RTX A/S

Hello, good afternoon. We are ready to start today's event. I would like to welcome you to this review of the budget for Q2 2024-2025 from RTX. My name is Simon Skøjborg. I have the great pleasure of welcoming the new CEO of RTX, Henrik Mørk Mogensen, who is here with us for the first time. So a big welcome to you, Henrik. Thank you. And a big welcome to you, Mille. Tramlux CFO, you have been with us a few times, so you know this. But welcome to you two for the first time, and welcome to those of you who are listening and watching. As usual, there is the opportunity to ask some questions in the chat. Henrik and Miele, so I hope you will do that. Then we will gather up the questions until the end. We also record the presentation and put it up on different platforms afterwards, if there is something you would like to review. But with that, we will leave the stage to the two of you. Thank you.

Thank you for allowing me to be here, I have been looking forward to it. As you say Rasmus, I am new to Trot, I have been on since March 1, so two and a half months before, and have spent time learning, both our employees not only here in Denmark, but also in Asia and the USA. and especially our customers, come out and meet them and get an impression of what Tech is like as a company, and of course also our production partners in Asia. And basically I can say that I have a super positive impression, a super stable, solid business, and actually also a fairly strong strategy that we are well on the way to implementing, but of course also a lot of potential to expand that business-wise, so we will see a continuous growth. That's what we're working for, and that's what it's for. So it's been two and a half good months and I've learned a lot, but I think there's a little more to learn now. If I were to jump right into it, then I would say that we are sending a forecast out on Tuesday, a satisfactory forecast. We see a good progress in our business, both on the top line and on the bottom line, and of course we are very satisfied with that. It is driven by a growth in our enterprise segment, which will dive into it a bit later. A lot about a normalization for our customers, so there is a greater connection between the pull that is out in the market and the pull that is towards us. Some of the challenges we have seen in the aftermath of the component crisis, but also the sub-segment called retail, which has performed really well. Of course, we are also very happy to see that our health care turnover is rising in the quarter and for the first half of the year, and that is of course also part of the result. When we look ahead, and the situation we are in, we also come back to, then there is all this tariff and import to the USA and the uncertainty around it, which of course plays a role when we look ahead. But I would like to briefly start with a little bit about what we actually do and what Techs All About is, before we dive into the three business segments and give highlights from there. And then there is the topic, which I am sure is on many agendas, and it is at least in our case, what we think and the situation and our exposure to US tariffs, which of course means a lot to our people. Then Mille will come back and run through the financial highlights for the quarter and a half year, before we just round off and revisit our outlook and guidance. And then I hope there are some questions at the end as well. Well, let's get into it. Basically, RTX, we help people to perform at their best, and you can say, what does it really mean? Well, it's about using our 30 years of expertise to develop safe, reliable communication, which we together with our customers bring out to the market. There are many different kinds of markets, and where we are really good is when it's a challenging environment, and now we've taken some pictures here. So it can be a fire extinguisher team that has to go out in a forest and needs to have good communication. It can be in hospitals where it is vital that the communication is stable. It can be good concert experiences where it requires high quality or demands for quality. Or it can be a warehouse or where there is a need for communication. So actually a broad spectrum, but all of them underline that it is a typical environment that is difficult to create communication in. That's where we go. And we do that together with our customers. It is one of our major assets. It is our long-term collaboration with large global leaders within these areas. And what we actually do with them is that we design and produce high quality commercial products. And then we take us into the reality of it, and they can focus on developing the market and getting the value out of their brand by bringing the products to the market. And I have just chosen to take some of you with me, it's a bit of a busy slide, but it says a bit about the interaction and the collaboration we have with our customers. So we have tried to draw it in blue, it's like a too simple product lifecycle, where RTX is at the bottom and our customers are above the line. And together with our customers, we design based on their market insights, their input and our know-how, so we design winning products for the different markets. And from there, when we have done that, then we allow our customers to concentrate on activities such as branding and marketing and sales and distribution, where we take care of the technical and logistical challenges that are around onboarding and training, but also the production itself. And then an important element, something that makes us have a long-term vision, is that we have an interest in the fact that these products have been on the market for many years, so therefore we also ensure that they are fit for the market, both in terms of compliance, but also in terms of features. So all of this is about long-term partnerships, where we are an important part of their value chain all the way through. And that's what we can see historically, and I see one of the great strengths of RTX. Yes, let's take a look at the three different business segments. We have Enterprise here, where the solutions we make are communication infrastructure, headsets and handsets for what could be called the professional environment. It can be office environments, it can be shops, it can also be cruise ships, which is also a segment where we bring products to the market together with our customers. A segment that I gave a highlight on, which has performed really well. A revenue for the second half of the year at 193 million, compared to the last year, or at the same time last year at 126 million. We are very satisfied with that. It is very driven by, and I know some of the communication that has been before has been about this construction of labs for some of our customers. And we still see that with some customers, but we see what we call normalization. And of course, that gives a bigger impact on us and has been involved in raising our order book and our turnover. And then we have a specific segment that comes back to it, but what we call the retail segment, which has performed really, really well. When all that is said and done, we actually keep looking into relatively short order hands on for three to six months and also say something about our outlook. It is both driven by the way customers run their business, but also the environment we find ourselves in with uncertainties on tariffs. But overall, a really good performance. If we look at what we call retail as a sub-segment, just to give you an insight. You have probably been to Jysk or Bauhaus. This is from a shop called Tesco. But where we say, this is a market where the volume market is typically customers who are very much attracted to operational excellence. That is to be extremely sharp on both customer experience, but also on labor efficiency. And that's what our solutions, together with our partners in this segment, do. That the combination between the store employees, in reality, makes it possible to create more efficiency and better customer experience. And in reality, it is a segment that has been underused by technology. And there are some of our customers who succeed very, very well with it. So it has performed super well, and we actually expect it to perform well in the future. So it's a very interesting sub-segment for us. Then we have the segment where we, together with one of our partners, bring a wireless patient monitoring solution on the field. Our focus right now is the American market. The health market, at least in the western world, is driven by the fact that we are all getting older, and it requires more and more complex treatment and a larger amount of treatment that needs to be done. At the same time, there are no more doctors and nurses to give the treatment. So some of the solutions they contribute to is a better use of doctors and nurses and their time, ensuring that they can use the time when needed. Imagine that you wake up from an operation in an intensive department. You need to feel safe, and that's what you do when you get a half-step around where you get a measuring device that checks your vital parameters. At the same time, our wireless technology allows you to move freely around. It gives you freedom, and it's really great for rehabilitation, so there's some patient safety and rehabilitation in it. And it's a market we see growing really, really positively. And what we basically deliver is that threadless infrastructure that makes it possible to be safe in that the data comes to the right hands, so that if something goes wrong, then someone will come and can help you with what is happening now. And we do that together with partners, both those who make devices, i.e. the services around that, but also hospital infrastructure, and now we have shown some of them here. So, and as I also hinted at in the beginning, we have seen a positive development in our healthcare, a turnover of 29 million from the first half of the year to the last 17 years at the same time. And that is super positive. And we are starting to see that our order book is also being built up here. So here we are actually quite satisfied with the development we have seen. And this is where we take a larger part of the IP from one of our partners, which makes it a more whole-hearted product ownership, which also makes it possible to actually increase the value of our products here. So we expect a lot from this, and we are carefully satisfied with the development we have seen here. Then we have the last segment on audio, which is a bit of a twist, you could say, where in the two other business areas we sell all the products. Here in this business area, we have also historically sold all the products, finished products. But here we have chosen to focus our strategy on taking our 30-year experience and stopping down in a small IC the size of a free brand that does, together with a software package, that allows our customers to build We want to build the skills that provide safe and reliable communication into their products. Whether it is a hardhat protection helmet, it can be for foreign people, it can also be for special forces, where you build communication into it. It can be intercom solutions, it can also be in entertainment with the introduction of concert equipment, DJ equipment. And that way of running a business means that we can really get a pretty high scalability on some standard products out in many markets. So that's a transition we started on. It is also a transition that we must recognize takes longer than we had expected and hoped for. So we have seen a dip in the turnover of 39 million for the first half of the year compared to 65 last year at the same time. But we see some positive signs that we are starting to build this new customer portfolio. Recently, we have onboarded customers within Defense, which we see a great perspective in. Not on the short term, but on the longer term, because it takes time to build these products and the volume within this. But we see it moving in the right direction, and we have a great confidence that it is the right decision we have made. Then we try to dive a little into our tariffs. And now we have written that this is today's tariffs. And we know that in the meantime, there will be some above. And if nothing else, what we can conclude is that it is an uncertain environment. And our exposure last year was 120 million kroner in revenue to the American market. And in addition to that, we also have a rate exposure, where a 5% rate on the rate corresponds to a size of 10 million EBITDA. So we are exposed. When that is said, then the business model we have, where in reality it is the customers who deliver the goods to the market and bring them into the market, The fact that our solution is part of a combined solution means that we believe that we can keep the prices on our products so that it comes out to the customers. Our setup is what you could call an asset-light setup, where we have outsourced our production and we have production partners, and these are big global players who have footprint in several geographies. So right now, our geography primarily the Philippines, China and Denmark. And of course, we are in constant dialogue with our customers about moving primarily out of China. It is not something that has been invented for the property, it is something we have been doing for several years. But of course, we revisit the speed in this situation. But we do this in close cooperation with our customers. So I think that was the highlights I had chosen to take with me. And then I would like to turn it over to Mille in terms of going through the financial results.

Then I would like to sum up how it looks like on the financial results for the second half of the year. The first page in our quarterly report summarizes both our perception, as Henrik has been talking about, in relation to what is it for a perspective we see, what are the possibilities and what are the uncertainties we have, our financial performance and what are the primary business highlights we have. Henrik hasn't talked about that, so I won't get into that. In total, our revenue for Q2 is 160 million, and for the second half of the year, 260 million compared to 207 million in the same period last year. In the illustration on the right, you can see that the white columns are from last year, the blue ones are from the interim year, and the corresponding graphs are accumulated. And you can see a nice development in both cratals, which also illustrates this return to a form of normal state, especially in the enterprise segment. The other important parameter to look at when looking at RTX is our gross margin. Because it is a model where we produce products for our customers, and thus it is very important that the gross margin is maintained at a reasonable level so that we can enjoy this scalability by increasing the turnover. And we see that we are around these 50%, both for Q1 and Q2 in the current year, compared to last year, where we had a markedly lower, especially Q1, but also Q2. The reason for this difference is partly that last year was a challenging year for several reasons, and one of the big things, as we can say, is the product mix. We have a mix of products that are which is the higher market. In any case, we have fewer of these low margins. In addition, we have focused on optimizing our production process, and that means that we have fewer of what we call semi-variable costs, i.e. start-up costs, speed costs, scrapping costs, and these things. And that is a recurring savings if you have an optimal process, and we are still working on that. This is reflected in our EBITDA, where we are at 17 million for the current quarter and 7 million for the year-to-date. And basically, our capacity costs are somewhat stable. And with this, you can also see that when we reach a turnover that we have reached in this quarter, then the ATX business model also begins to show its results on the financial results, both operations and also cash. De siste tre finansielle nøgletal, som vi vælger at fremhæve, det er inventory-free cash flow og net liquidity position. Inventory fremhæver vi, fordi vi har haft en komponentkrise, hvor vi har bygget noget lag op på komponenter. Det er ekstraordinært for RTX, og det er noget, vi reducerer for i bund og grund. So components to our products, the warehouse construction is with our production partner and not in RTX. So we have a level on our inventory that consists of both components and finished goods at 74 million. And we have reduced that compared to previous periods, and we will continue to reduce that. We expect that a normal inventory for RTX of components will be around 40 million, and we expect that to be within the next year's time. The next is our free cash flow, where we have positive free cash flow, and that is also one of the elements that we have a lot of focus on creating good cash flow, and that is a result of both our operational results and our reduction of inventory. That gives a net liquidity position of 108 million, a level that is largely within the framework we have in our capital policy. And something that is super important for our customers is that we are well consolidated, that we have a strong balance, because they are, as Henrik has also been saying, quite dependent on us being able to resist if there is a little bit of a downturn or different wins on the order market. So we still think it's reasonable, but it's something we're following up on, because we have a capital policy that says that we should actually be between 80 and 100, and over there we should start looking at whether we should give some money back to the shareholders, either in the form of a dividend or a return on purchase. So that is of course something that the administration is following up on. Then we have our outlook for next year, and I think Henrik would like to say a few words about that.

But briefly summarized, we maintain our financial outlook on revenue between 94 and 25 and EBITDA between 0 and 20 and an EBIT between minus 35 and 15. And that can be said above a strong half year and actually also some positive wins looking forward. But we weigh that up against the uncertainty there is in relation to the customer's purchase pattern in terms of how these tariffs how the dialogue is about it. So it is like that on both sides. And with that uncertainty, we choose to stick to the guidance we have given, but we follow it closely all the way through. So I think that was what we had prepared. So we look forward to hearing if there are any questions.

Thank you very much Henrik and Mille for the overview. Let's go over some of the questions. If I go back to your outlook, and perhaps not surprisingly when you deliver such a strong Q2 here, then of course you look a little into it. Now I can just read the questions up. The fixed year expectations indicate that Q2 was an unusually good quarter and we must expect that the remaining two quarters will be at a lower level. Can you please elaborate on why it's like that? And you have been well aware of the uncertainty.

Yes, exactly. And it's a very valid question. And you can say that our expectations are a bit like... the tariff situation. And if we imagine that it is not there, then we actually have a positive outlook also for the next few quarters. And we also have, as we described, an order view of three to six months, so we are actually beginning to see the end of the year. We still have open orders, but we are beginning to see that. But due to the uncertainty there is on tariffs in relation to imports and the exposure, as I said, to a size of 120 million to the American market, Well, that means that we consider that there is a risk that it can move. So you can say, well, we have a chance to perform really well if the whole tourist situation is either quickly overcome or develops positively. But it can also go the other way. So that's actually why with that, you can say, call it caution in relation to the risks we look into, that we choose to maintain our outlook for the year.

Good. Yes, it is also asked a little about the improvement we have seen in Q2. Has it surprised you in relation to what you had expected at the current time, can you say?

Yes, as you can see, it is especially Enterprise that has performed really well and we have worked with and expect normalization. It is not finished yet and we are also looking into the next probably six to twelve months before it is completely finished. But especially retail, we have been positively surprised by the performance and the traction our customers have had in that market. It's customers who win. They make project sales to chains. So our customers have been able to win some larger projects that have given a larger effect than we had expected. So we have been positively surprised.

Good. And if we look now, you just mentioned with Enterprise, if we look at Health Care, then we also see a reasonable development there. You can ask a little about this agreement you announced there, it ended 23 with one of your larger customers. Did it begin to contribute with some turnover here too, or is it still a little too early?

No, but that's the agreement that's starting to kick in here, where we take a bigger responsibility, then we get some other points of value, we take on another risk, but that's something that's lifting the turnover here. What we also have a clear impression of is that the market behind us around patient monitoring solutions, that the market itself is also growing. And because it is the market leaders in the American market we are together with, then it also plays a positive role. So it's a mix of the two things that are involved in driving the turnover up.

And how is it that the technology that is being developed here, or that you are bringing home, is it also something you can use for other customers? Are you in a place where you are already starting to be able to show other customers some solutions, or potentially new customers?

The agreement means that we actually have the IP for it, and we also have the right to carry it out. We are on our way out on the market together with our customers now, and it's like a phase one. Now we're also starting to talk about it. It was some of them, if I may switch slides here, that there are more players that we can bring this technology into. And that is part of the long-term potential behind this business, that we can both succeed with the partners we have, but we can actually take the technology out and broaden it out, both together with other partners, but in reality also together with these infrastructure suppliers like Cisco and Aruba, as we have mentioned here.

Good. And when we look at this slide, Henrik, with these very large customers and also one of the previous slides, we also saw a number of, one could call them, students within their segment and so on. But that is also something that sometimes can give some advantages, but can also be a disadvantage for a subcontractor like you.

But it's all true, Rasmus. It's the joy and the challenge. On the one hand, the joy is working with these global players and leaders. It means that... a relatively small company like RTX, has a global reach with our technology, which means that we can deliver on the big stage globally, both in Asia and Europe and in the USA as the main geographies. So it's the channel to the market and their big brands that make them have a position in those markets. On the other hand, it also means that we are a step further from the end customer and the end market, which means that we are also in a lesser degree of control. And you can say that the way we react to that, it is actually about ensuring that we have the technology out in many different markets, so that if there are any conjecture swings or a brand that does not perform so well, then we hopefully have some in others who do it well, so we still want to see a stable development. So that is the hub behind our strategy.

Good. And let's take a little overarching question here as well. Part of it is asked a little about what you have done as an experience of your new position. You were a little into it initially as well. What has surprised you positively and possibly also negatively?

Basically, I experience a really solid company and a good culture in the company, a strong foundation around our technology, some really strong partnerships with customers that we have had for many years. I think some of the things that I've allowed myself to call it curiosity about so far, I think there is a potential that we can solve in relation to being even more targeted about what are the end markets where RTX technology can make a difference. Now we're looking at healthcare, it's completely open, it's an area, and I think there are more of them, and we have enterprise that performs really well, but I really think there is potential to find more of these areas where the technology we and that know-how and experience can make a difference in these markets, and which can actually drive a long-term growth for RTX. And I think it is something, there is at least an area that I think we can build on and develop, also in our organization. And in reality, the well-organized strategy that we have had in the last 5-7 years, it actually keeps up, but I think there is something in being able to expand it into even more markets and hit these growth markets where we have a relevance or our technology has a relevance. I think it's one of the areas that I'm looking at. And then I would say, I think it's pretty cool to get into a company where you have focused on what we need to be good at. We need to be good at technology and preserve our know-how. We have to do well with our customers and then we have to be able to produce. But in reality, we have done it so we don't have our own production. We have a pretty lean setup that allows us to focus on what we are good at. And I think it's cool to get into that. And I think it's a foundation for us to solve potentials on the long run.

Good. And you were just talking about making a difference, and we have asked a little into this question. Thank you for a nice presentation, Henrik. Good debut. So there's a rose from one of those who are watching here as well. It was interesting what you said about RTX pro hospitals. Can you talk a little more about how I or maybe my grandmother experienced better maintenance at the hospital with the help of RTX products?

Yes, you could say for... I as a person who is there on intensive care, then there are actually two angles. One is that I would like to feel safe. So I would like to make sure that if there is something that someone has to take care of, purely medically or physiologically, then there is someone who takes care of it. I'm not going to pull the cord because I'm not feeling well. I would actually like to have that already before I consider pulling the cord, then a nurse or a doctor comes in and create that security and do what needs to be done in that situation. So there is something about the security there. There is another part that you should not underestimate either. I think you have such a thumb rule that for every day you are in bed, you should use it to re-practice. So the fact that you have free mobility, because the solutions that exist today, well, they hang, that's where you are stuck. There is simply a cord to a device. And the fact that we can introduce technology in this area makes it possible for you to go to the toilet yourself, you can go down to the gym yourself, and it actually helps your rehabilitation quite a bit. So these are the two main elements where our technology can make a difference.

Very nice. There is also a question about how RCA's competences and products fit into satellite communication in areas with difficult conditions, such as poor coverage or need for particularly secure communication.

Very concretely, I don't think I have enough insight to answer that question, but there is no doubt that I think it falls into the curiosity that I am also talking about, because I think there are applications, and I should not be able to ask or deny that our technology is a fit in static communication, but the curiosity to say where there are actually some segments or applications where what we can and we are good at, it creates a great value. So it's something that we clearly are and should be curious about. And I think that's one of the areas where I think we can really... focus even more on than we do today. And it is of course a balance, because we should not diversify ourselves much, we should also have focus. So it is a good balance to make sure that it also makes sense and that there is business to be done in it. But it is an interesting question.

Good. And time is running out, so we have to wrap up. The last question here is that you are being asked if RTX makes control systems for drones. That's a pretty simple answer. We don't. Good. Well, then we'll wrap it up. Thank you very much, Henrik, for stopping by today. It was exciting to meet you after a short time at the post office.

Thank you. And thank you for a good welcome, Rasmus, and for leading us through. See you.

Thank you. And thank you, Mille, also, who is out of the picture at the moment. You were there. That's good. Thank you both for a good review here and thank you for listening and summing up and asking some really good questions. We're wrapping up here. Thank you for today.