Elekta AB (publ)

Good morning everyone and warm welcome to the presentation of Elekta's second quarter 2022-23. My name is Cecilia Ketels and I'm a Head of Investor Relations at Elekta. With me here in Stockholm, I have Gustav Salford, Elekta's President and CEO, and our CFO Tobias Hägglöf, who will be presenting the results. Today's agenda starts off with Gustav presenting some highlights of our development. Then Tobias will give you details on the financials and the presentation will end with Gustav's view on Elekta's outlook. And after the presentation, there will, as usual, be time for your questions. But before we start, I want to remind you that some of the information discussed on this call contains forward-looking statements. And these can contain projections regarding revenue, operating result, cash flow, as well as products and product development. And these statements involve risk and uncertainties that may cause actual result to differ material from those set forth in the statement. And with that said, I hand over to you, Gustav.

Thank you, Cecilia. And hello, everyone. And as always, thank you for joining the call. And I would like to start on how we delivered on our strategy in Q2. So during the quarter, we truly continue to focus on the execution of Access 2025. And I would also like to take you through some of the key areas and highlights. We released new innovative solutions across the portfolio and also into new markets. I'll go through them in more detail later in the presentation, but I would like to highlight the launch of comprehensive motion management for Unity with true tracking and automated gating. Also the launch of Electa Esprit at Astro and also getting the FDA regulatory clearance. And we also are expanding our global service portfolio with the launch of Electa Care 360. When it comes to driving the adoption across the globe and the availability of care, we have set the target to reach more than 300 million people in underserved markets until 2024-2025. And we are well on track to reaching this target. And the outcome so far, halfway in, is that 150 million people have received the opportunity for radiotherapy. To support our resilience and modern expansion, we initiated a cost reduction initiative last quarter. And it's progressing, I must say, very well and delivering towards the plan of 450 million SECs in savings on a run rate basis in the end of the fiscal year. So if we now turn to the markets and the order development, we saw that the global macroeconomic challenges continued to drive uncertainties and resulted in a bit of a cautiousness and soft order development. But the development was very, very mixed in the different markets and geographies. For example, in America, we had a weaker momentum in Canada and South America, but the order of intake in the U.S. was at last year's levels. Also, Mexico showed good order growth and included high-end imaging and radiotherapy bundle deal. And we also started to see a lot of positive contribution from our partnerships in the region as well as in other regions. In EMEA, we continued to see a strong order momentum contribution from the large tender in Spain as well as in the Middle East. And we were also selected to deliver the majority or 37 VersaHDs to modernize a large part of Italy's installed base. But I must say that these orders will first come in the remaining quarters on the Q3 and Q4. The decline in the region was driven by software development in Northern Europe as well as in Africa. So if we turn to APAC, then we saw that China came back to a healthy order growth of almost 10%. But we saw the modest order growth in the number here to be really explained by the weaker development in large mature markets such as Japan and Australia and New Zealand. We saw East Asia had a positive development with Korea as the main driving country. And in India, we had a deal in a quarter with Kalkinos Healthcare that was acquiring several Versa HDs and Harmony Pro systems. And if we go to revenue, we saw that the revenue declined in the second quarter. The installations, they were negatively impacted by continued supply chain disturbances, lockdowns in China, and to some extent also customer readiness. We saw the revenue dropping in Americas and EMEA, but we saw growing U.S. installations and revenue as well in Europe. So the negative development in APAC was mainly impacted, as we said, by the lockdowns in China. We saw the recurring revenue in service at a good growth rate of 7% and this is higher than the growth of the installed base of 5% that is now reaching around 5,100 units of Linux, Unity and Lexel Gamma Knives systems at the end of the quarter. And I also want to highlight that we have a record strong order backlog and it is supporting increased installations and growth going forward. So if we now turn to some of the key product launches, and I would like to start with service. And in order to drive this service growth going forward, we continue to strengthen our position in customer lifetime companion, and we're increasing our value-added services by the launch of ElectaCare360. And it's really about expanding the portfolio with services such as dosimetry, consultancy services, physics startup. And it's about aiming and enhancing customers clinical operations. And it's also important to say that we offer this in a vendor neutral set of services. That is both applicable to our own installed base, but also in mixed site. And again, this is supporting service growth going forward. We've started in the US and Americas and we'll roll it out globally as we go forward. And one of the absolute highlights on the quarter and something I really experienced in Astra was the launch of comprehensive motion management for Unity with true tracking and automatic gating functionalities. And these features are absolutely key and they are driving efficiency and productivity as well as creating opportunities for condensed treatment courses, fewer side effects and improved outcomes for cancer patients. So far, we have received CMARC, as you know, and we have also submitted our FDA application that's now pending. And I'm really, really pleased to report out that the first patient was treated earlier this week with comprehensive motion management. So we are also experiencing the buildup of the clinical evidence for unity. At Astro, a number of abstracts, clinical abstracts, showing the power and promise of unity. And we had a great study on prostate cancer that showed that there was no significant decline in quality of life in the cohort using MR guidance and online adaptation. Whereas in the cohort not using online adaptation, there was a decline. For pancreas cancer, patients reported limited adverse effects and stable global health status out to three months. And importantly, 67% of patients were live one year after the end of a treatment. And these outcomes are positive compared with historic outcomes for pancreatic cancer. And also, of course, to ESPRIT and taking ESPRIT to the US and to ASTRO. So we continue this rollout. And elect ESPRIT, it has both CE and FDA regulatory clearance. So it is enabling patients with brain disease, cancer, and other tumors to benefit from the most advanced gamma light platform. enabling more personalized radiotherapy with sub-millimeter accuracy and treatment planning in less than 60 seconds. So with these new launches, Esprit Comprehensive Motion Management for Unity and Elekta Care 360 will together with our work with price improvements across the portfolio, positively contribute to revenue and margin growth going forward. So with that, over to you, Tobias.

Thank you, Gustav, and good morning, everyone. I will now start with the Q2 financials. Total net sales decreased by 5% organically in the quarter, driven by the supply chain disturbances and COVID restrictions in China. Our installation volumes were negatively impacted, but we are pleased with the continued good growth in service. Net sales in the Americas decreased by 3%, with solid sales in the US, while Canada declined in the quarter. Net sales in EMEA decreased by 7% with good growth in Europe offset by lower sales in the Middle East and Africa. In APEC, net sales decreased by 5% impacted by lockdowns in China as well as lower insulation volumes in Japan and Australia. India continued to show good growth in a quarter. Our adjusted gross margin declined in a quarter. We saw a clear impact on FX on our P&L. Foreign exchange rates had a positive impact on our gross margin, while exchange rates hedges had a negative impact on our operating margin. In total, the FX effect was positive 7 million SEC on EBIT compared to last year's second quarter. Our adjusted EBIT margin came in at 7.7%. Then let's look at our gross margin bridge. Our adjusted gross margin amounted to 37.3% in a quarter. The low net sales growth contributed negatively by 160 basis points. Improved mix from selling relatively more service than solutions contributed positively by 140 basis points. Foreign exchange rates had a positive impact of 140 basis points, mainly driven by the strengthening of the US dollar. Supply chain challenges continue, and increasing inflation still puts significant pressure on COGS, and the total impact on adjusted gross margin from high supply chain costs and inflation was 250 basis points negative in the quarter. Then looking into our expenses. Selling expenses increased by 13% year-over-year in the second quarter. This was driven by more in-person customer events and meetings including travel and exhibitions such as Astro and launch events in China. Sequentially our selling expenses declined by 2%. Our administrative expenses were flat year-over-year and continue to decline sequentially. Net R&D expenses decreased both year-over-year and even more so sequentially. I will now return to the development of the R&D expenses later. All in all, year-over-year expenses increased by 3% in constant exchange rates but declined 6% sequentially and we start to see the results of our cost reduction initiative. So let's look into our spend reductions in more detail. Our cost reduction initiative has been successful and is progressing according to plan. As you saw on the previous slide, our expenses are declining sequentially. The cost reduction initiative has reduced our spend by 50 million SEK year-over-year in the quarter, of which 10 million affecting COGS, 30 million affecting gross R&D, and 10 million affecting selling and administrative costs. For the full year, we continue to expect a year-over-year spend reduction of approximately 200 million SEK. And by the end of this fiscal year, we expect to have reduced our run rate of spending by 450 million SEK. As presented last quarter, 150 million will come from COGS reductions, 200 million from optimizing R&D spend, and 100 million from lower selling and admin expenses. The one-off costs for implementing these cost savings are estimated to be up to 400 million SEK. So far, implementation costs have amounted to 131 million SEK, of which 52 million impacted our COGS. Then, if we then look at the gross R&D, the gross R&D increased year-over-year, but decreased sequentially as seen in the left-hand chart. Our acceleration in investment in innovation peaked in Q1 as previously communicated. In the right-hand chart, we can see that gross R&D has also stabilized as a percentage of net sales on a rolling 12-month basis. Capitalization increased compared to last year but decreased sequentially Amortization was stable both year-over-year and sequentially Now let's look into the networking capital development Our net working capital as percentage of net sales on a 12-month rolling basis amounted to negative 2% in the quarter and continued to follow a normal seasonal pattern. In the quarter, we continued to build inventory due to the continued long lead times. Increased level of shipments to secure future installations led to higher accounts receivables and customer advances. Then, if we look into our cash flows, EBITDA amounted to 465 million SEK in a quarter. Texas interest net and other, the next staple there, amounted to 319 million SEK negative. This consisted of the Texas paid amounted to 145 million SEK, and the remaining is mainly related to currency revaluations. The change in working capital amounted to 202 million SEK negative as discussed on the previous slide. Cash flow from operating activities amounted to approximately 55 million SEK negative. This resulted in an operational cash conversion of 60% on a rolling 12-month basis. Our continuous investment amounted to 362 million SEK, mainly driven by R&D investment in the Linux family and software to strengthen our product offering. All in all, our cash flow after continuous investment was 417 million SEK negative. Now, let's turn slide and look into our financial position. Our net debt to EBITDA ratio mounted by the end of the quarter to 1.38. Worth noting in the current macroeconomical environment is that we have a low refinancing risk with only 500 million SEK in maturities until March 2025. Our interest-bearing liabilities have an average maturity of 3.6 years. All in all, we have a strong balance sheet with good financial position. Over to you, Gustav.