engcon AB (publ)

Good morning and welcome to ENKON's Q2 report presentation. My name is Stig Engström, CEO, and with me today, I have our CFO, Markus Asplund. Let's take a look at what's happening during the quarter. One thing has probably not missed anyone's attention, the CEO change that took place May the 1st. My main task is to bring income back to the financial targets adopted by the board, 20% annual growth and 20% EBIT margin. I have begun the journey towards those targets and identified some focus areas. We go into them later, but it's about optimizing the product around customer needs, focusing on efforts on the right markets and creating the right conditions for the company's core functions. And of course, ensuring strong cost discipline throughout the company, including the decrease of stock levels. We can conclude that it was a good quarter. Revenue was strong and the margin shows a recovery, also including a 13 million Swedish crowns restructuring cost. It's a good result, which shows the strengths of our business model. At the same time, I know we have more to give. Now begins a new chapter in an old story, with focus on the core areas that built the company quickly, strongly, and profitably, back to basic. Let me explain this a little bit more in detail on the next slide. So, how will we reach the 2020 targets? It's never a good idea to do everything at once. It's about doing the right things in the right order. On the journey, I see the following areas as the most critical. We need the right product for the right market. Our most advanced solution in the EC3 platform for mature markets with the hardest competition Simpler configurations is good enough to open the door into markets where many customers have not yet bought their first tip potato. Growth where the conditions are right. You don't cross the river to fetch water, the same goes for sales. In the Nordics where the construction activity will come back from low levels, and on the key European markets where awareness is rising, penetration is low, and we already have the competent salespeople that can act. This is where we focus our efforts going forward. At the same time, we must build capacity for the next level in production and purchasing. Strømsund and Polen work well for today's volumes and with smaller investment, we can reach three times today's level. The RP change took a lot of time from all of us, not least within production and purchasing. We can now use that time for process improvements in purchasing and prepare our production facilities. We will look into every part in the organization to prepare the business for the next level. Focus on cost control and capital tied up. Cost control must run through the organization and capital must be directed to where it creates the most value. I'm not satisfied with our stock level in certain markets. We have taken actions and we can already see effect. The income spirit has always been the key to our long-term success. And it's about the whole organization taking responsibility and have innovative thinking close to our customers. And that is what we are returning to. I'm tired of all empty discussions regarding the most important questions for our planet, sustainability and especially CO2 emission. We have started our transformation for decreasing use of fossil energy. We have a clear ambition to step-by-step turn off the fossil tap, and we have already taken local action in that direction. I hope others, companies and politicians, et cetera, will follow. To make this work, the whole company needs to support what really drives Oinko forward, development, marketing, and production. Everything else in the company should make it easy for these functions to do their job. That's how we remove unnecessary complexity and get back to speed. This sounds boring, but it's also everyday industry life is about. Dig where you stand, a principle that defines both our core product and how we should operate as a company. Let me briefly comment on the quarter. Marcus will deeper from where he stands in number, but this is how I see it. Net sales is increasing with 13%. The growth comes close to home from the Nordics. We also see some support from Europe. It's in these two regions I see Encon's greatest potential going forward. Order intake, also driven by the Nordics. Europe is weaker. During the quarter, the global situation has not been very helpful, not least given what's happening in the Middle East. The uncertainty is spilling over to the economy in general and especially oil prices and customers are becoming careful. After conflict comes peace and what has been destroyed must be rebuilt. We expect higher levels over time when the conditions are in place, not least in Europe. Machines from North Europe will be sent out and the prices for used excavators will increase. That's good news for new machine sales in the Nordics and close to 100% of those needs a new tiltrotator. Gross margin. The gross margin is affected of a large share of sales in the Nordics where the competition is toughest. We adjusted prices during the second quarter. The main effect will come in the third quarter with some delay due to dealer agreements. We are also reviewing our product portfolio and purchasing R&D processes to improve this level over time. We have for a long time sold products with extra everything, but only with the price of a standard. This is sometimes necessary, but we need to find the right balance. EBIT margin. The margin was affected by restructuring costs related to organizational change, improvements that are in the right direction, but we have more to give. The coming changes are intended to lift this level over time and take us towards the 20% target. I have strong hopes that by the end of the year, we will see a clear and stable trend with profitability moving in the right direction. Return on capital employed 40% is in line with financial targets. And Marcus will talk more about this. Here we see the development over time. The direction is clear. The bars are moving on the right way, both for order intake and net sales. Net sales reach a record level for a second quarter. Order intake was also at a high level, but leaves a little bit more to wish. After a good start to 2026, it's calmed down again in March. The last two quarters were very strong, partly due to pre-buying around year end, which has led to somewhat calmer period now. And as I mentioned earlier, the geopolitical situation has not been very helpful. Both sales and order intake are above 2 billion on a rolling 12-month basis. One quarter can go up or down, that's normal. But over time, this shows the underlying strengths of Encon's business. Let's start close to home in the Nordics. Net sales continue to grow strong and have passed 300 million Swedish crowns. The year started with a strong order book, which we worked through during the spring. Sweden is the strongest right now. Customers and dealers are more positive, which created a strong pre-buying effect at the end of last year. Excavator sales are increasing clearly, around 20 to 40%, depending on model. This is what we now see coming through in our deliveries. In Norway, we have seen increased sales to key dealers, even though the market is fairly weak at the moment. Order intake is not developing at the same pace. Sales have not fully come back everywhere, like in Finland, but there are some positive signals also here. The market in Sweden has become more positive and these are more willing to place orders earlier. Last year, we did not see the same confidence. Right now, we are still waiting for the start, The quarter is good, but the engine is still not running on all cylinders. In the Nordics in general, we expect higher construction activity and more machine investment after several weak years. The Finnish economy has been developing weak, and we hope to see a return here. In Denmark, the economy is a lot better, and there is also extra penetration to be captured. We also expect more impact from pricing increases during the second half of the year. Moving over to Europe. We see a somewhat weaker period in a long trend of positive development. The weaker development in the quarter is partly about timing. No significant orders in the Dutch region. Campaigns in earlier quarters making this a little bit slower. Some customers waiting for upcoming trade fairs. The world is uncertain. The situation in the Middle East is making customers more cautious. In the long term, the potential in Europe is huge. Europe has some of the world's largest excavator markets, yet most operators have still not experienced their first tiltrotator. We have spent years creating the conditions to capture this potential through marketing, by training skilled people in our sales companies, and by building a strong partnership in the Dutch region. Coming back to dig where you stand, It is on the key markets in Europe we should focus our efforts going forward. Benelux, a small region geographically where the world travels fast across borders. Penetration is already the highest in Europe. We are close to the point where the growth can accelerate quickly by itself. GK, a large excavator market with around 20,000 machines per year, partly characterized by large rental fleets and the local quick hitch pick-up-to-paint standard. By focusing development on these products, we opened up a significant potential market. France, we have done a good job in the north, where penetration is higher. Many customers there understand the teeter-teeter concept and our treatments. In the south, there's still a lot of work left to do. We have a strong partner in Zero Degree and Oilquick Germany. Together we have quickly built momentum in Europe's largest excavator market. Americas and Asia Oceania says in stable but low level. Reduced expectations for 2026 and 2027. Huge MARKETS BUT A LOT OF WORK TO GET VOLUMES AND SAYS AND THE PROFITABILITY UP FOCUSING NOW ON ESTABLISHED STABLE TEAMS IN OUR SALES COMPANIES AND GIVE SUPPORT AND SERVICE TO OUR EXISTING CUSTOMERS IN JAPAN WE PARTICIPATED IN THE CSPI EXPO IN JUNE LOT OF TILT ROTATORS IN THE SHOW AND INCREASED AWARENESS THE TARIFF SITUATION IN THE US MARKET MAKES NOTHING BETTER We will make some changes in our product portfolio to better up these virginal markets. Our good contacts with the OEMs will continue, but we also will reduce our stock levels. And with that, I leave the word to Marcus to go through the numbers.

Thank you, Stig. We delivered strong net sales in the quarter. This marks a record high revenue level for any second quarter in our history. This record Q2 top line of 594 million SEC was achieved despite the persistent negative currency effect we have become accustomed to talking about in previous quarters. Although we're starting to see the currency headwinds diminishing. This is even more true further down in the income statement where we actually see a small tailwind through positive revaluations of balance sheet items at the closing rate. Gross margin came in at 38.4%, and as Stig mentioned earlier, a large part of the sales increase comes from the Nordics, and that affects the market mix. We make well-founded commercial decisions every day, but at the same time, this is also the region where competition is toughest, and that naturally leaves a mark on the margin. That said, I do believe this is a low level with an upside from here. Last time I talked about the price increase we have introduced up to 5% on an average order. Since a large share of sales is still going into the Nordic market from a longer order book, we are yet to see the effects from that. And also the agreements we have with larger dealers should start to show in pricing from July onwards. Selling expenses are 5 million lower than last year despite the higher volume. The main explanation here is trade shows. Bauma, which was in Q2 last year and Conexpo, our main trade show this year, was in Q1. Our administrative expenses rose with 12 million SEK due to decisive corporate restructuring actions implemented to sharpen operational efficiency. In total, selling general and admin came in at 19%, and we can see that we're getting some operational leverage from a higher net sales. However, to be fully satisfied, I would like to see this ratio move closer to 15% as a first milestone. The rollout of the third generation tilt rotators leads to lower level of capitalized R&D expenditure. However, total R&D spend as a percentage of sales remains at the same level as last year, both for the quarter and year to date. At the bottom line, EBIT came in at 102 million SEK, corresponding to a margin of 17.2%. All things considered, on an okay level, yet the result clearly influenced by the strong sales growth in the Nordic, as well as the restructuring measured carried out during the quarter. To see our true operational momentum, we look at the normalized margin. Adjusted for the 13 million SEK in one of restructuring costs, we achieved 19.4%, proving we are steadily closing the gap to our long-term financial targets. Putting this into perspective, I think this is a solid result. We are up 8% compared with the previous year, and even with the restructuring costs included, we are still ahead of most quarters along the way. To me, that says a lot about the strength of ENKON's business model and our products. And as Stig's roadmap is gradually rolled out, I also feel positive about the profitability development going forward. Cash flow from operating activities improved, driven primarily by higher operating profits and positive changes in networking capital, for example inventory. We began seeing the positive effect of improved networking capital management towards the end of the quarter, as Stig mentioned earlier. Following that, the return on capital employed reach our long-term sustainable target, coming in at 41.1% and 41.6% adjusted. And on that note, I'll pass it back to you, Stig, to summarize and give us the outlook.

Thank you, Marcus. Even if we can do so many things better, we still deliver an okay level. My and our main job is to clean up in our processes and not expand more than our resources. The Nordic market is a mature market and here we have to fight for market share with our top level products. The tilt rotator market will follow excavator sales to almost 100%. But I'm very positive to a recovery after several years with low investments and that the house building business is coming back. On top of that, we have a great opportunity to sell used machines, including teatrotators, to East Europe when that time comes. In the rest of Europe, the penetration is low, so here we can increase our business regardless level of excavator sales, if we do the right things. Beside the market and sales, we have to come back to the internal income spirit, a flat organization, delegated responsibility, a big portion common sense, and most of all, having fun. This has worked for 30 years and will work also in the future. Together with this, we will set up a concrete target for our sustainability work that everyone can understand and accept. Small steps for mankind, but a big step for the klima. Dig where you stand makes efficiency and cost savings with a tiltrotator and four ankle. And with that, I leave the word to the operator to start the Q&A.

If you wish 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 Agnieszka Vilela from Nordia. Please go ahead.

Thank you so much and good morning. Yes, Stig, you mentioned some hesitance in the market demand due to the oil prices and the Middle East conflict which affected your orders in Q2. Can you tell us what kind of orders growth do you expect now in H2 in the second half of the year and also what you see so far in July?

We have a wet blanket over the market because I think under everything, this is really a positive signal from the most of the Nordic and European markets, but something is holding them back. And I'm quite sure, I can't tell you when it's going to happen, but it will absolutely be better when the time comes and the East and the West, the crazy guys, stop shooting at each other. That's the problem. I think it's the oil price that will be stable and we can have a better situation there, I think they will open up for us, definitely.

And you think that it will, you know, benefit both your trend in Europe and in the Nordics? Absolutely.

Absolutely. In the Nordic, we are talking a lot of house-building companies, and they are really positive, but we have not seen it in the machine investment. We know also that the machine investments have been low for three years, and normally these customers, they want to buy into new machines, so they're waiting. From the exhibition I was visiting this summer and this autumn, this spring, I also heard a lot that half of the dealers, they think that's... Yep, yep.

And then maybe just on your strategy, like it looks like you maybe the prioritize a bit Asia and America. What should we expect in terms of, you know, your orders development during the coming kind of midterm? Do you think that you have enough presence still in these markets to still be able to drive positive order growth?

I think we will have a flat development in these markets for the next coming two years. Don't expect an increase, but not in decrease either. I think they will be flat.

Perfect. Thank you for the call. And the last question, to Marcus rather, just a clarification. The restructuring costs for the quarter was included in your administrative expenses. Is that correct?

Yeah, 12 out of 13 million is in admin, yeah.

So actually, if you look at your admin and selling, that's already running at about, say, 17% of sales. And the question really is, like, should we expect this kind of same similar selling at admin costs on absolute level in the coming quarters? And also, just if you could tell us if you do expect any more restructuring costs to happen?

Not in the near future, at least. Not any plans. But we will work on, as Stig was saying, the cost discipline. There is more to be done here, definitely. But not as big, it's more of an ongoing thing here. As I said also, I think that the ratio for the SG&A, I would like to see it come down to at least as a first milestone to 15% here. Of course, we need the top line there to make that happen also, but we are putting pressure on our costs as well in going forward here in H2 by the end of year.

Thank you. These are my questions.

Thank you.

The next question comes from Marcus Develius from DNB Carnegie. Please go ahead.

Hello, Steve, and hello, Marcus. I just have one follow-up question here. Do you have any effects of cash retails in the U.S. in this quarter, or do you expect any of that in the coming quarters ahead?

Can you repeat that? You're coming in a bit low. Any effects from something in the U.S. I heard, but what?

From tariff repayments, if you can hear me now. Yeah, yeah.

Yeah, we have actually already gotten, it's not a big one. I mean, the big one for us has been the steel and aluminium tariffs and so forth. But on the other hand, we have already some 100,000 US coming in in July, beginning of July here. And there will be some more coming in as well. But that's not the big for us. And it's also time bound to a specific period here. So we didn't send so much during that period as we did, for example, last year or before the tariffs actually came in. So yeah, we have seen some, but not big amounts.

Okay. Thank you. That was my question. Thank you.

As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

So we only want to wish you a nice summer and thank you for participating in this presentation. Thank you.

Thank you.