Sectra AB (publ)

Welcome to Sectra's three month report presentation with CEO Torbjörn Cronander and CFO Jessica Holmqvist. My name is Helena Pettersson, investor relations officer, and I will be the moderator of the Q&A session later. The chat function is open from start and you are most welcome to start writing questions during management presentation. And with that, I hand over to you Torbjörn.

All right. So welcome here to our three-month report, our first quarter for this fiscal year. We will start with the interim highlights from the quarter by May, and then Jessica will come in and speak about financial developments. I'll speak a little about our way forward, and then we'll end up with a Q&A session. We both call in and we have the chat functions, or you can write the emails in. So our main business lines sort of petition is imaging IT solutions where we started up doing mainly radiology image handling for hospitals. Today, we increasingly do all image handling from hospitals. As hospitals want to consolidate their IT system, they want to theorize these systems. And we are a vendor who can do all their images in one single solution, which has resulted in some substantial orders over the last quarter. And then we have IT security, where we mainly do encryption systems and secure communication solutions. And then we have growth opportunities outside of the main business lines, which is our little greenhouse. These are small, but they are supposed to grow rapidly. Medical education IT, where students, medical students are nowadays trained in a very different way from historically. We have a special business unit for that, and that is more or less only doing recurrent revenue today. We have orthopedics IT where we do some special image management for orthopedists. And they use images very differently from radiologists and the diagnostic side of hospitals. They use it for therapeutic preparations. We have research division, mainly doing research within AI and genomics now. And we have inside the main business lines, we have critical infrastructure in secure communications and increasing digital pathology in imaging IT. which is then part of that overall image management of hospitals I spoke about. That area is growing rapidly right now. And we added 2022 genomics IT, which is not images, but very much related to pathology images and increasingly used in diagnosis of cancer. And also treatment of cancer, I would say. Highlights from the quarter. We had an all-time high contracted order booking of up to 33% from a very strong quarter last year as well. This result is sort of for the order of these images. We have high demand within all business areas. Signed the largest order to date for Sectra. US Sectra won cloud contract. That means we do not get paid up front. We get paid after the customer uses it. It's one of the larger hospital chains of all of the US healthcare systems. And we are, initially we got an order for radiology, but there is also a umbrella contract that can be extended with other images. And they had the vision of having only one vendor for all images in the entire system to save costs and increase efficiencies on their side, also increasing patient quality. Our orders now are very large systems and they're over many years, which means the contracted order values become very large. And we have significant quarterly variations due to large individual orders. Of course, we got orders in this size and the order intake goes up and down between quarters. We have positive trend in all business areas. We have rapid progress in the transition to services and cloud deliveries, also for hardware not the only software in medical but also in hardware we're moving into recurring revenue that is increasing faster than the revenue long term we have a currency tailwind that will not be forever but right now it helps to cushion the effects of the change to a service providing business model uh we have definitely seen a very strong turnaround for secure communications that i will come back to later We are transforming the entire company to deliver as a service. Also, our security business, very often we, instead of selling our high quality systems, we rent them to the customer. We let them use it for usage. Our net sales for the quarter was up 21%. Profit per share was up 14%. Our recurring revenue, which is a very increasingly important measure now, is up 28%. And the churn, that is how large proportion of the recurring revenue we lose. Of course, if you get a lot and lose a lot, you don't gain anything. But we have a very low churn, 0.9% of our return, which means that the income becomes an integrator, which is good for long-term business. The financial targets for the groups are all fulfilled. We have the equity ratio first, which is a measure of stability that should be well above 30%. It's currently at 51%. The second one is profitability, operating margin. We do not want that to be too high. We have too much to invest in for future growth, but it should be at least healthy above 15%. It's currently at 19%. And then the last and most important is growth per profit per share over a five-year period. That is the target to be above 50%. We're currently at 113%. And that's our main target. The first two can be seen as hygiene factors. The third one is the main target of our financial targets. In sector secure communications, we have considerably improved earnings, which is a very good thing. and that depends on two things i would say both the world around us with the kind of 10 situation european security right now with christ demand but also a new management for this business area which has proven very good uh strong order intake and as well we don't know what the application to nature from sweden will mean we do are not members of nato yet But so that is a little unsecure, unknown right now. But we do sell into NATO because we have NATO approved products already now that we sell from our Dutch operation. Image and IT solution, our largest business area by far. We got three significant Sector 1 cloud go-lives during the quarter, that means uh we are selling and getting paid for per uh usage instead of upfront which of course affects the growth rate uh we will during this transition have much lower growth than we would have had both in profit and growth uh than we would have had with the old business model but long term this is better uh we have low turn on recurring revenue as i said before um and we have a cloud recovery which is a portion of or the increase of the return revenue we sell for cloud applications. That is the main growth area that's up 76%. Then I will leave over to Jessica, who will tell you a little about the financial development.

Thank you. Good morning, everyone on the call. And I will jump right into our Q1 financials, starting off with the order intake. Contracted order bookings was close to 3 billion in the quarter, up 33%, with high demand for our offerings, both in medical IT and secure communications. And the single largest contributor to the record high order intake is the already mentioned 10-year Sector 1 cloud contract in the US, which amounted to approximately 2.4 billion. Sorry. And in this context, again, we point out that orders of this size do not come every quarter. We see stable top line development with growth in net sales of 21%, a reflection of our long-term commitment to customer satisfaction. And the SaaS transition is driving recurring revenue growth up 28% in the quarter. And the recurring revenue from our cloud contracts was up 73% for the group to 86 million, equaling or coming close to 15% of total sales, which is a sign of progress in this area. And as Torbjörn also mentioned, our recurring revenue churn is limited and the recurring revenue development is supported by that. And it remains just below 1% on a 12 month rolling basis. And also looking at the non-recurring revenues, growth in those in Q1 came mainly from secure communications. All business segments increased sales in Q1. Imaging IT was up 19%. And as customers expand their use of our solution and also due to a growing customer base. And we also note that the currency tailwind contributed to growth in this segment. Secure communications increased top line by 35%. And the positive trend that we've seen over the past quarters remained in Q1 and the demand was also confirmed by additional order intake secured during the quarter. We also have growth in business innovation, although this segment still represents a smaller share of our total revenues. All geographic markets increased sales, except in the US, where we now see an impact of the change in business models. In the comparable quarter, we had more upfront or more deployment revenue from license sales, whereas this quarter's deployments were SaaS contracts to a larger extent. and the highest growth in absolute terms we had in the UK, largely driven by recurring revenue growth. Our operating profit rose by 8% to 69 million in the quarter, whereas the operating profit margin was slightly reduced. The operating profit is affected by the shift to service sales and cloud deliveries and this in combination with our continued investments in in the organization preparing for large deliveries cost the lower margin in the quarter we also had increased cost for marketing activities in q q1 versus last year The weak Swedish crown give a favorable currency effect that is partly offsetting the transition to service sales. And on a rolling 12 month basis, the margin was at 19% at the end of Q1. Imaging IT delivered less operating profit than in Q1 last year. During the quarter, one customer in the UK, two customers in the US went live in sector one cloud. And as these cloud installations ramp up in production volume, they will contribute nicely to revenues and profit over time. At short term, it means less revenue than a traditional license sale. And secure communications delivered a strong performance in Q1 versus last year. Demand for encryption products and cyber security is high and we have seen that the market situation has normalized. We still note that quarterly Variations are expected in this segment due to the nature of the business. Cash flow from operations was negative at 98 million in Q1 due to negative changes in working capital. Q1 is normally weak and timing effects in customer projects caused tied up capital in projects and accounts receivable to increase. The overall cash position is strong with 808 million, including the 120 that we have in a short-term bank deposit. During Q1, we signed an agreement to acquire two properties, the headquarters in Linköping, plus an additional property nearby. We paid a deposit during the quarter and the rest was transferred on the closing date, September 1st. We do not expect these acquisitions to have a material impact on financial results. With that, I am ending my part of the presentation.