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Executives

Johan Andersson - Head, IR

Niklas Savander - President and CEO

Håkan Bergström - CFO

Analysts

Johan Unnerus - Swedbank Markets

Mattias Haggblom - Danske Markets

Kristofer Liljeberg - Carnegie

Erik Hultgard - Nordea Markets

Michael Jungling - Morgan Stanley

Veronika Dubajova - Goldman Sachs

Hans Mahler - Handelsbanken

ELEKTA B SHS (OTCPK:EKTAF) Q1 2014 Earnings Conference Call August 28, 2014 7:45 AM ET

Operator

Ladies and gentlemen, welcome to the Elekta Q1 Report. For the first half of this call, all participants will be in listen-only mode and afterwards there will be in a question and answer session. Johan Andersson, Head of Investor Relations. Please begin.

Johan Andersson

Thank you very much, and welcome to Elekta’s conference call following the publication of our first quarter report for the fiscal year 2014-2015. My name is Johan Andersson, and I will be the moderator for this call. I would like to introduce to you to the team here in Stockholm; Niklas Savander, our President and CEO, Håkan Bergström, CFO and the Investor Relations team

Niklas Savander will be your presenter today and both Niklas and Håkan will be available in the Q&A section afterwards. As we start our Annual General Meeting today at 3 O'clock, we have scheduled this call to last for 45 minutes and then we need to carryon to the AGM. The presentation will be concluded with a Q&A session and in the Q&A session, we ask you to limit yourself to two questions per participant.

With this, I hand it over to Niklas Savander.

Niklas Savander

Thank you, Johan and once again welcome to Elekta’s Q1 conference call. To summarize the first quarter, we saw a continued mix development in our markets. We are pleased that our order momentum recovered with 12% growth in the quarter. However, net sales profit and cash flow were weak. Looking at how we see our key markets develop and taking our current order backlog into account, we reiterate our net sales guidance of 7% to 9%, however expect to end the year at the low end of the interval. We expect EBITA to grow by approximately 10% for the year.

Let me first discuss the recent market development. In the first quarter, the market environment across our geographical areas was mixed. Taking all plusses and minuses into account, we have been operating in a market that only grew by low-single digits compared to the same period last year.

It was our mature markets that primarily accounted for this temporary softness. Underlying market growth in Europe and particularly in the U.S. was lower than we anticipated going into the quarter. In emerging markets, development remained mixed in Q1. Looking at the full year, we have indications that the emerging markets will eventually show higher growth. Generally speaking we do expect an improvement of those market conditions in the remainder of the year.

Visibility in some of our emerging markets is blurred by a couple of macroeconomic and geopolitical circumstances and their risk for the execution of a minor part of our full year plan. The current situation in Northern Iraq and Ukraine has already affected our results slightly in the first quarter. We remain cautiously optimistic that activity that saves people’s lives will be left outside the conflict; however we continue to monitor the situation closely.

So let’s go through the orders for Q1. As said, we are pleased with the development of our order intake. Our order bookings increased by 12% in the first quarter compared to the same period last year. This was driven by strong performance in Europe where we outgrew the overall market and to a lesser extent in North America. Asia Pacific was mixed. We are glad that India came back with good growth. We have strengthened the Indian Elekta team and the first results are encouraging.

In Japan, the order level remained more or less the same. China order intake was lower compared to last year’s Q1; however, comparison is difficult as the market in China was seasonally lower compared to the first fiscal year last year. However when you look at the developments in the Chinese market and talking with our customers, we feel confident about our leading position in China and we expect improved order growth for the full year. With an increase of 82% order growth, Latin America has been very strong in Q1. It is good to see that Elekta has returned to winning deals and signing orders in Brazil that will -- after our decision to step out of the public ministry of health tender last year. We are also satisfied with Leksell Gamma Knife order volumes. Following our actions from Q3 last fiscal year, we have seen recovery in volumes of Leksell Gamma Knife in Q4 and now in Q1.

Talking about delivery volumes, our net sales decreased with 4% in the first quarter. Since this is normally our weakest quarter, we should not overstate this decline. Deliveries were good in Europe and increased slightly in Asia while North America had a weak first quarter. The decline in North America is mainly related to delayed software installations. This was due to a late release in the quarter of a new version Mosaic which includes new functionalities and is certified for meaningful use. Accordingly not enough resources were available to complete the planned installation before quarter ended. We do expect software revenues to recover during this fiscal year.

I’d also like to spend some time on our margins which were disappointing in the quarter. Gross margin, decreased to 34% from 42%. This was significantly lower than our expectations. When you look into it, there are really two reasons. First of all the margin we realized in our projects in Q1 was below expectations. We had a lower value in the mix. And secondly the abovementioned low software revenues affected our gross margins significantly. If you analyze our backlog and prospects for the full year, we foresee that gross margin will recover. This will of course require heightened focus for me and my team on managing our project pipeline and cost.

EBITA excluding non-recurring item was negative, amounting to SEK38 million. The low result is an effect of lower gross profit of course combined with the cost increases according to our plan. These cost increases were needed to ensure we could execute on our plan for the full year. And the underlying cost increase is approximately 7%.

So let’s then turn to cash flow. Cash flow after continued investments was SEK670 million negative for the first quarter, compared to SEK584 million during Q1 last year. Unfortunately cash flow was impacted by negative results from operation, i.e. negative operating cash flow. On top of that we continue to build up inventory, up approximately SEK200 million from last year. This is because we had expected to ship more in Q1 and also be able to meet our commitments for the full year.

Partly this is also an indication of the long lead times we have in our supply chain. Our plan is to make sure we decrease the inventory during the rest of the year. Compared to the fourth quarter, accounts receivables declined according to plan. Part of that is related to the SEK250 million in late payments which we received in Q1; however we were again confronted with some late payments, also in Q1.

Actions are in place to gradually improve cash flow during the year with the ambition to return to a cash generation of about 70% for the year. On the product side, we are proud that Elekta’s Leksell Gamma Knife perfection took the first place ranking in the fourth consecutive year in best in class awards. In addition, Elekta's Agility 160-leaf multi-leaf collimator and Elekta Infinity radiation treatment systems earned second and third place.

Versa HD, our high-end linear accelerator continues to be an enormous success around the world. We have just received clearance by Japan’s pharmaceuticals medical devices agency to market and sell Versa HD in Japan. We do expect this will help us to further grow in the Japanese oncology market.

We are very proud that our long-term scientific partner, The Christie joined our research consortium to help develop the MRI guided radiation therapy. The Christie was an essential participant in the project 14 years ago that laid the foundations of the use of cone-beam computed tomography at the time of treatment to improve radiotherapy delivery, which now is a standard of care in the entire industry. The Christie is the seventh member to join the research consortium.

And with the bilateral research agreement, Uppsala University of Hospital in Sweden will become the first hospital to receive a clinical system once it has been approved by the regulatory authorities, i.e. receive the CE Mark. To prepare for this, Uppsala authorities started the building of new facilities with bunkers that are capable of receiving such treatment units over the future.

Before I go into the outlook of the year, let me update you on our strategic agenda that I presented to you during capital markets day in June. Although the results are weak and south of what we had anticipated, they do not come as an enormous surprise to us. We know that part of the weakness is of our own doing. Yes, we are operating in a global market that is going through a phase of softness and uncertainty but these external factors are only part of our story.

Our plans are clear, our customer relations are excellent and the need for our solutions is huge. What we need to look at and improve is on our execution. To help us do that, we have developed a strategic agenda as we discussed during our capital markets day in June. With the right attention to the right priorities, we will be able to structurally strengthen the Company and help us return to growth levels that fit our Company that is profitable growth levels that are above 10%.

Our plan has four focus areas that will help us take the right actions, innovation leadership, commercial transformation, lifecycle management and growing the pie. Over the summer, we have continued to work on this and set priorities with our executive management team for the first year. It is important to underline that this agenda is focusing as much on the long-term as the short-term. We are taking measures to bring innovations to the market faster. We have a lot of potential to increase service revenues. We will focus more on software and look critically into our cost structure along the way.

All of this will not happen overnight, but we have been able to start moving in the right direction. In the fourth quarter and in line with this strategy agenda, we announced specific measures to enhance the efficiency of the organization in order to support continued growth. We completed a skill transformation program in our software organization as well as staff reductions in our North American and Asian regional organizations, and we also announced our intent to close our office in Freiburg, Germany and transfer the functions to Crawley, UK.

The activities in the program have to a large extent been executed and the related cash outflow amounted to SEK33 million in the first quarter. To strengthen our position in Turkey, Elekta acquired the distributor Mesi Medikal, and on Monday this week, we announced a deal to acquire our Polish distributor RTA. These actions are both part of the execution of our strategic agenda and will improve our position in the mentioned markets as well as improve our ability to capture service revenues and products.

So to summarize, despite a difficult quarter, I remain focused on achieving our objectives for the full year. The underlying demand for cancer care continues to grow and as I said I see the potential in the market and I know the potential Elekta has as a company. The challenge for our organization is not the direction to take but the rigorous execution of our strategic agenda. The first quarter is relatively small and is not an indication for the full year performance. We remain focused on achieving the objectives for fiscal year ‘14 and ‘15.

Looking at the backlog and having thoroughly analyzed the short-term prospects, we are confident that our guidance can be met. 7% to 9% net sales growth still stands. However factors resulting in higher execution risk will probably find us at the lower end of that range. And finally, EBITDA for the full year is now expected to grow approximately 10%.

Finally a comment on currency. During the recent period, we have seen a weakened Swedish krona and a strengthen British pound. All in all, we estimate the currency effect for the year to be plus 3% on net sales and have a neutral effect on EBITDA including hedges.

Thank you, Håkan and I will now take the questions.

Johan Andersson

Thank you very much, Niklas, and we will now open the Q&A session. So please, operator, start the Q&A sessions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Johan Unnerus from Swedbank Markets. Please go ahead.

Johan Unnerus - Swedbank Markets

First question is on the gross margins, which are very low. I think we have to look back at least 10 years or more to find that sort of gross margin, even in the low Q1. That indicates that software sales are -- well, I don't know, nil or something? And the question, the other question is cash conversion. Last year was extremely low in that point. And now Q1, despite the late payment from Q4, is actually worse than Q1 last year. I think both these issues are very important.

Niklas Savander

And so, Johan, it's Niklas. So what was your question? I understood your comment.

Johan Unnerus - Swedbank Markets

Yes. Especially what should we think about gross margin? Is it correct that software sales are very-very low in Q1? And the second point on cash flow. How much concern are the delayed payments? It seems to be haunting you still.

Niklas Savander

So, if I start with the second one first, so I think that the delayed payments obviously is something that we need to work on. I think over previous quarters we’ve had delayed payments as well. I think we are maybe more haunted by the fact that we specified out one in the fourth quarter. Obviously it’s now slightly less but it’s something that we do need to work on, no question. Of course the cash flow generation is much more than just a question of delayed payments or not. So we definitely have our work cut out there.

On the gross margins as we stated, there were several factors that accounted for that one lower mix, generally speaking, in the projects that were in Q1 and software and of course because it is such a small quarter in absolute terms, therefore in absolute terms a relative small shift makes for huge swing. So I think that as we have been saying all along, Elekta is not a company that should be judged on a one quarter number. So I think a rolling 12 month view to this one will give you a better idea. But yes, this of course also shows that we are increasingly a company that is both benefitting from software business with high margins but then when we have a hiccup like this also suffering from.

Johan Unnerus - Swedbank Markets

Just a short follow-up there. You're still aiming for close to 7% conversion on the full year. What is close? And approximately it seems a long way to go now.

Niklas Savander

It’s definitely a challenge but that's the target we still have and looking at what the actions we have in place, we have no reason to update that commentary.

Operator

Our next question comes from Mr. Mattias Haggblom from Danske Markets. Please go ahead.

Mattias Haggblom - Danske Markets

First question, or rather a reminder. Could you remind me was it SEK200 million payment that should have happened in Q4 and that slipped into early Q1 meaning that without that delayed payment, cash flow would have been worse during Q1 by that magnitude? And secondly, could you provide us, Niklas, with examples and facts why you feel more confident as you restore cash flow compared to a quarter ago when you communicated with us for the first time? Thanks.

Niklas Savander

I am sorry, can you repeat? You have a static on the line. Can you repeat the second question? I'm not sure I understood it.

Mattias Haggblom - Danske Markets

I think me and the market would be interested to hear examples and facts what you have done since a quarter ago to make you more confident that you can restore cash flow and meet your targets, compared to a quarter ago when you communicated with the market for the first time. So what are you actually doing in terms of cash flow restoration?

Niklas Savander

So your first question, what we highlighted in Q4 was a 250 million payment that was related to China. Now we are not highlighting what the sum -- it’s a significant sum that other projects have slipped over in this quarter. So I can’t really do the math on the 250 million without the other sum which we are not disclosing.

So then on the second question actually, whether I am more confident or less confident is not we reiterate the same guidance as we had last time. And if you remember, what we talked about then was this is essentially a question of -- these are the historical levels that this Company has been able to achieve when executing with all cylinders.

Now we have had, if you look at the reasons for the -- are very operational in the sense. We planned to sell more in Q1. We built inventory for that. That did not happen and so obviously that is one of the aspects that impact, you could say that our sales forecasting therefore was not the same or in sync with our manufacturing process, but overall, it is related to my confidence in looking at the demand of the products, the demand of our solutions and our capability of turning that demand into deals.

Mattias Haggblom - Danske Markets

A quick follow-up, if I may. Firstly, your guidance is unchanged. My question was more like, is your confidence unchanged compared to a quarter ago? And a second point would be have you implemented any actual changes, added any kind of resources to restore the cash flow since maybe three months ago?

Niklas Savander

We have started a number of items related to the cash flow obviously. If you have done a convert from 30% something conversion to 70%, you can’t just sit there and hope for it. Obviously it has to do with all elements. I'm not going to walk you through the details. You will have to believe me that actions are taken, otherwise I wouldn’t be sitting here. Related to confidence level, of course we have now one less quarter to get to 70%. So in that sense of course the challenge is tougher but we do feel we can get there.

Operator

Our next question comes from Mr. Kristofer Liljeberg from Carnegie. Please go ahead.

Kristofer Liljeberg - Carnegie

First question on order and sales correlation. I think the only bright spot in this report is of course 12% organic order growth, but at the same time, I would say that sales growth would be in the lower end of the range. So if you could give a few comments about that? Does it mean, for example, that you expect order growth to be much lower again from next quarter or is there some specific projects you have in the order backlog that you are worried about? If you could.

Niklas Savander

Yes, it is a good question Kristofer and I would say that -- I'll answer it generically first. So as we have stated in the past as well, our industry is going through a bit of a transformation. And so consequentially our order backlog is creeping to bigger and bigger project little by little. And so this quarter in that sense is not exception that we do have -- we do see the mix shifting gradually not dramatically but gradually towards bigger projects and longer lead time projects. And so unfortunately to some extent that means that you cannot draw the direct conclusions between this year’s order growth is necessarily same thing as next year sales growth.

I would view the sales growth number more as an indication of the market momentum we have and I am completely with you on that it is the bright spot of this report. Generally speaking, it is the quarter result is a disappointment for me as well, but the order momentum and our ability to capture large deals is a very positive sign for me and gives me confidence. Now, obviously, some of those long projects will take than a year to realize, but I wouldn’t say that this quarter was a dramatic shift in that mix but it is definitely directionally in the same direction as we have seen already over several quarters.

Kristofer Liljeberg - Carnegie

But does that mean you don't necessarily expect order growth to slow down considerably in the coming quarters? That's not the reason for the slightly weaker sales guidance for the full year?

Niklas Savander

Yes, that’s not the drive for that.

Kristofer Liljeberg - Carnegie

Okay. And my second question on -- coming back to the weak gross margin. Software was one thing, but you also said the value of the projects in the quarter you delivered were below expectation. So I'm interested to see how that could happen and if you could say a few more details about that. Thank you.

Niklas Savander

So, it’s a couple of markets where in these long projects I think we have some work to do ourselves on estimating kind of the cost versus income mix. Now, of course, an isolated quarter is also a dangerous one to pick as many of these projects are longer term. But we’re very strict in following our accounting guideline if you like on making sure that we record cost and orders and so forth and sometime these are not completely in sync. But I would say that on actual quarter base but I would say that biggest reason is we have in some markets project management challenges that require us to do a better job of making sure that we don’t accumulate either cost which we had not planned for or work that we had not planned for, for the customers. So it’s very classical project management execution issue.

Kristofer Liljeberg - Carnegie

Okay. And do you think you have a better control of this now for the remainder of the year? Because it seems that could be a risk going forward as well. And also if you could comment on your view on the full year gross margin. Previously, the statement has been that it should improve slightly. Now currencies are even a bit better than previously, but of course a very weak start of the year that you have to make up for. Thank you.

Niklas Savander

So I think that the full year is definitely a more relevant discussion to have. And of course when you look the full year then single projects don’t have that bigger impact. But again back to this a very small absolute term quarter, a single project can have a massive impact on the number where when you look at the full year of course a single project going slightly wrong is going to be absorbed by a number projects that went very well. The gross margin improvement that we were forecasting is driven by three things. It is driven by our confidence with the Leksell Gamma Knife, which we have seen after the third quarter that has improved. Q1 also extended that visibility or trend.

Of course we’re determined to maximize our asset of software and the better we’re at executing both installations of software and selling new software that is a high gross margin business for us. And the third one is our high end. The Versa HD continues to be a success around the markets and improvement or approvals in markets like Japan where we’re not able to sell Versa HD, of course, are things that make us feel like the rest of the year is definitely going to be a good one rather than an extension of Q1.

Kristofer Liljeberg - Carnegie

So are you prepared to say anything about the second quarter at this stage?

Niklas Savander

We don’t guide by quarters.

Operator

Our next question comes from Mr. Erik Hultgard from Nordea Markets. Please go ahead.

Erik Hultgard - Nordea Markets

A couple of follow-up questions to previous questions asked. Just on the outlook, the change in sales outlook, is it mainly driven by weaker Q1 deliveries, or have you also penciled in some of the increased geopolitical risk factors in that outlook? That's my first question. Secondly, R&D costs continue to outgrow the annual run rate for sales growth, and when should we expect to see them being more realigned? Thank you.

Niklas Savander

So, on the first question, yes of course it’s not very exact science. But we have made some estimations on the impact of the full year for the projects in geopolitical environment. That is of course a very hard one to forecast, if we just take Iraq as an example. I mean Iraq is one where we have as you know business and there is some trouble in northern parts of Iraq. However, south and central part of Iraq is functioning in growth normally. And so we continue on some of the projects there. We obviously have to care for the safety of our personnel and rerouting of some logistics chains that typically have gone through the area where there is now trouble. And so just because you have something like that there doesn’t mean a complete standstill but obviously it increases the risk quite significantly. So I would say we have factored some of it in there.

Second question, R&D. Yes, so yes you are right and we did say that it will flatten out, I guess the way you should read this is we are still ramping up the resources for our major R&D projects in the beginning of the year but you should see it flattening out.

Håkan Bergström

Maybe one additional, on the R&D expense, as you know quite a substantial part of it is in UK. And obviously with the sterling value, you can’t compare that in Swedish krona. So it is not far from what one could expect in sort of a local currency or a fixed currency environment.

Erik Hultgard - Nordea Markets

Okay. Thank you so much. Just a quick follow-up was the gross margin. You blamed delayed software installation for most of the weakness in the first quarter. Is it fair to assume that these installations will come through in the second quarter? Will that imply that gross margins the coming quarters will be substantially higher than a year ago?

Niklas Savander

First of all we don’t guide on quarters. The second point is that the software installations were only part. As you remember we cited several others ones, but specifically on the software ones, yes this was a very particular case where a version of Mosaic 2.6 which is certified for meaningful use and many other things was released very late in the quarter. So we just didn’t have the, it’s like the project planning or the man power to install so much software in the very few days that were left in the quarter. So that is obviously a manmade bottleneck that will disappear. However, of course, as the quarters also get bigger in Q3, Q2 and Q4, this single event will have less of a meaning anyway.

Erik Hultgard - Nordea Markets

So your EBITDA forecast for the full year, does that pencil in that gross margins will be back to previous year's level?

Niklas Savander

Our EBITDA for [multiple speakers]

Erik Hultgard - Nordea Markets

Yes. And does that assume that gross margins will recover and be broadly at the same level as last year?

Niklas Savander

We have not guided on gross margin on this level and I have no plans on starting now.

Operator

Our next question comes from Mr. Michael Jungling from Morgan Stanley. Please go ahead.

Michael Jungling - Morgan Stanley

Firstly, I've got a question on guidance. Given that Q1 normally is a very light quarter and has not really been indicative of full year performance, I'm sort of curious why you thought it was a good time to change your guidance in the first quarter. I can't remember, and I apologize if I get this wrong, but I can't remember Elekta doing this ever in the first quarter? And then secondly on receivables, you're sort of highlighting increased execution risk and political risk. Do you feel that there is an increased risk that you may have to do an impairment of your receivable balances that are due from customers? That's all. Thank you.

Niklas Savander

Yes, thank you. I think this is a very good question, the first one and it is more related to my desire to have transparency between you, the group on this call, our investors and analysts and us. So what we are basically saying is looking at the first quarter but also of the increased risk be it economical, U.S. not growing quite as that as we thought some other macroeconomic things and then these geopolitical things all-in-all mean that we have a heightened risk on reaching our results. And so our intent with tweaking how we word our guidance was to let you know that we are, A, disappointed as Q1; B, are very committed to execute on our plan but because of many things that are out of our control we see that there is a higher risk profile of reaching that than before and that’s really what you should read into that change.

Michael Jungling - Morgan Stanley

Great. And then on the receivables side, please?

Niklas Savander

Yes, Håkan.

Håkan Bergström

Yes, we will try to do that. Hi Michael, now as receivables, in general non-receivables and we’re in good shape I would say that we have some internal work improvement in our processes. So actually, our overdues, that we measure as the consequence of that is going down. I don’t see as today that the risk is higher in the receivables. It’s always a risk, but I consider that to be for manageable when it comes to that the customary base that we have.

Michael Jungling - Morgan Stanley

Okay. And then a follow-up question on my guidance question before. So the lowering of the guidance is more a reflection of general assumptions being lower than you thought rather than including the developments in the second quarter. Is that a fair interpretation of what you've just said?

Håkan Bergström

Yes, it will more is a consequence of -- yes that the assumptions were maybe are -- the market assumptions we have made have deteriorated some from what we went into the year with. And so that is obviously visible in our Q1 results which far disappointing. On the other hand, we of course have three quarters to call back as much as possible for it. However, we did want to be transparent about the fact that because of the external factor this is not going to be an easy task and so we want to set expectations with the market that this is definitely where we are aiming, but having spent now one quarters on slightly worse market conditions than we expected is not going to be as straightforward as we originally planned.

Operator

Our next question comes from Ms. Veronika Dubajova from Goldman Sachs. Please go ahead.

Veronika Dubajova - Goldman Sachs

I have two. One is a follow-up on Michael's question around the guidance and the market conditions. To what extent do you feel comfortable that this is a market-wide issue as opposed to an Elekta-specific one? Because looking for instance at the commentary from your largest competitor, the way they describe the market is as relatively stable. So any color that you can provide on that. And then my second question is just thinking about pricing. And, Niklas, can you confirm when you talk about the issues with the gross margin this quarter that what you're referring to is a country mix issue? Or is it actually a product mix issue? Or is it a pricing issue? If you can just give us a sense for the weakness outside of software on the gross margin, which one of the three was responsible for it that would be really helpful.

Niklas Savander

Thank you, Veronika. So on the first question is, I don’t think we -- any company should just behind trying to externalize the problem and saying we’re doing everything fine and just the market. Clearly, in this quarter, there are many items where we could have done a better job as well. However, I do think that again it comes back to the different profiles that we have as companies between us and our competitor that our exposure to the emerging market is much higher.

The benefit of that one is of course when those emerging markets grow, we have a structurally better growth platform for it. The downside of that is one of course when emerging markets are in economical or other trouble; we tend to be more exposed to it than some others. And so there is definitely a crisis in Iraq or a crisis in Ukraine is very hard to pin on Elekta. That is clearly geopolitical in nature. The fact that we’re more exposed to those markets versus some other companies is of course the choice we have made as always becomes external factor that influences us more than others.

Of course in those you could say the -- of course it’s true as well, so when it comes to the U.S. market, we have less exposure there but we have grown and taken market shares in the U.S. to the extent that we’re now starting to feel also when the U.S. market slows down that impacts us a little bit. It impacts some other companies a lot more of course. So it’s a combination of both and I don’t want to pretend here that this is only an external thing. It is external things but of course as responsible management, our job is to make sure that we can compensate for external forces by doing something else and there we can always improve.

On the mix side, it’s really a mix of how should I word, it’s a project mix really. If you think about large deal multiyear deal that has several components. Some are third party, some are Elekta, some is software, some is hardware, and I would say our capability and our ability to forecast that both the income and the outflow i.e. the costs of those projects over multiple years is where we have now had an issue in some markets. And because it is such a small quarter and they happen to be in this quarter, they surfaced. I am sure that we’ve had situations like this in the past as well, but if it happens in the bigger quarter, Q3 or Q4, this is not visible to you guys. So it is in that sense not a really good explanation but it is unfortunately the daily grind of large project business that we absolutely need to get better at understanding what we have committed to committing with the customers on that we are talking about the same thing and then getting paid for it so. So that’s why I used the term earlier that this is really the daily grind of long-term project organization.

Veronika Dubajova - Goldman Sachs

Thank you, Niklas. So just as a follow-up, can you confirm that your kind of like-for-like pricing to the extent that you can characterize it is stable at the moment?

Niklas Savander

Yes. I would say that when you look at pricing, it’s one of those things that you can always find a deal in the part of the world where any company, us or our competitor we know basically to be very aggressive. But when you look at pricing across all regions and overtime, I don’t see a trend that you can point out to. In specific deals, of course we go at it and have specific pricing for that one. But when you sum it all up, you can’t really call out a trend up or down at this point in time.

Niklas Savander

Okay. I think we have time for a final question. Please operator.

Operator

Our last question comes from Mr. Hans Mahler from Handelsbanken. Please go ahead.

Hans Mahler - Handelsbanken

First a question on the Gamma Knife, you mentioned a pickup in Q1. Did you actually install more Gamma Knives in this quarter compared to Q4, or for that matter in Q1? Because in my model, that doesn't add up on the gross margin side, or have you had any cancellations on the Gamma Knife, that already has been booked on as revenues in the P&L? That was my first question. And also secondly, you were talking about the weak market in China during the quarter. If we look on data from the Ministry of Commerce in China, it suggests that the market is actually improving, but the majority of the recent announced tender has been won by your main competitor. Is that a view you share?

Niklas Savander

So on Gamma Knife first of all, so we were referring to the pick up as we see versus our plans and of course versus the prospects. So I don’t think comparing a massive Q4 and a Q1 necessarily does any justice to that one. And so you can’t do like quarter-after-quarter comparison on that one. What I can say about the Gamma Knife is that we had a very challenging first part of the year last year. We initiated some actions related to better focusing our sales team on it. Then as you know, there has been already revealed the proposal for a reimbursement, new reimbursement in the U.S. for Gamma Knife treatment and that is very favorable. This is obviously crossing positive momentum in that market some which are realized in orders and some which are definitely filling the pipeline. And so we feel in that sense that a Gamma Knife business is back on its track and will produce meaningful profitability for us for the full year.

Hans Mahler - Handelsbanken

Can I rephrase my question? Did you book any Gamma Knife revenues in the Q1 related to new installations?

Håkan Bergström

Yes.

Hans Mahler - Handelsbanken

Okay, perfect.

Niklas Savander

Okay. Then on China. So a couple of things. So first of all, of course the seasonality compared. So first you have to look at, when you look at our numbers you have to of course first think about okay what do you compared that with. So we had a very unusual seasonality in our own business as well last year in Q1, so that’s partly explaining it. You are right, the season -- and by the way, even if we did not have that one still seasonally the whole market of China, we believe, is different this year than it was last year in Q1. Now, again, I don’t think we should read too much into the seasonalities between the quarters of the Chinese business either. You are right that the competition has increased in China and we feel quite confident about our leadership position there. If you look at the full year, or if you look at the 12 months rolling forecast, I think we have done a good job in China and we feel confident about that one. Yes it is true that in the last quarter, we also experienced maybe more losses to our competitors than we usually see. This is obviously for us to action but we feel that despite this first quarter which had these two factors into it we feel pretty good about the full year.

Niklas Savander

Okay, thank you very much. We need to continue our program here and our Elekta AGM starts in 30 minutes. So thank you all very much for taking your time to this call today. And if you have any further questions, you can just contact the investor relations team at Elekta. Thank you very much.

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