Elekta AB (publ)

Good morning, everyone, and warm welcome to the presentation of Electa's third quarter 2022-23. My name is Cecilia Ketels, and I'm head of investor relations at Electa. With me here in Stockholm, I have Gustav Salford, Electa's president and CEO, and our CFO, Tobias Häggler, who will be presenting the results. And today's agenda starts off with Gustav presenting some highlights of the development, and then Tobias will give you details on the financials, and the presentation ends 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 include projections regarding revenue, operating result, cash flow, as well as product and product development. And these statements involve risks and uncertainty that may cause actual result to differ material for those set forth in the statements. And with that said, I hand over to you, Gustav.

Thank you, Cecilia, and good morning, everyone, and thank you for joining the call. So, to kick off, during the third quarter, we continue to focus on the execution of our strategy, Access 2025, and I would like to highlight some of the key and important initiatives we have been driving during the quarter. We continue to invest in innovation with customer utilization in mind. And one of the key areas that is really driving Access 2025 forward. We're focusing on the new Linux platform, software development, and the Unity platform. And it was actually amazing to see that during this quarter, we also saw the benefits of our innovation as reaching patients. The first patient being treated with advanced radiotherapy motion management using Electa Unity, or MR-Linac, happened in Utrecht in the Netherlands. And in the UK, in Sheffield, The first patient ever were treated with our latest gamma knife system, Elekta S3. These moments are so rewarding for Elekta and everybody working here, but also for our customers and their patients. We are continuing to drive adoption and access to cancer care across the global scale. And most recently, by going directly into the growing Thailand market. We're also doing a lot of digitization and process excellence initiatives, and our cost reduction program is progressing very well. It is vital that our strategy around access 2025 is delivered in a sustainable way, and that we can measure and reduce our environmental impact. And a key highlight in the quarter was that we got our science-based target validated here just recently. And I'll come back to that. So if we take a look at our markets and orders, we return to a healthy order momentum, growing orders with 9% in the quarter. In America, orders increased by 3%, and both North and Latin America showed growth. The latter was driven by strong order intake in Mexico after winning multiple public tenders. In EMEA, orders were flat compared to last year. Europe showed double-digit growth on top of last year's strong growth and was driven by two big tenders in Spain and Italy that we mentioned before. This slowdown was reported both in Middle East and Africa. but it was really dominated by the Middle East due to weak markets in places like Egypt and Turkey as a consequence of their domestic macroeconomic situation. In APAC, orders increased by 27% based on constant exchange rates during the third quarter, and the high growth in the region was explained by strong development in China, supported by public investments into the medical devices in the country, but it was also a great momentum in Southeast Asia, both in the emerging countries like Indonesia, but also mature markets like Korea. During the last year, we have extensively worked with price initiatives across our business lines and regions to offset the impact from the higher component and supply chain costs. Price realization for new orders has shown good progress, and we see that also turning into our P&L. We continue to also have a very strong order backlog of 43 billion SEC, and this is really a stable foundation for driving installations in the coming quarters across our regions. And if we look at the installations and our revenue, the order backlog conversion has been a key priority in the third quarter, and we delivered a strong revenue growth across all our business lines of 8%. The installation volumes in Americas and EMEA was strong, resulting in double-digit revenue growth in these two regions. APAC was impacted by lower installations in China due to the wave of COVID cases in December and January. But we expect Chinese volumes already to recover in the coming quarter. Americas grew with strong 15%. And it was both the North American market and the U.S. had strong double-digit growth together with Latin America. EMEA grew with 16%, and both Europe and the Middle East and Africa contributed with strong growth in the quarter. APEC came in at minus 3%, and that was really explained by the large impact on the COVID cases in China in December and January. The recurring revenue service came in at 3%, and we had a strong Q2 with 7% the second quarter, and in the third quarter, our installed base grew with 5%. So at the end of the period, Electa has an installed base of approximately 7,100 devices, of which 5,200 units were Linux, MR Linux, and Lexel Gamma Knife systems. And to support improved access to cancer care around the globe, we signed an agreement to acquire business assets from a current distributor in Thailand, Premier Business International. And with this local presence, Electa will increase the commitment to the Thailand customers while strengthening the position in the market with substantial further potential to improve and give access to the best cancer care. And if we turn a bit to electa unity and paradigm shifting journey we're driving with the MRLNAC. You can see some of the evidence here. And if we look at the prostate SBRT treatments, you can see that from our MR-Linna consortium is really driving this development and what's possible in radiotherapy. And if you take a deep dive into prostate cancer treatments, and this is a large indication, as you all know, You can see that there was a recent publication from the Momentum study, and this is the largest study on prostate, and it's driving with five fractions and was analyzing the side effects. And this study shows that ultra-hyperfractionated MR-guided radiation therapy is effective and safe. And the next step will be to move towards two-fraction treatments with MR-Linac unity, which, of course, will dramatically reduce cost of care. But there was also other key milestones for prostate treatments with Unity. And in Australia, at the St. Vincent Hospital, they have done the world's first simulation-free treatment ever. And this is a really big step in shortening the treatment time that is benefiting, of course, both the patients and the cancer clinics. So... If we then turn another highlight of the quarter on the sustainability side, in February, we achieved official validation of greenhouse gas emission reduction targets and our science-based targets from the organization Science-Based Targets Initiative. And this really means that the LECTA's emission reduction targets have been validated to be ambitious enough to support the Paris Agreement. and that our carbon reduction plan is aligned with climate science, and really we need what we need to do going forward. So if we look into the different scopes and how we address them, for scope one and two, we have set two science-based targets. It is about reducing emissions by 46.2% from scope one and two over the next 10 years. It's about transition to using 100% renewable electricity by the end of calendar year 2030. And if we look into scope three, it is about cutting emissions from the use of electric products by 55% per radiotherapy treatment course over the next 10 years. It is also about engaging our suppliers to sign up for science-based target until 26 and 27. So with that update, I would like to hand it over to you, Tobias.

Thank you, Gustav, and good morning, everyone. Now, starting with the Q3 financials. Total net sales increased by 8% organically in the quarter, with strong installation volumes at the end of the quarter. Installations grew by 12% compared to last year. This was achieved despite continued challenges in the supply chain and fewer installations in China due to a large number of COVID infections. Geographically, we saw strong growth in the U.S. and in May. Our adjusted gross margin was 38.4% and increased both sequentially and year-over-year. Improvements were also seen in our expenses. Expenses in constant currency and adjusted for items affecting comparability decreased both sequentially and year-over-year, resulting in an improved adjusted EBIT margin of 10.7%. We continue to see a clear impact from FX in our P&L. Foreign exchange rates had a positive impact on our gross margin while being negative on the EBIT margin. So let's look into our gross margin bridge. Our adjusted gross margin increased to 38.4% in a quarter. The health and net sales growth contributed positively with 320 basis points. Foreign exchange rates had a positive impact of 150 basis points, mainly driven by the strengthening of the US dollar compared to last year. The strong solution growth led to a negative mix effect, impacting the gross margin by 100 basis points negative. Looking into the supply chain, overall freight rates have come down, but we still have component shortages and inflation pressure from material and component prices. In total, the high supply chain cost and inflation had a negative impact of 200 basis points. Then, looking to our expenses and constant currencies and adjusted for items affecting comparability. All in all, the operating expenses decreased by 1% both year-over-year and sequentially as we continue to see the results of our cost reduction initiative. Selling expenses increased by 1% year-over-year in third quarter driven by more in-person meetings. Sequentially, our selling expenses declined by 6%. Our administrative expenses declined year over year and was somewhat up sequentially due to investments in digitalizations. Net R&D expenses declined year over year, but increased sequentially as we had higher amortization in the quarter. So let's look into our R&D spend in more detail. Gross R&D has declined sequentially from the peak in Q1, as previously communicated. Sequentially, capitalization decreased, whereas amortization increased in third quarter. On a rolling 12-month basis, gross R&D as well as net R&D declined. Our cost reduction initiative has progressed well and according to plan. Our expenses are declining. During the third quarter, the initiative has reduced our spend by another 70 million SEK year-over-year, leading to a total reduction of 120 million SEK for the first nine months of this fiscal year. This leaves us well on track with the planned year-over-year savings of around 200 million SEK for the full year. At the end of April, we expect to have reduced the annual run rate of spending by 450 million SEK. As previously presented, 150 million will come from COGS reductions, 200 million from optimizing R&D spend, and 100 million from lower-end selling and admin expenses. The year-to-date cost for implementing these cost savings amounted to 263 million SEK, of which 64 million impacted our gross income. Moving over to the balance sheet. Our working capital has been impacted by strong sales growth by the end of the quarter. The build-up of inventories has been an active choice of securing installations and managing supply chain challenges. The high level of shipments towards the end of the quarter generated an increase of receivables and accrued income from which we will get paid in coming quarters. Then look into our cash flow. EBITDA amounted to 684 million SEC in a quarter. The working capital buildup amounted to 445 million SEC, resulting in a cash flow from operating activities of 225 million SEC. Our continuous investments amounted to 389 million SEC, mainly driven by R&D investments in the Linux family and software to strengthen our product offering. All in all, our cash flow after continuous investments was 163 million SEK negative. Now, let's turn slide and look into our financial position. Our net debt to EBITDA ratio amounted by the end of the quarter to 1.46. We have upcoming maturing debt in March, which we have refinanced after the Q3 closing in February. Through this refinance, we have increased our available funds to more than 3.9 billion SEK. And we increased our debt portfolio duration to 4.1 years. All in all, we have a strong balance sheet and a solid financial position. Over to you, Gustav.