Sectra AB (publ)

Welcome to Sectra's year-end report presentation with Torbjörn Kronander, CEO, and Jessica Holmqvist, CFO. My name is Helena Pettersson, Investor Relations Officer, and I will be the moderator of the Q&A session that we will hold after management presentations. And with that, I hand over to you, Torbjörn.

Thank you very much. So we just had our Broken year, so we had an end of the session.

We'll start with the intro and highlights from the quarter, and Jessica will talk about financial development for the full year in the last quarter. Now we'll briefly talk a little about the way forward, and then we have the Q&A session. And you can do that via both the chat function, but you can also send emails during the presentation. So our business operations sector, repeating for those who are not familiar with us, is imaging IT, the largest portion, which is now in a huge transition into a software-as-a-service business. We have secure communications, which have our by far highest growth right now, doing very high-end encryption devices and phones. And then we have business innovation, which is a greenhouse business. of future projects or things that we want to keep out of the ordinary business lines because they're too long term or a strategic vanish. A little about the highlights from the quarter. We won again. We were very proud of the happiest customers in the US. Large hospitals, which is our prime, but we also won best in class. And class is an organization in the US that actually does surveys of customers of medical IT systems primarily. They ask, are you happy with your vendor? And they have a lot of detailed questions. And best in class means you have the highest customer satisfaction in the area surveyed. It began only being done in the US, but now it's done in more regions in the world. And this year, we won a record number of eight of those from different portions of the world. We also won the digital pathology, and digital pathology is the only award won, because there's too few installations in the US so far, so that is only for Europe. But the most important for us is large hospitals in the US. We also won small hospitals in the US, Canada, Middle East, Northern Europe, Southern Europe, and digital pathology, as I said. We have a high customer satisfaction. That is a very key part of our growth. We are not a multi billion US dollars company who can afford fighting with the big dragons in marketing money, but we can fight with customer satisfaction. And that is how we gain our market shares and have happy customers and then growth. We are in a very prominent transition as a service model. We sold licenses up front for software, still do in some parts of the world, but in our largest markets, the US and Canada, and increasingly UK, we only sell now as a service model. And the big difference is then initially you got a large license sale up front. now that is flipped over and we sell over time long term it's it's better for both us from and the customers but short term there's a strong impact from this change of revenue recognition model we have a record order intake for the quarter we'll come back to the figures later We also have an extensive patent portfolio sector, both in communications and medical, and that resulted in a one time income for this year. The transformation to a service model is mainly done as a cloud sale. So we sell over the cloud. It's not the same thing, though. We do not sell cloud solutions, so that means you have a provider selling over the internet to many providers. We don't sell that as a licensed model, but we can sell a transformation as a service sale to on-prem, which we do sometimes. The cloud recurring revenue is the future, and that is the thing we sell over the cloud and being recurring revenue. That increased by 49%, and now the Overall number at 591 million is so large that this percentage growth really is noticeable. Before we had very high growth, but coming from a low number, it did not impact the overall figures very much. Now it's beginning to be seen. Recurring revenue as a whole includes cloud recurring revenue, but it also includes things that we sell on-prem. where people pay as a service or old service revenue, so service support contracts with customers. And that is also increased, but of course, a very large portion of that increase with the cloud income revenue, which is part of it. And then if you sell as a service, you don't want to lose these customers and you want them to stay. And we have a very low churn. That is the percentage that leaves us between different periods, different years, and it's 0.6% right now. And it's been very below 1% for the several years back. Happy customers drives growth. Contract order bookings went up. With happy customers, a lot of other customers want to buy from you. Our contractor order bookings, which is the guaranteed ones, Our contracted levels is up 40% to a very large order intake of 8.7 billion Swedish kronors over 12 months. Net sales increased by 9%, and the difference there, of course, is attributed to the fact that we sell as a service. So recognizing all the contracted order bookings will take time because it's spread out over several years. And the profit per share, which is our main financial goal, increased by 32% to 2.9 kronors per share. Positive non-recurring effects from patent settlement. We had a patent settlement in Q3, which meant that we actually got a one-time income of 110 million Swedish kronors. We try to isolate that in the financial reporting so we should not measure operational efficiency by a one-time impact. And these are financial targets for the group. Stability, equity, assets, it's a very important figure for us. We are considered one of the most important IT systems of hospitals today. And customers do not want to buy that from an unstable provider. They want long-term stability and trust. And then our financial stability is important. And the target is to be above 30%. We are at 51% right now, and we have been above or around 50% of the foreseeable history. Profitability is a second most important target. That is a hygiene factor. Our target is 15%, and you see there is two curves there, one with a patent comparison and one just being the normal operations, which we think is more important. Patents are great, but it's still a one-time income. And then we have growth of profits, which is actually our main goal, but it's priority three. The first one, the hygiene goals, and the third one, is the better the higher we get and that is EBIT per share over a five-year period that should be above 50 percent. We are clearly above 107 percent and including the patent we're almost at 150 percent. In secure communications which is as I said our fastest growing area right now We also see an increasing amount of sales as a service, though that is a very small part of what we do in communications. Most of these are payment at delivery. But there are some, and we had a contract renewal for one of them where we sell security as a service. We see a high demand for secure communication products, both because of the tensions in the world, but also because we are now, we have invested over several years, we have very good products that are very interesting in modern telecommunications environments. And we had the patent that of course gave a very positive one-time earnings boost from that settlement. In business innovation, our greenhouse, We have orthopedics IT, which is one of them. Profitable growth, and it is just ticking along. A very large portion of our customers in imaging IT, which is bias, radiology, and diagnostic tools, they also want special tools for orthopedics. So that area is one of the areas where almost there is no license sales anymore. It is 100% recurring revenue in that area right now, or very close to 100%. Medical education, that is kind of a spin-off of our diagnostic tools. The medical field moves very, very fast. So you both need continued learning of medical professionals, but also we need to speed up the training of new nurses and new doctors. And we have very good tools. We can save and present medical images in such environments. That is our most Widespread sales, we have it almost all over the world, and also in areas where we do not sell the imaging, the diagnostic imaging parts. And genomics IT is a new area that is, it has a very large interest. We still only have one customer. It's been live for one year, but we're in the cash phase. So we are now, we will do in the next year, we hope to get a few more of these products, but it will take time before it begins growing. really fast. And research, then we have different research activities, both together with customers. We like to do common research products with our big customers, where of the university hospitals, but we also do things for decision-making and AI going forward. AI will influence the medical area a lot going forward. In digital pathology, example of a thing that we started in business innovation, we also celebrated just now 10 years with digital pathology. And medical is not the fastest of areas. You want it to be a little careful and conservative as a patient. But we are now a leading provider. We estimate we are the biggest digital pathology provider in the world. But it has taken 10 years. It started out as a business innovation product, as I said, and now a key part of our diagnostic imaging IT strategy. And we are more and more going forward, going towards having a few, one system solving all imaging needs for hospitals instead of hospitals need to buy a lot of small systems, which they do not like. They want to have as few IT systems as possible. It's also including the cloud offers in sector one, which is our kind of common framework for selling cloud solutions as a service. You have both radiology, you have pathology, you have all the other ologies in one single content. Sweden is today world leading in penetration. Almost all pathology departments in Sweden has begun using digital pathology. Not for everything. They still have microscopes, but they use it predominantly for histopathology, mainly associated with cancer. So we have a dominant market share in Sweden. Around 4 million cases have been diagnosed with our solution. It's a growth market, as most labs are still not digital. In the U.S., who's lagging behind Europe a little bit in this, the penetration right now is not large. By far, not even 50% of the market is sold. So imaging IT solutions in general, we have the ongoing transformation to software as a service, as I spoke about, heavily influencing both revenue and profits in that area. Right now, we're still in the transition, and we will be in the transition for at least one more year, one to two. Cloud recurring revenue in that area, of course, increasing rapidly, 51% up. And we have been winning increasingly larger contracts with the trust we have of being the highest customer satisfaction that we succeed in getting some very large customers to buy from us. We are now trusted, one of the few, very few trusted companies who can provide very large infrastructure. One such order that we are working with right now is all of the Quebec area in Canada. which is all hospitals in the entire province of Quebec. But there are more of those contracts. Many of those contracts, by the way, we're not able to publish who the buyer is, especially US hospitals are very reluctant to allow us to present the names. So we can only sometimes make anonymous press releases. And I'll leave the work to Jessica.