Elekta's CEO Hosts Capital Markets Day 2013 Conference (Transcript)

Jun.12.13 | About: Elekta AB (EKTAF)

Elekta B Shs (OTCPK:EKTAF) Capital Markets Day 2013 Conference Call June 12, 2013 7:00 AM ET

Executives

Thomas Puusepp – President and Chief Executive Officer

Kevin Brown – Global Vice President Scientific Research

Håkan Bergström – Chief Financial Officer

Jay Hoey – Executive Vice President

Ian Alexander – Executive Vice President Europe & AFLAME

Gilbert Wai – Executive Vice President – Asia Pacific

Analysts

Patrik Ling – Nordea

Justin Morris – Bank of America Merrill Lynch

Kristofer Liljeberg-Svensson – Carnegie Investment Bank AB

Mattias Häggbloms – Danske Bank Markets

Johan Unnerus – Swedbank

Ian Douglas-Pennant – UBS

Justin Smith – Swedbank

Mattias Häggblom – Danske Bank

Mikael Lindell – Svenska Handelsbanken AB

Johan Andersson

Ladies and gentlemen welcome to Elekta’s Capital Markets Day 2013 here in Stockholm. My name is Johan Andersson, Director, Investor Relations and moderator for today. Here in Stockholm, we have a record number over 100 participants and in addition to that, I would also like to welcome everyone that is listening in over the telephone or over the web.

And I would just briefly go through the agenda for today. We will start with a presentation by Tomas Puusepp and Kevin Brown, then continue with Håkan Bergström, and then have a Q&A after that first. Look, we will then have a coffee break, coffee will be served outside, and then start again around 2:20 with the regions that will be presented by James Hoey, Ian Alexander, and Gilbert Wai. We’ll then have a conclusion and a final Q&A session. And we’ll try to be down at around 4 O'Clock.

So with that I would like to welcome once again everyone and give the word to Elekta’s President and CEO, Tomas Puusepp.

Tomas Puusepp

Thank you very much and then again warmly welcome to our Capital Markets Day 2013 and really great to see all of you here despite the beautiful weather out there. Anyway, I’m very pleased and very proud of what our team has been able Elekta to perform also during the last fiscal year.

So number of activities, which I think has been the extraordinary growth. One is that we have actually launched some superior technology the Versa HD, which actually have a great success in the marketplace. We are continuing to be the number one leader in the emerging market, and we are definitely number one in Europe and Asia Pacific, and we actually continued to strengthen our position in this region as well.

We are growing faster than compared to Asia and we are also have been able like to do in the last eight years the consecutive years Elekta grow significantly both on top line, but also on bottom line, and this next slide here would demonstrate that. So actually during the last eight years, we have been growing by 16% on net sales. As we can also see, we have Elekta also been able to increase the recurrent revenue portion of the total revenue and that is one important component also to improving our EBIT margin for the Corporation.

So if you look in the EBIT development during the last eight years their compound average growth rate of 24% which I think is a pretty styler performance. As you probably know, eight years ago, there was one dominated player in the market, and there was Varian, and we had – and also about 12 companies around at that time on this similar level, success at that time. But it was one dominated player.

And what we have been able to do during the last eight years is, taking us from a relatively small player in the radiation oncology field, because already then we were actually dominating player in the neurological disorder, but actually to move us up to a 40% market share on new orders in the marketplace, and I think that’s a pretty interesting development of the Swedish company to really take that grip on the market, and really provide excellence in the marketplace by actually distributing value to the patient. So I will come back to that, and you will hear more also from Kevin Brown, who is someone new, and Dave will be looking into.

Okay, so when you look into the aspiration, you can see also on the (inaudible), today, 1 million patients are treated with our clinical solution. 100,000 patients get in touch with our software solution everyday. So we start to collect incredible number of all statistics also in our Oncology Information System, which we are able to – really to use little bit more to create some additional value also for our users today, but also years to come.

So if you’re looking in general, we can definitely see that radiation growth playing more and more significant role in cancer care. So when I started 30 years ago in this field, actually radiation therapy was just a palliative treatment, just to kill the pain, but not really to cure. Today, the majority of radiation therapies enrolled is actually curative treatment.

And how can that happen, and I think actually Elekta has played a very, very important part of that, because if you look in all modern radiation therapy, Elekta has actually introduced stereotactic radiotherapies, stereotactic radiosurgery, image guided radiation therapy.

So it’s combining the image with the treatment unit is most really something which made huge difference that you can actually see what you would like to treat, and you can do with high precision. So that is definitely one area. The other area is of course to make it accessible, to really ensure that for example in the emerging market get access to that, and that’s training and education, and we train about somewhere around 3,000 to 4,000 people around the world actually in this particular field.

And of course, what is not – maybe that good is actually you see more and more cancer patient because we are growing older, and when you have older population, you also can see more and more cancer. 60% of all cancer occur by the age of over 60 years of age. So when you look into age distribution, particularly in the emerging market, we’ll drive actually cancer need or need for cancer therapy significantly in the near future. So when you’re looking a strategic agenda until 2015, 2016, we did give you some heads up about that order the last year, but additional so by 2015, 2016 that we will grow by 40% in local currency.

And the reason for that is, we definitely see an high share of cancer care in emerging market drive it to-date 35% of our turnover is actually in the emerging market to see a definitely a continuous significant growth in that region and also technology leadership. And as I mentioned, we are always been the leader in the image guide as we continue to develop, we’ll hear more about that also from Kevin Brown, who will talk about some very exciting new product and stereotactic radiotherapy and stereotactic radiosurgery.

So that is where we’re focusing quite a lot of our R&D spending, that’s where I think we have done a significant contribution in the market. Two weeks ago, I saw United States and I met several hospitals, and if you look at stereotactic radiotherapy, they told them five years ago, it was almost zero, today it’s actually 20% of the patient. So we really have an impact in that particular field, so that is a mature market.

So and so, when you’re looking into some answer (inaudible), it’s a couple of areas where you definitely see the reason for it, total of the image guidance, you talk about precision, motion management, but also safety. So all these components are really taking us where we are today and that we’re actually significant player in this field. And it is a very cost efficient solutions. We do see that growth in the mature market, but also in emerging market, so when you look into emerging market then they’d like to expand the cancer therapy. They all of us, not all, but the majority of the cases, they actually have radiation therapies, one of the major areas of the investment.

So when you look into the mature market, its several independent peer-reviewed articles published actually during the last two years by the demonstrates that at least 50% all cancer cases should get radiation therapy. And of course, emerging is far off, that is not the – even close to that, but it also when you look in, I mean it’s not a desiccate the mature market, we will also find several competitors and large competitors, where you are far off from that level. Japan is one, UK, which is something but here is one, and (inaudible) another one. So even in mature market, it’s not fully penetrated at all. So there is much more to do. So and of course, when you look into our performance and our growth, a big part of the growth is definitely coming from the emerging market, and we have do in last few years have the compound average growth of 26%. And we have a leadership actually in the majority of the emerging market and we continue to do that, we invest a lot, we have – we will continue to invest one of the key success factors there training and education. We’re actually developing training centers throughout the world emerging markets to ensure that we provide also not only the best product which is adapted to their needs, but also a tailor shaped training education program for their area there, and as you might know it’s also the incidence of cancer is different, the type of cancer is different, you cannot just copy what we are doing here is we can’t copy that for that example to India because mouth and throat cancer is significantly higher than prostate cancer for example.

So it is actually the one of the success factors is that we have a pretty good understanding both about the demographic and emerging market. We have been there very early, ahead of the curve and we have all this industry ahead of the curve, so we have a very good base and many of the leading institutions in this country do run our clinical solutions. So our ambition so then for 2015, 2016 we expect actually the emerging market we represent about 40% of our revenue at that time and as you can that we are very much on that – in that direction.

And this slide you have seen also several times, but what we do see if you look on the left lower corner, you do see that also that we have a number of different countries we’re just moving in the right direction and it’s quite interesting to see that some of the countries really talked about five, six, seven years ago are actually investing in radiation oncology as we speak. So I think we have been foresight in that respect actual to select the right countries where we expect that we likely to start to do cancer care based on demographic, but also based on the network we have in these countries.

As I mentioned, we have a leading portfolio. I am very, very pleased and proud. I think the (inaudible) R&D spending has been superior for any other companies in this field. So we are very, very pleased to see that the amount that we put into the R&D really pays off and really create shareholder value in Annual Day and you will hear more about that also from. One other special product which we are doing right now and also then I can – it is actually a very exciting area, probably the largest investment in radiation oncology for many, many years if you exclude proton therapy. So we have leading products in software solutions. We have closed down to 500 people just working on our software development and support, so that is an area where we continue to invest quite heavily you will see that software we start to play more and more important role. In the past it was hardware driving the software, but we see more and more the software driving hardware, so software leadership is absolutely crucial for cancer care. But also the way how we would like to drive evidence-based medicine in other areas.

Whereas I guess Steve we talked about that and we’ll come back to a little bit more details about that we will also see a film about that Brachytherapy is a very, very interesting we have invested also quite a lot in Brachytherapy, play also a very important role in combination with external radiator, but also to standalone clinical solutions for certain indication, if exploring now new body sites which are stopping next priority in the past.

So that is an area we also investing and then of course we have the Gamma Knife which has played, I will say did really set the standard in radio surgery continue to be the gold standard and we still continue to invest in that field as well. We have a very strong product portfolio is stronger than anybody else in this field, maybe little bias but I strongly believe that is the response back also we get from our users.

So to go back this is just to give you a flavor of what we have actually been went through in the pioneer the leader in and when you look into what everybody is talking about the radiation oncology. They are talking about what we have here introduce them.

Today I think there is no question about that we are leader and in the past it was like we had a very small megaphone and the people really fully appreciate that they had what we did. But I think today I think all leading institutions are definitely confirming that we are really that.

So let me look at Versa HD, and people say what is so different Versa HD to something else, the difference Versa HD is that we have been able to combine a number of different components, which is crucial really to fully utilize the power in the system. So that’s spiriting combination with a high dose rate that how it’s integrated how we really look into the way to collimate the beam the way we actually tailor shape to be in the very fast fashion.

So high dose have very little value if you don’t have a very fast collimation device. So it’s like to have like Kevin usually say, like to have a racing car we are the bicycle fighters. You can’t use that, if power in the system. This is actually the Ferrari where we have actually combined all the bits and pieces in the system, yes to perform like a Ferrari should on the race track. So this is I would say the regular therapies Ferrari.

In a way, so it is actually I better please and also of course better pleased to, we always pleased what we developed, but the feedback you get from the market has been extraordinarily good and that is what they unless more than may be the internal people or with all those little buyers, but when you look in actually about the response we’ve got back actually from OIS has been incredibly good

So what is the proof on this, the first 60 days were actually sold 30 Versa HD, it exceeded my expectation I think it exceeded brands expected, but this is the only proof that is actually create a value and now we start to see clinical output from this you have seen some of the press releases around this, clinicians will really confirm that this really make a huge difference like a professor (inaudible) say, finally I don’t need to compromise when I treat my patient. I can treat every patient with optimal treatment way, and that is actually what we had tried to achieve with this, excellent, excellent comments from, this is some of them who actually that including on down that’s actually probably no it was one of the worlds largest cancer center and all of them are confirming the same thing so I think it’s really make me proud for sure.

Significantly better than the movie, but we will come back to that a little bit later on, and it’s what is exactly demonstrated is actually what I mentioned but we will come back to that.

So when you look on the Gamma Knife as I mentioned, why is it so, why does that demand increase for the Gamma Knife during the last number of years. One reason for that is of course that metastatic tumors start to become one of the biggest drawback in cancer care. Why because people live longer so they start actually to get start to become more and more chronic disease the more chronic it disease the more likelihood also that to get metastatic tumors. And so this I have actually increased the need for Gamma Knife type of a solutions in the radiation therapy clinic and of course, as you already know in the neuro clinic this is the goal standard to treat actually Intracranial Lesions and confident to do so. We definitely see a tremendous increase in need to treat metastatic tumors in a very efficient way. Gamma Knife is the ultimate to do that in the brain, but not the rest of the body, but of course, then you use Versa HD.

So when look into brachytherapy as I mentioned, this is a two areas, if it coming body sides or clinical indications, rectal cancer and skin cancer, something we are exploring right now. Rectal cancer has no real good treatment solution yet and we strongly believe also that brachytherapy could play an extremely important role in that particular area, and skin cancer we’re trying that out in the few clinics around throughout the world.

Flexatron, we have come back to that that Flexatron is a new brachytherapy solution as you have probably know, Nucletron the company we acquired is the pioneer in brachytherapy and they just launched a new brachytherapy solution where you can use multi-sources effort to optimize also they had treatment there to tailor shape treatment of tumors in the body.

And we also continue to look into the install base, and I think the interesting thing also is that we are now also integrating brachytherapy with software solutions. So brachytherapy will also be heart of our MOSAIQ solutions as well. That’s a very strong close of the fiscal year of buyback on the brachy side of it. So, that is actually very, very promising as well.

As I’ve said MOSAIQ, we’ll play more and more important role in how we position ourselves in the market. This has act as an enabler for us to become more and more partner in cancer care. So that MOSAIQ, will be a hub what call at the center of all the treatment with that within network corporation. It’s all our products, all our clinical solutions, we linked into the MOSAIQ so, you can actually consolidate all this information, you can actually follow the patients from the diagnose, until the whole survivorship of the patient. And of course, we will be able now to consolidate a lot of clinical experience throughout the whole world, and actually use that clinical experience to explore both emerging markets but also driving excellence. So the more clinical information we get, the more excellence our tools has been doing in the marketplace.

One area is some people often ask, you have the largest number of treatment plants software platform in the world and that is of course not that goal. The goal is of course to have one platform, but why we actually acquire a number of the best system was one, so I think competence, but the other one was installed base.

So now this year, at the end of this year, we will actually launch one platform treatment plan just with extremely competitive. So that is the first time when we correctly move all these bits and pieces together in one platform and what will happen of course, that we will immediately significantly increase the power of our sales back to develop new things, which is even more competitive. So that I’m very pleased to see that it would be extremely good system for short, equally go that’s why we have there without other system.

So by that I will invite Kevin Brown, who is our President of Scientific Research and he will talk something of the very exciting area. Kevin?

Kevin Brown

Good. I’m very pleased to be here this afternoon, we have to share what we are doing on this very exciting projects, which we are anticipating is going to have a significant impact on radiations therapy. On the screens in front of you, you can see an MR image. Now, an MR image these days isn’t perhaps very exciting or notable in a sense that MR is a well known technology. But this MR image has been produced on an experimental system of the University of Utrecht, which is a combination between MR and radiation therapy in a single system. That has never been done before. This is a really exciting project, and we are very glad to be working with the University at Utrecht and also working with Philips who are a key partner of us helping us with the MR technology.

Some people have said what does MR bring to radiation therapy? And I think if you just look at these images and think that today radiation therapy is happening with patients that are actually moving like this inside the body, but we don’t see it. You can immediately see what MR brings, yeah, because once we bought this integrated with the delivery process that will really change our ability to see what’s happening during the treatment and actually do something about that.

One of the key strategies we have on this project is not to do this alone. So we’re going to do this project in combination with a number of research institutes, which I’ll mention more in just a minute. So this is the research platform that we’ve got at the University Medical Centre Utrecht. And what we can see here is, it doesn’t look like a medical device, because at this point in time, it isn’t a medical device. This is a research project to this point in time. But what we can see is, we can see a large magnet peer sorry winter to the side people, a large magnet in the middle, at this piece, you can see moving is the linear accelerator being rotated around that MR system, radiating through to the same point where you are imaging. So the objective is to have the patient being able to be imaged and treated simultaneously. So we are making really good progress with this project combining these two technologies.

Our next step, having demonstrated some key technical milestones, our next step is to build this consortium of partners, and what are we – what are we going to try and do with that consortium, we’re going to try and do two things really. One is to demonstrate the benefits that this technology will bring to our current pool of radio therapy patients. So we think that this technology has the capability to improve the quality of care for those patients that are already receiving radiation therapy. But perhaps the other really exciting thing is that maybe some patients have indications that aren’t currently treated with radiation therapy, because maybe that motion is just too much.

The uncertainty just makes the radiation therapy too scared to treat that tumor because they don’t know where it is. We’re anticipating the combination of these technologies will actually bring the confidence to allow radiation therapy to be used for indications that are not currently treated with radiation therapy, so each of our partners in this consortium will be identifying those clinical benefits and the techniques that we’re going to use to treat those things.

Now, a lot of these techniques will be novel. They won’t exist today, and so those partners have got key competencies, both clinical competencies and technical competencies, to help Elekta bring this technology to the market for a value. And then finally, we’ll conduct clinical research to actually demonstrate that value. That’s a really key thing while introducing a radically different technology like this to the medical marketplace. You might have seen on our web page press releases covering the building of this consortium. The first center, well, that wasn’t the first center, okay.

One of the centers here is the Canada’s Sunnybrook based in Toronto. The Sunnybrook Center, they have got a great competence in terms of demonstrating new standards of care for radiation therapy, which have been adopted right away through the Province of Ontario and then throughout Canada. So a center that’s got good experience in doing clinical trials and demonstrating the value of advance techniques. This was the first one. The University of Texas MD Anderson Center, again, another center that has a competency in demonstrating standards of care and the MD Anderson has an unparalleled technical research team. And the other center here the Netherlands Cancer Institute in Amsterdam, they’ve also signed up to this consortium. They have been a long-term partner of Elekta, pioneering our earlier image guidance techniques and making those really easy to introduce into the clinic.

So with that, I hand back to Tomas.

Tomas Puusepp

Thank you, Kevin. Is that exciting? The images you did see there also really from our (inaudible) it’s not from something else, I think it’s really about being – maybe for allowing this particular fee. This is very, very exciting news, and we would like to continue to be the leader in this field for sure. So that doesn’t come for free. Those are probably now, so we actually now – we have decided that we increase our investment in R&D. Of course, we do a lot of other stuff as well, but this has actually added a component also to our leadership in Image Guidance Radiation Therapy. This will play, I am absolutely sure, when it’s done, this will play a significant role in new standards in radiation oncology.

Well invested money for sure and I am very delighted and very proud also that our team including Kevin and he is the man and the team also included, have been able to get to this point. But I will tell you that has not been easy. There has been several years of work really to get it where it is today, but now it’s really to take it more into the clinical environment. So okay, so what is our ambition there? I repeat that again, so by 2015, 2016 from today, we will grow by 40% and to repeat that also higher share of cancer care market and we definitely see that we play more and more important role it’s not only us, but of course the whole radiation oncology field. Emerging market will play – continue to play an important role is continue to grow double-digit, so if you look in our highest priorities growth, of course, we need to be the leader.

Of course, we need to invest further also into the emerging market to be able to capture that. And then technology leadership, as you can see also with the MR Linac right now, but also with the Versa HD, what we invest in R&D pay offs and it’s really good for the patient, but it’s also really good for our shareholders throughout the whole world indeed. So by that I will leave the role to Håkan, who will give you a little bit more of flavor and in depth review about our numbers. So thank you very much for your attention for the first part of this.

Håkan Bergström

So once again, welcome all. A lot of familiar faces enjoyed these days and as Tomas said, both the flavor and in depth. I do not know how you combine these two with dry.

Covering the financials I think as looking at sort of the operating profit side of things, I will touch on the key areas, which I know that some of you have questions about and we try to clear those. But it is obviously saw that Elekta’s performance is very much linked to the technology development that has been doing and also the emerging market strategy that we have.

Looking into sort of the EBIT story of Elekta with a modern expansion primarily the EBIT is coming from volume. So the more we grow the better the margin get. We do have also the increased share all must we call it recurrent revenues, thank you, which basically software and the service, which comes with our installed base and how that grows. We leverage to fixed cost, which is obviously part of the volume growth. So we see this combination of the strategy that has been building Elekta over the years performing at the 20% margin level.

Going into little bit more detail, one of the graphs the green one is the gross margin. And you can see that has been expanding over the years coming from volume, but also recurrent revenue. The last year, we saw a slight decrease over year-over-year. If you look further into the details, you will then see that compared take away currency looking at this medical, U.S. medical tax, it actually increased. So that effect took away almost 1%.

So the underlying performance of the business model is robust I would say. On the SG&A side, you see some of the factors if you add the Nucletron integration into that, you can see that we are at 19.5%. And in few years, we will be below 18%. So those two factors I think one should see going forward when it comes to the underlying performance.

As Tomas said then I think it’s clear what we find to communicate when it comes to R&D that reduce sort of an additional investment over some years, which is taking this 8.5% investment in R&D that has been ongoing to around 10% for the next few years. So basically for the current fiscal 2013, 2014, once we see that the level goes up, but it will most probably stay there. I think these bullets is a good summary of the excellent years and we just toast and it's also a reminder for everyone that Elekta needs sort of a year to perform we have I have a lot of discussion with you guys on quarterly performance and I gladly do that but I think one should look at the full year to understand the business model because the business we are driving at least have one year cycle. So comparing something you can end up wherever you like.

But I think a summary should be for the full year and then you see the drivers with 14% order booking growth, 16% on net sales EBIT on 70% taken away currency and others and an excellent cash conversion. I don't think that many people in this room really believe that maybe including Tomas, but I believe in it.

A short summary of the regions performance we’ll of course hear more in a bit when it comes to the regions but just to summarize I think what we always had when it comes to North America and particularly one could expect going forward could expect the high single-digit number of growth.

I think you all are aware of the uncertainty that is there and Jay will talk about those in a minute, but looking at our performance of course compared with what I could expect then also with the competition, it’s very well done. Canada is going very well for us adding sort of the South American opportunity to be also is performing well and we have this Brazilian tender. I’m sure Ian Alexander will spend some time talking about a little bit of what one can see that in the future.

Taking the European, Middle East and African had a tremendous end of the year, amazingly strong performance I would say in all different territories that we talk about. What particularly was good to see was the Middle East performance. We have been quite slow for a number of quarters but came back very strong. The Asian Pacific, Gilbert will dive into all the details but just to summarize we’re very well on plan when it comes to the APAC performance, excellent in India, very, very strong in China and continued to see good growth also in Japan, so he is a very fortunate man who sits here with me.

Contribution margin, you can look at this a little bit different ways if you start with the Asia numbers very much linked to the growth more recurrent revenue coming in and that improves the margin. But there is also saw that we get a lot on new installed base, which is a balancing factor and over time that will contribute quite well to the performers. Looking at European number, it is sort of also the same explanation that more mature markets are performing on a high margin level and then we have the emerging that is now coming in. So we can see that that this is changing now.

In the U.S. or America, North America into the South America we have a little bit of mix, but also this U.S. medical tax is actually including in that number and obviously that doesn’t help. As I just said this lean like installed base growth, as you know, I mean, we – in many cases the installed base is probably the most important asset that Elekta has, the relation to the customer how we can develop that going forward, growing that to 9% is fantastic. One should then know that if first year you send particularly to a new site. It’s not the most profitable year. So the profit is actually coming after, and the life time of a machine as you actually probably know at least 10, 15 years.

If we look at competition, they are probably around 3% growth of installed base. So it’s a tremendous difference in how we grow our sales versus others. Looking at the Siemens opportunity as discussed a year ago quite a lot, I think it’s pretty much as we talked about that the partnership, I think it was called between Siemens and Varian hasn’t really changed anything.

Elekta is still very much sort of the upper hand when it comes to software. And when it comes sort of competing with the lean Mac as we said the whole along, we don’t see any difference there. The volume out of Siemens replacement is slightly lower and I think we hope for and you expected. So a little bit that remains to look below thing to and of course, further fuel the growth going forward.

I think we talked about the recurrent revenue, the software service expansion. We have more if I call it tough to upgrade with today and obviously as the installed base is growing this is a great opportunity. So the 4% to 3%, we have said the ambition is to come up to 50%. It is a balance with how fast the installed base is growing, but this is also surely an enhancement when it comes to volume.

Cash at the end of the day if it ever comes to that cash is what counts so on the left side you have the cash conversion, which is how we internal also measure how well sort of we can take the cash into the company compared to the operating profit and around 70%, I think is a good benchmark and it also sets the target for us that also includes investment, so it’s not just the working capital as you have on the right side, and we have invested more fiscal year 2012, 2013 particularly in training facilities when it comes to networking capital which was one of the discussion points last year, I think we have done a great job in reducing in absolute term and also in relative terms. And we are pretty much where I think we will be for the next years.

Currency hasn’t been helpful. So fiscal year 2012, 2013 we have 2% negative on the net sales affect and around SEK 90 million on the bottom line. For the current fiscal year 2% seems to be there once more mainly it relates to the Japanese Yen. And we also estimate that EBIT impact to be around 3%, very strong balance sheet you can see how that is building up with cash and net debt is going down and equity is going up and all these measurement on the strength of the balance sheet supports the statement of a strong balance sheet.

Summarizing sort of where we are when it comes to financial objectives you can see we are performing better than the target which of course is part of the target more than 10% in growth. We have the operating result, which if you look year-over-year we have basically exceeded that or done it, return on capital employed we hit that as well and on the net debt sort of in relation to equity, which is very much how you balance your sort of equity and balance sheet risk.

We are doing fine there as well so going through all this together with of course what Tomas has presented on the future, the Board together with management say that we are in a position of very much trusting what we do and achievements done. So we have increased for this year 60% in distribution or dividend. We added this (inaudible) if you can translate that to English, I am not sure also kroner in a three year dividend program just to support that the trust that the board feels in execution.

Couple of comments on fiscal year 2013-2014, we do expect as we call it, another strong year. We have as you probably are aware being talking about EBITDA and I didn’t imagine that this letter could cause so much confusion. The reason for it is, for myself at least, pretty straightforward, we are going to do quite a lot of investment in R&D. This will over the years, of course, have an effect of amortization. We think, at least, I think, that the best we can do for you guys is to be transparent. So showing the EBITDA, the EBITA and the EBIT, I am sure we’re going to have discussions in the coming quarters, how much we spent and what effect that will have, instead of just impair the whole thing as we would have done previously. So it’s nothing but trying to get more transparent and we can talk about where we perform and how we perform.

And based on that for the fiscal year 2013-2014, we talk about 10% plus in top line growth and around 10% taking away currency on the EBITDA level and we don’t expect the EBITDA and the EBIT to be that much different in this current fiscal, but we will get back to that. With that, I think I am sort of done.

Question-and-Answer Session

Johan Andersson

Okay. Thank you very much Håkan and now we will start the first Q&A session and I would like to welcome Tomas and Kevin Brown as well. So do we have any questions from the audience? So let’s start with Patrik Ling from Nordea and we have a microphone as well, so please state your name and where you are working as well.

Patrik Ling – Nordea

Yes, thank you. Patrik Ling at Nordea. A couple of questions to Kevin, when you talked about the MRI Linac, you talked about the consortium looking to improve outcome for the patients, could you be a little bit more specific on how you’re going to measure outcome in this case?

Unidentified Company Representative

There is something that the consumers are looking at this point in time because of course this is a new technique so they’re evaluating different clinical indications and looking to see what benefits we could have from those and some outcomes we can here to measure quite quickly and some outcomes will take much longer to measure. So we are imagining this is going to be a selection of different studies looking at different indications for radiation therapy and looking at different benefits from this technology. So it’s difficult to be specific at this point in time until we actually get in to the meet of that research effectively and then you will see things coming up in the scientific meetings effectively because our ambition is to be quite open about these things as we demonstrate them in the research.

Patrik Ling – Nordea

But are you potentially talking about survival benefits for your patients and outcome at that point?

Unidentified Company Representative

I’ll probably get myself in trouble with regulatory if I make a claim like that. It’s difficult to make particular claims. You’ll understand that there is regulatory environment which I’ll try on that. But clearly we are looking at some tangible benefits and also benefits to the healthcare system as well. So both of those stakeholder should benefit from this synergy.

Unidentified Company Representative

This also includes the complication of healthcare.

Unidentified Company Representative

And that’s what you have to learn, see earlier than actually surviving them

Unidentified Company Representative

Yeah, yeah, yeah.

Patrik Ling – Nordea

Second question. You talked about quite a lot of noble technology going into this project. Would you see this as a 510K filing or would you see it as a potential PMA filing with all this new novel technology.

Tomas Puusepp

Yeah, that’s not definite at this point in time. But unlike some other developments we are still using radiation as the therapeutic intent. So I think if you ask me to make a prediction which is a commitment at this point in time, but our prediction would be that the therapeutic intent i.e. radiation is the same therefore it would represent a development of previous techniques but a significant improvement. So 510K in that sense. Thinking about result of course also with no technology this is not new in that direction.

Patrik Ling – Nordea

Okay, thank you.

Unidentified Company Representative

Next question Justin.

Justin Morris – Bank of America Merrill Lynch

Yes, hi Justin Morris from Bank of America. Maybe just the first I guess although its financial question when you talked about reducing SG&A to less than 8% over a few years, could you maybe be a bit more clear on what the theory implies whether its 3, 5, 2 that’s the first question.

Unidentified Company Representative

I mean basically in this planning periods of at least before 2015, 2016 the fiscal years.

Justin Morris – Bank of America Merrill Lynch

Thanks. And then my second question, I was quite interested on the comments about SRS becoming 20% of the market and its something that.

Unidentified Company Representative

(Inaudible) the stereotactic radiotherapy, is including SRS and SRT.

Justin Morris – Bank of America Merrill Lynch

Yeah but in terms of the radiosurgery becoming a bit, the market. Something some market participants have been talking about hypo-fractionation and a shift towards treatments that use less fractions is actually creating capacity in the SRT market. Is that something, you are also seeing or is that, that’s your competitors?

Unidentified Company Representative

That’s it is actually when I mentioned, the hospitals I visited actually two weeks ago in United States or (inaudible) that went from 0% to 20% that includes those stereotactic radiosurgery, but also stereotactic radiotherapy, its actually both included, but it is a significant growth in that particular fastest growing area in radiation oncology.

Justin Morris – Bank of America Merrill Lynch

Do you see any kind of implications to the mid term of the market in terms of that shift and people using less fractions for treatments and whether that will affect the business model or do you think is pretty much businesses as usual.

Unidentified Company Representative

No, I think I have been looking growth in general I think it will be balanced but its nothing where it goes like this is that something, which has been evolved, during the last five years and if we continue to evolve, but it’s clearly so that when you use stereotactic radiotherapy. I think people have changed their mind somewhat and say that this actually make more sense than they thought in the beginning.

The reclaim that already when we introduce radiosurgery with the Gamma Knife, but at that time was absolutely very few people who appreciate that or even radiobiological point of view fails that it was not possible, but today I will say that is no question about that this is the fastest growing area. It will play an important role in the one of the fastest growing indications like the metastatic tumors, and metastatic tumors is more and more stereotactic radiosurgical procedure and that is growing extremely fast, extremely fast. So when you are looking on, will this the demand for the number of Linacs in mature markets decreased. I do not believe that will be the case.

Justin Morris – Bank of America Merrill Lynch

Okay, thanks.

Operator

We have a next question Kristofer.

Kristofer Liljeberg-Svensson – Carnegie Investment Bank AB

Kristofer Liljeberg from Carnegie question for, what can also you were talking about leverage on SG&A. You were talking about higher R&D costs. Do you have a view on some of the gross margins for the next few years what we could expect?

Unidentified Company Representative

What I sort of summarize was I mean even this year even though the number went down. I think I can argue that the underlying gross margin was going up and the drivers are the same. So I think that is embedded in the outlook that we have that gross margin should actually go up even in the coming years.

Kristofer Liljeberg-Svensson – Carnegie Investment Bank AB

And that’s also despite, or even though you’re growing much faster in the emerging markets, where there is, of course, a lot of several hardware.

Håkan Bergström

I mean as I said, this was also already part of this year, so that is not the change.

Kristofer Liljeberg-Svensson – Carnegie Investment Bank AB

Thank you.

Operator

Okay. And next question we call Mattias.

Mattias Häggbloms – Danske Bank Markets

Thanks. Mattias Häggbloms from Danske Bank Markets. First question to Thomas and then one for Håkan. Thomas, two years ago, we met and you’ve gave us this full-year outlook towards 2015 which you now expanded to 2016, now recall you said something that, we should start with 10% organic growth rate and that should accelerate towards 13% to 15% by the end of the period.

It’s only the math right now, the CAGR, the 40% growth for the next few years that you provided us with implies 12% growth in the next few years and were ordered in two years into this period. So I guess my question was down to has there changed anything with the underlying growth rate or is the message the same that we are seeing an acceleration for 13% to 15% this might represent?

Tomas Puusepp

No, to answer your question, the 40% was described here, just taking into account. It’s actually very much in line, what I usually – what I told you earlier, what is actually have to have an impact on this currency of course, so but in general, you can say in fixed currency, we expect that this will happen, which is very much in line what I mentioned already two years ago.

Mattias Häggbloms – Danske Bank Markets

Do you see the strength in acceleration towards 2013 to 2015?

Tomas Puusepp

No, I would say, there is 40% places what we will be able to see by 15, 16, if it’s not a dramatic change in the environment.

Mattias Häggbloms – Danske Bank Markets

Fair enough. Second question for Håkan, so obviously you’ve been guiding for EBIT margin for 10 years now – more EBIT growth. Why do we need to be more transparent on EBITDA now and not before?. Does it not imply that something is changing?

Håkan Bergström

Now, what will then change is most probably the investment has to do in their more project that will have an impact on the amortization. So, by doing that, I think we just make it, I mean I’m getting questions as you all know and I think that will be just more transparent at being before.

Mattias Häggbloms – Danske Bank Markets

Fair enough. Thank you so much.

Operator

Today, we have the next question from Johan.

Johan Unnerus – Swedbank

Johan Unnerus, so thanks and I have two questions. The improvements in recurrent revenues as far as in software up to 50%, can we give any flavor time horizon on that?

Unidentified Company Representative

It’s a little bit difficult to give you exactly what, because what Håkan also mentioned is that the faster we grow in the emerging market, the slower the growth will be in recovering revenue from the 43%, so it’s that, but it’s definite, our ambition has not changed at all. We definitely would like to see a 50%, over time a 50% the current revenue portion of all the total revenue.

Johan Unnerus – Swedbank

With a current growth dynamics, I’ll be talking three five years or…?

Unidentified Company Representative

To be most likely…

Unidentified Company Representative

More than three years.

Unidentified Company Representative

Yes.

Johan Unnerus – Swedbank

Okay. And then on the MRI and R&D issue again to further increase transparency, what should we think about the difference between the cash R&D and the expense R&D, it’s a rather long-term project, should that be more expense or less than recently?

Unidentified Company Representative

I think the answer to that is a political one. We will see and the reason for it is, I think also was a part of Kevin’s answer that we need to together with the consort to make sure that we have this tollgate, we agree on what functionality should be delivered, when, which has an impact on how sort of the hole accounting will pay out when it comes to that. And that goes back to my point of transparency. And that’s how we’re going to talk about it we do. So you at least have, I’m not going to tell you everything on the project, but at least see your financial have a view on how we are performing.

Johan Unnerus – Swedbank

Thank you.

Unidentified Company Representative

Okay, next question?

Johan Unnerus – Swedbank

Thanks. just on the MRI and the R&D, how many patients do you think you’re going to need in the individual studies to get to our appropriate powering, and how is that going to vary maybe by indication? And then secondly when do you expect that you might be able to get some changes to treatment guidelines and specific indications as a result of them? Thanks.

Unidentified Company Representative

Again, this is sort of that’s the question just got any number of answers that you could possibly wishful. So some indications we’re expecting very small patient populations as Thomas mentioned here, so maybe demonstrating reduction and toxicity for a particularly difficult treatment today that that’s almost impossible with techniques today. So that will come very quickly, but probably require very few patients. But then of course, that’s not so much value to the healthcare system having small patient population. Other indications will have a much larger patient base. And that’s going to require a longer trial and maybe, it might be a smaller benefit, but it will be too larger patient population. So I’m imagining a just like you were doing the investments have a portfolio. I’m imagining a portfolio of clinical indications with short-term gains and long-term gains effectively.

Johan Unnerus – Swedbank

Thanks. just one more, just by the way it’s Alex Kent from Barclays, but the next one have in terms of higher screening your investments for R&D as you said I mean what are you doing in terms of metrics, is it sort a NPV calculation. What are you thinking about timeframes to payback and how are you approaching that just understand your process?

Tomas Puusepp

I mean we’ve always looked in. We don’t stop a product, if you don’t have a pretty good return on investment or that the same thing with this, but we will not release that information today for sure. But I can tell you that one thing which I think is extremely important indicator is that when you look into the institutions and the clinics was exactly joined into this endeavor. They wouldn’t do that, if they don’t strongly believe that this will have a significant impact on the cancer patient in the future.

So I think that is, when you look into this and it will be a couple of more also which will on in but when you look into this, this is I can almost I can never guarantee because all this risk in it, but we have actually pretty good understanding already now what it can do, however we need to validate that together with this consortium and but I need always do with that. So everybody knows how we design things.

We always brining in the clinician in the early stage to participate not only that develop on the system to become a clinical tool, but is also to identify areas of importance for them and for us to really explore this. And the initial discussions we have had with this team as been very encouraging. They have committed significant resources from each and every center’s to participate and they wouldn’t do that if it was not clear in their mindset what we’d actually conduct do. So we’re a little bit early to exactly what it is, this is something what they will contribute. We will have I would say a very firm view on this with the next six to nine months maybe around that time. And then we will have a clearer point, but one of the thing I can say, it looks better than that I thought from the beginning.

Operator

Okay. Thank you. We have next question is from Ian.

Ian Douglas-Pennant – UBS

Hi thanks very much it’s Ian Douglas-Pannant UBS. Just on the MRI machine again what is the biggest challenge is it generating the decent image quality or is it guiding that to where the tumor is moved to or you are just kind of using a kind of gazing approach, sorry and then and I just like to on a separate note, you made some through away comment about personal therapy being a big investment opportunity and yet…

Tomas Puusepp

I didn’t say opportunity I would say that is probably the biggest investment people have done in RT that’s I want to say is different. No I strongly believe that the investments we have done, we are doing and this is a significant we will have significant more impact.

Ian Douglas-Pennant – UBS

So you don’t see a correct price (inaudible).

Håkan Bergström

No, no, no. I mean this is a fully integrated proton I don’t have any integrated OMR, so when I look it, this act a complete the new way to look in how you treat the patient. And I think it is probably I would be surprised, if this will not have a more significantly impact on and have the other technology after as we speak.

Tomas Puusepp

You know the challenges and I mentioned that we are collaborating with Philips and this technology is based on mainstream MR technology. So the images you are seeing here are such a very high quality state-of-the-art MR imaging. But the MR community at the moment focuses on the radiology market. And what we are talking about here is we are talking about the radiotherapy market, the radiotherapy applications. So there will be an investment in customizing the MR imaging sequences, the techniques used to optimize those to improve the treatment technique. So it’s we are using the technology, which is a sort of technology that’s out there in the marketplace, but customizing it for this particular need.

Ian Douglas-Pennant – UBS

Did you mention, do you see it’s actually from a prototype so it’s not like something else. This is fundamentally?

Tomas Puusepp

Right. Do we have another question there before the break?

Unidentified Analyst

Thanks very much (inaudible). And I think, I will call back in the capital markets stay natural that you anticipated growing the brachytherapy business over 10% in this fiscal year. I just wonder whether you can confirm that was the case and perhaps you can give us a breakdown as you have done in previous years of neuroscience, brachy and oncology that would be appreciated.

And second question actually, which is also the financial and apologies is whether you could give some sort of amortization period for capitalized R&D that would be helpful.

And just last question would be, I got a specific question on MRI and throughout the evolution of technology you might have therapy that is the two major players have been not too distant and apart from each other in terms of technology. What does your intelligence tell you about variance response to your heightened investments in MRI?

Tomas Puusepp

If I start with the last question, and then I’ll let the word to Håkan. I mean it’s clear so that we ahead of the curve. This took us actually to get where we are today took us a few years to get there. Nobody I can tell you, it was very few people who believed that this would be possible. So we are – are we ahead of everybody is no question about it. Do we have seen anything in a similar wave, one of our competitor have this on rate, but the beauty of this is really time and that is the most difficult part of it that how to get the Linac interacting this time into MR without creating distortion. How do you get the MR field not to have a significant impact on the electrons, so they distort the begin. That is actually where we have put a lot of effort and I can almost guarantee, we haven’t seen anything else in the market in that particular area. Doesn’t mean that it will not happen, I can’t really tell you that, are we ahead of the curve, yes, we’ve reached the capitalized R&D that would be helpful.

Unidentified Analyst

And just last question would be I got a specific question on MRI and throughout the evolution of technology by the therapeutics that the two major players have been not too distant apart from each other in terms of technology, what does your intelligence tell you about Varian’s response wee you (inaudible) investments and MR.

Unidentified Company Representative

If I start with the last question and then I leave the word to Håkan. I mean, it’s clear so that we’re ahead of the curve. This took us, actually to get where we are today, took us a few years to get there. Nobody I can tell you, it was very few people who believed that this would be possible. So we are – are we ahead of everybody is no question about it. Do we have seen anything in a similar wave, one of our competitor have this on rate, but the beauty of this is really time and that is the most difficult part of it that how to get the Linac interacting this time into MR without creating distortion.

How do you get the MR field not to have a significant impact on the electrons, so they distort the begin. That is actually where we have put a lot of effort and I can almost guarantee, we haven’t seen anything else in the market in that particular area. Doesn’t mean that it will not happen, I can’t really tell you that, are we ahead of the curve, yes, do we the leading institutions to help us in that endeavor, who is really top institution in the world in this field, yes, we do have. Do we have a better possibility to take this into the market in a clinic environment than anybody else, yes, we do.

So we are definitely ahead of the curve, there’s no question and what you need to know also we have always been ahead of the curve, unfortunately, we were little bit small. We had the small megaphones, people didn’t hear when we are screaming about that. So that’s the way authorities do, that is the way the therapy, image radiation therapy is actually mentioned by Elekta not by anybody else. And we will continue to do that, and that’s why we would like to increase investments to ensure that we actually have H also when this would be a clinical too.

Unidentified Analyst

Thank you.

Unidentified Company Representative

On the question of disclosure of different technology business areas, we are not going to do that. For the obvious reason that the competition is not doing that and I can assure you that and it’s an entirely deals megaphone battle as well. But all the business areas are going according to plan and contributed well to the growth. So don’t’ have to be concerned about that.

I think your question the second one was amortization on. The average is little bit less than five years if you look at what is sitting in the balance sheet when it comes to intangibles from the R&D.

Unidentified Company Representative

Okay we will now finish this first block. There are couple of more questions, but we will have another Q&A session of the next block. So we will have coffee served outside, so please if you go out and bring your coffee back in here again and then we will start exactly at 25 minutes past. So thank you very much for this first Block.

[Break-out Session]

Johan Sedihn

Okay, so welcome to the second part of the Capital Markets Day and we will go through our three regions in Elekta, starting with North America and Jay Hoey.

Jay Hoey

Thanks, Johan. Good afternoon everyone. For those of you that I haven’t met yet, my name is Jay Hoey and I’m the Executive Vice President for Region North America. And for those of you I have met good to see you again, it’s always great to be Stockholm especially in June. Couple of words to describe North America over the last year’s come to mind, some times exciting and sometimes stressful, sometimes challenging as most of the time all of the above. So it’s been quite a 12 months, and I’m going to go through a few things with you to show you what I need since then.

First of all, the year ended up very well for us, we’re very pleased with our performance. We include Canada, the United States, Mexico, and the Caribbean and region in North America. Together, they are about 7% of the world’s population, but they account for about 30% of the world’s linear acceleration in treatment delivery equipment. So, it’s an interesting market. Growing and in aging population, technology, cancer incidences, capacity both professional and equipment capacity, all these are playing into the market demand and driving the market demand for our equipment and depending on which country you’re looking at their characteristics either or more or less prevalent, and I’ll talk about that a little too.

Market growth this last year, I should say, Elekta grow at about 11%. That’s in orders and what we think is that that’s a head of the overall market. We think that the overall market in North America is probably more or like high single-digit, so we’re really happy that we’re growing actually ahead of the market.

Elekta enjoys a number one position in North America in brachytherapy, in oncology software, and non-invasive brain surgery, we’re number two in treatment delivery, i.e., Linac, and we’re number three in treatment planning. Of the highlights this last year, there were many of them, but I think to name a few the Versa HD introduction that went as well or even better than expected probably by the decision of MD. Anderson, who has been a longtime Elekta’s software customer in the last few years Elekta galvanized customer, made the decision to actually go ahead in order to Versa HDs. And this is on top of their decision to join the MRI Linac and as well.

So we’re really happy about that. If you think about that along with Siemens exit from the market and this is the first full-year they haven’t found there. There has been quite a bit of activity going on with Elekta with respect to Linac opportunity which is really nice.

Our software business remains robust. There is a lot of services part of that, meaningful use has been driving the software uptake, a new product called IQ scripts has come out in the last year and was standing to roll that out and customers are starting to use that and really, really imagine of ways, which is adding a lot of stickiness as we would like to say, so that’s exciting for us.

We brought our new ASP data center, if you want to call it back on line the last couple of months we have our first user live on that radiation oncology user, advocate health, a large radiation oncology practice with multiple centers. We have over 200 registry users now on the system as well. So that’s growing really well and we’re excited about that.

Our Monaco treatment planning install base continues to grow, especially now that agility is out and being used and more recently with Versa HD now starting to go in. We are literally looking forward later on in the year to the next release, which I guess is what everybody says about software, but honestly for Monaco, this next release we are really looking forward that should be a big one.

And now with Nucletron added to our product portfolio, Nucletron is the leader in brachytherapy in North America. What we’re really excited about is not only did we really get a good product, but along with it maybe more importantly we got some talented, experience, and really dedicated people that have been in this field for a long time.

Finally, we can talk about our neuroscience business, now this probably comes under the category of stressful, New Year this year we woke up to rather new Fiscal Cliff bill in North America in the United States, and to our surprise there was a little wider in there, because some sections 634 which we do scheme in for reimbursement, quite significantly actually and what that was doing in the U.S. Fiscal Cliff bill is kind of a shock to us.

In fact some people ask some question whether we were naïve for letting this happen. I just spend a lot of time in DC since dissolving down in January and down gotten to understand the way the bill works and people involved and how that decision was made and my thought is this, that our vendor would bypass the CMS product processing maybe work with a congressmen directly, that’s not surprising.

But a vendor would do that to basically reduce reimbursement to the doctors and the providers that they are trying to do business for us. Not only that potentially restrain access, patient access to a life saving technology that’s very unique in our field. It’s very true that the Gamma Knife application, the Gamma Knife system is dedicated to the brain but there is simply are certain indications that cannot be treated by Linac or by invasive surgery.

So to do that and take the reinvestment away from your own customers that’s the head scratcher to me. If it was made to think some of mood and try that yet, I guess, but fortunately our radiation oncologist and neurosurgeons, they do know the difference between the Gamma Knife and Linac. And actually Gamma Knife places quite well this past year. And I guess in the name of our any publicity is good publicity that really looks like we’re in a good situation as SRS and SRT continue to grow, because we are considered being inventors the pioneer that in the experts.

So I think they showed this in the video. But this is a snapshot of where we are in North America. On the left side, this our installed base share, this 4,000 treatment machines in North America. So making that installed base share go up and a replacement market is slow business. Yeah, we did do an uptick, got an uptick this year as we did with our new machine and new machine sales as well. So our things were going in the right direction, we’re happy with how we did.

Now I’m going to take a deeper dive into the three countries. So you can kind of see what’s going on in each. Let’s start with the U.S., it’s the largest market for radiation therapy and neurosurgical systems in the world. There is above one delivery system per 684,000 people. So that’s also the largest capacity in the world.

It’s mostly a replacement market as I said, but there is still growth there. So I’m going to give you some numbers that I pulled last week from an MD Anderson report. This is to give you a flavor of where the growth potential wise. From 2000 to 2030, a population, people over 65 in United States is expected to double to $72 million.

Cancer diagnosis will increase by 45% between the years 2010 and 2030, and from above 1.6 million to 2.3 million people diagnosis per year. The demand for radiation therapy services are expected to increase by about 22% this decade from 2010 to 2012. So that’s not explosive growth, but it is growth.

If you add to that some other factors including the advent of cannibal care organizations, what we’re seeing there is radiation therapy and other healthcare organizations jockeying for position, they are consolidating, they’re reorganizing, in some cases they’re closing so all that does have an impact on demand shifting population. So not only is the population growing, but all people tend to move to this Sunbelt. So where the capacity is needed is also shifted and finally new technology are basically technology that can improve patient throughout, clinical outcomes of course, but also that support evidence based medicine. Those are all very, very important with where people think things are going well in the United States.

Can’t talk about the U.S. without talking about healthcare reform. First of all, this last year, the medical device tax came into play and the question I often get asked is how we will this or will this impact our gross profit, and the answer to that is of course no, what Håkan and Tomas usually ask me is can we do anything to compensate for it.

And of course, I say of course we can virtually for us versus came along at the right time, versus delivery capabilities they do re-frag in many areas, but anything out that is out there in the competition especially in the area of the call system and the dose rate close control. So in any case, looks that done for us is, we are getting higher ASPs that along with the fact that our North America business has a big chunk of service, which doesn’t come under the device tax as well as the ongoing efficiency improvements we’re always trying to make, basically it’s letting us and helping us to mitigate that 2.3% tax.

As far as reimbursement goes think I just had a conversation here, just before we started, it’s hard to speculate what’s going to happen. I can tell you this that what’s happening right now is there is a huge concerted effort to get rid of the SGR the sustainable growth rate provision that has been ignored for the last five or six years, the house right now is working on it’s version of it. It’s likely it will get passed this summer, and it will go to the Senate and it’s very possible that Senate will pass it, again to this year along with when they usually approved the CMS fee-for-services, the service charges, so here is what we’re hearing can pull me to this, but this is what we’re hearing.

It will come in three phases. Phase I will be basically don’t use the SGR at all and how the carry stability for physician payments i.e. don’t change anything. This does not use the SGR with that of period where we keep things the same. We don’t keep juggling maybe we likely do and during that time, we’re going to establish quality measures first and then efficiency measures second. and then when those three things are in place, then we’ll see the “New reimbursement systems”.

so whether that happens or not I don’t know, if you want to speculate, it kind of says not much is going to happen in the next year. so that’s where we are right now. you may also know that ESTRO is proactively looking at modifications and they’re not working with the CPT editorial panel on their proposal. it’s going to take sometime, if you’re interested, the CPT panel is interested, but we have no timeline on when that will take place.

Canada, Canada is very mature, very deliberate and very sophisticated in their approach to healthcare in general, but cancer screening, cancer prevention, cancer treatment, both at the provincial and the national level; here are some stats for you to chew on. Canada predicts that the cancer incidents for those surviving with cancer, and those that get cancer will double between 2011 and 2013, so not quite the same time periods that the U.S. was talking about.

With the 25% increase through 2016, I tried to do the one-to-one math and basically, the Canadian population and the U.S. population are pretty similar, so that’s what that’s all about. But they’re about 34 or 35 million people in Canada, there is less than 300 treatment machines, so that means they only have a capacity of one per 134,000 people as opposed to the U.S.

What’s interesting now is only 34% of cancer patients get radiation therapy today as opposed to over 60% in the United States, but Canada as a province and as a nation has made it a deliberate challenge or a deliberate goal to have over 50% of their cancer patients treated with radiation therapy, which means of course, they’re going to need more capacity.

We’ve been doing a lot of work and concentrating our efforts in Canada, really in Ontario and Quebec. We’ve had some good years there. they continue to grow and in the foreseeable future that’s where we’re really going to be putting our eggs. we worked out very good relationships, long-term relationships with San Jose and Princess Margaret Hospital, Cancer Care Ontario, Laval, which is in Quebec and others to establish long-term partnerships for example, also this year Sunnybrook with the Vet Hospital in Toronto. they also recently joined the MRI consortium. so they too will be getting one of the first MRI winners. So we’re pretty excited about that.

Mexico is our North America’s emerging market, so as such and I think probably Gilbert and Ian will talk a lot more about emerging markets and know a lot more about it than I do, but it has a lot of the same characteristics and access to capital is always an issue and also just access to professionals, doctors, physicists, the infrastructure you need to provide radiation therapy, that’s also an issue as well. There are about 100 million people, I think 110 million people in Mexico and they have less than 200 treatment machines. So you can see that don’t have to do hard math to know that capacity really is an issue in Mexico.

But they do have a pretty vigorous public and private healthcare sector. It’s about a 70/30 kind of a mix and they do have a stated goal to improve healthcare in Mexico. They know they need funding, but at least now it’s on their radar. They have some goals that they’ve established and oncology is part of that. So what we’ve been doing is we’ve been investing more in the last year or two and we can plan to do that again as we go forward.

So, in summary, we’re happy with the progress we’re making in North America. We continue to lead the market in OIS and Brachy. RTP is on the upswing and there is a very rapid, I think, Tomas mentioned this, adaption of SRS and SRT and it’s good news for us because we’re a leader in that area. We have the bank trust. We have the pedigree.

We believe Versa HD will redefine the standard for precision dynamic radiation therapy, but we don’t attribute our success strictly to our R&D, which is always important, right, development in technology is important, but we focused on solving our customers’ problems, comprehensive solutions, which don’t mean just products. It also means service and support and education.

The systems we provide they’re complicated, right. We’re in a complex field and you can’t just pop one of these things and you really need to have the support structure around it and we’re very proud. We take it seriously and we invest a lot of money. And in fact I’ll end on this. I think I showed this last year. Class is an organization in the United States, I think it maybe North America, but it’s dedicated to improving the healthcare technology delivery by honesty and accuracy and in partiality and measuring the vendor performance. I’m using their words.

This is last year’s result. So the top three systems are all Elekta, three of the top four including Gamma Knife at number one. We are hoping to get this year’s results before the meeting. We haven’t gotten all the results, but I am happy to say we have gotten who is number one and that’s the Gamma Knife Perfexion once again. So two years in a row now Perfexion is at the top of the list. So I’ll leave it with that on a good note, okay. Thanks, everybody.

Operator

Many thanks to Jay, and then we have the next speaker Ian Alexander representing, Europe, Middle East and Latin America.

Ian Alexander

So, thank you very much Jay. And good afternoon everybody, really is a great pleasure to be here and speaking to you this afternoon about the results for last year from Europe and AFLAME region. I rejoined Elekta on September 1st last year. So I can’t claim credit for the results, that you have seen about, but I am very appreciative of the fact that I have a very strong team, a very good team and we had an outstanding performance in the last 12 months. And when you look at the results as Håkan earlier commented, we had 29% growth in Q4 which was a phenomenal result. The team worked extremely hard we were very successful and we hope to continue at least some of that growth going forward into the new fiscal year.

And it’s a very complex, very complicated region, and obviously we have all the emerging markets and then we have the mature established markets, and there is a different color coated primarily because this is where we have our direct legal entities, we also had very good growth last year from those established markets. And what pleased me as much as the growth in the emerging, which we come to expect to a certain extent, is that those mature markets really grew extremely well in the last year as well. And we saw a extremely strong performance in the U.K. where there is an active cancer program in Germany as well partly helped by the Siemens program and also in the Southern European markets of France and Italy.

So mature business the established markets grew very well last year, and when you look around the region in terms of the emerging markets, we had good performance in Latin America, and the tender in Brazil we talk about a little bit has slowed things to a certain extent and we have seen perhaps some surprising and very aggressive pricing going on in Brazil, previous to the tender. But we have seen good growth again in Latin America, very pleased with that. And Africa, going to the next orange block on the map here, is a very difficult continent to talk about, literally more about that later, we have seen very good growth again continue to see it in North Africa.

And especially in the French, North African markets Algeria and Morocco and also in South Africa, where we have a very recent success there, which is very good for longer-term future. Middle East we saw a good recovery at the end of the year, primarily Iraq, Turkey, some of the other markets as well, it has been strong for us on average and we look across the year, and finally Eastern Europe, Eastern Europe continued to perform well and especially in Russia, where we have a very strong distributor, a good partnership and we are looking to enhance that again over the coming years.

So overall very good growth, order development was exceptionally good again. You look at revenues similar sort of picture we grew 11% constant currency, 15% of local currencies, Germany was outstanding for us. U.K. again to our two top markets and as I said to finalize the growth in Northern Europe, the Nordic markets also grew. I was very pleased when we begun to see some positive growth. We’re making some in roads into market that perhaps we haven’t been strong and before.

As I also mentioned actually in France, had a very good finish the year, helped a lot by the launch of Versa HD, and we have in general had a very strong reaction to launch of Versa HD, has been extremely positive for us. And when you consider I think that we launched so late in the year and we kept it very, very quite internally and externally product of launch. We’re absolutely delighted with a number of orders that we’ve taken between at the launch in Atlanta on March 1 and the end of the fiscal.

Also our margin came up nicely and it’s shown a nice trend we’re beginning to leave, installed base really work on that growing population of the next that we have in the materials markets and try and use the operational strength that we get from those.

When you start to look at our order intake shares and order intake, we believe we are head in overall when you balanced material or establish on emerging markets together and that is ahead a little bit that is given us a continuing strong growth in installed base here and that’s not 2 percentage points than last 12 months.

So, we think our position overall is good, if you break it down by established markets. So the European markets and the emerging markets looking at together. We believe that as you’ll here from Gilbert also in Asia-Pacific, we have a very strong presence in the emerging markets and we continue to dominate in those areas. It is a little bit more difficult to be totally share the results in emerging markets, because all of those countries by and large with the exception of Brazil. In South Africa, we have distributed networks and agents, but that is what we believe the picture is that’s reflected in the results.

Just look at the different market characteristics between the established countries and emerging and starting first over the established. We have a very strong focus on the installed base management. Because clearly we have a large installed base where working very work hard in those to selling upgrades in software, hardware upgrades. And this helps products in from the portfolio that we haven’t in there before so, if we have a linacs, or several linacs, we are looking to trying sell them and again I for the selling Brachytherapy or we’re looking to sell upgrades (inaudible) Agility and so on.

And that is a key component to how we drive the business in the mature markets. After sales obviously is a key component of that and the service business, largely a replacement market, but also expansion in some areas, we’ve seen a lot of expansion in the last 12 months in the UK, and we believe that will continue, and they are technology focused, so the launch of Versa HD is very positive for us. and like I said, early signs and reaction from the system have been excellent.

And obviously they rely in success stories, there’s a lot of word of mouth that customers is not a consumable, there your customers tell other customers what a good experience to have and it all adds up in our favor and we believe that is one of our key strengths in the established markets.

The emerging markets, it tends to be slightly different. it is very much a greenfield new site expansion. The need for education and training is very strong, and we will this year, I hope complete three-year education training centers around the region, specifically for the emerging markets.

We’re looking at South Africa, Russia and Brazil and that we believe will help us further as we progress the business in coming years. I think Jay touched on it for Mexico, customer finance is something that can be an issue and also reimbursement levels in the emerging markets tend to be something that is a driver or a slower of growth, but also folks in that trying to deliver more solutions.

Creating reference center site visits, the credibility that we bring and the experience of visiting some of the emerging markets, obviously helps to drive the business. And when you look at the markets by dynamics and across the whole region, the overall writing factor I guess it is in the established markets, we continue to see mid-to-high single-digit growth in some of those countries. this year, we’ve seen double-digit growth. And we hope to see that trend continue over the coming years, largely driven by the uptick of Versa HD driven by the driving recurring revenues.

In the emerging markets, there is clear double-digit growth and that’s what we’d expect to see continue. and I think as we go through the next planning period, you’ll see Africa becomes a stronger player for us as well. And to have a little bit more in that look in established markets, last year, the growth mainly came out of Central and Northern Europe. but like I said, Italy and France in particular were very positive. We also saw some recovery in Greece, which is pleasing to see as well.

We have had a lot of upgrade of the maturing install base across most of the markets, and that gives us an opportunity also coming into the coming years and the exit of Siemens has given us a good opportunity to capture new customers and also the conversion of the Siemens LANTIS, IT based MOSAIQ. And we believe that last year, we captured more than the 50% of the Siemens base that replaced the systems.

And looking forward, you would expect naturally that Siemens base to begin to accelerate the replacement over time. As the service that they are getting from Siemens begin to drop off and there is interest. And over the next two to three years we expect to see an acceleration in the replacement rates. So I think that is a good opportunity for future as well.

As I mentioned in the U’K, there is still a need for increasing the amount of radiation therapy available. And the statistics at the moment point to the fact that it’s not as commonly used as another European markets, and we are seeing that the National Health Service is beginning to take steps to address that.

Versa HD we launched publicly for the first time. We had the meeting in London on March 1. We had the first public showing in Geneva in April. And products that we actually did a launch in Istanbul in Turkey, which attracted 250 customers from within Turkey to that. There is a great deal of interest. Turkey is a very sophisticated market for us. It isn’t one of the markets where we have a great installed base. We have around 25% installed base and we targeted that as a launch and market because we see an opportunity there in Turkey going forwards.

That is the sort of event that we will be repeating in other mature markets as we come into new fiscal year. So part of the fact is where Elekta has its strength in Europe obviously is in university hospitals in the larger clinics. And that is another reason why we think the Versa HD will have such strong uptick.

And emerging markets we have a, what we believe is a strong number one position and if you look at the Eastern Europe it’s really driven by Russia largely in terms of the volume. Round about 20 maybe 25 units a year place in Russia. The current National Oncology Program is entering its final year this year. And we’ll begin to see attendance coming through over the next three to six months. And we are confident that with the strength of the distributor we have in Russia and the close partnership we have. We will also continue to take in excess of 50% market share in Russia.

We have also in planning a manufacturing center in Russia where we are on a phase zero period, we are really in the exploratory period looking for sites and looking at all logistics that go with that.

(Inaudible) education training center as well the manufacturing center we are looking at for Brazil. And in Latin America, if you take the distributor countries we have Colombia, Chile, Peru and Argentina. Large populations they are quite sophisticated markets. There is a good focus on radiation therapy and we see that continuing over the coming period. We had good penetration. We are driving good growth in this market last year. And they help us to compensate for some of the slowdown that we saw in the Brazilian market.

Also with the pending AT linac tender that everybody has heard about coming up in Brazil. There was a certain slowdown in the market during the last 12 months as the public and the private sectors waited to see when that was going to happen, and it has been delayed. And where those systems are going to happen and it has been delayed and where those systems are going to go into and we were lucky in the fact that we manage to compensate in many of the other distributor countries again drive very good growth out of Latin America, as the tender itself is not entering the final phase, and I would expect within a very short period of weeks we will have a result on that.

And finally Africa, Africa as a continent obviously has a very large population and high incidence of cancer with patients tend to present in a very late stage because diagnosis in Africa is not so accessible.

We estimated Africa needs a more than 700 additional machines that will obviously take a very long period of time, and the number of active oncology programs running at the moment in Africa is relatively small therefore the markets are quite opportunistic, there are of course in little barriers to access into entry into many of those countries there is a lack of trained personnel, there is access to finance reimbursement continues to slowdown the hinder growth in the market.

But in the Northern African countries and in South Africa we see good development and we’ve also signed a partnership deal with Accura recently for a large number of systems over the next period of time but also with the partnership to develop our approach in the other Sub-Saharan African countries.

Accura is the largest private provider within South Africa and they have around about 40% of the market within the organization, cooperative organization as per dollar on the South African country they provide very high levels of healthcare and we’re going to be working with them actively partly to set up an education training centre in South Africa, we will then bring customers in from other parts of Africa into that centre and partly to use their expertise to go out to the other countries and help provide education training. With that thank you for your attention, I would like hand over to Gilbert.

Unidentified Company Representative

Okay we’ll come to the final region Asia-pacific and Gilbert Wai.

Gilbert Wai

Hi here come the Fortune 81, Fortune comes with to those who are prepared, and who are hardworking and this is whole Elekta organization and definitely come under great leadership by Tomas and Håkan. Thank you.

We are the market leader and the leadership expand particularly when you measure new order intake right now we have 50% range last year, we’re probably 40% mid 40 range. So we have the new order, we are very successful, 800 employee in Asia, strong growth operation in both China, India and Australia and partially, one of our keys to that factors is in our strategy of investing ahead of curve. again, we have a really strong growth, if you look at the last six year where CAGR of 28%. This year particularly strong growth in orders from Australia and China, and also the Siemens conversion, I think we took a very good share of the Siemens space, definitely ongoing with such a sense of area also part of our emphasis as well.

I’ll share with you some of the trends prospect in Asia, around 60% of the world population, a lot of 30 land area, GDP. The most important for us is, less than 30% of the world is in our part of the world, and in a lot of countries that you close to a less than one linac for a million populations. And this will be a good interesting aspect, because WHL basically tied as far emerging market, this will be permanent for any country to offer basic cancer care.

So this is a lot of opportunity in our part of the world. to further go on is for the future, I think a lot of positive factors that going for us. Aging population and if you can see around 60%, 60 years old age, also in the 50 longer times. we see more and more people are in the agent population, which is really high instance of cancer care and with improving our elastics, the general awareness of cancer will be increased and also very important regular therapy is really the cost effective treatment for any cancer management.

Another factor in our part of world as quiet interesting and unique and favorable to us as well is a general trend of urbanizations. when urbanization goes high percentage, that’s specific and provide better basic healthcare infrastructure. and then you have better diagnosis, better professional concentrate, providing better heathcare. So for the FD urbanization increase as in the cancer care, it will be also increased at the same time.

Some interesting number, healthcare expenditure of APAC will grow significantly over the years. He we showed three countries: India, China in the CAGR 14%, 15% range, while (inaudible) Elekta Japan will be in the 3% range. and for APAC, we target generally a 9% range in healthcare expenditure over the years.

Intention hospital bed, they again show street country in all part of the world, besides the number, interesting to look at this a public and private breakdown. So which we indicate in China is predominantly are public sectors. And in India, 60/40 and the private sector is growing very, very fast and this is really the prime driver for growth in the coming years. And Indonesia, it’s an interesting number of bets here, in terms of population they are huge. One, additional information is, the number of trained oncologist is less than 100 over the whole country. So, this is a again when point to another limiting factors that actually move on in all parts of the world.

Mortality rate, because of the unmet need and professionals in our emerging market like China, India, the mortality rate is close to 70%, if you benchmark is 40% range and even Japan and Australia still has a lot (inaudible) way to go, so this is an interesting market with different sectors and characteristic and also in terms of cancer and different, a little bit difference in then Western world as well as you’ll see lung and stomach, its really the predominant cancer, where as prostrate is emerging but not less important, but the Elekta has adopted to local need and provide very good solution to these type of cancer as well.

And this is one of the key and endower and one of the key effort Elekta is investing and also (inaudible) is invest a lot on education and training. Besides, classroom training in office in Australia, Shanghai and India, we do have a three Linac actually radiating Linac in three location in China, two location as well as in Japan actually to teach how customer, how to use a Linac. And the response is so positive, I think our Toshiba partner right now is discussing with us, I think installing the second Linac to do expand the training education in Japan.

And besides that, we work with other 17 delay institutions in all parts of the world to provide clinical training to our customers. China, a great opportunity has everybody will know, basic fact, a large and unmet need of the 1.3 populations, build in populations, the total installed base is around 1,500, so slightly more than 1 (inaudible) million populations. So that’s really for China, for the economy the way that’s going, it easily will double and triple the figures as the patient meet. So there is lack of treatment capacities and also they’re looking for cost effective solutions. Those all are I think the administration to governments making tremendous progress and improving the healthcare situation for the whole populations as well as generate good enough growth for a lot of healthcare provider as well.

This is the hospital structure in China divided into three category, also close to about 20,000 plus hospital. But our activities are mainly focused on this current three hospital whereby that major city. So for the type two cities we are still yet to explore that particular market need, but so primarily all the major suppliers are focusing on the fastest city and Elekta has no exceptions.

This is one of the major, important point that I should share with you, less than 10 years ago, if you look at to ’06, less than half of the Chinese population get insurance, now, 95% get insurance, medical insurance, is a major, major success for the China’s healthcare, almost providing full insurance coverage to all general populations. Then you ask me again, how about the potential, on the outcome side is the end new premier for this one is U.S. dollar $50. So that really puts the whole equation into perspectives. So major investment will go to provide basic healthcare that’s China, and the need for training education is very evident.

You see the number of trained RTO physicians, for that number, what does it mean. If we benchmark U.S., even though we have a very generous definition for the quality physicians, we probably in terms of percentage, we’re half of U.S., which is quite good in that regard. And if you talk about number of features it’s close to 1.2 (inaudible) per a machine. And if you look at the machine, the high specific machine, the high performance machine that we are looking in China that definitely need more than that. So how do we tackle the lack of trained professional will be the next level of challenge that we ourselves as a dominant provider market leader will need to address.

So there are right now three medical university in China that are providing master and bachelor degree for medical thesis. And Elekta sponsor them all. We give them scholarship, we give them subsidies so we are very happy to have that endeavors and you may have not well know these are really top main institution in China. Ching-Wai is just like the MIT in U.S. and Tianjin is one of the early designer for the whole medical equipment in the whole China medical industry. So these are really top institutions like (inaudible) they give us a chance and so far the cooperation is looking on perfectly. Now go to the numbers. I have been asked that question before when will China become the second largest market for Elekta.

This year right. So this year China is already the second largest market in Elekta and some detail is definitely we are number one in our market and in the new order I think that the gap between Elekta in terms of new order. So we are continuously to take market share in the new order in China. So the growth is very nice. Publisher now expects similar performance in the future. But a nice double-digit but not 40%, but okay we have altogether around 500 employees in China. I think we have a very good success in China so far. Thank you.

Unidentified Analyst

And just you are seeing the slide again one point is probably 8 right now out of 10 institutions as our equipment. And if you look at the CAGR growth, 30% over the last six years. So we really betting the market growth in our China operations.

India, again number one position this year. We have an exceptional year in terms of all the numbers and this is the market share for new orders and then this is a one slide you should actually look at because we sized myself the gentlemen is his Excellency ministry of Public health in India. So we show within or commitment, we show within our success in India.

Japan, a mature market as Ian as said it probably will be high single-digit growth, but for Elekta Japan we have 14% growth in order booking.

We are always in leadership in neural and treatment planning and this market share for oncology order is the best we have had in this year and thanks to the great partnership we have with Toshiba. I think they are really very strong in terms of the Japan whole distribution service structure and we provide them with a very good product and we jointly develop a very successful partnership and the replacement of the Siemens (inaudible) in Japan is really very successful through Toshiba partnership.

So party for the coming year, we will continue to develop our infrastructure to support the entire region growth, very much focused on education and training and I think we are investing heavily in Beijing and including our own training and education center. So if any one of your team is visiting (inaudible) we have an open invitation. So you just let us know when then come to visit our part of the world and our facility in Beijing. And also anticipation of solution expanding software and surface and capture full Siemens opportunity with the strategy we’re moving on. Thank you.

Johan Sedihn

Thank you very much Gilbert. So we will conclude with a summary and final remarks from Tomas Puusepp and then have the second Q&A session. So I’ll leave the road to Tomas.

Tomas Puusepp

Thank you, Johan and thank you my colleagues and you can see that we have a very exciting year also this year to further explore. But I would like to conclude this presentation from us before the younger Q&A and our ambition is actually that we should grow by 40% by fiscal year 2015, 2016. And as you can hear also radiotherapy. We play more and more important role in council care. So we actually believe, strongly believe and we see sign even in emerging that more and more (inaudible) invest in radiation therapy. You see our stronghold in the emerging market and emerging market, it will continue to be a double-digit growth market for years to come as long as I can see at least and it’s definitely very encouraging to see that we have been able to establish a very strong organization, with local people, with local competence.

We really know what’s going on there and how we can actually explore and adapt because that is also now an important component, how we adapt our technologies and training education to the local needs, only to have a long-term relationship, only to have people who has been there for many, many years and creating that network and we really have the right staff as you can see also with both Johan and Jason and also Gilbert presentation.

And of course last, but not least and what we are also continue to investing and we accelerate our investment is actually in R&D to really ensure that they have technology which is in the forefront of cancer therapy now, but also in the future and you also did here from Kevin also the tremendous new opportunities which we are already in the position for the next couple of years.

I think we have a very strong ground to stand on. I’m extremely proud, extremely pleased both with users, with our organization, with our product portfolio and with our shareholders.

So by that I thank you very much for your attention and we open up for the Q&A.

Question-and-Answer Session

Operator

Yes, so we have the Q&A with the southern region, so Johan, Jay and Gilbert would like to join us on the stage and let see and let’s see if we have any questions, Kristofer, you have a microphone there as well.

Kristofer Liljeberg-Svensson – Carnegie Investment Bank AB

Thank you. Kristofer Liljeberg from Carnegie. Two questions for Gilbert, first could you elaborate a little bit why you think you continue to gain further market share in China, why the gap was widening versus competition?

And the second question you showed on slide 45 when it comes to general insurance in China, the reimbursement those patients are getting is that enough to cover radiotherapy treatment if you could, talk a little bit about this one? Thank you.

Gilbert Wai

Thank you. The reason for China as I said is no different from the whole Elekta world’s effect. We have good product, we are investing ahead of the curve and very important we have tremendous leadership and the Tomas and the team. I think that’s the partially the reason. I myself is definitely one of the reason.

And to go back to the second question about insurance. I think if you look at the premium is in a very low range, but you multiply it by the number of people getting involved, for China government is a huge investment on annual basis. So that release put into that perspective and how does it affect the Elekta. I think in general that investment also follows through what the Chinese Government intent to do, move the treatment from the Tier 1 city to Tier 2, a Tier 3 city and also the government role is to provide basic healthcare. So they will benefit those immediately that provide maybe simple machine like blood testing, simple CT. They will be probably the immediate beneficiary.

As far as our segment is concerned, the Chinese Government also expand the initiative by saying right now there are 20 major disease that in some major cities or cities are being covered by the medical insurance using a pool basis. And out of that 20 disease, four to five are cancer related. So besides covering the basic run, they specifically focus 20 major diseases where they’re able to cost quite heavily to manage for the ordinary citizen. So they use that big major disease pool basis and then try to address that. So overall I think for us, it will be a continuous benefit, mainly from the growth of Chinese economy as well as the investment focus and also our positioning in China.

Kristofer Liljeberg-Svensson – Carnegie Investment Bank AB

You talked about doubling, tripping the installed base.

Unidentified Company Representative

Okay. Okay.

Kristofer Liljeberg-Svensson – Carnegie Investment Bank AB

Is that an official target or…?

Unidentified Company Representative

It has been a proposal by the leading radiation oncologist association similar to ASTRO. So that’s the proposal accessing the need and a report comes out in the range of in China, 1.3 billion population, at least we need two unit per million, which is translated to 2,600 unit, and then was the proposal presented, and then right now the installed base around 1,000 is 500, 600. So that’s the gap between 1,000.

How long will that be a supply is based on [matter of channel] economy, how does it go, but definitely that is a strong initiative at least from the professional side to drive that growth. As far as the government is concerned, cancer, particularly Linac, it’s really not a very pointed from central government perspective, we’ll address. They will address it general healthcare issue. So from a government you’re making some response, but we don’t have a perfect statement for that.

Kristofer Liljeberg-Svensson – Carnegie Investment Bank AB

Thank you.

Johan Andersson

Okay. Well, next question from Johan.

Johan Unnerus – Swedbank

Johan Unnerus, Swedbank, three questions then on Versa please. First, have you – how many – what proportion do you take from other vendors when you sell new Versa? Has that resulted in a sort of shift in vendor and then the average age of the replaced system if that’s possible to get a feel for that and average price if it’s possible?

Tomas Puusepp

I think as a general comment is that when you look into Versa HD, have we taken market share by that, which we shouldn’t have done, without that, yes, I think that’s – the answer is yes and you have seen some of the press releases regarding that. We have not released the average selling price, but I think there was also presented by Jay that the average selling price is going up with the Versa HD. I think that’s a general comment also from, I think, that Europe and Asia we haven’t done that much but I would say Europe and in North America is definitely average selling price is up with the Versa HD. The third question was the ageing?

Johan Unnerus – Swedbank

Yes, the average age on the replaced systems.

Tomas Puusepp

I don’t know that to be honest. I can’t answer that question. I think we have in general 10 years or so.

Kevin Brown

I guess in general its 10 years, but I haven’t done the analysis to go back and look at every single system we have placed so far.

Johan Unnerus – Swedbank

Okay. Can I add another one? I am still on. In China then the training bottleneck, professional capacity is it possible to keep track or will we see a slowdown due to that or what can you do?

Tomas Puusepp

I think as a vendor, we will work with the local provider institutions i.e. university and professional association to try to address that problem – this problem. We are thinking about some initiative but it’s still in very early stage now and if that come into materialization, we will be happy to report our progress on that.

Johan Andersson

Great. Thank you. And we have next question. If you wait for the microphone just a second, it will come there.

Unidentified Analyst

I was wondering if you look at the order growth of you versus Varian, I am just wondering what reaction you see from Varian because they’ve been clearly loosing market share and they want to grow in emerging markets too, so do you see them becoming much more aggressive in terms of pricing, in terms of marketing, what are they doing because they obviously want to be there too?

Tomas Puusepp

The answer to your point, and that was I was referring to.

Unidentified Company Representative

Yeah that’s a good point and that’s what I was referring to in the presentation especially in some of the South American countries, we have seen a strong reaction in terms of pricing recently in the last three to six months and I think that is a reaction to the fact that the market share has been over a long period of the last few years it has been moving towards Elekta.

Unidentified Analyst

And next question.

Unidentified Analyst

Just a question for Jay and thank you for providing your North American – which is outpace what you thought the market growth was by two percentage points. I just wonder given that you’ve had some very noticeable business in Canada and some very strong performance there does that imply then actually in the U.S. your little bit sub market growth, I wonder if you could just confirm that?

Unidentified Company Representative

Actually, I don’t have the numbers right in top of me but just running in my head I don’t think so, Canada we had some nice growth but United States is such a dominant number compared to both Mexico and Canada and at least so far is in the money two or three and so.

Unidentified Analyst

And then just going on that theory and again thank you for the clarity about the Brazilian tender, can you just share with us your thoughts at least about how that’s going to be structured is this a way that takes all type of contract or lightly to be a sort of step between providers and more broadly then do you also see similar sort of tendering behavior going on in the Americas. Thank you.

Unidentified Company Representative

At the moment our understanding is that it takes so long, we have had a number of meetings there in the last six months with the Ministry of Health, we have asked that question if they will split, they have been very insistent that they will not split it, I guess the outcome remains to be same. It clearly has been going on for a long number of months, I think it’s 12 to 18 months since they first announced it and they issued a tender back in about February time they were hoping to conclude it by end of March there were a number of concerns of both ourselves and there in raised, so they took all those into account, we had another meeting with them they agree to reissue the tender which is no other the final iteration that we hope would be concluded in the next few weeks, we haven’t seen any other approach in some of the way anywhere certainly I have not seen it in the Europe and in the same region.

Unidentified Analyst

Very last question for me, thanks Tomas that is okay. Must being credibly tempting given the enormous growth opportunity particularly in Asia-Pacific on the unmet need and the training that needs to go on there. I just wonder how do you strike the balance then with your SG&A ratio target which is to come down over the next few years and the investments you might get training, or how do you decide to close that balance?

Tomas Puusepp

No, I think in general if you look in S side, we have always been quite competitive. But on the G&A side, what we are introducing right now. We are introducing common tools throughout the whole world. We are introducing in the common CLM system, where we have introducing IntelliMax with the remote diagnostics. We are doing a lot of things really to enable us to became much significantly and more efficient within our G&A.

Of course we need to continue to invest in training, education stuff like that. But what we gain actually from the other side is, I would say pretty interesting. So we have spent quite a lot of efforts, quite a lot of money both last two years, but also within this year really to introduce all this tools. But that will also both a significant increase to service performance within the corporation. We will centralize certain functions within the corporation to support that regions and the business as we enter with more modern tool and more common tool.

We are introducing a common; it’s called RDX, a common R&D tool for everybody within the whole corporation. In the past year we had little bits and pieces all over the place, but right now we are centralized, I would say the common tool for everybody within whole organization who will work in the same R&D process and that will actually improve both the efficiency.

But also to speed up time to patient, so it is actually the most important thing in a corporation like Elekta is not time to market or not time to revenue. It’s actually time to patient that is the real success factors. So we are tracking. We are really getting much more involved in that whole process. So by introducing all that kind of things I’ll strongly believe and you can actually see that already now that have been improving also in the G&A. Yes, on S side, I would say, we have been quite competitive, on the G&A side less competitive.

Unidentified Analyst

Okay. Do you have any questions (inaudible)?

Unidentified Analyst

Thank you. A follow-up question to Gilbert regarding the bottlenecks that you see on the professional personal, is it the radiation physicists in China, that is the most severe bottleneck or is it the engineering part or and you have the other personal categories that you showed us?

Gilbert Wai

I think the radiation that the medical fees is definitely is probably the most in demand, because it takes time to train and take a formal program to train and also it takes times to have that certification as well. So on my mind that’s probably the most shortage area and that’s why we’re very happy to work with this three leading institution and which is really the education institutions, the university will be providing this type of basic training. And also in addition, we’re also working with additional university whenever never we know that intention of selling this type of medical physicist training, we will be sponsoring them. I think that’s the way that so far we work on that.

Unidentified Analyst

So if you look at the three universities that are turning out medical physicist today. How many new physicist enters to Chinese market each year?

Unidentified Company Representative

The two of them is in the bachelor degree, so they will be around 40 to 50 range. The Tsinghua is the master program in training so that will be around 20 range. And then there are additional university they are planning right now. So for this trade, that will be the numbers.

Unidentified Analyst

Okay, and is not enough?

Unidentified Company Representative

No, definitely not enough. And I think right now the prime challenge for the emerging market China and India as well if the China right now is no longer a prime limitation of funding. The availability of training and professional will be a key factor to consider. And for India right now when the atomic agency plan that the license for the university or for the hospital to install right now be specifically require the name of the medical physicist, oncologist to be part of the approval process. So it’s not only you just – you have money you can buy, no, you need to have the trained professional to buy it. And I think both emerging market and government is a way of that and see we will be very happy to work along side with them (inaudible)

Operator

Okay, next question. Justin?

Justin Smith – Swedbank

Thanks. First question for Jay. You made it quite clear in your introductory speech where you think Gamma Knife reimbursement came from. I was just wondering whether you think you’re seeing a tailwind from that from customers who may become to the same conclusion. And then also I was keen to here opinion on what you think that means about the rationality of the market and whether you expect that to be the ongoing dynamic competitive dynamic going forward?

Jay Hoey

At the end of the day, I don’t think customers going to buy a $4 million machine out of anything but looking at the value, right. So you can’t really say because people are in or whatever that therefore they will go buy a machine. I do think though people are quite aware of what happened and are not too happy about it. But going forward really the issue is of course we are trying to educate people and Congress on the hill, and we would like to be delayed or get reversed completely, but in the back on a wall that, with healthcare reform they are talking about changing reimbursement completely anyway, so anyway you look at it, this is a couple of year kind of a deal before we just got a whole new reimbursement system. But nevertheless we try.

Justin Smith – Swedbank

All right, and my second question is for Ian, I was just wondering, whether you can comment on Brazil auction to seal bid process, I am just wondering whether your competitor is employing some kind of game theory and publicly stating, how aggressive they are going to be on price, and whether there is a flow price you are willing to go to?

Ian Alexander

I think there is a quite bit of perhaps, gamesmanship going on, I am sure there is. The tender process is we understand it is, you submit the documents and then the MOH will consider the documents from a technical perspective and then there is a reverse auction and our understanding from some of the last meeting I was out with the MOH and all the meetings in fairness the MOH have had ourselves on one side of the table, Varian on the other side of the table and MOH sitting in the middle. And they’ve told us the final discussion on negotiation will be in the same format.

So we believe that both of the companies will be required to submit the documents. They will evaluate the documents and then they will call us back, and for a pricing reverse auction, and it will not be seal bid as our understanding. That is much as I can say and the second part of your question was?

Justin Smith – Swedbank

Well, I wanted to add actually on manufacturing capacity Varian seems to be proactively building capacity in Brazil, presumably to help them win the auction, I was just wondering whether manufacturing capacity is something that’s in the contract?

Ian Alexander

Manufacturing capacity is requested in the contract and we are doing a same sort of process, we are evaluating sites at the moment. We are looking for opportunities in various big cities and trying to figure out, which one to go with.

Justin Smith – Swedbank

Okay, thanks

Operator

Next question, over there.

Unidentified Analyst

Thanks, (inaudible) from Barclays. Maybe to follow-up on Brazil, so in terms of the manufacturing what kind of CapEx do we need to be thinking about broadly speaking and what percentage of your capacity would be there and is it final assembly or component manufacturing is to give a sense of what that?

James P. Hoey

I think I mean the production facility in Brazil, that was decided order there prior to this there as nothing related to do with this 80 Linacs, because to give you an example of the delivery time, deliveries of this 80 Linacs will actually come from a factor NOA, in the chrolic because so it’s within the time frame nobody would can built a reproduction facility, but it stipulated in their request what to have, they would like to see into that I think we have agreed that. We will be able to live up to it, I think it’s none other thing, which I think is it is also very important because when you are looking on this 80 linacs, you talk about between three and four years deliveries. It is a small volume, I think everybody focused on this 80 linacs but to be honest that volume is not that quite that big when you compare to the whole need in that region. We talked about 100 linacs or something like that per year.

So it is actually, it’s a good volume, but is not what we people believe this is it, absolutely not. But we committed already before this happened up we will access try to set up the production facility in Brazil.

Unidentified Analyst

And then how you think about the longer term the market development, if you win or loose the tender mean to be then see a major headwind for three or four years in Brazil maybe other parts of Latin America’s result and or is it such a small component of the market as you said that you can actually gain a lot of market share in others.

Unidentified Company Representative

This will really continue to work out for sure I mean because this is a relatively small volume it’s a volume it’s a good volume and there is no question about it, but it still the majority of the volume is outside in that region if you are looking Latin America.

Unidentified Analyst

Okay if I could on China just ask there in terms of tier-2 and tier-3 cities just what we should thinking about in terms of timeline for that market to really develop for you. And how do you plan or approached in terms internal sales force to distributor or maybe what kind of investments going to be necessary for each to make that expansion.

Unidentified Company Representative

And very much still on the planning basis and I think to logically you will see you have those Taiwan City you come for direct, tier 2, tier 3 city you come for with distributor and dealer and that’s what all that major company as they are doing like Acuity, Eclipse, and Siemens. I think they will be good reference for us to move along and then that probably will be when the time comes we’ll see along that only likely as well.

Unidentified Analyst

Okay do have any further questions, now here one in the front, (inaudible). Question for Gilbert, just a big picture could you talk about what the main difference are between how the emerging markets think about radiotherapy has and why to spend your healthcare dollars compared to non-radiotherapy treatments.

Gilbert Wai

I think certainly in the countries in all region there is a growing acceptance to the fact that radiation therapy gives very good value in terms of treatment.

I think the difference is the drugs [arose], chemotherapy is always going to be the forefront, but it’s mine and there is a large obviously push and promotion by pharmaceutical companies to promote the use of chemotherapy. I think while many countries are beginning to realize is the cost effectiveness of proving radiation therapy, but then there is the education training requirement that goes with it and I think that process takes a long period of time. It’s different in different countries.

In Latin America the process is quite advanced. In Eastern Europe, the process is quite advanced. In some of the African countries, it hasn’t started at all. So I think it’s finding the balance of how you work with the societies in each different countries and regions and help them to drive that forward. And I think part of the value that we’re trying to bring especially in some of the Middle Eastern markets is to convey with our distributors or partners and key customers to the governments in those areas what’s the volume that radiation therapy really brings.

Unidentified Analyst

Do you have big enough evidence to bring to the table? It’s just a question of having high level lobbying assets or do you need more evidence?

Unidentified Company Representative

I think there is a lot of clinical evidence and I think the main issue is the diagnosis components and the quicker the diagnosis is made, the better the outcome. When patients and somewhere like Africa, patients are treating, are representing with very late stage then it is very palliative treatment and as some have talked about what we’ve seen in the mature and the established markets over a large number of years is that has gradually improved as diagnosis has come along earlier and I think that’s the combination that we haven’t yet reached in many of the emerging markets.

Johan Andersson

Thank you. I think we have the next question down there Mattias from Danske Bank. Can we have a microphone to him?

Mattias Häggblom – Danske Bank

Thanks so much. And Ian, coming back again to Brazil, maybe not so much Brazil, but have you seen aggressive pricing in markets with large upcoming tenders before and should be within anything to that or is this country specific or regional specific?

Ian Alexander

We have seen aggressive pricing in quite a few of the emerging countries and I think whenever you’re very successful in a particular area or a particular business that your competitors will try to follow you and try to get ahead and I think that’s a normal reaction. Have we seen it specifically ahead of other large tenders? I mean, I can’t say. I’ve been back in this row since September 1. And so my experience isn’t long enough really to comment on that.

Unidentified Company Representative

First of all, we don’t know (inaudible) in Brazil or if you’re looking at the large tender, but in general you can say based on my experience, which is now 30 years we have not seen that kind of activity or auction and that kind of activity that has not been seeing actually so far I recall it, I don’t think so.

Unidentified Analyst

Okay. And second question would be obviously we have this large tender 80 linac plus or so, you had a order in South Africa 15 plus or 15 specific maybe. If you would plot the number of your orders for a full year, how would they be represented on short with one linac order, two linac order so how is that changing, is that changing more towards large orders?

Tomas Puusepp

Yeah, I mean we can see that you see more and more larger orders particularly when you enter into new market, where you had the Ministry of Health and Welfare involved they usually looking multiple centers. But we also see what we a see trend toward is exactly that mainly hospital change take the opportunity to expand their practice in come to square the lack resources of cancer care. And these hospital change are also usually getting into larger deals.

We just not on the number of machines that they would like to have more partnership with us than we have seen in the past. And we see that even in the United States and U.S. we do see that. So you’re right that, your assumption that instead of one here, one there it is more multiple centers maybe not like the 50 enough that’s quite unique. But, where you’ll see multiple four or five systems in the deal that’s starting to become more and more common.

Gilbert Wai

And just to add one thing further, I mean from our perspective, it takes the same amount of effort, sales effort in time and resource to sell a deal it has one unit in it as it takes to sell a deal with 15 perhaps not 80 that just slightly different picture all together. Before, selling that one linac deal or three linac deal or five linac deal or 10 linac deal takes us some more multiple efforts.

Mattias Häggblom – Danske Bank

And the last question from me, basically diluting back to what you said and how does gross margin and contribution margin build on a small and large order. It sounds like contribution model maybe similar although I guess gross margin is somewhat lower on a large order?

Håkan Bergström

I think if you look to be don’t Brazilian were now that if you look in the larger like in South Africa, what do you see you is that you see other thing, you expand actual our role in the purchase. So it’s not only linacs it’s more involved the way are more part of the workflow, optimization we become much more a consultant in the whole project as well as delivering products. So I wouldn’t say that I mean if are looking the larger deals enjoy also in two areas I think the margin has been pretty, okay actually.

Tomas Puusepp

Just upon the final comment in that, I think if you look at the slide, it showed – our second slide showed the margin is continuing to grow in the region – the European region in combination with the market share coming from emerging markets growing. so I think that really answers the question.

Tomas Puusepp

Okay. Do we have any further questions? Well, one here in the middle as well.

Unidentified Analyst

It’s (inaudible) I have two questions actually. The first one is about Versa. you are very proud about Versa and there seems to be very good reasons for that. When you announced your first order for Versa, you got the question about pricing, and honestly, you gave was that always just the first order. It’s too early to talk about price, since then you have placed large number of orders and because day-to-day that Versa is a success. It also means there is no longer premature to talk about pricing. So actually what is the price of the equipment?

Tomas Puusepp

Good question, but we never release actually they’re fine about, because it’s vary also quite a bit, because what you do see also today is that customers don’t just buy linac, they buy a lot of other stuff to it, including software, including on quality information system including treatment plan is just that, including different, if you remember, we have different clinical kits. So the Versa, you have a lot of different options, but one thing I can say and the confront my colleagues here, the average selling price has been going up when we introduce the Versa HD, the price tag, very quite significantly from one center to another.

Unidentified Analyst

Well, it’s difficult to judge that answer, I couldn’t just take that answer.

Håkan Bergström

On product…

Unidentified Analyst

It’s a new answer. Well, the second question is about your competitive situation versus Varian. It must be a common day situation for you that you compete with Varian for the same order, that’s right?

Tomas Puusepp

Yeah. Not in all cases, but in many of the cases, yes.

Unidentified Analyst

And occasionally it happens that you do not win that order...

Tomas Puusepp

Yeah.

Unidentified Analyst

Which are the reasons, you’ll hear it from your client or if you analyze yourself or while are there reasons where it not get in best order.

Tomas Puusepp

It vary also very much from customers to customers. Some customers is regarding if they order to have our software or not, because the integration of our systems into the informatics is the important component. So in some cases, it depends on Varian’s that to have their system, their software system, and sometimes it’s ours.

So it depends on the configuration of the deals, but it’s also in some of the cases surprising. That also happens. So it varies actually from customer to customer. So it’s not we can’t get really it [clean]. Yeah, it’s only price. I will say that in some cases definitely price will be an issue, but it’s also other issues, which is important overseas in the selection of the products in the different centers.

Unidentified Analyst

So it happens that Varian is cheaper than you are?

Tomas Puusepp

Sure. Sure.

Unidentified Analyst

Okay.

Tomas Puusepp

Sure. Absolutely.

Unidentified Analyst

They are claiming the opposite.

Tomas Puusepp

But that claim that’ as long as I remember has changed both, but we will not be able to show our performance. If we were just cheaper versus Varian, we would never to able to deliver the result we have been delivering. I can guarantee that. Now that is what I call, it’s a bad excuse.

Unidentified Analyst

Thank you.

Johan Andersson

Okay. Do we have any final questions? We have one there in the back. Yes.

Mikael Lindell – Svenska Handelsbanken AB

Hi. Mikael Lindell from Handelsbanken. I’ve a question for Gilbert. You recently extended your corporation with CHC Healthcare Group from Taiwan into a couple of cities in China. What is business rationale for that?

Gilbert Wai

The CHC is a well established corporation in Taiwan and they have been our distributor in Taiwan for 10 plus year. And the market share situation in Taiwan through them is in the range of 70% to 80%. So they are very professional company and then we will interested to extend the partnership and partner with them and when they expand as a channel as well. I’ll share with you. One of the secret about this is find a good partner and then work with your partner to define a win-win situation and in our part of the world, particularly in a lot of the local cases that has been our winning formula.

Mikael Lindell – Svenska Handelsbanken AB

Okay. Thank you.

Johan Andersson

Okay. So I think with that we will conclude the day today and we thank you all of you, those here in Stockholm, those of you listening in through the web and also with your phones. So thank you very much for joining us and looking forward to meet you again. Next event that we have is the Q1 report in September. Thank you very much.

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