Negative Points

• Elekta AB ( EKTAF ) experienced a 2% decline in net sales in constant currency, falling short of its full-year guidance and highlighting ongoing challenges in achieving top-line growth.

• Sales in China declined significantly due to weak order intake from previous years, which depleted the order backlog and impacted Q1 installations.

• The APJ region underperformed expectations due to constrained healthcare budgets and capital investment, with specific headwinds in Indonesia, Vietnam, and a slower-than-expected recovery in Japan.

• TIMEA region saw a 4% decrease in sales due to installation delays in neighboring countries of Iran, which stalled revenue recognition despite a solid underlying outlook.

• The company faced a negative currency impact on net sales and margins due to the strengthening of the Swedish krona against major revenue currencies like the US dollar and euro.

• Elekta AB ( EKTAF ) continues to face headwinds from higher COGS inflation, including elevated tungsten prices, and a more prudent accounting approach for R&D expenses negatively impacted reported EBIT by 190 basis points year-over-year.

Q & A Highlights

Q: Can you elaborate on the order growth in the US following the Elekta Evo launch, and how should we think about the top-line growth trajectory for the rest of the year? A: CEO Jakob Just-Bomholt confirmed that US order intake is developing as planned with "very solid double-digit growth," though specific numbers were not disclosed. He reiterated the company's full-year guidance of 2% to 4% net sales growth in constant currency, stating that while Q1 saw a 2% decline, the company expects positive growth in Q2 and for the first half of the year. The CEO emphasized that the order backlog supports the revenue guidance, with the US expected to be a key contributor as Evo orders begin converting to revenue.

Q: What is driving the revenue decline in China, and what is the visibility for order intake and conversion in the coming quarters? A: CEO Jakob Just-Bomholt explained that the revenue decline in China is a reflection of weak order intake from one to two years ago, which has depleted the order backlog and impacted Q1 installations. However, he noted that the company has seen three consecutive quarters of good order intake, which is why they expect "solid revenue growth" in Q2. The market is recovering from the anticorruption campaign, and Elekta maintains a market share of approximately 35% in China, with a win rate of over 50% in centralized procurement bids last year.

Q: How sustainable is the gross margin improvement, and can you rank the importance of pricing, software/service mix, and structural cost savings? A: CFO Klara Eiritz stated that the service-to-solution mix was "considerably favorable" in Q1, and pricing is an important lever for both services and solutions. The new operating model has resulted in a lower cost level that is expected to be maintained. CEO Jakob Just-Bomholt added that new pricing frameworks are gradually flowing into gross margin, and the company has been "positively surprised" about service and order fulfillment costs coming down as regions take full ownership of their P&Ls. The gross margin reached 42.6% in Q1, up from 37% last year, though this included a SEK53 million one-off tariff refund.

Q: Why is there no change to the margin guidance given the anticipated tariff refunds, and what is the outlook for gross margin for the full year? A: CFO Klara Eiritz explained that the company maintains its adjusted EBIT margin guidance of 12.5% to 13.5% because there are offsetting factors, including tungsten prices and FX headwinds. The tariff refund situation was uncertain when guidance was set, and the company expects a second and final refund of around USD3 million in Q2. CEO Jakob Just-Bomholt noted that the favorable geographic mix in Q1 (with growth in higher-margin regions like Americas and Europe) and a higher service-to-solution ratio contributed to the strong gross margin, but the company does not guide on gross margin specifically.

Q: What is the current run rate of the savings program, and how is the company's market share in China evolving amid increased local competition? A: CFO Klara Eiritz confirmed that savings from the new operating model are "well above" the SEK500 million target, with the company at full run rate speed as of Q1. CEO Jakob Just-Bomholt added that headcount has been reduced from 4,500 to below 4,000. Regarding China, he acknowledged that market share has declined from around 40% historically to the mid-30s, which aligns with the company's strategy update. Despite intense rivalry, Elekta remains the market leader in China, and the company continues to adapt its product portfolio, including local software, to maintain competitiveness.

Q: How should we interpret the order growth dynamics given the stricter order acceptance criteria, and can you quantify the impact on Q1 orders? A: CEO Jakob Just-Bomholt declined to quantify the impact of the stricter order acceptance criteria, stating it would be "flaky to do so." He emphasized that the company applies the criteria consistently and is committed to building an order backlog of "sound quality." The CEO noted that while some orders that would have been booked under old criteria may have slipped, the company errs on the side of being prudent. The book-to-bill ratio for Q1 was 1.11, with order growth of 3%.

Q: What are the specific pressures in the APJ region, and how should we expect trends to evolve through the rest of the fiscal year? A: CEO Jakob Just-Bomholt highlighted specific challenges in Indonesia (a large government tender subduing the market), Vietnam (anticorruption clampdown making the market cautious), and Japan (slower-than-expected recovery). He expects APJ to remain soft in Q2 but anticipates acceleration thereafter. The CEO expressed confidence in the long-term outlook for APJ, noting it is a "hugely underserved market" where radiotherapy is highly cost-efficient, and Elekta has maintained a "very respectable market share" despite the temporary market downturn.

Q: What is driving the inventory buildup in Q1, and is it related to raw material inflation or finished goods? A: CFO Klara Eiritz stated that the inventory buildup is "both" volume-driven and includes some raw material and component costs. The company experienced a seasonal buildup of inventory, which was higher than last year, negatively impacting working capital by SEK318 million. Free cash flow before dividends and M&A improved by SEK154 million year-on-year to negative SEK266 million, driven primarily by improved EBIT of SEK176 million.

Q: Can you provide more color on the US reimbursement situation and its potential impact on the market? A: CEO Jakob Just-Bomholt noted that while it is still early days, the first proposals indicate a reimbursement increase of up to 5% for freestanding centers and 2.5% to 3% for hospital systems. Last year, the reimbursement environment was a headwind, but if this is partially reversed, it would be a tailwind for the market. The CEO also highlighted that the reimbursement changes continue to support adaptive treatment, which incentivizes more complex treatments and is positive for Elekta.

Q: What is the company's view on centralized procurement in China and its impact on pricing and market dynamics? A: CEO Jakob Just-Bomholt acknowledged that centralized procurement will lead to increased price transparency, which works both waysit disciplines market

For the complete transcript of the earnings call, please refer to the full earnings call transcript .