Interim report Image Systems AB January - September 2023

Mixed market conditions – targeted investments

With continued focus on developing new products for the future, the Group’s operating activities during the first nine months of the year delivered net sales in line with the previous year with a maintained gross margin. The business unit Motion Analysis operates in a growing market and the business unit RemaSawco has uncertainty about the recovery of market conditions in the sawmill industry. The group prioritizes implementing the strategy we believe is the right path for long-term profitable growth, but with the necessary adjustments.

Financial overview

⁽¹⁾    The definition of gross margin has changed since last year and is calculated as Net sales minus raw materials and consumables in relation to Net sales.

⁽²⁾    The operating profit (EBIT) is affected by a one-off cost of MSEK 2.3 during the period January–September 2023.

⁽³⁾    The profit after tax is affected by one-off costs of MSEK 3.7 during January–September, of which the operating profit is affected by MSEK 2.3 and net financial items by MSEK 1.4.

The business unit Motion Analysis operates in a growing market and the fourth quarter has begun with several orders for defense-related industry. During the third quarter, the business unit RemaSawco was burdened by continued very weak order intake, and we are now faced with increasing uncertainty about when this trend will actually be reversed. At the same time, the sawmill industry has considerable long-term potential. In this situation, we focus on what we can influence, which means that we continue to invest in our product portfolio and what creates healthy long-term profitability, such as the service offering.  The Group’s operating activities, despite slightly lower net sales in the third quarter, showed an unchanged gross margin.  For the first nine months, the Group delivered net sales in line with the previous year. At the same time, our targeted investments in product development have had a negative impact on the operating profit.

Continued challenges for the sawmill industry

The sawmill industry is experiencing an economic downturn in which factors such as high interest rates, high raw material prices, and falling demand for sawn wood products have limited sawmills’ profitability and short-term willingness to invest.  We assess that demand will remain at low levels for some time to come but that it will gradually improve. Our strategy is to keep developing the product portfolio to have a stronger offering when industry investments return. During the year, RemaSawco invested in product development and the organization to shorten delivery times and ensure quality. We continuously adapt to current market conditions.

Motion Analysis operates in a profitable market

The current turmoil in many parts of the world leads to increased demand for the Motion Analysis business unit’s offering, which continues to see a promising market situation. In the third quarter, the Motion Analysis business unit reported order intake and net sales in line with the previous year. The lower result is due to an increased pace of product development, which we previously announced. The business unit, a market leader in its niche of high-speed film analysis, sees opportunities to strengthen its position further and generate growth with new functionality.  During the first nine months, the business unit reported an 18 percent sales growth compared to the previous year.

Ready to respond to challenges

For a long time, we have worked intensively on adapting and streamlining the organization in the face of changing market conditions. We believe that the coming quarters will remain challenging. Thanks to the different conditions of the two business units, the Group is able to respond to situations that may arise. The commitment and energy in the Company, and what we have done so far with good results, testify that we are on the right track.

Johan Friberg, CEO and President

THE GROUP’S DEVELOPMENT IN THE THIRD QUARTER

Order intake, net sales, and profit

Order intake amounted to MSEK 23.8 (64.7). Order backlog as of September 30, 2023, amounted to MSEK 38.4 (96.8).

Net sales amounted to MSEK 37.6 (43.1). Capitalized development expenditure amounted to MSEK 2.5 (1.8) and relate to both business units.

Gross margin amounted to 71 (71) percent.

EBITDA amounted to MSEK 4.9 (12.7). Other external charges increased compared with the corresponding period last year, which mainly is attributable to the Group’s increased pace of product development.

Depreciation/amortization amounted to MSEK -4.6 (-4.6). Net financial items amounted to MSEK -0.3 (-0.2).

Result after taxes amounted to MSEK 0.1 (8.0).

Financial position, investments, and cash flow

The Group’s investments in non-current assets during the quarter amounted to MSEK 3.8 (3.1) of which MSEK 2.5 (1.8) is 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 -5.9 (0.6). Solidity as of September 30, 2023, amounted to 69 (59) percent. Net indebtedness amounted to 0.1 (0.1) times.

Available liquid funds including the undrawn part of the overdraft facilities amounted to
MSEK 12.6 (27.9) as of September 30, 2023.

THE GROUP’S DEVELOPMENT DURING THE INTERIM PERIOD

Order intake amounted to MSEK 75.7 (147.2). Order backlog as of September 30, 2023, amounted to MSEK 38.4 (96.8).

Net sales amounted to MSEK 120.6 (117.1), and capitalized development expenditure amounted to MSEK 6.3 (7.2), which take place in both business units.

Gross margin amounted to 71 (68) percent.

EBITDA amounted to MSEK 12.0 (19.1). Depreciation/amortization amounted to MSEK -16.0 (-14.6), of which MSEK -2.3 (-) is attributable to a write-down in connection with the termination of a rental contract for office and production premises in Finland. The termination was carried out in order to reduce rental costs in the RemaSawco business unit when parts of the operation are centralized to the head office in Linköping, Sweden.

Net financial items amounted to MSEK -2.2 (-0.8). The change in net financial items is linked to a one-off item of MSEK -1.4 (-) for a write-down of a receivable from Digital Vision.

Result after taxes amounted to MSEK -5.8 (4.1).

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

Net sales in the third quarter are lower than last year due to a challenging market situation in the sawmill industry. The industry is characterized by low demand for sawn wood products and continued high raw material prices. This results in a significantly lower order intake than last year.

In the first nine months, the Company delivered net sales in line with the previous year with a slightly lower EBITDA. This reduction in profit is largely due to a continued high investment rate in new products.

The economic downturn with increased uncertainty negatively affects our customers’ willingness to invest. At the same time, we note that our customers in the Nordic region intend to carry out upgrade projects or smaller replacement investments and still show a strong interest in RemaSawco’s improved offerings. However, we face a period of uncertainty about when and at what pace the economy will turn around.

Product development

During the quarter, basic development continued within harmonization and improvements of existing functionality as well as the development of new functionality for future product updates. The focus during the quarter has been on board handling products. The business unit maintains a high rate of investment in product development with the aim of creating scalability for technical solutions and developing key capabilities for the digitalization and optimization of sawmills and their processes

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^Ⓡ, where TEMA has most of its customers in the civil sector and TrackEye^Ⓡ within defense-related testing and the aerospace industry.

Performance during the period

The market in which the business unit operates remains good and is expected to strengthen even further in the foreseeable future. The development in the world around us is characterized by unrest, which creates an increased long-term need for the Company’s products aimed at the defense industry. At the same time, the automotive industry is flying high with the transformation towards electric cars. The Asian automotive industry is currently booming. Order intake is at the same level as last year, and the Company’s net sales show an 18 percent growth for the first nine months.

During the quarter, a 7-year framework agreement with the French Armed Forces with a business volume of approximately MSEK 32 was received as well as a major TrackEye order for the Italian Armed Forces. The business unit has deliberately increased the rate of investment during the year in order to shorten the time to commercialization of the new product platform under development, as we see increased demand. This acceleration has a negative impact on the operating profit in the form of higher costs.

Product development

During the quarter, the business unit continued the work of productizing the new platform and completed and released several maintenance releases on the existing product platform. The business unit continues to develop a cloud-based customer portal that will handle sales, license management, and customer support of the new platform.

OTHER INFORMATION

Parent Company

The Parent Company’s net sales for the third quarter amounted to MSEK 1.0 (0.9). Operating profit amounted to MSEK -1.2 (-1.1). Result after taxes amounted to MSEK -1.2 (-51.1). Investments in fixed assets amounted to MSEK 0.0 (0.0). The Parent Company’s available liquid funds, as of September 30, 2023, amounted to MSEK 0.0 (0.0). The Parent Company’s equity as of September 30, 2023, amounted to MSEK 100.0 (86.5) and the solidity was 98 (88) percent.

Significant events after the period

The Motion Analysis business unit has recieved multiple orders worth approximately MSEK 7.

Personnel

The average number of employees was 67 (73). The number of employees at the end of the period was 70.

Number of shares

The number of shares on September 30, 2023, 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 16 and relevant reconciliations on page 15.

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 2022 Annual Report. No significant new or changed risks or uncertainties have been identified during the quarter.

Financial calendar

Year-end report 2023                            February 9, 2024

Interim report January-March 2024         April 26, 2024

Annual General Meeting 2024                 May 8, 2024

Interim report January-June 2024            July 19, 2024

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

Linköping, Sweden, November 10, 2023

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 8:00 AM on November 10, 2023.

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

This disclosure contains information that Image Systems AB is obliged to make public pursuant to the EU Market Abuse Regulation (EU nr 596/2014). The information was submitted for publication, through the agency of the contact person, on 10-11-2023 08:00 CET.

For further information, please contact:
Johan Friberg, CEO, tel +46 13-200 100, e-mail johan.friberg@imagesystems.se 

Image Systems is a Swedish high-tech company and a leading supplier of products and services in high-resolution image processing. By constantly challenging the market's concept and instead offering new and more efficient solutions, we help our customers achieve increased success in their businesses. The company caters to a large number of industries globally and operations are conducted in two business areas RemaSawco and Motion Analysis. Image Systems has approx. 70 employees in offices in Sweden, Finland and Norway. In 2022, the group had a turnover of SEK 180 million. The share is listed on Nasdaq Stockholm Stock Exchange's Small Cap list and trades under the ticker IS. For further information visit our website www.imagesystemsgroup.se