Sectra AB (publ)

Welcome to Sectra's three-month interim 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 held after management presentation. And with that, I hand over to you, Torbjörn.

All right. So welcome here for our first quarter of the year. I will start with the input and highlights and then Jessica will come in with the financial development. I will talk a little about the second way forward and then we'll have a Q&A session and you can ask questions over chat or email and then Helena will read those so you can hear them. Sector business operation again is imaging IT where we manage images in healthcare. uh we have secure communications is that's actually the foundation of sector sector stance or secure transmission we do encryption and very high-end approved encryption systems we don't do bpn for people at it at home etc we do what the nations and the military and the security forces and governments ask for And then we have business innovation, which is our greenhouse for new operations. We haven't changed there since about a half year back, and I will go a little deeper into that. And that is genomics IT that we added to this. We have been developing that for about one and a half year. We have strong performance in all operating areas this quarter. Our first quarter normally is weak. There's not a lot of activity in our customer markets in the first quarter, but we had an unusually strong first quarter. We are rapidly changing to as a service model. We don't sell products much as a product. We sell them as a service. which, of course, limits our growth and also profits when you do the transition, but long term will be beneficial. We are growing a lot in that area and also in other areas. We have large investments. Going over to as a service model in the cloud requires us to change how we develop and deploy products, and that is a large investment. That is both prevalent over the last one or two years, but it will continue with Hebex investments also this year. So we will be affected of the burden of doing this transition for the whole year. But the years after, we hope to see a little improvement. And we're also working, we have a high effort and high customer satisfaction. For instance, in our incentive programs, a long-term incentive program that is now proposed to the shareholder or shareholders in the General Assembly next week is based on not financial performance only, but also that our customers are happy with us. That's a very important long-term success factor. That transformation to as a service model, cloud recurring revenue, which is our recurring revenue of operations in the cloud, It's grown to 42% to 123 million kronors. And now that is now, we're now reaching a level where the relative growth makes an impact on the overall figures. Recurring revenue as a whole grew 21%. And the difference between this is that recurring revenue as a whole is also service contracts and maintenance and rentals of old systems that we've had for many years. While cloud recurring revenue is the new business, what we sell as a service delivered from the cloud. We also, if you are based on a service model, it's very important that they keep your customers. You have these kind of people paying every month, but if they leave you instead of staying, of course, it's not a good thing. It never got paid up front. People pay when they use it and if they like it. And then churn becomes very important. How large portion of that recurring revenue do you lose? And we are very low, continuous very low at 0.4%. Happy customers, that's the best way to grow in our opinion. The contracted order bookings were down this quarter to 615 million. Now that is still more than our revenue. But the comparison quarter one year ago had a very, very large order. And compared to that, it was down. But we have huge quarterly fluctuations in our order intake because of the size of the contract and the length of the contracts. So we hope to see that averaging out of the year. You have to look at the rolling 12, et cetera, to really understand us. Net sales grew 24% and the profit per share grew as well to 0.42 SEK per share. Financial targets, our three main financial targets is equity assets, that is stability. We sell to customers who are extremely dependent on what we do. They will not buy that from three guys in a garage because the entire hospital or the entire country might be depending on that we succeed. And then we stay as a trustworthy provider. And then you don't want to buy that from untrusty or unstable companies. So equity assets, solidities, the financial trust is very important. We have as a target to be over 30% and we are at 52%. Profitability. That is another. So the two first goals here are hygiene factors. Profitability should be above 15%. We have a very good pipeline of good ideas and things we want to do and develop. We will keep it above 15%. If we get ways above that, we will use that for investment to grow. The main goal, which is growth of profits per share. and that growth target is set to 50 percent which is an annual growth of profits around eight or something like that we are ways above that with 138 percent now uh secure communications highlights we see partly based on a new project mixed partly based on that there is a tension in society, as you know, with Ukraine and everything like that, which has increased the awareness and the need of secure communication products all over the world. But Europe is our home market, Europe and NATO, and we see considerable growth. And we are now okay in communications after being struggling a couple of years before that. We also have a little developing arm where we develop security for energy companies, a so-called SOC, which we survey or we kind of look at the networks of energy companies so they don't get intrusion. We see this is changing to the better. There is an increasing awareness that a Countries energy provide provision needs to be secured against cyber crime. We also adding new products for both older new customers were coming out with new products and we have a nice healthy product development coming in with new products over the next years. Or for that. In business innovation in of beings, it medical education, genomics, it research. In orthopedics IT we got our first ever time that sector has been able to get a reimbursement code in the United States. Without reimbursement for a procedure in the United States it's extremely difficult to sell and that is what the cost was get paid for and when you go into reimbursement this is for implant motion analysis where we say post-operative if a prosthesis is properly stuck to the skeleton or if it moves. If it moves, you have to revision. You have to redo the operation. And we have a very interesting technology there. We got the temporary CPT-3 code for it. That means we have a couple of years, about five, I think, where actually customers will get reimbursement. And if it shows they are actually asking for it and using it, then they can get a real CPT code, which is permanent reimbursement for that part. Medical education, the most interesting thing there right now, so we're adding radiographer. That is the people who run the X-ray machines. And there is a huge need in those universities all over the world for educational tools for the radiographers. And we have just implemented all of Denmark. We have some very interesting customers in the US also starting to use our education tools for radiographer education then of course we also have the medical doctors educations that we've been working with for a long time and genomics it i will come back to that in the next slide and then we have research where we do a lot of research in ai and applications of ai In genomics IT, this is a new service to handle high production levels of genomic data, mainly right now for oncology. Long term, we might extend it to other diseases as well. So this is initially a product doing solid tumors together with University of Pennsylvania Health in the US. It has gone live in May, University Health Systems in Philadelphia. they're using it as a main production line and the interesting thing about this era is that it's a thing you have done increasingly and then you use excel or homegrown it systems for it but when production gets or when the usage gets big enough you need to industrialize it and that is exactly what we have done we have large initial interest from other institutions But growth will not be like a rocket of this product. It's a new product. The world has to understand that it works, begin to trust it and begin to budget for it. So don't expect this to take off. But long term, this is a very interesting area, complementing our other products in medical diagnostics, especially in cancer diagnosis. In Michigan IT, our largest area, we have the ongoing transformation to software as a service, which is clearly highly pronounced there, especially in the US or North America, we'll say. Cloud recurring revenue in that area grew at 42%. And we have also several, even though the order intake now was a little slower compared to the last quarter, we have an interesting pipeline to discuss further. One example, as we've begun doing this over the last presentations here, we got an order for all of Region Hovestaden in Denmark, which is Copenhagen and the hostels surrounding Copenhagen. They had tried with several vendors. It's a very complex, very large hostel environment. They have tried several other vendors before. We finally got the order and it's now fully rolled out all over. And very interesting is that a politician or a hospital manager in the region said publicly it was the best public health IT product they've run in Denmark, which of course is a big phrase for us. This shows that, you know, it's used, it's not stopping every day. as the previous systems were, actually it's not stopping at all. And it provides this value for a very large portion of the country of Denmark. Financial development, I will leave the word to Jessica.

Thank you. Good morning and welcome again to our Q1 presentation. We are pleased to report a solid first quarter with strong growth in both revenues and operating profits. And volumes are increasing and recurring revenue is growing. And this first quarter has been characterized by deliveries and preparations for deliveries of previously ordered customer projects. During the first quarter, we received orders for Sector 1 and Sector 1 Cloud in North America, Europe, and rest of the world. And we also received orders in secure communication, various orders in secure communications, such as one for development and serial deliveries of Tiger S. Contracted order intake amounted to 615 million a significant decrease versus last year, 79% down. And as Torbjörn pointed out, in the comparable quarter, we recorded an individual order of 2.4 billion and orders of that size are not repeated quarterly and hence cause large fluctuation in our reported order numbers. We continue to grow with satisfied customers. In the first quarter, revenues are up with 24% to 724 million, and the recurring revenue churn remained low at 0.4%, rolling 12. growing volumes and consequently we see increased recurring revenue. The share of recurring revenue out of total revenue in first quarter equaled 67%, 58% rolling 12. And there is clear progress in our transition to cloud-based service sales. Cloud recurring revenue increased by 42% in the first quarter. Currency impact on sales was limited in this first quarter. We see sales growth in all operating areas year on year. Imaging IT report sales growth of 23%. Customers have increased their use of installed solutions and more hospitals have gone live. And the share of recurring revenue in imaging IT was at 70% in the quarter. Secure Communications has delivered products and services during the quarter to authorities and defense providers and resulting in a sales growth of 38% year on year. Business innovation has had a slower start to the fiscal year than the other operating areas and report sales growth of 5%. Sales increased in all geographic markets, all of CETRA's geographic markets. The trend from previous reporting periods is unchanged. We see the highest growth in absolute numbers in the UK, in the US and Sweden. And Denmark and Canada show the highest growth in rest of Europe and rest of world. Operating profit rose by 44% to 100 million in the quarter, and the operating profit margin was strengthened year on year. Profit development is a result of growth and strong performance in all operating areas, and the operating profit margin equaled 13.8 in Q1. The transition or the shift in business model to cloud-based service sales will reduce the level of variation and typical seasonal effects will fade out over time. But we are still in this transition and can expect to see quarterly variations in our profit generation. All operating areas increased profit year on year. Imaging IT, which is up 28%, reports a margin of 14.8% for the quarter. And here we have profitability being impacted by both the ongoing preparations for deliveries of large customer orders where we will see revenues grow over time as the systems become fully operational. We also have an impact from ongoing initiatives to become a service provider. Secure communications increased operating profit by almost 300%. and the main driver here is a higher business volume. They report an operating margin, operating profit margin of 13% in the first quarter. Cash flow from operations was negative to minus 57 in the first quarter. In line with our traditional pattern for cash generation and an improvement year on year due to decreased tied up capital in current receivables. We closed the reporting period with a cash balance of 699 million. And that's over to you again.