INTERIM REPORT JANUARY–SEPTEMBER 2022 Image Systems AB (publ)

Record quarter as favorable trend continues

The Group reports its single best quarter to date with an EBITDA margin of approximately 28 percent under positive market conditions. Both business units also continue to perform well in terms of order intake and net sales, and in rolling twelve months, we are getting close to the Group’s long-term objective to achieve an EBITDA margin of 15 percent. This development is in line with the Group's strategy to establish a center of excellence in non-contact measuring technology.

Financial overview

“We deliver a quarter in which both business units perform strongly. This is a clear indication of the strength of our strategy and strengthens our determination to continue our efforts in the same direction.”

A WORD FROM THE CEO

The development in the third quarter clearly shows the underlying strength of the Group and its established strategy involving the creation of a center of excellence in non-contact measuring technology. To create and intelligently analyze data within niche technological sectors offers every possibility of being a viable business in the long term.

With RemaSawco receiving a number of orders, and Motion Analysis at the same time showing successful progress, the order intake doubled over the previous year for the third quarter and increased by approximately 12 percent for the year as a whole. Thus, we are moving into the fourth quarter with an order backlog of as much as MSEK 97.

It is gratifying that the Group also reports a strong operating profit and stronger margins. RemaSawco, which is implementing fundamental changes to the product mix, delivers an EBITDA margin of 23 percent. During the third quarter, Motion Analysis had an unusually high proportion of sales in software, which resulted in an EBITDA margin of approximately 57 percent for the business unit.

Volatile market conditions

As a result of the slowdown in the construction sector, the sawmill industry has seen a downward price trend over the past quarter, and, as such, a decline in profitability. This has led to uncertainty in the sawmill market. How and when this will impact RemaSawco is difficult to predict. Our assessment is that the volume of sawn wood will grow, going forward, both because of the capacity of wood to reduce the carbon footprint and to enable economically sustainable construction. In such a scenario, the products developed by RemaSawco will be key components to make the most of the raw material and the production facilities at the sawmills.

In the short term, we see continued strong demand for the Company's products, as sawmills in general have consolidated their financial positions and continue to have significant upgrading needs in their facilities.

Motion Analysis, which directs about half of its sales to defence-related customers, is perceiving an increase in demand for its products, and we assess that this demand growth is set to continue over the long term.

Change is implemented and brings results

The journey of change that RemaSawco has embarked upon is continuing to pay off. We can establish that the product-range changes, which have been implemented in a short time, are proceeding as planned and have had a positive impact on both turnover and results.

Firm foundation for growth

In rolling 12 months, we are now approaching the Group's long-term objective of an EBITDA margin of 15 percent.

Our clear strategy to stay at the forefront of niche markets allows us to stand firm even during periods burdened by uncertainties in the outside world.

We deliver a quarter in which both business units perform strongly. This is a clear indication of the strength of our strategy and strengthens our determination to continue our efforts in the same direction.

Johan Friberg

CEO and President

THE GROUP'S DEVELOPMENT IN THE THIRD QUARTER
Order intake, net sales, and profit

Order intake amounted to MSEK 64.7 (32.7). Order backlog as of September 30, 2022, amounted to MSEK 96.8 (60.3). During the quarter, MSEK 8.5 of the order backlog was written off following the shutdown of a project with an end customer in Russia.

Net sales amounted to MSEK 44.9 (36.1), of which MSEK 1.8 (1.2) related to capitalized development expenses across both business units.

Gross margin amounted to 72 (74) percent.

EBITDA amounted to MSEK 12.7 (7.8). Other external charges increased compared with the corresponding period last year, which mainly is attributable to the Group's ongoing trademark investments and costs relating to the ongoing organizational changes in RemaSawco. As pandemic-related restrictions are lifted, activities such as travel also increase.

Depreciation/amortization amounted to MSEK -4.6 (-4.6). Net financial items amounted to MSEK -0.2 (-0.1).

Result after taxes amounted to MSEK 8.0 (3.2).

Financial position, investments, and cash flow

The Group’s investments in non-current assets during the quarter amounted to MSEK 1.8 (2.2) of which MSEK 1.8 (2.2) 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 0.5 (7.1). Solidity amounted to 59 (60) percent as of September 30, 2022. Net indebtedness amounted to 0.1 (0.2) times.

Available liquid funds including undrawn overdraft facilities amounted to MSEK 27.9 (17.0) as of September 30, 2022.

THE GROUP’S DEVELOPMENT DURING THE INTERIM PERIOD

Order intake amounted to MSEK 147.2 (131.1). Order backlog as of September 30, 2022, amounted to MSEK 96.8 (60.3).

Net sales amounted to MSEK 124.3 (114.5), of which MSEK 7.2 (4.9) related to capitalized development expenses. Capitalization of development projects takes place in both business units.

Gross margin amounted to 70 (67) percent.

EBITDA amounted to MSEK 19.1 (11.9). In the previous year, the operating profit was burdened by a one-off item of MSEK 1.4 for pension costs in RemaSawco. Depreciation/amortization amounted to MSEK -14.6 (-14.0). Net financial items amounted to MSEK -0.8 (-0.8).

Result after taxes amounted to MSEK 4.1 (-2.5).

The Group's performance, rolling 12 months

The Group has seen a positive trend in performance for several quarters, which is a clear indication of the strength of our strategy and strengthens our determination to continue our efforts in the same direction. In rolling 12 months, we are now approaching the Group's long-term objective of an EBITDA margin of 15 percent.

RemaSawco

RemaSawco supplies measurement and optimization systems for the sawmill industry. The product range, based on proprietary measuring products and software, addresses everything from timber intake, sorting, sawmill lines and board handling to modern automation solutions.

Performance in the third quarter

RemaSawco showed a quarter of growth. The order intake doubled in comparison to the previous year. Both net sales and EBITDA increased sharply over the previous year's levels. During the quarter, RemaSawco received, among other things, orders for more than MSEK 27 from Moelven Timber under the framework contract that was signed in the previous quarter. Other order intake derives from a number of customers that are phasing out their older products.

The price of sawn wood fell during the quarter, a consequence of a slowdown in the construction sector. In the construction sector, however, wood is increasing its market share, and we thus maintain a positive outlook on the industry’s development in the long term. These trends have limited impact on the demand for RemaSawco's products and services in the short term, however. There is persistent strong interest in products that optimize quality and ensure the production availability of sawmills.

RemaSawco continues the implementation of the organizational change that was decided on and disclosed during the first quarter, with the purpose of focusing on profitable products and enhancing the level of customer service. The aim is to create scalability and key components for the digitalization of sawmills and related processes.

Product development

RemaSawco is involved in an ongoing effort to modernize its product portfolio, and older products are gradually being phased out in favour of new, innovative products and product improvements. During the period, we have focused on three key areas: harmonization of functionality, user interfaces, and product upgrades.

The period involved three major product upgrades relating to the products Boardscanner-Q, RS-Opt, and our new 3D frame, RS-LogScanner 3D, which replaces the product RS-LogProfiler. In addition, an upgrade of our timber sorting system RS-715 is ongoing and advancing according to plan.

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. TEMA customers are predominantly found in the civil sector and TrackEye customers in defence-related testing and the aerospace industry.

Performance in the third quarter

Motion Analysis delivers a good quarter with healthy order intake and sales. The increased EBITDA margin during the third quarter compared with the previous year is attributable to a higher proportion of sales relating to software licences in combination with positive currency effects. Several customer projects were finalized and delivered. Both the Asian markets and the US market performed well in terms of both order intake and sales.

The international development, where we now see increases in defence spending, is yet to reflect on the order intake of Motion Analysis. Nevertheless, we are noting an increased global interest in our software and measuring systems, which benefits the business unit in the long run.

Product development

During the third quarter, the Company finalized a customer adaptation of the TrackEye product for a major customer, which also has been delivered. The work to add new functionality to this year's main release of TEMA is ongoing. At the same time, the development of our new software platform continues with parallel further developments of DIC (Digital Image Correlation) and 3D calculation modules now under way. This effort is carried out alongside feasibility studies for the development of additional modules. 

Other information

The Parent Company

The Parent Company’s net sales amounted to MSEK 0.9 (0.9). Operating profit amounted to MSEK -1.1 (-0.7). During the quarter, a write-down of the shares in the Finnish subsidiary of SEK 50 million was made, as most of the operations will be handled by the Swedish subsidiary in the future. Result after taxes amounted to MSEK -51.1 (-0.5). Investments in fixed assets amounted to MSEK 0.0 (0.0). The Parent Company’s available liquid funds amounted to MSEK 0.0 (0.2) as of September 30, 2022. The Parent Company’s equity as of September 30, 2022, amounted to MSEK 86.5 (132.8). Solidity was 88 (90) percent.

Significant events after the period

The Motion Analysis business unit received orders from the Australian and French Armed Forces totaling about MSEK 2.7. The RemaSawco business unit received orders from Renholmen totaling about MSEK 2,5 Mkr.

The major owners of Images Systems have appointed a Nomination Committee consisting of Hans Karlsson, Thomas Wernhoff and Hans Malm. The Company’s Annual General Meeting will be held on May 4, 2023 in Linköping.

Personnel

The average number of employees was 73 (83). The number of employees at the end of the period was 67.

Number of shares

The number of shares on September 30, 2022, 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 2021 Annual Report. No significant new or changed risks or uncertainties have been identified during the quarter.

Financial Calendar

Year-end report 2022                      February 10, 2023

Interim Report January–March 2023            May 4, 2023

Annual General Meeting 2023       May 4, 2023

Long-term financial objectives

Image Systems aims to create long-term increase in value 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, November 11, 2022

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 11, 2022.

Financial reports are available on the Company’s website http://www.imagesystemsgroup.se

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 11-11-2022 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. 80 employees in offices in Sweden, Finland and Norway. In 2021, the group had a turnover of SEK 159 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