Elekta AB (publ)

Good morning, everyone, and welcome to Elekta's Q1 for the fiscal year of 26-27. With me here in the studio in Stockholm, I have our CEO, Jakob Jos Bomholt, and our CFO, Klara Eirits. And as usual, we will start off with Jacob bringing in the highlights from the quarter and some strategic update. And then Clara will bring you more details around the financials. And after the presentation, we will, as usual, have time for Q&A. But before we start, I want to remind you that some of the information discussed in this call contains forward-looking statements. This can include projections regarding revenue, operating results, cash flow, as well as products and product developments. These statements involve risks and uncertainties that may cause actual results to differ material from those set up in the statements. With that said, I would like to hand over to you, Jacob.

So please, Jacob. Thank you very much, Peter, and welcome to all of you. Let me start by giving and sharing some key reflections on Q1. We have been very clear, I believe, Elekta is not trading at full potential. We want to action that. And to that end, we have established a three-phase turnaround plan. And this year is really about improving the underlying profitability of the company. Q1 is a step in the right direction, and we expect to see continued progress and execution. Let me just share with you a few highlights. We have now completed the change in operating model. The savings we indicated a few quarters ago has materialized above expectation, more than 500 million SEK. But most importantly, we did it to really enable faster execution. And Clara, you will unfold our now five regional P&Ls, part of that pushing P&L responsibility further down in the organization. we see significantly improved EBIT margin. Yes, part of that uplift related to tariffs, but keep in mind we also on reported EBIT have a headwind of 109 basis points linked to a more prudent way of accounting for R&D expenses. So the underlying improvement is significant and that translates into cash flow that improves year-on-year despite the inventory buildup that we're also going to address. If we turn to sales, yeah, sales decline of 2% is below our guidance for the year. We reiterate that guidance. That also implies that we expect positive sales growth in Q2, and I'm sure we'll come back to that in the Q&A. Just to flag here initially, China did start out weak in the quarter, I have to say, pretty much in line with our own internal forecast. And it really relates to poor order intake a year ago, linked to poor market circumstances, our market share. give and take on change. That also means that we will guide for solid growth in Q2 as we are now having an order backlog that supports revenue growth going forward. But I'm sure we'll also come back to that. So we are on plan. Focus is on improving profitability. But of course, we also have focus on delivering on the top line guide at fixed currency of 2% to 4%. So let me share some financial results, and then you'll give more color, Clara, on it. Book to build of 1.11, order growth of 3%. We did see ElectroEVO, particularly in the U.S., develop as we planned and hoped for. I just gave color on the negative net sales growth. Keep in mind, Q1 is by far the smallest quarter. of the year. And as I said, we expect positive growth in Q2. We see Americas and Europe growing. APJ, China, Timia declining. I'll come back to that. Then gross margin significantly up. And it's been some time ago since we had above 40% in Q1. at 42.6%, but obviously 150 basis points one-off related to tariff refund and we'll get a bit more we expect in Q2. But underlying improvement. That translates into a EBIT margin of 11.2%. EBIT cash margin is actually 11.4% and an even bigger improvement year on year when you look at the tailwind we had from a more aggressive accounting practice a year ago. So I think we are quite pleased with that EBIT margin improvement and then the fact that it translates into cash flow. So the trend we are on in reducing our net debt continues, and we expect that also in the period ahead. So that's on the financial outlook. If I then just give you a commercial flavor, overall radiotherapy market, when we look at it at a global level, it continues to grow roughly 6%. That also implies back to our revenue guide of 2% to 4%. We are still not growing with the market. That's highly unsatisfactory. We are going to do something about it. But as I said, at this stage, the focus is on improving profitability. On order intake, a little bit lower than 6%, but still good. healthy. So we start to see slight impact on some MPIs in the market and also various impact on orders around the world. But underlying market growth of 6%, which I consider very healthy. If we look at America, very importantly, we are getting back to growth, and we expect that to continue for a period to come. We did get electa evo approved, as you all know, in January, and that starts to translate into orders. So I'm not going to share specific order numbers for the U.S., but it's good. I mean, we are happy with progress so far, and... We have our online adaptive for pelvis pending FDA. There will be further tailwind for the U.S. organization. Many more things to be achieved, but the momentum is what we hope for. On U.S. reimbursement, still early days, but it actually looks favorable both for freestanding and hospital systems with the three to five percent reimbursement uplift. So let's see where that lands, but so far so good. If we move on APJ, we actually expected to come in stronger. The fundamentals of that region is strong. It's an underserved market. It's very varied from Australia to Vietnam to Indonesia to Japan. but we have just seen specific macro and impacting healthcare spend. So the market is down quite a bit. We don't expect that to be sustainable and we are holding on to share, but we have now seen that for a period of time. If we then focus on China, I was there last week, reviewing commercial, reviewing outlook, OBVIOUSLY ALSO CENTRALIZED PROCUREMENT AND AS I SAID WE HAVE SEEN A WEAK ORDER INTAKE A YEAR TO TWO YEARS AGO THAT HAS OBVIOUSLY DELETED THE ORDER BACKLOCK and that impacted Q1 in particular with the low number of installations. We have guided that we have now had three consecutive orders or quarters of good order intake, and that also is a reason why we say that we expect solid revenue growth coming into Q2. A few words on centralized procurement. I think it's important for you to understand. Clearly, it's a change. It will lead to more price transparency in the market, but we have had centralized procurement in the past. Last year, our fiscal year, roughly 25% of the market was through centralized bidding. and Elekta had a win rate of more than 50%. So we are used to it, and I would say we're also ready for it. Obviously, it is a bit of choppy waters. Is that going to delay certain order intake our second half of the year? Maybe, but not necessarily. On the other hand, we see a push from the Chinese government to advance CAPEX to stimulate the economy and serve the healthcare system. So there are pros and cons. And all in all, when we look at our markets here, we are in the mid-30s, so slightly down from last year, but we maintain our competitiveness. On Europe, increasing revenue by 5% growth in most countries, so that's good. We are piloting some very important NPI, integrated console, really a new workflow on our Harmony platform, and it goes well. Just keep in mind when we come to second quarter, last year was a high growth quarter, so the comp is tough. And then on TMEA, we saw a decrease of 4%. We expected growth here, I have to say, and And it's delays, it's not cancellations, very important. We expect quite a good growth for Timeya for the full year. That will start also come Q2 is our expectation. But we had some specific installations in neighboring countries of Iran that actually not due to Elekta, but other suppliers, distalled the final installation, and hence we couldn't recognize it. But the outlook actually looks surprisingly solid for Tomea, both in terms of orders and revenue. So that's overall on the commercial side. And if we then go to where we are in our turnaround, the way we think about it is that we have now concluded phase one. We really had to change a lot of things at Electa. So we said, it's a reset. But then once you reset, you also need to stabilize. And we are happy with where we are. Here, 1st of August, we appointed a new COO of the company, Rodolfo Vasquez, to really drive operational excellence within the company. And we can see that there's quite a lot of potential ahead of us. So I'm very happy to see we have a complete executive committee to drive the performance. And then this year, this quarter, we provide additional transparency. It's also how we want to operate the company. So we align internal with external and then improve quality of earnings with the more prudent accounting. So I'm happy about that. Then focus is really on improving profitability this year. We have been optimizing our portfolio. We are more focused in how we invest. We still invest more than 10%, roughly 10%. of revenue in R&D, have a laser focus on releasing new products to the market, strengthening commercial execution, also through delegating responsibility and accountability to regions. We have good pricing guidelines now in place that will support us in the period ahead. And then we are laser focused on COX reduction program, and you also see some of it translating into improved gross margin. So for us, it's about expanding margins, it's about productivity initiatives, and then importantly at this phase is making the required steps towards us translating innovation in market share gains going forward so we can soon get into phase three, and that is growing at or above the market, because that is the future of Elekta, bringing innovation to the market. So that's a high level perspective of where we are. We feel good about it, but we know we have a lot of work ahead of us. And with that, Dara, I'll leave the word to you.

Thank you, Jacob. All right, so let's look into the numbers for Q1 in a bit more detail. Net sales decreased by 2% in constant exchange rates. Solution sales decreased by 9%. And we saw growth in both Europe and Americas, however, offset by lower sales in APJ, China and Tamiya. Service sales grew by 5% with growth in all regions. The adjusted gross margin amounted to 42.6%, a considerable improvement from last year's 37%. The improvement is related to growth in software and service, price increases, but also lower cost levels largely related to the change of operating model implemented over the last two quarters. We had refunds of US tariffs imposed under the US International Emergency Economic Powers Act, which had a positive impact of 53 million SEK in the quarter, corresponding to about 150 basis points. As we anticipated when reporting our Q4 numbers, we had a negative FX impact, impacting the gross margin negatively by 20 basis points. The adjusted EBIT margin amounted to 11.2% and the year-on-year improvement was primarily driven by earlier mentioned improvements in gross margin, of course, but also lower selling and administration costs driven by the change in operating model. Year-over-year, we had a negative impact of about 190 basis points from lower capitalization of R&D and increased amortization of R&D. And that's why we see a larger improvement in EBIT-C than we see in EBIT. I should also mention that we have no items affecting comparability in the quarter, but we did have 16 million SEK in Q1 as IAC in Q1 last year. So we have an adjusted EBIT for Q1 last year, but not for this year. Net income amounted to 106 million SEK and adjusted earnings per share amounted to 0.31 SEK. And if we move to the next slide here, as of now, our external reporting structure is aligned with how we manage and organize our business internally. Internally, we are organizing five separate regions with full P&L responsibility. We have Americas, China, Europe, Timia, consisting of Turkey, India, Middle East and Africa, and APJ, Asia Pacific and Japan. And starting now in Q1-26-27, this is also the structure that we will present externally. And you all were introduced to this new structure also at the Capital Markets Day. The regions have a P&L with fully loaded costs. So when you add the regions EBIT and group common costs together, you get Elekta's P&L and Elekta's EBIT. Group common costs consists of central costs associated with our central staff functions and these costs will not be loaded into our regional P&Ls but instead kept centrally. Previously in the old external report structure we only showed three regions with net sales and contribution margin. Now we will report on net sales, gross income and EBIT for each of the five regions. So let's look at the performance of our five regions. To start with, the gross margin has improved in all five regions, except... And all regions except Timi are now above 40%. If we then take the regions one by one, we can see the following. We start with Americas. The EBIT margin for Americas improved year over year, driven by, of course, the launch of Electa Evo and related price increases. In addition, as I mentioned, the refund of U.S. tariffs imposed under the U.S. International Emergency Economic Powers Act had a positive impact of 53%. or sorry, 53 million SEK corresponding to 490 basis points for the Americas region. For the next quarter, we expect around 3 million US dollars in a second and final tariff refund. Also remember that we continue to pay tariffs in the US. So that continues, but the refund is for Q1 and Q2. So despite lower sales driven by constraints in healthcare budgets and capital investments that Jacob also mentioned, the EBIT margin was almost in line with last year due to cost initiatives in both gross margin and OPEX. But we also see positive movements in terms of price and mixed service sales, to be precise, in APJ. Region China's EBIT margin declined as a consequence of the lower volumes, but even their gross margin improved due to lower gross margin expenses. But we can see that we don't have full coverage of the OPEX in the Chinese region here. So we see a drop in EBIT. So we need slightly higher volumes in China for EBIT to come up. And then Timia, or sorry, Europe. The EBIT margin in Europe improved compared to last year, supported by a favorable development for Nuri and Brachy solutions. And finally, the EBIT margin in TMEA was negative in the first quarter. However, it was an improvement compared to last year, and normally we see a seasonal pattern of gradual improvements towards the end of the year for TMEA, and they have a better starting point this year than last year. So we expect that to improve over the course of the year. All right, let's talk about currency impact. We see a negative currency impact on net sales, mainly due to the strengthening of the Swedish krona against the main revenue currencies, the US dollar and the euro. This impact is then partly offset by the group's significant cost base in US dollars, British pound and Europe, limiting the effect on bottom line profitability. Changes in FX had a negative impact on both gross margin and EBIT margin by 20 and 30 basis points respectively. And then a few words on cash flow. Free cash flow before dividends and M&A improved by 154 million, reaching a negative 266 million SEK in the first quarter. The year-on-year improvement was primarily driven by an improved EBIT of 176 million, reflecting an underlying improvement in the business. We had a negative impact from more unfavorable changes in working capital of 318 million driven by a seasonal buildup of inventory. We of course had that last year also, but it was higher this year. And also as planned, we had lower R&D related investments in the second quarter compared to last year. And lower costs for interests and tax compared to last year, driven by a tax refund paid in Q1 this year and positive FX impacts. Okay, let's look at the historic development on a rolling 12-month basis, starting off in Q1 last year. If we start with the graph on the left-hand side, we can see that the EBITDA margin is up considerably compared to the same period last year, from 9.1% to 12.6%. We can also see a gradual improvement in gross margin, with a 12-month rolling gross margin very close to 40%. Finally, on the right hand side, we see solid development in free cash flow before dividend and M&A. I also want to mention that Elekta on August the 24th signed a 100 million euro credit facility with the European Investment Bank. And this facility is dedicated for R&D project funding and has a six year maturity. All right. So before I hand back to Jacob, I want to conclude by reconfirming our previously communicated outlook for the fiscal year of 26-27. This slide is the exact same one that we presented on our Capital Markets Day on June 17th. And for 26-27, we continue to expect net sales growth of 2-4% in constant currency and an adjusted EBIT margin of 12.5-13.5%. And by that, I hand back to you, Jacob.