engcon AB (publ)

Hello and warm welcome to ENKON's presentation for the first quarter of 2025. Thanks for joining us today. I'm Christer Blomgren, CEO at ENKON, and with me today is our CFO, Markus Asplund. We're excited to share some highlights and key numbers from our Q1 report. And after that, we'll jump into a Q&A where you can fire away with your questions. We're really happy to say that we are kicked off the year with a strong order intake, mainly driven by growing demand in the Nordics as everyone gears up for the upcoming digging season. Order intake was up by 28% and as I mentioned earlier, a big part of that comes from the strong momentum in the Nordics. Net sales for the quarter also grew nicely with a 14% increase compared to last year. And Europe continues to be a real bright spot for us. The awareness around tilt rotators just keeps growing. And Bauma made that crystal clear. Tilt rotators were everywhere at Bauma. Every major excavator manufacturer had machines equipped with tilt rotators on display. It's clear that tilt rotators have truly arrived in Europe. They are not just a new idea anymore. They are becoming the standard. There's a really strong momentum in the European market right now. Our operating profit increased by an impressive 40%, with some offset from the strengthening of the Swedish Krona. And we also had some good news on the legal side. The Swedish Patent and Market Court of Appeal upheld the earlier ruling in the patent case with Road to Tilt. Their claim was dismissed again, and the court confirmed that no patent infringement had occurred. Since the ruling can't be appealed, the matter is now fully settled in Sweden. But just to clarify, Rototill still retains their patent. It just wasn't infringed by us. If you take a look at some of the key numbers for the first quarter, net sales were up 14%, with most of that growth coming from our two biggest regions, the Nordics and Europe. Order intake kept its strong momentum going into 2025, climbing 28%. The Nordics really stood out this quarter and leading the way. Our gross margin came in at 46%, helped by higher production volumes and a really good mix of products and markets. EBIT also had a strong lift, up 40% to 84 million SEK, giving us an operating margin of 19% compared to 15% last year. And ROSE continues to move in the right direction, steadily climbing towards our target of 40%. If we're taking a closer look at the progress we have made in order intake and net sales, order intake came in at 524 million SEK. That's actually the highest we have seen in more than two years, mainly thanks to strong demand in the Nordics ahead of the upcoming digging season. The past few years have been a bit turbulent, but now we're starting to see a more normal seasonal pattern taking shape again. Typically, we build up the order book during Q4 and Q1, and then we see deliveries pick up in Q2 when the digging season really gets going. With the Nordic market coming back strong, this pattern is becoming much clearer. Net sales landed at 446 million SEK, giving the order intake where we've seen it's clear that we've been building up the order book during q4 and q1 and okay with that let's move on and talk a bit about how things are looking in the different regions the nordics had the strongest start of all our regions this year we're seeing a much more positive outlook from our end customers and with low inventory levels at our dealers it's creating even stronger demand Order intake came in at 231 million SEK. That's a massive organic growth of 49%. Net sales also grew nicely, reaching 190 million SEK, which is 21% up. What's even better is that the market and product mix in the Nordics turned out to be more positive than we expected. So it didn't hurt our gross margin in the way we had predicted earlier. And you can see in the chart, we have built up a really strong order book in the Nordics. This is starting to look like the traditional season pattern we know. Strong order intake around the year end, continuing into Q1, and then higher deliveries in Q2 as the digging season kicks off. All in all, we are really happy to see the Nordics bouncing back in 2025. And it's going to be exciting to see whether the Nordics or Europe ends up being our biggest region this year. And speaking of Europe then, in Europe, the tilt-rotator just keeps gaining ground. Order intake grew organically by 20% compared to Q1 last year. Net sales were up too, increasing by 17% to 182 million SEK. The awareness of our products and their benefits is definitely on the rise, and Bauma in Munich really made that clear. At the world's biggest and busiest trade show, tail-to-tails were everywhere. All the major excavator manufacturers had them on display. Germany in particular has been a real highlight for us, We're seeing a strong uptick in the demand there. The trend is clear. More and more users are moving from just tilt or rotation couplers, which have been the norm for a long time in Germany, to full tilt-rotator solutions. We're seeing good momentum across several key markets in Europe, and we believe a lot of that is thanks to growing penetration rate, which I will dive deeper into a bit later on. At the same time, competition is heating up, But interestingly, the big three, ourselves included, are only getting stronger. Every major OM at Bauma had all three brands represented in their booth. And honestly, that's a good sign. It shows that the manufacturers get it, they understand how important tilt-to-tilt have become, and that they need to let the end customer choose. Otherwise, the risk is that they're losing machine sales. If you're taking a look at the Americas then, despite the turbulent situation in the US, order intake in the Americas rose by 19%. However, net sales decreased by 14% due to low inventory levels limiting our deliveries. We are now adjusting inventory levels to meet the regional demand. We are continuing to build up the organization, but the tariff situation has caused a few bumps along the way. We have chosen to pass the extra tariffs cost on to the customers. We also see the currency shifts are having some impact on our margins, but since the US is a smaller part of our overall business, the effect is limited. At this stage, it's difficult to predict how the announced tariffs might affect future growth in the Americas. Either way, we're staying focused, working closely with our end customer, and showing them how our products can boost their business. That's how we are changing the world of digging. And we're moving over to our smallest region, Asia Oceania. And the order intake in Asia Oceania dropped by 10%. But it's worth noting that also the smallest region, and we're normally having a lot of fluctuations in that region. And the drop was a lot affected by Australia. And in Australia, the market is a bit cautious ahead of the election in May. But we are confident that things will pick up once the election is behind us. Our Japanese sales company is off to a strong start, showing good growth compared to previous years when we worked through a distributor. And if we're taking a closer look at how market penetration has been developing, because that's really the key to driving future sales. In 2024, Europe made a huge leap and actually overtook the Nordics as our biggest region in terms of revenue. It's also where we are seeing the biggest shifts when it comes to penetration rates. I want to highlight a few markets that really stands out. And of course, it's a little tricky to measure penetration exactly, but based on our estimates, Here's what we are seeing then. In the Netherlands, we believe penetration has gone from 27 to 33%. And according to the theory, that means we have likely passed the tipping point. Once you hit that tipping point, sales, both for new excavators and the existing market, really tend to take off because the tilt-rotator becomes more of a standard rather than something new or optional. And we are definitely seeing that in the Netherlands. Sales are starting to feel almost self-playing, and we're getting more interest from different customer segments. Sales are growing steadily, even though the competition is pretty tough now in the Netherlands. In Germany, which is the biggest excavator market in Europe, we estimate the penetration has moved from 6% to 9%. Here we're noticing that more customers were used to only buy tilting or rotating quick couplers, and now seriously considering full tilt rotator solutions. Our partnership with Oilquick and Sierra Degree have really helped us to get the product on the map over there. In both Netherlands and Germany, we have been successful by offering a tilt rotator with the local coupler brands. One key takeaway from this is clear. If a local coupler has a big market share, we need to have an entry-level tilt rotator ready that fits into that ecosystem. rotators deliver major productivity gains as labor becomes harder to find and efficiency demands grow more contractors are adopting tilt rotators and this will fuel the rapid global expansion of tilt rotators with that i will hand it over to marcus and he will guide you through the financial development and so please go ahead marcus thank you chris there

Let's have a look at the financial development. In the quarter, we deliver an EBIT of 84 million SEK, which is 40% better than in Q1 2024. This corresponds to an EBIT margin of just under 19%, which is to compare with 15% in the corresponding quarter 2024. Digging into the income statement to see what's driving the results. Net sales increased by 14% and the increase is fairly balanced between the Nordics and the Europe regions. In the first quarter, the Nordics takes the lead and represent the largest region in terms of net sales and order intake. On a negative note, we have seen that net sales is starting to take a hit from a stronger SEC. This has mainly occurred during the latter part of Q1 and may continue going forward. In the quarter, the effect on top line is however limited to 2 million SEC. The gross margin amounts to 46.1% in the quarter compared to 42 in Q1 2024. We see that the margin in the quarter is positively impacted by high volumes and utilization in the production system. combined with favorable underlying product and market mix. When volumes increase, we get leverage as we generate higher absorption. From a product mix perspective, we can see that we have a favorable product mix that supports the margin and the market mix is positive since sales have been due to markets with slightly higher margins than average. positive market mix is not necessarily connected to our regions. It can also occur both between regions, but also arise within regions between different markets. Selling expenses amounts to 66 million SEK in the quarter and also shows leverage as share of the revenue decreases by 1.4 percentage points compared to Sorry. Look at the administrative expenses. Expenses increased by 6 million SEGS, mainly driven by costs related to the road to tilt lawsuit. And as Krister pointed out, it has now been settled. Other operating income and expenses is mainly affected by currency fluctuations related to the revaluation of balance sheet items, along with the offsetting impact of changes in derivative values. The net effect in the quarter amounts to minus 10 million SEK, including a positive value change of derivatives amounting to 4 million SEK. All in all, this boils down to an EBIT of 84 million SEC or 18.8%, an absolute increase of 40% along with the margin improvement of 3.6 percentage points. We are pleased with the improvement compared to last year, although it remains below our financial target of 20%. The main reason for not hitting this target is the negative currency effect we have seen in the quarter. which weighs down the resort in an otherwise strong income statement. A higher operating cash flow driven by higher operating profit and paid income tax is partly offset by higher net working capital connected to the ramp up effects in the system. The unutilized liquidity totaling at 412 million SEK will come in handy in upcoming buyout of minorities and the record dividend payout in Q2. The return of capital employed continues its journey upwards for the fifth consecutive quarter towards our target. This trend is expected to continue in the coming quarter. Summarizing by going through our financial targets, a solid net sales growth in uncertain times. EBIT comes in under our target. However, excluding currency effect, EBIT shows strength and above target. ROSI is just shy of our target and continues to improve. Regarding the capital structure, the equity to asset ratio is currently on a high level, which continues to provide comfort to act on opportunities moving forward. And with that, I leave the word back to Krister to sum up and give us an update on what's ahead.

All right. Thank you, Markus. Let's wrap up the first quarter then. It's really encouraging to see that the strong trend in order intake is carrying on into 2025. And even better, it's starting to follow the seasonal patterns we have seen historically. Demand has been solid, especially in the Nordics, where customers are gearing up for the busy digging season. We're also keeping the momentum going in Europe with growth coming from several key markets. On top of that, we delivered strong net sales while at the same time building up inventory and ramping up the production to meet future demand. Looking at the bottom line, we posted a strong underlying result, finishing the quarter with a 19% operating margin. If we adjust for currency effects, we would actually have passed our 20% financial target, which feels great. Encon is also strengthening its position by acquiring the remaining shares in the three of its subsidiaries in Finland, France, and Denmark. Until now, we have owned 80% of the shares in each of these companies with local country manager holding the rest to help align their interest with Encon shareholders. Now to simplify the group structure while keeping that strong sense of shared commitment, we have signed agreements to buy out the local country managers becoming the sole owner of all three subsidiaries. The total purchase price is about 126 million SEK, split evenly between cash and newly issued B-shares in Enkom. As part of the deal, the sellers have agreed not to sell the Enkom B-shares they receive for at least 26 days starting from May 20, 2025. We're taking a look on Bauma and the experience from there. Bauma 2025 was truly something special for us. and honestly, for the entire industry. Walking around the exhibition this year, it was impossible to not to feel the shift. Tilt-Rotators weren't just a niche product anymore. They were everywhere. All the major excavator manufacturers had Tilt-Rotators on display, and it was clear that what we have been working toward for years is now becoming the new standard. For us at ENKON, it was a proud moment, seeing our technology embraced like this, across brands and across markets shows that the hard work we have put into education, innovation and customer relationships is paying off. It wasn't just about showcasing products. It was about showing the future of digging live right there on the ground at Bauma. The energy, the interest, the number of conversations we had, it all made it clear. The world is waking up to the tilt-rotator revolution and we are leading the way. We are changing the world of digging. It's moments like Bauma that remind us why we do what we do, and it pushes us to aim even higher. And let's talk a bit about what we are seeing as we look ahead. The market outlook is still pretty unpredictable, especially with all the talk about tariffs and what impact it could have on the global economy. It's not so much the direct effect on the U.S. market that I'm thinking about, but more how it could ripple out and affect global demand overall. We have also seen the Swedish krona strengthen quite a bit during the quarter. Since we are heavily export driven, that does affect us when we translate our revenues back into SEAC. And of course, future currency movements will continue to have an impact. Now looking at the positives, we expect continuous strong sales growth in the Nordic as we head into the digging season. We are back to the usual season patterns, and we have built up a solid order book going into the Q2, which feels great. That said, we have had a few minor disruptions into the supply chain recently. If that continues, it could cause some delivery delays in the coming quarter, which makes it a bit harder to predict exactly how net sales will land. Even so, when we take a step back, we are really proud of what we have achieved this quarter. Strong financials, growing demand, and an even stronger market position. The launch of our third generation has further cemented our place as the technical leader in the industry. Bauma, it was a massive success, and now we're keeping the momentum going with our European Roadshow ENK on Dig Days 2025. It's a fantastic opportunity to reconnect with all the new contacts we have made at Bauma and show even more end customers how our products boost efficiency and profitability. And that's how we are keep changing the world of digging. Okay, that was everything we had for today's presentation. Now we're happy to open up for your questions and feel free to jump in through the telephone conference. Operator, whenever you're ready, please bring in the first question.

To ask a question, please dial pound key 5 on your telephone keypad. To enter the queue, if you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Zeno Engdale and Rick Chudy from Handelsbanken. Please go ahead.

Yes, good day, Christian Marcus, and thanks for taking our questions. You're starting off where you finished on the supply chain disruptions. Was this only affected in the Americas or were there other regions as well?

No, the disruption in Americas were more that we had a too low stock in there, and we have produced for sending it over to the U.S., So that was a different type of problem. There's more the ramping up that we've been having some suppliers that have been having some different type of problems and so on. So they've been smaller hiccups so far. But of course, if we keep ramping it up in Q2 and so on, we might see new challenges. But we have ramped it up already pretty good in Q1. So hopefully there will not be any major problems in Q2.

Okay, then I understand which part of the supply chain it is. And coming back to the seasonality on orders, just to be clear, when we're looking on the seasonality on the order conversion in the Nordics and Europe in the past two years, of course, they've been a bit special. Q2 sales have been higher than the Q1 ordering sales.

uh i expect then given your comments and and the backlog that you expect that to continue as well is that fair uh we continue we normally as we're saying here the the best order intakes uh quarters are normally like q4 and q1 and then the delivery season is like q2 and q3 more um so Order intake can be a little bit different, but the better or stronger we get in Europe and other regions than the Nordics, it's even out more than. But now when the Nordics is bouncing back, we're seeing more the historically pattern that we normally have with Q4 and Q1 that are stronger in order intake. So it depends a little bit on... which regions we are strong and we're having winter or not having a winter where you're not digging 12 months a year in that way. But historically, it's been more Q4 and Q1 that's been strong water intake and a little bit less water intake in Q2 and Q3 and so on, but the higher deliveries then.

Yes, and coming back to what we spoke about in the last quarter that March and April are important months and set the tone and given that a lot of the turbulence started in April, can you shed some light into how the beginning of April has progressed?

We can see that we had really strong order intake in the Nordics, maybe a bit stronger than what we expected with the 49% increase. And that maybe have been taking a little bit of the order intake that comes in in Q2 then. And also the turbulence have maybe affected a little bit like that. So we are not continuing on that strong pace that we've been in Q1. We are not up 49%.

clear and you mentioned in the Netherlands where you've passed the tipping point that competition has increased. Could you say how that if you have seen any impact on margins through competition?

It's a little bit early to say that but we definitely see that the competition are trying to price themselves in. So it might be a little bit margins that could be affected in at least in the future then. So far, we have been doing a terrific job on getting these orders in a good way anyway. But of course, it might be the tougher the competition is, the better we have to be. And the Netherlands is a market that is still mixed, where we're having a lot of the simpler tilt rotators, where it's harder to specify the unique things for us. We are more or less the only one that's selling the S coupler and fully solution. And there we still are having easier to keep a good margin and so on. So it's a little bit mixed in that way for the Netherlands.

Clear, thank you. And my last question on the gross margin. In Q3, we were around the 46% level as well. And I think you said that it was a bit of stars were aligned in a good way in that quarter. How do you feel about it? And now we are here again. How do you feel about it going forward?

Hopefully, stars are aligned all the time then, but I pass it on to Marcus then to get a little bit more.

As we said, we are wrapping up now when we get the higher absorption and also, I mean, regarding that, it gives us, can we keep a certain level of revenues, we will be able or it will be easier for us to keep on this level. But once again, also, there is a lot of other things that could bring it down going forward. I mean, we're talking about the turbulence now and so forth in both in supply chains, not only for the US, we talk about here. I mean, there are secondary effects in the whole supply chain in the world as maybe too early to call, but definitely something on the horizon here. But yeah, if we keep a higher level of revenues, in this sense, now in the ramp up, we say we can keep that new level throughout the year, then we would be north of the 43 that we say as a long-term sustainable one. But then again, as we know, it can hit us on on currencies and so forth we haven't seen the end of that yet also so uh we're a bit cautious here but but yeah we had as we said maybe stars aligned uh in in q1 as well and now but a little bit uh different stars but still aligned uh but yeah a lot of moving parts but but uh should be between 43 and 46 as a uh yeah if we if we have this kind of of um yeah sentimental climate and the volumes that we're having right now i think that's the biggest difference compared to q3 the the volume that we're having right now then that's uh as we saw earlier also when we're having high volumes we're getting higher gross margins so the the volume is uh

important key in it. Absolutely.

Very good answer. Thank you. I'll get back in line.

Thank you for your questions.

The next question comes from Anna Woodstrom from Carnegie. Please go ahead.

Hi, Chris. Hi, Michael. Thank you for taking my questions. My first question is on increasing number of employees. So is there any other scale up that you see as necessary to sort of handle the current sales volume increase going forward?

Increase of staff is mainly in production then for the ramping up and so on. So that's the majority of the people is coming there. I don't know if you have anything more to add there, Marcus? No, no.

I mean, you're absolutely right. We have a very flexible system in that sense in the assembly. And when we have to ramp up to meet demand, we do so mainly with assembly people in production, which is then a good flexibility for us to have. So I would say that this is where it lies now. don't see any other different things that needs to be in the short term, short to mid term here on these levels.

Okay, great. And just to follow up on the previous comment, could you in any way quantify how much of the deliveries in Q1 that were sort of negatively impacted by the supply chain issues? Is it very minor or a couple of percentage points on top line?

Excuse me, can you take that question one more time? It was a little bit hard for us to hear it.

Could you in any way quantify how much of the deliveries in Q1 that was negatively impacted by the climate change issues? Is it very minor or a couple of percentage points on the top line?

I think it's two things. If you're looking that we were below the consensus and so on, on net sales, uh one one part is also that we've been sending a lot to to our countries far away so they're been in in transit in that way so that's why we're also having higher hopes on on deliveries in in q2 so production capacity was pretty good but we ended up in the end of the quarter with some issues with a couple of suppliers different reasons uh for for it but um i would say it was a smaller hiccup on on our net sales but it was more like forgiving um a little bit like uh heads up in for for q2 that we can get disturbance regarding that but That was in the end of the quarter we got them. I would say it was minor. I think it's hard to quantify it.

But the supply chain issues as such has a very minor impact. It's more of longer delivery times due to the market mix or deliveries to different markets in Q1 or the end of Q1.

Okay, that's very clear. Thank you. And just a final one. As you said, it's very, very difficult to predict how this tariff impact is going to be. Maybe tell us a bit on how you're working with it currently and if you're talking about price increases towards customers in the US and such.

We have the possibility of making price increases and so on according to our agreements. But so far we haven't done it. We are trying to wait to see a little bit where we're going to end up. It's a lot of turbulences right now. We don't like to making too fast moves regarding that. We prefer to make one when we know a little bit where it's are going and see if we need to make the change right there then. But regarding the tariffs, we've been pushing them to the customers directly because that we don't think is something that we can control in any way. It's like a taxi has been putting it on. So we need to take that out. But we were following the currency and see where it's going to go. But we haven't done anything yet.

very much following especially the us dollar now of course as well it's a small part of it but also we know that i mean there is a secondary effects and also different currencies pegged to the dollar and so forth so of course yeah we're monitoring this very uh intensely and and uh yeah uh we will

uh move according to when when we believe that something is is there for to stay so to say good parties with the dollar that we're having the biggest difference is that we're also getting lower cost in that way and on on it so it's even out a little bit and and uh they're a small part of the total revenue and also they're having uh a lot of costs there. So in that way, we can use the dollars for dollars in that way. So it's not that big impact with dollars on it. The key currency for us is more the euros.

Okay, perfect. That's all my question. Thank you.

Thank you.

If you wish to ask a question, please dial pound key five on your telephone keypad. More questions at this time, so I hand the conference back to the speakers for any closing comments.

Thanks so much, everyone, for all the great questions. And if anything else pops up, don't hesitate to reach out to us. We're always happy to help. Thanks again for tuning in today, and we really look forward to seeing you all again soon. Take care and thank you.

Thank you.