Elekta AB (publ)

Hi and good morning everyone and welcome to Elekta's conference call for the fourth quarter and the full year of 2025 and 26. My name is Peter Nyqvist and I'm Head of Investor Relations here at Elekta. With me here in the studio in Stockholm, I have our CEO Jakob Juss Bomholt. And I would also like to welcome our new CFO, Klara Eirits, as she started now, I guess, three months ago as new CFO of Elekta. Very welcome. Great to have you here. Today's agenda starts up with Jacob giving some key takeaways from the fourth quarter, including some strategic highlights. Then Klara will give us details on the financials and Elekta's outlook. After the presentation, we will have, as usual, a time for Q&A. But before I start, I want 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 products and product development. These statements involve risk and uncertainties that may cause actual results to differ material from those set forth in the statements. With that said, I would like to hand it over to you, Jörg.

Please. Thank you, Peter. A warm welcome to all of you. A warm welcome to you, Clarence. Throughout the year, we have really been very clear on that Electa, we are not trading at our full potential. We are a wonderful company, but we are not at full potential. And to address that, we have said we need to drive significant transformation within the company. And the way we think about it is that We really have a transformation that will take place over three phases. The first one, reset and stabilize. The second, improve profitability. And the last one, and most importantly and long-term, innovation-driven growth. If we look at phase one, I would almost say we are done. And we are actually a little bit ahead of what I expected now nine months ago. We have been working a lot to reset our operating model, really with the view of ensuring that we have empowered accountable teams. We increase our velocity in how we operate, how we execute, how we innovate. Then we have been going through a simplification of our org setup. Some of you may remember we have now executed having nine organizational layers to six. We have decentralized. We are pushing P&L profitability to our regions. And as a consequence, we did really a zero-based review of the organization. And today we have... We are more than 500 fewer colleagues within elected than we were six months ago. Then we have been working quite intensely on strengthening leadership. When you realize you're not at full potential, you have to look yourself in the mirror. And part of that is, at least in our view, to strengthen the leadership bench. If you look at the executive committee, four out of six have been appointed within the last 12 months. We have seen eight out of 17 members in the executive management being new. And I feel good about where we are. We are working on culture. We have many strongholds, but we also have things we want to change. More customer centricity, more performance management, more accountability. And then we are hardwiring that into incentives from the very top to further down and really linking incentive payouts. with the value we create for our shareholders. Then lastly, we have been very clear on we want to improve the quality of earnings. The way we look at it is it really takes our set in three distinct pillars. First, to reduce the delta between what we capitalize of R&D cost and what we amortize. I'm happy to say this quarter we actually deliver on that. So it's good. And we expect that also to happen going forward. Then with the plan of having you and Clara, we said when you want to have quality of earnings, you'd also need a quality balance sheet. And we have been going through it in great detail. We are today announcing an impairment related to certain discontinued business activities, but certainly also other things. And you'll share the details. it's non-cash items and we don't expect that to happen going forward and then lastly you may recall in q2 we we did another impairment of our order backlog and i was also very clear on that that's it and when you make such a statement you have to be very clear on that you take in quality orders going forward so so we have been i would say prudent in the in what we call in as orders you shouldn't We leave the year with a book to build of 1.04. I actually feel good about it. It's a better indication of future revenue growth. You shouldn't read into it that it's a weakening of our underlying business fundamentals, but rather it's an initiative stemming from us desiring to improve quality of earnings. As I said, we are now done give and take with our reset and stabilizing. We move into improved profitability. And clearly this quarter, from our point of view, was a step in the right direction. I look at APT and there we have a very, very substantial increase, 4.5% give and take versus same quarter last year. Actually, APT is the highest in seven years on the margin. So it's good. As part of improved profitability, we have focused innovation that also links to some of the impairments. We know what we need to innovate. We know what is important for our customers, and we'll unfold more of that at CMD in a couple of weeks. We are clearly working on strengthening the commercial execution. It also links to leadership culture and incentives. We spend a lot of time on pricing excellence. We do see cost of goods sold increasing from tungsten to microchips to logistics. And it's important that we have a very strengthened structure to pass on those cost increases to our customers and we expect to do so. And then we have programs on OPEX and COGS. And specifically for OPEX, I'll come back to it, it's fair to say that the OPEX savings have exceeded our expectations significantly, and we have a very significant part of that in Q4, so we can be happy about that. And lastly, we have ongoing work on simplifying and standardizing our processes. Then at the very end, I hope we can conclude improved profitability within this year, maybe part of next year. But the future of Electra is really to drive growth through innovations. And we'll continue to invest. We just come out of Estro. It confirms that radiotherapy is highly relevant. It's clinically efficient. It's cost efficient. We can become more precise. We can adapt more. So we'll continue to invest in our roadmaps. And we think customers are absolutely willing to pay for that. So we look forward to sharing more when we meet in a couple of weeks. But if I then turn into the full year, as I said, book to bill of 1.04, we did see, and we were a little bit negative surprised in the Middle East, we did see specific customers delaying decision. But most importantly, we have just implemented firmer order acceptance criteria throughout Electa. to ensure that the order backlog we have now is of very good quality as is and is indicative of future revenue growth. In the U.S. specifically, we have seen on our CT Lenac portfolio double-digit growth. We expect that to accelerate, linked to EVO also this fiscal year. So we are on plan, we are positive. On organic growth, 1% linked to Europe, but actually also our Timia region, our Middle East, Africa, India region. On gross margin, we did see an uptick despite FX and tariff headwind, now at 38.4%. It's still too low. We need to be above. And on EBIT margin, 12.3%. We clearly see that a lot of the work in becoming more efficient is really starting to have impact. Keep in mind... This quarter, we did have headwind from capitalizing less and amortizing more. So if you look at the underlying EBT, it was an improvement from 8.6% to 11.2%. And that translated directly into cash flow. So the cash flow almost 1.4 billion, despite paying out 300 million in severance payments. And we saw for the first time in five years a reduction in net debt, which we are very happy about. And that also allows us to sustain the dividends. So the board approved yesterday dividend payments of 2.4 SEG per share unchanged from prior years. If we look then on the next slide, specific key takeaways, as I said on the book to build, we did see lower Middle East Africa. That's really where it stemmed from. Also a bit of India. But we were very clear on also saying no to a lot of orders last minute because we felt the criteria was not truly fulfilled. And we feel very good about that. Net sales decreased 1%. It was really driven a bit of Asia Pacific. Actually, we had some delayed project installation, understandably so, in the Middle East of Africa. I believe I also... mentioned that at our last call. And had we not had those specific delays related to a very turbulent world in the Middle East, we would have had a positive organic growth in line with previous quarters give and take. Then we will come back on the impairment of capitalized R&D and discontinued products. So I'll leave that for you. Gross margin highest of the year, a little bit not slower than last year, but we actually exceeded our expectations. And keep in mind, we have FX headwind and also a bit of bill of material headwind. But we managed to compensate through price increase. On the EBIT margin, we are at 18.9%, and that really links to lower OPEX and lower service costs. So a lot of the things we have been working on is now materializing into EBIT margin, and this quarter EBIT margin equals give and take the EBIT C margin. And then lastly, on cash flow, we saw a little bit lower cash flow in the quarter, but as I said, what really counts is the full year, and we are very happy to see that our net debt is coming down. On the commercial side, if we look at America's 1% growth, EVO launch continues as planned. We are positive about it, but more importantly, so are our customers. On APAC, we did see a decrease of 3%. We have seen a little bit of... lower growth in some specific asian markets and then conversely we see that the recovery in china that we talked about it did actually materialize so on orders we have and revenue we had six seven percent growth in the quarter and we have had second half growth and the outlook is a positive going forward if lastly on emea the momentum is still there we we have product launches it's really electa evo that is more than two thirds of our solution sale so that momentum continues and then as i said the middle east africa we have just seen a pause understandably so in the quarter but But the good thing is I met here at Esro a lot of both customers and resellers, and they're positive. Unfortunately, people still get cancer, and radiotherapy is cost-efficient. So I'm actually very impressed about the resilience, and we don't see this being a structural issue in the years ahead. If we look at our strategy progression and if I just give a very brief helicopter perspective on the first one, I think we're doing well. I'm happy with what I see and we are ahead of plan. Focused innovation will unveil that, but we are taking a number of decisions and we know what we need to innovate. We have the plans in place and we'll share that on CMD. There will be a strong systemic demand for what we will offer in the years to come. Expand in China, give and take, when we look at it, we are at 40% market share, 39% to 40%, a bit higher when it comes to value. So it's clearly a position we want to defend, and we are ready to compete. And in the US, we are really on the hunt for more market share, and the portfolio is shaping up. So we expect also high double-digit growth on orders. this fiscal year, and then by the end of first half, it will start to materialize in revenue. On continued COX reduction, here we are challenged a little bit because we have input factors hitting us, so we really have two tracks. One is the price excellence I outlined. That is just going to be a muscle. I'll also personally stimulate within the company because we need to see CPI plus increases coming out through the system. And then we run a lot of Cox cost reductions throughout the company. And we will announce a new COO starting in the company 1st of August. So let me close here by saying on the operating model, the split between Cox and OPEX is maintained. We have no reason to believe otherwise. It's significant impact in earnings Q4. It significantly exceeds what we guided at 6500. The restructuring charts is a notch below what we expected at 421. And as you see, the last point, the workforce is reduced by more than 500 employees and that And that has translated into the savings. But as I said, the real core of the operating model is to innovate faster, to execute faster, to get closer to our customers. So with that, I'm going to close.

All right. So hello, everybody. Klara Eirits here, new CFO of Elekta, started the 1st of March. So I will speak a little bit about the financials then and starting with the full year. Jacob has mentioned some of this, so some repetition, but we'll do it this way. Adjusted for currency effects, net sales increased by 1% and the growth was driven by the EMEA region and recent product launches, especially in Europe then with Evo and Electa One, as well as also service growth and price increases, also mainly for Europe. Adjusted gross margin was up a little bit year over year, driven primarily by these price increases for Europe. However, partly that offset the negative currency effects and tariff costs year over year. Adjusted EBIT landed at 12.3% for the year, driven by said price increases and lower OPEX, of course, due to the implementation of the new operating model, which allows us to run the company on a lower cost level. Adjusted EBITC margin improved as well, but the improvement was a bit less than for the EBIT margin due to lower capitalization and higher amortization. Then let's look at the fourth quarter in isolation. Sorry for this. Okay, I'll just continue talking and see if we can get the numbers up. So adjusted for currency, net sales declined 1%. Business momentum continued in Europe and sales also increased in Americas. However, this was fully offset by lower sales in APAC due to the Japanese market slowing down. So despite growth in China recently, During the fourth quarter, APEC sales dropped by 3% in constant exchange rates. And due to the ongoing conflict in Iran, sales in the Middle East were down a little bit also, and this hampered the total growth numbers for EMEA compared to last year, despite the continued momentum that we see in Europe. And in constant exchange rate, solutions decreased sales by 2% while service sales were unchanged compared to last year. Maybe I'll stop there before we move on. Or should I continue, Peter? We have some problems here with the slideshow. Can the listeners here see the... Yes, okay. All right. Then... Yes, the book-to-bill ratio was 0.96 in the fourth quarter for reasons mentioned by Jacob here in the beginning of the call. And also for the full year, the book-to-bill ratio was 1.04 then. And gross order intake in the fourth quarter decreased by 15% in constant exchange rates. And this decrease is... or sorry, gross order intake in the fourth quarter decreased by 15% for the reasons that Jacob mentioned. A decline in the Middle East, but also stricter policy for order intake recognition at Elekta. So while these measures temporarily, of course, affected the book-to-bill ratio, they also reflect a more disciplined strategy focused on improving our order quality without impacting our growth ambitions, of course, going forward. So in the fourth quarter, adjusted gross income was 1.9 billion, representing an adjusted gross margin of 39.9%. A slight decrease, mainly driven by changes in foreign exchange rates, while we saw improvements from price and product mix that contributed positively in the quarter. And then tariff costs and strengthening of the Swedish krona against major currencies increased. had a negative impact corresponding to a total amount of around 200 million SEK. And maybe also worth mentioning is that last year was favorably impacted by unusually strong software sales. So that's something to keep in mind also when looking at the year-over-year comparison. Adjusted EBIT came in at 902 million SEK representing a margin of 18.9%. The higher adjusted EBIT margin derived mainly from a lower cost base then due to changes to the operating model as well as also lower R&D spent and then What I mentioned in the beginning with, of course, price increases and all those things, they trickle down to the bottom line, of course. But we also see a somewhat higher amortization and lower capitalization that offset some of those positive effects. Reported EBIT amounted to minus 461 million, representing a margin of minus 9.7%. And the reason for the negative reported EBIT was the IAC or the item effecting comparability of 1.4 billion SEK that we booked now in the fourth quarter. Gross margin was impacted by items affecting comparability corresponding to about 19 million. So most of the IAC can be found in OPEX and other operating income and expense. Right, then we can go to the next one. Yes. But before we get into more details around the one-off items, a few words on currency then. FX had a negative impact on revenue of about minus 7%, mainly driven by the stronger SEC versus main revenue currencies, US dollar and euro. The effect on COGS and OPEX, on the other hand, was favorable as the stronger SEC versus main cost currencies impacted the cost base favorably. And then we have some positive currency effects between gross margin and EBIT also deriving from realized and unrealized currency effects on the balance sheet. Then if we move to the next slide and we talk a little bit about the one-off item of 1.4 billion. This amount is a combination of impairment of previously capitalized R&D costs and goodwill, as well as provisions for other balance sheet items, mainly trade receivables. And if we start with the trade receivables part, here we have done some provisions for specific projects, but it's mainly an update of the general model for expected credit losses. We're essentially adapting more of a prudent approach to receivables that are long overdue. And in the balance sheet, we could see that these provisions have eroded over time and we want to restore them back to more normal levels. The R&D impairment in Q4 is related to products that are no longer part of the strategic roadmap and that will not be launched. We also have examples where we have similar development projects that are being combined into one. And this means that we must give up some of the parallel development costs that are currently activated on the balance sheet. These decisions and the consequential impairments give us a balance sheet that is better aligned with current business assumptions and our strategy going forward. For competitive reasons, we will not disclose, of course, further details around which products, projects or initiatives that we're talking about here. But we can say that with these adjustments, we have a balance sheet that is well in line with our strategic ambitions and that will help us build our commercial success going forward. The impairment of goodwill is related to the Kaiku business in Finland and the strategic decision to start to wind down that business. Cash flow after continuous investments amounted to 1.1 billion SEK, including severance payments of approximately 160 million in the quarter. And the full year cash flow improved 300%. 36 million to 1.4 billion SEK. And the improvement year over year mainly is due to more favorable movements in working capital and lower investment levels. Then let's say a few words about the dividend proposal related to the fiscal year of 2025-2026. The board proposal to the AGM in August or September, I can't remember, is an unchanged dividend of 2.4 SEK per share. This would equal 917 million SEK split in two installments as usual. So that is the proposal to the AGM. And then maybe on to a few comments on the EBITC margin. You can see those numbers in the grey boxes at the bottom here under the graph. And for five consecutive quarters, we now see an improvement in the 12-month rolling EBITC margin, which is encouraging and something that we were focusing on when we assess the business. Great. And then a few final words then on the outlook for 26-27. We expect sales in constant currency to increase year over year. And with that, we also expect an improvement in the EBIT margin. And on our Capital Markets Day on June the 17th, we will present more details related to midterm financial targets going forward. So we will talk more then. Thank you. So I hand back to you, Jacob, to close off the call.