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Executives

Johan Andersson – Director-Investor Relations

Tomas Puusepp – President and Chief Executive Officer

Håkan Bergström – Chief Financial Officer

Johan Adeback – Head-Treasury

Analysts

Johan Unnerus – Swedbank AB

Lars Hevreng – SEB Enskilda

Veronika Dubajova – Goldman Sachs International

Kristofer Liljeberg-Svensson – Carnegie Investment Bank AB

Richard Koch – Kepler Cheuvreux

Michael K. Jüngling – Morgan Stanley & Co. International Plc

Patrik Ling – Nordea Bank AB

Mattias Häggblom – Danske Bank Markets

David J. Adlington – JPMorgan Securities Plc

Ian Douglas-Pennant – UBS Ltd.

Hans Mahler – Handelsbanken Capital Markets

Justin E. Morris – Bank of America Merrill Lynch

Elekta B SHS (OTCPK:EKTAF) F1Q14 Earnings Conference Call September 3, 2013 7:45 AM ET

Operator

Good afternoon, ladies and gentleman, thank you for waiting and welcome to the Elekta Q1 Report for 2013-2014. At this time all lines are in a listen-only mode, until we conduct a question-and-answer session. (Operator Instructions) I’d like to remind you that today’s conference is being recorded on Tuesday, the 3rd of September.

I’d like to hand the call now over to your first speaker for today, Mr. Johan Andersson, please continue sir, and I’ll standing by.

Johan Andersson

Thank you, and welcome to Elekta’s conference call following the publication of our Q1 report for the fiscal year 2013-2014. My name is Johan Andersson, Director of Investor Relations and the moderator for this call. Here in Stockholm, we have Tomas Puusepp, President and CEO; Håkan Bergström, CFO; Johan Adeback, Head of Treasury; and Hans Ericson, Head of Group Controlling.

We will start with a presentation by Tomas Puusepp and Håkan Bergström and afterwards conclude with a Q&A session. Our Annual General Meeting starts at 3 o’ clock today so we have scheduled this call for 45 minutes. Therefore in the Q&A session we will ask you to limit yourself to one question per participant.

With that I will handle over to Tomas Puusepp.

Tomas Puusepp

Thank you, Johan and once again welcome to Elekta Q1 conference call. Business in the first quarter developed in line with our expectations and our outlook for the year is unchanged.

Region Europe, the Middle East and Africa performed strongly and order bookings rose 18% in local currency. We saw particular strong growth in Eastern Europe and the Middle East. In Asia, we noted a continued good growth, for instance in China and Japan order bookings rose 8% in the region. And in North and South America order bookings for the quarter declined, but this should be viewed in light of the very sharp increase noted in the corresponding quarter of the preceding year.

Generally in all geographies there are more large orders than seen before. We expect them to contribute to our order growth for the year. During the first quarter we had limited contribution from larger deals. Deliveries were strong in the quarter and net sales rose 21% adjusted for currency.

Sales growth was strong in all regions. EBITDA amounted to over SEK 148 million, the increase compared to last year is mainly related to higher sales volume. Exchange-rate effects had a substantial negative effect.

Cash flow was weak in the quarter and mainly affected by seasonal factors such as high proportion or the annual tax payment and an increase in operational working capital. And Håkan will go thorough the details later in his presentation, but we expect a significantly stronger cash flow for the remainder of the year.

As we have announced, we are increasing our investment in R&D and we have a good progress in our product development programs. I am looking forward to the ASTRO meeting at the end of September, where we plan to exhibit new products in the portfolio, and also highlight our training and education initiatives. The project aimed at enabling treatment combined with advanced magnetic resonance imaging, MRI is progressing well and, during the quarter, we announced a fifth member of the clinical development consortium, which is the Froedtert & Medical College of Wisconsin Clinical Cancer Center.

As I said in the beginning, our business outlook for the year is unchanged. We see an increased demand year-after-year from more cancer patients throughout the world, and there is a trend of increased uses of radiation therapy or some modality for cancer care.

We reiterate our outlook for this year in local currencies. Net sales are expected to grow by more than $0.10 in local currency. Most of the growth is expected to come from emerging markets. Investments in product development will increase by more than 20% and EBITDA is expected to grow by approximately 10% in local currency. The currency effect is estimated to minus 5 percentage points on EBITA growth, and this has changed from minus 3 percentage points, which we have already described.

Let me now go through the development in our regions starting with North and South America. We had good progress with sales volume of our new Versa HD in the quarter. The feedback from our customers is very positive and exceeding our expectations. The sentiment in the U.S. market is general, is still associated uncertainty related due to reimbursement levels, and the Healthcare Reform.

Proposals for new reimbursement levels were announced in July and indicate a general increase. The trend for reimbursement to the hospital segment has been positive for some years. This has also supported the trend of growing share or larger orders in the market.

We also see increased activities from the ACOs, which lead to more comprehensive and larger orders. For treatment with Leksell Gamma Knife, the initial reimbursement proposal for next year were recently amended, but the proposed increase from current level has been good.

Turning to Canada, we experienced a continuing expansion and build out of capacity in cancer care. We have good momentum in the country and we see demand for large comprehensive deals where the provinces strive to expand capacity with radiation therapy.

We have a leading position in Latin America and as you all know, there is a major procurement process ongoing for 80 Linac’s and other equipment in Brazil. We remain confident that we have the ability to deliver on what is requested in the tender. Brazil is a long-term growth market for us and we will continue to invest in our operations there. Deliveries were good and net sales grew by 9% in Swedish krona or 15% in local currency with an improved contribution margin.

Now, turning to regions, Europe, Middle East and Africa; the market trend in Europe has been strong and order bookings grew by 18% in the quarter. We achieved good growth especially in the Northern and Central Europe, as well as in the regions’ emerging markets.

Other countries with strong growth include Germany and Finland. It is also gratifying to see that development in the Middle East continues to be good roughly there activity has been positive now for the past six months and they have closed a number of deals in the region.

Turning to Asia Pacific, the Asia Pacific region is characterized by a major capacity shortage, and the prospect for growth remained good for many years to come. We are the market leader in the region and our order growth in the quarter was 8%. Development was also strong in growth markets such as China, which is now Elekta’s second largest market. We are investing in the state-of-the-art training and eduction sector in China to support historical base and future users.

Elekta’s business in Japan continue to be grow. We have an excellent collaboration with Toshiba. We’re just performing very well.

Our cancer care solutions are much appreciated by customers currently using Siemens’ (inaudible). We believe we have taken good volumes of Siemens replacements on the hardware side and we have also seen favorable development regarding updates of software to our Mosaic system.

Currently, approximately 25% of cancer patients in Japan receive radiation therapy and we foresee that this will increase in the future.

Now, I hand things over to Håkan to go through the numbers in more detail.

Håkan Bergström

Thank you, Tomas and Q1 is a relatively small quarter for us. So, when analyzing performance and to draw conclusion, I believe one needs to look at the longer period to see the real performance of Elekta. We remain confident in delivering another strong year in terms of financial performance for the fiscal year 2013, 2014.

I will spend time on a couple of slides discussing the income statement and also discuss our cash flow in little bit more detail. In the quarter as you see net sales is up 21% in fixed currencies, the sales growth was 15% for North America and South America and 25% in Asia Pacific and Europe.

And all product lines contributed to the growth. Gross margins came in at 42%, currencies as we will discuss later together with the medical device tax in U.S. affect the gross margins negatively versus last year.

On an EBITDA level before recurring items, we had an increase of 13% to SEK 148 million, non-recurring items amounted to SEK 34 million. As discussed on this slide by Tomas recently we have an expansion in our R&D. So gross R&D expenditures increased 30% to SEK 286 million in the quarter, and that’s before capitalization. We do anticipate the R&D investment to represent around 10% on net sales for the full year, which then will be a 2% increase as percent of sales. The acceleration in investment is mainly driven by the MR/Linac project. A reminder on the tax rate as we are going to benefit from a lower tax rate going forward, and we expect that to be around 23% within the next two years.

Currencies, we have seen quite significant movement in many currencies recently. Looking at our net sales, we have a negative currency effect of 8% in the quarter. So looking at the dynamic, I mean the U.S. dollar, the Australian dollar and Japanese has quite a big currency movement.

The net of hedges for Q1, the result was negative by SEK 65 million. For the full year, we do expect the negative currency effect to be around 4% of the top line, and that is then based on today’s currencies, and the corresponding number on the EBITDA growth is 5% that then includes a positive hedge effect of around SEK 40 million. So to conclude that part so that besides the currency effect, the outlook for the operating result remains the same as when we communicated in June.

Turning to cash flow and obviously also to working capital, we have a negative cash flow of the continuous investment of SEK 584 million in the quarter. Q1 is the weakest cash flow quarter mainly because of the seasonal effects, particularly done on the working capital side, but also when it comes to tax payments.

Starting with the net working capital and looking at this as percent of sales, it increased with 3% from the beginning of the year, but it’s on the same level 14% as we had in Q1 last year. Some reasons for that is seasonal, we do build up inventory in Q1 for planned deliveries in the coming quarters, the accounts payable goes down as an effect of our activity that is lower in Q1 versus what we have in Q4. And a reminder is also that to build, deliver and then later install project it is crucial to have working capital in our operation.

Working capital in absolute and also in relative terms will improve significantly during the year. This will then generate a strong cash flow. Working capital in percent of sales should at the end of Q4 at least be in par with last year’s performance. When it comes to tax, I mean our profit mainly is in Q4 and therefore we pay quite a lot to more than 50% of our annual tax payments in Q1, and that also causes a negative cash flow.

Also, which is more for the full year, we anticipate higher investments, normal Elekta has relatively low portion of investment, but this year we will see the MR/Linac project, we will be capacity when it comes to bankers and for the emerging markets, we also will see more training and education centers, which is investment that we are eager to get going and make sure we can benefit on those going forward.

So, with that Tomas, it’s back to you.

Tomas Puusepp

Okay, thank you Håkan. As I said earlier the business outlook for the year is unchanged. We expect that 2013-2014 will be another strong year for Elekta and in line with our long-term growth agenda. The need for good and cost efficient cancer care will grow around the world. We expect continued good growth in emerging markets, where Elekta is the market leader. We also aim to continue to strengthen our position in our established markets.

Technology leadership has been a main contributor to Elekta’s growth. Another factor is the increasing usage of radiation therapy that helps more patients live a better life, and drives our future growth. We have a number of very interesting project in R&D pipeline in all our product areas. Among them, is the MR/Linac product. We will increase our investment in R&D during this year and at ASTRO meeting in September, we panned to announce interesting news regarding our product portfolio.

The outlook in local currency remains unchanged for the year. Net sales are expected to grow by approximately 10% in local currency, and EBITDA is expected to grow by approximately 10% and the currency effect is estimated to some -5 percentage point on the growth.

So to conclude; the business outlook remains unchanged, and we expect contributions from large orders in the year. We anticipate a significantly stronger cash flow for the remainder of the year, and we expect a good fiscal year, the growth in sales and result and also increase our investment in R&D for long-term sustainable, profitable, growth.

Thank you.

Johan Andersson

Thank you, very much Tomas and with that we would like to start the Q&A session. So, please operator?

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) The first question comes from Johan Unnerus. Please go ahead announcing your company.

Johan Unnerus – Swedbank AB

Hi, there. It’s Johan Unnerus from Swedbank. I believe it was me that you addressed. Yeah, a few questions. Firstly, (inaudible) with very solid growth in Asia and China, it’s still by territory a bit slightly lower. Should we read anything into that or is that normal, we can take that far?

Johan Adeback

Johan, it’s Johan. No, you should not read anything out from a single quarter. Actually that market is growing double-digit if you look mid to long-term. So you should definitely not read out anything from a single quarter regarding that region.

Johan Unnerus – Swedbank AB

And in U.S. or America, I believe, you had slightly negative product mix. Is it the same thing to that or should we de-risk that or continue through the quarter?

Johan Adeback

Again, seeing a quarter you can’t draw any conclusion from that, but if you look in general, the North American market is still – continue to grow on a low to mid-single-digit and we expect that that would continue. So, you should definitely not draw a conclusion of the negative growth, because you have to compare to also with the loss we had the first quarter, which was incredible strong. But over time you will also see that that market is quite robust, particularly in the field of hospital based system, which is the majority of our customers. So we actually foresee a good continued business in that region.

Johan Unnerus – Swedbank AB

Finally then, on the growth, R&D, it’s been a rather dramatic delta then in terms of investments in the MRI projects and also in training in emerging market. What should we – looking to join this year, it’s a level year, guiding for is that where we should expect into next year and beyond or should we expect further uptick?

Johan Adeback

Now, Håkan will take care of that.

Håkan Bergström

Yeah, I mean, yes. Hi, Johan. One should expect what is communicated before is that we’ve, in particular for R&D, we’ll see this increase, the excess amount, but going forward that level will remain. So it’s not going to continue as an increase relatively speaking.

Johan Unnerus – Swedbank AB

Okay. Thank you very much.

Johan Andersson

Okay. And just a reminder, if you can limit yourself to one question per participant because we have limited time ahead over the Annual General Meeting. Thank you.

Operator

The next question comes from the line of Lars Hevreng. Please go ahead announcing your company name.

Lars Hevreng – SEB Enskilda

Thanks. Can you say anything about the cash conversion targets you have for the, I don’t think you mentioned that, and also what’s behind that since you’re measuring that target, (inaudible) investments and what. You’d talked about the increased investment, but if you could give some color on that level as well.

Håkan Bergström

Hi, Lars. The cash conversion as such as the target that we have is over sort of a number of years to reach 70% or more. So last year we had 76%, if you go back, I think we’ve done that. For this particular year we are not, at least not right now saying that how much it should be. We would be probably be more specific going forward. What we can say is what I asked that the working capital, which is a substantial part of the cash flow as part of sales will be at least that far probably slightly better than last year. It is the uncertainty around some of the MR project when it comes to investments that we need to further discuss with our (inaudible) departments that we have in that project and that we will be able to disclose what it is. I don’t think you should read too much into that we’re not giving the numbers. It’s more unlike to have inaccurate number than we have the number.

Lars Hevreng – SEB Enskilda

So, thanks for that. So it’s more likely to be investment, some of the operating cash flow levels there.

Håkan Bergström

Absolutely.

Lars Hevreng – SEB Enskilda

Okay. Thank you.

Johan Andersson

Thank you, Lars.

Operator

The next question comes from Veronika Dubajova. Please go ahead announcing your company.

Veronika Dubajova – Goldman Sachs International

Yes. Good afternoon, gentlemen. It’s Veronika Dubajova here from Goldman Sachs. I want to follow-up on a couple of the questions that you’ve got. The first one is on Asia Pacific and I appreciate there is a lot of volatility. But maybe Tomas can you give us, in terms of the key emerging markets have you seen any change in price momentum, because some other industries have experienced it in the last three to six months and I’m just looking for clarification or showing that that hasn’t happened and despite tightening credit conditions we continue to see solid mid to high-teen growth in emerging markets in Asia Pacific?

Tomas Puusepp

Yes.

Veronika Dubajova – Goldman Sachs International

And then, if I just can, quick follow-up on the cash flow conversion for Håkan. Receivables, normally you see a much bigger pay down of receivables than Q1. So just wondering whether there was anything in particular that would explain the movement this quarter. Thank you.

Tomas Puusepp

Hi, Veronica. Let’s start with the Asia Pacific question that you had. No, we don’t see any change except that the currents have been very volatile, but we have not seen any change in the demand in Asia Pacific market. It is still a double-digit growth market. So please don’t draw any conclusion from a single quarter, but over time it’s definitely a double-digit market to continue for years to come.

Veronika Dubajova – Goldman Sachs International

And Tomas, you previously said it’d be sort of, for Asia Pacific in total like from mid to high teens. Is that still something you feel comfortable in a three to five-year period?

Tomas Puusepp

Yes, definitely.

Veronika Dubajova – Goldman Sachs International

Okay. That’s great. Thank you.

Tomas Puusepp

And the cash conversion, Håkan?

Håkan Bergström

Yeah, and I think it’s – hi, Veronica, it’s Håkan. I think the question was more with regard to receivables. I think there’s nothing in the receivable part that is changing the view of the world or softening the business. I think over the years and if you look at the strong Q4 performance that we have the cash funds, a lot came from speeding up sort of the processes when it comes to part of the receivables. So the improvement that you’ve seen historically, we already did in Q4. So, now with more to stay on the level that we need to be.

Veronika Dubajova – Goldman Sachs International

Okay. And Håkan, if I’d follow your working capital guidance for the full year, I mean, assuming you don’t have significant increases in CapEx that looks like you should do cash conversion of at least 60%.

Håkan Bergström

Let’s get back to the number when we have full visibility on the investments. I don’t want to comment before I have that, but I follow your logic.

Veronika Dubajova – Goldman Sachs International

Thank you, gentlemen. I’ll come back into the queue.

Tomas Puusepp

Well, thank you, Veronica.

Operator

Next question comes from the line of Kristofer Liljeberg. Please go ahead announcing your company.

Kristofer Liljeberg-Svensson – Carnegie Investment Bank AB

Yeah. Hi. It’s Christopher from Carnegie. I was wondering about the order growth. Of course you shouldn’t do any conclusion from this quarter, but I complement where you do have the negative figure loss time and there from a bit interesting to hear. What you’re saying about the larger or increased number of large orders and is that something you think you could benefit from already in the second quarter and if you could give some more flavor where you see that in this particular market, what type of size there are those orders? Thanks.

Tomas Puusepp

Hi, Kristofer. Yeah, to answer your question, yes, we do see more and more of the larger orders coming in. It’s both if you look in larger hospital chains, but it’s also a kind of government, semi-government round activities regarding accounts of cash. So to answer your question, we see some larger orders coming in for the next quarters, yes. The answer is yes. Did that answer your question, Kristofer?

Kristofer Liljeberg-Svensson – Carnegie Investment Bank AB

And do you think it will help in the second quarter?

Tomas Puusepp

Yes, I believe it will actually help in the second quarter. Yes.

Kristofer Liljeberg-Svensson – Carnegie Investment Bank AB

Taking you for example, where you took a big chunk, I think in June and I guess previously on a share split the big investment program rather even between (inaudible), is that something you received already last year or is it something we could look forward for this year?

Tomas Puusepp

No, we have continuous, this cash dividend. It stopped in with last year. It’s not the end and of course we have discussions with them as we speak. So, nothing is finished.

Håkan Bergström

To put a little bit more flavor maybe. I mean, it’s a little bit hard to compare when you communicate things in a dynamic place as we are. If you look back it seems like it’s pretty much 50-50 the last year. Reading the press release on the 20, it seems that it goes over many years.

So, I don’t think one should as always compare the apples with another fruit, if you don’t have the details. We are pretty confident that our way of working with (inaudible) will give us the 50-50 as a percent that we think we should have.

Kristofer Liljeberg-Svensson – Carnegie Investment Bank AB

Okay. Thank you, very much.

Tomas Puusepp

Thank you, Kristofer.

Operator

Next question comes from the line of Richard Koch. Please go ahead announcing your company name.

Richard Koch – Kepler Cheuvreux

Hi. Richard Koch of Kepler Cheuvreux. What level of non-recurring items do you expect for the full year and are these included in the beta growth target?

Tomas Puusepp

Hi, Richard. I mean the non-recurring was linked to the very and also that is now concluded, I don’t expect anything else at least where we are right now, and it wasn’t included in the guidance and not even in the corresponding year. So…

Richard Koch – Kepler Cheuvreux

Okay. So the growth target of 5% should then be, we should subtract the non-recurring items from that?

Tomas Puusepp

Yeah. I don’t think we can 5%. It is 10% at or more. So, I think you should read that statement that we guide for 10% and more and then we have the 5% the negative currency effect just to make it clear.

Richard Koch – Kepler Cheuvreux

Okay. Thank you.

Operator

Next question comes from Michael Jungling. Please go ahead announcing your company name.

Michael K. Jüngling – Morgan Stanley & Co. International Plc

It’s Morgan Stanley. Thank you for taking my question. I have a question on Versa HD. You highlighted in the press release that Versa is exceeding your expectations. Does that mean that you feel more comfortable or even upside to your full year guidance in constant currency?

Håkan Bergström

Yeah, hi, Michael. Yeah, when you look into this and start with when you see more interest – relative recently launched, the Versa HD and that is actually an important indicate to what will happen for the next 12 to 18 months. And, so we are definitely seeing that people are very interested to acquire the Versa HD. Some of them have to adjust for the existing bodies they have.

So they have actually adjusted different price level and some of them are looking into the process how to actually switch some of the machines the orders they have, equate and then they’ll probably expected from the beginning. So, it’s a mixed bag of it, but definitely if you look into that we’ll see more volume from Versa HD for the full year. Yes, we’ll have a significant impact top line to bottom line. It will have some impact, yes, but it will definitely have the full impact for the following year.

Michael K. Jüngling – Morgan Stanley & Co. International Plc

So, Tomas – and they say then that the response from Versa HD is making you feel more comfortable full year guidance than perhaps three months ago?

Tomas Puusepp

Yes. That is correct.

Michael K. Jüngling – Morgan Stanley & Co. International Plc

And when you say you referred to the press release interest from our customers, are you referring to interest as people saying, hello, that you [boost] or is that actually referred to you getting more orders?

Tomas Puusepp

No, I mean what to do is perhaps we have increased the number of context regarding this machines. We measure that so it is significant increase in interest of exploring the Versa HD, both from our installed base, but also from new customers. So that is the clear learners, you probably know the first 60 days we have, we actually got the orders which has, I’d say, never happened before when we launched a product. So the early (inaudible) we have got is very, very promising indeed.

Michael K. Jüngling – Morgan Stanley & Co. International Plc

Okay. And on Versa HD gain, have you got a sense now of what the pricing that you’re achieving, I’m not looking for the absolute dollar or euro amount. It’s more so about conceptually. Are you now achieving across-the-board much better pricing than you received on your previous generation of Linacs?

Tomas Puusepp

Yes, that is correct.

Michael K. Jüngling – Morgan Stanley & Co. International Plc

Great. Thank you.

Johan Andersson

Thank you, Michael.

Operator

Our next question comes from the line of Pat Ling. Please go ahead announcing your company name.

Patrik Ling – Nordea Bank AB

Yeah. Hi. Patrik Ling with Nordea. Can I just have a quick follow-up on Michael’s question regarding Versa HD. Once again you mentioned that in the first 60 days that you received 30 orders, but then could you give us a flavor for how many orders you received now after six months on the market? And then secondly, also could you give us a flavor for how much you’re paying for the remaining 20% of the BMEI operation in China?

Tomas Puusepp

Yeah, it’s continued as I mentioned also, when we look in the Versa HD, yeah, it’s exceeded our expectation if you look in interest but we also see. Actually it’s materializing in orders, but you also have to – everybody have to respect also that this is a major investment for each and every cent. So it doesn’t take – we were little surprise that we could get this ramp up so quickly, but one will expect that this will continue on a more steady state growth than just a steep jump. But the importance is that all the feedback we get from existing user, we’ll have to start a user clinically.

Let us say is that what tells me and others we know because that it’s an outstanding machine. This is for tremendous statements and included from our (inaudible) let’s say that finally we don’t need to compromise when we’re delivering full sophisticated treatment to the patient, and I think that is really promising. It’s not just that it’s a very nice looking machine with a lot of feature. It actually makes clinical sense, and we will see more published information about the source from the next few months and next year. That will have an impact on our positioning and that will also have an impact on the interest in the market. So what’s where I’m looking for. It’s really – it has created a lot of momentum.

Patrik Ling – Nordea Bank AB

Okay. But get down to one and give us a number for how many orders you took in the first quarter, I mean I think everyone recognized that yes, it is a weak quarter and sort of a lot of vacation periods, and we couldn’t really expect a ramp up from the 30 that you received at the end of the fourth quarter, but I think that still improvised to get some sort of feeling at least for how many orders you received in the first quarter?

Håkan Bergström

As I mentioned also for Mike, I’m quite positive when we look into that. So it is, you’re right. Seeing a quarter you come to a conclusion to that, but you can definite draw one conclusion, it is a lot of interest will this position us strongly in the market, and we’ll also have about to really create more orders years to come. There’s no question about that.

Johan Adeback

I mean maybe adding a little bit color than [product line for] is that our regions that obviously have been facing customers everyday has increased the forecast for the year quite substantially. More in line when Tomas expects from them, but that’s getting good confirmation of the magnitude of – potential of Versa HD.

Patrik Ling – Nordea Bank AB

Okay, great.

Johan Adeback

I think you had a comment, question on BMEI. It’s 5 million U.S. dollars this 20 additional percent, which was part of the original agreement made with (inaudible).

Patrik Ling – Nordea Bank AB

And we’re looking that in the second quarter cash flow statement, right?

Johan Adeback

We will notice that, yes.

Patrik Ling – Nordea Bank AB

Okay, great. Thank you.

Johan Andersson

Thank you, Patrik.

Operator

The next question comes from the line of Mattias Häggblom. Please go ahead announcing your company name.

Mattias Häggblom – Danske Bank Markets

Good afternoon. Mattias Häggblom, Danske Bank Markets. One point of clarification and one question please. First, the clarification for Håkan. You said 10% or more EBITDA growth, but in the releases it says that, since June and your Q4 report approximate to 10%, which also could mean, slightly less than 10%, but that’s just a clarification. Do you mean more or approximately?

And secondly, the question, which refers to the gross margin of 42.2% or so, if I’m not mistaken, which is low for quite some period. Is it explained by mix on emerging markets, FX or did you device that and how should we think about gross margin going forward? Thank you.

Håkan Bergström

Yeah, on the clarification it is approximately, but obviously I mean we want to do more. On the 42%, it mostly is currency, more than half of the effect. The medical device tax is slightly less, I mean if you look at we didn’t have one in Q1 as it’s later on $700,000 in Q1.

Mattias Häggblom – Danske Bank Markets

And mix on the emerging market is the smallest portion?

Håkan Bergström

Yeah.

Mattias Häggblom – Danske Bank Markets

Okay. Thanks so much.

Håkan Bergström

Thank you.

Johan Andersson

Thank you, Mattias.

Operator

The next question comes from David Adlington. Please go ahead announcing your company name.

David J. Adlington – JPMorgan Securities Plc

Thanks guys. David Adlington, JP Morgan. Just on your commentary that you are seeing large orders driven by ACOs in the state, I just wondered what you were thinking about in terms impacts on pricing from that kind of constriction odds.

Håkan Bergström

It’s an interesting question David. When you look into this larger organization, larger purchasing bodies, they are looking into much more – looking more in the holistic view, it’s a complete solutions which they are looking for, so it’s not so much just hardware, and actually when you look into that, the margins it’s actually quite decent, but what usually happen is kind of this, we become the (inaudible) so we have – it’s like a consultative service including software and hardware, and really how do we work together to provide the best and the most efficient cancer care.

So it is a larger long-term commitment which we usually get from this larger deal, and access is a different issue, because there it’s more, I would say of course it’s training implications, but it’s more straight forward Linacs including some software.

So it’s a mix bag from that but by looking many of the larger deals and I have been discussing that also during summer with some of the larger organization and they are looking for more partnership with us, which also create quite a significant commitment from both side sector to provide the right support.

David J. Adlington – JPMorgan Securities Plc

Great, Håkan thank you.

Håkan Bergström

Thank you.

Operator

The next question comes from Ian Douglas-Pennant. Please ahead announcing your company name.

Ian Douglas-Pennant – UBS Ltd.

Hi, I just got one left, please sorry, Ian Douglas-Pennant from UBS. Just on the working capital, I mean I know you said you expect it to be about the same level as a percentage of sales, at the end of this year, what would you expect in the long-term is the kind of level that you need, is that going that coming down as long run rates? Thank you very much.

Håkan Bergström

Hi there Ian, I mean it is being around sort of 10%, 11%-ish range. I think one should expect, we are not so pleased with being there, but to comp the ones being able to drive that further down I think is today it’s little bit optimistic but to be around the level I think is all one should count on.

Ian Douglas-Pennant – UBS Ltd.

All right cool thanks very much.

Håkan Bergström

Thank you.

Operator

Next question comes from the line of Hans Mahler. Please go ahead announcing your company name.

Hans Mahler – Handelsbanken Capital Markets

Hi Hans Mahler, here with Handelsbanken. I just have one question, you’ve talked about the strong demand for Versa HD and that you are right now have machines in clinical operations and you book 80% of the revenues at shipment, why aren’t we seeing that in the gross margin, have you sold initial ones at a big discount? Just to clarify the link between Versa HD and the rather weak gross margin in Q1. Thank you.

Håkan Bergström

Hi, Hans its Håkan. I think it’s not that much volume delivered yet, so I mean it’s not yet in the numbers, at least not in the significant way. I think that’s the answer to the question.

Hans Mahler – Handelsbanken Capital Markets

But if the ones you talked about that you booked already when you announced the previous quarter I guess some of them have been shift or what are you looking on that number you announced these …

Håkan Bergström

We do shift but think picture from an order to when we ship and start to install and it’s up to six month and we barely have started to ship any volumes from Versa.

Tomas Puusepp

To give you some information Hans, is that probably no, when we launched that Versa HD we had actually few of them in pipeline, so they got that actually delivered to ensure also that we can also get some additional clinical evidence from this different samples, and that is what I refer to. These samples who got it in the very early stage has been extremely positive in the way they can actually use this equipment to provide that to service for the patient, and that is what our mantra really, really interesting and you will see more of that.

Håkan Bergström

I mean maybe just to conclude – I think you have that in your comment on looking at the price point that we are getting, it is a substantial improvement in margin as well.

Hans Mahler – Handelsbanken Capital Markets

Okay, that’s all. Thank you.

Tomas Puusepp

Okay, I think we have room for one more final question and now we need to conclude the program for today.

Operator

The final question comes from the line of Justin Morris. Please go ahead announcing your company name.

Justin E. Morris – Bank of America Merrill Lynch

Hi Justin Morris, Bank of America. I just had a question on currency. And effectively this is the second time in a row you have cut guidance on currency, does the same in the third quarter, when I look at my currency model I really haven’t seen much change against major currencies. So, I was wondering if you could maybe give us the exact numbers of what you have assumed in your guidance and also which ones, which currencies have changed the most over the last six months, the cost to guidance.

Håkan Bergström

Hi there, it’s quite a detailed question. I mean I think we better if we do that offline with you and others who wants to go through it. It’s basically take the general, so it’s more just smaller currencies like the Australian Dollar, the Canadian Dollar, it’s not the main ones that has had to taken the main part of the currency effect. But I’ll rather do that offline so we can spend time on each currency so you know where we are.

Justin E. Morris – Bank of America Merrill Lynch

Okay, so it’s not the Euro and the Dollar, it’s more the Aussie Dollar and some of the smaller ones.

Håkan Bergström

Correct.

Justin E. Morris – Bank of America Merrill Lynch

Okay, thanks.

Tomas Puusepp

Okay so with that final question, we thank you all very much for calling in today and we will also like to remind you that the next capital market event is on September 23 in Atlanta when we will present at the ASTRO meeting. So thank you very much for today and have a very good afternoon. Thank you.

Operator

Ladies and gentlemen, thank you for your participation today. This concludes today’s conference and you may all disconnect your lines. Thank you.

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