Welcome to CTT Q4 2024 report presentation. For the first part of the presentation, participants will be in listen-only mode. During the Q&A session, participants are able to ask questions by dialing pound five on their telephone keypad. Now I will hand the conference over to CEO Henrik Höjer and CFO Markus Berg. Please go ahead.
Good morning. Welcome to CTT's Quarterly Earnings Call. I'm Henrik Höjer, and with me today is Markus Berg. We will present the Q4 financials and then present the outlook going forward. Starting with business highlights in general, we can report a solid quarter with stronger development in all three product areas. The OEM market is gearing up, driven by increased aircraft production rates. Boeing made progress on working through production recovery plans for heat exchangers and delivery delays associated with seat certifications. The 787 program ended the year at a production rate of five airplanes per month and announced plans to expand facilities. The private jet market is driven by the successful cooperation with Airbus Corporate Jets. We received the second ACJ 330 NeoKit system order in Q4 and started development together with Airbus Corporate Jets and PMV in October.
ACJ placed orders for one ACJ 320 NeoKit, delivered in Q4. The anti-condensation retrofit continued to resurge. The momentum in Q4 continues. We have started 2025 strong, with leapfrogging OEM deliveries as Boeing resumed to take 787 deliveries at actual build rate pace. And further, we have won orders amounting to approximately SEK 130 million in total. We have received orders for three enhanced in-flight humidification system kits for the ACJ 320 Neo, total order value of SEK 8 million. As previously announced in a separate press release in January, CTT received an order for 146 A321s with options for another nine from a leading European LCC. Total order value based on list price is approximately SEK 120 million. This is CTT's largest single order ever. Let's move into the financial performance for the quarter. Net sales increased 1% to SEK 82 million, and operating profit, EBIT, increased SEK 2 million to SEK 34 million.
The EBIT margin was 41% versus 39%. CTT generated operating cash flow was SEK 16 million. Earnings per share decreased 12% to SEK 1.93 versus SEK 2.19. Net sales increased SEK 1 million. Private jet revenue increased SEK 7 million, driven by the project development of the first two ACJ 330 Neo systems, plus order and delivery of one ACJ 320 NeoKit system. OEM sales increased SEK 1 million despite only limited deliveries to Boeing, below actual build rate content due to the general inventory reduction at Boeing for the 787 program. Aftermarket decreased SEK 7 million due to strong comparable quarter in 2023. Breaking down total sales, aftermarket sales accounted for 75% of total turnover. I now hand over to Markus for more in-depth finance.
Thanks, Henrik, and good morning. I will start with the EBIT bridge. In Q4, EBIT amounted to SEK 34 million, an increase with SEK 2 million from SEK 32 million in Q4 last year. We had SEK 8 million in positive EBIT impact from currency effect, offset mainly by SEK 5 million in negative mix and price effects. Let's move on and look at the cash flow. Operating cash flow amounted to SEK 16 million, compared to SEK 30 million last year, driven by financial performance, EBITDA adding SEK 35 million. Cash flow is lower than last year, mainly due to negative working capital, minus SEK 10 million, an effect of low sales in Q3 and late deliveries in Q4. Cash increased SEK 15 million to SEK 69 million. Let's continue by looking at the net debt. Net debt amounted to minus SEK 25 million, compared to minus SEK 76 million in Q4 last year. Cash closed at SEK 69 million.
In addition, CTT has SEK 53 million in available credit facilities. Equity ratio at 74%, compared to 75% in Q4 last year. Return on capital employed continues to be strong at 33%. All in all, CTT has a solid financial position with net cash. Let's move on to the full year numbers. Net sales for the full year of 2024 decreased 3% to SEK 300 million, compared to SEK 309 million, mainly lower due to a tough comparative year for the aftermarket. EBIT decreased 5% to SEK 113 million, with an EBIT margin of 38%, same level as 2023. Cash flow amounted to SEK 66 million, compared to SEK 117 million last year. Earnings per share amounted to SEK 6.82, compared to SEK 7.62 last year. Next slide, the proposed dividends. Strong finance enables CTT to continue to divest capital to its shareholders and, at the same time, invest to leverage our leading market position.
The board of directors proposes an ordinary dividend of SEK 5.35 per share, same level as the ordinary dividend 2023. In total, SEK 67 million or 78% of earnings per share. I will now hand back to Henrik to give you the outlook.
Thanks, Markus. Before presenting our business outlook and market drivers, I will start with the guidance. In Q1, we foresee a sharp but temporary sales drop to SEK 50 million-SEK 60 million, based on the assumption that well-stocked distributors will lead to few orders to CTT. The underlying end-of-market demand for consumables is growing as expected, but distributors can, to a large degree, supply airlines with consumables without placing new orders. CTT consumable deliveries will therefore be significantly below end-market demand. Spares demand is more volatile and harder to predict due to short lead times and lumpy orders. On the back of an unusually strong demand in 2023 and 2024, CTT had a year-on-year decline in Q4, and we foresee that to continue into the first half of 2025. CTT's weak financials are transitory, and the rebound is expected to be swift.
A positive development in Q1 is expected in the OEM business, driven by a jump as Boeing has resumed to take deliveries from CTT that reflect aircraft build rate content. Private jet revenue is expected to remain at the same level as in Q4. Today, I will spend some time explaining our product areas more in depth. I start with the aftermarket. CTT's aftermarket constitutes total demand for consumables, spares, and repair. End customers are aircraft operators, such as airlines. The end-market demand or the underlying demand is aggregated volumes from all operators. CTT has close to 70 airlines as customers. CTT has an indirect model and sells only through distributors. Distributors have inventories and sell directly to the end market. In other words, CTT's demand can from quarter to quarter see variations and deviate due to inventory adjustments at the distributors. Over time, CTT's demand shall mirror end-user demand.
If looking at the end market for consumables, spares, and repair, consumables demand is linked to total flight hours for the entire product population in service. Airlines need to replace pads and consumables after 4,000 and 6,000 flight hours. By nature, demand for consumables is stable, with good visibility and predictability. In 2025, the growth rate is predicted to be single-digit. Spares demand is more sluggish, driven by the first delivery to a new airline or when airlines grow fleet over certain hurdles. CTT is the sole supplier. Repair business has short lead times, but we have a large installed base, so although visibility is limited, we have good predictability. When entering into 2025, CTT's distributors are well stocked. CTT's demand will be temporarily lower in Q1 into Q2.
The end-market demand for consumables is stable, and we will steadily reduce distributors' inventories to a balance that will restart generating orders to CTT in Q2 and Q3. In the spares business, we always have cyclical demand and expect to reach bottom in Q1 and gradually see an improvement back to normal demand in the second half of the year. In other words, CTT's weak aftermarket sales are transitory, and the rebound is expected to be swift. The reasons behind the aftermarket volatility between quarters are rippling effects that go back to buying patterns that have changed several times since the pandemic. CTT's aftermarket boomed in 2022 and 2023, driven by pent-up demand and safety stock policies. In Q3 last year, we could see impact from destocking, deriving from a general trend when airlines reduced general safety stock of aftermarket products built up in 2022 and 2023.
We can also see that some airlines have shifted buying behaviors towards fewer but larger orders, driven by changes in airlines' procurement that favor bulk ordering, or channelization to distributors that aggregate volumes from many airlines, either via total component supply agreements or pooling consignment stock arrangements. We are working with our aftermarket distributors to adapt and improve customer value as well as visibility and measures to reduce order volatility between quarters. We should be able to better smooth out order flow from consumables. The past quarters are definitely not good, revealing that we have room to improve how we work closely and together with our distributors. To wrap it up, demand for consumables is predictable with stable growth. Spares demand will always be more volatile and harder to smooth out. That will always lead to some variations in sales between quarters.
Finally, we expect that aftermarket sales in the second half of 2025 shall return to the same level or higher compared with 2024. The growth rate in 2025, based on an increase of production service during 2024, is expected to be single-digit. The best platform for growth is OEM contracts with high aircraft manufacturers such as Airbus and Boeing. CTT is the sole supplier of humidifiers for all three most modern widebody aircraft. Order backlog for widebodies is at record high. In total, 2,013 A350s, 787s, and 777Xs are on order, compared to the 1,803 delivered so far. Total build rate for all three models is currently at 12-14 per month. In 2024, both Airbus and Boeing had issues with heat exchangers and seats.
Boeing reported in Q4 earnings that it made progress on working through production recovery plans for heat exchangers and delivery delays associated with seat certifications. And Boeing is still challenged in getting through some certification on new types of seats on 787. Problems are on a customer-by-customer basis. Boeing is ensuring that the production system and the supply chain stability prior to making the next increase in rates sometime this year. Medium term, Boeing recently announced plans to expand their South Carolina operations, preparing for anticipated future need. Boeing targets to increase build rates from 5 to 7 in 2025 and elevate into 10 in 2026. Boeing is working towards 777X certification in 2026, with first delivery to Lufthansa. Airbus is at 6 A350s per month and targets 10 in 2026 and 12 in 2028. The outlook for CTT's OEM business is strong.
CTT OEM sales will jump in Q1 2025 when correlation is restored between our deliveries and aircraft build rates. The addressable market is expected to continue to grow in 2025. CTT's growth pace primarily depends on Airbus and Boeing's ability to scale production and deliver widebody aircraft. More new-built aircraft will drive CTT's OEM sales. In addition, CTT aims for an even higher growth rate by improving ship set content. CTT will already in 2025 start to recognize sales impact from higher A350 selection rates. In addition to line-fitting the flight deck humidifier, A350 operators to a greater degree now select humidifiers on crew rest and business class. This will gradually result in a higher average ship set value on new-built A350s. The private jet business, VIP and large cabin business yet. In VIP, CTT has emerged as the sole supplier of humidification systems.
CTT has delivered cabin humidification systems for 113 private jets. The private jet business is heading for a strong sales survival. VIP pipeline is at record high, growth via higher penetration on narrowbody VIPs and entry into large cabin business jets. Airbus Corporate Jets is front-running by promoting humidification for ACJ 320 family, the ACJ 220, and the ACJ 330. A top priority for CTT is the large cabin business jet market. As stated before, we need to be endorsed and included in the offerings by the OEMs. As you can see on the picture, we continue to address Boeing business jets, Bombardier Global, Dassault Falcon, and Gulfstream. We did not meet our target in 2024 to close a new OEM contract in private jet. We are not yet there, but I can conclude solid progress together with Liebherr towards Bombardier.
Additionally, we are in contractual phase with another private jet OEM. We offer our both cabin humidification and anti-condensation system for retrofit installation. We sell direct and together with Collins Aerospace. The anti-condensation retrofit business continued to improve in the quarter. In January, CTT received an order for 146 A321s with options for another nine from a leading European LCC. Total order value based on list price is approximately SEK 120 million. In addition, CTT has outstanding quotations for total order potential of approximately 350 aircraft. We stick to our strategy, and I'm more convinced than ever that we will see a revival. As stated before, long-term, the key enabler is OEM availability at Boeing MAX and Airbus Neo family. Our strategic focus is on retrofit customers to drive and put pressure on Airbus and Boeing.
As part of the strategy, we managed to convince the first airline to moisture-protect new aircraft from Airbus. Jet2.com and Transavia are in transition from all Boeing fleet to introduce new Airbus A320 family aircraft. Previously, the CTT anti-condensation system line-fitted as BFE in their new Boeing 737NGs. This is not yet possible at Airbus. Instead, our first retrofit window will be at C check. We will, in parallel, together with them and other airlines, try to convince Airbus that it should be possible to install our green tech system in new aircraft before delivery, either as line-fit or provisional for post-delivery modification. As part of this effort, we have a field trial with a major low-cost carrier in six A321s.
We are in the beginning when we start to benefit from favorable market dynamics when airlines to a greater degree define aircraft with humidifier on board business class in new aircraft. The 787 program, CTT has a high penetration in flight deck and crew rest, but it's not possible to line-fit business class. We expect airlines to demand same premium cabin climate performance in 787s as in A350s and Boeing 777Xs, where cabin humidification is available as an option. The market is approximately 1,000 aircraft. The A350 program, most of the A350s leaving factory from 2025 and onwards to new operators will have humidification in flight deck and crew rests, and to a greater degree in business class. Early in the program, airlines from various regions did not select the system.
The first A350s are reaching nine years in service, and cabin retrofits, which is now starting, will rapidly gain momentum over the next few years. Since 2014, more than 600 A350s have been delivered, and Airbus is anticipating the first cabin retrofits, which typically occur in aircraft that reach eight years of service. By 2028, there will be around 400 A350s that will have reached this age. Retrofit on Boeing 787 and A350s requires cooperation with Boeing and Airbus. We are approaching both. In 2024, we have made progress with Airbus. We are part of the A350 retrofit catalog, and Airbus is promoting humidification. To summarize, the sales drop in Q1 into Q2 is sharp but transitory. The aftermarket is stable and growing at single-digit pace in 2025.
Distributors' inventories will steadily be reduced to reach a balance that will start generating end-market-driven demand in Q2 and Q3, with a normal order flow to CTT. CTT's weak financials are consequently transitory, and the rebound is expected to be swift. In parallel, we can see evident signs of stronger markets in all three product areas. In 2025, we therefore expect significant growth in both OEM and private jet, and we will deliver the first retrofit system in years. I'm also confident confident that we are, during the year, shall be able to close agreements in private jet and to win additional retrofit deals. I now hand over for Q&A.
If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad.
The next question comes from Karl Bokvist from ABG Sundal Collier. Please go ahead.
Thank you. Good morning. My first one is on the commentary here regarding the aftermarket sales. So the Q1 guidance, I hear that. And then when you talked about an expectation of single-digit growth for a full year, I understand where that's a bit far out in time, perhaps to talk about Q2, Q3, Q4. Based on the inventory destocking and so on, I mean, to get to single digits, that would, if we just assume H2, that would mean quite a lot of sales above the 2024 levels. I'm just curious to hear how you think how long this destocking process will remain.
Good morning, Carl, and thanks for the question. And as we said, the destocking, we we gradually expect to disappear in Q1 and into Q2.
Q1, definitely, and part of Q2, but not the full Q2. That is how we see the destocking effects. And then when it comes to to the aftermarket growth and the single-digit growth, that is when we calculate the underlying demand on the market.
Understood.
That answers your question.
Great. Yes, yes, it does. But then on the on the kind of when you mentioned here on OEM, the leapfrogging deliveries and so on, just to understand how you view the lead times now in terms of system deliveries when they are stepping up production rates.
So when it comes to OEM and the programs, i mean what we now, we had to recap 2024. We had destocking effects on both the A350 program during the first half of 2024, and then the second half, Boeing did the same and did did a restocking.
When we now enter to to to 2025 and Q1, we see that we again mirror the build rates at at Boeing and Airbus. And and I think as an example, in Q4, we mentioned that our sales to 787 was approximately SEK 1 million below actually ship set value for the quarter. And that is the leapfrog that we see happening now that we get that million back. And then and then as I said, Boeing is now at five. They will go to seven during the year and then ten in 2026. And and Boeing Airbus has previously said ten in 2026 and twelve in in 2028. So so that is what we see as the growth potential there.
Understood. And then on just to stay on the system sales here, now we talk a lot about deliveries, but has there been any changes in pricing of these ship sets, i.e., to combat inflation?
Currency is one thing, of course, but either annual price adjustments due to inflation or in preparation of tariffs or whatever it may be.
Just to keep the answer simple, I mean, both with on both the OEMs, Airbus and Boeing, we have very long-term contracts that run over over a long long period with fixed prices. So between 2024 and 2025, there's no price adjustments.
Understood. And then on the VIP private jet side, yeah?
I just missed one thing when I talked about the jump on the 787. I missed the currency effect. One million should be $1 million. So there's no misunderstanding on it.
Understood. Understood. But on the delivery schedule on VIP private jets here, and you expect it to be similar to Q4. And then you you said also in the report there that you booked orders in Q1 2025.
And the kind of similar sales on private jets in Q1 compared to Q4, are very are those deliveries based on the order you received in Q1 as well? Or is that more towards you know the rest of the year how we should think about sales to private jets?
All all the orders will not be delivered in Q1, but some of them. And then we also will continue working on the on the orders that we received last year.
Good. I'll get back in the Q. I have a few more questions, but I'll lower my hand. Thanks.
As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. The next question comes from Karl Bokvist from ABG Sundal Collier. Please go ahead.
All right. Hello again.
Just on our curiosity, I mean, based on the news we hear, it seems like Boeing has perhaps had more issues than Airbus. So just when we think about deliveries into 2025, would you say that you know does it make any difference, so to say, if Airbus has better momentum than Boeing or vice versa?
That's a good question, Karl. I mean, we've we've been historically very, very dependent on the 787 program, but with with Airbus being very successful, and right now, I mean, they are on five to six per month. Boeing is on five. Ship set content is is increasing on A350s. So for CTT, I would say both programs are equally important, and and it's it's, as we said, very important for CTT that they manage the ramp-up, and and I'm kind of sharing for both to be successful.
Understood. And then a question to to Markus on the on the financial side.
Both I mean, it it looked like it was a quite unusually a big effect from revaluations in currency, at least when I compare to FX fluctuations in previous quarters. So was there anything in particular that stood out this time around or something that you think could lead to bigger quarterly volatility in currency going forward too?
Good morning, Karl. Actually, nothing unusual. I mean, the the currency rate, US rate, was really strong in the fourth quarter. I mean the closing closing balance was 11.0, actually. If you compare that with a year ago, the US dollar was close to 10. I mean, it is more or less a 10% difference. So I mean this year, we had, or the last quarter, we had about SEK 3 million of positive currency effects from revaluation of the accounts receivable. And L]last year, it was minus SEK 3 million, so the other way around.
So I mean If you compare that to to a quarter a year ago, that will be a big difference. But currency is always difficult to forecast, so we will see what happens in 2025.
Understood. And then on the on the cash flow side, I mean overall and over time, this has not been any kind of material concern. That the build-up in working capital, I think we we had a similar situation about about a year ago or so, I think. So the the build-up, is that you know payments you expect to receive already in in the quarter we are now, or is it something that will be recouped more perhaps in Q2 or Q3?
I mean with with weaker sales in in the first quarter, we will have a weaker cash flow, but it will be as you say, it will be much better in the second quarter and third and fourth quarter.
So we will soon be back to to a better cash flow again.
Understood. And then finally, I know I know on the aftermarket side, you do flag the impact on mix from that business. But if we go now into this year and we have a bit higher share of revenues stemming from the the VIP private jet side, how would that part of the business you know impact group profitability?
Well, we will not comment our gross margin and profit from the different product areas. But of course, as you know and have seen before, the mix will affect a lot, and we will have a mix this year with more system sales. So that means that the margin will be a little bit lower, 25, compared to to before. But that you already knew and that is a part of our long-term plan as well.
Understood.
I think that's all from me from me here, apart from just the final one being the the the commentary you made on the private jet side here about you know being in discussions or contractual or in a contractual phase, I believe was the wording. Is it possible to say how long is a contractual phase typically? How long does it typically take before it either actually materializes into something or if if the fortune is not in your favor that it doesn't?
Yeah. Thanks for the question. How long is a rope? I mean, as I said during during the call, we actually missed missed our our our forecast that we should close at least one private jet contract in 2024. So that's a misjudgment from from from our part. And then nothing has changed. It just takes longer than we thought.
And I'm not I'm not predicting anything more now, but but I'm saying that we are in in in in those contractual phases with with with two two different private jet suppliers. And hopefully, we can conclude them as quickly as possible, but but it's not really in CTT's hand to to push the timetable. We we we are fast on our side, but we are talking with big OEMs, and and they are usually a little bit slower than us, and we have to adapt to their speed. Very vague answer, but that's the best I can give you.
Yeah. Understood. As a follow-up to that one, maybe what I was actually after when I when I hear myself asking you the question, you know if you reach a contractual agreement, how fast can you begin deliveries to that customer?
That's also a a difficult question since it's not only up to us, and it it depends a little bit on the setup.
But I would say if if we have a very successful program, I would say that we are within a 12-month plus-minus timeframe, but it could also take a little bit longer, but then then it's more on the OEM side. But in both those two cases that we are discussing, we are very well prepared on on the technical side, I would say, and we have agreements on on how the system should be developed. Such should be for me, it's not it's not a big program. It's it's fairly straightforward. It's things we've done before. But certification processes are always hard to predict, and and that's going to be the time setter in the end. It's a lot easier for us to do this under under supplementary type certificates than it is to to do something new. So I'm not expecting huge problems, but but it takes some time. So say plus 12 months, that's that's my best guess right now.
Understood.
And then now just one more I realized, but that has to do with the retrofit opportunities. And we just to clarify, the kind of, I believe, 300-plus that you mentioned, they are outside of the order that you have already received. Are we interpreting that correctly?
Yes. Good question, and thanks for that. And I mean, we talked about 500 aircraft last quarter that we had outstanding offers for, and and now 146 kicked in. So then it is 350 left.
Okay. Okay. That is great. Thank you.
Thank you, Karl.
There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.
Thank you. And I would like to finish off.
And I would like to take the opportunity to point out that the growth conditions are unchanged and that underline underline that CTT successfully continues to deliver on the long-term strategy that shall generate strong returns to shareholders driven by OEM build-rate ramp-up fueled by massive order backlog of wide-body aircraft and improving ship set content, a stronger sales survival in private jet driven by Airbus Corporate Jets to be followed by other private jet business jet OEMs. And finally, we will deliver the first anti-condensation retrofit system in years, restarting the retrofit market. Thanks for listening and have a great day.