Alleima AB (publ)

Hi everyone and welcome to the presentation of the second quarter 2025 interim report for ALERMA. My name is Emelie Alm and I am head of Investor Relations. I'm joined by Göran Görkman, president and CEO, and Olof Bengtsson, CFO. So as usual, Göran and Olof will take you through the results and then we will have a Q&A session. You can ask questions either in the chat, in the webcast or on the conference call. And as always, safety is our top priority, and we trust that you know the safety routines of where you are located. So with that, I would like to hand over to you, Jaron.

Thank you, Emily. Hi, everyone, and thank you for listening. So I'll start with the highlights of the quarter. Well, I think we're performing okay in a challenging market environment with the mixed demand. Our broad exposure reduces volatility, but of course we note a negative organic top-line growth. Our order intake rolling 12 declined 2%, and revenues in the quarter minus 4% from high comps last year. A backlog is still good in important segments such as oil and gas, in nuclear and in medical, a good product mix and visibility for the near-term future. In the more volume business like industrial segment and in chem, petro, in Europe in particular, the backlog is weaker. Our adjusted EBIT margin declined to near 9.5%, which I think considering the lower revenues and a significant FX headwind shows resilience and a good leverage. And I take this as a proof that we are doing a lot of things right with our strategy. We have a good product mix. Excluding FX, the margin would have been 11.4%. But at the same time, there is room for improvement. So I think parts of the business is performing well, while others clearly have some challenges. We did not have any significant direct effects from tariffs, and we have been successful in passing along these costs to our customers. But even though we have production in the U.S., the pricing has, of course, increased, which is impacting demand. And the ongoing turbulence stemming from tariffs, trade barriers, has been lower than global economic environment and demand, which we now see effects from, with an increase in uncertainty and customers postponing their investments. Our financial position enables us to stay with our strategy, where we have several ongoing profitable growth projects. At the same time, we are actively reviewing our footprint and capacity, ensuring profitability also moving forward. To move to sustainability, as I've said many times before, we are generating positive impact both through our operations and our product offering. If I start with operations. Safety is always the top priority in Alema, and we are continuously and actively implementing measures to maintain safety as a top priority. And the development is, again, trending in the right direction, and the accident frequency is actually now on record low levels, which is something I'm very happy with. Our share of recycled steel remains high and over 80%. I think that's a good figure given our product mix. CO2 emissions are steadily decreasing both on rolling 12-month basis and year-over-year, and the reduction is 6% and 15% respectively. The proportion of female managers continue to increase now to 25.4%. And again, important to recognize this is only one aspect of the broader diversity inclusion initiatives. During the quarter, we announced that Cantal, together with their strategic partner Daniele, will deliver a pilot-scale electric process gas heater to M-Steel DRI plant in Abu Dhabi. This is the first time Cantal delivers its patented Protal technology for commercial purposes. The heater, which is compatible with hydrogen and natural gas, as well as a combination of the two, enables retrofitting and adds flexibility in our customers' choice of technology. The technology as such plays an important role in the transition towards more sustainable steel production and reduce the dependency of fossil fuels. I believe this is an important step in the scale-up development of Pratal technology. We will collect data, experience and know-how and will serve as a reference point, I would say, proof of concept moving forward. Moving into the market development. Overall, we continue to see mixed market sentiment and the macro environment uncertainty has increased. The market sentiment weakened, especially in Europe, and demand was in general continued low in North America. In Asia, demand held up better, but also there we noticed some signs of hesitation. We have momentum in several of our key segments, and I will walk you through the development in each segment, starting with oil and gas. And we noted... Of course, the volatility in oil price and the uncertainty has increased. However, we still view the underlying demand on high levels, and the project list of upcoming tenders and potential future order is solid. Last quarter, we said that the backlog for umbilicals were getting shorter, but we have now booked more orders, and we have not consumed backlog. The book-to-bill was above one in the quarter, and the OCD backlog remains very strong. Chemical and petrochemical year-on-year down. Europe is down the most, while North America more flattish, but on low levels. We also see an impact of higher uncertainty in Asia, but still on an okay level. Industrial segment. Last quarter, we noted an improving year-on-year demand in the industrial segment. This quarter, demand is worsening on the low-value ad products, which is what we normally is down-prioritizing when we don't need that volume. And this is especially clear in Europe, but also in North America, we noticed some. I mean, in North America, we noticed some rebound in quarter one. If this was due to pre-buys, it's difficult to say, as this business has been running low for quite some time. The biggest impact on North America we saw in quarter one came from oil and gas, nuclear, medical, and those segments are segments where we would not expect such pre-buys. and industrial HS still on an okay level. Industrial heating, flat demand year over year, and continued hesitance from customers in placing orders, which refers mainly to CapEx-related business. For the solar segment especially, we also have high comps from last year. However, demand was continued positive in some applications, for instance, ceramic elements for electronics, both including semiconductors in the glass industry, but weaker in solar and metals. Consumer demand is now on a good level, mainly driven by the white goods industry in the strip division. Medical continues to be strong with several drivers and momentum is strong across the product portfolio. Mining construction, flat underlying demand year over year. Nuclear, the high activity and growing demand continues, where we're building good backlog to execute for a long time. Transportation demand decreased year over year. Aerospace has a really long backlog, but with some tendency of inventory adjustments among customers. Sorry, automotive worsened. Hydrogen and renewable energy is still a bit mixed. This is a wider segment where some businesses are doing better than others. We booked orders for carbon capture and storage and for biofuels, but no clear signs that this is taking off quite yet. Looking to order intake and revenue, order intake rolling 12 amounts to 18.9 billion sec with a negative organic growth of 2%. This is mainly coming from the chemical and petrochemical and industrial segment, especially in Europe. North America is weak overall and Asia noted a slight setback. but on high levels. Industrial heating was flat on a continued low level. Nuclear, medical, consumer grew, while oil and gas was quite stable, though on a high level. Revenues declined organically 4%, where tubing control declined, while strip grew. Chemical and petrochemical and industrial heating noted the biggest declines, where we could see that the weak order backlog for those two segments impacted revenues in the quarter. Road in 12 months booked a bill of 97%, building backlog in oil and gas and nuclear, while consuming backlog in chem, petro, industrial and industrial heating. This means that the order backlog is still solid in important segments like oil and gas, in nuclear and medical, so an overall positive product mix, but total volumes in the backlog is on the low side going into quarter three. Let's move it to earnings. Adjusted EBIT amounted 454 million, with a margin of 9.5%. And considering the 150 million negative impact on currencies, meaning that the underlying margin would have been 11.4% adjusted for FX. I think we're performing okay, given the lower revenues and the uncertainties in some of the segments. I think this is due to several factors. We are seeing margin contribution for more segments now than in the past. Of course, medical being the prime example of this, but also in oil and gas and in nuclear. But also the way our Asian business has evolved, we also managed to improve our performance in the OCTG business as well as in the transportation segment, both contributing to the margin resilience. All in all, product mix is solid with higher contribution from highly profitable segments and less deliveries for low refined business, being mainly the industrial segments. Looking at divisions, I think Q performed well. I think Cantal continued to mitigate lower volumes in a good way, while Stripe's performance was not in line with expectation. But I will come back to that. Pre-operating cash flow of 347 million, lower than last year, impacted by lower operating profit, lower working capital, and higher capex. overall i'm confident in a long-term strategy we are benefiting for from our diverse exposure and we continue to drive positive product mix or shift make sure while maintaining our order booking discipline in the weaker market conditions we also adjusted cost and capacity mitigate lower volumes and we're prepared to do more if volumes continue to decrease But I think at the same time, we should stay cool and not make too hasty decisions. We need to be ready to deliver once the market demand and volumes bounce back. Let's look at the division starting with Tube. You've noted an organic order growth of minus 6% for the rolling 12-month period, where we continue to see a weak Europe with more uncertainties now than a quarter ago. North America is still on low levels and and a general sense of caution. Asia is still on high levels, although also there we notice a small decline in quarter two. In general, we see customers hesitating to take an investment decision, which impacts our business. The chemical and petrochemical and industrial segments noted the largest decline. Backlogging key segments like nuclear and oil and gas is still solid, and we maintain our positive view on both those segments. Organic revenue growth of minus 5%, mainly driven by the negative development in petrochem and the industrial segment, somewhat mitigated by nuclear. Book-to-bill was 94%, rolling 12%. Adjusted EBIT margin amounted to 11.2%, which is a good level given the lower revenues as we continue to utilize our capacity in a good way by prioritizing more profitable orders. As mentioned, the product mix was solid, and we have a positive contribution from performance improvements in oil and gas. The OCTG business has improved well, both commercially and operationally. Also, the business within transportation segment, where we have had problems, has improved well. It also had some positive one-off effects, like, for example, inventory buildup during the first half of the year ahead of this year's maintenance stop during the summer. which will be somewhat longer than normal in one of the larger factories in Sandviken. We will be replacing the expansion press in the largest extrusion press. This is a maintenance investment, replacing a plus 60-year-old machine, but it will also bring advantages with higher level automation, generating increased productivity and also safety for operators. This is bringing some positive results. cost-absorption effects both in quarter one and in quarter two, which will reverse in quarter three. The lower volumes from mainly chemical and petrochemical low refined products to the industrial segment in both Europe and North America had negative impact. And we are expecting these low volumes to have an even more visible impact in quarter three, as volumes and absorption of cost is low anyhow for normal seasonality reasons. NFX said we're in the minus 81 million sec, meaning that the underlying margin was strong, 13.6. In the quarter, we're considered to be on the weaker side. Moving over to Cantal. Organic order intake growth for the rolling 12 must be at 1%, still on low comparables. Medical is strong and industrial heating remains soft. Demand was still positive in some applications for ceramic elements for electronics, including semiconductors and glass industry. And the previously announced investment in both Sakura in Japan and Perth in Scotland are both related to those customer segments and is part of our ceramic heating elements offering. The medical segment is maintaining a strong momentum, growing in order intake and maintaining a good revenue level and backlog remains solid. Booked a bill of 102% rolling 12. This is partly due to the negative revenue growth, but also an increase in the medical backlog. Cantal has for some quarters now been affected by lower volumes from the industrial heating, a segment with several end markets and development difference between these end markets and regions where Europe is the weakest. But in general, customers are hesitant to make CapEx-related investment decisions, and it's difficult to foresee when that demand will turn positive again. But the sentiment is not getting worse. The US EBIT margin was 16.7% in the quarter, which is solid considering development, industrial heating, and an FX headwind of 29 million. Underlying margin adjusted for FX would have been 19.6%. I think Antal has proven ability to adjust capacity and reduce cost when needed, which is why margin levels are maintained. And I'm confident they will continue to do so moving forward as well, if that will be needed. But short term due to low volumes and with expected FX headwind, we expect some temporary under absorption effects hitting the margins in quarter three. Moving to STRIP, facing low comparable, STRIP continued to grow its top line. with organic order intake and revenue growth in all segments. Organic order intake grew 30% on a rolling 12-month basis, with growth in all segments. The consumer segment is the main rival, where the main product is compressible steel for wild goods and air conditioners. Organic revenue growth of 19% in the quarter, all segments contributing. And with that, a book-to-bill rolling 1240%. Just a debit margin, 2.4%. And I have, for several quarters now, made comments related to that strip is consolidating the pre-coated strip steel propulsions, and that that business due to low volumes has a negative impact on strip margins. This is also true in this quarter. However, this is not the main reason for the low margin strip. The underlying strip performance is not in line with expectations. Main reason are production efficiency issues, poor mix in the Sandviken site, and some inventory write-downs. They also had an effective win, and in that case, minus 9 million. Mitigating activities are ongoing, and we expect an improvement during the second half of the year. But since strips production is located in Sweden, they normally have a significant impact from underabsorption of cost in quarter three due to the maintenance stop during the summer. We expect that to be the case also this year and that performance improvements will be more visible in quarter four. And with that, over to you, Olof.

Thank you, Göran. And then let's go to the financial summary for the quarter and a half year. So if we look to the right, to the bridge there, you can see that the order intake amounts to 18.9 billions on a rolling 12-month basis. That corresponds to an organic growth of minus 2%. We show a total growth on the rolling 12-month order intake of minus 6, wherein a total of 4 percentage points of those come from currencies and alloys, with as strong a Swedish krona and lower metal prices impacted. Quarterly revenues, just below 4.8 billion, with a 4% negative organic growth, mainly from the slower European and North American markets. Revenue also affected by the strongest Swedish krona, mainly against the US dollar, with total currency effects of minus 4%. Alloys, some negative alloy effects and orders, minus 2 on the rolling 12.1 basis, and minus 3 on the quarterly revenues. And we see a continued negative alloy effect, both on the rolling 12-month order intake and revenues going into the next quarter. On structure, we have our latest acquisition of Endox in Kantal. It's fairly small, so it doesn't show up in the table, but it's contributing positively to both order intake and revenues in the quarter. And going to the big table on the left, and I'll come back to the adjusted EBIT in a minute. If we talk about the reported EBIT, the margin decreased to 5.9% compared to 12.8% last year, and this is impacted by the low revenues. Currency headwind and by the negative method price effects amounting to a negative 171 million this year. Last year, we had positive effects of plus 96, so quite a big swing at that line. Metal prices have come down in the US dollar terms. They have been fairly stable quarter by quarter. But in addition to the prices in dollars, we also have a strong Swedish krona that impacts our Swedish krona metal price effect. Net financial items in the quarter amounted to a positive 18 millions compared to a positive 137 millions last year. And the finance net consists of the positive interest net on our cash balances in the quarter yielding approximately 2.2%, but also of interest charges on leases, pension liability and bank charges. And in addition to this, also revaluations from derivatives not qualifying for hedge accounting. And that gives a positive effect in this quarter. Last year, the high positive number was affected by accounting adjustments in the hedge reserve, and we had total positive effects of 125 million from this in that quarter last year. The normalized tax rate comes out at 24.1% in the quarter, 29% with the guidance, while the reported rate, it's not in the table, but the reported rate was 32.2%, which is a high number. And that high number comes from one of the items, in this case, a non-deductible withholding tax on an internal dividend. Free operating cash flow was 347 millions in the quarter, and I'll get back to that as well soon. Finally, adjusted earnings per share in the quarter, 1.35, so we just grew up a share, impacted negatively from the lower adjusted EBIT, the high tax rate and the lower finance rate. Going then to the bridge on adjusted EBIT, going from last year's 592 million or 11.1% to this year's 454 or 9.5%. We note an organic decline of 26 million in the quarter. And that gives an operating leverage of 12% on lower revenues. And we find that to be a fairly good outcome in this foreign revenue scenario. So we mitigated the low volumes in a good way, we think, in the divisions. Main impact in the quarter comes from currencies, where we're impacted by the strength in Swedish krona, mainly against the US dollar, but also, for instance, against the Chinese yuan. And the split between transaction and translation is about 50-50 in that number. And this corresponds to a margin dilution of 1.9%. Structure is the acquisition of NDOX that is contributing to our earnings. And then we go to capital efficiency, looking at the balance sheet and networking capital lower than last year in absolute terms, coming mainly from currency effects and lower metal prices. It's higher as a percentage of revenues at 36.1 compared to 32.7 last year. And this comes mainly from the lower quarterly revenues that we saw in the calculation. The sequential decrease is mainly driven by currencies, decrease of accounts receivables and inventories. And to continue on inventories, they are lower in both value, both sequentially and year over year, coming from both lower volumes of bonds in inventory and lower metal prices. We have a lot of focus in our decisions on controlling the physical inventory. And despite the fact that this year we had built extra inventory volumes for the long summer stock, we are lower both in tons and value compared to last year. Year over year, capital employed excluding cash increased to 16.4 billions from 15.8 last year. This increase comes partly from our increased capex levels adding to the fixed assets. And then looking at return on capital employed excluding cash, And this is then based on the operating profit, including the metal price effect. It was 9.2 in the quarter, based on rolling 12 months, and roughly at the same level as last year's 9.3. The free operating cash flow amounted to 347 million. That is lower than last year, coming mainly from the lower earnings, including the negative metal price effects. And on cash items, that refers to, for example, provision releases in the operating result that have no cash flow impact. We have a positive impact from lower working capital in the quarter. It's mainly lower accounts receivable and inventory. The CapEx increase comes from our growth CapEx projects. And if you look at the year-to-date number, the extra cash flow impact from CapEx is about 100 million compared to the same period last year. Next line, amortization of lease liabilities on par with last year. So in total, we have a lower free operating cash flow compared to last year, but the lower earnings are from a cash flow point of view compensated for by a working capital release from the lower invoiced volumes and metal prices in the quarter. And if you take this in round terms, looking at the total cash flow, the business has generated about 400 millions, including finance net items in the quarter. Then we pay taxes and dividends in total approximately 800 millions. And that gives a net change of approximately 400 millions on our cash balance compared to last quarter. This leads down to the strong financial position. It remains strong. We are well below our financial target of net debt to equity of being below 0.3. We're actually at zero at the quarter end. If you prefer to use the net debt to adjust the EBITDA, it also comes out at very close to zero. And looking at the components then of the net debt, the net pension liabilities, they increased from 761 last year to 813 million this year, coming mainly then from lower discount rates compared to a year ago. Leasing liabilities, 462 million, more or less on par with last year's 457. Cash position remains strong. I mean, this year we have spent... 130 million on an acquisition and then paid the dividend in May of 577 million. And still we have a cash position of 1.3 billion. And a net debt position then of 33 million. It's actually a net cash position. And we also have, of course, our unutilized 3 billion revolving credit facility. So we have a very strong financial position in total. And this gives us room to execute and operate on our strategy of profitable growth. Looking then how well we managed to guide you ahead of this quarter or the last quarter. Yesterday capex of 456 million. We're guiding for a full year of 1.2 billion. So I would say we are waiting that range as we normally have more capex in the second half of the year. Currency transaction and translation effects at 123 millions in the quarter, fairly close to the guidance of 130. If we look at the total currency effect, it came out at 115 million in the quarter. Metal prices affected us negatively with 171 million in the quarter, we guided for negative 150. I think the main difference here is that the strong Swedish krona gave an extra effect here on the metal price effect. Normalized tax rate 23.8. Our guidance is 23 to 25. That's the year-to-date rate, the 23.8. So in the lower part of the range, actually close to the middle, for the quarter, the normalized tax rate was 24.1. Then looking at the guidance for the coming quarter, we guide for a full year cap of 1.2. We're staying at that guidance. As I just mentioned, we are normally having more capex in the second half of the year. Currency effects still quite considerable, 150 million for Q3 for transaction and translation. And then for the metal price effect with the strong Swedish krona, the metal prices at the end of June, we think that we will be around 150 million negative on that line. And tax, the guidance remains at 23 to 25% for the full year 2025. And I would like to hand back to you, Jörg, for the outlook.