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Hello and welcome to IBA's full year 2023 results conference call. All participants are currently in listen-only mode. A question and answer session will follow the formal presentation. I will now hand over to Olivier Legrain, Chief Executive Officer of IBA.

Thank you, Olivier. Good afternoon, everybody. Thank you for joining us today on our results call. Together with me, we have our CFO Soumya Chandramouli and Henri Deromere, newly appointed Deputy Chief Executive Officer. Before we begin, I would like to draw your attention to the company disclaimer on forward-looking statements. It is a summary of our call today. I will start with an overview of IVA performance and progress in 2023, as well as the performance of proton therapy and dosimetry. Henri will discuss the performance of other accelerators and Soumya will provide us with the comment on the financials and the outlook before I open the line for questions. This slide will be familiar. It outlines the growth dynamics within the different business units, which remain unchanged, but as I highlighted before, our focus is on backlog delivery, maintaining growth momentum, and selective investment to support the growth. We will outline progress on these drivers as we get into the detail of each business unit. The next few slides outline some important figures for 2023 financial results. Starting with revenue, as you can see, we achieved double-digit revenue growth in 2023 with accelerated backlog conversion in the second half of the year. other accelerator at the record year with a 51% increase in revenue. Dosimetry also saw strong growth with a more modest uptick for proton therapy. Next, we have laid out order intake for 2023. It's important to note that the group 2022 comparable is related to one-off boost from proton therapy contract in Spain, With that in mind, 2023 order intake is encouraging, with dosimetry performing particularly strong. Moving on to the important topic of backlog, this remains at 1.4 billion euros at the group level, and you will see here how this splits out. In the second half of 2023, we saw a strong conversion of backlog across the business. During the period, we made good progress on all four of our sustainability streams. In particular, I'd like to highlight the research launched recently on environmental applications of electron beam technology, our P-Core pre-certification now in progress, the ESG mapping exercise started with EcoVadis on our supply chain, and finally, ONCEA Community, an employee-inspired initiative to accelerate the expansion of holistic cancer support centers. I will now hand over to Soumya as we take a look at the key financial for 2023.

Good afternoon, everyone. So as anticipated, 2023 was significantly second-half weighted with strong backlog conversion across the board. As a result, a positive rebate was achieved for the full year, However, on the back of financial and tax expenses, the net result for the year was a loss of 9.1 million euros. The dividend proposal of 17 cents per share reflects the performance of the year. And on the cash front, we're in a good position and also have undrawn credit lines for 40 million euros available as needed. Looking more closely at the first versus second half comparator, the strong catch up is very clear, reflective of the backlog cycle, particularly within PT and industrial solutions. Now, if we turn to look at OPEX year on year, investments are key to the growth of the different businesses. And this chart highlights the fact that although there was an absolute increase in OPEX, which included, among others, investment in recruitment, digital initiatives and infrastructure, there was a reduction as a percentage of sales as we continue with our targeted investment approach alongside tight control on costs. I now hand over to Olivier for a closer look at product therapy.

Looking at our delivery within PT, we are pleased to note good progress against our objectives. There are currently 33 projects under construction or installation. On order intake, a particularly interesting project sold in the period was the full restoration at MGH in Boston, which was IDA's first ever PT installation sold in 1992. Progress has also been made within the framework of the ongoing CGN partnership in China. And in terms of technology investment, flash research agreements were initiated in 2023. Taking a look at order intake at a geographical level, we see there continues to be global interest in IBSPT offering with sales in the US, Europe and Asia. Now, looking at all that PT backlog is comprised, we have, as I said, a total of 33 projects globally, made up of nine Proteus Plus and 24 Proteus One systems. IDA remains a market leader in proton therapy in terms of new cells, rooms in operation, and overall market share, which now stands at 42%. Looking ahead, we are confident in maintaining this market-leading position, and the pipeline is strong, particularly in Asia and in the U.S. Looking at overall performance of proton therapy over the year, PT benefited from the second half catch-up and the growing service business, which contributed to a 4.7 growth in revenue year-on-year. Proton therapy rebates are decreased to minus 23.4 million, This is related to a combination of factors, delays in backlog conversion of some Proteus Plus projects in China, overall project mix, including older, lower margin projects, investing in future growth, particularly into manufacturing capacity and research and development, and costs related to inflation and foreign exchange. Moving on to Dosimetry, we are pleased to be making good progress on gaining market share in Dosimetry, with very high order intake for a full year of 67 million. This progress has been boosted by several hardware and software product launches during the year. At the end, the team was pleased to acquire the Californian-based business RAPCAL, strengthening our offering in medical imaging quality assurance. You'll note on this slide that we have visualized our 2023 progress. Product launches including Dosex, a next generation reference class electrometer, which has already reached sales of more than 300 units. On the geographical expansion side, this has been achieved both through winning new contract as well as acquisitions such as Radcal in 2023 and Modus in 2022. In addition, dosimetry expertise in several countries were further strengthened, with new buyers in particular in India and China. This has been a strong period for dosimetry, with sales increasing by more than 20% of the intake, being also favorable. Rebits recovered significantly following last year's R&D and supply chain related cost increases. Backlog also increased in the year reflecting the high order intake. I will now hand over to Henri, our newly appointed Deputy CEO with a focus on overseeing the order accelerator business and the very exciting growth opportunities we see there.

Many thanks Olivier and great to be here with you today. to provide what is my first update on the other accelerator performance. It's been indeed another busy year for the other accelerator team with continued uptake in sales of existing technologies while also exploring future opportunities. Before deep diving together with you, I think there are two elements that are standing out. First, within the radiopharmacy business, there's been good progress with the diagnostic development. including Actinium-225. I'll provide you more details on Pantera on the next slide. Within industrial, we have made excellent advances in backlog conversion, as well as growing the service side of the offering. Now, deep diving on radio pharma solution on the next slide, IBA leads the market for radio isotopes production accelerator, placing it in an excellent position to grasp the growing markets for both diagnostic and therapeutic isotopes, such as Astatine-221 and Actinium-225. In 2023, there were a number of important milestones. First, IBS sold its 100th cyclotron cube cyclotrons, underlining its world-leading position in the mid-energy cyclotron market. Moreover, Accuracy, a product for cardiac application, was also launched. On Pantera, the joint venture between IBA and FCK has made significant progress, first with a supply agreement secured with TerraPower during the year. Then, post-period end capacity reservation agreements were signed with Bayer and another undisclosed customer. Active discussions with further partners are ongoing. The construction of Pantera large-scale production facility in Mall, Belgium is expected to begin in 2025. It's important to note that the wider market clearly sees the potential of radiopharmaceuticals. The last few months have seen the acquisition of Ray's Bio, Appoint Biopharma and Fusion just yesterday by Large Pharma at multi-billion dollar valuations. Moving to industrial, revenue saw a more than 110% increase year-on-year, driven by increasing equipment and service contracts. Order intake was slower than 2022, related to post-COVID normalization. To prepare for the future larger installed bays, IBA has focused on the strengthening of the size and expertise of the industrial team, especially in the U.S. Important to note as well that interest in E-beam and X-ray technologies as an alternative to ethylene oxide and gamma-based sterilization continues to grow. In terms of growth opportunity, IBA is exploring as well how it might apply its industrial solution to environmental application, including treating forever chemicals in wastewater. On the next slide, taking a look at the specific performance details, order intake was 81 million euro, revenue increased by over 50% with equipment seeing a particularly strong increase to 99.1 million euro. The strong performance was driven by high value backlog conversion and service growth, resulting in a rebate of 23.7 million euro. Now over to Soumya to talk about the numbers in more detail.

Thanks, Henri. Sorry. Looking at the P&L at the group level, sales grew by 19%, driven by all the factors explained earlier on by Olivier and Henri, including high backlog conversion, dosimetry sales growth, and overall strength in the service business, with the other accelerators' business having a particularly strong year. Gross margin decreased, partially driven by product mix, but also reflecting the one-off impact of a customer bankruptcy of 2022. There was an increase in SG&E and R&D as we continue to invest in the future growth of the group alongside high inflation. Although these expense lines decreased as an overall percentage of top line illustrating control of costs. The other expenses line was impacted by stop-option costs and reorganizational costs, which were partly offset by a gain on an IP contribution to Pantera. Once again, financial expenses were impacted by currency evolution, in particular in the USD and in some hyper-educationary environments. The high current tax level was mostly due to increasing business in Asia, while deferred taxes were written off partially in Belgium. As a result of all this, we reported a net loss of 9.1 million compared to a net profit of 6.1 million euros in 2022. Looking at a consolidated cash flow statement, the swing in operational cash flow reflects the increase in inventory and down payments to suppliers alongside the increase in backlog conversion. 2022 had included large down payments received from customers on order intake. Cash flow used in investing activities decreased, although CapEx increased on backbone and infrastructure relating to product management, ERP implementation, and building improvements. It's also worth noting that 2022 had included acquisitions in dosimetry. Cash flow in financing activities included the dividend paid on 2022 results and debt repayments. 2022 had also included the early reimbursement of a term loan and the acquisition of treasury shares. Now on the balance sheet, I won't spend too long, but it is worth reiterating that IBA continues to have a strong balance sheet underpinned by a good net cash position of €68 million and credit lines still available. So this summarizes the financial highlights for the year. We also discussed the details, but just to recap, the strong revenue growth in the year reflects the very good second half with accelerated backlog conversion across the business. Other accelerators and Dizumetry in particular had very strong years. The group net loss reflects the challenges for the proton therapy business and the continued investment required for future growth. I now pass back to Olivier for Outlook.

Today we have reiterated our mid-term guidance. I would also like to highlight the progress against this guidance. We are still targeting 15% CAGR on 22 to 26 revenues. We are well on track to achieve this with 18% increase in revenue in 23. We are aiming to deliver 10% rebate on sales by 26, which will be heavily weighted after 24. In terms of progress, we expect the rebate margin to improve in 2024 with lower inflation and proportional R&D expenses. Finally, capex will remain around 10 to 12 million euros per year until 2026 to support increased investment for the future. Twenty-three capex figures of 20.3 million reflect this. I'll finish by mentioning that the Board will recommend a dividend as we have already stated, of 17 cents per share to the General Assembly in June. Let's finally have a quick look at what's coming up for IBA this year. Alongside our usual financial calendar events, we are looking forward to attending a range of industry conferences. In addition, we'll keep you posted on plans for Capital Market Day in the later part of the year. I would like now to open the floor for questions.

Thank you, Olivier. We will start by taking questions from the room and move to participants online. And for those who would like to ask a question, please use the raise hand function on the Teams platform. And when you are invited to speak, please unmute yourself and state your name and company first. Thank you.

Good afternoon, congratulations on the results. I have three questions to start. So first of all, on proton therapy, how do you look at backlog conversion for 2024? And then how should we look at the evolution of the overheads and the R&D expenses in that division as well? So I guess that actually my question is, can we expect to see an improvement in profitability already in 2024? um secondly a bit of the same question for the other accelerators uh in the sense that we have seen a strong growth uh in 23 uh but we know that there is this uh overstocking effect and that the ordering decrease so what can we expect for 2024 can we still expect uh some growth and then still in the other accelerator um what is the likelihood to see new entrance in the high energy machine segment thank you

okay thank you thank you laura uh so i i will start by answering your question on overhead and rnd uh in proton therapy um i think we have reached the cruising altitude when it comes to expense rate uh for overhead and to a certain extent to rnd as well even though we'll have a You know, the people that we have hired in the course of 23 will be fully in the PNL of 24. So we might see a slight increase, but we're close to our, let's say, cruising altitude. So we should not expect much more, let's say, effects in proton therapy in 24. On the backlog conversion, we'll see a progressive increase. starting in 24, but really delivering in 25, especially as we will start to execute in the later part of 25 the Ortega contract in full blood. In other words, we'll start to ship the first Ortega machine late 25, so definitely we'll see a start of the increase in 24 and a much longer backlog conversion in 25. The mix will be more favorable as well as we will slowly see the lower margin orders being converted and the new order intake started to kick in and we were able to normalize the gross margin in this contract. So it will also help, let's say, not only convert, but also to improve the gross margin in proton therapy. And this will be supported as Many sites will go into clinical by a strong increase in service revenue. And as well, we have a clear focus on improving the profitability as we are going to reach a critical mass, so to speak. So all this will certainly contribute to the guidance in 26. And we will progressively see the impact, definitely in twenty five and to a certain extent in twenty four. When it comes to other accelerators, Henri, you want to take the question? I can take the third one for sure, which is do we expect to see any new entrant in the high energy or the high power? It's more the high power machine. I think we keep a very strong edge on this. There's a number of initiatives going on, but I don't think there is anything really threatening or positioning in the high end or in the high power segment, especially in X-ray. So I think we have a minimum five years ahead of competition, and we intend to keep that edge alive, especially as we innovate faster. Not only we deliver machine for medical device sterilization, but everything we do in the diagnostic, for instance, also help us to continue to improve the machine in terms of performance. The overall X-ray It goes beyond the machine as well. We develop additional competence in how to deal with how to convert the beam into x-ray, which I believe is very unique, as well as what to do with the beam, this kind of very high power beam. You also need to develop expertise that we do. So I think the innovation flow, let's say, makes me quite comfortable on keeping a competitive edge in that segment.

when it comes to numbers? And comment on the trend and then maybe Soumya, you can spell out what are the key numbers you feel at least to share at this stage. But I think if you talk about post-COVID normalization in the sterilization industry, from where I sit, I think we can say we are over it. So I think we can resume with, I would say, normal growth momentum. And I see, therefore, no reason to think that we would deviate from what has been guided as an overall growth momentum. From a macro perspective, as discussed, we see that IBA is at the forefront of many positive developments in the accelerators business, which gives, for me, additional assurance that we can meet the set expectations for that business.

Yeah, I don't know. PECS, a little bit like in Proton, I think we'll slowly start to reach a a plateau where we're going to flat out. But in 2024, we'll still have some increase which will come from digital initiatives, from the fact that we continue to invest in our service roadmap for the installed base, which is continuing to grow in industrial and in RPS in Radio Pharma also. And then in the production area where we have to deliver a lot of machines to our customers. And so to support the backlog conversion, we will see some increase in overall production costs, but nothing that will be major versus today.

Thank you.

Should we move to online questions?

So we have David first. You want to unmute?

yes hello good afternoon everyone and thanks for taking my question so uh two uh i've got two questions so first on the other accelerator could you come back uh break down a bit the the improvement in profitability we saw in h2 uh so if i'm correct the you had like a 50 percent uh fall through to the bottom line so i mean from you know like the sales improvement looking at the profitability improvement. So what does it mean for the gross margin? What does it mean for the, if you allocate, I guess, the profitability per contract? Maybe to start with this question first. Thank you.

I'm not sure I completely understand your question, David, but I can try to explain maybe how the numbers add up from H1 to H2. So basically, OPEX are pretty reasonably linear between H1 and H2, slightly higher in H2 than in H1, but I would say overall half and half. So when there is an improvement of the profitability at Revit level, it's because the overall absolute gross margin is higher. bigger in value and is able to absorb those OPEX better than in other period. And that's exactly what happened in 2023. So basically we did in the other accelerator area nearly three times more gross margin in absolute value than in H1, which allowed us therefore to much better absorb these OPEX and improve profitability.

Operational leverage.

Exactly. In terms of percentage of gross margin, it remained more or less the same between the two periods. So that was not the major driver really, because as you know, in the other accelerator business, we already have good margins, much more market competitive margins.

And you don't have also operating leverage at the gross margin level?

Yes, to some extent, but it's of a lesser extent in the other accelerator business than for PT. Because in PT, we have all of our sites that are across more than 40 countries. And so there, there is much more opportunity for that operational leverage than for the industrial business where we don't have permanent operations in every country.

Okay, thank you. And then when we look at the H2 profitability, what kind of conclusion should we draw for the coming years, basically, if you've achieved this? My model is a bit stuck, but I have like more than 20% EBIT margin, I think, in H2.

Well, I think you have the case, which is midterm guidance, and that's what we're targeting.

I think what it shows, David, is that, you know, 12 months is a better cycle than six months, unfortunately, so to speak. So I think you should look more at the average than the absolute value for six months. I basically have a bit of a reverse message than the one I had after the first half. I say, you know, first half is not representative. I think second half is not fully representative either. And I think the average is more representative of our business reality today.

okay and still still that means like close to 18 percent uh credit margin in 2023 so accelerator yeah accelerator so is that is that something which you know like given that the Okay, there has been very good backlog conversion. Henri was saying that it's sort of coming back. You had a bit of a trough, but it should be coming back. So how should we be thinking about the profitability of auto accelerator in a bit normalized, let's say, so 2026, I mean, going further?

I think the average is a good normalization. Exactly.

one five but we don't guide on this but you did a good calculation okay okay no thanks thanks very much it's very clear uh and and my second question then on on working capital um if you could guide us a bit or help us to understand or we should be thinking about the working capital development and free cash flow overall for for for the next two to three years

So I think we've had a very strong cycle over the past couple of years where we had a lot of down payments coming in from customers on the back of the high order intake levels. And I think 2023, as you saw, the working capital has reversed as we start to construct all the equipment and deliver all those machines. And so inventory goes up and obviously that means that cash goes down. So we should see this trend continuing into 2024. And then stabilizing by end of 2024 and remaining more or less the same, i.e. still a negative working cap for the first half of 2025 at least, because we actually expect to receive quite a lot of big down payments in the second half of 2025. You may remember I had already mentioned that the Spanish 10-room contract is not a very strong one on the down payment terms, and so that does have an effect, especially because we are building 10 machines at the same time.

and there the uh a portion of the cash will really come in only second half of 2025 as we start to deliver those machines okay thank you and so you said same trend in 2024 then to stabilize sort of in 2025 okay okay we we start payment then uh coming in in in h2 second half of 2025 correct yeah okay thank you and we have thomas

Hi, this is Thomas Vanke from KBC Securities filling in for my colleague Michiel. Thanks for taking my questions. Two from my side as well. Maybe the first one is on the protein therapy side there. I just wanted to have a bit more of a feeling of how you think about pricing power going forward. And we see that market share is slowly increasing with the exit of Varian. How do you think about that, let's say, over the next two, three years?

i think we have uh there as well i think the competitive environment is very favorable so i expect to see the same kind of market share and same kind of pricing power you know i think as we we we continue to improve let's say our competitive advantage faster of our value proposal faster than competition. I think market share is fairly well protected and pricing power should be protected as well.

Do you expect an increase on that, on the back of that strong market share?

You mean increase of market share? I think power, you know, I think it has already significantly improved. Now the question is the right level as well for the customer to be able to swallow it somehow. So taking into account that inflation has made overall proton therapy project more expensive. so i i can put it another way i i expect to see our margin uh going slowly where it should be which we don't get but i think pricing power has dramatically improved over the last few last couple of years let's say i don't think we will see major change on that but it will really help us in terms of gross margin recognition going forward. Gross margin improving.

Okay, thanks. And my second question was with regards to the rollout of the new industrial applications like, for example, those forever chemicals. Just to have a bit of a feeling in terms of how you think about timelines here. Do you already anticipate material contributions in the course of the next three years?

I think maybe I take it over to Jean-Claude. So what we have done now is a proof of concept. So we have taken some, how do you call it, carbon filters, and we have demonstrated that using an electron beam irradiation of, I don't remember if we do it with electron beam or X-ray, but it has shown some promising results on being able to break forever chemicals molecule we start to understand the economics of it which tend to show that it's not going to be more expensive than the actual technology so now what we are looking at is building let's say a first real size treatment center somewhere in Europe, which will take a couple of years. So I think three years is maybe on the low side, but the third year, maybe we'll start to see some material effect indeed. So I would say the next will be used to build, let's say, a real size treatment center to show to the world and help the industry to to test it, and then we'll see what will be the business model that we will pursue.

Very clear. Thank you very much.

We have Carlos on the line. Hello, Carlos. Hello there.

Can you hear me? Perfectly. I mean, I'm just playing with the numbers, really. I mean, it's fabulous. The other accelerators performance. Obviously, I can see the book to build. And we're talking about the long term growth in other accelerators. But if you're to presume that you can deliver sales of similar magnitude in 2024, let's say it's acquired a year, but you hold your profitability, which is kind of what you're implying. And the growth comes through in proton therapy with an improving gross margin for all the things we've talked about and relatively flat costs at a higher level, fully annualizing 2023. You're going to see a dramatic improvement. I mean, these results show you're very sensitive to marginal sales. Well, you know, at this higher level of costs and you're talking a much more stable level of costs. So surely if you have a decent year when it comes to selling products, proton therapy you're gonna we're gonna get a dramatic improvement in 2024 in the profits from proton therapy i don't know what i'm missing really are you being very conservative because i mean ultimately you've got to sign deals right that's the bit i don't really get why we're not going to see a dramatic improvement in proton therapy and be and with the other businesses holding their profitability why 2024 isn't going to be a great year for the group what am i missing

I think you're over-optimistic about the... I fully agree with you except that I say it will start to happen in 2025. I think we'll see some improvement in proton therapy in 2024. But once again, I think as we will start to fully execute on the Ortega contract, that's where we're going to see the growth. And the Ortega contract will start to be executed late 2025. So we'll see some impact in 24, but it will be, even though we don't guide on 24, we estimate it's going to be, let's say, on the low side. But as of 25, I think your reasoning is pretty right.

Maybe I can add on that, Carlos, because I think there are two things which you probably are not taking into account and which we take into account, which are, on the one side, backlog conversion. I mean, you saw that we've had backlog conversion delays in 2023 in China, and there's really not much you can do about it when there's a customer-related delay. It doesn't mean that you lose that margin, but it just means that the timing of that backlog conversion is hard to predict. And so we expect that there could be more of the same in 2024. It's not that we are planning on it, but that's one element. The other element is we still do have some low margin projects in the backlog, and those will continue to deliver lower margins in 2024 and even a little bit into H1 2025. But as we go forward in time, the effect will be diluted by the higher margin contracts. And then finally, and I think Olivier mentioned it earlier on, we do continue to invest in in 2024 also so we will see some r&d uh increase in 2024 also and a lot of it will be in pt so when you put all of these three together you still see that 2024 will continue to be affected to some extent by proton and we're not saying how much but uh but uh yeah on the other hand we didn't speak about group results and that we're not guiding on so uh so there you are and then if i have just a quick follow-up question just on margins i mean you know that

The performance in other accelerators is absolutely sparkling and the CMH is doing really well. You just seem so dominant. Another way of talking about pricing power, you just seem so dominant in proton therapy. And, you know, it just seems 10 percent for the group's incredibly low because it presumes a kind of mid to high single digit in proton therapy, which considering half the business is service seems a very, very modest medium term target. I mean, is 10%, do you think, the maximum that you can get to for the group? And what am I missing there? It just seems very low margins for proton therapy into the long term.

I mean, three years in proton therapy is long term. It's not long term. We sometimes joke and say a proton therapy year is a five years human year. And, you know, let's take it a step at a time. Let's get to 10% and then let's see what's substantial.

Just maybe I wanted to add, you know, our service contracts are O&M contracts, and so a big chunk of the cost in there is labor. And, of course, labor is affected by labor indexes. Now, you may remember that most of our contracts are protected because we have labor indexations on an annual basis. We are able to neutralize that to a large extent, but not always completely. And then you do still have overheads related to service contracts. and to the service business because we are present in so many countries and so that does have a little bit of an impact. So you can't expect the same kind of service margins as you might expect in a pure spare parts or service on call type of business, which is more the case for our industrial and radiopharmaceutical businesses and other accelerators or for dosimetry.

Thank you.

We have Simon online. Hi, Simon. You need to unmute.

Sorry, yes. You hear me now? Yeah, cool. Thank you for taking my question, Soumya. Just quickly on the other accelerators. Do you have an idea, absolutely, in absolute numbers, will your profitability grow in 2024? And can you say something about 2025? I'm just struggling a little bit by this weaker year, 2023, in terms of other accelerators taken in and it takes about 12 to 18 months to cycle it through the pnl so just a bit of uh visibility on that have is it now step up from from where we have been or a stabilization and no legs down anymore that's the first question um so you're trying to make me guide them not not not really because you i mean not really just is it uh

No, so we still haven't converted all the backlog that was built up in 2021 and 22. So we should continue to see nice, strong sales for the other accelerator business into 2024 and 25 also. Now, you're right that, I mean, to some extent, the backlog conversion does depend on new sales. And indeed, the sales for 2023 were more modest than 2020. for 2021 and 2022, but at the same time, it's such a big increase in terms of sales in 2021 and 2022 that I think we still have space to compensate for the lower order intake in 2023. And hopefully, as Henri was saying, some of the effects that we were seeing on the industrial business are now winning out and we should start to see more return to, let's say, the previous normal, and that should also help.

I think it will depend on the book to build of 24. And we're pretty confident we'll be able to show a good book to build in 24.

Okay, so the market is recovering, like you said in the beginning. And then on proton therapy, taking a step back, if you would be able to have a very low profitability in proton therapy by 2025, you basically are at your targets of 2026. Already I have the feeling, which would be around 60 million in EBIT. But can you give maybe the market a little bit more granularity on the 22 million loss, the building blocks? There was a delay of a big contract, I understand, a big step up in R&D. Can you quantify that a little bit so we get a little bit more comfortable that the path to that profitability is really there? Because I was also surprised 50% of your customers You explained a little bit, but 50% of the sales is in maintenance revenues here. And you would almost assume that the equipment part made almost 30 million in loss. And that's probably not the way how to look at it. But curious to hear your thoughts.

Yeah, so we don't split out the margins between service and equipment, but I can give you an overall idea of where the biggest chunks of reduced Revit come from versus what we could have expected. So first of all, I think a couple of, or maybe three major projects, all three Proteus Plus projects in in PT, which were either delayed or had a little bit of an overcost, have had an impact. One of those projects, indeed, you're absolutely right, we had already spoken about it, has been delayed completely, and that had more than 50% of an impact on the loss of 2023 for PT. I would probably go up to 60%, maybe even coming from that. Then you have the inflation. And, you know, a lot of our production projects is done in Belgium we have a lot of people in Belgium and so on the production manufacturing cost increases to ramp up our activities well the inflation of 11% did have an impact in 2023 so there also we probably see around 5 million impact overall between the labor inflation and also some inflation on parts, which was indirectly induced by that labor inflation coming from our suppliers. And then finally, we have the investments and we both spoke about that quite a bit. And we have made a conscious decision to make quite some investments to support future growth. That's both on the product, but also on our overall capacity. And I would say that that is also probably another 20% or so of the overall loss. So basically that gives you an idea of the three components that make up the major portion of the 2023 loss.

Two-thirds gross margin, one-third OPEX. And gross margin is a mix of capacity, delays, inflation, And the third on OPEX is mainly driven by investment in R&D. And some inflation. And inflation as well, of course. Remember, we had... Sometimes I like to put it that way. We were entering 23 with a big question mark on our capacity to deliver. I mean, the global supply chain was upside down. and we have resolved that we were potentially facing a huge multi-year inflation and we have seen that in 2023 with 11 salary increase in belgium for instance so we did swallow all this but it did require some investment and and reduction of profitability But once again, I think this is kind of behind us.

And you might recoup some of that or not?

Yes, some of it indeed. I think we're pretty, how can I say that, disciplined on going after penalties when we deserve some. So that's indeed...

Okay, good to hear that. And then maybe the last one you mentioned in your press release, I think, will get to the targets on a couple of conditions and one of them is access to the markets. Curious on which market you are speaking there.

I think things like... I'm not sure what you're referring to, Simon.

Were you talking about the geographical expansion, maybe for dosimetry, which has been going into new markets also?

Maybe that was what you were... I think on the conditions to get to the 15% CAGR and 10% by 2026, you mentioned access to certain markets.

Probably it's China, just... No, it is more... Indeed, China is part of it, Russia is part of it. We have operations in a couple of hyperinflationary countries where it's not easy to operate because we have to install machines where the costs go up like crazy. And so how do you manage that? Indeed, that's what you're talking about, really.

I mean, Russia is a big... I mean, it's not a question mark anymore, but the potential for us in Russia was very big. It's gone. So, you know, should this happen with, I don't know, I don't want to name a country, otherwise I will have trouble, but you know what I'm talking about. So I think, let's put it that way. Geopolitics is bad enough, and we are confident with the guidance in the bad geopolitics environment. Should the geopolitics get worse, then it will be more challenging to reach our guidance.

To give you an example, you may remember we had mentioned it last year, but dosimetry had a huge potential in Russia, and we expected, I would say, to high single digit growth of the dosimetry top line in Russia. Now, of course, it's still done great, given the 22% increase of the dosimetry sales, but it could have been even greater with Russia, for example. So that's one example of where that has an impact on the overall numbers.

Very good. And last one on China. CG&T is opening their facility. Are you more enthusiastic about that and on the prospects? Because so far they didn't bring a lot since the deal in 2020, I think, no?

You know, overall our market share in China is pretty good. So I think it's a bit... It's a bit tough to say that CGN underdeliver. We're quite enthusiastic about China. You know that the new five-year plan, they call it, I think, or country plan, has a law for 41 proton therapy licenses. And I believe the mix between CGN and the new factory and the technology transfer that we've been able to deliver And us continuing going direct in China with Proteus One will allow us to claim our fair market share in China. So I think overall we're in good shape in China, if I may say so.

Good to hear that. No, no, I just had expected that it would go faster with CG&T. It's true that there has not been a lot signed, but I hope it will accelerate once their facility is open. Thank you for taking my questions.

Thank you, Simon. I don't think we have any more questions. Thank you very much. And on behalf of everyone here at IBA, I would like to thank you for your continued interest and support of our company. and we look forward to updating you on our progress as we unfold 2024 thank you very much and have a nice