engcon AB (publ)

Hello everyone and warm welcome to ENKON's presentation of the first quarter 2024. My name is Kristi Blomgren and I'm the CEO here at ENKON. With me today I have our CFO Jens Blom. Together we will take you through the highlights of the quarter and then we will move on to the Q&A session. So let's start with ENKON's vision then. Enco's vision is to change the world of digging. So far, we have started with 60 markets from North America to Australia. The penetration rate is in approximately 2% of all the world's excavators, so a lot of potential left. And we can see that we have started to change the world of digging with our donut chart. We reached a milestone last year with the Nordic market or region on 43%. That's the first time ever the rest of the world were over 50%. Our biggest growth region and also where we have become the furthest is Europe. There we had 34% of our revenue last year. And America has also had a good growth last year and ended up on 15% of our revenue. And the smallest region so far is Asia Oceania that ended up on 8% last year. And some short facts about last year, we ended up on approximately 1.9 billion SEK in revenue. We had a dip in our growth path with the minus 6% growth. Two years before, we had an average growth above 30%. We had a good profit level on 20% EBIT, even if it was a turbulent year, 2023. We're moving on and talking more about our highlights in the quarter. For the fourth quarter in a row, we see a continued stabilization. There are increasing signs that demand has bottomed out and is now on the rise. European region is showing clear signs of strength with a sharp rise in order intake. More new customers and higher activity among major customers. Europe had also another strong quarter on order intake. And to make it even more positive, most of our countries contribute in a good way. We also had a trend break with a net sales increase from last quarter after three quarters of a drop. And after a really weak Q4, we are now back on a more healthy profitable level. We are on approximately 15% on the EBIT level. And innovation is a key to success, and we have always strived to be at the forefront of technology within ENCOM. During the first quarter, we filed a patent application related to self-learning configuration. That will be together with our third generation tilt-retator. And I will dig in a little bit deeper to our third generation on the next slide here. We are launching our third generation tilt rotator. Sales have started in Q1. And we start with our top seller size, EC319. That's our 4x graders up to 19 ton. Our key unique selling points for the third generation tilt rotators are that we're having this self-learning configuration. This will simplify installation and optimize the configuration between the tilt rotator and the machine. saving energy, increasing precision, and providing an optimal experience for the operator. An optimized third generation tilt rotator, compared to a good configurated generation two, saves a minimum of 30% energy for the tilt rotator. With this self-learning program, we will get always the optimized installation on the third generation tilt rotator. second generation is more depending on the skill set of the installer so that's why it can vary a lot more compared to the third generation where the skill set of the installer doesn't matter we're having a program to fix that and we will also save approximately 50 of the installation time and we will also simplify it so we'll be need a less skill set to do that then This is normally a bottleneck for us on a new market. So that's why it's really important that we've been achieving this with our new tilt rotator. In our third generation tilt rotator, we will get higher flow through the tilt rotator. So we can use even more different type of tools that needs high flow. And this makes the X-ray to the perfect tool carrier or the Swiss Army knife. whatever you like to call it but it will be even more useful for different tools and we probably can replace even more other machines in that way our new app will be available both for ios and android so now more or less everybody can get the remote support and we also have being in that and so the operator can customize the settings depending on how he wants to have them a little bit like in the car when i push chris there i get the seat settings the steering wheel in the right position the mirrors and so on here in the excavator you will get the right speed on the tilting or rotation or whatever you want to change with that but so you will get that every time you step into the machine even if somebody has changed it before we also having prepared it for electrified and autonomous and semi-autonomous excavators The important thing for those electrified machines are that we're using less energy. And for those autonomous machines, the smoothness is the key. We're also having load sensing technology together with the new software or control system DC3. That's where the smartness is. The control system control the load sensing valves and make everything smooth and efficient. With all this new technology in the third generation tilt rotator, It is a little bit like Tina Turner would have said, you're simply the best, better than all the rest. Looking in then to Q4 figures, or not Q4, Q1, brief overview of the Q1 figures, sorry. Looking on the organic net sales, it's a decrease of 43% compared with last year. But that's when we reported exceptional deliveries and broke our sales records. Sales have declined from this record level in 2023. But pleasingly, this quarter breaks the negative trend. Take a look at the organic order intake. We can see a small increase from last year. This is yet another sign that the demand has bottomed and is now on the rise. And we also see strong recovery in our growth rate in Europe that I will come back to later on. The gross margin level reaching 42%, and it's an increase from previous quarter and is now on a good level. EBIT margin is back on a healthy level, 15% EBIT. And this is mainly due to increased revenue and a strong cost focus. The rose amounts to 28%. If we take a look on the order intake and the net sales, we're having a growth trend on the order intake. We reached 410 million SEK in this quarter, which is actually a modest increase both to last year and if we also exclude the pre-buy effect we had in Q4 2023. We also have a trend break, as I mentioned earlier, with the net sales. It's going up this quarter after three quarters dip and reaching 394 million SEK. You can also see that we have built the small book to build the last two quarters. And we will dig in deeper in both net sales and order intake in the regions on the coming slides then. We're starting with the Nordics. We're having a positive trend on the order intake for the third quarter in a row. It's a little bit mixed signals. with sweden and finland have a stronger positive trend than denmark and norway denmark and norway was a little bit slower into the dip and i'm not yet out of it so we still have a lot of growth left in this region both in sweden and finland but especially then in denmark and norway the nordic region is our most cyclic region and here we need some positive macro signals to get the big increase The signals we see so far is mainly from Sweden then, where we're talking about lower the interest rate, maybe as early as in May, otherwise most likely then latest in June. And hopefully also the other will follow, so that the residential and commercial and industrial buildings can start all over again. Another thing that is important right now is also that the dealers have excavators in stock, so it's important to have short lead times in production. We're moving over to Americas. And here we have had the first on-site spring training with John Deere. We've been having digital trainings before during the COVID. And last year there were no spring training because of the Conexpo. John Deere invited all their dealers. They have more than 1500 dealer sites down to Arizona. And we have trained them on the benefits of the tilt-rotator. They also have tried the tilt rotators. This will spread the awareness of tilt rotator to the dealerships within the John Deere's and hopefully they can spread it further on to the end customers also. Our service organization in America are now on pace to meet the customer's demand. We have sent senior central resources to North America that earlier have worked on the growth markets and understand what customers needs in North America. I feel positive that we'll be back pretty soon with the best service and support. If we look on the trend for both order intake and net sales, we can see that we still have a negative trend. Our sales cycle is normally three to six months from start to an order. So it will take some time before we see any bigger results. During this time, we have been running sales training for our staff, also pushed extra for our go-to-market strategy and the focus on the end customers And we think that will also pay results later on then for us. And I think we will bounce back. We need to make a couple of adjustments and keep grinding. If it was easy, everybody would do it. Asia-Oceania. In Asia-Oceania, we have two really, really strong quarters in a row. All countries in the region are doing good. Korea and Australia. where we have our own sales office. We have a good sales organization, and they have the right focus. They're working with end customer and building the market from the bottom up in that way. Both markets, Korea and Australia, show a record high Q1 in order intake. We also have signed a new and non-exclusive agreement with our distributor in Japan, which give us the opportunity to be more active in the Japanese market and work with more partners or by ourselves. This region is getting more and more important for us. The order intake in this quarter are around 40 million SEK. We also have a positive trend on the rolling 12 for three quarters in a row. So as I was saying, I've been having a couple of strong quarters here and hopefully we'll continue with that. Moving over then to Europe. Here we're also having two strong quarters in a row from the European region. Importance is that most of our countries are doing really good. France is starting really strong and also having the intimate right now actually in France, in Paris. We're having a good trend on rolling 12 months on the order intake. And another positive thing is also that all this have happened without any major positive macro trends expect that the risk of increased interest rate is gone. The feeling is that the tilt-to-tilt is becoming a more established product in more and more countries in Europe. Europe is now our biggest region in Q1 with 41% of our total order intake. Europe is also the biggest region on rolling 12 months with 608 million CX or 40% of our total order intake. So Europe is becoming more and more important or actually they are the biggest one and that's why they are so important. And all this with a lot of potential left in Europe since most of the countries still are under 10% penetration rate. And speaking of penetration rate, if you're taking a look at this graph, that shows the penetration per market, we can see that we have a lot of opportunities left. And the growth regions that are closest to reach the tipping point are Europe, with Netherlands in the front, but also the bigger countries like France, Germany and UK are right there. So in the short term, Europe is important for our growth. We can get the bigger volumes there faster than from the other growth regions. America, Asia, and Oceania will also follow, but there are some steps behind. Another thing that also speaks for Europe is that we also have the sales organization, we have the management, and we have the service network in place in Europe. We have historically been weak in the DACH region, but with the strategic partnership with Zero Degrees in the DACH region from last year, we are much stronger there too. And Germany is the biggest excavator market in Europe. That's also really important and a big step for us. And also the awareness of tilt-rotator system is more spread. And we see that even the rental companies are starting to invest in tilt-rotators in Europe. With that, I will hand it over to Jens who will guide you through the financial performance in more details. So go ahead, Jens. Thank you, Kristel.

We start looking shortly on the EBIT and on the EBIT margin. We have an EBIT that has decreased 70% to 60 million compared to 198 million last year. It was a record number. The margin is 15.2 compared to 28.7. And as Krister mentioned, we are now on a more healthy level in the first quarter. compared to what we ended 2023 with. And we're going to have an overview of the profit and loss. We have a net sales on 394 million compared to 691. And on the rolling 12 months, we are at 1.6 billion. And the gross margin is on 42% compared to 45. last year you can go further down in in the profit and loss we have cost for the ERP implementation of 8 million compared to 9 last year and the R&D expenses are 11 million compared to 8 and they are due to the third generation tiltrotator We also have an effect a negative impact of their rates with four million compared to a positive last year on four. So at the bottom line the EBIT is 60 million for the quarter and on the rolling 12 months we end up at 238 million with a margin on 14.9 percent. Then we're going to look a little bit on the cash flow and on the net working capital. We have a negative operating cash flow on 44 million compared to a positive on 5 million last year. And that's due to lower operating profit and a tax payment. And also we have an effect of the positive trend break when we see the demand increase. our inventories and accounts receivable are also rising. Networking capital as part of net sales on rolling 12 months is 29% compared to 35% last year and 21% on the full year on 2023. Then we're going to look more closely on the capital structure and on the ROSE level. that drops to 27.8%. That's due to a lower profitability on the 12-month basis, and also that we are on a higher level on the capital on the average. So with that said, I will hand over to Krister who will summarize and give us some outlook for the upcoming quarters.

Thank you, Jens. I will start with our financial targets. Our targets are measured over a business cycle. So that sometimes makes it a little bit harder to compare two quarters. But growth, we have a big drop from an exceptional first quarter last year. On the profitability, we are back on a healthy level from our weak fourth quarter. We aren't pleased with the 15%. But if we can invest in the ERP system, our sales force, and launch new products during a downturn and keep it at this level, I think we're doing a pretty good job. If you're taking on the capital efficiency, we are lower than our target, as Jens talked about. Capital structure, we are well above our target, but we'll also pay out dividend in Q2, so we'll lower that a little bit after that. Then we're moving over to the summary and outlook. If we start with a little bit of a summary, we have three out of four regions that are doing good. We are working on getting America back on track again. So totally a positive trend and a gradual increase of the order intake and net sales. It's also really important for us that the net sales trend break and also that we are back on a healthy level on profitability. And it feels really positive that our biggest region, Europe, have had two strong quarters in a row. with a good contribution from more or less all markets. Right now we're having the world's third biggest exhibition in Paris. We have a great booth there. We're also having units in other booths, for example, Takuchi, Devlon, Kobelco and others. We'll have a good presence there in the Intermat in Paris. April is also the start for the exhibition season. with a focus on marketing the third generation there. The very best part of creating a new business is to be able to physically show the benefits of the tiltrotator on site and how we together can change the world of digging. We have launched our third generation tiltrotator with a lot of new technology, like the self-learning configuration. This will simplify the installation and optimize the configuration between the tiltrotator and the machine. saving energy increasing precision and providing an optimal experience for the operator the first model ec319 for machines up to 19 tons of our third generation is now on sale and we are progressively offering more models of our most advanced system up to date as we enter the next quarter we predict the gradual positive trend for the reminder of the year We continue to work hard to meet our customers' needs while creating a flexible and cost-conscious organization. We are looking forward to an intense period with exhibitions and demo days where we will have the opportunity to meet our end customers around the world and trying to fulfill our founders C. Gangstrom's dream of having all the end users in the world in our CRM system. We will now open up for questions that can be asked in the telephone conference. So operator, please.