Ependion AB

Hello, and welcome to the Bayer Electronics Q2 2022 report. For the first part of this call, all participants will be in a listen-only mode, and afterwards, there will be a question-answer session. Today, I'm pleased to present Jenny Schödel, President and CEO, and Joachim Lorrain, Executive Vice President and CFO. Please begin the meeting.

Thank you very much, Ness, and hi everyone, and welcome to this quarter two report meeting. So I will start with a general update of the quarter, and then Joakim Larén, who is sitting beside me, will go a little bit deeper into the numbers. So let's get started. This is what the agenda looks like. Business update, financial performance, some concluding notes, and an outlook. and of course Q&A session in the end. So looking at the second quarter of 2022 we are very pleased to see that the strong customer demand that we have been seeing now basically since quarter two of last year actually continues. Everything starts at the end of the day with orders so we are very happy about that and we did record another Record order intake quarter now not by much but still higher than than quarter one of this year 667 million Swedish kronor And that confirms the growth strategy that we have been working on executing for the last years As you know, we have had some issues with the sales lagging behind order intake and therefore we are happy to see that we managed to reached a sales level in this quarter of 533 million Swedish kronor, and that is the first time that we are above half a billion Swedish kronor. And this record sales level was mainly driven, as you might have seen in the report, by the Bayer Electronics business unit, who really managed to get a lot of products out of their factory in the quarter, whereas Vestimo... was still struggling with component shortages. But all in all, we came in at a good level, which gives us confidence for the future as well. And thanks to this good sales number, we also managed to significantly improve the earnings for the whole group. We landed at 7.7% for the whole group, which is of course not where we would like to be long-term, but it's a step forward compared to where we're coming from. And again, I'm very, very pleased to see that the Bayer Electronics business unit now took this huge step up in terms of profitability. Thanks to their good volumes, we can see that the volume leverage that we have been talking about for quite some time now actually works. And that unit came in with an EBIT margin in the quarter. So we are very happy about that. As I mentioned, the component issues continued to hamper Vestimo sales and especially early in the quarter we had several production stops which we were unable to catch up with later in the quarter. We have a very strong pipeline going forward, a lot of customer activity in both our business entities. We are happy that we can start to see customers again and we are participating in a lot of customer events and so on. So that's very positive. However, we know that the macroeconomic situation is, of course, uncertain due to many different reasons, and we are monitoring that closely, obviously. Okay, moving into the business entities from an overview level, and Joakim will dive deeper into the numbers in just a minute. Starting with Vestimo, we see good demand across all our segments and geographies, and we had a third quarter in a row now with an order intake above 300 million Swedish kronor. However, as I already mentioned, component shortages are continuing to disturb us and due to the lower sales volumes and also high costs for material in the quarter, you could see that the profitability took quite a serious hit in this quarter. However, nothing has changed in terms of Vestimo's business model and the stable earnings capacity that we have, and we are expecting improved delivery capacity in the coming quarters. Again, Bayer Electronics performance very, very strong in the quarter, both order intake-wise, we are seeing a strong demand there, very, very strong invoicing. and with that a significant profitability step up, very close actually to the target that we have set for our business units of 15% EBIT margin. What is very good to see also for Bayer Electronics is that basically all of their competitors in the market for panels are struggling big time in terms of delivery capability, which means that customers are turning to us because we can actually deliver So we are winning market shares thanks to our good delivery capability. Orders and sales on an overview level here as you can see in the graph. A new record order intake even though it was quite close to the last quarter. But you can also see their rolling 12-month level is now above 2.4 billion Swedish kronor, which is of course very, very strong. And sales are lagging behind somewhat, but this graph also shows that there is a significant step up in terms of invoicing in this quarter compared to previous quarters. This means that we have a backlog which is at an all-time high of 1.4 billion Swedish kronor, which gives us a lot of confidence, of course, for the coming quarters. There is a favorable FX effect in the quarters, you can see there in the comments, with the Swedish kronor weakening against basically all other currencies. Okay, with that, Joachim, I hand over to you for some more details.

Thank you, Jenny. We start with group, and as you understand, it was a good quarter, despite the challenges that we have related to the component shortages. The ordering intake at 667 million, sales at 533 million, and then an EBIT level of almost 41 million, or 7.7%. Orders, yes, all-time high. Sales, all-time high. EBIT, all-time high. EBIT level, all-time high. So it was a good quarter for the group, even though it's not what we are aiming for, but it's a step forward in the right direction. We want to point out that we have had favorable effects now with the weaker Swedish krona and lots of sales in U.S. dollars and euros. So we have had a contribution of $8 million on the EBIT level. Of $2 million is translation, and about $6 million is then transactional variances. We talked about the stop in Vestima that we had early in the quarter. I will touch base on that on the coming slide. One challenge that we are facing now with these component shortages. It is the fact that we still have increasing working capital levels. We need to have or take positions of certain sub-supply components and that is raising the capital level so the cash flow in the quarter came out negative of about minus 20 million. Bottom line, net income at 28, and then earnings per share almost at one krona for the quarter. Let's move to Vestamu. Good order bookings, but then sales impacted by shortage, as you understand. 315 million in orders, 219 of sales, and then an EBIT of just below 8 million, or 3.4%. As said earlier, I mean, if we look order-wise, it was the fifth consecutive quarter where we grow, and three quarters, about 300. So it is a good demand situation for Vestamo, and obviously the WeGrow strategy, it confirms that we are doing the right things here. As said, the component shortage led to production stops, and if we look at the 219, And we take away the FX contribution, you could say, of the numbers. It's 1% compared to last year. So it was a low level. And with that, of course, we've had an impact on the result. And we want to point out that in the quarter, we have had extra component costs. and then an unfavorable mix due to the stops in the quarter that is impacting the bottom line of about 13 million. We want to guide you so you understand the impact of this quarter. However, going forward, we are expecting, as Jenny said, gradual increase of delivery capacity going forward in the coming quarters. And we also want to point out that we have changed the prices with a general price increase implemented now the 1st of July for Vestimo. And then let's go to Bayer Electronics. Significant profitability step-up and closing in on the targets. We had an order intake of $355 million, a sales of $317 million, and an EBIT of $44 million in the quarter, or the 14%. For sure, if we look at orders, I mean, we do see a good development on the order side. And we have highlighted in the report also that we have also managed to close some really good orders in the energy segments. But we want to point out that the growth and the traction is wide, and it's basically in all our segments. But we want to highlight the energy segments here. The delivery situation, obviously we have handled the component situation really good in Bayer Electronics, and we managed to get above the 300 million level, and it's an all-time high in sales in this quarter. And Jenny pointed out also that due to the fact that we can deliver, we have competitive delivery times. We are gaining market share from our competitors, and it's good to note, of course. This high level of sales then really confirms what we have been pointing out, that we have a good volume leverage in this activity. And it's, of course, comforting to see that we come up to these kind of levels when we have then sales on the what we have seen in this quarter. We want to point out that the COVID-19 has impacted. We have organizations in China and Taiwan, but still, you know, in Taiwan we have our production entity and in China a sizable sales activity. We have had really good performance. China is one of the stars, you could say, when it comes to growth in Bayer Electronics, and they have developed really, really good. And then our supply chain that is based in Taiwan, despite the fact that they've had quite some restrictions in the quarter, they have still managed to produce and deliver and ship to our customers, which is, of course, very good to see. And the last point here, as we have talked about earlier, we are now integrating CoreNX, the previous business entity, the smaller one, that is now being integrated in Bayer Electronics, and there's more synergies to be realized going forward. That concludes, so over to you, Jenny.