engcon AB (publ)

Hello and warm welcome to ENCOM's presentation for the second quarter of 2025. Thanks for joining us today. My name is Christer Blomgren. I'm the CEO at ENCOM and with me today is our CFO, Markus Asplund. We are eager to share some highlights and key numbers from our Q2 report. And after that, we will go into the Q&A where you can shoot your questions. Let's start with the positive highlights. We have had a really strong second quarter. Both net sales and order intake were at Q2 record levels. In fact, to find similar figures, we have to go back to our standout year, 2022. A big drive behind this growth has been the strong return of the Nordic region during the current digging season. We saw high activity and strong demand, especially because many contractors needed to replace aging excavators. and dealers had relatively low inventory levels coming into the season. It also was a solid tilt-rotator volume growth in Europe, especially in Germany and the Netherlands, a high number of tilt-rotator units were delivered to the market. It's a clear sign that we are changing the world of digging and doing it faster than ever. Of course, there were a few challenges too. The Swedish corona has strengthened sharply, which has put a pressure on our margins. And while pushing a large volume out to the market this quarter was part of our strategy, it did reduce our gross margin. We're also laying the foundation for long-term success within Engton. During the quarter, we kicked off an important initiative to develop our shared core values. These will guide how we lead and work together, and they'll help us build the strong, unified, and inclusive culture we need to reach our global ambitions. In the past, Encon have mostly been seen as a premium solution, the full package with all the latest tech. That helped us win over early adopters and build a strong brand. But if we want to grow faster and increase market penetration, especially outside the Nordics, we need to reach a broader audience. That's why we are now expanding our offer. creating an income for everyone. Because let's be honest, you can take someone straight from a horse and a wagon to a Ferrari. But if you start with a Fiat, something simple and familiar, it's much easier to take that first step. And once they see the value, the full income system becomes the natural next move. Sorry, something happened there. I started all over then from this slide. Our vision is to change the world of digging. How can we do that? Now with an income for everyone, we can easier and faster reach our vision to change the world of digging. But to truly make that change happen, we need to start by making the customer feel familiar because real transformation doesn't begin with complexity. It begins with comfort. We have learned a lot from our success in the markets like the Netherlands and Germany. And one of the most important insights is this. It's hard to sell the full package right away when you have moved past the innovators and the early adopters. These groups are always looking for the latest and the greatest. But once you try to reach the broader market, the early majority, the approach needs to shift. To climb that product adoption curve faster, we need to start with something the customer already knows and trusts, like a coupler that fits the local standards. That familiarity builds confidence, it lowers the barrier, and it helps them take the first step. As I said earlier, because you can't take someone straight from a horse and a wagon to a Ferrari. But if we offer them a Fiat first, something simple, beginner friendly and useful, and they will start driving. Once they begin to see the benefits, then we can introduce the full power of the Encon ecosystem. That's exactly how we did it in the Nordics back in the early days. And it worked. As you can see in the picture, we have designed an ecosystem that appeals to more than just innovators and early adopters. We now offer a more basic configuration with a mechanical coupler, a great way for customers to start learning how to tilt and rotate. It's simple, it's affordable, and it competes well with tilting couplers and other entry-level solutions. Then we have a mid-tier setup, a tilt rotator with a local coupler standard where customers can get their first experience with tilt and rotate functionality. And finally, we offer the full Encon system with all the performance, flexibility, and automation benefits we are known for. It's about guiding the customer on a journey, one step at a time. And we have seen that journey work lately in the Netherlands and earlier in the Nordics. What really transformed the excavator industry is volume, getting more tilt-rotators into the hands of more users. That's what drives change in behavior, methods and expectations. And this strategy helped us get there faster. We're already seeing strong signs of this in the Netherlands where the penetration is growing rapidly, especially in the smaller excavator segment. In the DACH region, we're following a partnership model where we sell only the tilt rotator and our partners handle the rest of the solution. That means revenue doesn't grow as quickly as unit volume, but that's by design because penetration is the key and it's growing faster than revenue. And that's exactly how we changed the world of digging with units. We are seeing a strong growth in net sales, up 23% organically, which is great, but our growth in units is even greater, as I said on the earlier slide. A big part of this comes from high delivery volumes, tight orders placed back in Q4 and Q1. This fits the seasonal pattern we have seen in the past in the Nordics. We have also had a particularly strong growth in Europe, especially in Germany and the Netherlands where demand remains high. The big increase in Germany really shows that Bama was a sign of that tilt-rotators are taking off in Germany. And Netherlands have taken the step above the tipping point with a lot of smaller tilt-rotators this year. That momentum clearly reflects the strength and the trust we are building in the market. Now, the strongest Swedish Crown has held back our reported growth a bit, but even with that, the organic numbers show we are on the right path. Order intake continues to grow compared to the same period last year, and we are pleased with the underlying trend. That said, we had hoped to be even further ahead by now. The uncertainty around tariffs and pricing in the US has created some hesitation in the market and slowed things down a bit this quarter. Still, the overall trend is positive and we remain confident in demand going forward as the situation stabilizes. Gross margin came in at 41% for the quarter, and there are a few things driving that. Some of the margin pressure comes from the strategic decision we have made about large orders from rental fleets in the Nordics, but the strong Swedish krona was the biggest single factor this time. We have also moved a high number of units into the market, both through the Nordic recovery and through the strong momentum in Central Europe. And yes, this volume push has affected margins in the short term, but this is fully in line with our long-term strategy because it's the tilt-rotated volumes that will drive real transformation in the industry. Marcus will also guide more about the gross margin and the reasons behind the drop compared to last year. EBIT margin came in at 18% for the quarter, even though we had a strong sales and benefit from a scalable business model, the currency headwinds made it tough to hit our 20% financial target this time. And return on capital employed is moving in the right direction and ended up above our 40% target this quarter. And as I said, Marcus will guide more regarding our financial numbers later on. We are taking a look at the order intake and net sales development this quarter, and we are trying to put Q2 into perspective also. As mentioned earlier, this has been a strong quarter. Both net sales and order intake reached high levels. In fact, the strongest Q2 figures we have seen since our record year in 2022, even though we had some pressure from the currency movements. One trend we have tracked for some time is a strong order intake in Q4 and Q1, followed by a spike in deliveries during Q2 as the Nordic digging season gets underway. Seeing this pattern return is a clear sign of renewed strength in the Nordic region. In Europe, particularly in Germany and the Netherlands, volumes have increased significantly. Much of that growth is in entry-level products or the bad tilt-rotator frames we sell to our partners. We also see an increase to smaller excavators. That means the impact on net sales is more modest for now, but the volume growth itself is a strong signal of market traction and future potential. Outside Europe, the situation has been more turbulent. Around Liberation Day, the US announced strict new tariffs. While the direct impact was pronounced in the American market, It also created ripples of uncertainty in other regions. For a few weeks, conversations around interest rates, inflation, and economic outlook made customers more cautious. Unfortunately, we couldn't fully recover the drop in order intake that was three weeks after Liberation Day. But the level was back to a good order intake level in the end of the quarter. So still the broader picture remains clear. Q2 delivers strong results with positive trends in both volume and market activity, even if certain headwinds held us back from realizing the full potential. Taking a closer look at the Nordic region, Q2 marked a clear comeback for the Nordics, which stood out as the single largest contributor to our year-over-year growth. It's encouraging to see the region returning to strength. This upswing reflects a combination of strategic wins, market recovery and macroeconomic improvements. Toward the end of last year, we secured several larger deals, particularly with rental companies. And many of those deliveries were fulfilled in Q2. These volumes had a clear impact on our top line. At the same time, we are seeing the effects of the catch-up investments after a few slower years. Many contractors are now replacing older fleets, and that replacement cycle is finally gaining traction. Retailers have also normalized their inventory levels, which has helped drive more consistent order flow. And on a broader level, there are signs that interest rates might have peaked or even starting to ease, which is a positive signal for construction and investment appetite. While we are seeing a return to the typical cycle, high order intake in Q4 and Q1, followed by strong deliveries in Q2, the most important takeaway is this. Growth in the Nordics is being driven by real demand from the end customer. After the first half of the year, the Nordics are once again our largest region in terms of revenue. The outlook is positive, though of course we remain attentive to how the broader economic situation evolves heading into the autumn. We're moving over to Europe. While the Nordics are once again our largest region in revenue, Europe's upward trend continues steadily, and they are the largest region in units. One reason to that that they are the largest region in units is that we have learned that we need to take the early majority to entry-level tilt rotator first to make this shift faster. We are seeing a strong development across most of our key markets. One clear sign of progress is the growing penetration rate. Just look at Bauma in April. Tilt rotators were on display in almost every booth. That kind of visibility reflects the shift that's happening. Smaller tilt rotators are gaining ground in the region and our collaboration in the DACH region continues to stand out. We have achieved high volumes there largely thanks to the local couplers together with our tilt rotators. It's worth noting that many of these products are entry level with local assembly of the coupler to meet regional standards. That means a lower average revenue per unit and some pressure on gross margin during the quarter. However, these products come with very limited additional sales costs, which makes them solid contributors to our bottom line. And again, let's not forget, it's the tilt state units that are changing the world of digging. Through this strong push, we have quickly increased both awareness and market penetration in Europe, something we see as a major success. Let's talk a bit about how things are going in the Americas. We see a good increase on net sales, 12% up, but that was mainly orders from Q4 and Q1 that was delivered out. So to be honest, Q2 was more or less a lost quarter in terms of sales. Since liberation days, there's been a lot of noise and uncertainty around tariffs. No one really knows where things are going, and that's made both us and our customers a bit cautious, especially when it comes to pricing and planning. That said, we are not standing still. We are keeping close track of developments and staying ready to act as soon as things clear up. At the same time, we are doing the groundwork, meeting customers face-to-face, talking about how our products can improve their business and making sure we stay top of mind. That day-to-day contact really, really matters. And while we are at it, we are also building up the organization. We are investing in the team, strengthening the structure, laying the foundation for long-term growth in the region. It's not fancy work, but it's the kind of stuff that sets us up to win when the momentum returns. So yes, Q2 was tough, but we are playing the long game here. Let's take a look at Asia Oceania, where we're seeing some solid commercial traction. For example, net sales is up 53%. And our new sales company in Japan continues to move in the right direction. Volumes are still relatively low, but the trend is clearly positive. Orders are starting to come in more regularly, especially through the dealer network we have established. That's in addition to the OM sales we already have in place, so the base is growing. The construction industry in Japan is under strong pressure to improve productivity. And here's where it gets really interesting. The government is actively supporting this shift through two different incentive programs. Program one targets SME companies, where you can get 30% to 50% of your investment back from the government when you invest in efficiency-increasing technology, like our tilt rotators, for example. Program 2 applies if you are working on government-funded construction sites. On these sites, you get a higher pay rate for using productivity-boosting solutions, like our Tilt-Rotator stand. This creates a strong business case for customers to invest in our products, and we are positioning ourselves right in the middle of that opportunity. Australia paused a bit during the elections, but we are now seeing order intake bounce back. It's clearly heading in the right direction again. Korea is also moving positively. We are seeing more engagement, more deals, and good signals from the market. So overall, we are not just gaining traction, we are building real momentum in the region, with Japan looking especially promising from a sales perspective. With that, I will hand it over to Marcus that will guide you through the financial development. So go ahead, Marcus.

Thanks, Krister. Let's take a closer look at our EBIT development for the quarter. We are pleased to report that EBIT increased from 82 million SEC in Q2 last year to 94 million this year. This is a solid increase of 15%. Now, naturally, higher sales volume brings higher EBIT. However, we did experience some headwinds this quarter that prevented us from fully translating that revenue increase to the bottom line. Our EBIT margin stands just under 18%, a slight decrease from last year. While the stronger volume did introduce some mixed effects that diluted our gross margin, the primary factor preventing us from reaching our long-term EBIT target was the headwind from the stronger Swedish krona. Now, let's dive deeper into the income statement. For the quarter, our net sales reached 530 million SEC. This is a strong increase of 80 million compared to last year. The currency effects we first observed in our balance sheet in Q1 have now clearly impacted our top line this quarter. Specifically, net sales were negatively affected by approximately 25 million SEC due to currency fluctuations. However, if we exclude this currency effect, we see a strong organic sales increase of 23%. Moving on to the gross profit. Our gross margin stands at 40.7%. This is about four percentage points lower than last year and below the high levels we've seen in recent quarters. Roughly half of this decline can be attributed to the strengthening Swedish krona, which began in Q1. This currency effect is also the primary factor impacting our bottom line. In connection with our strong volume increase, we also experienced a less favorable product and market mix, which I want to briefly highlight. The significant volume growth in the DAC region came from more entry-level products, or to quote Krister, more fiats. While these dilute our overall margin, this volume is incremental business that doesn't add to selling expenses. So its contribution to the EBIT margin remains high. As we quickly recover in the Nordics, our stable, typically higher margin of the market business has decreased in relation to total sales. Finally, we saw a market mix shift with more volume moving towards the Nordic and less to, for example, the Americas. This increased volume in the Nordic also led to slightly lower margins due to higher discounts on bigger deals to, for example, bigger rental fleets, as Christian just mentioned. Despite these factors and the significant increase in revenues, we successfully maintained our selling and administrative expenses at the same level, albeit with some help from the incremental business through our partners in the DACH region, as I mentioned. This achievement underscores the strength and scalability of our business model. All these factors combined bring us to an EBIT of 94 million SEK or 17.8%. While we achieved strong sales and maintained effective cost controls, these efforts weren't enough to fully offset the impact of a stronger Swedish krona. In the recent quarter, cash flow from operation was 20 million SEK, down from 32 million in the same period last year. For the full period, it improved to 33 million SEK compared to minus 12 million previously. This increase was primarily driven by higher operating profit and lower tax payments, though partly offset by increased capital tied up in inventories and accounts receivable. Large shipments from factory late in the quarter, which meant a lot of finished goods in transit by end of the quarter, led to higher inventory levels. As to the increase in accounts receivable, it is in line with the increase in sales. Cash flow from investing activities was minus 11 million for the quarter compared to minus 10 million. These investments primarily went towards tangible fixed assets and the continuing development of our third generation tilt rotators. Cashflow from financing activities was minus 64 million SEC in the quarter and minus 78 million for the period. Acquisition of minority interest in subsidiaries and acquisition of own shares had an impact of minus 63 million SEC for both the quarter and period. Additionally, 77 million SEC was paid out in shareholder dividends. Overall, total cash flow for the quarter was minus 55 million SEC, and for the full period, it stood at minus 63 million. As expected, the return on capital employed continued its journey upwards for the sixth consecutive quarter to a level where we feel more at home and expect it to be. Summarizing by looking at our financial targets, we are pleased to report that we have exceeded three out of our four financial targets, which is a strong position to be in. However, due to currency headwinds, we did not meet our long term EBIT margin target in this particular quarter. And with that, I'll hand it back to Krister to sum things up and provide us with an update on what's ahead.

Thank you, Marcus, for guiding us through the financial We're closing the second quarter with a strong net sales and a solid order intake, as I mentioned earlier. And in fact, we haven't seen these Q2 numbers at this level since 2022. That was a record year for us. In the Nordics, we see the return of the typical season pattern we knew pre-pandemic with Q2 delivering high volumes as expected. Also in the Nordics, we see the effects of the catch-up investments after a few slower years. Many contractors are now starting to replace older machines and that replacement cycle is finally picking up momentum. At the same time, retailers have adjusted their inventory levels, which is helping to create a more stable and consistent order flow. And looking at the bigger picture, we're starting to see signs that interest rates may have peaked or could even begin to ease. And that's a positive signal for the construction activity and overall investment appetite in the region. One of the biggest highlights this quarter is the strong progress we are seeing in the DACH region, especially in Germany, Europe's largest excavator market. What's real in driving that growth is our focus on the entry-level products. By offering simpler configurations, we are lowering the barriers for customers to get started with ENCON. It's a practical, effective way to build trust and show the value early on. We have seen this strategy work before in the Netherlands and in the Nordics. We are starting with something familiar, help speed up the adoption. It gives customers a clear first step, and from there it becomes much easier to introduce the full ENKON solution over time. This approach is helping us penetrate in key markets faster, and it's an important step in our vision to change the world of digging. We are also seeing a solid commercial traction in Asia-Oceania, where our efforts are starting to pay off, especially in Japan. The construction industry in Japan is under real pressure to increase productivity, and the Japanese government is actively encouraging this adoption of smart, efficient technologies like tilt-rotators. As I mentioned earlier, there are two separate incentive programs in place. These programs are creating a strong business case for contractors to modernize and our products are perfect fit. It's still early days, but the interest is growing and we are well positioned to support that shift. We have also sold significantly more units, especially within the smaller machine segment. This has led to rapidly increasing market penetration, which is exactly what we are aiming for. However, since we are primarily selling tilt rotators to our partners in Germany then, and starting with a simpler offering, this unit growth hasn't yet fully translated into full revenue growth. At the same time, higher volumes this quarter came with slightly lower margins, mainly due to currency headwinds from our strong Swedish krona, which had the biggest impact on the bottom line. but also larger share of simple products, configurations, and increased discounts in the Nordics linked to the volume, and following that, the less favorable market mix. Still, the strong organic growth, continued order intake proved that our strategy is working. We are growing in the right way in the right places. A key focus would be in reinforcing our core values and principles. Our people are central to everything we do and building a strong unified culture will be an important foundation as we continue to scale. And when we are looking ahead, I feel optimistic about the rest of the year. Compared to last year, I expect continued growth driven by the ongoing recovery in the Nordics and the clear progress we are making in market penetration across both Europe and Asia Oceania. There's a strong energy in the business right now. Contractors are investing again. Our simpler product strategy is opening new doors and awareness of our solution is growing steadily in new regions. That said, the strong Swedish krona did have a noticeable impact on our result in the second quarter. And while we're managing that headwind, we can't rule out that it may continue to affect us in the coming quarters. Still the underlying momentum is solid, and we are in a good position to keep building from here. So with a proven concept, growing demand, and a strong team in place, I'm excited for what's ahead. Together we'll keep changing the world of digging, one machine at a time. Okay, that's everything we had for today's presentation. And now we're happy to open up for your questions. So feel free to jump in through the telephone conference. So operator, whenever you're ready, please bring in the first question.