CTT Systems AB (publ)

Good morning. Welcome to CTT's quarterly earnings call. I'm Henrik Høyer and with me is Markus Berg. We will present Q1 financial results and the outlook going forward. Starting with the business highlights, the OEM sales doubled, driven by resumed deliveries to the Boeing 787 program. We had a record high order intake of 181 million, driven by the largest order so far from Get2.com for 146 anti-condensation retrofit systems. We had four ACJ320 kit systems from Airbus Corporate Jets and received resumed orders from distributors for aftermarket products to be delivered in Q2 and Q3. As expected, the financial performance in the quarter was impacted by high inventories at CTTs distributors when entering into Q1. As a consequence, net sales dropped to 54 million due to halted orders from well stocked distributors that could deliver from stock, pushing down CTTs after market sales significantly below underlying demand in the quarter. This is temporary dip as aftermarket demand from airlines remain normal throughout the quarter, reducing distributors inventors back to average level. Operating profit EBIT was 4 million versus 33 million same period last year. The EBIT margin was 7% versus 42. CTT generated operating cash flow of 4 million. Earnings per share decreased to 0.03 versus 1.93. Net sales bridge shows a decrease of 24 million that was driven by a 31 million drop in aftermarket sales due to the mentioned temporary order halt from distributors. Private jet revenue decreased 2 million as some kit deliveries was pushed from Q1 into Q2. OEM sales almost doubled to 18 million as deliveries to the 787 program again reflected actual build grade content. Breaking down the total sales, aftermarket sales accounted for 58% of total turnover and 33% came from OEM sales. Order intake was a highlight in the quarter with booked orders totaling 181 million versus 66 in Q124. Backlog increased to 158 million versus 74. I now hand over to Marcus for more detailed financials.

Thanks, Henrik, and good morning all. I will start with the EBIT bridge. Compared with last year's 33 million, EBIT had negative impact from sales volume with 16 million, sales mix 7 million and currency effect 4 million. In total, EBIT decreased 29 million to 4 million in the quarter. Let's move on and look at the cash flow. Operating cash flow amounted to 4 million compared 26 million last year, driven by EBITDA of 6 million and positive working capital of 7 million. In the quarter, CTT paid 7 million in taxes. This is approximately 5 million higher than the actual tax due to excessive preliminary tax based on actuals last year. This will be forwarded adjusted. Cash was unchanged at 69 million. During some quarters we have underperformed profit to cash conversion that is temporary and will reverse. Operating cash flow is expected to exceed EBITDA in the second half of the year due to positive work in capital. Let's continue by looking at the net debt. Net debt amounted to minus 29 million compared to minus 99 million in Q1 last year. Cash closed at 69 million. In addition, CTT has 55 million in available credit facilities. Equity ratio at 73% compared to 76% in Q1 last year. Return on capital employed at 26%. All in all, CTT has a solid financial position with net cash. I now hand back to Hendrik for guidance and outlook.

Thanks, Marcus. Before going to the business outlook, I will first comment the guidance and the tariff environment. I will start with the Q2 guidance. We foresee a swift recovery from the sharp and temporary sales drop we had in Q1. primarily driven by quarter to quarter by rebounding aftermarket sales and higher sales in private jet. OEM sales are increasing, but OEM still is in the long term growth trajectory, but with variation quarter to quarter. The Q2 net sales guidance is 75 to 85 million. The trade war has triggered uncertainty in the sector with risk disrupting global supply chains. The aviation industry is heavily regulated and is built around the global supply chains. The sector has previously been accepted for tariffs. Although trade negotiations are ongoing and much remains unclear, aviation has today no exception for the general tariff imposed by the United States in April. Referring to Boeing's earnings call comments earlier this week, Roughly 80% of Boeing's supply chain spending is with US-based suppliers, limiting the direct impact on tariffs, with imports from Canada and Mexico mostly exempted under USMCA. The primary tariff effect suppliers are providing structures for widebody aircraft, especially from Italy and Japan. Since most widebodies are exported, it is possible for Boeing with drawbacks to reimburse tariff costs. One other point here is Boeing's determination to keep the supply chain moving to support the ramp. This suggests Boeing could absorb some modest surcharges from US-based suppliers for tariffs that they are facing in order to keep parts flowing. The company is also looking to use its infrastructure for trade, including collecting drawbacks to help suppliers. If looking at the direct impact on CTT, Currently, Boeing will bear costs for tariffs linked to our OEM deliveries. In the aftermarket, CTT will deal with US tariffs. In 2024, the US aftermarket accounted for approximately 5% of the company's total revenue. For CTT, a recession due to tariffs will deteriorate outlook to close retrofit deals of the anti-condensation system, which has historically been obstructed when air traffic and economy declines. And mitigating factories are focused on airlines in Europe with traffic on the same continent. More importantly, the aftermarket is expected to be stable. The installed base is in modern aircraft all over the world and the utilization rate should remain relatively unaffected in a recession scenario. Another positive factor is that the aviation industry has long cycles bridging shorter economical fluctuations. This applies to the purchase of new aircraft and cabin interior upgrades. This provides support for key trends that underpin our growth strategy. Looking at the aftermarket, during Q1, aftermarket demand from airlines remain at a normal level throughout the quarter, reducing distributors inventories back to average level. End market demand for consumable is stable and CTT received orders in Q1 for deliveries in Q2 and Q3. In the spares business, we do not have inventory issues, but cyclical demand. I reiterate that we will have a gradual improvement back to normal demand in the second half of the year. Consequently, Q2 will be a normal aftermarket quarter with sales reflecting underlying demand. The total aftermarket is currently at 50 to 60 million, growing at a single digit pace in 2025. Furthermore, we are working with our aftermarket distributors to adapt and improve customer values as well as visibility and measures to reduce order volatility. The past quarter was definitely not good, revealing that we have room to improve how we work closely and together with our distributors. To wrap it up, the rebound from the temporary sales dip in Q1 will be swift and the gap will be fully restored already in Q2. The 25 outlook for CTT's OEM business is strong, given successful aircraft ramp up by Airbus and Boeing. Concluding, CTT's deliveries leapfrogged in Q1 as Boeing resumed to take deliveries tracking 787 build rate content. The addressable market is expected to continue to grow in 2025. CTT's growth pace primarily depends on Airbus and Boeing's ability to scale production and deliver wide-body aircraft. More new built aircraft will drive CTT's OEM sales. Boeing communicated this week that the 787 program stabilizes production at five per month in the first quarter and still expects to increase to seven per month this year. The 777X program began expanded FAA certification flight testing in the quarter And the company still anticipates first delivery of the 777-9 in 26. Airbus will report later in May, but I expect a reiteration of previous targets, 12 per month in 28 from current 6. In addition, CTT aims to have an even higher growth rate by improving chipset content. CTT will already in 2025 start to recognize sales impact from higher A350 selection rates. In addition to line fitting the flight deck humidifier, A350 operators to a greater degree now select humidifiers for crew rest and business class. This will gradually result in a higher average chipset value on new built A350s. The private jet business is heading for a strong sales revival in 2025 with strong VIP order backlog and sales pipeline. driven by Airbus corporate jets front-running by promoting humidification for ACJ 320 family, the ACJ 220 and the ACJ 330. Jet2.com order is first award in years. The 146 systems will be retrofitted at aircraft seat checks. In 2025, we are poised to break a three-year streak with zero deliveries as we will start to deliver the first five systems in Q3. and another 25 are scheduled for deliveries until end 28. Repeating that our anti-condensation strategy targets OEM availability at Boeing 737 MAX and Airbus 320neo family. We focus on retrofit customers in Europe to drive and put pressure primarily on Airbus where we have better momentum. Together with jet2.com and other airlines, we tried to convince Airbus that it should be possible to install our green tech system in new aircraft before delivery, either as line fit or provisioned for post delivery modification. As part of this effort, we also filed a field trial with a major low cost carrier in six A321s. Commenting on the business jet opportunity, as stated before, we need to be included in the offerings by the OEMs. As you can see on this picture, we continue to address Boeing business jets, Bombardier Global, Dassault Falcon and Gulfstream. Not yet there, but I can conclude solid progress together with Liber towards Bombardier. Additionally, we're in contractual phase with another private jet OEM. And finally, the cabin humidification market. We are in the beginning when we start to benefit from favorable market dynamics, when airlines to a greater degree define aircraft humidifier onboard business class in new aircraft. The 787 program. CTT has a high penetration in flight deck and crew rests, but it's not possible to line fit in business class. We expect airlines to demand same premium cabin climate performance in 787s as in the A350s and Boeing 777Xs, where cabin humidification is available as an option. The market is approximately 1,000 aircraft. The A350 program. Most of the A350s leaving factory from 25 and onwards to new operators will have humidification in flight deck and crew rests and to a greater degree in business class. Early in the program, airlines for various reasons did not select the system. The first A350s are reaching nine years in service and cabin retrofits, which are now starting, will rapidly gain momentum over the next few years. Since 2014, more than 600 A350s have been delivered and Airbus is anticipating the first cabin retrofits on aircraft reaching eight years of service. By 28, there will be around 400 A350s that will have reached this age. Retrofit on 787s and A350 require cooperation with Boeing and Airbus. We are approaching both. In 2024, we made progress with Airbus. We are part of the A350 retrofit catalog and Airbus promotes our humidification systems. To summarize, Q1 was weak due to inventory effects at distributors. This is behind us. Excess stock was reduced in Q1 and inventory levels are again normalized. We received orders within deliveries for Q2 and Q3. The aftermarket is resilient despite current geopolitical environment, growing at a singed digit pace in 2025 and long-term above 20% when Airbus and Boeing reach their production targets of 12 and 10 per month respectively. We have strong momentum in all three markets. In 2025, we expect significant growth in both OEM and private jet, and we will deliver the first retrofit system in years. I'm also convinced that we during the year shall be able to close agreements in private jet and with additional retrofit deals. I now hand it over for questions and answers.

To ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Carl Boakvist from ABG Sundahl Collier. Please go ahead.

Thank you. Good morning. So I just wanted to start with the aftermarket side. Is it then correct to assume that when you talk about this usual aftermarket revenue level, and did I hear you correctly or my line was a bit bad here, that you expect a recovery to the full normal level in Q2?

Good morning, Carl. Yes, I mean, last quarter we said Q2, Q3, but now we correct it to Q2 and we see that we will be back to the normal level already in Q2. So that's correct.

All right. And then for the Q2 guidance in general, a bit more technical here, but either for you or for Marcus, but what FX rate Are you assuming that the one that we have currently or the one by the end of March, given the fluctuations we see in the dollar seek?

It's, as you know, good morning, Karl. It's, as you know, always difficult to predict the currency rate. We are actually assuming in Q2 when we guide the same effects as we have today, basically.

between 950 960 that's that level in our in our forecast okay understood and then you and you write and report the the sensitivity with revenues in dollars cost and seek but is there any kind of other aspects we should consider here apart from the re-evaluations on a translation basis you usually have by the end of a given quarter or so because otherwise as you point out the impact on the profits will still be bigger than on sales also in Q2 I could imagine.

Yes, let me just repeat our currency strategy. Number one, it's important for us to have as much cost as possible in US dollars. And then, as you know, we take our loans in dollars as well. And number three, We are always trying to be transparent in all our communications, in our interim report of the dollar effect. So that's our strategy. But if we calculate with more or less the same currency rate as we have today, we hope that the The dollar effect will not be as big in the second quarter as in the first quarter, but of course it's difficult to predict what will happen with the currency rate.

Understood. Then just back to you Henrik, when we talk about this OEM delivery, how you now guide That's clear in terms of perhaps a bit lower in Q2 than Q1, but still higher year over year. Is it then what you say, strictly just things can fluctuate from time to time or anything else related to supply chain disturbances or anything like that, that one should keep in mind also into the second half?

No, I think we're, I mean, that's why we pointed out that, I mean, on OEM we see a little bit further, so we can already see that Q2 will be down from Q1. But the Q1 level, I would say, is more a normal level going forward, even if we will see fluctuations up and down. So I think we're normalized. We're back to tracking the build rate and the content on Boeing and Airbus aircraft. And then we really hope that they will ramp up production now. And listening to Boeing yesterday, they talked that they are ready for the seven per month in a few months. So hopefully we see that happen and then they will reach the 10 next year.

And then also from listening to Boeing, they reiterated the message of kind of time of first delivery for the 777X and is it still so for your end here that the first OEM deliveries from your side would be perhaps two quarters before the first delivery from Boeing?

I mean the 777X program is a little bit difficult to talk about as most might remember we delivered quite a lot of humidifiers after we got it certified already in 2023 and as you know there is a delay in the certification process so exactly when we need to start deliveries to the 777X we'll have to come back to that when the program stabilizes a little bit.

Understood, and then the comments you made about the increased penetration, did I hear you correctly that you specifically highlighted crew rest and business class?

Can you repeat the question?

On the 350? Yeah, so I believe during the presentation you said that you saw an increased uptake on the 350 on business class and crew rest. Was that correct? And then the follow up would be how uptake is progressing in the cockpits.

So on A350, I mean, we've seen that the flight deck has been selected up until now. But from this year, we see an uptake in crew rests and in business class selection.

Okay, understood. Good. And then the retrofit deliveries there, they're starting in Q3. I believe you did give some indications of it during the press release you released back then, how much you expect to kind of book in sales on an annual basis. But in Q3, should we expect a kind of a gradual effect here, i.e. that it will be quite low in Q3 and then improve more in Q4 and then really kick off in 2026.

I think if we look at that order and as we said it will be five in Q3 and then we will have more deliveries in 26 and 27 and 28 and the total of that the first couple of years will then come up to, I'll have to check my numbers here, so five plus 25, so 30 systems during the time from Q3 to end of 28. And then the rest of the 146 will be decided at the later stage.

Okay so this is more technical but so all of those five in Q3 and then zero in Q4 and then they will resume again in 26. Is that how I should think about it? Okay yes all right good that's all from my side.

Can I just one thing Carla and I'm not sure if I was clear enough on your OEM question I mean The level of OEM sales was, as we see it, the Q1 level is normal. Then we will have a slightly lower level in Q2, which is unnormal. And then we will come back to the normal level going forward, Q3, Q4 and so forth.

And I guess that is not then taking into account the expectation of an increase in production rates. you say normal I would assume you know higher production rate per or planes per month and the higher ship set that we should still see an increasing sales level into next year correct okay or very good thank you thank you

more questions at this time so i hand the conference back to the speakers for any closing comments thank you to finish off despite the geopolitical turmoil i would like to emphasize that ctt has a strong position with a solid business model that has proven its resilience in difficult times in the past i'm convinced that we will achieve our goals even if we face turbulence and headwinds We will benefit from the OEM build rate ramp up fueled by massive order backlog of wide-body aircraft and improving chipset content. A strong sales revival in private jet driven by Airbus corporate jet to be followed by other private jet business jet OEMs. And finally, we will in Q3 deliver the first anti-condensation retrofit systems in years, restarting the retrofit market. Thanks for listening.