engcon AB (publ)

Good morning and welcome to Encon's QG report presentation. My name is Stig Engström, CEO, and with me today I have our CFO Marcus Asplund. Let's start our report presentation for the third quarter. In some ways, the third quarter was another lost quarter. Still war in Europe and the conflict in the Strait of Hormuz seems to be far from resolved. Besides these military conflicts, we also struggle with trade wars. Of course, the conflict hits the economy, affecting interest rates and increased fuel prices. Altogether, it has a negative impact on our end customers' will for new investments. Other excavator fleet gives more spare parts and service need. That's good business for Encon, but now we want to increase our new product sales. This shows in our numbers. Demand is weaker and order intake fell 10%. But we cannot blame everything on the world around us. I'm not satisfied with what Encon has achieved, either before I took over or since. Sweden, our main market, stands out as the strongest. Sales have recovered to historically high levels. Economic uncertainty is holding back demand across the board. But France, an important market for us, has been a clear disappointment in 2026. Here we need to look ourselves in the mirror and question our priorities. One positive thing is that we finally have an agreement with Oilquick Zero Degree. We have put in writing a partnership that has worked well for a long time. Now we can look ahead and take it further. More on that later. Profit improved in the quarter. The operating margin happened to reach 20% and financial target. Tighter cost control helped, but let me be clear, currency saved the margin. Gross margin remains a challenge. We cannot control an uncertain world. Things do not always go our way, but our direction stays the same and the work towards our financial targets continues. Let's take a look at the numbers. After a good start the first half year it calmed down again and the sales came out weaker than we had hoped. Uncertainty in diesel price and interest rates lay like a heavy wet blanket over the investment mode. We just managed to increase net sales thanks to the Nordics. Order intake from especially parts of Europe lowered than expected. The growth margin is mainly affected by low production level and our decision to invest in personnel and production process instead of cutting costs. As mentioned, currencies saved our EBIT margin. Order intake fell with 10%, which is unusual for us. Europe, that should be our growth engine, was weak in this quarter. Growth margin was 40%. The new price and product packaging connecting to the Series 1, 2 and 3 is helping. We also have more production capacity than we need in Strömsund and Polen. This puts pressure on our margin too. This is a deliberate choice to have capacity and competence ready till the day the market recovers. The EBIT margin was 20%. Currency movements were the main reason. We have introduced tight cost control mainly in administration. We saw some results this quarter, but more will come. Return on capital employed was 41%. We need to reduce our stock levels. Do not see full effect yet. They are too high, especially in markets far away. Marcus will talk more about the financial numbers later. The picture puts the sales in perspective. Order intake was lower than expected after the summer holidays. And as I just said, there's several factors behind this. We may also have received more orders in the spring before the price change in conjunction with the series one, two, three launch. A tent-rotator pays for itself quickly, even or especially in difficult times. Jobs will be done more efficient, gives more work and reduce fuel costs. The T2T2 system is here to stay over good or bad times. Let's take a closer look at different regions. Most of our growth this quarter comes from the Nordics, but the performance varies across the region. Sweden continues to recover. Excavator cells have picked up in all shapes and sizes. Encon has a strong market share and we are growing along with it. Large investments in roads, infrastructure are driving demand. Many customers have delayed buying new machines for some time, but they have now reached the point where they need to replace them. We can see that in our spare part figures. Another positive is the launch of our Series 3 product. Customers have responded well in our largest segment, machines of around 19 tons. Our unique product help us avoid competition. Norway has now passed the bottom. Machine sales have increased after a really bad period. We have taken market share and built our own local team which is appreciated by dealers and customers. Normally Norway is a little bit behind Sweden in the business cycle and hopefully their increase will come in 2027. Finland has been slow for a long time and has the weakest economy in the Nordics. We are gradually hearing more positive views from the dealers and customers, but we can't see that in our figures yet. Denmark is closest to the central Europe and seems to have felt the same weakness this quarter. Business did not really pick up after the summer. The region has performed well during the year, but we want more. Europe should be our main source of growth, but we are not seeing that happen in Q3. The Netherlands is driven growth in the region. We are well placed with a strong local team and the tit-for-tater use is growing. Still a lot here to do, but they are best in class. France is the biggest disappointment. The economy is weak with growing budget deficit. The political situation, as you can see in the news, makes the future hard to plan. All this is bad news for our business. But we also have ourselves to blame. focused on wrong priorities for a long time. The long reorganization has only kept us away from the right things. In that region, we had no large orders this quarter comparing with previous years. But we now have the right conditions in place with the new collaboration agreement. I will come back to that shortly. Americas. Performance was weak in this quarter than was expected. We are following our plan, though it reduces our focus and cost. We have a new country manager in place with mission to build a solid organization. We have also taken stronger steps to reduce stock levels and administration cost. The market is good in general despite all the things going on there. There is plenty of work and we remain positive about the region in the long term. Asia Oceania. We are seeing changes from a low starting point. We have also taken stronger steps to reduce stock levels in special Australia. We have signed a collaboration agreement with Olkvik and Zero Degree. The Schauer family has done an impressive job over many years, developing the German market for our joint tiered rotating offering. The agreement does not fundamentally change how we work, but just have it in writing. With the agreement in place, we can take our collaboration to the next level and start to reduce our own cost. The agreement mainly say that we are appointing all quick and zero degree as the exclusive distributor of our joint titotator offering. In turn, ENCO will become the exclusive supplier of the tilting and rotating part, so called gel of heart. Together, we have now laid the groundwork to increase market penetration in Europe's largest excavator market. And I'm convinced that this collaboration will continue success for many years to come. In September, we made our first trade show together, Galabao. The Schauer family has made substantial investment in new facilities for assembling and impressive demo area, including showrooms. Thank you Stig.

Let's take a look on how the quarter came through in the P&L. Net sales came in at 435 million SEK, a modest 4% organic increase. The Nordics, and in particular Sweden, are driving sales at the moment. For the first time in a while, currency actually worked in our favor. Norwegian krona strengthened, which helped just as our sales in Norway were growing. Gross margin at 40%. That's down on last year, but an improvement from Q2. A few things here worth highlighting. First, market mix worked against us. Most of the growth came from Nordic markets, which leaves a footprint on the margin as pricing is more competitive. At the same time, volume reduced on high margin markets in Europe and overseas. We also had lower fixed cost absorption in production. As Stig mentioned, we have spare capacity in both Strömsund and Poland. So lower sales leaves us with less volume to spread those costs over. On top of that, we have depreciation related to the Series 3. On a positive note, the pricing review tied to the Series 1, 2, 3 launch began yielding results in the second half of the year. While most of the benefits were realized in Q3, additional gains are expected moving forward. Selling expenses improved slightly, primarily driven by the timing of trade fairs events and reduced sponsorship costs. Administrative expenses were flat versus last year. Lower ERP costs were offset by other initiatives. Mainly development of our new e-commerce platform. We have now rolled it out in all of our markets and we see it as an important step to enhance future growth and revenue streams. We also have the sizable currency gain in other operating income. This mainly relates to receivables in foreign currencies. In 2025, this worked against us. We're now seeing some of that come back. EBIT came in at 86 million SEK with a margin of 19.9%, just below our financial target. The weaker sales is clearly showing, particularly as a smaller share of sales came from higher margin markets outside the Nordics. At the same time, we should be clear that favorable currency movements provided a substantial boost to this quarter's results. Putting EBIT into perspective, a 19.9% EBIT was a strong result, although we naturally have preferred a different mix of drivers behind it. When sales outside the Nordics pick up again, we expect that to help margins, combined with continued cost discipline that should give us a solid foundation for profitability growth over time. Cash flow from operating activity is improved, driven primarily by higher operating profits and positive changes in networking capital, namely accounts receivables and inventory. We are continuing to see smaller positives effect of improving networking capital management in the quarter, but as Stig mentioned earlier, there is more to do here. Higher investment activities are attributed to the estate in Poland as well as improvements in Strömsund. Loans taken out now in October with 27 million SEK for the Poland facility and 10 million SEK for the Strömsund extension. Return on capital employed remained above our long-term sustainable target, coming in at 41.2% and 42.7% adjusted. And on that positive note, I'll pass it back to you Stig to summarize and give us an outlook. Thank you Marcus.

Many challenges remain in the global economy and it's difficult to say when the market will turn. I'm not satisfied with our performance in the quarter and how we have acted. However, this does not change my strategy. We will continue to dig where we stand and focus on what we can influence. Continue to develop our successful compilation with old Quicksilver degree for the biggest excavator market in Europe. Being our customers first choice by offering the right product for the right market at the right price. Strength and organization to increase our focus on end customers while rolling out an e-commerce platform. Continue to work to create the right conditions for profitable growth with cost-focused and firm action to reduce stock. On sustainability, we follow international regulation in internships, but we are also taking local action to reduce our use of fossil fuels. Heating our facilities should, as far as possible, be fossil-free. Global travel should be kept to minimum, and shorter journeys should be made by train. Our own vehicles should run electricity or HVO, and our ambition is to make it easier for all our employees to choose renewable fuels. We are not doing this to improve the bottom line. It's our contribution to the survival of the planet. Right now we have excess capacity in our facilities. This is a choice we made. It's hard to tell when the market is back, but I'm hopeful for the coming this digging season in the Nordics. Nevertheless, we will be ready with capacity and skills to change the world of digging. Okay, that's everything we had for today's presentation. And now we're happy to open for your questions.