Sectra AB (publ)

Good morning and welcome to Sectra's financial report presentation with CEO Torbjörn Kronander and CFO Jessica Holmqvist. My name is Helena Pettersson and I will help moderate the Q&A question after management presentation. The chat function is open from start and you are most welcome to write your questions during the presentations. And with that, I hand over to you, Torbjörn.

All right, and good morning. We apologize, we had some IT issues here this morning, so this is not done in the normal professional way, but we are fixers, so we do it in this improvised way instead. So, six-month report. I will begin with the intro and highlights, and then Jessica will talk about financial development, I'll talk a little about the way forward, and then we have a Q&A session in the end. Highlights of the quarter. We have business in imaging IT, our largest business unit, business innovation, and secure communications. And business innovations is our greenhouse. And the big, too big, I think people know that we have... We have education IT, which is used for education of medical and veterinary staff and students. We have orthopedics IT. We have our fairly new genomics IT. We have research department. We have IT security for critical infrastructure, increasingly important these days. We have digital pathology and integrated diagnostics, and the two latest here are done in secure communications and imaging IT. And then we have added a new, and that is diagnostic reporting adapted for the US market. And I'll come back to that later. Second highest contracted order booking for a single quarter ever. The last year Q2 was even larger, but it's a very high order intake. We are in the transition to as a service model, and we have also launched several new innovative products. Hypercustomers drive growth. We have contracted order bookings decreased a little bit, but we're still second largest, as we said before. Net sales increased by 9%. That is affected by the transition to as a service model. The initial license sales are not many and none such in the US and Canada. And then we have profit by share, which has increased by 49% to 130. We are in the transformation to as a service model, especially medical. Our cloud recurring revenue increased by 61%, and now this is beginning to yield significant contribution because we are starting from an already fairly high number. Recurring revenue, of which cloud recurring revenue is a part, increased by 18%. This includes also old service contracts on the old service model. But the growth is explained by the growth in cloud recurring. And then churn recurring revenue, so important if you have as a service model, continued to be very, very low. It's 0.5% over the last 12 months. The financial targets for our group are in order stability and measured in equity assets, they should be above 30%. It's currently around 51% despite a quite large dividend given in the Q2. We have profitability, which we consider a hygiene measure. It should be about 15%. We are at 21%. Note that the probability of this quarter is due also to some temporary effects that is not recurring. And then we have the third goal that is our main financial goal. That is a growth of EBIT per share over five years that should be above 50%. Its ways above that are currently 109%. And if you include the patent settlement, it's even more than that. Patent settlement was done in Q4 last year. We have won several large contracts in Q2. In Sweden, we have won a large region of Stockholm and Gotland. These were, in most of the cases, our customers already, but they have now gone over to a software as a service model. And we've added a few hostels that were not in the project before. In the UK, we've got another four NHS healthcare regions, Blackpool, Lancashire, East Lancashire and Morecambe Bay. In the US, we have a large healthcare provider to implement sector one cloud at 11 hospitals. These contracts in the US are large because the customers are many, or the hospitals are many in each of these contracts. We have also a new planning tool for advanced orthopedic trauma surgery. This planning tool we've had a long time, but we've added more libraries from the large prosthesis manufacturer. These are used to plan operations so each patient gets the correct size of its prosthesis. And this was historically done in 2D, but we today do it in 3D. It's very important for us to be good with the customer's customer. And orthopedics is the largest customer of radiology all over the world. The planning tool now covers almost 80% of all templates for orthopedic chroma surgery in the world. And the patients, of course, benefit from getting the right size and correct prosthesis or metal operated in the surgery operation. In sector communications, we launched a version of our secure phones that is not formally approved. It is very similar to our formally approved phones, but they do not require such extreme carefulness with key distribution, etc. It's intended for industry and users that are not as forced to use the restricted and secret level. It's called SecraTiger E for essential. It's a managed service and a new customer offering that we have seen a lot of interest for, for people who are not required to have the absolute highest approval levels, but still are very careful about not being eavesdropped. Security service, support smartphones and tablets, which is important. It's hosted and it's sold as a subscription model and Europe. After the quarter, we have last week or two weeks ago gone to a, the world's largest radiology exhibition, Radiological Society of North America in Chicago. We have a record number of demonstrations and that was despite that we had low international attendance in this show. Normally a lot of Canadians and Europeans come to the show. This year that was substantially down and we had few people coming from Europe and also few people from Canada. So it was mainly US customers, but we still had more demonstrations than any year before. We had also a record number of visitors. We are now considered leading the way as the most innovative PACS company with the highest market growth. And the highest market growth is proved by class numbers, as we have shown in previous presentations. The new products we show was the new reporting tool adapted for the US. Photon counting CT viewing, which is a new modality. computer tomography has existed a long time, but photon counting is new. And we are the only Pax company who now can display those very important images. And users do not want to go to another workplace when they display that. They want to sit at the normal workplace and see these images, and we're the only company that can do that currently. We have enterprise imaging genomics leading, having a lot of interest and education portal as well. And our new cardiology viewer adapted, especially for cardiac ultrasound. We also showed many other new features. The new USA reporting tool is a version of the reporting tool we've had many years adapted for the US needs, which is quite different from European needs. Reporting is a very important part of the diagnostic workflow. And to have that integrated in the PACS is a very important step for us. And we hope that we bring some business coming forward. Then I'll leave the word to Jessica.

Thank you. Good morning and welcome to this part of the presentation. Our six-month report shows strong order intake, solid growth, and increased profitability, and our cash flow development also continues to be positive. The demand for our offerings, both in medical imaging and cybersecurity, remains high, with contracted order bookings of 4.7 billion in the period, a decline of to present year on year despite the strong inflow as the comparable numbers include the 12-year contract with Quebec amounting to 3.1 billion. Our book-to-bill ratio is at 2.6 and the second quarter order intake included several orders in North America the region Stockholm contract and another sector one cloud contract in the UK, as you heard from Torbjörn's presentation. And secure communications received orders for additional Tiger S and extensions for managed service contracts during the second quarter. Net sales in the six-month period amounted to 1,616,000,000, an increase of 9% year on year. There is negative impact from currency on our sales. Adjusting for that, sales would have grown by 16% in the period. And the recurring revenue keeps growing, up 18% in the period, and the cloud-recurring revenue part is up 61%. This shows that we are now starting to see customers from the large orders secured in recent years gradually go live, still on a small scale this fiscal year. The non-recurring revenues are declining year on year, all according to expectation and as a consequence of the transition to cloud-based software as a service. The second quarter sales increased by 13% to 851 million, driven by the growth in our medical operations. Imaging IT reports sales growth of 12%. despite the currency headwind. And the use of imaging services grow through deployment of new customers, add-on sales, and also existing customers converting to cloud services. There is strong growth in cloud recurring revenue, up 63%. This shows we are moving in the right direction though we have many customers remaining to be deployed over the coming years. Secure communications sales declined 7% year on year to 184 million. This is a result of a delay in an ongoing development assignment, a delay caused by revised customer requirements. The fastest growing volumes were noted in the US, which reported by far largest sales growth in the period. The UK report growth in local currency, but not in Swedish krona, and the same applies to the rest of Europe. In rest of world markets, we also see growth and that is driven primarily by the sales development in Canada. Our operating profit increased by 47% to 307 million and the margin was strengthened to 19%. Topline growth and higher investments in capitalized development are the main drivers behind the profit improvement in the period. In the second quarter, profit was also impacted by customer compensation for delays, delays which were not caused by SECTRA. And we also have the impact of lower costs for our share-based incentive programs due to the share price trend in the quarter. Imaging IT increased operating profit by 54% and reported a rounded margin at 21%. As I mentioned on the previous slide, increased sales and more capitalized work for own use are drivers behind the profit improvement, also lower consultant costs year on year. We continue preparing for large deliveries and we will carry initial implementation costs that are expected to dampen profit development near term. In secure communications, the operating profit declined by 44% and the margin is just below 11%. And again, I repeat, it's mainly explained by delays in an ongoing development assignment and the associated product deliveries with that development. And this delay is expected to impact the outcome for the rest of our fiscal year. Cashflow from operations. amounted to 160 million in the period. And there was strong profit growth driving the cash flow, partly offset by settlement of current liabilities. We have been utilizing the advance payments received in previous periods. And in the second quarter, the cash flow was also impacted by increased capital tied up in current receivables. as there was increased invoicing activity towards the end of the quarter. And with that, I'm handing over to you, Torbjörn. I don't know what's not working now, but... We have a little issue here.