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spk01: Thank you, operator. Good morning, everybody. Thanks for joining this Friday morning call. We just released our quarter two report and myself and Joakim would like to give you a brief update. And I will start with a summary and a business update. And then Joakim will follow the standard procedure of diving into the financial results. And we end up with a Q&A session at the end. But just a few numbers from Q2. We are quite happy to see a continued good growth on net sales. partly also supported by currency translations and also a little bit of a better component supply than we used to have so we have some good things there but there's also some challenges in the capacity especially during the beginning of the quarter Joakim will be back on that and we see as expected a lower order intake but here we'll spend some time later with Joakim to really understand because this is a complex material material with de-stocking, boost orders, etc. So we need to take this step by step later, but we'll be back on that. Profit-wise, better than last year, but compared to previous quarter, not so good and we'll be back on that. Keeping the EBIT margin well above our target of 20%, but a bit lower than previous quarters. Cash flow is not so great despite we see inventory build up and we have done some things here to increase our resilience going forward so it's better than last year but we're not really happy with 78 million in cash flow and as a consequence this EPS keeps on improving quarter by quarter and I think we skip the year-to-date numbers it's quarter one quarter two and And I'll do a very brief overview of the business. For you who are new on the call, I take this just as an introduction of the company. Industrial communication, we call it industrial ICT. That's our business. Well established in this market. It's a niche market worldwide. We have almost 10 million devices connected, over 400,000 machines connected to our cloud solution, Talk2M. So we feel we are market leader in this segment and we have a good position here. We are around 750 employees around the world in 18 countries. We started a small office in Vietnam early in this quarter last quarter and Revenue last year was 2.5 billion Swedish. We are on a 2025 journey with three main topics We are working with our sustainability and especially working with our customers Sustainability where we have also an ambition of helping them to reduce their co2 emissions We think that happy and high-performing employees generate loyal customers, so we focus a lot on our net promoter score, both with staff and customers, where we score very high now with our staff. We see a reduction on MPS from a very high number to a lower number with customers due to longer lead times, increased prices, so we're working hard now to regain the good confidence we have had with customers in the past, but there have been some effects last 18 months in the lead times that makes our customers not so happy and we have our revenue targets of pi billion for 2025. all right so we talk about valuable data and insights from machines and systems so it's about connectivity and getting data together from different machines but also getting this data into it systems to cloud systems and making sure we help customers to understand and use this data that is hidden inside their machines and devices and we have two types of business we have the industrial automation that is more than 90 percent and mainly manufacturing could be factory automation like automotive or semiconductor and food and beverage we also have transportation infrastructure working with infrastructure projects and also warehouses agvs and these material handling things And we have a small segment in power and energy, both with power generation, but also renewables. We work quite much with battery systems. We call it BES, battery energy storage systems. And we have a business with building automation, especially with heating, ventilation, and air conditioning, how you communicate with different subsystems in buildings. Less than 10% of revenue, but actually growing quite well. The common denominator in these businesses is the communication protocols, the communication technology that is used to make sure that customers have good systems, good uptime, and can use their different subsystems to communicate. We have two types of customers. We have the makers of industrial equipment, and we have the users of automation system. Makers could be the Atlas Copcos and the ABBs of the world. The users are more the Volkswagens and the organizations that use automation system. manufacture or process their things and we see three types of business the makers are both device manufacturers and machine builders and this is the big portion of the revenue 44% of revenue last year with device manufacturers 27 with machine builders here we mainly go with direct business or in some cases with distribution But in both cases here, we are specified with either indesigns or part of a bill of material in these machines. So this is a quite sticky business where when customers sell their machines, we get included as part of their bill of material. In addition, we also work with system integrators and end users. 29% of our revenue here, it's more of a system integrated business. Our partners, they integrate and develop different automation system and they use our products, our hardware and our software and here we go to market both through traditional partners and distributors but also to a growing part also e-commerce specialized industrial automation e-commerce partners here. All right so if we take just a few highlights of the quarter we see actually quite continued stable demand despite some macro indicators but in our segments we see that business goes on and We've been waiting for a slowdown, but still, business continues to develop quite well. And Joakim will talk more about this when we look on the order situation. Our largest market, Continental Europe, is stable. We see mixed things in Asia. Japan, our biggest market there, is both some customers who place very long orders. In Japan, normally, they like to have more on inventory. But you also see other customers in Asia that do more of destocking to adjust their large inventories. Same as customers in North America, we see good solid volumes, but we also see some elements of destocking in North America. As I mentioned, strong development in building automation. It's less than 10% of our business, but growing really nice, both in the US and in Europe. From a supply point of view, we talked a lot last two years about semiconductors, component shortage, We still see some issues, but it's much, much better than it was a year ago. There are some hiccups. We invest quite much in building up inventory to make sure that we have a good resilience for the future. We also have some challenges in our go live with our new ERP system that have made us go into in May. We had not full delivery capacity in the rollout. We are back on full capacity again. But we see this, I think we lost 40 million Swedish in revenue and quality due to this rollout of the ERP system. Joakim will talk more about this. But this ERP system is also part of our ambition to take the next step in our growth. Last two, three years, we invested a lot in more salespeople, more product development. But we also feel now that we need to move up to the next level in our support system. So we have a new ERP system. We have Richard, our new chief operating officer, a new role starting here, focus on supply chain, focus on sustainability, focus on IT, where we see that these systems need to come to the next level to support our growth going forward. And we also have Myra who joined us now as the chief HR officer. We see also we need to have more structure in our HR work around the world. So this is two very important roles to build the next step we need to take to continue our growth journey. So with this, I would like to hand over to Joachim, taking a deep dive into Q2 numbers. Thank you, Stefan.
spk03: I will do that. So let's kick it off with the order intake. And I think this requires some explanation. A lot of things that are moving that we need to get to the bottom with. And reported we see the 703 million, which would be then 14% decline or 17% organic decline. and for the year-to-date numbers just shy of 1.4 billion which would be equal to an organic 18 decline before we get into this analysis just wanted to mention two things and that's the the building automation that staff was also referring to this is continuing very well also in the second quarter so we're more than 20 percent up for both in terms of organic orders and in sales and here we see some some good orders from um retrofitting applications with new requirements in place that you need to be able to connect some of those AC aggregates around the world. So that's very good to see that type of business, some good project sales on top of the normal business. Then also due to the Swedish crown is weakening. We also have, I'm just mentioning this, but the book to bill number in constant currencies would be 0.94. in sales and order intake just happened to be the same number 703 million with the currency effects but let me let me take um take a few minutes to explain what we really see on the underlying order intake and what we say is that we see that demand is really holding up quite well you've seen this graph before we've had about 1 billion of swedish crowns in 21 and 22 and those boost orders due to um stefan can you mute your line please due to customers placing orders pretty far out in the future. And now we're starting for the first quarter to see the destocking happening. And we have 30 million of destocking in the second quarter. Also worth to mention, again, the Swedish Crown. We have 35 million in positive effect from revaluation of the already existing order book. And this is primarily, the destocking is primarily to... attributed to the Americas and a little bit in Japan as well. In Japan, we see a bit of a mixed picture, but in America, we definitely see this. And here I have to explain what we really see. This is a bit complicated slide. I'll try to take it slow. So yes, starting on the left, we have the order intake reported in Q2 22 of 815 million. And then to the right, we have the reported order intake in Q2 23, 703 million. So all in all, a 14% decline reported. Then going back to the left again, we adjust for this boost effect of 150 million that we saw in Q2 2022 to get to a normalized order intake for Q2 2022 of 665 million. From there, we see the revaluation of the order book of 35 million FX effects. Then the FX effect on the order intake in the quarter, 19 million. And then we have actually an underlying growth of 40 million in terms of order intake. So this gives us to a normalized order intake for Q2 23 of 733. And obviously we have to adjust for this destocking to get the report of 703. So I think this may be one of the key points to understand in this call that we have underlying demand is pretty much on the same level as it was last year. So we don't really see that big change in order intake. It's not really what we think we see in the markets. Then continuing to the sales, we have also the 703 million, a 10% organic increase for the first six months. ESGI 1.5 billion, a 24% organic increase. And here, as Staffan also mentioned, just wanted to make sure that's clear. We had this 40 million that we had to postpone in deliveries. We went live with a new ERP system in the 2nd of May this year. As always, when you do that type of big projects, it's a bit difficult the first couple of weeks. So we had to run the supply chain on a slightly lower pace than what we normally do. So that built up this 40% gap to where we should have been. Now it's going well in June. It was going well the second part of June was exactly what we should do. But we don't really have the capacity yet to make up for this. We will get there during the second half of the year and I will be able to be on on the capacity that we need so last few weeks was good and then we should be able to um to provide what we should also one thing to to mention is what we see from the customers in the market i think we see quite different behaviors some customers are still saying that they really want deliveries as soon as possible and are suffering still from the the long lead times component situation not being as it should be but we also have some of the larger customers that are in a bit of a different phase where they are happy with their inventory levels and they are now back to managing inventory levels quite carefully trying to in some cases reschedule some deliveries. So it's a little bit of different mix that we've seen before but still the demand with customers that would like to have deliveries is rather strong so we're not too worried about that. Then a few notes on the backlog. So as you see here we have an order book that is on the same level as it was in Q1, 1.3 billion. And the reason for not going down more than that is that we have this 40 million of sales that we discussed that should have been delivered. And then also the revaluation due to the weakest Swedish crown. And we have about 60% of our sales in euros, 25% in US dollars, and then some part also in Japanese yen. I added a new graph to the right to put this maybe in more of a context, looking at the ratio of order backlog in relation to rolling 12 months sales. And you see, we come from before the whole component situation started, we in 2020, 2019, we come from a ratio that is just shy of 0.2. And then when we peaked in last late part of 2022, we were at 0.65. And now we're moving slowly Jan-Willem Wasmann, Downwards again and closing the quarter at point 46 and we get a lot of questions So where do you expect to get to so what's the normal order book that you would you should have. Jan-Willem Wasmann, And that's of course a difficult question to answer we don't have a clear answer on it, but what we believe is that. Jan-Willem Wasmann, somewhere in between what it was before and what it is now is probably quite quite reasonable for us to. to end up meaning that order book should of course come down a little bit more. And that's why we think also we will have a good base for the remaining part of the year. Looking at the sales per region, Americas was strong with the 169 million and 24% of sales. Europe about where it used to be at 59%. And APEC a bit weak with 17%. And here is really China that is low then. that may be expected. And we see a pretty big impact from a really strong 2022 and big expectations of 2023, which is not really materializing with economies. It's not really there where it was supposed to be. So a lot of customers have ordered too much and need to adjust that, which we see on lower sales in China. China is not one of our biggest markets. Last year it was about 6% of sales and this year it will probably be a bit less. Not a huge impact on the group level, but I wanted to mention it. Let's have a look then at the results. Unfortunately, this graph is not looking as beautiful as it used to be with a bit of a drop here in Q2. We reached 150 million in EBIT compared to 143 last quarter and margins of 21.4%. Still okay margins above the 20% target, but not where we have been used to be the last couple of quarters. We are not too worried about this situation. To be honest, we know we have the 40 million missing in sales. That should bump up the EBIT level quite a bit. We also have a lot of OPEX investments going on at the moment with the ERP rollout. We're also investing in our IT systems to make the customer journey more digitalized. So really good investments for the future, but it also consumes a little bit of cash at the moment. Good to note that the gross margins are on the solid level, 64.7. We were at 64.8. 18 Q1. So I think these are, we've said it before, we're quite comfortable with those levels. I think we should be able to be there also going forward. And what's managed us to get there is really the price adjustments that we managed to push through to our customers towards, especially towards 2022. We have, of course, the Swedish crowd is helping us a little bit here still. And a big difference compared to Q2 last year when we were at 62.2. is that the spot purchases are pretty much gone now. We have a few small spot purchases of components. It was a completely different story in 2022. And just a final note on the OPEX. So to be clear with that, we've been through the main part of the ERP rollouts. So the supply chain to a large extent is already rolled out. We have our sales companies left, so it will not be as intense as before, meaning the cost will not be as high for this, but it will remain in the rest of 2023 and also in 2024. Pretty much for the full year 2022, we will continue with this. We will also integrate some of our acquisitions in terms of ERP on the second half of 2024. So that cost will not disappear, but it will be lower than what it was now. Looking at the EPS, well, obviously with the EBIT being lower, the EPS is also lower. Not a lot of comments on this. We're at 2.48. We paid a dividend in May. or four crowns. So that's basically it, I think. Let's go to the cash flow instead with the 78 million in the quarter, which we are not fully happy with. There are some good explanations though. The main part is the inventory buildup. We continue to see some deliveries from orders that we placed more than 12 months out with those really long lead times. And here, of course, we went up in a bit of a squeeze when we did not deliver everything that we should in terms of sales. also FX is impacting that a little bit. So I think the underlying, you see 100 when you look at the balance sheet, but maybe the underlying should be more like 70 million. That would be a normal situation here. We think that we will, towards the second half of the year, be looking to maintain or maybe even reduce these levels a little bit. And then my final slide, looking at the balance sheet again, we see a very solid balance sheet. We have interest bearing net debt of 93 million, which is almost nothing. So we said it's a couple of quarters before we are in good shape and for further acquisitions. And that's something we're looking at and get back to as soon as we have something interesting to present. So with that, I'd like to leave the staff to wrap the presentation up.
spk01: Thanks Joakim. Thank you. So just a few things and just highlighting what Joakim already said. I think we see that order intake is not as bad as it looks like, and we feel a solid demand underneath. But we just want to explain this in detail because, of course, we see the number. It looks kind of strange. We see this destocking effect. We expect this to continue. We really would like to get our order book down at least below a billion. So we work on that as well because we need to get back on good service levels to our customers. We talked about some of the postponed deliveries we had around 40 million. Of course, this is a hiccup. We feel we have full capacity again. So, you know, ERP system, it's complex material. So this is something that we were not super surprised about it. But we are back on track here. We also mentioned the cash flow. We are building inventory with stronger resilience for the future, but we need to work more on the cash flow. This is not what we are happy with. So we see that stable gross margin, large order book. We are quite optimistic for the rest of the year. We have a solid base. So we keep on tracking here and we feel this is a bit of a hiccup quarter for us. But as you hear me and hear Joakim, We are not too worried about this. We feel that that's good business to do and we have a good margin and a large audiobook. So we remain on the positive side. With that, I think we open for questions.
spk04: If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Victor Hogberg from Danske Bank. Please go ahead.
spk02: Good morning. On the delayed deliveries to 40 million, do you expect to catch that up already now in Q3? And also the products delayed, can you say anything about the mix? Did it affect the gross margin in any way in Q2? Will it have some effect in the second half when you catch up those deliveries?
spk03: Maybe I take that one, Victor. So starting with the mix first, the mix was pretty much normal mix. So no big impact expected from the mix in the catching up on deliveries. And we said the rest of the year, because we're not sure that we'll manage to catch everything up in Q3, but probably will be more in Q3 than Q4.
spk02: Okay, thank you. Also, could you just maybe quantify the costs isolated to the second quarter in terms of the ERP and the IT system upgrades? It's going to stay on a higher level, but not this high. Just thinking about what was the actual costs in Q2.
spk03: Yeah, so I can help you with the Q2. I don't want to comment too much on the future pace. Around 15 million in Q2. And then lower than that. Yeah, lower than zero. Not exactly, yeah.
spk02: Okay. And are you surprised to see the underlying demand remain at this level, given what we see in the newspapers and what you see in your discussions with clients? Are they surprised to see their underlying demand remain? What kind of discussions are you having? Because you have this continue to have this saying about there are uncertainties out there, but what kind of discussions are having with your customers in the second quarter and also the current discussions?
spk01: Maybe I can take this and I think when we talk to our sales team, they are moving away from saying for a couple of quarters they've been waiting for a decline, which is not coming. We see quite solid demand. Customers are investing in both digitalization automation and we see strong trend of nearshoring and dual sourcing, energy savings. So I think these trends offset partly negative, more negative outlooks. So in general, with stable demand and also most of our customers, they are quite relaxed about the future. Of course, there's topics about China and geopolitical things, but for most customers, things goes quite well, I would say.
spk02: And I would say my interpretation is that you're kind of surprised to see this as well.
spk01: Yeah, I think we are. We've been waiting for decline. We now say maybe that is not coming. We don't see that decline at the moment. We see stable demand at the moment.
spk02: Okay. And on the M&A pipeline, you've been talking about it a lot. A couple of quarters ago, explicitly raise your ambitions when it comes to potential size of targets. Any progress there in your discussions with potential acquisitions? Anything changed in terms of their outlook? Anything that went away from the pipeline or added to the pipeline? Just help us to get some understanding of what you can do and also I would say in I'll take a second question on that. If you start with the M&A pipeline, that would be good.
spk01: Maybe I can start. I think we've talked about this, and we have high ambitions, but we've talked about this before. It's been quite difficult to find the right targets. Of course, we have a pipeline, but what's moving in and out of that pipeline is also quite slow. So we continue the discussion. We have no real news to come with here. We are working with it. It takes time. Our ambition remains that we want to do more acquisitions, but we keep on looking, but it's a slow moving material.
spk02: Maybe I might have more to say at the CMB this fall, I assume. Last question on price and price dynamics. I think in Q1 price hikes added some 8% or something to revenue growth. What was it in Q2 and any kind of discussions about reversing those price hikes if we would enter a slower market? Is that out of the question? It sounded like it was out of the question on previous calls, but what are your current discussions with clients on price?
spk01: Joakim, would you like to take that or should I start?
spk03: Maybe I can start. We do not state the level where it is, but we can say it is some single digits, percentages up, maybe a bit more than five. I think I'll leave it at that. And then for the future, we do not expect to lower any prices. That's not really on the agenda. And we don't really see that discussion going on. I don't know if you want to continue on that Stefan.
spk01: I think we we've done price adjustments that's been accepted last year of course now when delivery situation are better we have customers who want to have more conversations I think this will result in lower price increase pace next year but there will be some adjustments also for next year we have some inflation coming up and we see that especially on the semiconductor side it's not returning to what it used to be in the old days it still remained on a quite high level so I think there's a reason for us to keep this discussion with customers but as Joakim said we don't expect our prices or even gross margins to go down we want and we think we can do a full compensation for the cost increases we are seeing going forward that is still our ambition
spk02: Perfect. Sorry, just one final question on the order growth, maybe, or order intake. You say that you expect a continued balance destocking at your customers. Would that entail a larger destocking effect in terms in absolute numbers, that is, than the 30-some million in Q2? Is that what you expect? An increased pace in absolute numbers or this pace, give or take?
spk01: Very good question. I must say, we don't really know. We thought it should be faster than we have seen. So maybe it will continue in this pace because it seems like customers, of course, over time, they will adjust the inventories, use the capital more wise. But I think many of customers, they're still remembering the difficulties they had one or two years ago. So I think it's a slow correction rather than a quick correction.
spk02: Okay. Thank you very much.
spk01: Thank you.
spk04: The next question comes from Simon Grunaff from ABG. Please go ahead.
spk00: Hello Simon. Thank you. Hello Staffan and Joachim. Thanks for having my questions as well. I just have a couple of follow-ups to Victor's earlier questions, but mainly on You mentioned that destocking is currently mainly happening in North America, also partly in Japan. Do you anticipate this to happen in Europe as well, or are you comments on further destocking mainly for North America and Japan? Thank you.
spk01: We will see destocking also in Europe. That's clear. I think maybe this is also in general, maybe this is general more than HMS, that In America, we see normally quicker reactions, ups and downs, and Europe and Asia are normally slower. It will come in Europe as well. That's our expectation.
spk03: But I think maybe I have to add a statement to that. I think what we believe is a bit, what surprises us a little bit, if we put it like that, is that we see the PMIs are coming down quite significantly also in Europe. And we don't really see the effects of the destocking. So I think we will probably expect that to follow the PMIs. Maybe the first question from Victor there. We're a little surprised by that. But it's very difficult to say at what pace and when and so on. But we also say that we believe that the order book is going to come down a little bit more. So at some point we need to see it, of course.
spk00: Great. That's very clear and helpful. And you mentioned some of the weakness in China. And as you point out during the presentation, it's a relatively small market for you directly, but indirectly, perhaps it's a little bit larger. Could you talk a little bit about how on the indirect effects potentially from a weaker Chinese market, perhaps relating to your APEC operations?
spk01: It's clear that many of our customers in Germany especially have a large end market in China. And when we talk to these customers, they are quite worried about this. Not so much for the local competition, more for the weak development. Quite many expected a great 2023 after COVID in China, but that has not really materialized. So I would say machine builders in Germany are worried about this, but we don't see so many effects yet on this. They're worried, but they still make good business, it seems like.
spk00: Okay, that's also helpful. Thank you. And then just a follow-up on the gross margin as well. Have we already seen most of the impact from lower electronic component cost, or could we see more here? Yep.
spk01: I think looking forward, correct me if I'm wrong, Joakim, but we think that the gross margin we have now at this level, that's our ambition to keep that on this sub 65 percent 64 65 percent on that level we we see some improvements when we can do in our internal efficiency we also have now going forward a new chief operating officer who will focus more on these things we think over time that this will help us to be more efficient and the consequence that we probably that we remain at this level that's our ambition
spk00: Great. And then just a final question. You increased the net recruitment rate quite rapidly during 2022 and in the beginning of 2023 as well. Have we seen most of that increase already behind us or should we anticipate a similar increase going forward as well?
spk01: Of course, it's always difficult when the cost arrives. Recruitment is very difficult in most of our markets. difficult to really assess the details when the cost is coming. But in general, we are feeling that we've done a couple of investments. Now we're focusing on some of the IT system and supply chain systems for 2024. Of course, we would like to see the effect of these things. So at least we think that the recruitment rate will be lower 2024, and that is more a catch-up year and to get more effects of the things we have done. That's the general feeling we have about that.
spk00: That's also helpful. Thank you for having my question and have a continued nice summer. Thanks, Simon.
spk01: All right. Now I also see the question queue seem to be empty. So then again, thanks for joining this call on Friday morning. I wish you a wonderful day and a fantastic weekend. Thanks for joining.
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