Sectra AB (publ)

Good morning and welcome to Sectra's year-end report presentation with CEO Torbjörn Cronander and CFO Jessica Franzén. My name is Helena Pettersson. I will be moderating the Q&A session after management presentation. The chat function is open from start, and you are most welcome to write your questions during the presentation. Management will address them afterwards. And with that, I hand over to you, Torbjörn.

All right, thank you very much. So we'll go through intro and highlights as a start. We'll do the financial development, and Jessica will do that. Jessica Holmqvist. And then briefly, I will go through a little bit of a way forward at the end. And then we have the Q&A sessions. You can do questions both via chat and email. And we'll reply to that and also some previously sent in questions that we got by email before the meeting. So our business operations, that's a short brief. Our largest business area, led by my excellent trigger, is imaging IT. That is management of images in hospital healthcare. Main part of that is radiology, but we have increasing other areas as well, such as pathology. We have ophthalmology. We have other operations as well in that area. We're becoming an enterprise imaging company there. By far the largest area where. Then we have secure communications, which is highly high security encryption systems for communications mainly. And that is managed by Magnus Skogberg. And we have good growth in that area as well. And then we have business innovation, which is our greenhouse, including research. We have an extensive research industrial doctorate student program. We keep at the very forefront and we have some business areas there that are not big enough to become a business unit itself, but are still interesting areas for the future. Those are in orthopedics, medical education, which is growing well, and we have genomics, a relatively new area with a high future potential. Highlights from the year. We have long-term recurring revenues going up. The contract order bookings went a little down, but we're still a ways above our turnover at more than double the turnover of revenue in order bookings. So we're not all panicked about that. Then we have, and I should point out that in order bookings, the orders are very large relative to our size. And that means that individual quarters and even years are heavily influenced by individual orders. When one order might be 25% of the annual revenue, it is not like selling a lot of small units. It's individual orders that come in. Net sales rose by 9%. And profit by share grew by almost 20%. And the cloud recurring revenue, which is our big growth area when we transform into as a service, software as a service model, grew by 55%, which is now increasingly a very large portion of what we do. And recurring revenue as a whole, which also includes the cloud recurring revenue. But in addition to cloud recurring revenue, it includes the whole service contracts and more type of that, which is not related to the SaaS model that grew by 19%. And the main part of that growth is, of course, the first one, the cloud recurring revenue. And then we have churn. If you're on a service model, you don't want to lose customers as they pay per procedure. and we have a very low recurring revenue churn at 0.5%, which is a very important figure to look upon if you compare to the first ones. The financial targets for the group are equity, assets ratio, a measure of stability. We sell into areas and customers who do not want us to cease to exist. The medical informatics solutions we sell are named to be the most important IT systems of hospitals. If the management of radiology stops, most of the modern hospitals come to a grinding halt. You don't buy that from three guys in a garage, you buy it from someone you trust. And that trust comes both in other references and other happy customers, but it also comes from financial stability. And our target there is 30% of equity assets ratio, and we are well above that, 48%. Despite that, we also increased the dividends for last year. Profitability, which is a second prioritized target, is margin. We have a margin target of 15% and we're well above that at about 20. These two first are hygiene measures. Increasing margin can only do once, but growing profits it can do forever. So stability, profitability, when these are fulfilled as hygiene measures, and they are, then the main goal of the company is growth of profit per share. We measure that by EBIT per share growth over a five-year period. That should be above 50%, and we are well above 100%. Once again, we're ranked number one in customer satisfaction. When you have such a high-trust business as we are in, what other people say is very important. And we have now had the 13th year in a row in the United States and large hospitals. We have been named the system in our business, which customers are most satisfied. Seventh year in a row in Canada and in global packs, which are other areas in Northern Europe. We have the happiest customer in Southern Europe. We have the happiest customer in DACH, which is a very large portion of Middle Europe, Middle East, Africa, and Oceania, which is Australia, New Zealand. We also have the highest customer satisfaction of all vendors in our business. And these are important things when you're in such type of business as we are. We also towards the end of the year acquired an AI company. We have said before that we do not normally do AI in-house, but this one is a little bit different. This is not AI just assisting a doctor. It's a system that is approved in Europe for autonomous AI. And if an AI can do at least high confidence normals, when the suspicion or the probability of disease is very, very low, but you have to go through a very large amount of images, you can actually, in some cases, replace a doctor all over. And that means real savings for the hospital. Just to have another measurement for the doctor who needs to review an image anyways, that is not really saving. But if you can take the doctor away for some exams, That's really savings and that was the main reason why we acquired this. Lithuanian company located in Vilnius. Very competent people and we are very happy to have them in the group. There is no material impact on the group products 2526. This is a small company with small revenue, but it's strategically it is important for the future. In business innovation, we want a national wide agreement in Norway for education portal. And that was not for universities. We've mainly been selling in universities earlier, but now medical doctors are becoming like us engineers. What I studied when I was in engineering school is by far obsolete. The only thing that's still valid is probably the math. But in a So the half-life of knowledge of an engineer is short. You have to be a continuous learner for life. Medical has become such. Also medical professionals in hospitals and working all over the world needs to keep up to speed of what's happening in the field. So they need continuous education. And the nationwide agreement in Norway is for pathology, And radiology, all over Norway, so all Norwegian doctors will be trained, continuously trained on our solution that is nationwide. That is, we hope, a good example and reference going forward because we think this will be more and more important to have continuous education of medical professionals because there is a new article every week for something that is important for them. And you need to have a organized training for that. In sector communication, we had a very high revenue for Singly Porter. We are growing in a way because of a sad reason. There is a war going on in Europe and that has driven security concern and defense concerns all over the world. And we are doing encryption, which is very important to keep secret secrets. And with the inclusion of NATO, we hope to have a larger market going forward as well. But we have a lot of growth in that area. We also do civilian defense encryption systems. In financial development, I will leave the word to Jessica.

Thank you. Good morning and welcome to our call. We are happy to report solid financial performance for the full year and the fourth quarter. And as usual during our presentations, I will guide you through the key financial metrics, starting with order intake. We see sustained demand for our offerings. Full-year contracted order bookings amounted to 7.6 billion, surpassed only by last year's record high order intake, which was driven by the 3 billion Quebec contract. Our rolling 12 book to bill ratio is 2.2, and we have seen strong order inflow across our geographic markets. with North America leading and solid contributions in Sweden and in the UK. Our fourth quarter order intake amounted to 1.6 billion. Not a bit down versus the comparable quarter when we signed several larger US contracts. And this again confirms quarterly volatility in our order bookings. Net sales for the full year amounted to 3.5 billion, corresponding to a growth rate of 9.3%. The SaaS transition drives recurring revenue, which increased by 19%, whereas our non-recurring revenue declined by 7%. And I point out again that the cloud recurring revenue grew by 55% to 960 million. Currency movements impacted sales negatively, with the US dollar, the euro and the British pound all weaker against the Swedish krona than in the comparable period. And adjusting for currency effect, sales increased by 16.5%. And high customer satisfaction is reflected in our figures. with a low recurring revenue churn of 0.5, rolling 12. Fourth quarter sales increased by 13%, and for the first time, quarterly sales exceeded one billion. All operating areas increased sales year over year. In imaging IT, The drivers are increased usage of our services and continued deployment at additional sites. In this area, we report close to 76% recurring revenue for the full year. In secure communications, we increased sales by 11% to 453 million. The fourth quarter was strong despite product delivery delays. with sales reaching the highest level ever for a single quarter. And in business innovation, where we include orthopedics, medical education and genomics, the performance is driven by growth in our medical operations business. All geographic markets report sales growth year over year in local currencies. We reported the highest growth in absolute numbers in the US, and Canada is the main market driving growth in rest of world. Please note that our year over year comparisons on operating profit exclude the non-recurring patent settlement recognized in 2425, which had an EBIT impact of 110 million. Excluding that, our operating profit rose by 16% to 711 million, of which 209 million was generated in the fourth quarter. Profit growth is seen across all three operating areas. And the margin was improved to just above 20% up from 18.9 the year before. And this is driven by higher volume, cost control, and more capitalized work for own use. Imaging IT delivered a strong finish to the full year. Operating profit increased by 25%. And the margin is just about 23%. And the drivers are the same as mentioned previously, increased use of increased usage, new, more deployments, deployments of new customers and add-on sales. And combined with cost control, this resulted in profit growth and improved profitability. Secure communications operating profit increased by 24%, and the margin was 17.6%. Throughout the year, we have seen the impact of delayed product deliveries, but nevertheless, the fourth quarter was strong through both growth and efficiency improvements in underlying operations. Other operations, we report a larger operating loss than in the comparable period. And this is mainly due to employee profit sharing recorded during the fourth quarter. Cash flow from operating activities amounted to 1 billion 78 million. for the full year, of which roughly 500 was generated in the fourth quarter. And the strong cash flow generation comes from profit growth and also from increased short-term liabilities related to advance payments from customers. And given the cash flow generation and the overall financial position, Our board and CEO propose an increased ordinary dividend of 130 per share, and an extraordinary dividend of one krona per share for approval at the annual general meeting in September.