Q3 20/21

Feb 25, 2021

Good morning, everyone, and warm welcome to the presentation of Elekta's Third Quarter in our Fiscal Year 2020, 2021. My name is Cecilia Kittelsen, and I'm Head of Investor Relations at Elekta. With me here in Stockholm, I have Gustaf Salford, Elekta's President and CEO And our newly appointed permanent CFO, Johan Audebeck, who will be presenting the results. Today's agenda start off by Gustaf presenting some highlights of our development. Then Johan will give you details on the financials. And the presentation ends with Gustaf's view on Elekta's outlook. After the presentation, there will, as usual, be time for your questions. But before I start, I want to address our disclaimer. I need to remind you that some of the information disclosed on this call contains forward looking statements. And this can include projections regarding revenue, operating result, cash flow as well as product and product developments. And these statements involve risks and uncertainties that may cause actual results to differ materially from those set forth in the statements. And with that, I hand over to Jukka Stav. Thank you, Cecilia, and welcome, everyone, and thank you for listening in to our Q3 call. To kick off, I would like to present our strategy and our current priorities. Our strategy is focused on precision radiation medicine, and all employees at Elekta are working relentlessly so that everyone with cancer should have access to and benefit from precise personalized radiotherapy. Helping our customers, the clinicians, to improve patients' lives is what we do, and it has never been more important than today during the pandemic. It is crucial that cancer care and radiotherapy treatments can continue also under challenging conditions and lockdowns. Our current priorities are focused on 5 areas: driving resilience and digitalization efforts across the company increased market access to precision radiation medicine globally Accelerating innovation in our linac family, the Unity platform and software solutions across our portfolio and also drive growth and digitalization of service. And finally, We will come back to these priorities throughout the presentation. And if we now turn to a Couple of highlights since the last report. We have seen a strong start for Harmony since the launch in September with great customer interest, And we have received orders in Europe as well as in Asia Pacific. And yesterday, we launched Mosaic 3, our latest version of our oncology informatics system that builds on decades of oncology software innovation to help elevate patient care. We also received the best in class award in U. S. For our Versed HD and Mosaic solutions. And in addition, we were awarded 1 of the world's most ethical companies according to the Etisware for the 3rd consecutive year. In terms of market access, we received clinical clearance for Unit in South Korea, and we have decided to go direct in Egypt. We continue to show resilience, and we are performing in challenging market conditions. Overall, the global market situation improved somewhat in the 3rd quarter. However, COVID-nineteen continued to hamper order intake as the pandemic reached a new wave in some regions and vaccination We're still in an early phase. In total, gross order intake returned to growth with a 2% increase based on constant currency. Strong growth was seen in North and South America and China as well as in MR Linac and the Neuro business. Emerging markets continued to face the greatest negative impact. In terms of revenue, we experienced And unit installations drove growth as well as strong performance in China. Our installed base grew with around 5% on an annual basis, supporting our long term ambition to close the linac gap of more than 10,000 linacs globally. In terms of market performance and growth, we experienced large variations Between our regions. So in summary, North and South America came in at +41 percent in the quarter. Strong growth in North America, but South America was more challenging. The region drove 29% order growth in the 1st 9 months. Europe, Middle East and Africa came in at minus 17% in the quarter So 8% for the Q3. And for the 1st 9 months, the reading came in at minus 6%. And below, You can see some examples of the deals per region. And now to some of our strategic priorities. Innovations in radiotherapy have supported the trend towards more precise and efficient cancer care, a key enabler to continued treatments during pandemic. And we believe that this trend will continue to increase also after the pandemic, for example, the uptake of hyperfractionation. As we also presented in our Q2 call, in order to secure and drive long term growth, we are accelerating innovation. We are focusing on 3 areas: our family of Linux, the Unity platform and software solutions across our portfolio, I will explore these areas on the next slides. So if we go to Harmony, a really strong start, And it is the latest addition to our family of linacs, and it's a solution balancing productivity, versatility and precision without compromise. Treatment slots can be reduced by up to 25%, enabling clinicians to deliver high quality cancer care to more patients. And I'm very happy to say that we have seen great customer interest globally. We have received orders from 5 countries across Europe and Asia, and we are planning for a first installation in Turkey in the coming months. And in relation to the regulatory process, we received C Mark in November, and the process for getting approval in the U. S. Is ongoing, and we expect FDA approval during the spring. The Chinese National Medical Products Administration approval We expect in the beginning of 2022. And now to another amazing innovation, Elekta Unity. We are successfully driving this paradigm shift towards MR guided radiotherapy with Unity in the lead, And it's very encouraging to see the progression of the second phase of Unity and its journey, a phase focused on growth through further market adoption, clinical studies and gradual reimbursement. And we have now built a very powerful and scalable infrastructure for the Evidence development journey with Unity. We have more than 50 consortia sites with 600 researchers. In total, there are now more than 300 peer reviewed articles, And a key component is, of course, the infrastructure in the MOMENTUM study that would run over 5 years, including 6,000 patients. Currently, we have accrued around 1400 patients and more than 150,000 images. And below, you see a couple of the first studies levering the infrastructure. You have the MR ADAPTOR Study at MD Anderson focusing on head and neck cancer. You have the HERMES study at Royal Marsden in London focused on prostate cancer. And you also have the United study at Sunnybrook focusing on brain tumors. So we are very excited to to advance the knowledge and application of MR guided radiation therapy globally. We also see a steady progress in the clinical evidence journey, and here you have a couple of examples from our sites in Utrecht, Juggen and Royal Marston. On the upper left hand corner, we have an example from Utrecht on oligomets with 1 fraction and a high dose of 20 Gy. And this could be compared to standard protocol of around 5 fractions. The second example is around bladder cancer, focusing on full online adaptive radiotherapy even with variable bladder filling. The third example is around markerless visualization of liver mets that are not possible to even see with regular radiotherapy treatments. And the 4th example is around rectum cancer, focusing on margin reduction that is better for organs at risk. As you can see on this slide, it's very exciting to follow what our customers are able to plan and treat enabled with Unity. I'm also very happy to announce that we yesterday launched our newest version of our oncology informatics platform, Mosaic 3. It is an advanced on quality workflow and information management system. It makes the software more user friendly through a more intuitive interface and is guiding customers through the workflow to improve the radiation therapy process. It features automation and simplified user interfaces that will enable clinicians to streamline their work, And this solution provides powerful tools to oversee the patient pathway and enhance consistency and accuracy within radiotherapy. It also means better integration and efficiencies following changes in the hardware, And Mosaic 3 is the base of our new linac, ElectorHarmony. Mosaic 3 builds on decades of oncology software innovation, and it's helping to elevate patient and cancer care. To another priority, driving service growth and digitalization is one of our key strategic priorities. And during the pandemic, we have focused on that our customers can secure patient treatments, We've seen our customer satisfaction reaching all time high. We continue to digitalize our service processes further, And we have the most advanced remote monitoring technology in this industry that dramatically decreased unplanned system downtime. It's enabled, for example, by our logistic platform that's taking predictive measures based on real time data or our Internet of Things platform, Intellimax, that's monitoring global usage and supporting remote support. And of course, several artificial intelligence modules are implemented in the offering. Our remote fixed rate has increased with 12% since the beginning of the pandemic to 64% and we expect it to continue at high levels Now to our most important priority, both from a strategic and a sustainability perspective, and that is to improve market access to healthcare and precision radiation medicine globally. 5 Out of 10 patients require radiotherapy, but only 2 out of 10 have access to it. And we need to change that. We're driving this area forward in 3 key areas. We expand the role of precision radiation medicines by market adoption of new innovations, and we're strengthening our geographic presence in markets with large unmet need. We announced this week that we will start the permanent office in Cairo, Egypt, to address the shortage of radiotherapy delivery systems and software And we will continue to drive education and digitalization efforts. There are many countries that do not have the human resources or the training and competence to use the techniques, and we are finding innovative ways of dealing with that challenge. And we will use the experiences from the pandemic to accelerate innovation and get closer to a world where everyone has access to cancer care. I am extremely proud to see that our installed base of linear accelerators has doubled over the last 10 years, growing with 8% per year over that period. So with that, I would like to hand it over to our new permanent CFO, Johan, to go through the financials. And I would like to say that I'm very, very pleased that Johan accepted to become the permanent CFO, and I look forward to continue to work with him in his new role. With that, over to you, Johan. Thank you, Gustaf. I am looking forward to continue as CFO now on a permanent basis. I've always thoroughly enjoyed working at Elekta and will continue to do my best to contribute to delivering on our strategy together with Gustaf and the management team. I will now go through the financials, starting with net sales and EBITDA margin development. In the 3rd quarter, Total net sales grew 7%, with solution sales showing a strong 9% increase. Service sales in Q3 came in at +3%. Service sales to contract customers continue to grow in line with trend, but sales to non contract customers were impacted by COVID. The strong performance in solution sales resulted in a sales mix of 62% solutions and 38% service in the quarter. For the 1st 9 months, we returned to net sales growth of 2%, with flat solution sales and service growing with 5%. Looking at our EBITDA margin, we came in at 19.5% for the 1st 9 months and 18.5% for the 3rd quarter. I will give some more details of drivers later in the presentation. If I continue with sales, the regional picture remained mixed in Q3. Starting with Asia Pacific, we delivered strong growth of 22%. This was mainly driven by China, which grew more than 30% and Japan, which also grew strongly. Turning to North and South America. We returned to growth with an increase of 7%. North America grew with positive contributions from U. S, Canada and Mexico, while South American markets continued to be challenging. Finally, region Europe, Middle East and Africa. Sales in Europe were stable, while Middle East and Africa reported lower revenue, which resulted in a 7% decline for the region in total. Overall, we saw better performance while emerging markets were more challenging. Gross margin came in at 38.7%, a decline from Q3 last year and the previous quarter, Q2. 2, the lower gross margin is explained by COVID related increases in the supply chain and service costs, The solutions service mix with highest share of solutions and FX effects, mostly from a weaker U. S. Dollar. EBITDA margin increased versus Q3 last year, mainly due to cost control through resilience activities during COVID. Compared to a strong Q2 this year, the EBITA margin declined, this mainly due to a lower gross margin. Net profit increased with 4% compared to Q3 last year, with only small changes in net financial items and with a tax rate of 23.5%. Gustaf mentioned previously our strategic focus And one of them is resilience and digitalization. This is what we have done to keep the cost under control during COVID and stay resilient. Driving digitalization across the company and all areas is an important part of these initiatives. It's also about building resilience for a new normal way of working after the pandemic. From Q4 last fiscal year until Q2 this year, We adjusted our business. This was more of an immediate crisis response, where we incorporated cost saving measures in the budget and operational targets and also speeded up the already ongoing digitalization and efficiency enhancing initiatives. In the Q3, we have continued with good cost control and the development and launch of digitalization solutions. When this phase will end, we do not know, but it will drive permanent improvements when we are back in an enormous situation. So far, we have seen the travel cost decreasing with more than 60% during the pandemic. And looking into our marketing cost, we have a similar situation with around a 50% decrease. Of course, it will not be optimal for organization to keep these activities on such low levels after the pandemic. But with help of digitalization and the new ways of working, our ambition is to continue with a sustainably lower cost base in the new normal business environment. Let's move into expenses for Q3. As a result of both internal and external Activities on digital platforms, expenses are lower than before the pandemic. And as I mentioned before, We are investing some of these savings into improved digital ways of working. Compared to the previous quarter, All free cost items here in the table increased in fixed currency. Compared to Q3 last year, we saw a decrease in expenses. The largest drop is in selling expenses, which includes savings in travel and marketing that we just discussed, but admin costs also decreased due to the resilience initiatives. Net R and D expenses was relatively stable year over year As we accelerate our investments in new innovation, gross R and D expenses have increased, and we have also seen higher capitalization levels from these investments. On a rolling 12 month basis, gross R and D expenses corresponded to 10.5% of net sales. As mentioned earlier, our EBITDA margin for the 1st 9 months was 19.5 percent corresponding to SEK 1,967,000,000. This bridge illustrates the EBITDA growth of SEK332,000,000 or 20% during the 1st 9 months. COVID and currency had a negative effect on net sales, which was mitigated by lower sales and R and D expense. Foreign exchange differences had a positive effect on profitability, with the largest effect coming from a negative impact we had last year. Overall, including the effect on all P and L lines, FX had a positive impact on EBITDA of around SEK 60,000,000. Moving to cash flow. The strong performance continued in the Q3. Cash flow after continuous investments for the 9 month period came in at SEK886 1,000,000. And we achieved an operational cash conversion of 64%. On a rolling 12 month basis, operational cash conversion was a strong 82%. Net working capital decreased slightly in the quarter and compared with Q3 last year, the change was also small. We divested our stake in ViewRay in the quarter, which further strengthened our financial position. Net debt to EBITDA stands at 0.35, And we have a very strong financial position, ensuring continued focus on investments in innovation and expansion. To summarize the financials, we continue to be satisfied with our performance during challenging circumstances. And with that, I hand the word back to Gustaf. Thank you, Jan. I will say a couple of words on the outlook and then summarize the presentation. So outlook for Q4, and this is due to the present uncertainties related To the pandemic, we continue to refrain from giving new guidance. Since we expect the pandemic to impact and disrupt Cancer Care also during Q4 globally. And there will be continued uncertainty for orders and delayed installations. So At the same time, we will continue to accelerate our investments in innovation to secure long term growth. And long term, I'm also convinced that the long term trend supports growth and investments in high end radiotherapy equipment globally. So to summarize the quarter and the presentation, We are performing in challenging market conditions. Both orders and revenue returned to growth and cash flow further improved. Margins were impacted by higher supply chain and service costs, solutions and service mix and FX effects. We saw really strong starts for Harmony, and we see a great customer interest globally. We are successfully driving the 2nd phase of Unity to accelerate the path to clinical evidence and reimbursement. We also launched Mosaic3 yesterday on February 24. And of course, most importantly, we are fully committed to help clinicians saving patients' lives throughout the pandemic. So thank you for listening, And then I hand it over to Cecilia. Thanks, Gustaf. We would like to use this opportunity to invite you all to our upcoming Capital You will get more information as we approach the event. But for now, we would like you to save the date, 7th June, And we need to hold it virtual due to the pandemic. We hope you find it interesting as we will do some deep dives into Elekta. And with this, we open up the lines for your question. Please, operator, over to you. Thank Our first question comes from the line of Annette Luegge from Handelsbanken. Please go ahead. Thank you so much. My first question will be, I know You're referring to say anything about sales growth or order growth in Q4. But could you say that if you see any reasons why it should be lower than it has been in Q3? Also, in respect to installations, how many of the Unity installations? Or are you willing to say if you have made any Unity installations in the 21st century order in the U. S. And to see these as essential to the stimulation of Orders for Unity in the States. Then also maybe with focus on U. S, hyper fractionation Seems to have been the go to strategy during C19. Do you welcome this trend? And how do you See this in respect to MI guided radiation therapy. And do you see a risk Of overcapacity for the regular linacs, in particular, in the U. S. Market? And finally, just a cash flow question. Receivables has improved A lot down €600,000,000 during this quarter. I'm aware Q3 last year was really poor. Should we see this as a Comparison effect, is it COVID-nineteen related? Or are you getting more disciplined in respect to make a cash collection? Thank you. Thank you, Annette. I think I'll kick off and then Johan will answer the cash flow question. But if you look at the impact on order revenue from COVID throughout the autumn and now early spring and winter, I mean, We saw an improvement in the beginning of the autumn in many regions, Europe, for example, and then it worsened quite significantly In the late autumn and in the winter, and we haven't seen that improvement really yet. The same, you could say, for emerging Markets except China, that's really, really strong, lots of market activity, lots of installations, and They have really accelerated out of COVID in terms of our market segment. So looking ahead into this quarter, as I mentioned for the outlook, it is uncertain. And I I'd highlight Europe. We follow it, of course, closely as everybody else. And we see vaccines going out and so But it's too early to say exactly when that will improve. But we have a positive outlook, of course, throughout the spring and the summer due to vaccinations. I think the underlying demand has not changed in any region, I would say. It's still a huge demand, probably larger than before the pandemic for radiation therapy. And there has been a lot of cancer backlogs being built up throughout the world. So Q4, I think, we'll see gradual improvement. That's my hope, but of course, that's dependent On the lockdowns in the different countries. If we take the Unity in the U. S, the big Genesis Care Order, it's going according to plan. We are installing the linacs there, and it's according to the plan we have. So we are Really happy about that order and how it's progressing. And we also get very good customer feedback on How we're supporting those installations in the U. S. Under sometimes quite difficult circumstances under COVID, of course. The hyperfractionation trend has been And just on 21st century, did you install any Unity systems in the U. S? We don't go into specific units installations. But on the question overall on units installation, as we mentioned, there's been a good Contribution and revenue growth from MR Linacs globally. So compared to last year, we are having a nice growth, and that's a sign That we start to get better access also when we have global installation Shanes, like we have for the Gamma Knife and for the Unity. So we are starting to get better access and get to more Normal level of unit in Gamma Knife installations. On the hyperfractionation trend, That has been it had a huge tailwind, of course, during the pandemic because Many of the cancer clinics want to minimize the number of visits to the cancer clinics for the patients. So we've seen a study in The Lancet from the UK where they brought down A lot of patients visits to the clinics due to hyperfractionation, especially the example is breast cancer, but it's an interesting study. And it also shows that some of the cases are treated more surgically with radiation therapy, And that's also a trend we see. And we believe this trend will support, as we mentioned before, SRS, SBRT, Unity, of Thinking into innovations in order to enable faster, more efficient radiation therapy in cancer care. But of course, there will be impacts in the installed base that a lot of customers need to upgrade the installed base. And in some sites, they will be able to get through more patients during the same kind of time slots due to hyperfractionation as we see in the UK during the pandemic. On the cash flow, I leave it to Johan. Yes. So yes, if you look year over year, I agree accounts receivable was down significantly. But it's challenging, I think, to look at individual Working capital items and all conclusions, obviously, as we've seen, we have large foreign exchange effects there. So, I think it's more I prefer personally to look at net working capital, and that decreased, improved with SEK 100,000,000 year over year. I think that's where It makes more sense or you can draw more conclusions by looking at working net working capital and not ARS as an individual Item. And as I mentioned in my presentation, working capital has been much more stable As you can see, I mean, it's a relatively small change year over year. It's a relatively small change quarter over quarter. And That's we passed the Brexit impact we have with very large increases in inventory, also partly due to the Unity launch with the Chinese units we discussed previously. So overall, I would say Working capital improved year over year. It improved quarter over quarter, and that's a key component in the strong cash flow we've had. Yes. We can see that from the numbers. But my question was more in relation to you had in the past sort of Maybe a little less of a discipline in relation to collect your cash. Has that improved? I know it was an issue Q3 Last year. And you have a tendency to collect all the cash in the Q4. So my question is, Have you performed a more disciplined cash collections during the 1st 9 months than you usually do? Or should we also, for the Q4, expect quite a deal of cash collection in that quarter. On the first part of the question, yes, we are performing better on collecting on our Receivables, that's a fact. We've had issues in some markets historically, and we have improved that significantly. And we don't guide on cash flow either, but let me put it like this, it's an ambition To smoothen out the performance of many metrics, including cash flow per quarter. Yes. And I mean, this is the best start of the year we've had on the cash flow side, Annette, and we've been working a lot on the underlying Processes and the collection. And if you remember, last year, we mentioned the service invoices in the U. S, for example, and that we have now fixed. And on the Brexit effect, that was hasn't been any significant, I would say, big effects. Of course, there's many implications of it, but we haven't seen Any dramatic negative impacts over the last couple of weeks months here from Brexit on our supply chain. So that's positive. Thank you. And the next question comes from the line of Patrick Wood from Bank of America. Please go ahead. Perfect. Thank you very much. I have I'll keep it to 2 questions actually. So maybe on the first one, interesting stats on the remote monitoring Side of things. How do you think about that long term? I mean presumably there's a bunch of costs you can take out long term with more efficient use of engineers, which is Supportive of the margin, but is there a risk that customers sort of ask for price concessions on what they're paying on service contracts if there's less of A fiscal element when your margin goes up. I'm just kind of curious to see how you feel about midterm, what that means for your business? That's the first question. And then the second question is, you touched on pent up demand. Just kind of curious how you feel about that factor because The industry has been in slightly slower growth because of COVID. How that could play out over the next year or 2? And then maybe one final one I'll sneak in. Why did you divest your holding in V Ray? Was it functionally just because you feel good enough about Unity that you didn't feel the need to have another MR exposure on that side of things? I'm just curious. Thanks, guys. Thank you, Patrick. So great question and it's a very interesting one, the remote monitoring. So We are up to 64%. That's significantly higher than the last year. And It's a great value for the customer because the customer, they value uptime. They value being consistent in their treatments. Of course, we need to show that benefit to them, but we have a lot of digital tools to do that and reports and so on to sit. So they realize that we fix a lot of For me, that's just the first step in a way of a service transformation that you secure remote monitoring and fixing So I think we have a lot of interesting areas to drive on the service and services side in this industry going forward as well. And I see that as one of the growth factors of Elekta going forward. I'm positive on that trend. And we also have the efficiency on our side. We don't have to send out as many, I mean, Innovation in our service tools like artificial intelligence, like Intellimax to support the trend. So more Digital investments, and I would say, less physical visits of our engineers. And that's what we learned throughout the pandemic, That the customer would prefer that we don't send so many people to the site when it comes to physical maintenance. The question on sorry, the second question was on Pent up demand. Yes. And the third was ViewRay. So pent up demand, we came Into this pandemic, with the market growing 10% to 11%, if you take the overall order intake of all the players in this market. So There is a strong underlying need and growth for the equipment. That is very difficult to say exactly Yes, how the curve back to those levels will look like. But I think there is a big need, and we see it in installed base. I'm often mentioning It's more than 10,000 linacs need around the world, and that's why we're also talking about Market access a lot that will enter into new markets in Africa as we did now with Egypt, also looking in other Emerging markets. And I think that would also drive the growth going forward. But it's too early to say in a certain quarter and so on, but I think we'll see Improvement throughout next year. On the ViewRay side, we saw this as a good opportunity to Divest here a bit earlier in the quarter, early in January. We were part of an offering A bit more than a year ago. Now Vira did another offering in security finances. So we thought it was a good time to exit. But at the same time, we work with driving together with them the paradigm shift of MR Linac into radiation therapy. So we're excited about those discussions, of course. So we just thought it was a good timing to do it here in January. Very clear. Thanks so much guys. Thank you. And the next question comes from the line of Michael Jungling from Morgan Stanley, please go ahead. Thank you and good morning. I have a few questions, please. Firstly, on Unity, can you confirm that you received only One order in the quarter, at least that's what I interpret from your press release this morning. And if that is correct, what is the issue of not receiving More orders in the quarter. Secondly, on order backlog of the SEK 32,000,000,000, What confidence can you give us that this number is still the reliable one for forecasting with a pandemic this backdrop, I don't think you've made any adjustments or impairments for the order backlog. Do you foresee this as something that needs be done perhaps under the new CFO. And then thirdly, on linac utilization, can you give us a sense of what It is amongst your installed base for the Q1, the second quarter and the third quarter. Thank you. So can you the last question was that you said the 3rd? It's linac utilization side. It's trying to understand whether How much your linacs are utilized by your customers for Q1, Q2 and Q3? Just to get a sense of patient throughput. Thank you. Yes. So I will start with the Unity question. Johan can take the order backlog, and then I will come back To the utilization of the linac question. So Unity, you can see in the presentation, Mikael, that we refer to 3 Unity orders, and I can also say there are more orders than that in the quarter, but we don't disclose each and every order throughout this year, as we said previously, but it's not the one. So I'm not sure where you saw that. But you can see a couple of interesting examples in the PowerPoint presentation. On the utilization question On the linacs side, we have talked about it in previous quarter. We saw a decline because we track these machines And the beam on day by day. And we saw a decline maybe around 90% early in the pandemic. It continued for a couple of weeks, maybe months, and then it recovered to 100% and actually over. It was big local variations. So China had a dramatic drop a year ago after the Chinese New Year, And then it recovered quite quickly. Europe had a bit and U. S. Had a bit longer drop, but then it recovered over 100%. And then in some emerging markets, they have not yet still received or got up to 100% again. And I think I kind of triangulate that a bit with patient volumes and what you see in other studies and often is focused on the US and Europe, but you saw that patient volumes went down with around 80% or 2 80% early in the pandemic. But what I can see and what I hear from customers is that most of the clinics are back to 100% currently. And the feedback I get is that you cannot really wait with Cancer Care. You need to treat the patients, and that's not the same for all other diseases and indications. On the order backlog question, Johan? Yes. Yes. So now well, we don't see any Change at all really from the pandemic. I mean, there is a normal level of cancellations. I mean, there is a small, Very low percentage level that we have as continuously, and that's where we are now as well. So no, We have not seen any reason or any indications that the order backlog would not be In any better worse shape than it was when we went into the pandemic. So nothing that would change for that. Okay. Thank you. Maybe I can follow-up sort of on the accounting side. If I look at bad debt expenses, if I go back to 2016 2017 2018, You had bad debt losses and you display them in your accounts. If I look at the last 12 to 18 months, there is no such sort of bad debt losses being recorded anymore Despite the pandemic, can you just comment on what's happening on the bad debt expense in conjunction, obviously, with this very higher accrued income amount And your balance sheet, which is up significantly since last year. So around some sort of color around bad debt expenses and accruing companies? Yes, yes. On bad debt, so similar to the backlog comment, we maybe a bit surprising, we've We've seen very little of it. I mean, it's been we have not seen any significant bad debt or have need to Do any significant bad debt provisions or take losses due to the pandemic either. So far, that's been a Very positive, much better than I expected when we went into this pandemic. We were a bit more worried, but the actual numbers have Been low. Sorry, you had a second question. I didn't catch that. It was just in relation to accrued income. It's going up again. I mean, the receivables amount is going down, but the accrued income is increasing. I was just curious Why that was and hence also in relation to this bad debt question. So maybe a comment on accrued income, why that is going up, please? I would say, I mean, if you it's the unit related mostly, I would say. We had these We discussed these Chinese units, but we have others as well. So that's the key driver of why cruding comes up in the last two quarters. And I think the key thing is to look at the stability in net working capital as a percentage of sales together with the Strong cash flow generation throughout the three quarters and a cash conversion of around 80%. So I think we are Generating a lot of cash. And as Johan has said, we were more worried about bad debt, but we have very strong cash in, we call it, development throughout all our different sales and service regions globally. Yes. Thank you. Really happy about the cash flow. That's for sure. And the next question comes from the line of Christophe Linde Baer from Carnegie. Please go ahead. Yes, thank you. Few questions. First, is it possible to maybe quantify a little bit more the negative factors for the gross margin to really understand what's happening there? You mentioned about the Unity orders. Is it possible to maybe give a figure for how much The new products, including Harmony, is adding to the order growth. The question is because you seem Maybe more excited now about new products than before. And then I just wonder, you mentioned And during the presentation that service to non contract customers were down in the quarter due to the pandemic. I'm just struggling to understand why this is happening now and not earlier in recent quarters. And maybe just quickly, could you quantify the FX impact on EBITA in the Q3? My calculation shows minus SEK 30,000,000. I don't know That's correct. Thanks. Yes. The first one was easy. So that's correct, minus €30,000,000 if you take the 2 different EBITA impact, if you go through the P and L. If I start with the Harmony question, and Johan, you can go Into the gross margin, and I can take the service as well. But Harmony and the new products, I think we're still early days in Harmony, of course. So we have been able to sell it take orders for just a couple of months. So we're happy about the uptake, but I won't say it's a Material part of our growth in the quarter, I expect it to be going forward, but it will replace also Existing linac platforms that we've had like Synergy or Infinity. But it will drive growth, and we also, as we mentioned Before, see higher price realization on the product as well as it should be with all the value we bring to the customer with faster workflows, More software development in MOSAIK 3, etcetera. On the service side, what we have seen is that we have been able to service the installed Base under our service contracts, and we've done a lot of remotely. We have got access to those sites. But then we have a segment of our service that is more what we call time and material when we go out to customers that might not have as much They don't have a service contract, but we still supply time and material. In those sites, we have not received as much access. But if you take the overall installed base and service cost and revenue, then we got better access So that is driving the service costs in the quarter and the service activities. But the impact on the But I mean, this question relates to the I think you highlighted that as a factor that maybe a service was not growing as much as in the 1st and second quarter. Is that the factor or is it something else explaining service is only up 3% year over year? I think, I mean, if you look at it, We had some of that effect already in Q2, and we see service grew 4% in Q2, and it's now 3% in Q3. So there was some of that in Q2 as well, but it's more of it given that COVID came back stronger in the Q3 is the reason Why we're mentioning it now. So it's been there. That's the key driver why service growth is lower Then trend on what you would see from where we have contracts. And then I think what's the question on gross margin Yes. Gross margin of the impact. Yes. Not quantifying, but at least saying that what the supply chain and service cost is the biggest part, it's the solution service mix and then FX. So it's in that order of magnitude when it comes to the impact on gross margin. Sorry, could you repeat that again? Yes. So supply chain and service cost, we said, increases. That's the biggest The largest of the 3, then it's the solution service mix and the smallest impact of those 3 came from foreign exchange. Okay. And do you expect all these three items to remain this negative in Q4? If you look at solution service, maybe not looking forward, but looking back, if you look at that mix in the last Q4s Last year and the year before that, we've had a high level of solution sales. So that's maybe an indication of what we can expect for Q4. The supply chain and service costs are very COVID related. So but we and we are still in COVID, so but but logistics costs and so on, It's difficult to give a forecast, but you're saying that we are still in that pandemic FX is I'm not going to mention talk about that, but we have this to at least some guidance, I think. Okay. And I guess the supply costs, there's no possibility to forward this to the customers? No, it's more I mean, as an example, we still get access. We can still install our products, but everything is more expensive, flying, TELUS logistics costs because of all the restrictions and requirements we have when we are doing these efforts. So we foresee that impact at least for a couple of more months, but then we believe it will normalize when there is an opening up Of countries and health care systems. And when you talk about higher service costs, That's the same, but higher cost to actually do this? Yes, higher cost to actually do it due to more difficulty Of doing business in the regions, but we still I mean, the positive thing is that we get access, but it's more expensive to do those efforts throughout The last 3 months and a couple of more months is what we can see right now. Okay. Thank you very much. And the next question comes from the line of Veronika Dubajova from Goldman Sachs. Please go ahead. Yes. Hi, guys. Good morning and thank you for taking my questions. I have 3, please. My first one is just kind of big picture question on the order momentum. If I look at you In this quarter and this is against a very easy comp from Q3 last year. Your order growth has noticeably slowed down and I think it's in very stark contrast from What we've seen from everyone else in the industry, both kind of within radiation oncology, but also more broadly. So I'm kind of curious how you guys are thinking about Competitive positioning, in particular in that kind of core Linac market, stripping out Uniti and Gamma Knife, It would seem to me that you are losing some market share. So we'd just love to get your thoughts on that. That's my first question. My second question is, can you confirm that there were no Unity orders in the U. S. This quarter? And my third question is, you have In your prepared remarks that you do expect to see sustainably lower cost base once we come out of COVID. Would just love to get your thoughts on kind of quantifying that. You think this is a couple of percentage points? Is this something more substantial? And I appreciate there's a lot of uncertainty. None of us know exactly what the world's going to look like as we get towards the end of the year. But you must have some sense for quantifying that. So if you can help us think through that, that would Great. Thanks, guys. Thank you, Veronika. So I'll talk a bit about the order growth market share, and I will leave it to Johan And to talk about the cost impact going forward. If you look at order growth, I don't think I agreed to the picture. I think we are growing faster than the market if you Look at rolling 12 month basis, but also the last quarter in terms of order growth in kind of oncology segment in radiation therapy. If you take our measure of the market share, we are gaining share on the linac side. That's what we can see in the last quarters. And the unit, we don't disclose any specific market. You have a couple of examples In the PowerPoint, but we will not disclose specific markets and Unity bookings. And with the cost Aspecting going forward, Johan? Yes. Very reasonable and good question, but we will need to come back on it. We're not ready to Point to 5 at yet. Okay. Gustav, can I just follow-up? I mean, not to be kind of Discourteous about this, but you grew orders 1.5% this quarter on a comp of minus 11. I look at Varian comp adjusted, they grew 900 basis points, almost 1,000 basis points faster than you. I appreciate there is some volatility in there. But Looking from the outside in, it doesn't seem to me like you are gaining market share. So I mean, can you maybe give us A little bit more information because on the face of it, it doesn't look like you are actually winning share. I think if we look at the rolling 12 months basis and market of radiation therapy, we are growing faster than Competition. I think for the quarter, and we can say, okay, comparison on EC Comp last quarter, but still we're growing faster than competition in that period as well. And then when you track market share, we internally look more at linac volumes and so on. We see good development in many Going forward, I think it's very important, of course, for us to have the launch of Harmony. And I foresee that, that would be a very positive growth driver in the segment you're referring to, the linac segment. So that's my perspective on that question and the numbers that I can see. Okay. Understood. Thank you very much. Thank you. And the next question comes from the line of Lisa Kley from Bernstein. Please go ahead. Hi, there. A few questions. Just on the back of your announcement about Egypt, what's a portion of your EM territories are you direct And right now versus your local distributors. And perhaps if you could give that split to us sort of ex China and then remind us of what you're set up in China specifically. And then any commentary on margin differences in those regions that you are direct versus distributor? I'm just wondering if you do go more direct over time, What the margin impact could be? That's a great question. So we often talk about distributor share of total revenue. That's how we see it because we have distributors primarily in Africa, APAC and South America. So that would be around 15% of our revenue coming from distributor markets. When we go direct into market, we get access to Service revenue because that's done by the distributor. So then you get a bit of a revenue growth because you add that to our revenue. And you also get that's often good margin business. And then the plan is always to grow Bolster when you go direct than the distributor have done in the past. So you should have a revenue growth impact from it, And you should have a good contribution from going direct. So often, it's quite good business cases to do it. But it needs to be around, I often say, 30, 40 linacs in the market for that to make sense. And the key Aspect of it is the service revenue you get from going direct and often the closeness to the customer and the customer That's absolutely key in these markets. So that's the perspective. And then commentary on just the split and China? So 15% is distributed versus Non distributed markets. And sorry, the split you were after, Alisa, that was gas? Yes. No, that makes sense. That's fine. So for China, it's a direct market for us. So it's primarily Africa. The biggest volume out of those 15% would The APAC countries and then African countries and then South American countries, I would say, in ranking. Great. Thanks. And the next question comes from the line of Stifel Stasjon from Nordea. Please go ahead. Good morning. Thanks for taking my questions. Firstly, on Harmony. Could you Tell us, if the orders you have received in Q3, are those from new customers? Or are they Replacing Synergy and Infinity, Linacs, that would be helpful. And also with regards to the CMD, Should we expect new midterm targets to be announced At the CMD? Yes. So if thank you, Sten. So if I start with Harmony, it is a mix. And that's what I think we can see going forward as well, a mix of existing and new customers. And we it is a product that's very suitable for greenfield markets and greenfield sites. So I foresee that relatively the share of new customers will be high going forward at Harmony. That's a strategy with the product as well. On the Capital Markets Day, yes, we our ambition is to Excellent. Just a follow-up on the Harmony. So of the orders you received, how many of those were greenfields In Q3. I need to get back to the exact percentage there, but it was 5 countries We said in the PowerPoint presentation. Sure. And in terms of number of Harmony machines, is that like 10 or is that 5. We haven't disclosed that specific number. Okay. Thank you. Okay. We are at the hour. So if you have further questions, please reach out to me directly after this call. And we thank you all for listening in and wish you a nice remaining day. Thank you.