Sectra AB (publ)

Good morning and welcome to SECRA's nine-month interim 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. You are most welcome to write your questions in the chat function. It's open from start. And with that, I hand over to you, Torbjörn.

All right. Thank you very much. So our nine months, it will begin presentation. We'll do intro and highlight by May. Then, Jessica, we talk about financial development. We talk a little about our way forward. And then we tune a session in the end. And you can also email during the presentation or via the chat function, give questions on during where we talk. We reply to them after the session. Chakra is doing business in three major areas, of which one is subdivided. We have imaging IT, which is taking care of images in hospital, mainly radiology, x-rays and MR, et cetera, but increasingly also other images. Some of the largest contracts we have received lately is all image management in the entire hospital system. That includes then pathology, and other things as well and then we have secure communications where we do that's where we our name actually originates we were doing encryption technologies before we started medical and we do very high level and advanced encryption systems these on the governmental uh military and governmental levels classified information at the secret levels and the restricted levels and that has now been begun growing much more than before as you will see later in the presentation and then we have business innovation which is our greenhouse for new ideas that doesn't really fit into one of the major cash generating businesses things that are might be profitable already but they're not big enough to motivate becoming a real business line or they are growth areas where we are not yet profitable at all. One such is genomic science. We do increasingly, we are becoming a diagnostics company. We have been an image only imaging company that went general imaging company, but the images are mainly used for diagnostics. We have concentrated on the diseases of the aging person, which will have a big underlying growth because of demographics in the entire Western world. And if oncology, cancer diseases, it's one of those areas where aging people get sick. And if you do oncology today, you also want to handle genomics, which is sequencing of the tumor and the germline DNA of the people. of the patients, and that is used for precision medicine. We got an increasing wish from our customer base, mainly in pathology, digital pathology, to also have them out with genomics IT. There were no production systems for genomics IT. And Secra is a company who are specializing in production. Hospitals must become much more industrialized than they have been. They have increasing workloads, and it's got to be run efficiently. And genomics is a rapidly increasing area which has not yet had any production IT support. And we are developing such a system together with the University of Pennsylvania in the United States. And that development is just now going to clinical tests. We don't have to do clinical trials for this, except from that type of FDA approval. But we need to do clinical tests, of course, in the live environment if the customer is happy with it. It's been a one and a half year development, and it looks very promising, and it will be integrated together with pathology and radiology for oncology diagnostics. Highlights from the quarter that passed. We have strong performance in all operating areas right now. It's very nice to see that we have very high customer satisfaction. I'll come back to that in a while. we are expensive growth phases in several areas we are doing large investments which is can be seen in our costs but there will be paybacks on these the coming years and we have rapid progress in its transition to as a service model and that also drives up upfront costs As in such a process, you get paid when people begin to use the systems, not when they decide to buy it, as we got paid before with licenses. Yet you have to take it live, you have to implement it and run the product. That drives costs, while the income is deferred to later. We see that clearly on the margins this year. And again, transforming as a delivery as a service, our net sales last year increased by 20 or the first nine months increased by 27%. That is high growth. It's demanding, but it's also very nice to have it. Our profit per share increased by 23%. Recurring revenue, which is an increasingly important thing in this world where we are moving over to deliver as a service organization, increased even more by 28%. And the churn of recurring revenue, the number of customer contracts, not the number, but the amount of money that we lose for recurring revenue every year, It's no meaning it's getting a new recurring revenue contract in if you lose it two quarters later. That is extremely low. It's 0.4%. Customers are happy and they stay with us. And of course, that is a very important aspect if you want to become a services company. Because if you lose customers, you lose that revenue. But people like us and they stay with us. uh we also won our best in class award um and best in class is an organization in the us who does customer surveys and of course they sell these reports to customers who want to buy systems in the future they do this independently of all the vendors they ask customers mainly start in the us What do you think of these other vendors you have? And then they rank all the vendors. It gives very interesting reports, both for vendors. We can learn from competition and also know where we're good and where we need to improve. It drives quality in the entire business. But it's also good for customers because they see what vendors out there that have happy customers. And of course, that increases likability. They will be happy themselves if they buy that product. and we have now won us packs in large hospital packs is picture archiving and communication systems that's our main business line mainly in reality um 11 years in a row and that makes us very very proud we're a small company in sweden who wins the most important award you can have for customer satisfaction in u.s medical i.t now there are more categories of course and we only compete in one of these categories but the one where we are in we have now had the happiest customers 11 years in a row and we have quite a good margin to the second one now the large house on the us is a main target in the us but we also have some smaller hospitals and we want that as well So we won both large and small hospitals in the US. We won in Canada, and there we have a huge grab to the second one. For the fifth year in a row, we won Northern Europe. Europe before was one region. They have now split it up in a Northern European, Southern European, and one is Dach, one is France, and one is UK. We are second in Dach and UK. improve that we like to compete um but we're number one in northern and southern europe in france we're too small and regularly to be ranked um very often we run by partnerships genomics with developing things important ships the ideal situation for development for us is that we scale we prepare to do something And then customers come with a problem to us, so we find a problem together with the customer that they have, and then we'll solve it. And genomics IT is a very good example where we actually saw many years ago that we will need to do something in genomics because it's a need in oncology and cancer care. So we're staffed up by people who buy informatics PhDs who know that. But we didn't start development until we got the customer who wanted to develop together with us. And that has now been done together with University of Pennsylvania. And as I said before, we're going to clinical tests, which means they try out this in the normal clinical setting. Not trials, it's not clinical, it's a clinical test right about now. We do also another partnership. We can partner both with vendors and customers. This is when hostels want to use AI. We have decided that our strategy is better done where we have more or less of an app store, as Apple have it, for AI than actually developing this ourselves. We have a very good offering in app store for AI for hospitals around the world, where they either can develop their own AI based on the archive. AI is really looking glass into the archive, if you look at the size. But it's also possible for vendors, AI vendors, who use us to come into the hospital. And then we take part of their revenue, but we also take care of the security vetting, etc. And we also very often do integration exchange of information between various healthcare systems. We are kind of where we are the middleman in this exchange. And the financial targets for the group are fulfilled and they are in order equity to assets ratio, which is if our systems fail, the hospital or the customer in communications is in a dire position. We've heard from customers that they consider our system to be the most important IT system of the entire hospital, which is important. um then you you don't buy that from a vendor you don't trust and financial stability is of course very important they don't want the vendor to go under but so equity assets rich is something we value it should be above 30 it's a hygiene measure um it's not what our main goal is to have this as high as possible but it should be about 14 and about 30 we are currently at 49 And the other hygiene measure, and people sometimes don't see that we see this as a hygiene measure, margin. If you have a good margin, we said that is about 15%, then it's a good thing. Then we can also invest. If we get excess margin, ways above this, we have run out of good ideas for the future. So the hygiene level of this target is 15%, we're currently at 19%. And then the real main target is to grow EBIT per share over five years. And then the target is 50%. And we are ways above that now at 132% EBIT per share growth over the five years. Some highlights in secure communications. This has been a problematic area for us for several years. We have now a completely changed market situation. We have a new management and we see considerably improved sales and earnings. This is now a growth area that is profitable to that. Very strong order intake. And we also have new offerings. We've been in the developing phase for several years, and we have now new products that we ship to customers, mainly in mobile phones, encrypted mobile phones, but also increasingly very high-speed network devices on the highest possible approval levels for seekers. As an example, we won a large customer win that we got an increased business together with the Swedish authorities for a fixed phone, not a mobile phone, but a fixed phone that follows the secret level functionality of classified information. In business innovation, we have orthopaedics IT, which is steadily growing. We have medical education, which is also steadily growing. And we have genomics IT. As I said before, genomics IT is going to clinical tests in University of Pennsylvania just about now. We are beginning to prepare to send that to wider market, but right now we want to see that we can make University of Pennsylvania happy first. We have orthopedics IT, which is mainly sold through imaging IT as special applications for orthopedics. And we have medical education, which is not the medical device. So this can be sold without approvals, but based on the same software to a large extent as Emmet. And this is so for teaching both basic medical students in medical schools, but also continued education of medical and veterinary professionals, because they now live in a world which is changing very rapidly and they need to keep up to speed. That is rapidly increasing area as well. And one example of medical education here, we've got an order of the University of Saarland uh in germany uh where we're helping out with the teaching of medical radiography students so they are the people who are going to run operate the radio devices and mrs and cities in the future and they need tools they want to understand how images look like and this is a complete cloud-based offering where we they can access this both on the big kind of big, big device, but also on the iPads and PCs at home. NGIT solution highlights cloud recurring revenue. This is the main business of Secra and our cloud recurring revenue, which is the revenue that we are doing in the cloud. So, I mean, recurring revenue is both service agreements that we always had, But the cloud recurring revenue, that is the replacement of the initial licenses I said before, that is increasing a whopping 57%. Very low recurring revenue churn, as we said before. And we have there achieved best in class because that is the part that achieves that for the 11th year in a row that I said before. And one win there that's interesting is NHS Scotland. Scotland had their own NHS. There are different national health systems for England and Scotland and Northern Ireland in the UK. And they had one purchase for PAC systems for the entire country. They do about 5 million regular exams per year, which were awarded to us. We replaced the incumbent there. and is now in product to be delivered. They are not yet in a phase where they pay. This is a pay per month or pay per usage situation, but they are not yet paying, but we have investments in getting them live. That was a large order. Then I will leave over to Jessica who will tell you about the financials.

Thank you. Good morning and welcome to the presentation of the financial development nine months into our fiscal year. We see high demand for our offerings with contracted order bookings surpassing five billion for the nine month period, of which roughly two and a half billion is guaranteed order intake. The largest contract secured in the period remains the 10 years after OneCloud with the US hospital chain, which we received in the first quarter. During the third quarter, we received several significant orders. Torbjörn spoke about the order from the agreement with NHS, National Health Services in Scotland. and also the order from the Swedish authorities for systems and solutions for secure communication. We also received an order for cloud-based enterprise imaging from a network of US hospitals and outpatient clinics. And we remind you that the size of individual orders uh create um quarterly variations in reported order numbers and our sales our sales are steadily growing up 27 to 2 billion 66 million for the nine month period and satisfied customers underlying growth and also a favorable Currency development in the nine-month period together drive the overall sales growth. Adjusting for currency impact, sales grew by 24%. And the SaaS transition is driving recurring revenue growth. And the cloud recurring revenue part increased by 56% versus the comparable period. And as Torbjörn also pointed out, happy customers keep our recurring revenue churn at a low level, currently at 0.4% on a rolling 12-month basis. In the third quarter, we increased sales by 20% to 694 million. And although we are transitioning into more predictable revenue streams, which will decrease quarterly variations over time, We can continue to expect fluctuations in growth and profit levels as long as we have both on-prem and cloud deliveries. All business segments increase sales year-over-year. Imaging IT keeps growing as we continuously add and deploy new customers and also as existing customers are increasing the use of installed solutions. Secure communications increase year over year by 43% and surpasses 300 million on a rolling 12 month basis. And this is a result of good order inflow during the year. In business innovation, we increased sales by 25% and driven by the development, both within medical education and the orthopedics area. We are growing sales in all of CETRA's geographic markets, a stable trend confirmed in this report. And we see the highest growth in the UK, the US and the Swedish markets. And the growth in the UK market stands out and is a result of successful contract additions over the past years. Denmark, Canada and Australia exhibit the highest growth in Europe and rest of the world. Operating profit rose 24% year over year to 320 million. This is a result of growing sales, favorable currency development, and also increased contribution from secure communications to the group operating profit. Our operating profit margin was at 15.5% in the period or 18.5, rolling 12. And continued investments in SAS and cloud deliveries, as well as new major contracts that initially increased costs are impacting profitability in the period and in the third quarter. In the third quarter, our operating profit declined by 14.5%. to 74 million. And I repeat that as long as we have both on-prem and cloud deliveries, we will continue to have fluctuations in profit levels between individual quarters. All business segments also increased operating profit year over year. Imaging IT, which is up 11%, carries implementation costs for new major contracts, as mentioned, whereas revenues from these contracts will grow gradually over the coming years as the customers become fully operational in the installed systems. Secure communication showed a significant uplift. significant uplift versus last year. And this is driven by the higher volume of business. Cashflow in the nine month period, cashflow from operations in the nine month period amounted to 193 million. And cash flow generation from operations was strong in the third quarter, explained by advanced invoicing of support agreements and also less outflow from settlement of current liabilities than in the comparable quarter. And at the end of the period, our cash balance amounted to 689 million. And that was the end of my part of the presentation.