Ion Beam Apps Sa Act

Welcome, everyone, to the IBA full year 2022 results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. I would now like to turn the conference over to Olivier Legrain, CEO of IBA.

Good afternoon, everybody. Thank you for joining us on our full year results call. I'm Olivier, and with me today is our CFO Soumya. Before we start, I'd like to draw your attention to the company disclaimer on forward-looking statements. First of all, I'd like to start today by thanking the entire IBA team for their continued hard work over the course of this year. I am pleased to see that all that hard work is paying off. With a very strong year with growth across our business unit, and record order intake and backlog. As always, I will give an overview of our business and our progress over the course of 2022. Soumya will summarize our financial statements and then after I discuss the outlook and we will be very happy to take any questions. Now let's take a look at some of our key highlights for 2022. Here is a snapshot of the key 2022 financial highlights. As announced this morning, a few points to pick out here. Group revenue of 361.3 million, up 15% from 2021. The group rebate of 11.1 million and the net profit of 6.1 million. All-time record annual equipment order intake of 456 million and dosimetry order intake of 67 million euros. All-time record overall equipment and service backlog of 1.4 billion including equipment backlog of 713 million euros and service backlog of 669 million euros. finally our balance sheet continues to be extremely strong with 158 million euro gross and 117 million euro net cash at the end of the year providing us with significant stability and flexibility for the future period this slide will be familiar and cover the key objectives per business unit which includes growing market share, developing technologies for the future and delivering our backlog. Over the year, we have continued to deliver against these objectives. For dosimetry, order intake is up to a record €67 million and has been boosted by the acquisition of ScandiDOS and Modus. Within proton therapy, we have seen 17 new proton therapy rooms sold in 2022. Yes, ladies and gentlemen, 17 compared to 9 last year. Elsewhere, good progress has been made in terms of research collaborations, which we'll explore more later. Other accelerators sold 36 new systems compared to 31 in 2021. Here as well, once again, a record order intake. On the radiopharma side, the official launch of Pantera brings us a step closer to providing access to Actinium-225 to patients. And finally, within industrial, changing market dynamics in sterilization has brought increased demands, which here as well we'll discuss later. IBA remains committed to improving and investing in sustainability. This investment was across four streams in 2022, assessing the carbon footprint and lifecycle of our products, making changes across the entire organization to reduce carbon emission and waste, working with the organization to ensure IBA is an equitable and inclusive workplace, and finally, We have improved our B Corp score and, for the first time, linked one-third of our management performance payment with sustainability improvement. I will now pass to Soumya to talk us through the summary of the financials. Soumya.

Thank you, Olivier. On slide 10 here, you'll see a summary of the key figures for 2022. As Olivier mentioned, it's been a particularly strong year in terms of order intake and backlog across all of our businesses. We therefore achieved a rebate margin of 3.1% in 2022, which represents stop-line growth, but has been impacted by increasing OPEX and overhead investments for future growth and, of course, inflation during the year. Net result was €6.1 million. As a result of the strong performance, a dividend of €0.21 per share has been proposed, and that's an increase of around 10%. And I am pleased to report that we continue to have a solid net cash position of €117 million. I now hand you back to Olivier to take you through our business update.

Thank you, Soumya. Let's have a look at ProtonTherapy first. IBM maintained a market-leading position in 2022. We have sold 15 new systems across Europe, the US, and China. And in China, that's thanks to our partner, CGN NT. There are currently 32 projects under production or installation, which does represent seven Proteus Plus and 25 Proteus One. A significant milestone for ProtonTherapy was the 10-system agreement made with the Spanish Ministry of Health in December, which is our largest order ever made from a single customer. Collaborations continue to be an important part of our strategy with partnerships signed with UMCG in Groningen in April to investigate flash irradiation techniques in early stage breast cancer. A conformal flash alliance was launched in June to accelerate the delivery of this novel technology. with partners including University of Pennsylvania, UMC Groningen, and many others. And the first patients were enrolled in the European Protect trial. Looking more broadly at the PT market, momentum has continued throughout 2022 and IBA has maintained its market leading position with a 71% market share. IBS also maintains its leading position of 43% of the total proton rooms in operation and 42% for the total market share in proton room. In terms of performance, we have a total proton therapy order intake of 281 million, which is continued momentum in all global territories, most notably in China, Singapore, the US, Taiwan, Italy, and Georgia. Our proton therapy equipment revenue grew 48% to $110 million. Service increased 13.5% with backlog of $669 million. Overall revenues grew nearly 29%. This is due to a variety of factors, higher production levels, longer backlog conversion, growing service revenues, as well as the recognition of indemnities. following the Rutherford bankruptcy. Rebate for proton therapy was €4.4 million, an improvement from 2021 despite overall cost increase. Let's have a look at other accelerator business units. Radiopharma solution to start with. Looking more closely, we are seeing an increase of the market demand. We signed an agreement in China for a cyclone icon. for the production of novel isotopes for the use in theranostic and targeted oncology therapies. Elsewhere, IBA is seeing growth in the African market with an Integralab Plus solution agreed for a center in Ghana. 2022 saw the official launch of Pantera, a joint venture with SCKCEN in Molle, produce Actinium-225, one of the most promising alpha-emitting radioisotopes to fight cancer. Pantera is currently in the process of building a relationship with pharmaceutical companies to develop collaboration and ensure patient access. The building of the production facility is expected to start in 2024. Moving to industrial solutions now, we have seen a significant growth during 2022. With order intake nearly doubling from the previous year, the primary driver has been the strong increase in demand for X-ray and electron beam sterilization as they both become growing contenders to ethylene oxide and gamma irradiation, the current standard. IB Industriel also signed a contract to install the first fully integrated X-ray irradiation solution at the customer's new service center site in France. In addition, Northstar and IBA announced an agreement for two additional Rodotron TT300 high-energy electron beam accelerators, building on three previous sales in 2019 and 2021. So, looking at the other accelerator business unit, we see an overall record order intake of €175 million. Equipment revenues decreased to €62.6 million due to slower backlog conversion, related to the global supply chain and other macroeconomic conditions. Service performed well, with an overall revenue growth of 9.8%. Overall REBIT was lower than last year, affected by inflationary pressure on cost and lower equipment backlog conversion despite the strong catch-up in H2. Finally, let's take a closer look at dosimetry performance over the year. Our dosimetry business has been busy over the course of 2022. The business has been increasing footprint through strategic acquisition and alliances. We acquired Modus QA, a specialist provider of phantoms for quality assurance for radiation therapy, strengthening dosimetry operations in North America. In addition, 2022 saw the signing of a strategic alliance with Candidos, a Swedish company, and active in the radiation therapy for patient QA. The team has been also expanding the range of indications for IBA dosimetry technology, announcing MyQA ion compatibility with LINAC-based radiation therapy. A collaboration was agreed with Elekta for the optimization of QA, in which IBA is providing QA solutions that integrate with the Elekta's offering. And the dosimetry business also received approval from Varian, for the compatibility of IBA's product with their radiotherapy and adaptive therapy solution, Alcyon and Ethos. Looking to the top line financials, 2022 dosimetry order intake was up 22% to 67 million euros, significantly above the performance of the wider market. Backlog increased 200% to about 32 million euros, from 16.3 million in 2021 in part thanks to the dosimetry equipment order alongside the 10 proton therapy system in the spanish contract and sales increased 3.1 percent from 2021 boosted by the modis acquisition however the division continued to be impacted by the slow recovery in china and by sanctions in on russia Rebit was strongly impacted by investment in research and development for the future of IBA and cost increase due to the supply chain issues and therefore decreased to 0.7 million euros compared to 4.9 million in 2021. Now over to Soumya to talk about the numbers in more detail.

Thank you, Olivier. So group sales increased 15%, largely attributable to proton therapy backlog conversion, sales and dosimetry, overall services revenue, as well as Rutherford indemnities that had been explained earlier. Growth margin for the year was 35.1%, slightly increasing from last year thanks to product mix and the impact of those Rutherford indemnities. Now, as mentioned, you'll notice the uptick in SG&A and R&D spending linked, as in most places, to increased travel and marketing expenditure as regions open up again after COVID. High inflation and investments in future growth, as already explained. Other operating expenses were impacted by stock option costs, costs related to a change in pension plan terms, as well as write-offs on receivables, including Rutherford. Financial expenses were significantly affected by USD and Chinese Yuan evolution over the year. Current taxes of Euro 4.8 million were compensated by recognition of deferred tax assets of Euro 11.2 million in Belgium related to improvement of future profitability for the company. And finally, net profit of Euro 6.1 million compared to a net profit of Euro 3.9 million in 2021 following the effects explained above. Turning onto the cash flow statement, operating cash flow decreased to €21.7 million, mostly as inventory and down payments to suppliers increased, and also several large invoices that were issued to customers but paid only in early January. Cash flow used in investing activities increased as capex increased, and this was particularly linked to IT and software investments and the dosimetry acquisitions of ScandiDOS and MODIS. Finally, from a financing standpoint, IBA made an early reimbursement of its syndicated term loan given its strong cash position. I won't go into the details of the balance sheet, but it is worth highlighting once again the gross and net cash positions. Also, as IBA ramps up production to deliver its record backlog and being mindful of supply chain challenges, inventory is set to grow over the coming years with some effects on overall working capital. I'll now hand over to Olivier to discuss Outlook.

Thank you, Soumya. Looking to the year ahead, we see strong order intake across all business units, continuing in 2023. Growing services continue to provide stable recurring revenues and backlog has reached another all-time high. Our secure balance sheet and excellent cash position provide us with opportunity for both organic and inorganic growth. Despite the current geopolitical situation and economic uncertainties, IBA has clear visibility on its mid-term performance and its confidence in its capacity to develop in the coming years and deliver value to all of its stakeholders. Therefore, subject to stabilization of supply chain and inflation over the coming years, as well as a solid order intake, we are pleased to provide mid-term guidance as follows. target of 15% CAGR 2022-2026 on revenues, aiming to deliver 10% of rebate on sales by 2026, weighted to after 2024. The capex will grow to around 10 to 12 million per year until 2026 to support increased investment for the future. And finally, a gross dividend of 0.21 per share has been proposed, which is an increase of 10% compared to last year. Finally, I would just like to flag some key dates for the year ahead. As usual, we will be publishing quarter one 2023 update on May 18, and we'll be on the ground at Estro, Astro, N-E-A-N-M. Soumya and I are now pleased to take any of your questions.

I see that David has a first question. Go ahead.

Yes, hello, good afternoon, everyone. You can hear my voice now? Yes, sorry. No problem. Hello, David. It's okay. Hello, Olivier. Hello, Soumya. First question on the 2026 target, let's say, guidance. How do you see the revenue mix in 2026? So differentiating, of course, between proton therapy, equipment, services, and other accelerator, and how this should impact the margins. And in particular, maybe just aside, any impact from terranostics on rebbit margin accounting wise so that's my first question second one on pt profitability maybe more of a short-term question i would say so pt was was loss making in 2021 at the habit level slightly loss making if we exclude uh who thought it was as well in 2022 So how should we see the profitability of proton therapy evolving in 2023, 2024? And then, okay, so a bit like the curve or the trajectory, sorry, that we should expect. And then third and last question for now. You're discussing for 2022, but also for 2023, about the impact of inflation on margin in 2023, and maybe also 2024, by the way. So my question is the following on this topic. We saw wide fluctuation of the margin for odor accelerator, or actually decline accelerator, or Revit margin decline from 14 to 7, and then dosimetry from 9 to 1. Should we see these as a floor? So how should we think about the future impact of inflation for raw material, HGNA and so forth in 2023, 2024? Thank you.

Wow. Okay, let's take them one after the other. Your first question was about the mix by 2026, I believe, between...

between the different businesses uh if you want to take that one yeah sure so so well first of all um i think you i think your angle was also profitability and how you see profitability evolving across all business lines so first of all of course the proportion of service revenues overall will probably remain stable as a proportion of total sales which means that in absolute value it will continue to increase annually, but as a percentage of overall sales, we should probably remain in the region where we are today, which is between 40 and 45% of sales. On the other hand, the industrial business is set to grow, because as you've seen, the order intake in 2022 was really huge. If you look at overall other accelerator order intake, it's 175 million, which is actually close to what we do in some years in proton therapy. So there you're going to see that converting into sales much more. And since the conversion cycles for other accelerators is much shorter than for proton, you should probably see this really translating into PNL over the next, let's say, two to two and a half years. more than the average four years that we see for PT. So the proportion of other accelerator revenues should increase overall versus Proton. But at the same time, you've seen that there's been the 10 contract contract in Spain and that's going to contribute quite a lot to revenues from 2024 to 2026 more or less. So I would say that we have an overall big increase in the top line which will practically double by 2026. The proportion of industrial and radiopharma sales will increase in that total. And so you should probably see profitability improving slightly also on the back of that as you will have the proportion of service and other accelerator revenues increasing.

um pt profitability what's the trajectory going forward olivier you want to take that well i think pt profitability is including included in our guidance so the way we look at it is actually a contribution of all the business you need to to the improvement of profitability including proton therapy and The main drive behind it is the so-called operational leverage. As we see a significant volume increase in the future years, we believe we've reached a level where we're able to cover our fixed costs and to generate profit in proton therapy as well. We can see and we have started to see an improvement of our competitive potential. We have always had quite a healthy margin mix in our backlog, but we believe and we have started to see a healthier gross margin mix in the backlog, which will help us to to continue to improve on our profitability journey. So a mix of operational leverage, a bit better competitive environment with an LCR gross margin potential in the market, which will allow us to to cover the inflation plus whatever investment we need to make as we're on a journey to double the size of the business, basically, more or less with 15% bigger. So we're off to significant growth, which will both deliver an operational leverage, but also require some investment to be able to cope with the growth. If we move to the future impact of inflation, I mean, this year is probably, hopefully, let's say, the top inflation year. We're facing an index here in Belgium of 11%. uh and and and some significant inflation uh in in the rest of the world as well i find most of the of of the world as well and and once again here we we we believe we're able to swallow it thanks to the operational leverage plus uh being able to push part of it to our customer uh going forward and that's part of our guidance as well we we expect even though we don't have a crystal ball a bit, you know, not coming back to where we were before the crisis, but let's say a more... Yeah, lower inflation. That's how we built our model, knowing that should the inflation be higher, then we will have no choice than to push it to our customers. So that's how we built our model. We see a bit of a lower inflation. I don't know if you want to give our subject.

Yeah, I think what we've seen is that at least for 2021-22, we've seen on average between 7% and maybe 10% of increase on materials between, depending on the type of materials, so that would probably be across the board, maybe 5% increase of cost. And then on salaries and labor, as Olivier said, indeed, the inflation has been between 5% last year and now closer to 9% to 11% and maybe even more in some countries. So going forward, we think that if we come back to slightly more reasonable levels and taper down towards 3% to 4% by 2026, then that allows us to be able to deliver the guidance that we need.

Thanks very much, and a very quick follow-up on your fixed costs, so more SG&E and R&D. You said you have to invest, and there is the impact of inflation, of course. How much do you expect in 2023 next to inflation, let's say, in additional investment? Do you expect more also in the years to come? I think you have a bit of a soft target to spend 10% of your sales on R&D.

Yes, that's correct. I think the main thing we speak about when we speak about investment is what we call the backbone. We'll have to invest into basically ERP and software to be able to have a stable backbone and an efficient one. And the other thing is hiring. And as you know, when we hire, we need to train people and they start by being overhead before they become productive. uh which we have started to see in 2022 by the way we'll see uh we will continue to see that in 2023 and that's why uh you know we don't give a specific guidance on 2023 but we we're on our journey to 10 rebate uh but we'll see uh let's say an acceleration of the the improved profitability more towards 2024 as we have to go through this step up let's say in terms of organization to be able to cope with the doubling of our turnover thanks thanks very much both we have laura who has a question

Yes, good afternoon. Thank you for taking my question. First of all, could you elaborate a bit on what will drive improvement in Rebit in dosimetry and other accelerators and how you look at it for 2023? And then a second question a bit related to that. Could you provide a bit more information on the backlog conversion issues in other accelerators? and how the situation looks like now and what to expect for 2023 as well. Thank you.

I think both for Dosimetry and other accelerators, a big impact will be an acceleration of the backlog conversion. I think we hope in the year. Dosimetry is amazing. So we have a huge backlog that we believe will start to convert or accelerate the conversion in 2023 with an impact on profitability. we expect to see those imagery back to where they were let's say before uh before 2022 uh thanks to an acceleration of the backlog conversion that that we have that we have booked um in the accelerator as well we have a big wave of uh you know there's an amazing number uh there's many amazing numbers in the in the numbers we have published today One is the order intake for the accelerator, and it's coming mainly from industrial, where we have a big wave coming at us on e-beam X-ray, and we will start to see quite a significant acceleration of this in 2023, which will help us to to improve profitability as well as finance the investment we need to prepare for the growth of 2024 and on. And I would say, as I said, the competitive advantage, the competitive positioning of our product line is much stronger than what it used to be in every division, but in particular in industrial. In industrial, when it comes to high power accelerator, the value proposal is extremely strong for our customer. And therefore, we're able to claim our fair share of the value we create together with them. And we have quite a healthy business in industrial, which will also help us to improve the profitability of the group. And... Yeah, I think that's it.

I hope I answered your question. Yeah, just could you provide a bit more information on how does the situation look like currently in other accelerators and what we could expect for?

Yeah, I think once again, the other accelerator backlog conversion in 2022 was somehow hampered by the geopolitical situation, and namely Russia, where we were supposed to start installation that we did not start for obvious reasons. And this will be somehow diluted to the different geographies of the backlog in 2023. And this is true for other accelerators. This is also very true for dosimetry, which has been significantly impacted in 2022 by russia by the situation in russia and somehow slow start in china we tend to forget that china did not reopen for postcovid before earlier this year so uh So, and dosimetry, I mean, the biggest market for dosimetry today is China. And this was quite significantly impacted in 2022 in terms of backlog conversion. And we start to see, you know, normalization of the situation there. So it will also help us to accelerate backlog conversion in dosimetry.

Very clear. Thank you. Thank you.

Simon, there's a question. Hi, Simon.

Good afternoon. Thank you for taking the question. On your guidance of 10% by 2026, I was just wondering how you are treating your venture with the CGNNT in that number. Is that including or excluding? And then secondly, how do you see this evolving? Because we still have not seen too much contracts coming from their side, actually, We have the feeling that it is moving, but just a little bit more color on that would be helpful. Thank you.

Okay. So the joint venture with CGN nowadays, the revenue impact will be royalties that we will get on... I mean, it's going to be twofold. First of all, they will buy equipment from us that we will recognize and then we'll have royalties on their sales and that's indeed part of our guidance other than that i think most of the preliminary license agreement has been recognized i think we still have a little bit of a tale to recognize with the shipment of with the shipment of the of the first unit that will be done in 2023 um I think from a performance standpoint, they've been able to sell one system. I think they're pretty close to potentially close other deals in China. But once again, China has been quite badly impacted by COVID. And so they've been slowed down a bit from a market standpoint. in China due to COVID, but I expect to see them resuming sales in 2023, knowing that the competitive positioning for them has improved as well, as they are facing less competition from one of the suppliers, let's say in China, and therefore I expect them to be successful and claim their fair share of market share.

And just on the royalty that you are receiving, if they sign a contract for a multi-room, let's say 60 million, do you get immediately your royalty or is it staggered?

It's based on non-payments.

Is it based on? No, it's two, it's both. So a portion is on down payments, but otherwise, if there is no down payment, then it's anyway spread over five years.

Okay, very good. And you don't get the royalty on the service revenues, do you, Noah?

Yes, we also have royalty on the service revenues.

Okay, very good.

So that's the beauty of the whole contract, which is that the royalties allow us to basically make up not just on the equipment sale but also on the service and for as long as the service contract continues.

Very good. And then on the high energy other accelerators, is anything changing on the competitive side? Do you see some action there? Because like you say, you have an incredible position there. But do you see the lower end of the market trying to break in in the high end segment too? Or are you way ahead of competition there?

You speak about Electron Beam?

Yes.

Yeah, Electron Beam, we're way ahead of competition. So we don't have to fear that that... I mean, naturally they will come, but I think we're years ahead. And we're not sitting idle either. So I think we have... I mean, this Rodotron machine is a beauty. And indeed, we have a very big competitive advantage.

The backlog shows that it's a beauty. And then a last question from my side on Actinium. If we follow a little bit what's happening on LinkedIn, I have the feeling that it's a done deal, that it's proven that they can make it. But that seems to be a wrong assumption from my side. I was thinking that we would get a press release on a breakthrough that is happening and then we could start to make our calculations for 2026 and onwards. but I clearly see it wrong. How should we look at it?

I mean, Pantera will become an Actinium machine, but now they're a marketing machine. I don't really give guidance on this. I think it will take some time, you know, First of all, if you want a good indication, look at the drug development. Look at the pipeline of drug development that will use Actinium-225. And you will see that we're more late 2020s than early 2020s for a major drug to hit the market. So does it mean we're not going to generate revenue before that? No, because there's a big market for early supply, preclinical doses where we intend to play a role. But that's it for the moment.

But the point is you can make it and you are now trying to get contracts from the pharma to get the long-term agreements to supply. Is that how we have to see it?

yes okay so it works plus we're working on early supply development okay so we could be on the market earlier than then you know what's required for commercial what's required for commercial supply But we're working on both fronts. So one is to set up a facility so we can provide early supply as well as work with big pharma on how they could secure access to clinical supply when they will hit the market with their drugs.

So and just because Laura you asked the same question also sort of none of these numbers are included in the 2026 guidance that we gave which means that anything that happens in Pantera will be an upside at some point whatever point that comes so if it's early supply and we are able to start to produce and deliver doses of Actinium earlier than when we reach commercial supply which will be in a few years time then that will hit the PNL positively in addition to what is already in the guidance.

Thank you.

Thank you. David.

Yes, it was actually a question related to the same topic. So indeed, what is part of your guidance in particular, maybe on the CAPEX? So you're doubling the CAPEX, so at the same time, okay, the sales are also doubling. But on Terra Gnostics, so you're saying there is, I think there is a plant, you said, which is supposed to, you're supposed to start the construction in 2024 of the plan for the Pantera plant. So this does not impact your, let's say, the 12 million euro capex guidance.

Potentially it will. We, you know, we explore different ways to finance this. We have many, many non-dilutive or dilutive or if we uh when we will start the business maybe some leverage there's many many different way to uh to uh to finance this um i think it's fair to say that today in our capex guidance we did not include pantera so it will come on top of it you know, whenever we will accelerate there. But once again, you know, it's a partnership. There's many ways we can finance it. I know maybe some of you have understood that we're going to finance everything. It's, first of all, it's a 50-50 partnership. So should we finance everything, it will only be the financing of 50% of it. And then there's many, many other alternatives. I believe I believe with what we have achieved already together with SCKCEN we have already created a significant step up of the valuation of Pantera because we have unique technologies being the Rodotron or Radion or you know target around the concept so I'm not very concerned about a big impact of the financing on pantera on iba numbers okay let's put it that way you you mean you okay you mean on on every like pnl or balance sheet or cash flow statement you don't expect uh well i well i in terms of financing i mean financing financing okay okay okay You know, we're not saying that we're going to see 150 million capex line for Pantera.

Understood.

If we see some capex, which, by the way, will be investment in a company, I believe it's something I would not say not significant, but not dramatic for us.

Clear. Thanks.

will not put IBA in a negative net cash position again.

I understand. Thank you. Hello.

If there are any more questions, but if there are any, please feel free to unmute and ask. All right.

Yes, just to follow up again on Actinium, but just to make sure that I understood it well, it means that the technical feasibility studies have been concluded and positive.

Correct. So we have reached the threshold, we call it the threshold, and we move to the next phase.

Okay, thank you.

Any more questions?

Okay. Well, then, I would like to thank you again for joining us on this call, and we look forward to the next call and updating you soon on our progress. Have a nice afternoon. Bye-bye.

Bye, everyone.

Thank you.