CTT Systems AB (publ)

Thank you and good morning and thanks for joining us at the CTT Earnings Call first quarter 24. I'm Henrik Højer and I'm here together with Markus Berg. We will present our financial outlook going forward. Net sales increased 4% year-on-year to 78 million slightly below the forecasted range of 80 to 85. The deviation to the downside is due to delayed shipment from a repair shop of a particular spare caused by late component deliveries from a supplier. Operating profit EBIT increased 44% to 33 million year on year. The EBIT margin was 42% versus 30. CCT generated operating cash flow of 26 million. Earnings per share increased 36% to 1.96 Swedish crowns. Net sales increased year-on-year with 3 million, driven by 11 million by the aftermarket sales, offset with a 4 million sales decrease in private jet and additional 3 million from lowered OEM deliveries. The OEM decreased in despite significant increased deliveries to 787 corp. lower due to the comparable quarter included deliveries of the 777X. At present, prior to certification, Boeing has 777X production at low rate. We expect resumed 777X production late 24 or early 25. Sales to private jet were as expected weak. The sales mix shows that aftermarket sales accounted for 80% of the turnover. ctt booked orders for 66 million versus 74 in q123 backlog increased 3 million to 74. during 24 we will see a gradual increase in the order backlog since the typical om order has longer lead time compared with those in the aftermarket i now hand over to marcus for more financial comments thanks andre and good morning all

EBIT in the first quarter amounted to 33 million and increased with 10 million from 23 million last year. We had positive EBIT impact from higher sales volume, adding 1 million compared last year, and positive sales mix and margins, adding 8 million, mainly due to higher off-the-market share, 80%, compared to 69% last year. Currency effect improves EBIT with 1 million compared last year. Now we move on to the next slide and look at the cash flow. Operating cash flow was strong in the quarter and amounted to 26 million compared to minus 4 million last year, driven by improved financial performance EBIT 35 million. Working capital was increased by 1 million, mainly explained by higher sales. Let's continue by looking at the net debt. Net debt amounted to minus 99 million compared to minus 10 million in the first quarter last year. Cash closed at 143 million. In addition, CTT has 53 million in available credit facilities. Equity ratio at 76%. Compare 71% in the first quarter last year. All in all, CTT has a strong financial position with net cash. Let's move on and look at the rolling four quarter numbers. Net sales for the last four quarters increased by 17% to 312 million compared to 266 last period. Driven by aftermarket sales and OEM. EBIT increased with 28% to 128 million from 100. And finally, earnings per share increased with 36% to seek 8.14 from 97. I now hand back to Henrik to give you the outlook.

Thanks, Marcus. And as Marcus said, I will now shift the focus to the trends that drive our market and have impact on our short and medium term outlook. If looking at short term, the forecast for this the sales range of 85 to 90 million, a year-on-year increase of 8 to 14%. Sales will be driven by our repair and spares business. OEM sales is expected to be at the same level. In private jet, we expect another weak quarter. Underlying growth trends remain common off the market, but we will always see variations quarter to quarter. With the forecast, we will reach 319 to 324 million in trailing 12 month sales compared to a pre-pandemic high of 365. I will now go through the business outlook for each of our markets in 24 and beyond. Starting with aftermarket. Aftermarket sales decreased quarter to quarter due to late component deliveries from a supplier. This disruption is solved and we have resumed deliveries. Looking at rolling four quarters, we are current run rate of 253 million. Going forward, I reiterate that sales of spares and consumables no longer will benefit from pent up demand due to shortage after the pandemic. As a consequence, aftermarket growth will be significantly lower in 24 compared with a 30% increase we reported in 23. In 2024, system sales will be the primary growth driver, benefiting from several strong trends. The chart on this page presents annual revenue from our various businesses. Notably, aftermarket has recovered and passed pre-pandemic level. Compared with 2019, aftermarket sales have increased 72% or 106 million from 147 to 253. But revenues from system delivers to OEM, retrofit and private jet only accounted to 54 million in 23 compared with 191 in 2019. We have 137 million gap. The main driver to close this gap will initially be OEM as Airbus and Boeing target production rate close to the pre-pandemic highs and Boeing has also expected to start deliveries of 777X. We have a strong position to increase retrofit sales as well as significant opportunities addressing new market in large cabin business jets. I will come back to that later in the presentation. OEM will again be the growth driver. Order long-haul aircraft in 2023 was the highest in years, and now end of Q1, order backlog for A350 and Boeing 787 aircraft amounted to a total of 1,900 aircraft, which equals the total deliveries so far. We foresee significant higher OEM deliveries in 2024 and onwards. OEM sales are in recovery phase. Trailing 12-month sales are 33 million compared to a pandemic low of 20 and a 166 at pre-pandemic high. Demand for OEM humidifiers is growing, fueled by wide-body aircraft production ramp-up that started in 23 and continues in 24 and onwards. The main driver for CTT will be the Boeing 787 program, currently at the build rate of 5 aircraft per month, targeting to reach 10 in 26. Airbus is at the build rate of six aircraft per month with objectives to increase to 10 in 26. And yesterday, Airbus announced that they go to on the back of strong demand. In addition, we will benefit from the Boeing 777X program, which is first delivery scheduled in late 25. CTT expects to resume deliveries in the 24-25 timeframe. To summarize, the OEM business will be a resilient driver that will driven by massive wide-body order backlogs. Part of our growth strategy is to convince airlines not only to secure healthier climate for pilots and crew, but also to offer humidity at wellness levels for their premium passengers in first and business class. This is an emerging market that benefits from large installed base in flight deck and crewette, with excellent performance and reliability data. Today, we have 90% penetration in flight tech on Boeing 787s and similar selection rates on new A350 operators. In total, we have flight tech humidifiers installed in more than 1,000 aircraft at more than 50 airlines. If looking at the picture on this slide, we see three airlines that operate A350 aircraft with humidifier in business class. Air India is our newest operator with six A350-900s as part of their new flagship fleet. In addition, we have China's sun operators since 2019 and Turkish Airlines since 2022. Worth mentioning is that four airlines have specified A350-1000s or 777X aircraft with cabin humidification with first deliveries during 2025 and 2026. New airlines that operate aircraft with cabin humidifier on board and the fact that additional airlines have specified new aircraft will enter into service in 2025-2026 creates some favorable dynamics. The cabin humidification retrofit opportunity looks better than ever before, driven by harmonized demand and competition driving differentiation. In addition to new built aircraft, many airlines will pursue large cabin interior retrofit projects. This will lead to opportunities to retrofit the cabin humidification system as airlines want to harmonize fleet to have the same cabin experience on all their different aircraft types. Even if it's hard to predict timelines, close to 2025-2026, when more airlines will start to operate aircraft equipped with humidification in premium class. In other words, cabin humidification projects must soon start to align their fleets. The private jet market. has its own cycle behavior with low correlation to normal economical cycles. Our private jet business report unexpected, another quarter with low sales. Near term outlook is equally dull. We only have one project in the order book, but our VIP project pipeline is healthy. And importantly, we don't lose any deals. In fact, all quotation for ACG and BBG systems amount in total to historical high levels. When we will receive these orders will be a function of, among other things, VIP aircraft availabilities. The cooperation with Airbus Corporate Jet is still successful and ACG continues to promote our system. We are well positioned and we will be in orders. Our lead time to deliver kit systems is only two to three months, but longer for wide body VIP projects. If looking at the private jet numbers, trailing 12-month sales have been ranging from 10 to 30 million and is currently at 14. We expect activities to pick up with more opportunities in the second half of 2024. In private jet, we also address additional sales opportunities in the large cabin business jet market with an annual value of 30 million USD. As stated before, we need to endorse and be included in the offerings by the OEMs. PrivateJet leads the way by promoting our humidification system together with and as part of their green aircraft. The business model is well received by the market and customers. It's now a de facto standard in the ACJ comfort package for long range. Our future growth strategy in PrivateJet aims to convince other manufacturers to follow and hereby unlock the market. As you can see on the picture, we target Boeing business jets, Bombardier Global, Dassault Falcon and Gulfstream. If we convince any of these OEMs, sales volume will leapfrog. Lead time from OEM award to first revenue will be 12 to 20%. At present, we have no business yet award, but I'm still cautious, optimistic that we shall enter into ACJ similar partnerships with at least one additional private OEM in 24. This is a top priority for CTT. The anti-condensation bill. Any orders? We have a clear strategy and I'm convinced that it will lead to fruitful results. But as stated before, the key enabler is OEM availability. This can only be accomplished with the support from retrofit customer that are large buyers of new aircraft. A part of our effort, we have ongoing trials with a major low-cost carrier. Another track involves our largest customers, Jet2 and Transavia. Both are in transition from all Boeing fleet to introduce the new Airbus 320 family aircraft. Both airlines have previously bought our anti-condensation system BFE line fitted in their new Boeing aircraft. This is not yet possible at Airbus. Instead, our first retrofit window will be at SeaCheck. We will, in parallel, together with them and other airlines, convince Airbus that it should be possible to install our Greentech system in a new aircraft before delivery. We remain convinced of CTT's anti-condensation system is aligned and part of sustainability efforts to reach aviation industry commitments and goals. Summarizing, we expect to accelerate population growth in the upcoming years. The main driver will be correlated to airline investment, primarily by new built aircraft. A more optimistic driver, harder to predict, is retrofit, but we have moved forward in the last quarters. Finally, we have made some progress in our efforts to win additional OEM customers in private jet. but we continue to successfully execute on our strategy and it starts to pay off. We are clearly in the beginning of the next phase when we significantly shall increase our installed base. With that said, I hand it over to you all for questions.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Carl Bockvist from ABG Sundal Collier. Please go ahead.

thank you and good morning my first one is just on the I apologize if you said it but what was the magnitude of the delayed shipments now in the first quarter good morning Carl we you didn't

say it and as always we actually don't go into the dividing the numbers from the of the market we just report one number but it was it was big enough for us to miss our forecast we which we usually don't do understood then just looking into the second quarter and if you then guide for revenues of between

85 and 90 but you also say that it could be pretty stable sequentially on system sales so i good aftermarket how do you how should we think about margins considering the very strong 40 plus this quarter you want to take that question Marcus or sure good morning as you know our margins are

are dependent on the revenue mix and the currency rate so if that is stable and on the same level as this quarter we should expect margins to stay at the level we are today understood and then just on the you talked here about the build rates Henrik and also what the Airbus said yesterday but

On the 787, so far, has there been any impact at all from their quality improvement efforts and certain legal discussions also regarding the 787 production?

I think 787 has been very stable. Q4, Boeing was actually super positive on Wednesday when they reported their Q1. They reported one issue with one supplier that they have moved production from Russia pending the war and they had some... I mean, if it's one supplier, I'm pretty sure they will sell it quickly. They also reported that they had some issues with buyer furnished equipment, which was seats that the airlines buy themselves and deliver to Boeing. That doesn't reflect or has any impact at all on build rates. So, I mean, we're looking very positively at the 787 program and maybe the ramp up has slight delays during this year. They're at five and they should go up. But I mean, we're delivering what they should nine months out. So on CDT, we don't see any effects and we remain very positive.

Understood. And then on the private jet and or VIP side, when you said we could potentially see an improvement from the second half, which category do you think will be the one that could turn a bit better towards the second half? Are we talking about the kits to Airbus or more about the wide body side?

So where we will see improvements in the second half of this year is different VIP projects. So it should be a mix of kit systems. I think that would be the majority. But I think, as I said, we have a very healthy pipeline and there is several wide-body projects out there as well that could come in during the late part of the year and with deliveries in 2025.

Understood then on penetration you write and say that you feel that you continue to improve the penetration on the 350. Apart from the ones that you perhaps highlight in the slides here but is it still mainly that you see an improved penetration on cockpit and flight deck or have you also seen improving penetration on the newer areas i.e. the premium cabins?

start with the flight deck looks really good uh you know the the slow start we had an airbus being reluctant to options or any options actually but new airlines they they choose uh they choose flight deck and as i said uh we're on the same level as on on 787 and that is a really good penetration and then we have uh revealed uh that a few more airlines have have modification into the premium cabins and right now I don't have any news but the trend is clear that more and more airlines look at this option and also when you listen to the airlines I think everybody's reporting that the premium cabin is where they make their money so that also underlines the trend that investments go in the way of offering your premium passengers extra things and that's an important part of the airline competition between the different airlines so I'm very positive on that side as well.

You said flight tech here but do you also see a good trend within the cockpit or did you include cockpit when you talk about flight tech overall?

So, I mean, just to straighten things, flight deck for us is the cockpit where the pilots sit. And then we have the crew rests, usually two of them. And then we have the premium cabin. Flight deck is really good. Crew rest is improving on the Airbus. Still not on the same level as 787, but improving.

Understood. Just more of a longer term question. You have started to increase the headcount now. One or three years ahead, of course, very difficult to say, but what do you think your headcount could be in relation to what you foresee ahead when you talk about all of these different growth opportunities?

I mean, we have a headcount. prediction that we calculate from the ramp up of deliveries. But at the same time, we also work with efficiency programs and also automation. So headcount numbers is hard to predict, but we will have a higher headcount, especially in our manufacturing. And when production rate goes up, you also have to add quality and other parts in the company. So headcount is going up, but we try to also rationalize and automatize in parallel.

And then also, it's been quiet now for a few quarters regarding comments from your side on competition within the aftermarket. Anything worth mentioning there in terms of what you've seen or if anything has changed? You mentioned that you started seeing good results from trying to re-win customers, for example.

You more or less answered the question yourself. I mean, we're always fighting in the aftermarket to offer the best products. and thereby keep the customers and I think we're in a very good position having our OEM pads that have ours and Munters material that is specified and developed especially for the aviation market and I think that gives us a competitive edge compared to competition that works with the standard material that you can actually more or less buy at any supplier. And when we go to the airlines, I think we're having a strong story and it pays off over time. But we cannot sit still. We have to work hard with this and we continue to do that. And I think we're in a very good position.

Understood. That's all from my side. Thank you.

Thank you. Thanks, Carl. And I think that's the end of the questions.

There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Thank you. Before closing this earnings call, I would like to add one thing on the. We got some questions on and I would just say that it's getting more and more important than we see that Airbus is winning more and more. orders on the A350 and I think we're in parallel with that improving our position and raising our penetration rates so we really look forward to working closer to Airbus. But before closing then I would like to highlight a few things that the next months are a very busy period for CTT with several events. In May we will attend two important exhibitions, E-base in Geneva which is focused on the VIP and business jet market. And in parallel, once again, we will in Hamburg, focused on airlines. We will exhibit together with our partner Collins Aerospace. We also in June will attend another red cabin event, Aircraft Cabin Innovation Summit in Dallas, Fort Worth, hosted by American Airlines. And we really look forward to being close to our customers again, and hopefully this can lead to more business in the future. With that said, thanks for listening and have a great Friday.