CTT Systems AB
STO:CTT
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CTT Systems AB
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Welcome to CTT Q1 2024 Report Presentation. [Operator Instructions] Now I will hand the conference over to CEO, Henrik Hojer; and CFO, Markus Berg. Please go ahead.
Thank you, and good morning, and thanks for joining us at the CTT Earnings Call First Quarter '24. I'm Henrik Hojer, and I'm here together with Markus Berg. We will present our financial [Audio Gap] and outlook going forward.
Net sales increased 4% year-on-year to SEK 78 million, slightly below the forecasted range of SEK 80 million to SEK 85 million. The deviation to the downside is due to delayed shipments from our repair shop of a particular spare, caused by late component deliveries from a supplier. Operating profit EBIT increased 44% to SEK 33 million year-on-year. The EBIT margin was 42% versus 30%. CTT generated operating cash flow of SEK 26 million. Earnings per share increased 36% to SEK 1.96.
Net sales increased year-on-year with SEK 3 million, driven by SEK 11 million by the aftermarket sales, offset with the SEK 4 million sales decrease in private jet and additional SEK 3 million from lowered OEM deliveries. The OEM decreased despite significant increased deliveries to 787 [Audio Gap] lowered due to the comparable quarter, including the deliveries of the 777X.
At present, prior to certification, Boeing has 777X production at low rate. We expect resumed 777X production late '24 or early '25. Sales to private jet were, as expected, weak. The sales mix shows that aftermarket sales accounted for 80% of the turnover.
CTT booked orders were SEK 66 million versus SEK 74 million in Q1 '23. Backlog increased SEK 3 million to SEK 74 million. During '24, we will see a gradual increase in the order backlog since the typical OEM order has longer lead time compared with those in the aftermarket.
I now hand over to Markus for more financial comments.
Thanks, Henrik, and good morning, all. EBIT in the first quarter amounted to SEK 33 million, an increase with SEK 10 million from SEK 23 million [Audio Gap] last year. We had a positive EBIT impact from higher sales volume, adding SEK 1 million compared to last year and positive sales mix and margins, adding SEK 8 million, mainly due to higher aftermarket share of 80% compared to 69% last year. Currency effect improved EBIT with SEK 1 million compared to last year.
Now we move on to the next slide and look at the cash flow. Operating cash flow was strong in the quarter and amounted to SEK 26 million compared to minus SEK 4 million last year, driven by improved financial performance [ EBITDA ] SEK 35 million. Working capital was increased by SEK 1 million, mainly explained by higher sales.
Let's continue by looking at the net debt. Net debt amounted to minus SEK 99 million compared to minus SEK 10 million in the first quarter last [Audio Gap]. Cash closed at SEK 143 million. In addition, CTT has SEK 53 million in available credit facilities. Equity ratio at 76% compared to 71% in the first quarter last year. All in all, CTT has a strong financial position with net cash.
Let's move on and look at the rolling 4 quarter numbers. Net sales for the last 4 quarters increased by 17% to SEK 312 million compared to SEK 266 million last year, driven by aftermarket sales and OEM. EBIT increased with 28% to SEK 128 million from SEK 100 million. And finally, earnings per share increased with 36% to SEK 8.14 from SEK 5.97.
I now hand back to Henrik to give you the outlook.
Thanks, Markus. And as Markus said, I will now shift the focus to the trends that drive our market and have impact on our short- and medium-term outlook.
If looking at short term, the forecast for the sales range of SEK 85 million to SEK 90 million, a year-on-year increase of 8% to 14%. Sales will be driven by our repair and spares business. OEM sales is expected to be at the same level. In private jet, we expect another weak quarter. Underlying growth trends remain [Audio Gap] aftermarket, but we will always see variations quarter-to-quarter. With the forecast, we will reach SEK 319 million to SEK 324 million in trailing 12-month sales compared to a pre-pandemic high of SEK 365 million.
I will now go through our business outlook for each of our markets in '24 and beyond. Starting with aftermarket. Aftermarket sales decreased quarter-to-quarter due to late component deliveries from a supplier. This disruption is solved, and we have resumed deliveries. Looking at rolling 4 quarters, we are currently [Audio Gap] run rate of SEK 253 million. Going forward, I reiterate that sales of spares and consumables no longer will benefit from pent-up demand due to shortage after the pandemic. As a consequence, aftermarket growth will be significantly lower than '24 compared with a 30% increase we reported in '23.
In 2024, system sales will be the primarily growth driver, benefiting from several strong trends. The chart on this page presents annual revenue from our various businesses. Notably, aftermarket has recovered and passed pre-pandemic level. Compared with 2019, aftermarket sales have increased 72% or SEK 106 million from SEK 147 million to SEK 253 million.
But revenues from system deliveries to OEM, retrofit and private jet only accounted to SEK 54 million in '23 compared with SEK 191 million in 2019. We have a SEK 137 million gap. The main driver to close this gap will initially be OEM, as Airbus and Boeing target production rate close to the pre-pandemic highs, and Boeing has also expected to start deliveries of 777X. We have a strong position to increase retrofit sales as well as significant opportunities addressing new market in large cabin business jets. I will come back to that later in the presentation.
OEM will, again, be the growth driver. Order long-haul aircraft in '23 was the high [Audio Gap] in years. And now end of Q1, order backlog for A350 and Boeing 787 aircraft amounted to a total of 1,900 aircraft, which equals the total deliveries so far. We foresee significant higher OEM deliveries in '24 and onwards. OEM sales are in recovery phase, trailing 12-month sales of SEK 33 million compared to pandemic low of SEK 20 million and SEK 166 million at pre-pandemic high. Demand for OEM humidifier is growing, fueled by wide-body aircraft production ramp-up that started in '23 and continues in '24 and onwards.
The main driver for CTT will be the Boeing 787 program, currently at the build rate of 5 aircraft per month, targeting to reach 10 in '26. Airbus is at a build rate of 6 aircraft per month, with objectives to increase to 10 in '26. And yesterday, Airbus announced that they go to [Audio Gap] on the back of strong demand. In addition, we will benefit from the Boeing 777X program, which its first delivery is scheduled in late '25. CTT expects to resume deliveries in the '24, '25 time frame.
To summarize, the OEM business will be a resilient driver that will [Audio Gap] driven by massive wide-body order backlogs. Part of our growth strategy is to convince airlines not only to secure healthier climate for pilots and crew, but also to offer humidity at wellness levels for the premium passengers in first and business class. This is an emerging market that benefits from a large installed base in flight deck and crew [ rests ], with excellent performance and reliability data.
Today, we have 90% penetration in flight deck on Boeing 787s and similar selection rates on new A350 operators. In total, we have flight deck humidifiers installed [Audio Gap] aircraft at more than 50 airlines. If looking at the picture on this slide, we see 3 airlines that operate A350 aircraft with humidifier in business class. Air India is our newest operator with 6 A350-900s as part of the new flagship fleet. In addition, we have [Audio Gap] operators since 2019 and [ Turkish ] Airlines since 2022. Worth mentioning is that 4 airlines have specified A350-1000s or 777X aircraft with cabin humidification, with first deliveries during '25 and '26.
The [Audio Gap] new airlines that operate aircraft with cabin humidifier on board and the fact that additional airlines have specified new aircraft we enter into service in '25-'26 creates some favorable dynamics. The cabin humidification retrofit opportunity looks better than ever before, driven by harmonized demand and competition driving differentiation. In addition to new build aircraft, many airlines will pursue large cabin interior retrofit projects. This will lead to opportunities to retrofit the cabin humidification system, as airlines want to harmonize fleet to have the same cabin experience on all their different aircraft types. Even if it's hard to predict time lines, close to '25, '26, when more airlines will start to operate aircraft equipped with humidification in premium plus. In other words, cabin humidification projects must soon start to align their fleets.
The private jet market has its own cyclical behavior, with low correlation to normal economical cycles. Our private jet business report an expected another quarter with low sales. Near-term outlook is equally down. We only have 1 project in the order book, but our VIP project pipeline is healthy. And importantly, we don't lose any deals. In fact, all quotation for ACJ and BBJ systems amount in total to historical high levels. When we will receive, these orders will be a function of, among other things, VIP aircraft availabilities. The cooperation with Airbus Corporate Jets is still successful, and ACJ continues to promote our system. We are well positioned, and we will win orders [Audio Gap]. Our lead time to deliver kit systems is only 2 to 3 months, but longer for wide-body VIP projects.
If looking at the private jet numbers, trailing 12-month sales have been ranging from SEK 10 million to SEK 30 million and is currently at SEK 14 million. We expect activities to pick up, with more opportunities in the second half of '24.
In private jet, we also addressed additional sales opportunities in the large cabin business jet market, with an annual value of USD 30 million. As stated before, we need to endorse and be included in the offerings by the OEMs. That leads the way by promoting our humidification system, together with and as part of their green aircraft. The business model is well received by the market and customers. It's now a de facto standard in the ACJ comfort package for long range. Our future growth strategy in private jet aims to convince other manufacturers to follow and hereby unlock the market.
As you can see on the picture, we target Boeing business jets, Bombardier Global, Dassault Falcon and Gulfstream. If we convince any of these OEMs, sales volume will leapfrog. Lead time from OEM award to first revenue will be 12 to
[Audio Gap]. At present, we have no business jet award, but I'm still cautiously optimistic that we shall enter into ACJ's similar partnerships, with at least one additional private OEM in '24. This is a top priority for CTT.
The anti-condensation [Audio Gap] any orders. We have a clear strategy, and I'm convinced that it will lead to fruitful results. But as stated before, the key enabler is OEM availability. This can only be accomplished with the support from retrofit customers that are large buyers of new aircraft. As part of our effort, we have ongoing trials with a major low-cost carrier. Another track involves our largest customers, Jet2 and Transavia. Both are in transition from all Boeing fleet, we introduced a new Airbus 320 family aircraft.
Both airlines have previously bought our anti-condensation system BFE line-fitted in their new Boeing aircraft. This is not yet possible at Airbus. Instead, our first retrofit window will be at C-check. We will, in parallel, together with them and other airlines, convinced Airbus that it should be possible to install our green tech system in a new aircraft before delivery. We remain convinced [Audio Gap] of CTT's anti-condensation system is aligned and part of sustainability efforts to reach aviation industry commitments and goals.
Summarizing, we expect to accelerate population growth in the upcoming years. The main driver will be correlated to airline investment [Audio Gap] primarily by new build aircraft. A more optimistic driver, harder to predict is retrofit, but we have moved forward in the last quarters. Finally, we have made some progress in our efforts to win additional OEM customers in private jet. [Audio Gap] but we continue to successfully execute on our strategy, and it starts to pay off. We are clearly in the beginning of the next phase where we significantly shall increase our installed base.
With that said, I hand it over to you all for questions.
[Operator Instructions] The next question comes from Karl Bokvist from ABG Sundal Collier.
First one is just on the -- I apologize if you said it, but what was the magnitude of the delayed shipments now in the first quarter?
Karl, you didn't [Audio Gap] say it. And as always, we actually don't go into the -- dividing the numbers from the aftermarket. We just report one number, but it was big enough for us to miss our forecast, which we usually don't do.
Understood. Then just looking into the second quarter. And if you then guide for revenues of between SEK 85 million to SEK 90 million, but you also say that it could be pretty stable sequentially on system sales, so i.e., good aftermarket. How do you -- how should we think about margins considering the very strong 40% plus this quarter?
Do you want to take that question, Markus, or -- I think I can add a little bit.
Sure. As you know, our margins are dependent on the revenue mix and the currency rate. So if that is stable and on the same level as this quarter, we should expect margins to stay at the level we are today.
Understood. And then just on the -- you talked here about build rates, Henrik, and also what Airbus said yesterday. But on the 787, so far, has there been any impact at all from their, call it, the improvement efforts and the -- I mean certain legal discussions also regarding the 787 production?
I think 787 has been very stable. Q4, Boeing was actually super positive on Wednesday when they reported their Q1. They reported one issue with one supplier, that they have moved production from Russia, pending the war, and they had some -- I mean if it's one supplier, I'm pretty sure they will solve it quickly. They also reported that they had some issues with Buyer-Furnished Equipment, which were seats from that the airlines by themselves and deliver to Boeing. That doesn't reflect or has any impact at all on build rates. So -- I mean we're looking very positively at the 787 program. And maybe the ramp up has slight delays during this year. They're up 5%, and they should go up. But I mean we're delivering what they should [Audio Gap] 9 months out. So on CTT, we don't see any effects, and we remain very positive.
Understood. And then on the private jet and/or VIP side, when you said we could potentially see an improvement from the second half, which category do you think will be the one that could turn a bit better towards the second half? I.e., are we talking about the kits to airbus or more about the widebody side?
So where we will see improvements in the second half of this year is different VIP projects. So it should be a mix of kit systems. I think that would be the majority. But I think, as I said, we have a very healthy pipeline. And there is several wide-body projects out there as well that could come in during the late part of the year and with deliveries in '25.
Understood. Then on penetration, you write and say that you feel that you continue to improve the penetration on the 350. Apart from the ones that you perhaps highlighted in the slides here, but is it still mainly that you see an improved penetration on cockpit and flight deck? Or have you also seen improving penetration on the newer areas, i.e., the premium cabins?
I mean to start with, flight deck looks really good. You know the slow start we had in Airbus being reluctant to choose options or any options actually. But new airlines, they choose flight deck. And as I said, we are on the same level as on 787, and that is a really good penetration. And then we have revealed that a few more airlines have [Audio Gap] premium cabins. And right now, I don't have any news, but the trend is clear that more and more airlines look at this option. And also, when you listen to the airlines, I think everybody is reporting that the premium cabin is where they make their money. So that also underlines the trend that investments go in the way of offering your premium passengers, extra things, and that's an important part of the airline competition between the different airlines. So I'm very positive on that side as well.
And did I -- you said flight deck here, but do you also see a good trend within the cockpit? Or did you include cockpit when you talked about flight deck overall?
So I mean just to straighten things, flight deck for us is the cockpit where the pilot sit. And then we have the crew rest usually through of them, and then we have the premium cabin. Flight deck is really good. Crew rest is improving on the Airbus, still not on the same level as 787, but improving.
Understood. Just more of a longer term question. You have started to increase the headcount now, 1 or 3 years ahead. Of course, very difficult to say, but what do you think your headcount could be in relation to what you foresee ahead when you talk about all of these different growth opportunities?
I mean we have a headcount prediction that we calculate from the ramp-up of deliveries. But at the same time, we also work with efficiency programs and also automization. So headcount number is hard to predict, but we will have a higher headcount, especially in our manufacturing. And when production rate goes up, you also have to add quality and other parts in the company. So headcount is going up, but we try to also rationalize and automatize in parallel.
And then also it's been quiet now for a few quarters regarding comments from your side on competition within the aftermarket. Anything worth mentioning there in terms of what you've seen? Or if anything has changed? You mentioned that you started seeing sort of good results from trying to rewin customers, for example?
No, it's -- yes, you more or less answered the question. I mean we're always fighting in the aftermarket to offer the best products and thereby, keep the customers. And I think we're in a very good position. Having our OEM pads that have ours and Munters material that is specified and developed, especially for the aviation market. And I think that gives us a competitive edge compared to competition that works with a standard material that you can actually more or less buy at any supplier. And when we go to the airlines, I think we're having a strong story, and it pays off over time. But we cannot sit still. We have to work hard with this, and we continue to do that. And I think we're in a very good position.
There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
Thank you. Before closing this earnings call, I would like to add one thing on the [Audio Gap] that we got some questions on. And I would just say that it's getting more and more important, and we see that Airbus is winning more and more orders on the A350. And I think we're in parallel with that, improving our position and raising our penetration rates. So we really look forward to working closely with Airbus.
But before closing then, I would like to highlight a few things, that the next months are a very busy period for CTT with several events. In May, we will attend 2 important exhibitions, EBACE in Geneva, which is focused on the VIP, and business jet market. And in parallel, once again, we will [Audio Gap] in Hamburg, focused on airlines. We will exhibit, together with our partner, Collins Aerospace. We also, in June, will attend another RedCabin event, Aircraft Cabin Innovation Summit in Dallas-Fort Worth, hosted by American Airlines. And we really look forward to being close to our customers again. And hopefully, this can lead to more business in the future.
With that said, thanks for listening, and have a great Friday.