Elekta AB (publ)

Good morning everyone and warm welcome to the presentation of Elekta's second quarter 2023-24. My name is Cecilia Ketels and I'm 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 the developments. 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 they 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 attending our call. We are really happy to announce that we continued to deliver on our strategy Access 2025 in Q2. We drove significant improvement and generated a fourth consecutive quarter with revenue growth and expanded EBIT margin. Order growth came back, supported by large deals in both India and Ukraine, and cash flow improved. And if we now turn to our key components of the Axis 2025 strategy, we continue to strengthen our market leading Brachy portfolio with acquisition of SOFT, which accelerates innovation for Brachytherapy in the Lekta portfolio. And during the quarter, we have also successfully driven adoption by expanding radiation therapy in both mature and emerging markets. Our latest Lexel Gamma Knife, the Lexel S3, has celebrated great success during the quarter, many time reaffirming very long time customer companionship. And in China, we have evolved our partnership with Sinopharm alongside already established partnerships within the cancer care ecosystem to reach a larger proportion of the Chinese hospitals and patients. And if we go to the order development during the second quarter, we had an overall positive order trend, and it's a sign of the large underlying demand for cancer treatment capacity. And this is, of course, after several years of underinvestment in many, many markets. The book-to-bill ratio was 1.05, and the order backlog amounted to 46 billion Swedish krona. And we continued to pursue a faster conversion rate. Americas grew with 9%, with a strong growth in Latin America. The growth in EMEA was driven by double-digit growth in Europe. The Netherlands continued a strong momentum, and Italy drove the European development. And we also saw a large deal to modernize and expand the installed base of radiotherapy in Ukraine. However, the growth in Europe was partly offset by low orders in the Middle East and Africa. APAC, excluding China, had a very strong double-digit growth rate driven by great demand in India, Australia and Japan. The weak order development in China is linked to the ongoing anti-corruption campaign in the healthcare sector, and it's temporarily impacting order volumes across the industry. And we expect Chinese order volumes to recover during Q4. And this recovery is supported by strong outlook for the Chinese market with a recent launch of the five-year investment plan or Electa Unity receiving A-class license and the joint venture with Sinopharm is proceeding according to plan. And also the latest Lexell Gamma Knife Electa Esprit was launched in China during CIIE 2023. And we also will see that development going forward. If we then zoom in a bit on some of the key deals and orders during the quarter, you will see here that, as I mentioned earlier, that we saw a strong deal in the Americas that Panama sends out, and it's really offering hope to cancer patients with the deal we have with a comprehensive portfolio to also take a leading role in the Central American region. And during the quarter, we also signed a significant $40 million order for one of India's largest and most advanced corporate healthcare groups, Krishna Institute of Medical Science, or KIMS, in Hyderabad. And the combination is really a solution that includes Elekta's full suite of hardware and software. In October, we won a public tender to deliver several Harmony linear accelerators to help meet the demand for cancer care treatments with modern radiation therapy devices in Ukraine. The first of these linear accelerators are expected to begin treating cancer patients in 2024. The Harmony systems will be placed in half of Ukraine's provinces, as well as the National Cancer Institute. And if we now turn to revenue, we saw that Q2 was the fourth consecutive quarter of good revenue growth. Revenue grew with 10%, supported by strong solutions revenue of 15%. And I think we have really shown the flexibility and resilience in our supply chain. And we are now in a very good place to continue to drive revenue growth and working capital improvements. And we're also addressing the continued impact that we saw quite a lot of in Q2 from inflation with price increases and new product launches across our portfolio. All regions contributed to the strong growth, with double-digit growth rates in both EMEA and APAC. And EMEA showed strong growth both in Europe and the Middle East and Africa, and installations in Europe were driven by recent large tenders in Italy and Spain, but also in the UK. Most markets in APAC showed good growth in installations, China, India, Thailand. And in the Americas, revenue was stable in North America with good growth in Latin America. So at the end of the quarter, Elekta had an installed base of approximately 7,250 devices. And now to a couple of words around soft, because in October Lekta acquired a soft business and by acquiring the technology together with the transfer employees, we have really strengthened our position as the world leader in brachytherapy solutions. The soft system is FDA-cleared and C-marked for the treatment of cancer anywhere in the body using a miniature X-ray source to deliver precise, concentrated dose of radiation directly to the tumor site. The soft system has an installed base of more than 100 systems, and through Electa's network, the soft technology will now be able to reach many, many more patients. This addition to our bracket portfolio will enable more flexible and mobile treatments, expanding cancer care to new areas with strong demand. And then finally, a few words about the annual ASTRO conference in the US. And we can see that our present at Astra in 2023 here in San Diego turned out to be very successful with customer engagement significantly higher than the last years, as well as an increased amount of overall users and record high attendance at their own customer event. Apart from launching our Elekta One software suite, the main attention at Astra was aimed at the important clinical breakthroughs of Elekta Unity's comprehensive motion management that has featured by several thought leaders across Europe and the US. And these milestones mark the next phase of the Unity journey where clinicians are able to take the MR-Linux technology to the next level of precision and adaptive treatments. And this will be a key trigger for new Unity orders. And now, over to you Tobias for a bit of a closer look at the financials here in Q2.

Thank you, Gustav, and good morning, everyone. We'll start with the Q2 financials then. Our revenues continue to grow nicely in this quarter by 10% in constant exchange rates, supported by, as you heard from Gustav, double-digit growth in EMEA and APEC, while the Americas turn to growth in the quarter. We could benefit from a healthy growth in mature as well as in emerging markets. Profitability continued to grow strongly in this quarter by 370 basis points despite a low gross margin than last year. Adjusted earnings per share grew by 70% in the quarter compared to last year. If we look at the financial development in more detail, we can see that forex exchange rates had a positive impact on net sales of 6% in points. a negative impact on gross margin of 40 basis points while contributing positively by 180 basis points to our EBIT margin. Then, look at the operation of drivers to our gross margin. We benefited from the high sales growth combined with successful cost reduction. The relatively higher growth of solutions led to an unfavorable mix in the quarter. And finally, we experienced inflationary pressure from materials and salaries. Moving down to our EBIT margin, we see further benefit from improved operational productivity while growing strongly. Then, looking into our expenses in constant currency and adjusted for items effect and comparability. All in all, despite the salary inflation, the operating expenses decreased by 1% year-over-year driven by cost reductions. Selling expenses increased by 4% year-over-year as we invested in more revenue generating activities. Administrative expenses declined year-over-year following the cost reduction initiatives. And finally, net R&D expenses declined 6% year-over-year driven by lower gross R&D. We remain our focus on our innovation pipeline. As mentioned previously, we are targeting personalized precision through offering adaptive on city Linux and superior image quality, elevated productivity, targeting 50% cost reduction per treatment and integrated informatics and decision support. Gross R&D continued to decline on a rolling 12 months basis and ended at 12% of net sales in the quarter. Moving over to the balance sheet. Networking capital as a share of sales ended at minus 3% in the quarter, which was lower than end of Q2 in the two previous years. Higher customer advances was generated by increased shipments and order intake. Accrued income remained high due to larger shares of installations in Southern Europe, where billing terms are longer. And our inventories are on a relatively high level to secure future installations. Cash flow after continuous investment was more than 600 million SEK better than Q2 last year. This was primarily driven by higher earnings, but also slight reduction of working capital. Following the improved cash flow in the quarter, we end the quarter in line with our target to be above 70% cash conversion. Over to you, Gustav.