engcon AB (publ)

Hello everyone and warm welcome to ENCOM's presentation of the first quarter 2023. My name is Christer Blomgren and I'm the CEO here at ENCOM. With me today I have our CFO Jens Blom. Together we will take you through the highlights of the quarter and we will move on to the Q&A session after that. So let's start with a big overview then and We're still active on 60 markets, but have now started up our subsidiary in Norway. It will be good short term for us that we get the margin there that we've been giving to the distributor. And long term, we will also have a good opportunity to increase the value per unit and take market share. If we take a look on the net sales split per region, we can see that the rest of the world have been catching up. with the Nordic, as we said earlier in the last report, so we'll see that. And the Nordics are now on 49% this quarter compared to the full year where they were on 53%. Europe is on 34% and was on full year 32%. And America is on 10% and was on 9% on full year. Asia, 7% and was on 6% on full year. The good growth in all regions actually, even though the Nordics are losing compared to the rest of the world, they had a big growth as we will see later on also then in the presentation. If you're taking a closer look on the main highlights from the first quarter, net sales and profitability was on record high levels with strong contributions generated from all regions. Improved production capacity with a strong order book provided favorable conditions for high net sales. The price increases introduced during 2022 has now reached full effect and combined with stabilizing material cost, the quarter shows a strong gross margin. Looking ahead, microeconomic uncertainties regarding inflation, interest rates combined with short lead times are now making our customers more cautious in their purchasing behavior. Until now, we have focused on our end customer sustainability. Now we take the next step and commit to design-based targets initiative with focus on ourselves and our suppliers. Encon commits to lower emissions for scope one and two with 42% until 2030. Scope one includes direct emission from Encon's own operations and scope two include indirect emissions from purchased electricity and heating. For scope three, that includes indirect emissions generated in the value chain, Encon's ambition is to measure and reduce these emissions. If we're moving on to statistics and see how the quarter have been for us, how we've been performing, the net sale was by far the strongest in the company's history, even with the favorable currency effects excluded. The increase was 48% organic growth, and that's really a fantastic number for us. During the first quarter, economic uncertainties and shortened lead times has provided lower incentives for customers to place orders. This resulted in a decrease of 33% of the order intake. The gross margin amounts to 45.6%. We can now enjoy the benefits of the price increases introduced during 2022. The margin is further strengthened by stabilized material costs and favorable currency effects. But it's a really good gross margin level for us to be on 45.6. A record high EBIT margin on 28.7 was reached because of the strong net sales and the high gross margin and can be seen as an example of how our business model can perform during periods and generate high margins during those positive periods then. During the last quarters, we have made strategic investments in the sales organization on growth markets to provide conditions for future growth. We also have cost for ERP implementation this quarter, and it's on 9 million SEK that had reduced the EBIT in the quarter. But all in all, the record high net sales and profitability resulted in a rose level above our financial targets on 63%. This is also a record high level. This is much explained by our capital efficient business model with assembly and low investments in machinery. We will now go over to business and financial development, and I will continue a couple slides, then I will hand it over to Jens Blom. So if you start looking on our sales and order intake then, the net sales reached record high levels, and Q1 was our strongest quarter ever. The strong order book and improved supply chain generated high contributions from all regions. However, the organic order intake showed a decline of 33% compared to last year. In 2022, the order intake was characterized by pre-buy effects. Dealers had high incentives to place orders, to secure tilt potatoes, to be able to deliver complete excavators to the end customers. This partly resulted in the dealers building stock carried over to 2023 that needs to be sold before new orders are placed. In combination with a gloomier economic outlook and a slow development in the construction sector, many of the dealers show a cautious purchasing behavior before signs of stabilization can appear. Looking ahead, the lead times and order book are now back on normal levels. This, in combination with uncertain economic outlook, gives less guidance for the future or for the coming quarters. Having that said, it will be even more important for us to keep up the high activity level we have with exhibitions, demo days, and the close interactions we're having with our end customers. Looking at our market regions, we can conclude the following then. In the first quarter, the stars were aligned. The strong order book and high production capacity generated an impressive net sales increase in all regions. It is, however, clear that the order intake has not matched the high deliveries and that more uncertain times lies ahead of us, as we have mentioned earlier in the presentation. The Nordic region increased net sales from high levels on all markets. Looking ahead, the high penetration rate as well as our strong market share make us dependent on the cyclic excavator sales. The order intake is negatively impacted by fewer construction projects started as well as dealers having stock. On the positive side in the Nordic, we can conclude with the new subsidiary in Norway. We can now market the full income system, and it's pleasing to see how the market has started the year strong there. We also have possibility to further penetrate the market in Denmark. We also see OEM reports indicating that the machine sales will remain stable during 2023 in Europe, and we don't see that it should be any difference in the Nordic countries. The price increase results are full effect during 2023. During 2022, the deal is avoided increase by heavy pre-ordering in Q4 2021 and Q1 2022. As you can see there on the picture, you see the drop of order intake on 38%, but we're having growth on 20% in net sales. And to have 20% growth on a fully mature market is really, really good. If we're moving over then to the European region, it showed great revenue growth across the board. Regarding the ordering intake, the picture is not as clear as in the Nordic region. We can see that Q1 2022 was characterized by heavy order intake from some individual OMs. However, we see the same tendency as in the Nordic region with dealers being more cautious due to stock levels and slowdown in the construction sector. On the positive side, like the previous mention regarding the Nordic, the OEMs indicate machine sales will be stable for 2023. And we still have a lot to further penetrate in all Europe. If we're then looking into the European order intake, it is down 39%. But as I mentioned, it was also a little bit special with the bigger orders for the OEMs last year in quarter one. But the net sales are fantastic growth on 92%, so that's really positive that Europe is growing in that way. Then moving over to the American region, we're having an impressive net sales growth. The order intake is on high historic levels, but flat development in Q1 2023. During Conexpo, it was clear that the interest for our products is increasing, as well as the knowledge about the tilt status system with its benefits. Now I also have more boots on the ground in North America and with a higher geographical presence to further strengthen our position on that market. And there you can see, as we said, it's a flat on the order intake, but it was on a high level. But we're also having really impressive growth of net sales, 113%. And the American market are hotter than the european market if you're looking on business perspective in that way so if you're moving over to asia and oceania region we're having a strong net sales development order it take is increasing but the dependence on a few om companies in mainly then korea and japan is making it the comparison between quarters hard to compare since it's also lower levels in in asia oceania But we can see an increase in order intake in 16% and a good growth on about 50% on net sales there. Then I will hand it over to Jens that will guide you through the financials.

Thank you, Krister. We start with an overview of the EBIT and EBIT margin. We have a record high EBIT in Q1, increasing from 91 million to 198 million is an improvement by 118%. The EBIT margin is 28.7 compared to 20.4. The record high result has been driven partly by high net sales, price increase combined with lower disruption in the supply chain and a strong order book at the beginning of the year. The strong result Also show the strings in our business model with scalable production and with relative low fixed cost. Then we can turn to the profit and loss. The net sales goes from 447 to 691 million. The gross margin goes from 40.3 to 45.6. If we look further down, we can see that the selling expenses is 76 million compared to 54 million. And this is due to high activity on the market with exhibitions like Conexpo. And we also have an expansion in the sales organization, which put more boots on the ground. Further down, notable is the R&D. It's 8 million compared to 6 million last year. And if you take in consideration what we have invested in the balance sheet, we are on the total of 16 million for the quarter, which is approximately 2.3% of net sales. Most of this expenses is related to the third generation of the Tilted Sector. And if we turn to the bottom line, we once again can state a very strong result, 119 million SEK pre-IPO compared to 96 million. And on the rolling 12 months, we end up in 534 million SEK with a margin of 24.5. And then we can turn and look a little bit on the capital structure. As you can see, we're tying up more capital. We have 34.7% of the net sales compared to 32.1. The main reason for that is that we have higher inventory in our more distant growth markets, and the high activity at the end of Q1 gives a high level of accounts receivable. The operating cash flow is 5 million SEK compared to last year, which was also 5 million. And we can go to the return on capital employed. As mentioned, we are on a rose on 63%. It's the first time we reach above 60%. This is a confirmation of our strong business model with a capital efficient production and we have also strong profitability. The very strong start of 2023 creates good conditions to meet the upcoming quarters. With that said, I now hand over to Krister who will take us through the financial targets, and he will also summarize the first quarter.

Thank you, Jens. If we're then looking on our financial targets and our performance in quarter one, we have a really good performance where we're exceeding all the financial targets. And if we're looking on the growth target where our goal is to exceed the growth in existing market through organic growth with 19% on business cycle, We're having 48% net sales organic growth. That's a really, really good number for us to be able to grow that fast. And again, shows with our business model with assembling that we can scale up fast. Profitability, we have an EBIT margin in excess, have an EBIT margin excess of 20% measured over a business cycle. Here we're also having a record high EBIT margin on 28.7%. that also shows that our business model with centralized parts and able to just move on with salespeople and support and technical people in the sales companies, it's possible for us to have high EBIT margins during positive periods. Capital efficiency, our goal is to have a rose to exceed 40% measured over a business cycle. As Jens mentioned, we have a record high It rose on 63%. And if you're looking on the capital structure, our fourth financial target, our goal is to have the equity to asset rate to be above 35%, and we are on 48%. So really strong quarter from ENKON, where we're delivering on all financial targets. And then now to the summary and outlook. In the first quarter, the strong order book, high margins and shorter lead times generated record high net sales and profitability. As we mentioned, the proof of what can be achieved with our business model when everything works as it should. Looking ahead, the order book is now lower, yet good levels, but it will give less guidance for the coming quarters. The order intake will be partly dependent on development on the construction sector and the excavator sales. Right now, we can see the fewer construction projects are initiated, which lowers the demand for excavators. And we are now more depending on our efforts to sell. You could also see a strong electrification trend at Conexpo. And as you can see on the picture, John Deere showed their prototype electric excavator together with our Ancon tiltrotator. That was the main piece in their inside booth. They also showed their new machines as a main piece on the outside booth together with ENCOM. And also Doosan, or nowadays Devlon, showed their prototype for fully autonomic excavators together with an ENCOM tiltrotator. And this is exactly what we have talked about, our Generation 3 tiltrotator. It will be prepared for it. So it's really good that we can see that the OEM are thinking in the same way as us. So we are linked in that way to see how the future will look like. Sorry, I was a little bit early. Our capital business model enables quick adaptions to new market conditions if needed. And we also, working with sustainability, forms the basis of our business and long-term growth. We constantly work closely with our end customer and partners to develop innovative, productive, and sustainable solutions. By doing so, we can make a difference. With sign-based targets, we get clear roadmap that reduce our own and the supply chain greenhouse gas emission and contributes to the global climate transition. However, the benefits that Tilted System offers our customers are more relevant than ever. And then if we're moving on to the next picture there. And in the time of increasing uncertainty, it's good to remind ourselves of the strong benefits of ENKON's products. To me, it's clear that the case for our tilt-rotator system is stronger than ever. When inflation and interest rates are high, the positive impact on our end customer's profitability is clear. The tilt-rotator can increase the productivity and efficiency within an average 25%. We reduce our end customers' investment needs. A tilt-rotator-equipped machine together with hydraulic tools can replace 2.2 other machines since it makes the machine to a tool carrier that can serve many purposes. We also save fuel. A more efficient machine needs less fuel. A 30 metric ton machine saves 6,000 liter fuel per year with a tilt-rotator on it. Not to mention the impressive CO2 saving of 130,000 kilos CO2 for the lifetime of that excavator. This is on top of the significant increased safety levels by reducing the needs to leave the cab and reduce the need of people around the machine. Because most of the accidents are occurring when you're leaving the cab to go in and out to switch tools and so on. And you don't need to do it because you can do everything from the inside. And also to reduce the need of people around the machine, you save money, but you also reduce the risk of dropping something on somebody or anything like that. So having an Anconas partner, our end customer, offered great tools to improve profitability and safety with less impact on the environment. This is how we changed the world of digging. And we will finish up with a picture where we're bragging a little bit about ourselves. At the event IPO of the year, when the business magazine Affärsvärlden handed out its annual awards during the ceremony in Stockholm, Enkom was awarded two prizes, the Euro's grand prize and the prize for quality in the billionaire class. So thank you for listening to us and our presentation of our Q1 report. We will now open up for questions that can be asked in the telephone conference. So operator, please go ahead with the first question.