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.

Thank you, Jessica. Then I will continue talking a little bit about where we're going. Our philosophy with shareholders, many of you have seen this picture before, but I'd like to repeat it often because this is how we think and operate. We like shareholders, but we do not put you on top of the prioritization. If you have a company with a rational strategy in a growing market, and ideally it's a growing market where growth is mandated by external factors. You start there. You are in a market that grows. You don't have to fight with price in a growing market. If you grow with market, you grow. If you grow fast in the market, you grow very well. Then if you have happy customers. And in order to have happy customers, we say you need happy employees. You cannot have happy customers without happy employees. It cannot be paid for it. You have to have it. It kind of radiates out from our employees to our customers that they are happy. increasing the chance of a happening customer. Then, if you dare to be expensive when you're worth it, have reasonable cost control and some stubbornness, we think that shareholders will be happy. And this is a strategy we have had since the start, and I think we have shown by our development that it has been quite a good strategy. But it comes in this order. You start with the market, you go with the customers, and then down the line. We are transforming into asset service company, recurring revenue company. As I said before, this is a very important and very big change. It is probably the biggest change we have done in a very, very long time. We are increasing our recurring revenue. We get paid sometimes per month or quarter, but most often we get paid per procedure. And as the number of procedures increase in the world, we grow with that increase for install base, but we also grow by indexing costs with inflation in most areas, at least partly. It requires low churn. If you have a high churn, you will lose the benefits of having that recurring revenue stream that goes on forever. And we have a very low, it's below 1%, as we said, it's 0.4%. And this means that revenue and profit growth will be smaller. We are flipping that large initial income of a license down of a recurring revenue stream that will be bigger long-term. But initially, it will be impacting, and we see it clearly. With that order intake, normally our growth would have been much larger than this. Investments for future revenues are taken up front, where payment comes later, as I said. Long-term, the financial effects will be strongly positive in this change, as I said before. Medical IT and the demographics, and that's about the market in medical IT. The demographics of the Western world is alarming. People live longer and longer and get sicker and sicker, more or less because of age. The workforce that we supply health care for these people get fewer and fewer. Not everyone can not work in health care. I have a friend who has calculated that somewhere within the next 20 years or so, If Sweden is going to, just Sweden as an example, is going to keep its relationship between a number of people working in healthcare with a number of patients in healthcare, everyone leaving high school needs to go into healthcare. Now, that will not happen. And therefore, healthcare has to become way more efficient. And that is our business to help them out with, with our tools within there as we operate. and the main areas where you have to address this is the diseases of the elderly because that is where the main problems will be which is neurodegenerative disease cardiovascular disease cancer diseases musculoskeletal diseases and vision and there are also diabetes but we don't do much imaging within diabetes we it's effective vision though because um ophthalmology is a lot of part of the monitoring of diabetes programs. But these are the main areas. And we do diagnostics in all of these, and with special emphasis on cancer and musculoskeletal disease. We also add now genomics to the cancer portfolio, which means we have radiology, we have pathology, and we have now genomics, which is a very large part of the diagnostic information you need for cancer. The vision for medical imaging is to have all imaging-related diagnostic data in one single system, which means better care for patients, but it's also lower cost for the hospitals, low cost of maintenance, it's fewer data systems, and increasingly, which is not in the textbook here, but increasingly it's important for cyber security for the hospitals. Every single IT system you have in a hospital environment is a risk. If you have fewer IT systems, it's less risk, which is an important reason also to have fewer systems. We are having something we call Sector 1. It's one contract for all the products and services we have. And you can start with, for instance, radiology. And then if you want to add pathology or cardiology, you just extend the contract. You don't have to do a new purchase. which of course simplifies the ordering process and people can start up using for instance pathology if you're a job the customer without actually buying it doing a new purchase it's a little like microsoft office in in the desktop world where we do not sell word excel will sell the entire office portfolio with all these included but we charge per procedure for the different ones and now we add genomics into that as well same structure same contract You can just do more things with it, and thus you pay for each procedure. We also now have radiology, pathology, and genomics IT in one single system. We were already before the only vendor who has pathology and radiology image management in one single system. Others quote it, but they have several back office systems for it. We have one. Now we add genomics to the same environment. We can cover everything from research IT tools, which we are very good at, into reproduction. And that's our kind of sweet spot. We are very good at increasing production in this efficiency rates of the hospitals. And the burnout rate in physicians is, the burnout risk is high because of the workload they have. And we help them out with getting that job done faster than they did before. And we also have the highest customer satisfaction in this area. One interesting thing is Claas, which we're proud of ourselves of winning the best in class. They also do deep dives. They have special reports. They go out and interview customers all over. I shared one of those in my last presentation to you in January 2024. They asked US hostels who were actually going to buy systems, and it was clear that we get a request for a quote or interest for about half of all the deals done in the US now. That is by far the largest in the market. No other vendor is above us in that, and they are quite a ways lower. We win about half of those. So about 22% of the U.S. purchases in packs goes to Zectra. We are by far the fastest growing company in the market. And then you have the other ones below us. I wish I showed that last year or last presentation, but I would like to add this one. This is a breakdown of many, many areas, but the one that makes us most happy is this one. Compared to competition in large hostels in the U.S., Regiole packs, Our customers say that we buy again 98% of the time, which of course gives us very low churn. No other vendor is above the average. We increase the market average so much that all the other ones are below the average, with the highest one just below 80%. And that makes us proud, but it's also a very strong sales tool. If I want to buy a car, if I ask my friends who also bought cars, Would you buy that car again? And they say, yes. Well, that's the big probability I buy that car as well, because he didn't change his mind. So this is a very important factor, this public information from class. Large hostels in the U.S. radiology packs. In cybersecurity, what do we do there? We have a new digital reality. There is an increasing international tension. We have the war in Europe. We have the Middle East. And all defense systems and security systems in the world are kind of sizing up now. The market is growing very rapidly. And as we had happy customers also in communications all of the time, when the market increased, we increased with the market. We were prepared with good products. We also see cyber crime drives growth of cybersecurity. So if demographics drive an absolutely necessary growth in medicine and the situation with digitized society and increasing tensions drive this necessary growth in cybersecurity, we are well positioned in growing markets that will have to continue to grow despite financial tights. And this is important. If we have a low tide or a high tide, these markets will have to continue to grow because of external factors. And that's where I started with. Right. And we have a very strong brand name in markets where brand is of paramount importance. You don't trust your nation's most valuable secrets with three guys in the market, three guys in a garage operation, which is, of course, a very It's a very strong barrier of interest. Same thing in medicine. A CIO of a very prominent university also in the U.S. told me a couple of weeks ago that Sacra is the most important IT system we have. If you go down, our hospital comes to a grinding halt, and you don't buy that either from three guys in a garage operations. That is where our strong brand name secures our future. So why should you own shares, et cetera? We are positioned in markets that are, by external factors, forced to grow, as I discussed before. We have high customer satisfaction and thus a very strong brand. And we have a rapidly increasing recurring revenue. So far, this kind of large percentage relative numbers has not had a big impact. But continuing this from the absolute level where we are now will have large impacts. And we have very low churn. Yet we have very exciting self-financed prospects for future growth, such as now genomics or education. And management in our company owns shares, which I'm proud of. We are all shareholders. We have a strong cash position to that. So our proposal for the annual general meeting is to distribute 1.10 kronor per share. through a share redemption program, as we've done last year. The upcoming financial events and the annual general meeting will be September 6th. We have our three-month quarter one report. September 10th, we have an annual general meeting that will be in-person meetings. We don't like the idea of having IT only. We are so much an IT company that we We appreciate people actually coming to this. So this will be a fiscal meeting in Linköping, Sweden, and there will be a six month report on December 12th, March 14th, our nine month, and then June 5th next year as well. We will have a year end report. Please remember your feedback is important. We do this for your sake, not for ours. If you think we can improve on these presentations, please tell us, and we'll try to listen to you and fix them. And then send an email to info.investor at sector.com. And then we'll open up for questions, and Helena will read the questions, and I and Jessica will try to reply to them.

Yes, and I'm happy to say we have received a lot of questions on beforehand and a few online. And I will start with the analyzed covering sector in the order of which they have sent them in this morning. So then I will start with ABG and Nikola Kalanowski. Could you please provide some additional color on what sort of additional cost you are assuming in relation to the business model transition, both during the implementation phase of sector one cloud and also when clients are fully ramped up?

OK, so in that reply to that question, I have to distinguish between cloud and payment for service. We normally bundle these two. About your payment for service, you can pay for the license so you can pay for the for the service. That you can also do on-prem, actually. And some do, but not many. But very often, paying as a service is connected to be on the cloud. And the investments are connected to being in the cloud. The delivery model, not the payment model. We have no customers who pay for a license sale in the cloud. So if you go cloud, you pay for service. And that transition is quite big. We are changing our software so it works in the cloud. which all the benefits you can do there and not the least in storage and archiving which can be very much more efficient in the cloud than otherwise so most of the costs are associated with adapting our systems and software to work in the cloud environment and the next question is

Are hospital clients able to make meaningful cost savings by implementing Sector 1 Cloud compared to an on-prem Pax? And if so, could you help us understand how they are able to save costs?

One is, of course, in archiving. Take, for instance, pathology archiving, which is a lot of data. In pathology, That data is not so often reused. You don't look so much at priors in Patholia as you do in, for instance, Regiole, but the data sizes are enormous. If you have them on-prem, you have them spinning disks, hard disks, or your other solid-state disks, and that's expensive. Now, if you put them into the cloud, you can tier the storage. So you can move things that you don't think they will not be accessed for quite some time to a much cheaper level of storage, which then takes perhaps a day to retrieve. But in Bethol, you always know the patients coming in beforehand, so you can ask for retrieval if you need them, and you very seldom need them. So our carbon cost is a significant difference. Another one is, of course, staff. When it's a cloud delivery, we take responsibility for the entire service with our subcontractor doing the cloud provision. And that means they don't need so many IT staff on site, so they can save on those people and instead have people doing the real healthcare. And the third one is cybersecurity reasons. There was yesterday two major attacks in London, not affecting us, but it was two entire trusts in London that went down and came to a grinding halt because of ransomware. This is happening all over again. The risks are lower in the cloud because you can actually guarantee that the files are not encryptable. You cannot change the files. which of course means you cannot have ransomware to get those files back because they cannot destroy them. So it's also cybersecurity reasons you want Google Cloud.

And the third question here, what sort of potential do you see in the new genomics module and what has been the initial reception of the module?

Potential is very difficult to say. We don't know. We don't do all genomics. We are not the general genomics company. We don't do rare diseases. We don't do a lot of analysis of you as a person. Your own, it's called germline genes, for instance. We do right now solid tumors, which is cancer, and we are looking into other tumors, other cancers as well. That, of course, cancer is a rapidly growing area. Not all hospitals in the world do genomics for all cancers, but increasingly the most prominent hospitals, they do. So it's a rapidly growing area, but we have one customer. The customer is very happy and is using it clinically, but that is not a proof of market. We will see. We have more customers, but we have a huge interest for it.

Thank you. The next question comes from Kristoffer Liljeberg at Carnegie. Given that EBIT was flat year on year, despite the strong sales growth, can you please quantify how much larger cost this quarter was for employee profit sharing compared with K4 last year?

Well, last year we didn't have any profit sharing. We have had it every two years, and then we have had a stock options program, more or less, a former stock options units program every other year. so it's not possible to compare to last year going two years back when we were profit sharing last time it's about the same the order magnitudes should we see sales for secure communication in k4 being the new trend or did it benefit from quarterly variations very difficult to say that would mean we do doses we see a huge shifts in the demand. We think that demand will continue, but we have no other comments on that.

And then we move on to questions from Jakob Lemke at SCB. Looking at the cloud recurring revenues in imaging IT over the last quarter, or quarters, actually, it has increased around 10 million sequentially on average. Is this the pace we should expect going forward, or should we expect a larger uptick?

The uptick will be larger. There's no doubt about it. And the acceleration of this market is growing. And one of the reasons we did not have as much growth as we have had historically in imaging IT last year was that everyone is going to cloud. When they go loud, the uptick will be faster.

On secure communications growth has been very strong recently. When you look at your order book and sales funnel, do you see that you can sustain high growth going into next?

That associates with the last question. So we are not giving predictions, but there is increasing demand in the market and we are well positioned with our new products.

And then again, interest for genomics. Could you talk about the path forward for genomics? What is the next step? When can we expect the next customer, et cetera?

Again, we do not determine when customers want to buy. They do. But we have a large interest for it. But it's not unusual that you have a first customer and then others go and see it. uh and then it's a little cast that you need to cross before the market takes off rapidly we don't expect large sales we would like to have a few reference sales in different markets over the next year or so but after that it might take on more speed and a final question from jacob is the 40 million

If the negative 40 million EBIT in other operations stood out in K4, could you please explain what is behind this?

All right. I think we already answered that question. It's the profit sharing to employees that make the difference.

And then I will switch to the chat function where we have a number of questions from David Wingjong at Stifel. And the first one is, you mentioned the FDA approval on the digital pathology side. Could you give us more color on the pace of adoption of that tool in the US? Has the recent approval resulted in an immediate increase in discussions with potential customers?

So we have had an FDA approved product before, together we like it again, but that was a proprietary communication format. And the hostels do not really like that. They want to be able to change the scanners and the PAC system independently as it works on regionally. But there has not been a lot of standards or there has been no standardization. This is the first time that you standardize on us or that you actually get approval for a standardized communication protocol. And that is, we think, will drive growth because hostels do not want to end up locked down to one or two vendors. And the pace of digital pathology in the US is not super strong, but it's catching up. In Sweden, for instance, I mean, the majority market is today digital or has decided to go digital. So Sweden is very often an early adapter, but we see that very clearly here. I think almost all the hospitals have decided or are digital pathology in Sweden now. And when that comes in the US, we'll see completely different growth.

Next question. In secure communications, what was the main driver of the growth this year? Was this the NATO order?

No. Several orders from different countries. We are, because of security reasons, we cannot tell more than we've done in press releases. But there were several large orders. It's not only one order, it's many orders.

And a final question from David here. Working capital did not have as strong of a positive impact as usual in K4 this year. Could you give some color on the reasons why?

Yeah, I would say it's timing and with a strong profit generation towards the end of the fiscal year also had some correlation with more invoicing, for example. and therefore a higher build-up of working capital.

Thank you. And then I have a number of questions from a private shareholder. Sector has talked about the transition from license-based revenues to SaaS for many years now. When will the positive effects start to show in the financial statements? You have said it would take four to five years. Is it another four to five years or how should we think about this?

I would say we are about halfway through. But the speed of visibility of that will grow faster going forward, especially in absolute terms, because we are now at the level where relative growth is very prominent.

From an accounting perspective, should the investments in the installation of new SaaS solution be capitalized and amortized over the period of use? Shouldn't it be amortized over the period? I interpret it as you are currently taking the cost upfront, but the revenues come as usage-based, i.e. revenue per use.

Cost for setting up SAS solution or a specific custom contract is activated and amortized over the time of the contract. That's correct. But we also have other costs as Torbjörn described earlier that we take up front.

And then we have a question about genomics. How will genomics IT generate revenues and what will Sectra's role be in this area?

it can be seen as a part of cancer diagnostics so we have already radiology we have pathology we have ultrasound we now add genomics which is part of the overall portfolio of data you need for cancer diagnosis and that would be an important role selling going forward and it will be part of our sector one offering how fast it will happen As I said, first customer doesn't mean you have a market. It means you have a first customer, first reference. It will take some time before the large majority comes along.

And what is the financial situation for hospitals and hospital chains? Have you seen any hospital clinic that has had difficulty paying you?

We've had a few bankruptcies actually over the years in hostels in the countries where this is possible. We are dealing in the US, for instance, which is the major market now, we're dealing with large institutions and even they are cash strained. They have the same demographic situation as in the rest of the world and people live longer and longer with chronic diseases. So, yes, they are screened for cash, but we improve that. We make them more efficient. So I would say that screen very often is to our advantage because they have to replace old, very slow to use inefficient system with more lean and more efficient solutions because the staff is the major cost, not the IT systems.

Okay, thank you. I will come back to a few more questions, but first, David Vignone at Stifel has a follow-up question. Just a quick follow-up on the working capital. Should we expect the working capital build-up to be smaller than usual in the first half of fiscal year 25?

I don't think we answered that, but I can To say something more about the working capital, what we see in the fourth quarter is a timing question. It's a matter of how we generate our profits and get paid.

Thank you. And then I go back to questions from private shareholders. I haven't heard anything about security solutions for energy or infrastructure for a while. How is this initiative progressing?

Good question. It's progressing, not at perhaps the pace you would always love, but it's progressing. It's very steadily increasing and the maturity of the markets is increasing. Politicians and owners of power plants are becoming aware that without electricity, society is quite problematic. And you see that not the least in Ukraine, where the Russians have been trying to put down the Ukraine power plants by cyber attacks first. So we see an increasing market. Is it super fast? No. But it's also fast going in, it's fast going out. So it's coming along. in a slow but steady pace.

And the next question is, when does the board consider it appropriate to split the stock and or increase the redemption per share?

Well, we did split the stock not too long ago and there is no immediate plans for it right now, but that's a board question of the CEO in this case.

And that's all questions we have received for now.

Okay, then we thank you for your attention and hope to see you again in September. Thank you very much and have a nice summer.