Hello, everyone. A big warm welcome here to Stockholm again. I'm third presenter saying that. My name is Tobias Hägglöv. I've been running as the CFO in Elekta here for the last 3.5 years. I have, throughout my career, spent my time in various leading roles within finance. And all of my recent roles, both as CFO as well as group controller for sizable companies, we have been able to deliver a margin expansion. And I'm absolutely convinced that we can do that here in Elekta as well.
You heard here from Jonas and Peter, we're coming out really strong from Q4. We delivered the highest gross margin for being in Q4 for the last 5 years. And maybe more important, which I think you alluded a bit to, Jonas, was that it was not a coincidence. It was based on our strategy. It was based on what we want to do. And today, I will share some more light on this and how we think moving ahead to drive the margin forward.
I will then cover here in 3 blocks. I will start here what I just mentioned, talk about how to improve the profitability and the emphasis and importance of a gross margin expansion. Then I will talk about R&D and the balance sheet. And I will end up here with some findings about capital allocations and how we think upon that.
So starting here with how to improve profitability. Firstly, I would like to echo here what Jonas said. This is a good industry to operate in. It's a growing industry. It's a consolidated industry with a few players. We also see here that just as Jonas mentioned, that the barriers to entry are high: regulatory aspects, safety aspects, technological aspects. And also when -- from a commercial point of view, that you as a customer, if you have chosen an Elekta solution, you actually tend to choose an Elekta solution again.
With that said, our gross margin development here over the years have not been favorable. We have seen a deterioration here over the year. And even though you might say that from somewhere '21, '22, it has been relatively stable, it's still not good enough. And clearly, when we look at ourselves, we see we need to improve from here, and that, we will do. And I think from the presentations today, you will also find why Elekta is better equipped to do this than what we have been over the last years.
One important aspect is here that -- and we will talk about R&D, but there has been a need for product development, for shaping up our competitive edge, both in terms of market position, but also being able to get the value here in terms of higher prices from our customers.
The gross margin development here has also been a consequence of that Elekta has very successfully been able to broaden installed base and really capture the growth in emerging markets, a lot of greenfield where the price points have been lower.
It has also, as you see here on the slide, been that we were hit first by supply chain challenges, followed by high inflation, especially on niche components into our products, where we did not really fully compensate this by rolling it over to the customers in the form of price increases. However, looking where we are now and, again, coming back to Q4, we see this as a major step to bring back the financial development to a place where we should be.
And here today, I will now walk you through here the 4 basis blocks. I will talk about the volume growth. I will talk about the price increases that Jonas mentioned and that we really firmly here, both in our management team, but started also to change throughout the organizations are driving.
Mix improvement. Coming here from -- we talked about the product launches. I will also share some lights on how we think on the high-margin businesses. You will hear Christopher and later, Anish, share some light on the software. You will also hear from John Lapré here talking about the Neuro and Brachy products. But essentially, we have a very strong competitive position, and we can use this both to drive revenues as such but maybe more important to raise the profitability.
And then the final aspect here is productivity that we need to have in our DNA to run here, finding that extra productivity. And focus here will change a little bit over the next coming years, and I will come back on this one, but it's also to get more leverage on the gross margin expansion.
So starting here with volume contribution and volume growth. We have a very comprehensive product portfolio, and it's further strengthened here by the new products that we just launched here to the market. We are at the beginning of a launch phase. We see a strong traction in Europe. We will work through here the FDA clearance in the U.S., and we see markets such as China, which are recovering, and the launch that we are on that will expand here on a global base.
Jonas, you were also alluding here to just the installed base and the opportunities that we see here. We have, excluding our Brachy products, more than 5,500 solutions out there that we can upsell, cross-sell and utilize to drive software growth and to drive more service revenue. And if we would include the Brachy business here, it will actually add up to 7,500, which you will cover here later, Habib.
And this is a great opportunity, both to drive the revenues and also with the focus here, not just grow. And I think here, today's announcement, and I'll come back on that in how we manage the backlog. It's the same theme. It's to drive a profitable growth ahead of us.
We do have a strong backlog. We actually currently have a backlog here of approximately SEK 37 billion. And many of you saw the announcement here today. But I would really state that this is to enforce profitable growth moving ahead. So what we have done is to address nonaccretive orders, orders with lower profitability than average. Some of them has also been loss-making.
This, we have addressed, and this is a fundamental. If we're going to drive the profitable growth and really mean what we say, then we also need to proactively work with the backlog and create a more healthy backlog. We do have macroeconomic uncertainties, and certain things have changed here over the years. And I received here, have you received a lot of strong customer reactions, and we have not done that. But it's essential for us, and it's healthy to look at what value will we deliver to our shareholders in terms of higher profits.
What you also see here is that this is nominated in the Swedish krona. So part of this is just the mathematical exercises that the value of backlog nominated in U.S. dollar, euro and pound is actually less worth in Swedish krona, but that's just the currency development.
In the year, we delivered a book-to-bill ratio of 1.09. We came out from a Q4, and there were some questions about the orders. But again, I think that the Q4, we could recognize a book-to-bill of 1.12, clearly above 1, to fund future revenues. And what we also see in this number is the momentum for our products, the recovery in China, and it's actually also including a weak U.S. development currently. Elekta is not only U.S., but of course, with the FDA clearance in the U.S., that will create an even better platform for future development.
Pricing, and Jonas was alluding to this. Our price increases on orders, they will continue. This is a tedious work. This is a work that you never can let go. I've rarely been in a company where it's actually applauded by a sales organization to raise prices. And for us, it has also been a bit of a cultural shift here.
But what we have done and what we will continue to do is that an increased focus on profitability. We have built up, under your lead, Habib, a pricing office and a structure here for industrialize a more effective method to go with price increases. And the price increases currently are clearly higher on orders than the revenues, supporting again the margin profile in the backlog, and that work will continue. We have also changed the sales incentives here, moving a bit from volumes to more on profitability, including then price levels.
When we talk about mix, we will run this in 2 aspects. First of all, looking at the product dimension. In our plan on how we will drive the business is really to enforce a larger share of high-margin products. Throughout the year, which I also will come back to, you heard Jonas here, we can recognize clearly a higher growth for software of 7% compared to the 1% as a group in total on revenues. On orders, we could actually recognize a growth more than 20%, and that work will continue here into the years to come.
Service, again, the installed base, opportunities to upsell and use our service offering very intelligently to provide more value to the customers. And by doing so, we can also then enhance the value and also the financial value and also margin expansion.
When we look at the market mix and geographical point of view, it is, of course, the FDA clearance in the U.S., but it's also to continue to build on the momentum here that we are on in Europe. I will share later on that 60% of the orders in the second half in Europe of linac orders were actually related to Elekta Evo, another aspect to combine the geographical point of view with the product point of view.
And then finally, here, China, as most of you know, a little bit less than 2 years ago, they started an anticorruption campaign in China. It led to a huge order drop within the public segment of China, which stands for 70% to 80% of the market. That also led to pressure on the revenue. What we see now in China is a recovery of the Chinese market. And we have actually passed now, so the orders are higher than the revenues. And we are running now in China with a book-to-bill above 1. And that is also something that we will utilize now moving ahead.
If you then look into software a little bit more in detail. On the left-hand side, you see that the software development over the last years have been quite stable, except for the last year where you actually can see that the share of revenue coming from software has increased. More than 20% of our business are actually related to software. And more than 2,500 clinics worldwide are using Elekta solutions. When you look at the split, 2/3 are coming from oncology information and 1/3 from treatment planning.
So looking a little bit more here in terms of contribution from a financial point of view. I talked about that it's -- we could see an order growth above 20% in the last fiscal year in terms of orders that will be reflected in higher revenues moving ahead. More than 25% of the OIS orders actually relates to SaaS, software as service. And this is quite interesting because on average, you get 80% more value by a range and a solution like this compared to a point of sale. It will also create a smoother trajectory of the revenue stream. And that will, of course, enable a better resource allocation and also higher predictability.
Productivity then. This is something that we will constantly drive and constantly crunch out from our operations. But the focus here will change a bit. You have seen over the last years here that we have successfully implemented 2 cost reduction initiatives, a larger one during '22, '23 and a fairly sizable one also in the last fiscal year. It has been across the P&L, so we have taken out costs both within COGS, within R&D and also within SG&A. But moving ahead, and I think here we do have a great opportunity to leverage more on the COGS aspects and then, again, support the gross margin development.
When you think about the COGS of Elekta, some areas are quite similar to a standard industrialized -- industry company, but some of them are also a little bit different. So when you look at the procurement, this is something that many companies do, and we will do that as well, optimize the supply chain, work here with smarter -- with procurement deals and getting leverage from that.
But it will also be to work through here, what says here, a simplified and accelerated order to cash project. So really, how do we most effectively complete our projects, running with an order fulfillment, as we say, process and really from the order point of view until we have collected cash. A big focus on that now in Elekta to make it more effective.
We also, when it comes to service, which is another area here is that here, we see opportunity by investing in digital solution to provide more remote service and, by that, reduce the working hours, travel time, which then also we save cost.
Then when it comes to the R&D aspects and you will hear, I really line here with Jonas and the great start of Christopher, how we will continue to work with the -- automate and streamline our R&D efforts here to drive COGS development as well. And of course, designing also products here for faster and easier deployment and upgradability, coming back here to the upselling to the installed base.
So these 4 blocks, it will be about volume growth, it will be about prices, it will be about how we enforce and drive the product mix, both purely on a product point of view but also geographical point of view, and then lastly, supported by enhanced productivity. That is how we will drive the gross margin and raise the gross margin ahead.
And I received the question, okay, what do you mean with prepandemic levels? Yes, what we mean is we should establish ourselves north of 40% gross margin that we will deliver upon.
So then shifting gears a little bit, moving on to the R&D. Jonas was mentioning this. We did, in the Q4 results, an impairment in the size of SEK 1.1 billion following the IFRS standards. It's also a calibration of the product development road map. It is predominantly done within software. And we have changed here from an internally developed cloudware to using external supplier.
But again, and also connecting here to the Q4, R&D is essential for Elekta, and we will benefit hugely from the investments that we do. And there is a clear reason why we will continue to invest in our products because it will lead to a competitive edge and a clear opportunity to also mix up both the value from the customers and the patients but also for us in terms of higher profits and profitability.
The impairment also leads to a reduction of the increase of amortization. As we have communicated, we see higher amortization as planned. Here, the impairment will reduce that increase of SEK 100 million.
And when you then look at the different components on the R&D, we will see that the capitalization rate will go down gradually as the R&D projects that we're on will gradually move into more mature phases, where the share of the purely operating expenses defined then as pure cost on the P&L, that will increase, and the rate of capitalization will gradually go down.
So all in all, this will lead then to -- when you look at the cash R&D, namely the gross R&D and the net R&D, which is really what you see here in the P&L in terms of the gross R&D and you remove the capitalization and amortization, those 2 will converge. This will also lead, in the future, to better cash conversion and a higher cash flow performance, everything else equal with the same margins. And it is in line also which we want to do and how we plan the R&D projects.
Then some wording on capital allocation. Three areas: organic growth, selective acquisitions, and also here, we have strategic partnerships and joint ventures and then finally, direct return in the form of dividends.
So starting here then organically. And if you look at actually how we use our capital, I mean, a big chunk of that is going into the R&D. And I think you can see here the contribution in Q4 in terms of gross margin contribution. What you will see is that in terms of share of sales, this will gradually go down towards a level of 10%, but still, it's quite sizable investment. And again, it's a strict connection to drive profitable growth and margin expansion.
When you then look into the M&A agenda and the strategic partnerships and joint venture, we will leverage what we have done. Starting here with recent strategic partnerships, I mean you have seen the announcement here with Philips, with GE, et cetera. More recently, we have started to work here with the Sinopharm in China, which really provide us a much better exposure to the Chinese market, especially when it comes to these Tier 3, 4 hospitals and cities, which are a little bit more cumbersome to access just a supplier. So this provides us an even stronger edge in the Chinese market where we are by far #1.
We have also done some strategic acquisitions. We had Xoft in Brachy. We have also done some investments here in the software area. What you've also seen over the years is that we have acquired distributors. And the reasons for those have been twofolded. One is that to get a better control over the market and the customers by getting closer to the customers. But it has also been a very effective method to raise the profitability in that specific country.
We have also established new offices here in key countries here, Philippines, Indonesia, Romania. And moving ahead here, looking at the M&A agenda going forward, yes, we will do so, we will continuously monitoring it. And where we see opportunities, either to accelerate growth opportunities or to actually address specific items, either from a market point of view or a product point of view, we will do so. But it's more a complement to the organic strategy because we are strong with the product offering that we have.
The Board recommends an unchanged dividend of SEK 2.40 per share. And obviously, it's supported by a very strong Q4 cash flow. Moving ahead, and I think it goes with our results and also for the cash flow, we are proud on the Q4 performance, but far from satisfied. This is at the beginning. We are in the start of a launch phase. And that means we should continue to raise profits, raise profitability and, as a consequence of that as well, improve the cash flow generation here as well. And that will, of course, then be the fundament for driving a dividend growth as well.
So key takeaways here. I've talked about here, I'm absolutely convinced that we will deliver on the midterm targets. It is to deliver an operating margin north of 14%. And it is to bring back the gross margin to prepandemic levels, and what we mean with that is to establish ourselves of a gross margin above 40%.
The way there, the route, the path will be via improved volumes, and you saw the components, how that play out. It will be continuous efforts on price increases. We will utilize and enhance mix, both from a product point of view and a geographical point of view, with acceleration in mature markets. And of course, as a basis for this, also having the productivity supporting it.
We have taken actions to adjust the balance sheet, and you will see how the gross and net R&D will continue to convert. And finally here, we will improve our cash flow via higher earnings, and we will leverage our R&D investments, and that will be the support for future dividend growth.
So with those words, a pleasure to see you all, and thanks from me. Over to you, Peter.
