinics to get their eyes lasered. Yeah, so that's maybe my answer on your second question.
EBIT margin, I think the short answer is again, you know, considering that this quarter is one where In the end of this quarter, where we should see basically the first signals of the summer season, I would think, yes, you, we should see some then return of the EBIT margin to levels that are, you know, bringing us into our guidance. Yeah.
Okay. Thank you.
The next question comes from Graham Doyle, UBS.
Morning, guys, thanks for taking my questions. Just a couple from me. Firstly, just on the margin, not so much this year, but when we think of 2024 and over the midterm, you've obviously previously talked about a margin of at least 20% as being sustainable. Just when we think of the headwinds this year being mix and supply chain and a lack of pricing in terms of raising prices through the order book, it sounds like those things should all improve next year. Is it reasonable to think that the midterm guidance is a central starting point for 2024? Then a second question just around the US business and how you're getting on in cataract and phaco.
Be good to get a bit of an update there in terms of placements and just market momentum. Thank you.
Hey, Graham. Good morning. This is Markus. Yeah. Maybe start with U.S. and cataract business and then handing over to Justus concerning the guidance, the mid and long-term guidance. As we actually also reported last time, Graham, there's no big change in the overall situation. That means we have the phaco, the QUATERA installed at KOLs. This is progressing well. Now with the Lucia, now actually registered and launched in U.S., we can start now to bundle these things. That's the next step. With the cataract workflow solution, this is then the third step.
This combination will help us then to penetrate the market and to win on fair market share. What is also clear, Graham, is this is nothing what will happen tomorrow because this is a very mature market, well established. The big competition is there. And it's definitely... I think we have a good, let's say, portfolio to attack the market and to win there. Nevertheless, there's a very, let's say, good installed base and also a good competitor power there. And this is definitely something a long way to go.
I really want also here in this group, I just want to make clear that we are not expecting to have that in the next half year now done, and that this will surging like how that we see big growth numbers. Again, this is a penetration which will start and which will then accelerate. This is exactly what we have planned and where we are on plan.
Yeah. Okay. On your margin question, Graham, I fully understand that you was expecting that question actually. Actually, if you wanna have a confirmation here, bear with us for later this year until you get a final answer. The reason is simply that, you know, the uncertainties that we see right now are still big, and at the same time, and uncertainties, I mean, we have inflation pressure. As you know, we are currently trying to set up our supply chains, which is costing more money than we would have hoped for. And we have the ramp ups in basically all our production sites. As Marcus put just quite.
Extensively elaborating on China and the preparations for being ready for those nationwide tenders. That means we have to invest heavily not only in R&D, as Mark has mentioned, but also basically in our capability to cope with growth under I would call it under changed circumstances, you know, with more complex export laws, with more regulations on what is local content and so on. That was not part of our previous assumptions when we gave these guidances of, you know, in the midterm, sustainably above 20%.
We kind of have to reassess once we are back to a new normal, and have kind of consumed the inflationary pressure impacts that are right now, distorting somewhat our capability to assess what is our new normal typical run rate. You know, we simply need some more time to understand where this folds out to, and then we come with the precision, or more precise statement on our guidance. Hope you understand the reasoning and have the patience to wait until later this year.
Okay. Thank you very much, guys.
You're welcome.
There's one, follow-up question coming from Oliver Reinberg, Kepler Cheuvreux.
Yeah. Thanks very much for taking my follow-up. Just on the last one, effectively you're going to review your midterm guidance later this year. That's what I understood correctly?
Yeah.
Okay, perfect. Understood. Three other quick questions. Firstly, on the U.S., I mean, it's quite encouraging to see really 23% growth in the U.S., which we haven't seen in a while. Can you just provide a bit more color what kind of product groups were driving that, and whether it's just order backlog conversion or also generally stronger demand? I guess so far this was not supported by the CT LUCIA or QUATERA. Second question, please. You talked earlier in this call about your willingness to defend IP on refractor. J&J obviously got the approval for their ELITA system. Can you just confirm, have you taken any kind of IP action on that kind of approval? Third question, thanks for the color on the order book, which you disclosed standing at EUR 573 million.
Can you just give us any kind of color how that compares on a year-on-year comparison? Also whether you expect most of this to be converted into sales in the H2, or whether it will more likely spill over into next year. Thank you.
I will take the question with IP and J&J, and Justus will answer the other question. Oliver, J&J, I hope for your understanding that we cannot disclose any IP litigation activities with other market contributors. This is then definitely something what we bring to the news as soon as there's something to report. Nevertheless, and that's also clear, we are we will defend and being really active in making sure that we keep our position. We are investing heavily in IP, and it's clear that this is something what we even have accelerated in ref now to make sure that we are well established here.
Secondly, that's also quite important, I mentioned that already before, Oliver, it's not only the technology. The refractive business is also a lot about parameters, a lot about procedures and how to run the procedures and how to train, actually the users or our customers. This is really something where we believe, and I think numbers are showing this, that we are leading here in the market. That means even now with the new systems coming in from Ziemer, SCHWIND or J&J, these systems still have to show the clinical accuracy and quality and outcome in comparison to us.
Here we really believe that also the launch of our VISUMAX 800, which will be then also registered and will have a market launch then in the big countries, that this is then also manifesting our market leadership in refractive. Having just that, yes, it's a competition and, you know, I always see in challenge also opportunities. It shows us that our procedure is the leading procedure and that competition is moving into this procedure because they realized that this is quite more effective and relevant than LASIK.
This is something where we are actually keep our investments, and that's also one of the reasons of the high R&D quotas, that we keep our investments here, being very aggressive in the markets, and winning there and making sure that we have a strong installed base, even if this means or that we have maybe for a given time to reduce a little bit the profitability here to make sure that we have a strong installed base here.
Okay. I think there's a question on the order book left, Oliver, that compares to last year basically, on the same level, yeah.
As Markus said, as we have communicated earlier, it is tough for us with the instability in supply chains, to basically significantly reduce that order backlog and at the same time, of course, also continuing to have a good and solid order entry. Therefore, not a big change
We hope that in the H2 of the year, with the expectation of more stability in supplies and with the beefed up capacity that we have or are putting in place, that we then hopefully can start to reduce that backlog. That's at least our expectation. I hope that covers your questions.
Perfect. There was just a question on the U.S. dynamic outstanding.
Yeah. I can make a couple of comments. You are absolutely right with your assessment. It's obviously not yet a consumables influencer here in the U.S. It is indeed mainly our device portfolio across the board, I have to say. It's not only the diagnostics, it's also the microsurgical portfolio and in general the ophthalmic microscopes. Across the board, we have basically transferred and converted orders and some of the backlog now finally into revenue. That basically explains that very good development.
Okay, perfect. Thanks so much for your time.
Yeah. Thank you.
The next question comes from Oliver Metzger, ODDO BHF.
Hi. Good morning. Thanks so much for taking my questions. The first one is on your EBIT margin guidance. It's the 200 basis points still a meaningful range, despite H1 is already known. Basically, it implies a higher volatility or risk for H2. Can you comment on the most important swing factors which drive you to the upper or to the lower end of your guidance? Second question is, you mentioned already that the momentum continued also in early Q3. How should we think conceptually between the phasing between Q3 and Q4, please?
Yeah, Oliver, no problem. The swing factors are mostly what we discussed throughout this call. Obviously, China has always the potential to be extremely meaningful from its growth contribution and product mix contribution to our bottom line. To remind you all, basically, you know, Asia Pacific accounts for half of the group's revenues, and within that half, basically China then again accounts for roughly half of it. Yeah. That is the kind of the volume and powerful impact that the China business can have on us. Let's now say, you know, in the best case, China will see now an unaffected, strong recovery in business. A lot of high consumer confidence and willingness to spend money.
As I said before, now our installed base is bigger than before and the utilization rates are up, and not all the lasers in China in the last years have been always at their maximum capacity. That provides a lot of opportunity for potentially a very strong H2 of the year. That could certainly bring us then to the higher end of the guidance that we gave. The other factors, of course, the supply chain. The faster we get stability, the faster we can ramp up our monthly run rates for the big, meaningful in terms of ASP devices.
That again, will then also mean that, as I elaborated before, that we can start to really, not only serve the incoming orders but also reduce the backlog. Both factors certainly have the potential to bring us then, to the higher end of the guidance. I hope that, answers your question.
Yeah. One quick follow-up. Would China be potentially give you enough business really to reach the upper end, or is it that you really need both factors to reach the upper end?
I mean, again, you know, it's a very, kind of, theoretical discussion here. You would need certainly both being in stable conditions, so both the supply chains, and China not being affected by any other major setback. Yeah, I'm sure that's it. Obviously we would also need other markets in the world to continue to prosper. Yeah, that's. As I said, in terms of the existing order backlog, being strong and the order entry that we overall see, still on a solid level, the ingredients are there.
Okay. Thank you. My second question regarding phasing Q3 and Q4, please.
Excuse me?
My second question regarding the phasing between Q3 and Q4, please.
You're a bit hard, tough to understand. Could you try again?
Oh, sorry. My second question was, you said momentum continued in early Q3, how should we think about the phasing between Q3 and Q4?
Well, I mean, the historical patterns, you can trace that typically, Q3 and Q4 are, for various factors, the strongest quarters in our fiscal year. The one factor is certainly the peaks for the consumer business in some Asian markets. The second one is that, you know, there are for hardware, budgetary reasons, also peaks in the deliveries or taking deliveries of devices until end of September. That both together typically leads to a strong momentum. I think in all the years that I remember for Meditec, therefore Q4 typically is the strongest revenue month. Right now I have no reason to believe that it would be different this year.
Okay. Thank you very much.
At the moment, there are no further questions. If you would still like to raise a question now, please press 9 followed by the star key. It looks like there are no further questions. I'd like to hand back to the speakers.
Okay. Thanks everybody for joining and the discussion with you on our conference call. We look forward to catching up with you again in August. Until then, we look forward to speaking with some of you on conferences and meetings, and please reach out to the Investor Relations department if you want to speak with us in the meantime. Thank you very much. Everybody, have a good day and rest of the week. Bye-bye.
Yes. Goodbye. Cheers.