engcon AB (publ)

Hello, everyone, and warm welcome to ENCOM's presentation of the fourth quarter 2024. My name is Christer Blomgren, and I'm the CEO here at ENCOM. With me today, I have our CFO, Marcus Asplund. He's with us for the second time. Together, we will take you through the Q4 report with highlights and the key financials of the quarter, and then we'll move on to the Q&A session after that. Before we start with highlights of Q4, I would like I would like to take a look on 2024 and our development during the year. Our vision is to change the world of digging. Are we getting closer to that? 2024 was a year with challenging market conditions, weak demand in the Nordic region that slowed down the sales, while Europe posted growth despite the cautious market with falling expeditive sales. 2024 is a historic year where Europe is our largest region. passing the Nordics. We now have two markets that generate the majority of our revenue. They generate 80% of our revenue together. If we're taking a look at the donuts, we can see that year 2012, the Nordics were 88% of our revenue and Europe had 10% and Asia was saying that too, and America more or less nothing. Year 2023, we can see that Nordics are still the largest region with 43% and Europe 34%. And now 2024, we're having the historic where Nordics are not the largest region anymore. It's Europe that are the largest region. And Americas and Asia standing for approximately 20% together. For us, that's a huge step towards changing the world of digging where Nordic is not the largest region anymore. And we have been able to grow in Europe when the excavated market is decreasing with approximately 25%. That means that we are climbing up on the product diffusion curve and that we have a higher penetration percentage in Europe now. Can we keep increasing the penetration when the excavated sales are taking off again? Then we will grow really, really fast. The importance of the Nordics have decreased, but with a substantial drop, it impacted the group's total revenue 2024. The drop is approximately 225 million SEK of revenue for the year in the cyclic Nordic region. The rest of the world has not been able to compensate for this decline yet, but the larger we get in the other regions will be less cyclic in that way. But nevertheless, we have maintained an EBIT margin of 18%, which I view as a clear sign of our strength and evidence that our business model is scalable. We know that the Nordics will bounce back once confidence returns and next greatest sales pick up again. It will be exciting to see if Europe can continue growing fast enough to stay ahead of the Nordics in 2025. So to answer my own question, if we are closer to change the world of digging now compared to a year ago, my answer is yes. Europe have been taking big steps where more or less all markets having a strong year 2024 and the penetration is higher on all markets in Europe than a year ago. We jumping in then to the highlights and then we start with the most positive thing and that's the order intake for the quarter was the highest since the fourth quarter of 2022. It is 506 million SEK, and that's an organic increase of 22%. What's also very positive is that all regions posted increased order intake this quarter. And the largest increase in order intake took place in the Nordic region with 34%, which was the result of a pre-ordering and can be seen as an indication of a more optimistic market view. In the Americas, our order intake increased organically by 17%. Over the past year, we have announced challenges within our organization in the U.S. As a result of this, we have decided to make changes to the management structure and part ways with our previous region director. We still have a positive view in the North American market and are investing to increase our sales there. We're also choosing to increase our investments in Asia by setting up a sales company in Japan. Japan offers a great potential for our products, driven by the ongoing labor shortage and our country's strong demand for greater efficiency and productivity in the construction sector. As a further step on our sustainability efforts, we have joined the world's largest sustainability initiative, the UN Global Compact Initiative. We're proud to join thousands of other global companies that want to make the world a better place. And that's important in days like this, when people and countries focus on themselves first. If we're moving over to numbers then, We're starting with net sales and we're having organic growth of net sales with 27%. And that's really good, even though it's from low levels in Q4 2023. If you're looking on the order intake, here we're coming up really strong with 22% organic growth. And as I mentioned earlier, this is the highest levels we've seen in two years. So really positive there with the order intake. Gross margin amounts to 43%. This is a more long-term sustainable level for us. It is a decline from the high levels of 46 in quarter three. But as we said back then, it starts with a line in terms of gross margin with a profitable product mix and a strong market mix. And as I said now earlier here, 43% is a more long-term sustainable level for us. And Marcus will guide us a little bit more around the details later on then. The EBIT margin amounts to 16%. Here we see that the volume increased from last year helping us to reach this healthy level. But we are not satisfied here. And to get the extra percentage points on the EBIT margin, we need to grow net sales further to reach the 20% where we want to be. And last one is return on capital employed. We are climbing up to 38% and closing in on our financial target of 40%. If we're moving over then to looking into order intake and net sales over the last eight quarters then. And then if you want to put the fourth quarter in a perspective, if we're looking there, we can see that the order intakes amounts to 506 million SEAC. And that's the highest in all these eight quarters that we're showing here. We can also see that the fourth quarter shows a clear increase from Q3. And the main reason for that is a pre-ordering, especially in the Nordics then. And the increase is from 360 up to 506. So it's a clear increase also during this period. And if you're looking deeper into all the other regions, and we will start with the Nordic region. And here we see a strong order intake increase in quarter four. And it's a really positive sign that we see some dealers daring to place pre-orders. Dealers also see a larger interest from machines in general now and have a more optimistic view on the market. And the result of this more optimistic view of the market is the pre-ordering effect that we see then. We normally have this pre-ordering in Q4. But we didn't expect it this year because of the lower price increase and the uncertainties that still exist in the world. We believe that March and April will be the most important months for the Nordic region regarding order intake. And that will set the tone a little bit for the rest of the year, how big increase we will have in the Nordics. But we believe that this pre-ordering in Q4 has strengthened What we have said earlier, that the Nordic region will have a solid increase compared to last year. Then we're going over to Europe. That's our largest region. And even if Nordic have a big increase in order intake, Europe is still our largest region, both in order intake and net sales this quarter. So that's also really showing strength from Europe there to still being the largest one. And as I mentioned earlier, 2024 has been a historic year in that sense that Europe have passed the Nordic as our largest region. We can also see that each quarter have overperformed the last throughout the year and how the rolling 12 numbers continue to increase in the diagram there. The increased penetration of more or less all markets have occurred. And since we're growing and the sales been down around 25% on the machine sales in Europe. We can now also see the benefits of our hard work over a long period. We have a stable organization that have been able to use and able to educate the end customers about the product which makes them more likely or willing to invest even in tougher deposits. Sorry. That the different markets been doing good over different periods of time. This is a strength for us that we have several legs to stand on also within the region. Clear is, however, that the development in the DACH region has stood out and shown good growth throughout the year. So DACH region and Germany especially have been doing really, really good for us then. And speaking about Germany, then we look forward to continue this journey to keep on to change the world of digging in Europe. We're also having the largest exhibition within construction, Bauma, coming up in April 2025 in Munich that will also boost the interest and knowledge of our tilt rotators. Then we're going over to Americas. And here we see an increase in the quarter, both of net sales and order intake from low level stone. We hear from dealers and OMS that the market development is pretty stable without any significant ups or downs. We take this as a positive sign as we will continue our efforts to penetrate the market. We can also see that Some market uncertainties have increased since Trump was reelected as a president. For the moment, we are unsure of the consequences that the potential tariffs will have on our business. But we are not that worried since all our competitors are from Europe and we'll have the same issues as we will have then so we can deal with it from that. During the year, we have communicated challenges in our organization in the US. We have reviewed the organization to optimize resources and improve our long-term sales strategy. As a result of this, we have decided to make changes to the management structure and part ways with our previous region director and also our sales manager. Our COO and former head of sales, Anders Schmidt, will lead operations until further notice. We are also actively trying to recruit new sales staff, including a new sales manager. But we have never doubted our long-term view of the American market. And we are doing these changes to increase sales and change the world of digging. Going over to our last region, and that's Asia-Oceania. Here we also see that both order intake and net sales have increased and we see a good performance throughout the region. In quarter four, we also see the highest order intake for the year and how the rolling 12 numbers develops in a promising way. To better tap the market potential and strengthen our position in the region, we are currently establishing a sales company in Japan. There's a huge potential for our products due to labor shortage. and a great need for increased efficiency and productivity in the construction industry. MLIT, Ministry of Land, Infrastructure, Transport and Tourism in Japan, has stated that tilt-rotators are now part of the increased productivity program within construction industry that they have been running for a while. It has mainly been about digitalization with, for example, machine guidance on the machines. And the long-term goal have been autonomous machines And they have realized that they need tilt rotators to reach that goal with autonomous machines then. And this is something that we and our partner Kobelco have been pushing for in Japan for a while also. What does this incentive from the MLIT mean for the end customers then? They need to have approved tilt rotator from MLIT. And then they will get the higher rates on the governmental worksites. And that means that they will have an even faster return of the investment if they're investing in tilt rotators since they're getting higher rates and they can do the work faster and so on. So that's a big step for us in Japan. But it's also really positive for many other reasons. Not only that the customer getting even more incentives to buy the tilt rotator, but it also clears up some uncertainties that have been in the Japanese rules and legislation. regarding what you can put on an excavator boom. Before this, the focus was solely on weight, which caused some unclarities that now have been resolved and making it much easier for us to sell Encons in Japan. Now it's time for Marcus to guide us through the financials.

Thank you, Chris. As expected, EBIT improved compared to the low levels in Q4 2023. Between the quarters, EBIT increased by 44 million SEC, which corresponds to an increase of 231%, driving the EBIT margin from 6.2% in the fourth quarter 2023 to 16% in 2024. While EBIT margin shows a healthy recovery compared to Q4 2023, it is down slightly compared to the strong performance in Q2 and Q3 2024. This decrease is attributable to the lower revenue and gross margin, which I'll explain in more detail next while going through the various items in the income statement. Net sales in Q4 came in at 393 million SEC, a significant increase from the low levels of Q4 2023. Gross margin rose to approximately 43% from 40. This improvement reflects the impact of higher net sales, which allowed for better absorption of fixed production costs. While 43% represents a sustainable long-term gross margin, it's a decrease from the higher levels of Q2 and Q3. As noted in our Q3 report, the 46% gross margin then was due to several favorable, now diminished factors, mainly market and production mix. Moving on to the expenses and the ERP implementation costs, which decrease from 10 million to 6 million SEK. However, administrative expenses remain stable due to increased activity in other ISIT areas. All in all, this summarizes to an EBIT of 63 million SEK or 16% for the fourth quarter. Looking at the full year 2024, we summarized the year with the net sales of 1.65 billion SEC lower levels versus 2023 due to the weak demand in the Nordic region. A satisfying gross margin of 44% strong aftermarket sales continue to support this margin. We therefore summarize the year with the stable EBIT of 295 million SEC, resulting in an EBIT margin of around 18% for the full year. This is a stable level considering the lower net sales during 2024 and confirms our scalable business model. Moving on to the cash flow. The cash flow from operating activities increased from 96 to 108 million SEC. We conclude that the new networking capital is at a higher level than in Q4 2023, coming from higher inventories and accounts receivables due to the higher level of sales compared to Q4 previous year. The strengthened cash flow for the quarter is driven by higher operating profits. The unutilized total liquidity per the last of December was 446 million SEK. Return on capital employed continues to recover from around 28% in Q1 and Q2 to around 31% in Q3 to end up at around 38% by year end. And the upwards trend is expected to continue. At the same time, the average capital employed is increasing, mainly due to balanced R&D expenditures. Looking at our performance for the full year 2024 towards our financial targets, we see a continued strong capital structure and increasing capital efficiency during the year, albeit still a couple of percentage points below our target. The profitability also comes in a couple of percentage points below our target, but we see this as a solid performance considering the lower net sales in the Nordic region. Despite a European-wide downturn in the excavator sales, Europe managed to partially offset the negative growth in the Nordics. Summing it all up, the board of directors proposed a dividend of one SEC per share. And with that, I leave the word back to you, Krister, to sum up and give us an update on what's ahead.

Thank you, Marcus. When we summarize the quarter, we can see that we have a strong order intake in all regions, especially in the Nordic region. It's our best quarter for two years. If we look at the whole year, it has been a strong year in Europe, as Marcus mentioned there, despite the machine market that has been down about 25%. We have been doing good in more or less all markets in Europe, and that's a strength for us going forward. So we're not depending on just one country in Europe or anything like that. We can work with all the markets we are there. That's really positive. And with the changes already made in North America, we feel confident that we are on the right way and that we'll see improvements during the year. We're also investing more in Asia. where we have starting up our sales company in Japan. And it's enormous potential in Japan, giving the ongoing labor shortage and the country's considerable need for increased efficiency and productivity in the construction industry. MLIT incentives will also be an extra boost for our products on markets that have to change the way of digging. We're also going to release more units of our models of our third generation tilt rotator. During 2024, we launched EC319. And during 2025, we will launch more models of the EC3 series then. In 2025, we're also taking a step up to the Nasdaq Stockholm large cap. This marks a significant milestone and reinforces the exceptional growth journey we have been on. and the exciting path still ahead. And an update regarding the Rototilt lawsuit. The hearing in the patent lawsuit against Rototilt has been conducted this week, and the verdict will be announced on March 27, 2025. If we're looking ahead then to 2025, our starting point will be to continue to create profitable growth and strengthen our market leading position with innovation as the foundation of our business. And that's where the three series will be important for us to keep that one step ahead compared to our competitors. Market conditions continue to contain a significant degree of unpredictability, partly due to the geopolitical situation and the potential tariffs in the US. As previously communicated, we expect stable development with continued growth, forecasting and increase from low levels in the Nordics. We also anticipate that the growth in Europe will continue. And with that, I would also like to give a huge thank you to our incredible employees, customers, partners, investors for being part of this journey. Your dedication and support have been the key to ENCOM's success so far. And I'm excited for 2025 and can't wait to change the world of digging together with you guys. That was all in our presentation. I will now open up for questions that can be asked in the telephone conference. So operator, please go ahead with the first question.