Elekta AB (publ)

Hi, and good morning, everyone. My name is Peter Nyquist. I'm heading up Investor Relations here at Elekta. With me here in Stockholm, I have our CEO, Jakob Josbomolt. I have our CFO, Tobias Häggrave, who's doing his last quarter, as well as our incoming CFO, Klara Eiriks, who will not present today, but she will be available here in the studio. Tobias and Jacob will present the result, as always, for the fiscal year 2026, third quarter. We will start the presentation with Jacob giving away the takeaways from the third quarter. as well as an update where we are in the strategic execution and the change of operating model and the cost savings related to that as well. Tobias then will talk about the financials and the electa's outlook. After the presentation, as always, we will have time for questions and answers. But before we start, I would like to remind you that some of the information discussed on this call contains forward-looking statements. This can include projections regarding revenue, operating result, cash flow, as well as product and product development. These statements involve risks and uncertainties that may cause actual results to differ material from those set forth in his statements. With that said, I would like to give the word to you, Jacob. Please, Jacob.

Thank you, Peter. Thanks. And welcome to all of you. So before I get into the quarter, let me just share some overall reflections. It's a solid quarter, but Alexa, we still are not trading at what I believe is the long-term potential of the company. So that calls for a clear strategy. It calls for decisiveness. It calls for execution, bias to action, bold decisions, and I would say we are on that journey. I would say specifically related to the change in our operating model, I really appreciate the support from leaders within Electa, Electa colleagues. We're changing a lot. We're changing the structure. We're changing layers. We are letting go of people who are highly valued and deeply competent. But we have to change, coming back to my point that we're not trading at full potential. But the support in getting there has been spectacular. As I'll outline essentially by the end of this week, we are running consultations in UK. We will be concluded with the change we outlined end of November. That's very good. And then big thanks to you, Tobias. You have ensured that we have had a very orderly transition in leadership within the finance function. And welcome to you at this call. And we look forward to you presenting the numbers at our Q4 and annual accounts. But let me then turn into what this call is really about, our Q3. As I said, it's solid quarter. We have to recognize significant impact from FX. And we will also see impact coming into Q4. And then clearly also in line with the guidance we gave at Q2, a significant impact in reported EBIT from a restructuring chart of a bit more than 400 million SEC. We stand by the guidance that it will be less than 500 million. On orders, I would say good. A book to build up 1.17, it was 1.15. last year. Keep in mind that typically Q3 is a good order intake quarter because we roll on a lot of the service contracts, particularly in Europe, that given quarter. And then we saw, and I'll come back to China, we did see order growth, we did see revenue growth, so that's pleasing. But it was also expected. On U.S., I'll come back to, but there, year-to-date, we have seen good orders coming in. It was also much needed, and then we continued the momentum on Europe. So all in all, when I look at the book-to-bill rolling 12-month of 1.09, I think it's healthy. We would like to see it higher, but it's healthy. In terms of organic growth, we are 2%, continue to see good momentum in Europe, and as I said, China returning to growth, and we stand by the view that we expect both on orders and revenue double-digit growth, probably around 10% in China for second half of the year, and then what? what our Chinese general manager and Ming outline in the strategy update, we do see the market bouncing back almost to pre-anti-corruption levels in terms of units. Gross margin at 38.3% supported by product launches and also pricing. We actually do see a bit of tailwind on that mix and pricing, but a hit win on the cost and that's a big focus area. I'll come back to that later on, but of course it's going to be a significant focus area for us going forward. EBIT margin at 11.9%, a bit higher than last year, but just keep in mind, on a comparable basis, we get headwind from less capitalization, more amortization, relatively speaking. adjusting for it, the EBIT cash margin that we look a lot at at Electra is significantly higher, and you will outline that to be on a rolling 12-month basis. It's really good news. I can say my sincere hope is that coming into next year, the EBIT cash and the reported EBIT will be roughly the same number, meaning that our amortization and capitalization will be a match. Let's see if we get there. in terms of cash flow less good than last quarter or same quarter last year but we should keep in mind that overall year to date we see good cash flow improvement and we have paid out roughly 100 million SEC in the quarter linked to restructuring charts. So if we move on to the next page on commercial development, America has a decrease of 6%, fundamentally, of course, not attractive. That's why we have a must win battle to address it. We did outline last time that we were positive on getting EVO approval. I think it's important as part of our commitment that we have a good say do ratio. And we were of course pleased to see that on 16th of January, we could announce EVO approval. Year-to-date, as I said, we have double-digit order growth, substantial double-digit order growth in the U.S. alone. That's also needed because our decrease in revenue reflects a depleted order backlog. So we have a lot of work ahead of us. But, of course, every quarter that goes well and is growing is a good quarter. And year-to-date we have been doing well. We have sold. to customers on the promise of Evo upgrade that's now happening. And we are building our funnel going forward, but you shouldn't expect that it's just gonna be a huge splash going forward because a lot of the orders have been already taking a year today. But of course the customer interest is good going forward. And we will look at commercializing Electra Evo the way we have done in Europe. we continue to see growth in South America linked to very strong order intake prior years. On APAC, as I said, and as expected, China is returning to growth. We do see a little bit slowdown in other large countries, notably Japan, also Indonesia, where there's a big tender, so the market is really awaiting what will happen there. And then on EMEA, We see a good increase, continuous strong momentum in Europe and of course we need to sustain that going forward. And then I just flag here Middle East could potentially impact timing of installation. It's way too early to indicate how many we have a sense for what are the installations at risk and it's not going to be material and it will just be a time delay if that happens from Q4 to Q1. So, all in all, I would say a solid quarter commercially, but of course, we would like to see that number go up, and that's what our strategy is all about. Yeah. So, if we take the next slide and look at our mushroom battles, this is what we outlined end of January. We feel very good about them. They have been working through. Some we have found, some we have less found, and I'll give you more details on simplifying power speed. We did this, I'll just remind you, not to save costs, of course we take that in, but we did it to increase velocity of our decision making within operations, within commercial, and most notably also within our innovation department. We are de-layering, we are empowering, we are driving culture. It's part of performance management. I think it's going to deliver a lot of good results. And I actually start to feel that the puzzle is getting assembled. We are moving on from... having it as an initiative that we needed to execute on to kind of things are settling down. And as I started out by saying thanks to great work by the leaders and colleagues at Electa. It's a lot of change. We have asked people to come back to the office because we feel being an innovation driven company, we can really benefit from problem solving together rather than at a distance. to focused innovation. There are a lot I could say, but there's also a lot that could be used against us commercially, but I would highlight that we continue to invest in innovation. We believe there is significant need for our solutions going forward. Our current product portfolio will become even better going forward, linked to what we have in our pipeline, but we will do it more focused. We will have a stronger commercial lens on it, and we will unfold more of that thought process when we meet at the Capital Market Day in June. Then our third initiative expanded China within the USA. China is important for Electa. We are market leaders. We did unfold what does that mean, but it really goes into localizing Electa in China. We are both from a product point of view, we have a very, very strong market. organization, we are localizing our supply chain and then we also consider we have both local products and we are saying should we have even a broader made in China for China product portfolio. So we actually feel good about our China position, not least also because What we said is that the market is going to recover. And then with Elekta Evo, it's now about competing in the U.S. This is Elekta's biggest opportunity because this is the market where our relative share is the lowest compared to other places. I believe we have every right to compete in the market. That's what I hear from our customers. There is systemic demand for having strong competition, and we are ready. And then lastly, the fourth on continuous COX reduction. I would really say in today's quite volatile world, it has two dimensions. And one is to continually address our bill of material, our ability to install and service our installed base. So that's on cost. A lot of focus will be on continuous engineering to update our tech stack. and work with our vendors to continuously increase quality, lower cost. But we also focus a lot on pricing to ensure that we can mitigate certain cost increases in today's volatile world. So we're establishing a pricing desk here in Stockholm. I feel good about that. And we certainly have potential to become more dynamic in how we approach that top line part of pricing. of our business. So that's where we are. If we then go into our operating model, I have to say actually, I think we have done well. And by the end of this week, we will almost have executed all the changes that we outlined to you end of November so that's in three months and we are now at 83% but the remaining 17% is due to a consultation in UK which is happening This week, of course, it's been tough for us within the lecture, but it will serve the company very, very well to clarify roles, responsibilities, who are accountable for what, reduce layers, decentralize, push decision makings to those who have the best knowledge, and then move with the bias to action. So we stand by what we state that we will have run rate savings without jeopardizing commercial or innovation of more than 500 million SEC, full impact Q1 next year, i.e. from 1st of May. The mix is 30% COX, 70% OPEX. We're still simulating, but that's our best evaluation. Restructuring charts to be taken this year between 450 and 500 million. We have taken 417 here in Q3. And then, as I said, we are moving well. And then in parallel, we are now linked to budget and also, Clara, with your support, we are now assessing all the discretionary spend because I do think there is potential for Elector to just be very, very, very prudent in terms of where we allocate resource and cost, and that should also support us into next year. So that's where we are. And then with that, over to you, Tobias.

Thank you, Jakob. And good morning, everyone. So let's look in to the third quarter then a little bit more in detail. And I think Jacob alluded to several of the points here on the slide. Net sales in the quarter increased by 2% and we had a growth here in solution by 1% and service by 3%. We can see a continued strong momentum in Europe supported by our product launches, Electa Evo, Electa One. And also when looking into our Chinese operations, as you know, this has been impacted by the anti-corruption campaign here over the last years, it's actually returning here to growth in the quarter after two years, which is a very positive signal. Then moving down in the P&L, looking into the gross margin, we have an improvement here of 120 basis points. In the quarter, we have a negative impact from tariffs of 100 basis points, and then furthermore from FX of 130 basis points. But including this, we are improving our gross margin. It is supported by the product launches. It's also, as you heard Jacob mentioned, supported by general price improvements that we see across our products. If you then look at the operating margin, we have an improvement here of 20 basis points amounting to 11.9% of points in the quarter. This is driven by the improved gross margin. We also can see that we have lower R&D investments and also lower admin costs here year over year in the quarter. And what also Jacob mentioned here is that we do have lower capitalization of R&D and higher amortizations. And if you actually would look at the cash EBIT margin, adjusted cash EBIT margin is actually up 170 basis points in the quarter year over year. And then also here we do have restructuring charges here of 417 million SEC reported as items affecting comparability, which is also then reflected in the earnings per share. What we have seen in the quarter is quite a rapid move of the currencies. And here we have outlined the effect here both from operations and then also sorted out the currency impact. So what we see in our P&L is that our net sales are impacted by more than 500 million SEC negative in the quarter from the FX moves. And in terms of growth, this corresponds to minus 12%. This is predominantly driven by a stronger Swedish krona versus our main revenue currencies, the US dollar and the euro. When you then look further down in the P&L, we have a negative impact on our gross margin of 130 basis points, which I just mentioned, and furthermore here on the operating margin of 180 basis points. And in addition to the translational currency impact, which I just mentioned, this is also driven then by the dollar depreciation versus our main cost currencies in euro and pound. If you then look at the cash flow, and Jacob mentioned this, we do have a lower cash flow year over year in the third quarter. Still though, that year to date, our cash flow is more than 400 million SEC better than last year. We've also had more smooth development of our working capital in the inventory development especially. In this slide here, we have sorted out the effect of restructuring provisions, and then here stated more solely the working capital development in the quarter, which was stable. Then investments are lower than last year, both here in the quarter as well as year to date. and taxes interest net and other are on the same level as Q3 last year. The cash flow generation this year has led to that we have a net debt decrease of more than 200 million sec compared to Q3 last year. Then looking at the trends here, I was talking about the currency impact and nominal terms. We have seen a bit of slight decline of the revenues, although currency adjusted growth here in the quarters. But when you look at it, and I was talking about the improved gross margin, there is a steady trend here, strongly supported by the product launches and the price improvements, and also which, of course, then with the must-win battles that Jacob was on will be further supported to the gross margin development. So steady improvement here over the quarters on the gross margin. We have also a improvement here on a 12 month rolling basis on the operating margin improvement. And if you then would look again at the cash operating margin, it's a strong improvement here, which has been ongoing here quarter by quarter, sequentially. Then looking at the cash flow, we have a lower cash flow in Q3. But if you look at the, as well as the year-to-date, you look at the 12-month rolling, it's a significant stronger cash flow over the last 12 months than what we had here a year ago. And if you then look at the outlook, we reiterate our 25, 26 outlook. We expect net sales and constant currency to grow year over year. and we also expect a negative impact here on earnings and from tariffs in q4 as well and the mid-term targets and no change there and they are confirmed so by that I would like to, before the Q&A session, say a big thank you to all here over the years here. Working with you has been a pleasure. And I then hand over the word to you, Jakob.