Elekta Interim report May – January 2015/16

Third quarter
- Order bookings decreased 11 percent to SEK 2,533 M (2,834) or decreased 15
percent based on constant exchange rates.
- Net sales were flat and amounted to SEK 2,547 M (2,552) and decreased 6
percent based on constant exchange rates.
- EBITA amounted to SEK 335 M (350) adjusted for non-recurring items of SEK -91
M (0) and bad debt losses of SEK 72 M (5).
- Operating result was SEK 56 M (250).
- Net income amounted to SEK 7 M (152). Earnings per share was SEK 0.01 (0.39)
before dilution and SEK 0.01 (0.39) after dilution.
- Cash flow after continuous investments amounted to SEK 137 M (-45).

May – January
- Order bookings increased 4 percent to SEK 8,360 M (8,051) or decreased 6
percent based on constant exchange rates.
- Net sales increased 9 percent to SEK 7,614 M (6,984) or decreased 2 percent
based on constant exchange rates.
- EBITA amounted to SEK 855 M (733) adjusted for non-recurring items of SEK -139
M (-2) and bad debt losses of SEK 107 M (28).
- Operating result was SEK 267 M (438).
- Net income amounted to SEK 67 M (215). Earnings per share was SEK 0.16 (0.55)
before dilution and SEK 0.16 (0.55) after dilution.
- Cash flow after continuous investments amounted to SEK -280 M (-541).

Transformation program
- Additional cost savings have been identified. The cost reduction target has
been increased to SEK 700 M from SEK 450 M with full effect from fiscal year
2017/18.
- We have set a target to reach a ratio of 5 percent net working capital to net
sales by the end of next fiscal year (2016/17) with a more efficient produce to
order process.
- The change requires a temporary lower production and shipment volume with a
one-off negative revenue impact estimated to about SEK 500 M in the first half
next fiscal year (2016/17).
- Elekta’s ambition to reach an EBITA-margin of 20 percent in fiscal year
2017/18 is unchanged.
- The additional restructuring cost needed for the transformation is currently
estimated to be approximately SEK 550 M and will be charged as a non-recurring
item in future periods.

Outlook
We expect growth in net sales to be slightly negative for the fiscal year, based
on constant exchange rates, and that the EBITA margin, adjusted for non
-recurring items, will improve.

The outlook is adjusted from the previous: “We expect growth in net sales to
continue to be modest for the fiscal year, based on constant exchange rates, and
that the EBITA margin, adjusted for non-recurring items, will continue to
improve.”


President and CEO comments
Global markets continue to be weak, impacted by economic uncertainty and
political unrest. This has affected the business especially in emerging markets.
Elekta adjusts its outlook for the full fiscal year and gives an update on the
transformation program, which is progressing well.

Order bookings
In the third quarter order bookings decreased by 15 percent based on constant
exchange rates. This was disappointing and weaker than forecasted. During the
nine months period order bookings increased by 4 percent or decreased 6 percent
based on constant exchange rates. Our challenges are related to order bookings
for Leksell Gamma Knife, which decreased by 56 percent based on constant
exchange rates and to markets in region Europe, Middle East and Africa, where
order bookings decreased by 17 percent based on constant exchange rates. Order
bookings in emerging markets decreased by 9 percent based on constant exchange
rates during the period.

Our linear accelerator segment performed well and order bookings grew by 10
percent based on constant exchange rates. Also, order bookings in region North
and South America increased 2 percent based on constant exchange rates. In the
Asia Pacific region, where performance was mixed, order bookings increased by 1
percent based on constant exchange rates. Growth in Australia was strong. Growth
in China was modest. Markets in Japan declined significantly and South East Asia
is challenging.

Net sales and EBITA
Net sales for the nine months period increased by 9 percent or decreased by 2
percent based on constant exchange rates. Growth in services was strong during
the period and increased by 10 percent based on constant exchange rates.
However, delivery volumes for Leksell Gamma Knife were significantly below plan.
Gross margin improved to 40 percent (39) driven by services. EBITA amounted to
SEK 855 M (733) excluding non-recurring items and bad debt losses. Bad debt
losses for the nine months period amounted to SEK 107 M (28) and were mainly
related to Russia and Latin America.

Innovation and product portfolio
Our MRI-guided radiation therapy system, Atlantic, is progressing according to
plan. The R&D consortium’s second non-commercial system was installed at MD
Anderson Cancer Center in Houston during the third quarter. Installations at the
five remaining consortium sites will all take place during the calendar year
2016.

Leksell Gamma Knife Icon has received good initial interest, however the sales
process takes longer than anticipated, because we are targeting a new segment,
radiation therapy clinics. In addition, Icon is pending regulatory approval in
some key markets. We are expecting approval for sale in Canada during summer and
in Japan and China during the first half of our fiscal year 2016/17. Order
bookings for Leksell Gamma Knife decreased significantly in all regions. Sales
of Icon upgrades to the installed base are on track.

We continue to focus on strategic R&D investments to improve our offering of
cancer care solutions, with strong emphasis on software and image guided
radiation therapy. We are further improving our customer service network,
including training and education.

Transformation program
The transformation program announced in June 2015 is progressing well. It
involves all areas of the company with the objective of creating a leaner
company with improved financial efficiency, higher margins and with an increased
focus on cash flow. It also includes actions to strengthen customer satisfaction
as well as focus on high growth areas like service, software and image guided
radiation therapy.

Cost savings during the nine months period amounted to SEK 80 M. During our
transformation process, we have identified additional areas for improvements. As
a result, we have raised our cost reduction target to SEK 700 M from SEK 450 M
with full effect from fiscal year 2017/18.

Cash flow has improved for the nine months period. Net working capital to sales
ratio decreased to 8 percent (17).

We have set a target to reach a net working capital to sales ratio of 5 percent
by the end of next fiscal year with a more efficient produce to order process.

Historically, we have accepted to take orders late in the quarter and ship in
the same quarter. To manage these shipments we pre-produce to inventory,
resulting in high levels of inventory for both finished goods and components. To
create a leaner production process and reduce inventory, we will change this
practice and start producing only to customer order without allowing for pre
-produced equipment.

The change will result in a temporary lower production and shipment volume
during the first half of next fiscal year. This is a one off effect expected to
impact revenues negatively with about SEK 500 M next fiscal year. As a
consequence inventory levels will come down significantly.

We estimate that inventory will be structurally reduced with about SEK 500 M
from current levels.

The EBITA margin excluding one-offs will continuously improve during the
transformation period through operating expense reductions and growth primarily
in the service and software business. The target to reach an EBITA margin of 20
percent in fiscal year 2017/18 remains intact.

The additional restructuring cost needed for the transformation is currently
estimated to be approximately SEK 550 M and will be charged as a non-recurring
item in future periods.

Market outlook
The world’s cancer burden is rapidly increasing regardless of the economic
development. In 2015, approximately 15 million new cancer cases were diagnosed
world-wide and this number is expected to grow by approximately 3 percent per
year. In addition, the number of re-treatments of cancer patients increase, we
add novel technology with higher clinical value, and the utilization and
application usage of radiation therapy are constantly broadened.

Recently, an article in the Lancet journal validated that global healthcare
systems will need about 1.8 times more linear accelerators compared to the
installed base of today. Radiation oncology is in a strong position and it’s my
firm belief that the market in the long term will develop in a very solid way.
We foresee that the underlying long-term market growth potential is some 6-7
percent per year.

Global markets for medical device equipment are impacted by economic uncertainty
which currently is affecting the business environment, particularly in emerging
markets. We expect established markets to grow in line with general economic
growth. Data on healthcare expenditures suggest that healthcare spending is set
to grow in the mid-term, after a challenging period in many geographies. In
addition, services and aftermarket sales to the installed base is growing faster
than sale of new medical devices. We foresee that the underlying mid-term market
growth is around 3-5 percent per year.

Tomas Puusepp
President and CEO


Shareholder information

Conference call
Elekta will host a telephone conference at 10:00-11:00 CET on March 2, with
President and CEO Tomas Puusepp and CFO Håkan Bergström.

To take part in the conference call, please dial in about five minutes in
advance.

Swedish dial-in number: +46 (0)8 566 426 64
UK dial-in number: +44 (0) 203 008 98 11
US dial-in number: +1 855 753 22 36
The telephone conference will also be broadcasted over the internet (listen
only). Please use the link:

http://event.onlineseminarsolutions.com/r.htm?e=1130188&s=1&k=D687F74BEEB287B382
6 
10C038CAC32A2

For further information, please contact:

Håkan Bergström
CFO, Elekta AB (publ)
+46 8 587 25 547,
hakan.bergstrom@elekta.com

Johan Andersson
Director Investor Relations, Elekta AB (publ)
+46 8 587 25 415
johan.andersson@elekta.com