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Welcome to IBA's half-year 2022 results conference call. All participants are currently in a listen-only mode. A question-and-answer session will follow the formal presentation.

I will now hand over to Olivier Legrain, Chief Executive Professor of IBA. Thank you, Olivier, and good afternoon, and thank you for joining us today on this results call. I'm joined today by Soumya Chandra Mouli, our CFO, And before we start, I would like to draw your attention to the company disclaimer on forward-looking statements. Here is an overview of today's call. I will start with idea performance and progress of the first half with a detailed look at the different business units. Soumya will then provide commentary on the financials before I talk through the outlook and then open the line for questions. I'll kick off with an overview of the first half performance. Here is a snapshot of the key financials. There has been a modest uptick in revenues in the period related to solid other accelerators backlog conversion. Strong dosimetry sales and service revenue growth. However, there is a significant phasing of our proton therapy revenue recognition to the second half of 2023. Alongside investment made at the group level to future-proof the business, as well as prepare for the acceleration in the second half, proton therapy revenue recognition has impacted our rebate. The rate of growth has been relatively slower during this first half period. However, we are expecting a significant ramp-up in the second half. Rebit was impacted by three factors, reinvesting for growth for the expected increase in the activity in the second half, timing of several projects that are planned to start in H2, and some unrelated customer-specific installation delays. You'll recognize this slide from our full year results who remain committed to the key objectives laid out for each business unit. This is underpinned by a group-wide focus on digital developments as well as sustainability initiatives. Moving on to strategic progress on these objectives across the business units during the period, Dosimetry has had an excellent first half with excellent growth in order intake alongside product launches and upgrades. We'll discuss the impact of MODUS and SCANDIDOS in more details later. Within proton therapy, we have seen an encouraging increase in service revenues. Our commitment to proton therapy innovation continues, and we were pleased to start a new research partnership with Particle earlier in the year. Moving to radiopharma, we are pleased to have launched Accuracy, a cardiac imaging solution, and reached another milestone with our joint venture Pantera. Industrial has seen very strong revenue growth. Elsewhere, it has been pleasing to see the potential for our technology in a growing range of applications, including food irradiation. More than 100 participants are expected to join our food irradiation symposium in September. Finally, at the group level, IBA has been investing into digitalization, which includes, among others, the development of a business-wide platform predictive maintenance platform, and the launch of a customer-dedicated web portal for industrial business. During the period, we continue to make good progress on our four sustainability-related streams, and I'd like to highlight the B Corp recertification now in progress with a target for 2024, the risk mapping exercise started with EcoVadis on our supply chain, and the various ESG initiatives being taken at employee level. Let's take a look at the key figures for the first half. As noted, first half performance was strongly impacted by a number of proton therapy factors, including timing of backlog conversion and investment in the business that I will comment more in detail in the later. Elsewhere, other accelerator and dosimetry performed very well, with sales growth of 30% and 23% respectively, and a strong profitability. The rebate margin was affected by the combination of the low proton therapy backlog conversion already outlined alongside higher investments in sales and marketing and R&D in anticipation of ramp-up in the second half of the year and beyond. Left cash sits at a healthy €61.7 million as part of a scheduled renegotiation and unused €37 million syndicated credit facility. was refinanced in August, increasing to 40 million euros. Total unused credit line now stands at 44 million euros. Let's move on now to a deeper dive on the proton therapy business unit. Taking a look at the proton therapy market more broadly, so far this year, IBA remains a clear market leader with 60% market share in the proton therapy room sold. Addi has also maintained its leading position in number of rooms in operating and total market share. Proton Therapy order intake for the first half was 59 million euros, with three rooms sold globally. Revenue decreased by 6% in the period, while we expect a second half for 82 years. As has already been the case in the past few years, this effect was even more marked in 2023 due to three main factors. An anticipated sudden half-phasing of five major projects with no major start, shipment or completion of projects in H1. An unexpected shift of three projects from H1 into H2 for unrelated reasons. An order intake which came late at the end of the first half. In addition, there were inflation-related costs that were adjusted on project costs to completion. With a record backlog of more than 700 million, comprising 35 ongoing projects, there is continuing focus to accelerate conversion to revenue in H2 and beyond. As we have seen across the group, service on the other end continues to grow in proton therapy, up 10%, a backlog of 617 billion remains. Now, moving to other accelerator performance, Interest in IBS Rodotron machines remains high, particularly in sterilization settings, where it is meeting a significant gap in the market. Despite a slower order intake impacted by macroeconomic factors, revenue climbed over 72%. This was thanks to high order intake during 2022 and no increased footprint, meaning that service revenue is increasing. Demand for IBS radiopharma solutions remains strong, and the business remains the market leader for accelerator of radioisotope production. Accuracy, an integrated solution for cardiac PET imaging, was launched back in May. Elsewhere, we were pleased to successfully install a Cyclone 30 XP in Jülich, Germany, for the production of the radioisotope Astatine 211. We have continued to make progress with our joint venture Pantera, focused on increasing the global supply of Actinium-225. In the near term, this is enabling production for use in ongoing clinical trials. Longer term, it is hoped that the partnership will allow a large scale... Sorry, I skipped a line. I forgot to speak about the signed agreement with TerraPower. which will, in the near term, enable us to produce doses for ongoing clinical trials. But longer term, the Sphagnum chip, it is hoped, it will allow a large-scale supply of the isotope. Post-period, we made a €20.4 million contribution to the capital of Pantera. mostly in kind, with another 20.4 million equity, was also brought in by our partner in the joint venture, DSCKN. Post-period, we were also pleased to sell three further machines, including Cyclone Cube, Cyclotron in China. Alongside the Cyclotron, a strategic collaboration has been signed with the buyer for the production of radioisotherm for cancer diagnosis. Taking a closer look at the financials, I'm pleased to report a solid order intake of 29 million across eight systems. While this was weaker than last year, for the same period, we have already started to catch up, as mentioned earlier, with three additional machines sold post-period. Equipment revenues increased by more than 20%, 4.3 million euros, due to good backlog conversion. 10 installations started in the first half, with 21 installations expected to initiate by the full year. The service part of the business performed extremely well, growing by almost 50% due to an increase in stall base, several upgrades to existing machines and a strong replacement parts business. On the other accelerator slide, Rebit loss of 0.5 million euros includes impact from inflation, particularly in Belgium. Let's move on to dosimetry. It's been a strong first half of dosimetry, with order intake reaching an order record of 37 million. The 20% uptick is linked to demand for conventional radiation therapy and proton therapy quality assurance solutions, as well as 2022 modus acquisitions. Sales are up 23% to €33 million, with around €1.5 million attributable to Modus. Backlock also increased to a record high of €35.6 million, growing 47% from the end of 2022. This excellent level of sales contributed to dosimetry rate increasing more than 200% to €3.2 million. On the product side, DOSEX, a next-generation electrometer, was launched in April. At Estro, we were pleased to demonstrate a great patient QA software, MyQA Ion 2.0, as well as launching a radiation oncology risk management software called MyQA Proactive. During the period, we were pleased to build on the strategic alliance first agreed with Candidas last year, in August 2022. signing a distribution agreement enabling users to buy the combined MyQAion and Delta 4 Phantom Plus directly from IBM. I know we'll hand over to Soumya to take you through the financial statements.

Thank you, Olivier. Good afternoon, all. First, looking at the P&L, you will note that group sales grew by 6%. This is largely attributable to other accelerators' backflow conversion, excellent dosimetry sales, and services growth, but was impacted by PD backflow conversion and the comparator with 2022, which included certain weatherford-related impacts. While G&A expenses were strongly controlled and even beat inflation, rising by just around 1%, there was an increase in sales and marketing and R&D expenses with inflation, higher level of travel and marketing expenditure as we prepare for future growth and product development. I'd also like to highlight the impact of currency fluctuations in the period, which had an impact on our financial result, as well as the tax line that increased as we expand into new geographies, especially in Asia. The above impacts contributed to a net loss of €27 million for the period. Now moving on to cash flow. Operating cash flow of minus €43.7 million was impacted by a large inventory increase and an uptick in down payments to suppliers as the company geared up to deliver projects in H2 and beyond, in particular in the proton therapy and industrial businesses. As outlined previously, H1 has seen significant levels of investment across the business, including in digital costs. Cash flow here was also impacted by medical device regulation costs and by a minor acquisition in the radiopharmaceutical business. Finally, on the balance sheet, I won't go into much detail, but I would like to highlight the solid balance sheet with a high level of inventory in preparation of backlog conversion and a net cash position of €61.7 million. I now hand back to Olivier to take us to the outlook.

Thank you, Soumya. And looking ahead, we are confident that the second half will see strong performance, not just in proton therapy, but also in all our other businesses, underpinned by the quality of our backlog and the ongoing preparation by the full organization at IBA to convert into revenues. We are reiterating our mid-term guidance today as laid out at the full year, aiming to deliver 10% rebate on sales, heavily weighted to after 2024. I would now like to open the floor for questions.

Laura, Roba from The Growth has a question.

If you might...

Thank you. Thank you for taking my question. Quantify the impact of the postponement of the three PT systems that were supposed to be installed in H1 on Revit.

We don't give specific numbers, but we can certainly say it's several million euros. It's calculatable in millions. Well, what I can say is that basically every project, if you look at one project, which is in the region of revenues of around 20 million or so and delivers over around three years, well, there's a big bump usually where around 30% of costs are recognized at shipment. And that leads to revenue, related revenue also at the point of shipment. And since those are shifted to H2, you could basically more or less calculate what the impact of the shift of three projects into H2 would be.

Okay. Okay, thanks. And, yeah, more question on H2. How confident are you that these H systems will be installed?

Pretty confident, otherwise we wouldn't have mentioned it in the results call. I don't know if you have anything.

I think what you can say is that for six out of eight, it's fully under our control because we speak about what we call the outbounding phase. Outbounding phase means we are putting all the equipment into a box to be shipped. and this is fully under our control. For two orders, it depends on readiness of the buildings of the customer. This one is a bit less under our control, but we're pretty confident that it will happen.

We have a question from David Wagman online. David.

Yes, hello.

Good afternoon, everyone. Sorry, I had to unmute myself. So thanks for taking my question. Maybe first to come back on 2023, could you give us a rough idea of where, let's say, the very rough idea, let's say, of where the 2023 Revit could land? Maybe give us a range. Should we expect the Revit to turn positive for H2, so basically, and then the full-year Revit to maybe to turn positive? That's my first question. And the second question, even that all the PT projects are landing in H2, what level of PT equipment, this growth rebound should we expect? Again, a range could maybe be helpful. The last question on the other accelerators, you had a very good, very high level of growth, this growth in H1. Could you explain us why we didn't see more operating leverage, so in terms of profitability, and how should we think about the profitability or the other accelerator, so for the full year, at the full year level, the margin side?

Thank you.

Maybe I'll start by the last question, and I cannot be specific because we don't give short-term guidance. but what you will see in other accelerators is a bit similar to what we see in proton therapy. So, yes, we have seen growth in the first half, but we expect even more growth in the second half. And you have a bit of the same effect. Yes, we have inflation, but we have also prepared for that growth, and therefore we have invested into these two businesses as well. Same kind of narrative then on proton therapy. So we have an increase of sales and marketing expenses, and research and development will basically – compensated for the operational leverage. But once again, we're doing it because we expect an acceleration of growth in other accelerators as well. For the rest, I think it's going to be a short answer because we don't want to give specific guidance on short-term specific guidance, so it's difficult to answer your question, even with a range. Once again, I think we have... We have already alluded to that. We can expect a second half very different than the first one.

Thanks, Olivier and Souya. And maybe a very quick follow-up, more on the general climate. We saw, even if the book-to-bill remained above one for the accelerator, we saw quite a drop year on year, I would say. What can you tell us about the, in general, on the client side, let's say, their willingness to invest. So we see some hospitals clients struggling for other type of suppliers. So on the clinics, maybe the industrial clients, do you see them postponing projects, cancelling projects due to inflation, due to higher financing costs or macro uncertainties? Thanks.

I mean, in radiopharma solution, we don't see that. We have the same momentum around the world. We're pretty spread around the world as well, so we're not very market dependent. On industrial, we witness a bit of a pause in terms of order intake, even though we are confident it will resume. There's a bit of a bullwhip effect On the medical device, the, you know, consumable or the, what do we call it, the small medical device. Disposable. Disposable medical device due to post-COVID bullwhip effect. So they have built up significant inventory. So they are a bit less in a hurry to build up sterilization capacity. And indeed, so I think... From what we see in the market, we expect it to resume in the second half, but definitely we've been impacted in the first half by a bit of a pause on the sterilization market when it comes to ordering filters.

Maybe just to add on that, if you remember, the growth in the industrial business was coming from several angles. It was coming, of course, from a growth overall of the overall sterilization volumes, but also from a conversion of existing technology to X-ray and ED. So I think, indeed, as Olivia said, that on the... On the volume side, it's probably getting – it's got slightly slower because of the effects he just explained. On the conversion side, we expect that that conversion will continue as an industry trend. And as mentioned earlier on, for example, we are also seeing encouraging discussions on food irradiation. So we are also seeing the potential there will be other avenues of increased volume than the medical one itself.

Okay. Having said that, there is no change whatsoever in the plan to convert a big part of their capacity to X-ray. So it's more of a pause than questioning the idea of doing it. The commitment remains extremely strong with the big guys.

Okay, that's clear. Thanks. Thank you both.

My first question would be on the other accelerators. I recall that in the past you gave a complete breakdown of the backlog also in terms of other accelerators. And I think at the year end, 22, that was still high, the equipment. How I estimate it would be 150 to 200 million, maybe. So... I'm a bit surprised because you mentioned, okay, we have a good increase for the other accelerators, yet it looks like, given the usual timeframe, it's a bit below the normal budget. Is there, yeah, are there some delays on that front?

No, no, I think it's a build-up of inventory to be able to deliver. You are right, so we see a much stronger reach to the accelerator as well. So we've seen an increase in H1, but we see a stronger increase in H2.

If your point was, is the backlog not converting fast enough, is there some problem there? Not really, because if you look at 2022, a lot of the backlog that we had at year-end came in the last months of 2022. And so there's a 12 to 18-month gap between the time when we get it into order intake and it really delivers. And so there, it's just normal. We see that converting into revenue faster in H2.

And beyond, of course.

So we should see a much bigger increase in revenues there also, indeed. Because, indeed, you mentioned at some point that industrial has increased by 72%. Well, I think it will be stronger. Yes. Okay.

Can you – because I think the operational costs, it was well-flagged already last year that you were going to invest – How should we look? Maybe first on the operational cost going into the second half. Will that come down a bit? Will that remain stable? Will it go up on an absolute base? And then, secondly, maybe follow-up in terms of the gross margin mix, which was, you know, quite low. Can you give a bit of dynamics or the rationale? Is it because you have the highest gross margin with the shipments, or if you can give some color on that?

First of all, on the effects, you can expect stabilization a bit. So no decrease, no increase, but we have reached a bit the altitude, the same altitude, let's say. So we'll see what inflation will give us for next year. We're pretty confident there as well. I think the first number will be a bit back to normal, more like inflation plus, but no major increase. When it comes to the mix, you're right. I think we, you know, with a low level in proton therapy, we have, to a lesser extent, let's say, absorption of our overhead costs. So with the acceleration of the backlog conversion, we will see an improvement of the gross margin, not only due to the mix, but due to the acceleration of the backlog conversion.

Was there, for the other accelerators, was there also gross margin contraction there? Because like David mentioned, I mean, you grew more than 20-30% and your profit margins remained stable and absolutely base. Is it also because you have some gross margin contraction on that, or what?

No, but there's investment going on also over there. And you may have heard during the call that we mentioned that we're investing quite heavily in digitalization of that business also. So that has an impact. And, of course, we're also ramping up in industrial also because to meet the order intake that has come in over the last 18 months, we also had to bump up procurement on that side. So that's also had an impact. But, again, as we expect that the – revenues will increase over H2. And also, yes, to some extent, the margin percentage will increase because many of the contracts that we sold later on, later in 2022, had better margins than the previously sold ones. I think we'd also see an improvement over there.

Okay. That's clear. Thank you. Go ahead, Lala.

One question from my side. You mentioned an anticipated uptick in order intake in PT. Could you provide a bit more color on that? How does the pipeline look like?

I think there's quite a good momentum in the U.S. and China, I believe. So, yeah, U.S. and China.

and some other parts of asia also yes let's say us and asia okay thank you david has a question online go ahead david

Yes, thank you. One more question on the gross margin and inflation. So can you break down, let's say, on the drop of the gross margin in H1 versus last year? So we had, of course, I think the €7 million related to PPI. And then you're downplaying, let's say, so to speak, the inflation of home art and, I don't know, maybe the staff as well, the technical staff, and you're rather referring to the Let's say the scale impact of having less revenues than anticipated. Can you break down a bit? Let's say a third of the drop in margin is inflation, two-thirds is just scale volume. Can we think about it this way?

Well, I think the major portion, more than 50%, is really down to a non-absorption of overheads. And because if you read through the press release, you may have seen that the actual cost of our projects have really not increased a lot on the overall cost basis, which is basically hundreds of millions of euros with a 700 million revenue backlog. You can make a rough estimate of what that means in terms of cost. We've only seen around 1.2% cost increase. So that's not a lot. But what you do have is that when you have a cost increase, it hits your P&L directly because you also have to readjust your past margin to the new margin. I'm sorry, that's a bit technical, but basically it hits directly in the period even though over the duration of the project it's a small cost increase. And so that has a double effect on the margin for the period. Now, if I look at the overall gross margin, I think more than 50% is indeed related to non-absorption of overheads. There is some level of product mix. We do have some projects... which have been sold at lower margins, and we have some level of delivery of production, I would say, to those projects rather than to ones that are higher margins that are coming in the future. So I think what we expect is that, indeed, while there won't be a crazy improvement of the gross margin, I think there will be some level of improvement of gross margin, indeed, as we start to absorb more.

Okay, not crazy, you mean improvement in H2O, that's what you mean?

Yes, H2O, exactly.

Okay, and maybe to finish on inflation and gross margin, when should we see really like an improvement or let's say you not being impacted anymore by inflation at the gross margin level, i.e. what I mean is when in your orders you would have, let's say, correctly priced the whole material inflation and, I don't know, technician inflation, et cetera, or protected yourself maybe also contractually? Is that more something for 2024, 2025, when you would have processed, let's say, enough of your historic backlog?

Yeah, I think to some extent we'd already mentioned it that after and during the COVID crisis, we started to adapt our contracts to make sure that we were able to pass on a portion of the cost increases to our customers. And that certainly happened in all the contracts that have been signed since then. We continue to have some contracts that were signed before that period. And indeed, some of those, it's more of a negotiation with our customers. We've been able to transfer costs to them in many cases, in some cases not. But, indeed, I do expect that that effect will be fooded out over the coming months as we have more and more of the projects where we do not have those costs, those extra costs attributable to IB.

Okay, so let's say that historic overhang is more something to be solved in the next month rather than, let's say, in the next 18 months.

Yeah, well, I mean, you know, our backlog, as you know, for most projects converts over three to four years. Some projects it can be longer because you have some projects which get stuck on them and which it takes much longer to convert. But it's probably something which is a question of, I don't know, the next couple of semesters, I would say.

Okay. Yeah. Thanks.

I have a small question on the number of proton therapy systems which are generating the services. It looks like there was a bit of a drop there from 41 to 37, if I'm not mistaken. Just trying to understand why, nevertheless, your services revenues are up. Yes.

So that was related to Rutherford. So we had to remove the Rutherford contracts from our services because those stopped. But then we've been renegotiating new contracts in the meantime. And, of course, we had new contracts that came into our service also during the period. And so one complex is the other, basically.

Okay. Then on the cash flow going forward, you have, of course, the working, the investments in the inventory to – ramp things up. I think that's for, is that for everything in the second half or also a part related to everything that needs to come with the project in Spain? How should we see, because if it's for the Spain project, I don't expect to see it normalized like instantly in the second half. So how should I look at it for the second half and when should we see like a formalization?

So, indeed, the inventory build-up that we have been having right now is not only for Proton, by the way, it's also for the industrial, and even for the radiopharma business, because last year that radiopharma business also had a very high level of water intake. Of course, the rotation cycles for radiopharma and industrial are smaller. So, for radiopharma, they're really short. I would say, on average, six months or so. For industrial, it's still between 12 and 18 months, but still much shorter. So, we are already procuring also for beyond 2023 H2. I would say that we will probably see some level of drop of the inventory over H2. But we won't come back to what it was at the end of 2022 because we continue to procure for 2023. And just as you said, indeed, the 10 DUs in Spain are also going to deliver some level of revenue in H2. Of course, they will not be shipped. But there will be some level of recognition as we have built up on those issues.

So, if I understand this correctly, for the proton therapy delays, so what you mentioned in the press release was that there were five systems planned for the second half, these remain, and originally there were three planned for the first half, and these three got postponed. That's correct. In terms of capacity, that should not be the case.

No, because we have dedicated teams who make sure that the inventory is shipped out and, of course, when installation is dedicated. Okay.

Thank you.

I have a question from Simon. Go ahead, Simon.

Thank you. Still on mute.

Yes, I was. Sorry about that. A very quick one still on proton therapy. So the first half, there was not a single installation payment coming in. Second half, let's assume that we'll have eight. Every installation, shipment or whatever, brings about 3 million on average or even more as a revenue for you. So is it fair to say 8 times 3, that's going to be the difference versus the first half contribution for proton therapy?

That's an assumption.

It's just based on everything that you're saying. So that basically means that your result should be 24 million in the second half for PT indeed.

Are you speaking in revenue assignment?

No, just the delta because you get the money in, which is different from what happened in the first half.

No, so it's not related to cash. As you remember, our cash is completely dissociated from our revenue recognition. This cash is based on milestones, and revenue recognition is based on cost recognition. But if you look at it... From another angle, basically, indeed, I think we will see a very big ramp up in revenue in H2 because every shipment, as I mentioned, has indeed a big chunk of revenue associated with it, which has not got any relationship with the cash, at least not direct, but indeed does lead to a big level of revenue recognition as that cost is registered on that project. On the number itself, I'm not going to say anything, but the eight projects are a mix of Proteus Plus and Proteus One, and you need to remember that a Proteus Plus contract, of course, is worth much more than a Proteus One, and so there could be a much bigger level of revenue recognition on those Proteus Plus contracts.

Okay, thank you. And then on the other accelerators, can you give a bit of an example on investment to future proof? Because this has been already a segment that's been doing very well for the last two years, I would say. And can you quantify how much that investment was? Because we have, I think we run a little bit with the understanding that the margins in the other accelerators are significantly higher than in proton therapy.

It's a fair assumption. I can give you the example, like we are currently installing a number of machines in the U.S. for industrials. And historically in the U.S., we have no field service engineers to maintain the machine in the U.S., and we're building a team to actually be in a position to maintain the machine as soon as it will be operational. And this has impacted our profitability in the first half because when we hire someone, we have what we call an apply time. which is the billable, let's say, number of hours of a person, which is very low in the beginning and is increasing as they are trained and fully operational. And we speak, you know, a certain number of people that we have onboarded, not only in the U.S., in Asia as well, and trained, and that will continue to be trained in 2023. to be in a position to maintain the machine when they will be up and running. So that's an example of investment we've made to build up the capacity. And if and when we sell more machines in the U.S., then we can count on them. So there as well, there's a potential operational leverage on something that has been an investment, a pure investment in the first half.

Okay, but you cannot quantify that, right?

I can, but I will not.

Okay. But once again, I think we had a question earlier on why don't we see the operational leverage on other accelerators? Well, this is a big part of the answer on why we don't see an operational leverage on the other accelerators. So you can actually do the calculation.

That's clear. Thank you.

Do we have more questions online?

Not for now.

Okay. In this case, I will now close the call, and thank you all for joining. And I think we look forward, as you look forward, to updating you on our future progress in the future. Thank you very much for joining, and speak to you soon. Thank you.

Bye, everyone.