Ladies and gentlemen, welcome to the Sectra Q1 report. For the first part of this call, all participants will be in listen-only mode, and afterwards, there will be a question and answer session. Today, I am pleased to present CEO, Torbjörn Kronander, and CFO, Mats Franzén. Please begin your meeting.
All right. Thank you very much. This is Torbjörn Kronander, and we will start the presentation, and I will say next slide when you have next slide. Also, please note that you can email questions to us, and you can also come in with questions at the very end of the presentation. I will start. Next slide. The value we create for customers at Sectra, we have a short recap of what we do at the company. Imaging IT is mainly taking care of images in hospitals. Parallel to the electronic medical record systems, images are handled in huge numbers in modern healthcare. We take care of those. We start with radiology, which is still the largest part, but also introducing cardiology and pathology. We are unique in the world that we have all of those images in the very same system.
We have Secure Communications, which is our encrypting business area. That was original Sectra. Sectra stands for Secure Transmission. We are selling very high-end, especially mobile security solutions on the level where governments and authorities can trust them on the secret and the restricted level, and secret is the highest possible level. Then we have a greenhouse of things that might become big or a little greenhouse of things that do not really fit into the other areas, and we call that Business Innovation. In that, we have research, we have orthopedics, and we have medical education. Next slide. We work with increased productivity and focus on medical imaging and patient care. Productivity is key in the new area demographics, and increasing number of people who are not perfectly healthy. We are also increasing cybersecurity in society.
We are a little more than 800 employees in 14 countries currently. We also do a lot of research that contribute to a healthy and safer society long term. Next slide. Highlights from our Q1. We had a very strong growth in order bookings and cash flow, which is interesting. This is despite the COVID-19 situation that affects most of the world currently. We have an increase of two and a half times in order bookings for this quarter, and we had a good cash flow per share for the quarter. Normally, Q1 is slow on cash flow. The order bookings, though, we should point out that we have huge variations between quarters, and you shouldn't go too much extrapolation based on this. Individual orders might be, in some cases, very large and be spread out over a long time into the future. Next slide.
Our three financial targets are all fulfilled. These are in order of priority. Stability, we count that by equity to assets ratio, that should be above 30%. This is critical. We sell equipment and systems that are absolutely vital for our customers. They cannot buy that from customers that are not viable and stable financially. Trust is important, and the financial stability is, of course, also important for shareholders. We are at 58.1% equity to assets ratio. Second priority is profitability. We see this more as a hygiene factor. We have no lack of ideas and possibilities to grow, but we should at least do good business doing it. We don't want to get too low in profitability. We say target is 15%, and if we go above 15%, we should invest that money in growth instead.
We should be above 15%, and we are currently at 18% counting year back. Growth of profits, which is our prime target, even though it's priority three, is where we should invest that profit in, that we do not simply count as profit. We have there a EBIT per share growth target over a five-year period of 50% increase in EBIT per share every five-year period. We are currently more than double that at 102.3%. Everything is okay for these financial targets. Next slide. We should also point out that variation between quarters have increased further. It will decrease long term when we go into our new financial model, but we now have very large orders coming in from very large enterprises.
When these go live, we recognize the software part of them, which means the variation between quarters can be very large. We should point out also for the future, that looking on these historical variations might not be a perfect way of predicting us because the variation will probably increase in the COVID-19 situation and because we're also delayed by customers not allowing us to come for installations, and that delays everything. We don't know exactly how this will turn out, as no one knows when COVID-19 is going to end, when it finally will end. Right now, we don't know when. Next slide. As for COVID-19 impact, as that is a very hot topic all over the world right now. In healthcare IT, we see that exhibitions and travels are canceled.
Of course, exhibitions is short-term a gain because they cost money, and travel to them costs money. Long-term, it will impact future sales. We meet our new customers on these exhibitions, and it might affect us long-term. Now our order from first point of contact until we finally get the order is a long time. It might be one to two years, this might impact us in the future. We also delays in deliveries, as I mentioned before, due to restrictions for visits of financials to hospitals. For the large go-live, we need to have people on site. We can do smaller go-lives and upgrades, et cetera, remote completely. For the large ones, we need to go to the hospitals. Several hospitals, especially in the U.S., have just simply banned all visits from external people during COVID-19.
It's easing up a little bit now, but we still see these restrictions in place in many places. We also see that elective procedures are on hold, and that has a large impact on especially the privately operated hospitals, not the least in the U.S. Elective surgery or elective procedures is where most of these hospitals make the bulk of their revenues and profits, and especially if you have reconfigured hospital to be COVID-19 hospital, and then those patients don't even come. Of course, these financials of the hospitals are deeply into the red, and that has an impact on us. Not the least, I would say, especially on the Orthopedics Business Innovation area. Orthopedics is almost completely stopped in many, many countries. On the upside, we see tele diagnosis. Also, doctors want to work from home, and not the least in pathology.
This has been more or less impossible without digitization. We've seen increase in demand in pathology due to that. Pathologists would like to work from home. We also see it for other areas as well, where communication and home working has increased. We also see that post-COVID-19 patient imaging volumes may overwhelm hospitals long-term. That will drive demand for efficiency. If you have a slow IT system, because many of the incumbent systems are very slow and cumbersome to work with, then, of course, that drives a need to replace these systems for faster systems operate. In the cybersecurity markets, we see also that exhibitions and travel canceled with the same impact as for the healthcare IT. We see on the upside an increased demand for cybersecurity and mobile crypto solutions, mobile workplaces, not the least.
People working from home want to be secure. We see that cybercrime has increased during COVID-19. Of course, you want to sit at home, but be as safe as in the office, and then you need new equipment. We see an increase in demand there. Next slide. Highlights in Secure Communications. We have seen increased order bookings. We also signed a framework agreement with E.U. authorities for our encryption systems, which is very good because then we can sell all of the E.U. without procurement. We can also note that we still do not have adequate margins in Secure Communications, but we have done a lot of growth initiatives there, so that explains that things like that. Next slide. Our growth initiatives in Secure Communications is especially mobile secure workplaces.
People want to be on the move, people want to sit at home, and people need that to be as safe, as secure as if they were working in the office. This puts completely new demands on both systems and encryption links to the office from homes. We see critical infrastructure of society is vulnerable, and we see increase in demands of protecting electricity networks and distribution and also production, and also other energy sources. We also do high-speed network encryption systems for very high speed and very secure network encryption that demand is increasing. Next slide. Highlights in Business Innovation. First, I would say that we had a strong negative impact from COVID-19, especially in Business Innovation, and not the least in orthopedics. We see also remote medical training.
We had a very interesting collaboration with a few universities where all the medical students are at home. They are actually teaching them remote using our training systems, which before was only a virtual dissection table, but now also it's available on iPads and things like that. That has taken a huge leap forward. In orthopedics, we see Implant Movement Analysis, which is a way of diagnosing if prosthesis is stuck or not. That also had a hit by COVID-19. We see underlying work in that business being very healthy. Next slide. The trend in Business Innovation, Sectra Implant Movement Analysis, of course. As I mentioned before, we also can use more or less the same technology for research. Then, I mean clinical studies based on for prosthesis.
The clinical research studies for prosthesis is fixed on , has been very complex, and we have simplified that a lot. We also sell to these implant manufacturers for their studies. We call that CTMA, Computed Tomography Micromotion Analysis. In medical education, as I said before, we see cloud-based content subscriptions, and not the least for all the students of large universities. In research, we have a large focus for AI for medical applications. Next slide. Imaging IT Solutions. We have increased order bookings primarily in our largest markets. We have good trajectories, not the least in the U.S. We're also expanding our customer base in the U.S. and other markets, U.S. being the strongest.
We also seen that our largest orders to date, which was New South Wales in Australia, is now operational with the first hospitals, which is a very good thing that we are now live in the first part of this very large installation. Next slide. The growth initiatives in Imaging IT Solutions. We have new markets, direct and indirect, and the newest countries where the start of direct sales is France and Canada. Entry into new markets, very slow in a trust-based business as ours. You have to create references, and then you have to spread the word around. We have excellent new references both in France and in Canada for this. In enterprise imaging, which is what we say, taking over now, not only radiologically, but all the imaging for an enterprise.
We see digital pathology where we receive our FDA approval in the spring, and we've seen increased demand for that, not the least because of COVID-19 situation, as I said before. We also see an increasing demand for cardiology combined with radiology's imaging systems. We are focusing on the U.S. especially, that's the world's largest market. We top customer satisfaction, and we have a small but growing market share that spells opportunity for us, so we are concentrating on focusing on the United States. Next slide. I leave the word to Mats Franzén, our CFO, to inform about this.
Thank you, Torbjörn. Please go to the next slide. We see that as we have touched on previously, that all the bookings and the net sales have a bit of a diverse trajectory right now with a very strong order intake. It's concentrated to the, let's say, the big three geographies being the U.S., Sweden, and the U.K. As for net sales, we saw a contraction also adjusting for currencies. The currency situation we are now finding ourselves in is actually, I guess, the big difference from a purely financial external standpoint, really. This is the first quarter for two years. We have for eight consecutive quarters reported that the Swedish krona has grown weaker, actually, against our main three currencies, the U.S. dollar, the Euro, and the British pound sterling.
Now it's reversed in all three of those, which, I guess, comes as no surprise for anyone. Next slide, please. The pandemic effect to the site, it can be discerned, is mainly focused to the U.S. as has been previously touched upon as well within not cancellation, I would say primarily, but rather delays as it now stands. That also goes for some hardware refreshes that also has been postponed. I come to that later on, but we do see some interesting other movements in terms of cash flow that has actually gone the other way around. We do mitigate this quite significantly and in the short term, it's again, the trade fairs and the travels reduced significantly, way significantly.
In the long run, that's obviously not sustainable, I would think, even if we go to more of a remote-based, perhaps, environment, but that's yet to be seen. Deployment for new customers are more, I would say, exposed to COVID disruptions. That's for that. Next slide, please. The sales trend. We saw strong order intake, as we said, both for Imaging IT and Secure Communications. As for Imaging IT, it didn't only refer to the enterprise imaging or the PACS, the picture archiving and communication system generally, but also in cardiology and pathology. As Torbjörn mentioned, one important milestone was that we had two out of the 11 healthcare organization being operational in Australia and New South Wales, which is good to know that this is up and running now.
That order was signed in 2019, it's a 13-year duration on that one, so there aren't that big effect in the short term, obviously. The Business Innovation performance, you can see that it's the business incubator, the orthopedics and education previously touched upon. Aside from the generics of being quite a small operation with the volatility that comes with that, we also found ourselves in a product shift in both of these business lines. On top of that, we had the COVID challenges with a headwind as it now stands. With that, please go to next slide. The earnings trend, the net effect doesn't seem that big, but it's an inflow of business and a delay, business in Imaging IT in the short term.
On top of that, we have the strongest Swedish krona, which tips the scale in the first quarter, I would say, on an aggregated level. Secure Communications had a significant portion of project-based development revenue, which inherently has lower margins until entering the delivery phase. That puts a burden on the profit levels in the short term. As we also write in the report, that we do see some slower growth than expected for critical infrastructure as it now stands. Our assessment is that it's due to COVID-19-related shifts in customer priorities, in some cases, at least. That's about that. As for group eliminations, one might wonder how can you make money on group elimination? Well, this is a delta from last year where we had made provisions for bad debts according to IFRS 9. We are fortunate not to have to do that this quarter.
I think we have a healthy situation in terms of the accounts receivables, which also, I think the cash flow supports as a conclusion. Next slide, please. For the finale. We did see a quite spectacular shift in terms of Q1 cash flow performance. I wouldn't make too much of that in terms of extrapolation, but you have sometimes to celebrate the small victories. We also had lower investment compared with last year. In combination, I would say, with an increased internal focus on cash flow for pandemic uncertainties, it's a good thing to have a good, strong liquidity situation given the uncertainties that we now see in the markets. With that next slide, back to you, Torbjörn.
All right, I come back. A little about our way forward. Next slide. Our focus forward is high customer satisfaction, continue to that. That's been a successful path. It's a long-term strategy that pays back to shareholders and employees over a long time. Employees and culture, that high customer satisfaction is impossible to obtain unless you have happy employees and you have a good culture in the employees and the staff for delivering that quality to end-user customers. Possible growth. We want to grow, we want to grow in a profitable fashion. We could grow faster if we took profitability down even further, we won't. We want to be profitable and grow. That's the reason we have that 15% target of margin.
Then we want to say we skate where the puck is going to be, and I'll come back to that in just a moment. In our business, it's a very fast-moving field in IT, in informatics, in cybersecurity, as well as in medical informatics. When we do investment today, we need to invest for how the world will look four to six years ahead of us. We need to be good in predicting that playing field. We have historically been very good at that prediction, which not the least, digital pathology in the same system as radiology only shows we started that investment eight years ago, and we were spot on.
Today, we do have competition in pathology, but there is no other company currently who does pathology and radiology in the same system, which of course, is a huge money saver for hospitals if they get both of these solved in one single system. Next slide. We will continue our efforts to have happy customers. Last year, we won Best in KLAS, which is the U.S. study. We came up top on U.S. large hospitals, which is of course our prime target market. We also won the small hospital market in the U.S., which is very nice, but it's not our focus market. It shows what an attitude employees can have because we serve all customers equally well. In Canada, we won Best in KLAS for the first year, and of course, that's nice because that's a new market and a new growth market for us. Next slide.
Skate where the puck is going to be. As said, productivity and healthcare is at core of society's needs. I think we will see even more of it now after COVID-19 because all of those hips that needed to be replaced, they're still there. The production of healthcare with the demand will be very large when COVID-19 is over. Of course, productivity then becomes even more important. Add to that the demographic situation all over the world. We can consolidate all the medical imaging for a large hospital into one single system, which we are unique in. Far, of course, other companies will come there, but we were ahead of everyone else. We do have huge demands on improving workflows and interaction. People want to consult, people want to work from home, and we have systems for that as well. Then we use AI.
We have several employees or quite a few actually that use their time now exclusively working on AI to drive efficiencies. We don't believe you can replace physicians or radiologists, not in any foreseeable time, but you can make them more effective by using AI wisely. We also see a huge demand in the security area of secure mobile workplaces, as I said before. The main reason, of course, people are more mobile now, and people who have now learned to work from home, and they want to be safe, as safe as in the office while sitting at home. That will increase the demand for mobile workplaces and also secure communication channels both between enterprises and buildings and authorities, but also from home to the office. We have some completely new areas, Implant Movement Analysis, as I said, for orthopedics. It's a very interesting area.
A lot of unnecessary operations are done in orthopedics replacing an implant. Those are very expensive and also dangerous operation to do unless it's absolutely needed, and we can determine if that is needed or not. We can digitize pathology imaging, a digitization of hospitals that which is just in its infancy, yet only Sweden, a few other countries have now a large market share of digital pathology, and we are number one in the most digitized country in the world, which is Sweden currently. Next slide. We also see that we will increase recurring revenue. Pay-Per-Use has been proving in all different areas of IT to be improved value for both customers and vendors. Customers want to pay in that way. They don't want to pay if things doesn't work, and they don't want to have large capital investments if they can avoid it.
That has actually increased now with COVID-19 because liquidity, of course, of the hospitals are reduced. For vendors, of course, it provides a very long flow of cash. The new business model, Sectra One, that we presented the last report, will play a very important role in Sectra future. As we thought that adaption would be quite slow, especially in the U.S., we've seen now increasing number of customers being interested. It will not impact this year financials. The lead times are too long. We see that a very important part for our Sectra in our future going forward. The transition to the new payment model will, of course, as I said, will be over seven years. COVID-19 has indeed accelerated it, especially in the U.S. Next slide. How do we handle the pandemic? Our customers do a very important job. They keep people healthy.
They keep the hospitals operational. They keep society working when society needs it the most. Our job is to give them the tools and provide the tools that work. Making customers okay, support and servicing is key, most important in these times. Of course, in order to do that, we need healthy and well employees, and we also emphasize on that one. We need financial stability to be able to continue to do this. We're quite conservative in our way of handling finances. Next slide. Philosophy. Shareholders, as I've shown before, our strong belief is that if we have happy customers, happy employees, a good position in markets that grow, and indeed, ideally, a market that has to grow as both healthcare, especially in the demographic situation, but also cybersecurity. The markets must grow by external force.
You have good position in these and reasonable cost control. You shouldn't use your shareholders' money in unnecessary things, then shareholders will be happy long-term. I think we have proven that over the years. Next slide. This kind of concludes our presentation here. Please feel free to come back with questions. The next reports and annual meeting will be next Tuesday in Linköping, but it will be virtual this time. We have a few people here, but we will resend this over the network as well. November 27th, we have our sixth-month report at Q2 presentation. March 12th, we have a nine-month report and presentation. Please also remember that we consider your feedback on these meetings and presentations. We modify them based on the feedback we get. Please fill in this link, what you think, and we will try to make them even better in the future.
With that, I'd like to open up for questions and give the word back to the moderator.
Thank you. Ladies and gentlemen, if you have a question for the speakers, please press zero one on your telephone keypad. To withdraw your question, it's zero two. Again, that's zero one to ask a question. There will now be a brief pause while the questions are being registered. Our first question comes from the line of Carolina Elvind of Danske Bank. Please go ahead. Your line is now open.
Hi. Just two questions from me. The first one regarding orders. You have press released many orders here over the past month and also for Imaging IT area and this translated into a strong order intake in the quarter. I understand that orders are volatile between quarters. What do you think is the main driver behind the increased order intake? One would expect hospitals to have a lower CapEx budget as a result of the pandemic, but it seems the demand for your product is very large and you're getting large orders. If you just could talk a bit about how you think about this.
It's difficult to say as I said individual orders are very large. I think these are investment decisions made a long time ago, and many of these customers have, what do you call them? IT systems that are not adequate for today's workloads, and they need to replace them because it slows them down. They are not growing with the demand, and they need to replace them. I think we see a trend of where the old IT systems they had before, it's all replacement today, except for pathology, and that is still not a huge chunk of the order intake. We see this is mainly due to the incumbents. The old systems are not keeping up, and they need to replace them. With the large orders, it goes into clusters like this.
The pandemic sped up digitalization then?
I would say it doesn't affect it very much. It has affected a little negative, but not substantially. We have seen a few customers in the U.S. who have actually postponed all plans for purchasing a system to the future. In normal times, probably the order intake would have been even a little bigger, but it has not affected significantly.
Okay, thank you. Just one more, on installations. You say you had some challenges during the quarter. Could you elaborate a bit on how those challenges was in the beginning of the quarter versus the end of the quarter? I understand stability and so and so, but just to get a sense on how that changed with time now.
It's all over the quarter. I wouldn't say there's a big difference at the beginning and the end. If a hospital has more or less shut down all visits, and they have, and the U.S. is quite severely affected by COVID-19, not much more than we see here in Sweden, at least, where we see reducing effects now, and the disease is decreasing. In substantial parts of the U.S., it's still very active, and we see no big difference from the beginning to the end of the quarter. If we can't go to the large hospitals, it's very difficult to do large go-lives.
Okay, thank you. That was all from me.
Thank you.
Thank you. Our next question comes from the line of Kristofer Liljeberg of Carnegie. Please go ahead. Your line is now open.
Yeah, thank you. I have a few questions. Maybe I'll take them one by one. First one, coming back to orders. I'm also a bit positively surprised by the strong orders in the quarter. You also mentioned that these were planned or the investment decisions were made a long time ago. How do you see the risk for orders slowing now in the next coming quarters due to the pandemic and/or hospital budgets being cut, et cetera?
What we do see is a shift towards a new financial model. People still need to replace the systems, but they prefer now to pay as they go. The volatility of their business, of course, has increased. They don't know how far this will go on, and if they pay per procedure, it's better for them. We see a shift that was faster than anticipated to the software as a service model or pay-as-you-go model. This will affect our cash flow when these orders come in, but we think we will get a sum of these orders anyways now. We don't know the impact. It depends a lot on the different hospitals, and we see huge differences. Some hospitals have turned very defensive and do not want to do anything, and some hospitals simply say, "We have to invest because this will go over.
When it goes over, we have so much to do that we need to be highly productive. They have increased their efforts in doing installation. Our business is difficult to predict normally, but the volatility has increased for the order intake as well. We don't know, to be frank. We think it will be okay, but we'll see a faster shift to the new financial model than we anticipated.
Okay. Thank you for that. When it comes to sales in the quarter, down almost 8% organically. May be difficult, but is it possible to quantify how much of this lower sales is COVID related, i.e., that you couldn't do installations that would otherwise have taken place, and how much is just the normal variations between quarters?
We normally have a lower Q1, as you know, that's a seasonal variation. We have had an impact definitely in this quarter based on COVID-19, and also the currency. If the currency had been the same, we would have been about a par with the last year's same quarter despite COVID-19. COVID-19 has had an impact, definitely so. We know that we would have gone live with several installations that we couldn't do now. We're simply in wait, hold mode until we can come there and go live with the hospitals.
Do you see this situation continuing now in the second quarter, so that we should expect a lower-than-normal second quarter as well?
I would say that it's very difficult to predict. I think we will see the quarters go up and down in a way we have not seen before, and even before we were up and down. It might be that it goes up in the middle quarter, breaking the seasonal variation we typically have, and goes down in a quarter we normally are good. It's so much fluctuations and so much differences that it's very difficult to say. We see, it's also very different areas. I mean, the U.S., we have a huge impact. In Europe, not so much actually, despite that Europe has been locked down and so on. In the U.S. especially, it's even more difficult to predict than normal. You might see a contra variation in quarters compared to normal year going forward.
Second quarter could then be even stronger than normal, if you're lucky?
Well, provided that luck, we're very happy if it goes there. Now, I would say that it could be counter normal, and it could also be normal. We actually, very honestly, we don't really know. It depends. Some of the go lives are very near in time, but we need to come into the hospitals, otherwise we can't do it.
Okay. Final question relates to operating costs. Of course, a lot of temporary savings as you highlighted. Does this mean we should expect operating costs to remain at this same level in the second quarter or are there some seasonality playing a role here and also maybe traveling are picking up a little bit again?
No, I think we should expect these numbers to come in lower than on, let's say, a regular basis, on a regular year definitely, but I wouldn't make too much of seasonality. I wouldn't expect them to be on the same extreme low level as we have had. In the longer run, that's detrimental to the business, I would say. We hope this will increase counterintuitively because that means we could get out to the customers. We won't be back to normal in Q2 on cost base, no.
Okay, thanks. Maybe a final one on the cash flow or the working capital release. I guess this is partly due to what sales were down helping account receivables.
Yeah, you could say that it's from a mechanical point of view. You don't fill up with new receivables to the same extent. In some cases, customers have actually been eager to pay up front.
Okay.
To make sure we are on a go and not get stalled in or that they would get their funding cut.
Great. Thank you very much.
Thank you.
Thank you. I remind you that if you wish to ask a question, you can press zero one on your telephone keypad. There are currently no further questions from the audio. I will now hand back to the speakers.
All right. We have received no email questions either. I would say that this concludes the presentation, and thank you very much for listening. Please, as I said before, give us feedback on the presentation and the format, and we listen and modify it going forward. Thank you very much and goodbye.