Sectra AB (publ)

Good morning and welcome to Sectra's year-end report presentation with CEO Torbjörn Kronander and CFO Jessica Holmqvist. My name is Helena Pettersson, Investor Relations Officer, and I will be the moderator of the Q&A session after management presentations. The chat function is open from start, so please feel free to ask your question during presentations. And with that, I hand over to you, Torbjörn.

All right. Thank you very much and welcome. our year-end presentation for this fiscal year. And the agenda of today is I'll do the intro and some highlights. Then Jessica will talk about the financial development. I will talk a little about the way forward. And then we have the Q&A session where you can, where Helena will read your question that came in over email or via the chat function. The Swedish one that we have received earlier have been translated to English. So our sector is doing business in three areas. One is imaging IT. That is the largest one, though the fastest both right now is in secure communications. Imaging IT manages images in hospitals. The largest market is currently the US, the UK, Scandinavia, and the Netherlands. mainly radiology images, but also pathology, cardiology, and other types of images. And then we have secure communications, which is the regional sector. Sector stands for secure transmission, and they do encryption systems on a very high assurance level. uh which is both mobile encryption mobile workplaces but also high very high speed uh very high assurance from a network components and then we have business innovation which is our greenhouse for new products and there we have some developments in genomics now that i will talk a little bit later Genomics IT is a new area that we have spent two years of developing together with the customer, and it has now been live for two weeks with very happy customers, which we are very happy about. A little more highlights. We have strong performance in all operating areas. Before, we had some problems in some of them, but now everything is growing. We have a rapid progress in transition to as a service model. We are transitioning, especially mixing it, but also other areas from an upfront license sales to as a service subscription. Initially in this transition that will hurt growth of both revenue and profits long term. It has been proven other industry. We think likewise this is very good and it's very interesting because it's a way of. doing business that is perceived as very good both for the vendor and the customer. We have expansive growth with large investments in this transition to an asset service model. The main impact of the change of our business model is on the income side, on the revenue side, but we also have to do some investments where we go to the cloud. We also have high customer satisfaction, which is very important in all areas. The transformation into a service model, we measured that since a few years back with something called, we have recurring revenue, but in the recurring revenue all over, et cetera, is included old service contracts and maintenance contracts for existing customers. So we have split out a part of it, call it cloud recurring revenue. That is what we sell as a service over the cloud. And so we have a cloud host. Customers do not have hardware on-prem. They subscribe to this and they pay per exam or per procedure. And that is where we are going with the company. And that has a very significant growth of 50%, 60%. year-on-year comparison to 400 million kronors and before this growth did not have a lot of impact but now the size we are now continuous growth there will be clearly visible the overall figures as well the recurring revenue all over which is includes the cloud recurring revenue but also the other parts increased by 27 percent of our total revenue we have about 1.7 billion Swedish kronor now in recurring revenue, which is then expected to continue for at least 12 more months. And then churn. If you are in a service model and have recurring revenues as your major income, you don't want to lose customers. We have a very, very low churn. Our customers like us and they stay with us. So our churn was last year 0.4%. which means that very few customers leave us, which means that this growth in the cloud recovery algorithm combined with the low churn becomes an integrator, which is a nice place to be. Happy customers, we think, are the best way to grow, which has shown in contractor order bookings. We have order bookings of up 34%, up to more than 6 billion Swiss kroners. We have net sales up 26%, up to 3 billion Swedish kronor. So you see the order bookings is double the amount on the net sales. And a profit per share increased by 14%, which is well above our target. We have been awarded during the year. We are told that in previous quarterly report, but we have been awarded for the 11th year in a row. We have had the happiest customer in the U.S., large hospital segment, which is our main segment in the U.S., and that is large hospitals in the U.S., radiology, IT, which has ranked us highest for the 11th year in a row. We also won U.S. small. We won Canada for the fifth year in a row. Europe has been split up. Before it was Europe was one. Now Europe is several parts. we have one northern europe and southern europe we're number two in two other european unions regions the financial target that sector is first equity assets ratio should be above 30 percent this is hygiene factors as we see it we do things our systems should not fail and we are a very important vendor for our customers That means they want long-term stability in the company and we cannot be financially stretched. So we have an equity assets ratio of 30% as a target and we are at 49%, well above the target. Profitability, that's also in our view a hygiene measure. We have a lot of good business opportunities and growth opportunities ahead of us. So we want to invest in the future growth and profits. But we should at least do decent business while we do it. The target is about 15%. We are currently at 18%. Also hygiene factor. And then the main goal, but number three in priority, is growth of profits per share. EBIT per share over a five-year period should be above 50%. And we are well above that at a 190% growth of profit per share growth over five years. Sector communications highlights. This has been a problematic area for us for a long time. But over the last two years, due to new management and also a stronger market, we have seen a considerably improved sales and earnings. This is now a strong contributor, not the least, to growth. They have grown very good. Very strong order intake, and we also have new offerings to grow our customer base in the same segments as very high assurance communication systems. We, among other things, won a NATO Communications and Information Agency deal. We have the impact of NATO for sector is not that high. We have been in NATO, so to say, over many years through our Dutch subsidiary who we have NATO approved products already now. But of course, it will be more stable and beneficial to be part of NATO. But it has not a big impact that Sweden is not part of NATO for us. So NATO has bought a lot of systems from us over the years, and we continue to provide that in this order. In business innovation, there's a greenhouse for new products or small areas which is not large enough to be accounted for separately. We have orthopedics IT. Orthopedics use images in a different way from radiologists. We have special tools to plan for surgery, etc., in that segment. Also, to increasingly follow up surgery, you see if the implants really are stuck or have a risk of loosening. Orthopedics is a very high growth area in the world as people are becoming older and older. We have medical education. The lifetime of knowledge in medicine is becoming shorter. People want continued education and a lot of people have to go into healthcare. We have tools, IT tools, and mainly a web portal with a lot of very valuable information for education and cases where you can teach your students with high growth areas, both of these two. And then we had the new genomics IT, which is still in its infancy. We went live with University of Pennsylvania in the US two weeks ago. It has been very successful today, until today, at least fully forever. And we have it's in clinical use today. We have a large interest in that for other customers. And we will begin to market it more broadly during the year to come. And genomics IT, again, it's a service help handling high production levels of genomic data analysis for oncology. In cancer diagnosis, genomic specification is crucial for precision medicine. And precision medicine means two people with the same cancer get different treatment. because their cancers are genetically different, and they are genetically different. Therefore, genomic data analysis is growing. It has been done in a very simple and primitive way before, but it has now been becoming industrial production, more or less, in the hospital. Some cancer institutes do it for old cancers coming in, and there has been no production tools in IT systems for it. Went live in May, as I said, in Pennsylvania. We have been developing this over the two years together with the Pennsylvania, very close collaboration to get it right. We have large synergies with existing portfolio medical diagnostics, not the least molecular pathology and our pathology image handling in imaging IT. We do not do all genomics. We don't do genomics for rare diseases. We do genomics for cancer. And that is where the synergies are with pathology. It's a thing we have potential to sell into our installed base of pathology customers because they all need some way to handle genomics. Then the 15% of our revenue are spent on R&D Each year, it's very difficult to say exactly because we have a borderline in between development and deployment, which is called DevOps. But it's in that range. In imaging IT solutions, our largest business area, the cloud recurring revenue increased 57%, and that is where the big impact of the change business model can be found. We have sold one cloud to two hospital go-lives per month right now. We see more or less all business in the U.S. coming or being discussed right now is a cloud solution where we get paid per procedure. The interesting thing about that is that as we get paid with procedures instead of an upfront license, we will grow with increased usage of the hospital. Plus, of course, if we have increases in indexing on inflation, etc. And digital pathology, we have an FDA approval for that, which is also very interesting. It is the first FDA approval of a system based on DICOM images. And DICOM is a standard for medical imaging used in radiology and increasingly in pathology. But we, together with the Leica scanner, Leica company in the US, owned by Danaher, has developed it. It's one of the best scanners in the world. And they now send DICOM to us, which is very beneficial in the world because we need more standards in this area. As I said, Leica Systems and us gained that as a first in the world approval. We also have a new customer win, Horton Healthcare in Canada. That's an interesting win because they more like we do everything from us. So we see increasingly that customers want fewer IT systems. They do not want to have one IT system for everything they do in the hospital. I know from a very famous hospital in the US, not a very big one. They have 1,286 IT systems in that hospital and they want to reduce that number. We are the only provider who can provide all of imaging, one single system. With that in the cloud, we have offload a lot of costs from the hospital as well. Then I will leave the word to Jessica to tell you about the financial development.

Thank you. Good morning and welcome again everyone who's listening to us today. We have a solid financial year behind us. Demand for our offerings both in medical imaging IT and secure communications is increasing and we are capturing market share. This has resulted in Contracted order bookings surpassing 6.2 billion in the year, up 34% year on year. Our guaranteed order intake amounted to 3.2 billion for the past fiscal year. We have received two very large contracts in the past year. uh the the 10-year sector one cloud with the u.s hospital chain and also the scotland contract both of them contributing to this record high number for order intake in addition we have received several other significant orders both in north america and europe and in the fourth quarter we received orders for sector one cloud from two US healthcare providers, and also, as you heard Torbjörn mention, from Holton Healthcare in Canada. And in secure communications, we have existing customers who placed orders for additional units of the Sektra Tiger system and also extended their support contracts. There's steady top line growth, revenues increased by 26% year on year, coming close to 3 billion. The combination of underlying growth with both new customers and existing ones, expanding their use of our services, and also the favorable development in currencies or currency exchange rates in the past year, has continued to drive our growth. Adjusting for currency impact sales grew by 23%. And we make progress in the shift towards service sales and cloud deliveries. And we are pleased to report that our cloud recurring revenues are increasing by 56% year on year. And since this is important, I repeat what Torbjörn said, satisfied and loyal customers result in low recurring revenue churn currently at 0.4%. Looking at the fourth quarter in isolation, sales grew by 24% to 898 million. All business segments increase sales year on year. In imaging IT we have more and larger customers than ever before, showing an increase in sales of 23%. And secure communications, there we benefit from the geopolitical uncertainties, which have driven the need for investment in high assurance and encryption solutions, as well as cybersecurity. Sales up 57% to 367 million for the year. And in our smallest segment, business innovation, we see positive development in sales across the segment. We are also growing in all geographic markets where Sectra has presence. We have been particularly successful in the US and UK markets in the past year, which is a result of our long-term dedication and efforts in these markets. Denmark, Switzerland and Australia exhibit the highest growth in what we call rest of Europe and rest of the world. Operating profit rose by 14% to 518 million, of which 197 million was generated in the fourth quarter. Profit growth is coming from strong development in all operating areas, and the operating profit margin is currently at 17.5%, well above our target of 15%. The margin is lower than last year, as our profitability is affected by the shift in business model in medical imaging IT. And we would have seen a bigger impact if we had not had the favorable exchange rates and the strong underlying growth and also the major improvements in secure communications profitability in the past year. In imaging IT, operating profit is up 8%. Imaging IT carries implementation cost for the major new customer contracts that we have secured and also cost for strategic investments in the changed business model. Operating profit in secure communications is up more than 200%, explained by higher volume of business. And with an operating profit margin just above 16%, Secure Communications is now contributing to the group's overall financial goals. And in other operations, we show an increased operating loss. coming from costs for profit sharing to our employees. Cash flow from operations amounted to 326 million, of which 134 came in Q4. Versus the comparable period, we have increased tied up capital in current receivables. We maintain a strong cash position, and at the end of the reporting period, we had a cash balance of 805 million. Thank you.