Welcome to sector's financial report presentation with CEO, Torbjorn Kramander and our CFO Mats van Sijen. My name is Helena Petterson, Investor Relations Officer, etcetera, and I will be moderator of the Q and A session today. This is the first time we do a report presentation in this way. And if you can switch over I can switch slide. And Ele.
Bakht, as you can see, the agenda is the same as before. I will just give you some brief instructions before we start the presentations. The Shack function is open and you who watch online can use it to ask questions during the presentations. Management will address the questions after their presentations and you find the chat function On top of your screen, it's a symbol that looks like a speech bubble with a question mark in it. If you don't see it, you may need to switch to move with full width screen.
And with that, I leave the word to Torbjorn Kranander.
All right. Thank you very much. And I will begin and then Matt will come in a little bit later. Zechtora creates value for customers who then share a part of that value with us in Imaging IT, which is our biggest This is Seria and that is mainly managing, communicating, presenting medical images. We started with radiology.
We're increasingly doing more and more all of these different image types. We are till Today, the only company who can do all medical imaging in one single system, which is important for hospitals because they don't want A lot of different IT systems when they can avoid it. Then we also have an operation of secure communications, which is where SECTRA started. SACRA stands for Secure Transmission and that is mainly very high level encryption. I'll come back to that and data security And then we have business innovation with 2 areas, orthopedics and pre operative planning for orthopedic procedures and post operative follow-up.
And we have educational, which is facilitates medical education By we started by replacing cadavers and dissection, but we're increasingly doing entire programs for medical teaching and education over the web. Q1 highlights. We had a very strong Q1, Unusual for us because normally the Q1 is weak. Our net sales rose by 35%, Profit per share rose by 3 31 percent and order bookings actually decreased by 35%. But we are very volatile between quarters.
That uptick in profit and downtick in order bookings shouldn't be taken too Seriously, because the variation between quarters are normally very large, etcetera. And in the COVID situation, It's been larger than normal. So we say very clearly, we don't expect this very large increase in Q1 to affect the whole year. Our financial targets are from the left here, equity to asset ratio with asset stability. We deal with products and deliveries who are mission critical for our customers.
May they be government For security or large hospitals who depend completely on the missing systems. It's very dangerous for them to trade with the Customer or vendors that are not financially stable, they want us to be around. So we have a stability equity assets ratio, a target of 30% or above. We are well above that at currently 59.6%. Our second priority target is Building an operating margin, the target there is 15%, while COVID has decreased travel a lot And international exhibitions as well has been very much decreased, where it weighs above the 15%.
That is not the place we want to stay. We want to invest that money for future growth again. But right now, We that is what came out of the COVID situation. We will increase cost again as soon as international travel and all travel in general can begin again. And then we have a 3rd goal, which is growth in EBIT per share over 5 years period.
That should be above 50%. Right now, we are at 161.3 percent growth. So all the financial targets are fulfilled. We do have seasonal effects. And as I said before, the pandemic has increased these.
Traveler marketing costs will increase After pandemic, but we do not believe it will go back to historic levels. Both the customers and vendors have learned a lot from the pandemic And we are more effective now than we used to be. But it will come back. But how far, we don't know yet. Depends a lot with customers demand.
In secure communications, we are participating in EBNOVA, which is a Swedish Fund for Research and Development. It's more and more clear, especially if the after the pipeline was attacked In the U. S. East Coast for gas. That society as we built it is Extremely sensitive to cybercrime.
And therefore, more and more authorities and companies start products. And we are participating in sustainable energy product With cybercrime knowledge and products in that large product, which is a governmental product in Sweden. We are also note that we have inadequate margins in communications. This cannot go on for long. But COVID has impacted Situ Communications a lot, mainly because a lot of those discussions cannot be done over Teams.
The sales discussions and the deliveries actually of our high end product must be done in person. They are done by courier And we have to go there to discuss with customers. And we cannot travel. This is impossible. It's not safe enough to do this over Teams or Zoom or any other media like that.
But we hope for a rebound when COVID gradually decreases. The financial performance and communication is that the sales were 38.5 A little up, profits were down. So that's 0.1 percent our profits was up actually, 0.1 percent just barely profitable. And operating margins, 0.3%, which of course is not where we want it to be or can to have it to be. Growth initiatives and secure communications is mobile secure workplaces.
That's a very important part In the COVID situation, more and more people have been working from home, but they want to have the same cybersecurity as if they were in the office. This demand special products, special services and high level security. And we see a growth area in that space. We do have a lot of, as I said before, societies and governments are becoming gradually aware of How important is that critical infrastructure is not attacked over the Internet. And that is another area where we work a lot.
And we deliver the highest possible security levels for secure mobile voice and network systems. So it's a mobile, very high level security up to the secret and top secret levels and also for high speeding and network encryption devices where you can do very high speed links over secret and top secret communication levels. In business innovation, we have made both orthopedics and education 2 independent legal entities, but we're still included in the Business Innovation segment as reported together. We had a strong negative impact from pandemic effects, especially in North Phoenix, because more or less all elective Procedures with his planned operations and for instance, a replacement of a hip is a planned operation. Most of these were canceled for a long time.
That, of course, affects the plan. You don't need to plan if you don't are doing the operations. Now this, however, has Piled up. These operations still need to be done. But we have had a large negative effect during the pandemic.
Sales were $12,300,000 operating profit was a loss of 1.5, it's better than last summer. But it's of course not where we want to have this long term. Growth initiatives in business innovation, in medical education, we have seen that while medical students have been trained from home, It's again, they want a service that they actually can teach, for instance, anatomy from home. And that was the large part, Especially with the University La Sapienza in Rome, where we taught those students from remote even though they had locked down in Rome. This has been an immense success and we see increasing demand also for doing this type of training education when the lockdown is over.
New areas within Orthopaedics is that we have Before historically, we've been working with pre operative planning and that is planning what procedures should go into which person. But we see a very large interest in actually see if these prosthesis are moving or not. Because if a prosthesis moves in comparison to the body, it has to be redone. And a version of that system, the implant Motion and movement analysis is actually when you use it for medical studies. So for instance, a prosthesis company wants to see if a prosthesis move down Over time, we call that CTMA, computer tomography micro motion analysis.
So we can identify very, very fine motion, which is required from authorities to approve a prosthesis for clinical use. In research, we mainly focus on AI for medical applications. And we also look into future That might be of interest neighboring to what we already do. Q1 highlights in our largest area in Machine Solutions, we had a large growth in the U. S.
A couple of years back, we said that we're going to Focus on U. S. This has worked very well, and we now exceeded NOK 500,000,000 in rolling 12 month sales in the U. S, which is today our largest market. Several top use healthcare providers use our solutions for radioli and increasingly also other diagnostic imaging area as digital pathology and cardiology.
We have also a special app store as we can call it. But for AI vendors, We can't do everything ourselves and AI has a lot of different vendors out there and we are open up a marketplace for them within our workstations And we expanded that work that workspace of that market with digital pathology before we only have radiology in that We, Imaging IT did very, very well. The sales went up to SEK362,000,000 in the quarter from SEK 260,000,000 and the operating profit went up to almost $100,000,000 from $35,700,000 and the operating margin went up to 27%. Growth initiatives in Imaging IT Solutions are new markets. We work with new markets all the time.
We're looking into expansions where we are not already. We don't want to be global. We don't want to serve to the entire planet. We want to be in A number of direct markets or indirect markets, but we want to grow a large market share where we are. We don't want to be small in a lot of places.
It's very difficult to keep customer happiness up in that situation. It's also more difficult to get profitable. But we're expanding with new markets after a while. We also concentrate in enterprise imaging where one single back end system can have Radiology, pathology, integrate diagnostics for in combined pathology and radiology, especially for oncology purposes and Cardioli in the very same system. This saves a lot of time, workforce and money for our customers.
And we are the only vendor to date to have that installed where we have all these all of these different images in the same system. We're also focusing even more in the U. S. It is the world's largest medical device market. We do top customer satisfaction and we have a small but growing market share.
So it's a place where we can grow and have good prospects for Grund for a long time to come. Financial Development, I will give the word to Mats. Thank you Torbjorn.
So as we have said before, the order bookings is a quite significant downturn compared to last year, the 2 previous year. Before that on the other hand we didn't reach 300. Now the book to bill is obviously below 1 in this So we're down from 1.6% at the fiscal year end to 1.4% now approximately. About 220,000,000 Reduction comes to 70% from 2 areas, secure communications and the UK with imaging IT, so The difference is not all over the line, but in a few big markets. If we had a third one Being North America, then we covered 90% of the difference.
Strong sales, some headwind, about 3 percentage points weighted, I'll check that, compared with last quarter, but not a significant impact really compared with what we have seen in historical periods. And as we said about this earlier than we had expected Deployment in the U. S. To bigger deployments that one was expected in August and another one in November was in the U. S.
Which you can see on the geographical spread where we have. With the exception of Netherlands, we see contributions In most or in all major markets but the US clearly is ahead of the curve in terms of this quarter, but as we have said before this is not something that changed the view of the full year as we can see it from where we're standing at least. And a big surprise, no, not really. This time it was actually Imaging IT who actually contributes to more or less the whole growth in the quarter and as I said geographically in the US primarily there. And that also goes for the earnings Since these two deployments was revenue recognized to a large extent in the Q1 we see a nice uptick, Again, a temporal one that was supposed to be spread throughout Q2 and Q3, too, quite a significant extent.
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We have a Teams problem, obviously, networking problem. We apologize for this. It seems we have a Problem with the networks here.
Okay. Sorry for that.
I apologize for that. Yes. So here where we left off and The final comment here is actually on the cash flow. As you can see, we have sluggish Cash generation this Q1 actually, I would say it's the comparative year that was extremely strong with a high conversion rate from Strong invoicing in the Q4, quite sluggish basis in the Q1, which meant that we could convert the, Let's say the year end receivables to a larger extent that we could now because this quarter we have had strong invoicing in the end of the quarter, also somewhat higher investments, some Some SEK 18,000,000 short of compared with SEK 30,000,000 in the comparative quarter. So with that, I leave the word back to you Torbjorn.
Thank you for that. And sorry about that little Interruption, it was something in Teams that went wrong. What are we going to forward? We will continue our kind of focus on high customer satisfaction. We believe that is the only long term sustainable way to grow business.
But in order to create high customer Satisfaction, you need happy employees, it will not work. We want in a fast market, you also need a very good and strong company culture. We're working a lot with that. We want to continue to grow profitably. And of course, we want to skate where the package is going to be.
So we want to be Where the market goes 5 years from now or so. So when that hits, we'll be there already. And we have done very well in that historically. Patholia is a good example. We started that 8 years ago and we now see that we are in a very good position worldwide when this market finally takes Thanks for the speed.
In customer satisfaction, of course, last year we won 8 or 5 best in class awards, which is a U. S. Customer survey company. And we're very proud of that In the most important area for ourselves, which is large hospitals in the U. S, PAX for large hospitals, we won it for the 8th a year in a row.
And that is a very important part. It shows other potential customers that we are Keeping our promises, we are doing good delivering and our previous customers are happy with what we do. And we normally say that doing success in business is quite easy, just leaving that The goal of the rule, we're trying to teach our people and get this in the company country. If company behaves as we want to behave too, we'll be okay. And that goes through what we kind of try to do with the customers and internally at the company.
Very interesting rule is present in almost all religions known to man in one version or the other. We also see that the recurring revenue is increasing now. We are beginning to publish this In a way that we have not done before in our reports. We are moving gradually, fairly slowly yet, but gradually we'll pay for usage For our services, we are selling software as a service instead of software as a license. Now this is not a fast transition.
We have to comply with customer wishes, but we will gradually go over to more and more recurring revenue. The interesting thing is that this is Received as value improved value for both customers and vendors. And as you might know, most of the world in software is going over to this kind of models. We have a sector 1 subscription that was presented last year on one of these meetings. It would play a very important role Our role in this transition and it's well thought out and the customer can subscribe and then you can use any of our services.
You can use it for regioli, pathology, cardiology, orthopedics or whatever you like. The transition will be gradual, however, as I said, But it has been somewhat accelerated by pandemic effects, especially in the US. Skateboard Park is going to be, This is Wayne Gretzky, who was known to be the best hockey player for many years in a row. And he was interviewed and asked, how can you be so good in hockey? [SPEAKER TROND ODEGARD WESTLIE:] You're not very good in anything.
He said, I skate to where the park is going to be, not where it is. And that is A matter we've had a sector for many years. We want to see what are the major trends in society. So we can be at a certain Place with certain products when that needs come. Lots of soft, productivity of healthcare is at core of Society's needs, there is no way we can continue the cost increases in healthcare as a percent of GDP.
It has to be controlled. And we do product that facilitates that. We consolidate all medical imaging, so you don't need many systems. And we can do remote pathology for instance, which is a very important thing in pathology because it's so specialized. It improved workflows and interactions.
You can speed things up and not compromising quality as well. And you can also use AI to gain Efficiencies in some areas that AI would replace radiologists or pathologists that is science fiction still, but it can make them more effective. There is a quote that we use from Kirk Langlotz of Stanford University in the U. S. That says that AI will not replace radiologists, but the radiologists reduce AI will replace the radiologists who do not.
Secure Mobile Workplaces, as I said before, during the pandemic, we've seen a huge increase and working from home and people still need to be as safe as on their network in the office. Secure communication channels, society is increasingly threatened by cybersecurity, cybercrime, And you need to communicate safely between different offices and different entities. And we have some completely new areas that we look into as well. Impact movement analysis, that's a huge market. Unnecessary revisions, that is re operations and putting a new prosthesis of both dangerous and very, very costly.
Can we increase Or decrease the number of those by more accurate measurements, it's a huge gain for society and for individuals. And also digitized pathology imaging that is Justin, it's very infancy and we will see a large growth in that area in years forward. We have been very open how we prioritize Things with shareholders, we say that if you have happy customers, happy employees And the happy employees can make customers happy. And they can. A good position in growing markets is easy to grow in markets that grows.
A recent perseverance and reasonable cost control, then shareholders will be happy. But it has to come in that order. That is why we have customer satisfaction as such an important goal for ourselves. We have also added some proposals to the Annual General Meeting that will be held by mail next week. We are proposing a split.
Our share values share cost is of share price is quite high. We are proposing a split, 1 shares divided into 5. And the share redemption program will be kept at SEK 90 0.9 kroner per share in the new shares, which is equivalent to 4.50 in the old shares. And we have proposed that we will also introduce a long term performance based incentive programs. And that is important.
We have in historically been using convertible debentures. That doesn't work in all countries And it has been increasingly difficult to administer. So we are proposing a matching shares program. You can read more about that in the notes with the annual Meeting, we believe that would be very good to incentivize and keep employees. The upcoming financial reports on the AGM next week is well, the AGM is September 14.
We only do That will be entirely a virtual meeting and then we have our 6 month report December 10, This year. This was the first time we did it in this way. It's a test for our side. Please Let us know what you think of this kind of way of presenting things. Send an email to infra.investoretcetera.com what you think.
We can modify it. We can go back to the Oulu. We can keep this and go forward based on your feedback. If you follow us online, please use the chat functions to give questions. Otherwise, our analyst Yes, including the meeting, they can do oral questions as well.
And I'll introduce Helena to come up here and tell us. What questions, if any, can you open up?
Yes. And I will start with leaving the word to Karl Norien at Lansky Bank who are online and you are welcome to mute and ask the first questions. Do we have a call with us? Oh, that seems to be a problem for Karl.
Now I think now I can speak, it seems. Great. Thank you. So I have my first question is relating to the access to the hospitals. Obviously, I mean, you could install More than anticipated in the Q1 and you still have a quite solid order book to say the least.
So I wonder how the installation environment It's developing now and in the upcoming quarters just to get a sense of how the 2 earlier deployments in the U. S. Will impact Coming sales figures.
Well, we have said that that was a 3 kind of planned, installs, but it's very difficult to say how this works in different countries. It's Completely even inside the United States. Southern U. S, some states have very poor vaccination rates, While in other states, the vaccination rates are very high. So it's very local.
We see Denmark. Denmark is releasing all restrictions on COVID very soon, next week I think, while Australia is locking down completely. So it's very different in different countries. It's difficult. So we don't see any major impact different from what we have seen today.
Okay. Thank you. And another question, I think one of your competitors was quite positive in their quarterly results Some weeks ago on the number of potential upcoming deals that looked quite strong and I saw several replacement and upgrade Opportunities from these larger legacy packs providers in the U. S. Can you comment on anything on how your pipeline is looking and Are you still convinced that you should be able to grow your market share in the U.
S. With around 2.5% points per annum?
I wouldn't we don't give that number. We think there's a good position for us to continue to grow. And we have some very unique strengths, not the least in that we can handle all images in one system, Which is very appreciated by the large institutions. So we look forward to the future with a good faith in that we will
Okay. And just the last question on the business innovation side. Could you please tell us a More regarding the commercialization of the implant movement analysis, how that is progressing and how large you estimate the market to be? And Are there any plans to separate this area out of business innovations anytime soon?
Right now we're doing a lot of clinical trials And it's kind of a test phase. This product, the technology was from the beginning developed by the Karolinska Institute of Stockholm. And then we took over the commercial side part of it. But it's a huge interest And there might be a very large impact from it. But right now, we're in clinical phase and studies and it looks very promising, There are many going on and it's a slow market, but it's also a slow market in, but it's a slow market out as well.
So it looks good, but it mainly is a very early phase of that development.
Okay. Thank you. That was all of my questions.
Thank you, Karl. Then we move over to questions from the audience online. And I will start with some questions from and the first one is, would it be possible to quantify how much early deliveries contributed to sales.
Yes, we can do that. It's SEK 34,000,000.
Okay. And the next question is, when you say strong K1 will not affect full year, does it mean margin will be closer to 15% for full year? Or will cost continue remain below normal?
As I said in the presentation, costs will remain below normal. But if we will go down all the way to 15%, we simply do not know. We have also to invest in the growth. We have to get new people and new people when they are new and more and need training, they are not very productive from a bottom line standpoint. So, yes, we will continue to grow.
Our target is about 15%. Will we go down to 15% during the full year? We will see, but I don't think so for this year.
And the next question is approximately how large part of sales comes from Enterprise Imaging Contracts.
Is that new contracts or Well, all of the sales comes from contracts as we presented the recurring revenue. A part of that is old service subscriptions. A part of that is actually new subscriptions, but they are quite few. And the remaining 43% is more or less new contracts.
And then we have another question James from another participant online. What is the outlook and strategy for sector imaging IT solutions for Southeast Asia, China and other emerging markets?
Good questions. We have done quite a lot of analysis in these markets. We are growing into Korea with digital pathology. It's an area with very high Penetration of local actors in radiology. But pathology was an opening for us and that's very good because we can get the bridge shed with pathology and then we can Follow-up with Regioli and other functionality.
And we have not done anything in China. We are a little concerned about the IP situation and the general business situation in China. We are investigating and looking to other markets as well. But in Korea, we're already going and we'll look into others.
Okay. That's all the questions I have online. But before I leave, I will ask You call if you have any further questions?
Yes, I can take one more if I may. It will be around secure communications, Torbjorn, and if you could speak a little bit more about the critical infrastructure side and how that side is progressing?
It's progressing slow. The need is not changed. We lose almost no business, but the speed of the sales are slow. And one of the reasons of course, COVID, a lot of these companies have shut down Completely. They do not take visits.
They don't want to talk to anyone during the pandemic. So it has slowed it down Even further and but it's still a huge need. It's still going forward, but not at the speed we would have wished for.
Okay. But would you expect it to come out stronger after the pandemic?
Well, it has to be solved. These situations Has to be solved. Society is very vulnerable to cyber attacks. And we see every time something really ugly happens somewhere in the world, We see an increased interest. And the pipeline on the East Coast of the U.
S, the natural gas pipeline was something that really woke people up Because he threatened the energy consumption for half of the U. S. And there's other such incidents that come up. So the need is there. It is perhaps even bigger than before, but it's a very, very slow market.
I see. Thank you.
Thank you. And Christopher Lillebee has clarified his question regarding the part of sales from Enterprise Imaging. What he means is enterprise deals versus traditional packs only
deals. Okay. That I understand. The enterprise part is increasing. It's very different in different countries.
But the general market size of Old radiology, legacy PAC systems is decreasing and the enterprise, is increasing. How much exactly it is, It's difficult to say, but we think it would be more or less all of it long term because hospitals do not want So many different IT systems.
Okay. Thank you. No further questions.
All right. Thank you very much. Again, we Encourage you to come with free feedback on this. We apologize for the little interruption there based on that we lost the team's connection for a while. And I hope to see you again, both at the AGM, if you come there or listen to that, but then in December.
Thank you very much and goodbye from us.