Sectra AB (publ) (SECTB) Earnings Call Transcript & Summary

Welcome to Sectra's financial report presentation with the CEO, Torbjörn Kronander; and Jessica Holmquist, CFO since May; and online we also have Fredrik Gustavsson, CTO, Imaging IT Solutions, for a special focus session. My name is Helena Pettersson, Investor Relations Officer, and I will be the moderator of the Q&A session later. [Operator Instructions] And with that, I hand over to you, Torbjörn.

All right. Thank you very much, and welcome to our year-end report. We will start with the intro and the Q4 highlights by me, and then Jessica will take care of the financial developments. We'll have a special session on our new ways of reporting in the cloud software. We will complement and change a little bit how we report as we are moving out to SaaS, Software as a Service. Then I'll talk a little about our way forward, and we'll go into the Q&A session after that. So first, we'll begin with the value we create to customers. Sectra has business in Imaging IT, which is mainly diagnostics based on imaging. That is by far leading area and the one where we are most international. Then we have secured communications or advanced encryption systems, including also cybersecurity for critical infrastructure in Sectra communications, and we have Business Innovation, which is our greenhouse for new products that doesn't really fit in any one or the big ones. Q4 highlights. We have the ninth consecutive year, we have the happiest customers in the U.S. in large hospitals, small hospitals in Canada and Asia/Oceania, and this is important. It was even more important we grew in the beginning. Now we're going on, but it's still a very important thing for us. We believe very much in that business comes from happy customers in the old fashion way. We also think that satisfied customers is the best way to grow. We have proven that, I think, by increasing net sales for the year by almost 20%. We have increased our profit per share to SEK 1.63 per share, and we have increased our recurring revenue by 11% -- almost 12% up to SEK 1 billion in recurring revenue. Of course, that's giving a very secure situation going forward. The financial targets for the group are three. First, we have the hygiene factor that of equity/assets ratio. Our customers are very dependent on our solutions. If our solutions stop both in security and in hospitals, huge consequences will follow. So they want us to be around for a long time. And therefore, we must be financially quite conservative. Our target for equity/assets is about 30%, though we are currently ways above that at almost 50%, 49.3%. Then profitability, operating margin. We have been sometimes criticized for having too small target of 15%, but the 15% is again, more hygiene factor. We are aiming to increase growth of profits. Growth is more important than profitability. We see profitability and margin as a hygiene factor as well. We need to do good business. But if we get anything above 15%, we should invest that in growth of profits. We have no lack of good ideas in possibility to grow. And therefore, we should be above 15%. It has decreased, but that is by intention. We both need to travel more when now the pandemic is over, and we need to invest in future developments. And then we have the main goal. When the other hygiene factors are fulfilled, we aim to grow. And we have a growth in EBIT per share as a growth target that should grow over 5 years, more than 50%, and we are well above that at 93% plus. So all the financial targets are fulfilled. Our order bookings in Q4 surpassed SEK 1 billion. The variation between different quarters is large. And this, of course, shows that after now the pandemic is over, we have a huge demand again for our products and offerings, and combine that with high volumes and long contracts, the order value becomes very large. So it's both high volume per year, but it's also very long contracts that we are awarded. One example is the recent order from Copenhagen region in Denmark, which is over a long period and with a high volume, totaling almost SEK 1 billion. We have substantial quarterly variations. As individual orders can be so large that varies a lot in different quarters. So both ups and downs between quarters should not be valued too high. Specific uncertainties over the last year has been, of course, the invasion of Ukraine and COVID-19. None was material for Sectra in the quarter or the year. We think that the invasion of Ukraine, despite being in a horrible situation, will lead to increasing demand for especially our cybersecurity products, but I'll come back to that a little bit later. Secure Communications, Q4 highlights. We've got orders from the Swedish Defence and Dutch Ministry of Defense. This has been an area we have had problems during the COVID. We have not been able to ship. We have also been very difficult to sell it as these are a level where selling over Teams and over telecommunication media is not possible. We have to go there in person. And if you cannot travel, you can't sell. But the pandemic is gradually behind us, and that means that the improvement after the pandemic is clear in Sectra. We also signed a new President, Magnus Skogberg, who comes from Saab, from the beginning. He will take over the position as President of our Sectra Communications business from August 1, 2022. The impact of the Ukraine crisis on communications, we see increasing demand for cybersecurity overall, and the increasing effect of crisis and wars today is that people attack cybersecurity and infrastructure and critical infrastructure. And we've seen that in Ukraine before, we see it now, and that means also that other companies need to protect themselves from the cybersecurity threats. We also see an increasing need for secure communication encryption and products. One huge failure of the Russian army in Ukraine was that they needed to speak over open line between cell phones between the Russian limits. And that, of course, was eavesdropped upon by the Ukraine forces. This has led to an increased understanding that encryption in crisis management is critical. And we've already seen an improved demand for our products based on this. Business Innovation. Q4 highlights our greenhouse focused on both of these 2 areas, both Orthopedics and Education is an increasing usage and recurrent revenue. We are in a good trend there. We see a strong increase in recurring revenue in these two business units. But we also understand that both were severely affected by the pandemic and the results very significantly between quarters as these are very small business units. But we see promising signs in both of them post pandemic. The growth initiatives is in orthopedics, implant movement analysis. The primary operation when you actually put in an implant into people is quite industrialized, quite effective today. We have good planning software for that. But a revision when you need to remove a process is a certain new one. That's both very dangerous and very complex operation. You want to minimize those, and we have new tools for minimizing the need for doing these unnecessarily. And that is having a huge interest all over the world, but it's an early phase, so we need more clinical trials for it. Very much related to that is a computer tomography micro motion and it's more or less the same technology. We analyze if a prosthesis is stuck to the body or if it's loose in the implant movement analysis. It's one in which patient that comes in, you want to see the patient is stuck or needs to be revised. In the other example, you have the CTMA. It is analysis between different times in patient over 6 or 3 months, you see prosthesis is moving a lot. And that is needed for clinical research and approval of the large prosthesis companies' products. We have a very interesting tool for them in doing that without actually extra insertion of markers and stuff in the body as before. In Medical Education, we have a large transition from the table [indiscernible] huge like iPhones, but huge, like table-sized. We are moving that into recurring revenue by selling a subscription to content. We have a very large database of different examples of diseases and pathologies. And this, you can get the table, but you can also do from a normal laptop or from a tab even, you can subscribe to this database and teach based on that. And we see a rapidly increasing demand for this in our user base in education. And we also have a research unit in Business Innovation that focuses on AI for medical applications and other future areas within diagnostics. Imaging IT Solutions, our largest unit by far. In Q4, we got the French framework agreement for digital pathology. This is important. We have not been launched in France. We are very small in radiology, but we are strong in pathology. And this is a French almost national framework for providing digital pathology and we came out on top of that for France, which is a rapidly growing market for us, especially in pathology. We see that now that the new model, Sectra One, Software as a Service, is -- most of the new contracts we are signing up on that is on the new subscription model. Of course, it has no major impact yet, but it will increase rapidly as Fredrik will tell you later. And we are in the middle of transitioning to SaaS and cloud deliveries, as I said before. So coupled to the Sectra One, Software as a Service model is, of course, that we normally deliver that through the cloud instead of having an on-prem solution on computers. This is a huge change for us. And Fredrik will have a special dive in with [indiscernible] around it. Growth initiatives, we see new markets, direct and indirect. We're expanding indirect sales region to South America with a new dealer sound or distributor sound in South America. We are doing more and more enterprise imaging in the ologies. We did mainly radiology imaging. Now we are growing into all the images in the prior hospital in pixel EMR. We have digital pathology that is in a very good growth trajectory. And that is combined with radiology, it becomes integrated diagnostics, and that is important for cancer research and cancer treatment. We have cardiology and we have ophthalmology, which is a new area, developed together with a large U.S. customer. And ophthalmology is images of the eye, which is also now 3 dimensional and complex ology. And we have focused on the U.S. This is the world's largest IT market with top customer satisfaction, and we still have a small but growing market share in the U.S., and that leads a good trajectory for growth opportunities. We are, in many countries, so large that we have difficulty to grow. You cannot grow beyond 100%. And even if you're about 50%, the growth becomes increasingly difficult. But in the U.S., we are clearly below 10% market share, but we're growing rapidly. Then I will leave the word to Jessica, who will tell you about the financial development upcoming.

Thank you, Torbjörn, and good morning to everyone. Let's start off by looking at our long-term financial trend. We've been on a growth journey since early '90s, and we've only seen sales declining 3x during this period, the last time being during the pandemic. And as you can see, we are now back again on the right path with substantial growth in net sales for this past year. Order intake amounted to SEK 2.3 billion, down 12.5% versus last year, but still according to our expectations. We saw a strong ending to the financial year with order intake exceeding SEK 1 billion in the fourth quarter, coming from a mix of current and new customers. As mentioned before, order intake is a volatile number from quarter-to-quarter, which has clearly been the case also for this past year. Sales continued to grow in the fourth quarter and we had a total growth of 19.4%. We had a tailwind effect of 2.5 percentage points for the full year. We had the effect especially during the second half of the financial year. Looking at the fourth quarter isolated, we had total growth above 23% with a tailwind effect of 5.7 percentage points. Also worth mentioning, of course, recurring revenue is growing, and we increased recurring revenue by nearly 12% in the past year, now totaling 55% of total revenues. Moving on to sales by geographic market. In absolute terms, nearly half of the sales growth was generated in the U.K. in the past year. We also had good growth in the U.S. as well as in rest of Europe, where Norway accounts for the highest growth in absolute terms. Other markets contributing to growth was in the past year, in Europe, with Germany, France and Belgium. Declining sales in Sweden is due to the impact from secure communications. Imaging IT is still growing in the Swedish market. And then we have sales by segment. Most growth is generated in Imaging IT. They increased sales by close to 24% in the past year. Imaging IT delivered large customer projects and signed important new contracts as well as strengthened the position in key markets. Looking at secure communications. They have been struggling in the past year with the effects from the pandemic, as mentioned before, and we saw sales declining by SEK 23 million, corresponding to 11%. We saw, however, in the fourth quarter, an uplift versus the comparative period last year, as previously delayed deliveries could actually take place. Looking at business innovation, our relatively small businesses in this segment, they have had a strong year coming back from very low volumes during the pandemic. Other operations include our group functions and the change in sales is primarily explained by increased central management of costs being flowed down to our business segments. Moving on to operating profit. Operating profit of SEK 383 million for the full year corresponding to an increase of 9.5%, 4.8% adjusted for currency impact. The operating profit margin declined slightly from SEK 21.4 million to 19.7%. As a result of product mix and also, of course, higher expenses as we return to a more normal expense level with higher cost for travel and sales and so on. On a segment level, we can see that again, most of the operating profit is generated in the Imaging IT area, and Imaging IT grew operating profit by 10% to SEK 416 million for the year with a strong fourth quarter. We can also see that the margin for Imaging IT was pushed back a little versus previous year due to a higher share of hardware sales, especially in Q4, and also the higher expense level mentioned before. Secure communications, they have continued to struggle with the pandemic effect. That improved in the fourth quarter, both in terms of deliveries and also customer interactions. And they showed black numbers again in the fourth quarter. We also see positive signals on the order intake side for communications. We have Business Innovation that managed to grow top line by 19% just to deliver a 9% margin. And then last slide for me is on cash flow. And here we see that stable underlying profit growth contributed to cash generation during the year. And along with a large advance customer payments received, especially in the fourth quarter, we had a very strong cash flow for the year and especially in Q4. This is rather a onetime effect with the advance customer payments. It's not something that we expect to be repeated in the coming quarters. And investments were more or less on the same level as last year. By that, I hand over to next presenter.

And then we will give the word to Fredrik Gustavsson.

All right. Thank you, Torbjörn. Thank you, Jessica, and good morning, everybody. As Torbjörn mentioned in the beginning, we'll share a bit of details on what external reporting in this world that we're in where we're seeing a huge increase in the amount of Software-as-a-Service and cloud opportunities. But before we do that, I'd like to share a bit of an update about Sectra One. As you know, we started working with Sectra One some 2, 2.5 years ago. We set out on the mission to simplify for our customers, existing and new customers, to benefit even more from our solutions. And especially as we're growing with new modules and support for new diagnostic specialties, as Torbjörn mentioned, ophthalmology being the latest one, but also through digital pathology as another example, we want to make sure it's easy for customers to adopt this innovation and to be able to benefit and deliver great patient care. So we created Sectra One, which is our unified business model. It's a subscription that includes maintenance, support and the underlying software components in one easy to buy and easy to sell subscription. And we're happy to say that it's been a great success. Customers have really appreciated this new way of getting access and buying Sectra solutions. So a majority of our new opportunities and new deals that we're making are based on Sectra One and Sectra One Cloud. And we are very excited about this. And it really shows that this is the way of the future. This is the way customers prefer to buy our products and services. And so that's been a great success. And one of the reasons for this is really the way that we've been able to reduce complexity. And that's what we've set out to do. That's been red thread throughout everything we've done. In terms of everything from product packaging, to pricing and to the way that we help customers implement our solutions is to reduce complexity, make it easy and sort of we'll be able to scale and grow efficiently. So we've grown from about hundreds and hundreds of products and our product portfolios were huge. We're down to four different subscription tiers. So it's a huge reduction on complexity. It makes it easier for customers to select products and tiers and make sure that it's rightsized for them. One of the, I think, major things customers love with Sectra One is that they are not only sort of buying the software today, but they're getting the steady stream of innovation. And the customers tell us that, that future-proofness is really desirable and they love that. They know that they will be able to benefit from new features, new modules that we develop, and we're taking down the friction of getting that innovation into the health care systems. Another thing that they also like is that with Sectra One being able to then operationalize that cost, they can better match their revenues and values generated on their side with the cost of a subscription. Historically, they paid for maybe upfront licenses and maybe they've been paying to other vendors, expensive upgrades, and now with the Sectra One model and moving to cloud and Software-as-a-Service deliveries, it is actually better fitted to the customers' business model. And so we are more aligned with the value generation that they do. Now cloud, this is the big thing. This is the big trend right now. And the beauty is really when we then combine Sectra One with cloud capabilities, cloud native technologies and build that on top of either our own private cloud or public cloud technologies such as market-leading Microsoft Azure, we're providing customers with the easy to understand, very transparent way of accessing this technology and diagnostic solutions. As compared to many of our competitors, we feel that we are very transparent. It's easy to understand our business model and there are no hidden costs. So customers do appreciate this and it is predictable. They understand what they're buying and they understand what they're gaining. They understand what they're going to be paying for. So this is a huge interest in this area right now and just keeps growing. And that's why we're focusing today about what are the consequences then from an external reporting perspective. So I'd like to share first an example, a fictive example, where we're looking at a case where we're looking at about SEK 500 million deal for software and maintenance. So a pretty traditional setup. And we're looking at the consequences in Sectra's external reporting in the first case in an on-prem situation. And then the second case, as you can see, in cloud. Now from an IFRS 15 perspective, in the first case, where we're looking at on-prem, we will recognize the stand-alone software component that is delivered and as a performance obligation being made available for the customer to benefit the economical benefits from. So that means that we get this first initial sort of spike in the revenue curve, as you can see, amounting to about SEK 200 million in the first year. And then through the consecutive years, over the consecutive 9 years, there is just a support and maintenance component that's delivered over time. In the cloud environment, due to the fact, from a revenue recognition, again, IFRS 15 principles, the software and the underlying integrated hosting becomes an integrated performance obligation, meaning that the full revenue is recognized on a per year basis. So you can see the difference here is that we're not getting this upfront spike in the revenue recognition. So it's spread out over the period instead. So I'll repeat that. In an on-prem environment, we have this upfront recognition of the stand-alone software components that are handed over to the customer, control is handed over and the customer can benefit. In a cloud environment, by necessity, we have to deliver that as a service continuously over time. And thus, we cannot say that, that performance obligation is fulfilled and thus, revenue is recognized over time, meaning that we're getting more revenue per year in cloud, but we have the reduction of that upfront effect. So cloud is growing and it's increasing quickly. And it's not just with Sectra. I'm participating in a panel conversation next week in the U.S. where we and other industry leaders essentially say this is happening now. So cloud is, for sure, very, very much on the top of everybody's mind and almost in all opportunities that we face, customers are requesting. So what about cloud? What does that look like? This means that revenues will be recognized over time increasingly as this transformation to cloud happens. Another thing, which sort of impacts the way that we're going to present things to you and the market is that also contracts differ. So customers historically buying a traditional one-off license contracted in a certain way with us, now customers buying Software-as-a-Service, they are expecting other contract terms. We are delivering a service over time, so the contract reflects the nature of that business relationship. And hence, so contracts look different, and this has an impact on order intake and we'll sort of go through that in just a bit. So with these changes, the move to cloud, the spreading and increasing of recurring revenue over time and the fact that contracts are changing, we've decided to do the following things starting from Q1 this year. And so we will increase details on order intake during the transition period. We will then stop reporting order intake after 2 years from now. And so the reasoning is that since we're moving to Software-as-a-Service and cloud, the meaningfulness of having order intake is diminishing. And so throughout this transition, we're providing you with even more details, but that's just to make sure that you have a good transparency, whilst we're moving sort of the business towards SaaS and cloud. We will be focusing on recurring revenue. We've heard already from Torbjörn and Jessica. Nice, I think, really great improvements in recurring revenue that we're seeing and this foundation for our business. And as a new specific alternative performance measurement, we will start also showing you what's called cloud recurring revenue that represents how much a recurring revenue is based on our cloud business. I'll come back to the definitions and what that looks like. So first, we said that we're going to provide you with details on order intake. So this is the way we're going to report order intake and give you the insights into the way that our business is growing. So first and foremost, we are using a contracted order intake. And that is the value of products and services that the customer has procured and intends to purchase for the full contract period. And as you might have seen, and Torbjörn mentioned Copenhagen as an example here, close to SEK 1 billion. Now as a consequence of the changing contract nature, as I mentioned, in SaaS and cloud business, we also feel that it's necessary to provide you with a bit of additional details. So as a consequence of these contractual changes, we have now also split out what's called the guaranteed order intake. And this is the customer committed purchase at the contract signature. So I'll repeat this. We have the contracted order intake, which is everything the customer has procured and intend to purchase for the contract period, and we have guaranteed order intake which is what the customer has really strictly committed to purchase that contract signature. And again, the reasoning behind this is that we have a new set of new expectations on contract structures impacting the way that we're sharing this information with you all. And then as a final level, we're also going to present, out of that guaranteed order intake that we've just mentioned, what has already been recognized during the reporting period in question, and what is estimated to be recognized as revenue within 12 months from the reporting point of time. So that's an update on the way that we look at order intake and some of the effects that we're seeing as we're transitioning to cloud and SaaS business models. Now what about revenue recognition then? So revenue, classical total revenue, nothing to really point out there, as we did mention, and we're focusing even more on recurring revenue. And as this is keeping -- we're keeping growing that continuously by having more customers join and sort of subscribe to our business as cloud and SaaS business. And so recurring revenue is the total recurring revenue, and we'll go into the definitions in a bit more detail on the next slide. This is just to show the sort of overarching structure. And then we have cloud recurring revenue. So that's a subset. So total revenue, recurring revenue, and out of recurring revenue, a certain subset is cloud recurring revenue. Now recurring revenues are revenues that we expect with a very high certainty to recur for at least 12 months from the reporting day. It is also revenue from customers that are unable to continue benefiting from the services or the full functionality of the service and the products without recurring payments. And in this context, it means that it is recognized under again, IFRS 15 as revenue over time and that sort of falls within our recurring revenue reporting. As examples of what's included is typically maintenance contracts or service contracts, it's Sectra One cloud and other cloud services, as Torbjörn mentioned, we have the education portal and other cloud services, for example, within communications as well. What's not a part of recurring revenue is onetime upfront licenses. Professional services typically related to a deployment project where we're selling hundreds of thousands of hours to help customers onboard the solution and help them with training. There are some cases when hours are a part of recurring revenue. We'll mention that a bit again later. But typically, professional services and the bulk of our sort of sales of hours are not recurring. And hardware is typically neither recurring, that's a one-off sale. All right. So cloud recurring revenue then. There is really not something strange about that. As I mentioned, it is recurring revenue that's related to cloud business, but I'd still like to share bit details about that to make sure we're clear on what we're bringing into that APM. And so it is recurring revenue earned from Sectra cloud services, and that can be private or public cloud. That's the infrastructure basis for those services. So Sectra One Cloud, Sectra Amplifier, Sectra Education Portal all falls within that categorization. And the revenue that we're taking in here includes software, as I mentioned earlier, infrastructure, operations and hours needed to provide that service to the customers. If we look at what's not included, so we're excluding professional services hours again related to deployment projects, any on-premise installations or single environment customer hosting contract. So we're only bringing in customer contracts that are true cloud. If there is a managed service contract that's related to just one customer, it's not considered a cloud environment. And the reasoning is that in the cloud environment, we have economics of scale. We are able to deliver another level of service, and hence, that's where we're seeing growth, and that's what we want to show as part of this APM. So what other effects may we see as we're transitioning to cloud and Software-as-a-Service. If we look then at the balance sheet, in most of these cases, we're looking at public cloud, that is where we're heading. That's where we're seeing the market is heading. And then the effect is really not significant. The costs are basically expensed as they are incurred with the contracts. We're not buying servers, we're not buying storage. We're buying that on tap from our public cloud vendors, which is a very nice way for us to grow and scale. And similarly on the cash flow side, we do get invoices and pay the cost for the underlying infrastructure on a monthly basis based on our consumption, but we're also getting customer payments, and that's really a mix between quarterly upfront in advance and monthly on consumption for different pieces in the service that we're providing, for example, storage. If we look at profits and making sure that we're clear on the context, everything else is equal, profits will improve, and we will see huge economies of scale and efficiency gains. I think a good way to think about this is, today, we're having about 2,000 systems installed out on customer premises. And there is so many servers. There's so much work going into maintaining that, that will be possible to automate. We will be able to share resources, we will be able to automate the management upgrades. And so moving to cloud, Software-as-a-Service has a huge potential for profit improvements over time. So to sum that up, we're really seeing a huge interest in the market, and we're excited for the success of Sectra One and Sectra One cloud. We have decided to make sure that we are changing a bit on our external reporting to make sure that you get the right information during this transition. We're giving you more details on order intake, again, repeat order intake will go away as a part of the reports from 2 years from now. We're focusing on recurring revenue and cloud recurring revenue is a good way to track the growth and success of Sectra's business in the cloud space moving forward. So thank you so much, and I'll hand over to Torbjörn.

And then I will discuss a little about our way forward as a round up for this presentation. Our focus forward will again be high customer satisfaction. In order to get high customer satisfaction, you have to have happy employees and a good culture. It's impossible to create high customer satisfaction by not treating employees well and as the very important corporate features they are because it's people close to the customers who provide most of the value. We want to continue to grow, but we want to grow profitably. We will have a 15% margin as a lower bound for what we think is profitable and then we will invest in growth. And we intend to continue to be good to scale [indiscernible]. I'll come back to the definition of that in a while. First, this is a quote -- we like quotes, et cetera. And this is a quote I'll come back to very often. Edwards Deming was a consultant that was consulted by the Japanese government after the war, who kind of moved Japan from cheap stuff that was poor quality to very good quality and a little more expensive. Trust in business comes from repeat customers, customers that boasts about your product or service and bring friends with them. And especially as that a new deal is very expensive. Sectra One will help with that because when you get a customer one ology, all of you, one type of images, it's very easy to extend that to the other types without actually doing new procurement. So it will also be simplify the transition and increasing the business with a happy customer, because they can do more types of images in it. First your EMR gets seen, in order to be profitable, you need to know where you are and what markets you're in. Growth is much easier in a growing market. First, let's discuss medical a little bit, where we are? Cost for health care is increasing all over the world. This is percent of GDP. And of course, we look at the U.S. today, it's close to 18% of GDP in spending for health care. This cannot continue forever. You cannot have 100% of GDP go into health care. And while U.S. is higher than the rest of the world, the derivative of all countries is more or less very concerning. Health care must change, otherwise, it will be very difficult to sustain the level of health care we have learned to expect when we grow older, especially. But breaking this down, what drives the cost explosion in health care. You take down the cost per sector, per age bracket. You can see that the big explosion is after the age of 60, more so in the U.S., but it's very large in all countries. If we're going to handle and take care of the cost explosion in health care, we need to address the disease of the elderly. And the disease of the elderly is neurodegenerative disease, Alzheimer's, Parkinson's, MS, et cetera, other dementias, very expensive, means a long time in hospice or elderly care. We have cardiovascular disease. Chronic heart failure is very expensive, very long lasting disease. Cancer disease, oncological diseases are increasing. Musculoskeletal disease, underestimated cost actually. It's a very expensive thing and growing rapidly where it would become spare parts for humans more or less at higher age. Get your new hip is kind of an ordinary procedure today and we can replace most of the joints in the body and you need tools for that. And vision and hearing is something we've added. Well we added ophthalmology because we now handle ophthalmology as well. And we do business in all these three, and we do medical imaging for all of these five areas, and we are specializing in this. We should do medical imaging for all health care, of course, but we should be very good in these areas. And when you see a blue rectangle that means that we do the basic imaging, but we partner for the special clinical applications in that area. And when it's green, we do everything in-house. And now I'm very proud that we are the only country in the world that does pathology regularly in the same system, which is cancer research, especially cancer. We also have orthopedics and general imaging in the same company. Again, we are alone in doing all of that in-house at the company doing the imaging. And envision with the addition of ophthalmology to our offerings, we have added into this new area as well. What drives cybersecurity? Well, of course, this is a very difficult time. This is a picture from the horrible situation in Ukraine. There were people living in that building. And we have a concern about war all of a sudden in Europe that we have not seen in very many years. But we also see playing financial attacks and cybersecurity. And we see that this is the Colonial Pipeline network that will attack for ransomware. It provides about, I think, 100 million gallons of fuel every day, and it more or less was very close to bringing the entire East part of the United States to a grinding halt a year ago. And this was a cyber-attack as well. Cyber-attacks are increasing and the war is increasing the need of encrypted communications. We also see increasing synergies as ransomware attacks before they were equally distributed over all industries, but most industries will not pay a ransomware if they can avoid it and will take a higher cost of avoiding paying ransomware, because you teeth the criminals, so you can make money in that way. However, if you get ransomware attacks in the hospitals, there's not a financial consequence. If you get ransomware in the ICU, patients die. And that, of course, unfortunately, the crooks have learned, which means that increasing synergies, because healthcare is becoming a prime target for advanced cybercrime. And this is so concerning graph of the ransomware attacks per organization by industry in May last year, May 2021, and you see that the attacks on healthcare is ways more than any other industry today. And then we have increasing synergies. We have a lot of, of course, synergy between our organizations, but we also have usage of knowledge from the cybersecurity area in the medical industry. And we should also remember, we have built a very fragile society together without plan. It's very similar to building a skyscraper one floor at a time. You started with one floor and that worked fine, so let's build another one. And all of a sudden, you're on floor 26 and you built 27, because the 26th floor worked. And there's no plan, there is no structural dimensioning on this. So we will just keep on building. And this is actually what we do with IT society. This is dangerous. It needs to be addressed because one day that colossal skyscraper will come down, unless you're trying to patch it or at least begin to plan it both against criminals, but also against national actors and terrorists. So we need cybersecurity and the market is increasing rapidly to cope with the situation we have created. So Sectra is well positioned in two markets. We have profitable growth in [indiscernible] markets as I said before. But it ideally is a market that is forced to grow by external factors. This is not a matter of fashion or availability. Healthcare has to address its cost factors. It cannot continue, and it's got to be done by investing in things that make healthcare more effective, which is IT to a very large extent. And cybersecurity is in a trajectory where there will be increasing investment in that area because the problems will increase. So healthcare and cybersecurity are such markets where they are forced to grow by the external factors, and that's where we operate the sector. I will say it like this, where others see a problem, we see opportunity. And our special niche in health care is also when health care must scale up and become streamed on production. We are not primarily focused on research in health care or very advanced or rare diseases. We are concerned about helping health care to become streamlined and industrialized. It might sound cynical to call health care industrialized, but you could just imagine what the quality of our cars would have been without an industrialized process. It means high quality to a low cost, and that is what exactly health care has to go through. And what we do, we do IT systems and products that serves when the health care becomes industrialized, in that positive sense I mentioned before. And now this saying, and we have used that for a long time. When Wayne Gretzky, the best hockey player in the world, was interviewed why he could be so good in hockey. He was not particularly good in any part of it. He said, "I do not skate where the puck is, I skate to where the puck is going to be." We've been good at that. We saw the need of pathology ways before anyone else. We saw that was required to join that with radiology because you wanted a cancer or tumor, both, for instance, to be joined between both radiology and pathology. They work as a team nowadays. And they need a team software that can provide both with the goods they need when they discuss things, just as to one example. Examples where we are going in the future is Imaging IT systems. We see consolidation in health care. Hospitals are buying each other in the U.S., becoming much fewer, much larger operations. We see that in the public health care countries by merging, especially in U.K. and the Nordic countries, but also increasingly in other countries we see that the government owns hospitals and merges them into a larger unit to become more attractive, especially for IT. And they need special IT system. It's quite different to provide an IT system or medical imaging system for one hospital or for 25 hospitals that work in a chain and they need access to the same system. We also see Enterprise Medical Imaging, our previous business was mainly radiology, that is growing, the customers want handling of all the image data, all the unstructured data to be even more wide scoped. That is not structured. The structured data resides typically in the EMR, whereas nonstructured data, which is measurements, et cetera, needs to be handled in a different way. And we are going towards a pixel EMR where EMR stands for electronic medical record, which means we take care of all the pixels, all the images outside, also of radiology for entire enterprise. We've added new ologies to be able to do that. We've done pathology, we started that 8 years ago, and that is now on a nice trajectory of growth. We have added ophthalmology. Due to the pandemic, we developed that directly with a large U.S. customer. And it was a great pride because our developers were working with the physicians and the doctors directly over Teams every week; they had weekly meetings until the product was completed, which also shows that we can develop in very exciting and new ways in the new world where, in this case, physicians can directly interact with our engineers without a large chain of product management and marketing in between. Other examples in cybersecurity, we see an increase in secure mobile workplaces. People during the pandemic have been working from home and they discovered they like to work from home and they would like to continue doing that, but that's not for very cybersecure. We want very secure mobile workplaces. So the cybersecurity can be the same if you sit at home as if you sit in the office. And this is increasing the need of also approved mobile workplaces where an approvement means that they're classified networks and can still work on mobile. High-speed, high security network infrastructure is also increasing in demand. And then I mean approval level of VPNs and bridges and routers, et cetera. We can handle also military and governmental classified information in these networks. We see an expecting increasing demand due to the crisis in Europe apart from the general increase in demand from the previous 2 points. In Business Innovation, Orthopedics and Education and Research businesses, the small businesses, the entire image-based orthopedics panel follow-up process is increasing. It has to become industrialized. It has to become to avoid revisions. Especially the revisions, the reoperations that are not needed should be avoided at all expenses, because they are dangerous and very, very complex. And lifelong education of medical staff is -- the kind of half time of medical knowledge is becoming very short. So all medical staff have to learn continuously for the rest of the year. So it's still becoming like us engineers now. We are also in that area of having to learn new for our entire life. And that means a portal with good content of medical education is a very strong thing to have. We also see other new medical areas that we are exploring on the threshold of becoming industrialized, perhaps things that you've done a little of before that now is becoming so large and so much used that it needs to become a productified industrialized area, again, industrialized in a positive sense of being high quality and good cost. And in cybersecurity, we see quantum computers threatening the security of the entire Internet encryption algorithms, all the public key infrastructures and the public key encryptions, and there will be a need for post-quantum encryption systems. Joe Biden, the President of the United States, has just announced that in the U.S. authorities, they now require symmetric encryption, which means that is a post-quantum encryption. They're very concerned about someone being able to build a quantum computer to break the current encryption of the Internet. And we're well positioned and we have several products post quantum enabled already now. So philosophy of the shareholders, et cetera. If you start with a good position in growing markets, as I have described before, then if you have happy customers, happy employees needed to create the happy customers. And you have reasonable cost control and good perseverance of what you do, then shareholders will be happy. It cannot be avoided. And that's our strategy of providing shareholder value long term, et cetera. We also have a very strong cash position that the Board proposes to distribute SEK 0.1 per share through a share redemption program and the way we've done over the last years, which has some benefits compared to normal dividend payout, but essentially it is the same thing. This is an increase of SEK 0.1 per share compared to previously. And then I'll invite you to the future, entire financial reports and the Annual General Meeting. On September 2, we have a 3 months quarter 1 report of this year, and on September 8, we'll have an Annual General Meeting. And if we avoid any pandemics coming back, we'd be very happy to host this as a physical meeting again, because we prefer that to only having these Team meetings. Also that Annual General Meeting preliminarily will be physical meeting here in Linköping. And with that, thank you very much for your listening. Please remember, your feedback is very important for us. We want to have these presentations worthwhile. If any feedback or things should be modified or we should discuss more or discuss less, please send an email to [email protected] and tell us what you think. And then I open up for questions. If you follow online, please use the chat function for questions.

Yes. And while you online start writing questions, I will start with some questions from analyst, Kristofer Liljeberg at Carnegie that we have received by e-mail. And the first question is, can you please explain the reason for large customer advances in Q4?

I'll take that. It's mainly due to U.K., where the NHS has invested a lot in future technologies, and these are prepayments in U.K. mainly. It's not something that will come back every year or every quarter. It's a onetime thing.

The next question is, explain the unusually weak gross margin in Q4?

That's due to the product mix, a larger share of hardware sales in Q4 impacting margins.

And again, that is a one-timer. We have some large long-term contracts. We had renewed hardware as part of the long-term contract. And this quarter, we had to do such a large structure deal.

Yes. and how much of the decline was caused by larger sales of third-party components?

We don't publicize that, but it's quite a large part of the decline.

And third questions. Even if margin came down last fiscal year, it is quite a bit above the target of 15%. Will costs continue to increase more than sales in the new fiscal year?

Only if we have good things to invest in. There is no reason to waste money. But we do have some very interesting trajectories and we have huge growth opportunities. There are many companies where we are still nonexisting or small. And with digital pathology, for instance, we've gone into new countries, both France and Korea are examples. And going into a new country costs a lot of money. And we also have new areas that we might invest in. But we will only go down to our 15% if we have some really good investment to do with the money.

Yes. And I will switch to online. And there we have a question. Given transition, is it possible revenue growth turning negative in the short term? Also, shall we expect lower profit margins in the short term given less revenue recognized upfront?

We transition over a long period of time and we do not expect a negative revenue growth in the short term. And then there was a question on margins. Well, I think Torbjörn already answered that partly. Margins may be pushed back a little depending on our opportunities going forward.

It's important to understand that, and Fredrik showed, we kind of flip that high building towers and nonrecurring revenue. And the initial payment of the software license will be done over 4 or 5 years. After that, we keep the higher level of payment per year. And then, of course, it's a benefit towards the onetime license model. So long term, the profit will increase. But while we flip that building down, the revenue growth will decrease initially. But long term, this will be much better than the initial license sales model. And the important thing, better for both customers and vendor, is something that has happened in most of our markets around the world.

And I have a final question from Kristofer Liljeberg, Carnegie, connected to Fredrik Gustavsson's presentation. How much of the order intake in Q4 was guaranteed?

We did not start separating between contracted and guaranteed order intake until Q1. So for Q4, we report according to old definition. And I would say all of the order intake in Q4 was guaranteed.

The first time we actually split it up was with Copenhagen and that came after Q1.

And we have no further questions online.

All right. Then I thank you all for listening. And we hope to see you again, or not see you, but present again for you on September 2, in the fall. Goodbye, and thank you very much.