Kendrion N.V.

Good morning everyone and welcome to Kendrion's Q1 2026 results conference call. My name is Joep van Beurden, CEO of Kendrion and with me here today is our CFO Jeroen Hemmen. Thank you for taking the time to join us and for your continued interest in Kendrion. Today we will review our performance in the first quarter of 2026. We will discuss the financial results for the group and our key business segments, and share our outlook for the remainder of the year and beyond. A recording of this call and the Q&A session will be made available on Candrion's corporate website shortly after the call. Before we begin, I would like to note that certain statements made during this call may be considered forward-looking statements. These statements are based on current expectations and assumptions and involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied. Let me start with a brief overview. We delivered a strong first quarter with continued growth in both revenue and profitability. Group revenue increased by 5% year on year to 65.2 million euro, entirely driven by our industrial business groups. Profitability improved across all business groups, so IAC, IB, and mobility, resulting in a normalized EBITDA of €11.0 million and an EBITDA margin of 16.9%. Return on invested capital increased to 25.3%, reflecting both improved earnings and a better asset utilization. Despite ongoing macroeconomic uncertainty, our industrial business performed well, supported by pricing discipline, operational focus, and a healthy order book. Let me now walk you through the financial performance in more detail. As mentioned, in Q1 2026, the Candrion Group delivered revenues of 65.2 million euro compared to 62.0 million euro in Q1 2025. This represents 5% growth and at constant exchange rates revenue increased by 6%. Revenue growth was entirely driven by the industrial business groups supported by improving demand conditions in Europe. Normalized EBITDA increased by 21% year-on-year to 11.0 million euro and the EBITDA margin expanded to 16.9% an improvement of 220 basis points compared to last year. This profitability improvement reflects a combination of volume growth, disciplined pricing, and strict cost control. The added value margin remains stable at 56.2%, demonstrating the resilience of our business mix and continued pricing discipline. Moving down to P&L, Depreciation charges decreased slightly to €3.0 million, resulting in EBITDA of €8.0 million, up 33% year-on-year. Net finance charges declined to €0.8 million, while the effective tax rate on normalized income was 25.4%. Normalized net profit before amortization increased to €5.2 million compared to €3.7 million in Q1 2025, an increase of 53%. Free cash flow in the first quarter was negative €3.0 million, reflecting typical seasonal working capital movements and the timing of tax payments. Capital expenditure was 1.1 million euro in the quarter and is expected to normalize over the remainder of the year while remaining well below depreciation for the full year. Net debt increased to 40.9 million euro at the end of Q1, primarily due to the share buyback program and seasonal working capital effects. The leverage ratio improved from 2.5 a year ago to 1.0. Moving on to the business groups, industrial breaks delivered revenue growth of 9% in Q1, reaching 26.4 million euro. Performance was supported by strengthening demand in Europe and continued success in higher value industrial applications, including robotics and automation related markets. Our focus remains firmly on margin quality and disciplined execution. Revenue in industrial actuators and controls increased by 4% to 28.3 million euro. We continue to invest in innovative products and applications, including induction heating solutions, advanced locking systems, and next generation motion control technologies. These products are well aligned with long-term trends toward automation, safety, and intelligent machinery. Mobility revenue amounted to 10.5 million euro, broadly in line with Q1 last year. Profitability, however, improved significantly, reflecting the tangible financial benefits of the corporation with Knorr Bremse at our CBU mobility facility. This corporation continues to strengthen cash generation and supports a controlled, profitable, and predictable runoff of mobility activities over the coming years. As we enter 2026, Candrion is positioned at the heart of a major technological transition in industrial markets. While artificial intelligence is enabling smarter and more autonomous machines, motion remains mission critical, and this is where Candrion plays a key role. Our strategy is focused on enabling safe, precise, and dependable motion across applications such as robotics, industrial automation, integrated safety systems, medical technology, and energy infrastructure. Our investment decisions continue to follow a strict framework. Each opportunity must demonstrate, first, strong financial attractiveness with 10% growth potential at a fully costed EBITDA of at least 20%. Second, clear competitive differentiation based on intellectual properties or expertise. And finally, mission critical relevance in customer applications. If an opportunity does not meet these criteria, we will not invest. Looking ahead, Micronomic visibility remains limited, including uncertainties related to geopolitical tensions and trade conditions. That said, we remain cautiously optimistic. Short-term, we are supported by a healthy order book and medium to long-term by a full project pipeline and accelerating demand driven by AI-enabled industrial investment. In the short term, we remain focused on margin expansion, strict cost control, and continued improvements in operational performance as a 100% industrial company. Over the longer term, Candrion is well positioned to benefit from powerful structural growth drivers, particularly in robotics, automation, integrated safety, and medical technology. We reaffirm our strategic financial targets, an EBITDA margin of 15% to 18%, return on investment of 23% to 27%. We expect annual revenue growth of 5% to 8% and annual dividends of at least 50% of normalized net profit. In summary, we delivered a strong start to 2026 with solid revenue growth, rising profitability, and an improved return on invested capital. Our focused industrial profile, disciplined execution, strong balance sheet provide a robust foundation for sustainable and profitable growth. Thank you for your question. And we are now happy to, sorry, thank you for your attention. We are now happy to take your questions.

Thank you, dear participants. As a reminder, if you wish to ask a question, please press star, one, one, on your telephone keypad and wait for your name to be announced. To withdraw a question, please press star, one, and one again. Please stand by, we'll compile the Q&A queue. This will take a few moments. And now we're going to take our first question. And the question comes in the line of Frank Klassen from De Groove, Petacom. Your line is open. Please ask your question.

Yes, good morning, gentlemen. Good morning. Question on the added value margin. It's been stable around 56%. What can we expect going forward, certainly given all the cost inflation which is coming up on raw materials and logistics? So how are you going to handle that? That's my first question. And secondly, maybe related to that, of the 6% organic growth in Q1, how much was roughly driven by price and how much by volume? Thank you.

Okay, thank you, Frank. So on the added value margin, we've talked now for a couple of quarters that the big difference that we have now as an industrial company is that our products are mission critical, which gives us a better position to protect our added value margin. And lastly, you've seen that expand quite a bit. And that was on the back of a bit of additional work we had to do as we were exiting an inflationary period. So that has taken place. And today we are focused on obviously trying to expand it a little bit more, but at some point, of course, you can't keep raising your prices indefinitely, but to keeping it stable. And we feel that we're in a very strong and a good position to deal with inflationary pressures, such as increased energy costs, wage inflation, or anything else, given the strength of our portfolio. So the expectation that we have for the coming periods is to remain at the level that we're currently at, so mid-50s in terms of the added value. On the price, Jeroen?

Yeah, so the 6% organic growth is 1% price, and the rest was volume-driven, so mainly volume-driven revenue growth.

Okay, and is it fair to assume that the price component will increase in the course of the year given the pass-on of inflation of raw materials or anything to say about that?

Yeah, it's difficult to say. I mean, if you're moving into an inflationary environment, of course, we will try to reflect that immediately in our pricing and you will see that in the top line. Currently, if you sort of assume the current situation, I think you can expect a similar split between the volume growth and pricing influences.

Okay, that's helpful. Thank you. Thank you.

Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star, one, one. And now we're going to take our next question. And the next question comes from Martin Dendrieva from ABN AMRO or the BHF. Your line is open. Please ask your question.

Yes, thank you, operator. I would like to come back to that value add, if I may, because I have a similar question on the components of that organic growth of 6%. And the 5% volume is higher than I anticipated. But would it be fair to say that if you do 5% volume and you have these pricing initiatives, which we've talked about quite often, that keeping the value add stable is actually, I would have expected that to go up. What explains that these positive elements do not drive that value add to a higher level?

Yeah, so the main topic in Q1 was mixed driven, so pricing added positively. because the sales prices added 1% to the revenue and the purchase prices were flat. So in Q1, there was no impact from purchase price inflation. The added value margin was stable, basically because of the mix. And the main impact of the mix was the production of inventory. We produced 1.5 million on stock. Well, last year, we had a reduction of 500,000 on stock. And that has an impact of around 1% on the added value margin. So if you look, yeah, let's say like for like underlying, then the added value margin would have increased. And that, yeah, the changes in inventory is, yeah, it went up in Q1. Of course, it will not go up indefinitely. So in the rest of the year, that will equal, even out.

Okay, just to come back to that, because I'm by no means an accounting expert, despite six years of big load before. So what you're saying, essentially, Jeroen, is that the expected value-add increase is not yet visible in the P&L because it's been partly reflected in the inventory. You've overproduced, basically. Therefore, you had higher factory, you had lower per price unit. Is that the accounting way to think about it?

You're not an accountant, but this is spot on. Yeah.

Okay.

This is not atypical for Q1 that you build up a bit of inventory and reduce in Q4.

Got it. Got it. Okay. Thank you. Then my second question is on the order. You've qualified the order book as healthy. What should we assume if we compare that order book to Q1 2025? Is that up mid single digit? Is it up high single digit? Is it up low single, low double digit even? And related to that, so part B of the question, if you will, how certain is Kennedy on that, that all the book converts to sales? Because when we talk about Europe, talk about potentially higher inflation, higher inflation is usually followed by interest rate, higher interest rates, higher interest rates, impact capital goods and the decision to invest or expand production. So my question is, how comfortable are you with that conversion of that strong order book?

Now, let me first define what we mean with order book. That's effectively what we physically have as production orders. So you should think about a visibility of typically around three months, maybe a little bit more, but definitely not much more. If we talk about the medium to long term, it's more related to the project pipeline. You say, look, this is, you know, we're about to start the production for this specific order book and it will run up a little bit, sorry, of this project that it will run up over the next three to six months. So order book is really visibility as it pertains to the revenue for the coming quarter and maybe a little bit into Q3. So the certainty of those sales is high. It's really, it's ordered We're buying the raw materials or we already have it in-house. There is a delivery date, typically also because of the mission-critical nature of our products. You don't want to miss that. It's part of the reliability reputation that we have. So it almost, I mean, I would have to do the analysis, but my assumption is if you say, look, we're talking at around a 5%, year-over-year price growth, that order book reflects that roughly. The project pipeline, where we said in Q4, we talked a bit more about that, which is higher than ever. That's still the case. This is for the, now we're talking about maybe a little bit in Q4, but certainly in 2027. That's the medium to long-term leading indicator. Now, if we say healthy, just to take you back to Q4 announcement, we did that on the 27th of February. You may recall we struck quite an optimistic tone then. Absolutely. 28 is when the war in Iran started. Obviously, we didn't know that. And that's still with us. So we were also looking at the book and saying maybe that, you know, because energy pricing is up, uncertainty is up, maybe this is going to reflect over time a little bit in behavior of our customers. We don't see that. That's why we still call that healthy, which means that the current trend that we're seeing and that we're now reporting on over Q1, we expect that to continue in a similar way.

That's very helpful. Thank you. And then my final question is just a bookkeeping question. Those tax payments in Q1, Jeroen, What should we assume? Is that a low single digit? Is it just a couple of hundred thousand? What are we talking about, roughly speaking?

No, we have significant tax payments. So that was three and a half million euros in total, which is more than 50% of what you would normally expect in a year. So it's more a timing effect. The German tax authorities debited our account in 26 and not in 25. So then you pay both for the Q1-25 and Q4-26, basically. Sorry, Q4-25 and Q1-26. So it's a timing issue.

It's not more than anything else. Okay, that's clear. Thank you very much. Those were my questions, gentlemen. Thank you, Martijn.

Thank you. Dear participants, as a final reminder, if you would like to ask a question, please press star 1-1. Dear speakers, thank you for the questions. I would now like to hand the conference over to speaker Joep van Berden for any closing remarks.

Okay, well, I would like to thank everybody for your attention and your questions. If you have any follow-up, everybody knows where to find us. Thank you so much.