Favorable factors result in an exceptional third quarter
The Group is ending an exceptionally strong quarter, with several favorable factors contributing. Both business units have delivered on the solid order backlog from the start of the quarter which has resulted in a considerable increase in both net sales and operating profit. However, we assess that the outcome for the third quarter is not yet a level to count on. The sawmill industry continues to be characterized by uncertainties. Thanks to streamlining measures and a focus on efficient solutions for customers, the RemaSawco business unit has overcome several market challenges. The Motion Analysis business unit's transition to an increasing share of subscription agreements to reach a more stable revenue flow and results in the long term is going unexpectedly quickly. This results in lower net sales during the transition period. At the same time, a favorable market during the quarter counteracted these consequences.
| Third quarter July-September | Interim period January-September |
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Financial overview
| Jul-Sept 2024 | Jul-Sept 2023 | Jan-Sept 2024 | Jan-Sept 2023 | Full year 2023 | |
| Order intake, MSEK | 47.1 | 23.8 | 140.5 | 75.7 | 150.0 |
| Order backlog, MSEK | 73.0 | 38.4 | 73.0 | 38.4 | 73.3 |
| Net sales, MSEK | 56.6 | 37.6 | 139.1 | 120.6 | 160.7 |
| Capitalized development expenditure, MSEK | 3.6 | 2.5 | 10.9 | 6.3 | 10.0 |
| Gross margin, % | 67 | 71 | 68 | 71 | 70 |
| EBITDA, MSEK | 17.3 | 4.9 | 25.8 | 12.0 | 15.5 |
| EBITDA margin, % | 28.7 | 12.2 | 17.2 | 9.5 | 9.1 |
| Operating profit (EBIT), MSEK | 12.8 | 0.3 | 12.4 | -4.0 | -5.3 |
| Profit after tax, MSEK | 12.8 | 0.1 | 12.4 | -5.8 | -6.8 |
| Cash flow from operating activities, MSEK | 3.2 | -2.1 | 24.7 | -12.9 | 1.7 |
| Solidity, % | 60 | 69 | 60 | 69 | 63 |
| Average number of employees | 73 | 67 | 70 | 67 | 67 |
| Earnings per share, SEK | 0.14 | 0.00 | 0.14 | -0.07 | -0.08 |
A WORD FROM THE CEO
The third quarter was unusually strong, driven by both business units of the Group. Order intake doubled to MSEK 47.1 (23.8), while net sales increased by just over 50 percent to
MSEK 56.6 (37.6). A beneficial interplay of several factors also resulted in a profit before depreciation, EBITDA, of MSEK 17.3 (4.9). We are incredibly proud of what we have achieved during the quarter, but we do not consider this a level to be reckoned with going forward.
EBITDA for the first nine months of the year amounted to MSEK 25.8 (12.0), a more than twofold increase, mainly thanks to the third quarter. Operating cash flow has strengthened significantly, allowing us to continue investing for the future.
The RemaSawco business unit delivered customer projects at a rapid pace during the third quarter, which increased net sales and operating profit, but at the same time reduced the outgoing order backlog.
The Motion Analysis business unit saw a continued increase in order intake during the quarter, MSEK 19.2 (7.8), where a significant part is related to subscription services. The order backlog for subscription and support services more than doubled to MSEK 18.6 (8.0).
RemaSawco shows high efficiency
The sawmill market continues to show uncertainties with limited access to raw materials, continued high raw material prices and low demand for sawn timber. As a result, our customers are more cautious about making major investments, and it is difficult to predict when the market will improve for the hard-pressed sawmills.
Despite this, the RemaSawco business unit is demonstrating that the efficiency improvements that have been made are also leading to improvements in results.
As the market gradually recovers, the organization is therefore ready to handle increased sales and deliver products and services that, in turn, increase customers' efficiency.
Motion Analysis significantly increases order intake
The Motion Analysis business unit's decision to transition to selling subscription agreements has been beneficial as market conditions strengthened during the year. Order intake more than doubled in the third quarter and increased by 80 percent in the first nine months of the year compared to the previous year. The product mix is such that the business unit has managed to maintain and increase its net sales even though a larger part of the order intake has not yet been recognized as revenue.
EBITDA has decreased as the business unit continues to invest in both product development and market presence. During the year, a sales office was established in the USA, which positively impacted order intake.
Group business units ready to deliver on their full potential
The development in both the third quarter and the first nine months of the year demonstrates the underlying strength of the Group and its two business units. When market conditions allow the business units to deliver on their full potential, the results of the efficiency measures implemented will be clearly visible. We can, therefore, be confident in our conviction and continue to invest to offer the market the best and most innovative solutions to make our customers more efficient.
Johan Friberg, CEO and President
THE GROUP'S DEVELOPMENT IN THE THIRD QUARTER
Order intake, net sales and profit
Order intake amounted to MSEK 47.1 (23.8). Order backlog as of September 30, 2024, amounted to MSEK 73.0 (38.4).
Net sales amounted to MSEK 56.6 (37.6). Capitalized development expenditure amounted to MSEK 3.6 (2.5) and relates to both business units.
Gross margin amounted to 67 (71) percent.
EBITDA amounted to MSEK 17.3 (4.9). Other external charges decreased, which mainly is attributable to an increase in capitalized external consultancy costs related to the RemaSawco business unit's product development. An increased share of subscription agreements will, during a transition period, result in lower operating profit for the Motion Analysis business unit, which delivers high-margin services. An expansion of our own operations in North America increased personnel costs slightly.
Depreciation/amortization amounted to MSEK -4.5 (-4.6), and net financial items amounted to MSEK -0.1 (-0.3).
Result after taxes amounted to MSEK 12.8 (0.1).
Financial position, investments and cash flow
The Group's investments in non-current assets during the quarter amounted to MSEK 6.1 (2.8) of which MSEK 3,6 (2.5) was related to capitalized development projects. Capitalization of development projects takes place in both business units.
The operational cash flow during the quarter amounted to MSEK -2.9 (-4.9). Solidity as of September 30, 2024, amounted to 60 (69) percent. Net indebtedness amounted to 0.1 (0.1) times.
Available cash and cash equivalents including the undrawn part of the overdraft facilities amounted to MSEK 21.8 (12.6) as of September 30, 2024.
THE GROUP'S DEVELOPMENT DURING THE INTERIM PERIOD
Order intake amounted to MSEK 140.5 (75.7). Order backlog as of September 30, 2024, amounted to MSEK 73.0 (38.4).
Net sales amounted to MSEK 139.1 (120.6). Capitalized development expenditure amounted to MSEK 10.9 (6.3) and relates to both business units.
Gross margin amounted to 68 (71) percent.
EBITDA amounted to MSEK 25.8 (12.0). Other external charges decreased, which mainly is attributable to an increase in capitalized external consultancy costs related to the RemaSawco business unit's product development. Personnel costs increased as a result of the expansion of our own operations in North America.
Depreciation/amortization amounted to MSEK -13.4 (-16.0). The difference relates mainly to a write-down in the first quarter of 2023 in connection with the termination of a lease contract for office and production premises in Finland.
Net financial items amounted to MSEK -0.4 (-2.2). Most of the difference arises from a one-off item in the first quarter of 2023 related to a write-down of a receivable.
Result after taxes amounted to MSEK 12.4 (-5.8).
ROLLING 12-MONTH ORDER INTAKE, REVENUE AND EBITDA
The Group's rolling 12-month EBITDA margin during the third quarter amounted to just over 15 percent. The Group's long-term EBITDA target of delivering a stable 15 percent EBITDA margin requires growth in net sales. The pace of the ongoing change in the Motion Analysis business unit, to a higher proportion of subscription and support agreements, may also affect how quickly the long-term goal is achieved. The changed business model will eventually translate into growth in both net sales and EBITDA results.
BUSINESS UNIT: REMASAWCO
RemaSawco provides solutions to optimize production in the sawmill industry. The product portfolio includes proprietary software that, with the help of laser, 3D scanning, X-ray, and automation, measures and analyzes timber and boards throughout the sawmill process to maximize value exchange, minimize waste, and thus increase customer profitability.
Performance during the period
During the third quarter, the business unit's net sales and EBITDA increased compared to the previous year. This is mainly explained by a sharp increase in deliveries from the order backlog during the quarter. The efficiency measures taken have prepared the organization to handle increasing sales faster and with higher profitability.
The market has been uncertain, with low demand for sawn timber and high raw material prices for sawmills. Limited access to raw materials has further reinforced the market's caution regarding significant investments. RemaSawco's sales strategy has, therefore, been to focus on larger group contracted upgrade programs, resulting in longer business cycles. In the third quarter, however, this work has borne fruit in the form of an increased order intake. Despite the challenges the market is currently facing, the assessment is that demand will gradually recover. However, the timing of this recovery is currently uncertain.
| Jul-Sept 2024 | Jul-Sept 2023 | Jan-Sept 2024 | Jan-Sept 2023 | Full year 2023 | ||
| Order intake, MSEK | 27.9 | 16.0 | 97.9 | 52.0 | 110.6 | |
| Net sales, MSEK | 44.3 | 29.2 | 109.1 | 93.2 | 121.2 | |
| Capitalized development expenditure, MSEK | 1.8 | 1.0 | 5.0 | 2.7 | 4.0 | |
| EBITDA, MSEK | 13.7 | 2.8 | 22.7 | 7.5 | 7.0 | |
| EBIDTA margin, % | 29.7 | 9.3 | 19.9 | 7.8 | 5.6 | |
Product development
During the quarter, basic development continued in two areas. In updating existing products, we have focused on our board scanner series, optimization software for timber sorting and sawmill line, updating software for timber measurement, and further developing our new measuring station. The second area covers the new digital solutions for the control and monitoring of the sawmill process. The first release of RS-LogScanner3DX is approaching, with advanced 3D functionality, while X-ray functionality will be gradually introduced.
The business unit continues to invest at a high level in product development to achieve scalability and further develop key capabilities for the digitalization and optimization of sawmill processes.
BUSINESS UNIT: MOTION ANALYSIS
Motion Analysis Systems offers its customers software for the analysis of high-speed film, a niche where the Company is the world leader. The software is sold under the product names TEMA and TrackEye?.
Performance during the period
The transition to subscription sales has resulted in a strong increase in the business volume of recurring revenues. The order backlog related to subscription and support agreements with future revenue flows amounted to MSEK 18.6 (8.0) at the end of the quarter, which is more than double compared to the previous year. While the transition to subscription typically means lower revenues during a transition period, the market conditions during the quarter have been such that the business unit has managed to increase net sales to MSEK 12.3 (8.4), corresponding to an increase of over 40 percent.
The business unit continued to invest in marketing and sales and accelerated product development during the period. This means that the cost base has gone up and that margins have thus gone down. The business unit's focus on increasing its market presence, both in North America and Asia, has resulted in a strong growth in order intake. During the quarter, the number of orders has risen, while the value has increased by approximately 150 percent compared with the previous year to MSEK 19.2 (7.8).
| Jul-Sept 2024 | Jul-Sept 2023 | Jan-Sept 2024 | Jan-Sept 2023 | Full year 2023 | |
| Order intake, MSEK | 19.2 | 7.8 | 42.6 | 23.7 | 39.4 |
| Order backlog subscription and support services, MSEK | 18.6 | 8.0 | 18.6 | 8.0 | 8.6 |
| Net sales, MSEK | 12.3 | 8.4 | 30.0 | 27.4 | 39.5 |
| Capitalized development expenditure, MSEK | 1.8 | 1.5 | 5.9 | 3.6 | 6.0 |
| EBITDA, MSEK | 4.7 | 3.3 | 7.0 | 8.8 | 14.2 |
| EBIDTA margin, % | 33.3 | 33.3 | 19.5 | 28.4 | 31.2 |
Product development
The business unit remains focused on delivering the first commercial release of the new platform by the end of 2024. Implementation of machine learning algorithms in software has begun to adapt products to new requirements while improving product performance effectively.
OTHER INFORMATION
Parent Company
The Parent Company's net sales for the third quarter amounted to MSEK 0.7 (1.0). Operating profit amounted to MSEK -1.1 (-1.2). Result after taxes amounted to MSEK -1.1 (-1.2). Investments in fixed assets amounted to MSEK 0.0 (0.0). The Parent Company's available liquid funds as of September 30, 2024, amounted to MSEK 0.0 (0.0). The Parent Company's equity as of September 30, 2024, amounted to MSEK 104.7 (100.0) and the solidity was 98 (98) percent.
Significant events after the period
After the end of the third quarter, the business area RemaSawco has received 2 orders for a total of approximately SEK 4 million regarding so-called SLA agreements. The order of approximately SEK 2.1 million that was communicated on October 2 was received from the customer on September 30 and is included in the order intake for the third quarter.
A Nomination Committee has been appointed for the 2025 Annual General Meeting, and it consists of Hans Karlsson (representing Tibia Konsult AB), Thomas Wernhoff (own holding), and Hans Malm (own holding). The Nomination Committee has appointed Hans Karlsson as Chairman.
Personnel
The average number of employees was 70 (67). The number of employees at the end of the period was 75.
Number of shares
The number of shares on September 30, 2024, amounted to 89,207,818.
Accounting policies
Image Systems applies the International Financial Reporting Standards (IFRS) as adopted by the EU. The interim report for the Image Systems Group is prepared in accordance with IAS 34, Interim Financial Reporting, and the Swedish Annual Accounts Act. Disclosure in accordance with IAS 34, Interim Financial Reporting, is provided in notes as well as elsewhere in the interim report.
The interim report for the Parent Company, Image Systems AB, is prepared in accordance with the Swedish Annual Accounts Act as well as the Swedish Financial Reporting Board's recommendations RFR 2 Accounting for Legal Entities.
Image Systems applies the ESMA (European Securities and Markets Authority) Guidelines on Alternative Performance Measures. Definitions of indicators are provided on page 15 and relevant reconciliations on page 14.
Risks and uncertainties
The Group's significant risks and uncertainties include business risks related to agreements with customers and suppliers as well as other external factors such as currency fluctuations. The Group's significant financial and business-related risks are discussed at depth in the management report and under Note 3 in the 2023 Annual Report. No significant new or changed risks or uncertainties have been identified during the quarter.
Financial calendar
Year-end report 2024 February 7, 2025
Interim report January-March April 25, 2025
Annual General Meeting 2025 May 8, 2025
Interim report January-June July 17, 2025
Long-term financial objectives
Image Systems aims to create long-term value growth for its shareholders. To achieve this, the Board of Directors has set long-term financial objectives:
EBITDA >15%
Solidity >50%
Dividend 20% of the profit after taxes
The Board of Directors and the Chief Executive Officer confirm that the interim report provides a true and fair overview of the Parent Company's and the Group's operations, financial position, and performance and describes the material risks and uncertainties facing the Parent Company and the companies included in the Group.
Linköping, Sweden, November 8, 2024
Johan Friberg
Chief Executive Officer
The information in this report is disclosed pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact person set out below, at 08:00 AM on November 8, 2024.
Financial reports are available on the Company's website http://www.imagesystemsgroup.se
Questions will be answered by:
Johan Friberg, CEO and President, telephone +46 (0)13-200 100,
e-mail johan.friberg@imagesystems.se
Image Systems AB, Snickaregatan 40, 582 26 Linköping, Sweden. Corporate registration number 556319-4041.
