Ependion AB

Good afternoon, ladies and gentlemen, and welcome to the ASICS Bendian Q3 2023 report conference call. At this time, all lines are in listen only mode. Following the presentation, we will conduct a question and answer session. If at any time this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Tuesday, October the 24th, 2023. I would now like to turn the call over to Jenny Sjödahl, President and CEO. Please go ahead.

Thank you very much for that and welcome everyone to this quarter three report session for Appendion. I am here today with Joakim Laurén, CFO of Appendion. and we are actually in Germany today at the Vestimo subsidiary, Vestimo Eltec in Mainz. So let's get started. The agenda looks like usual. I will start with the business update, and then Joachim will dig a little bit deeper into the financial performance, and then finally some concluding notes So as you probably have seen, we have kind of a mixed picture for this quarter. On one hand, we have a record high result for the group and a record high operating margin, so that is very positive. But we also do see a weaker order intake, and we'll come back a little bit to that in just a minute. After seven quarters on 600-plus level in order intake, We now see a pattern where Bayer Electronics is continuing on the somewhat weaker level that we have seen now for a few quarters, and that was quite expected. On the other hand, we also see in this quarter in Vestimo a normalization in the order intake, and what we see there is that the train segment, which is Vestimo's largest segment, in this quarter came in at an unusually low level, you can say. One of the reasons for that being that we had very, very high levels of order intake from our Tray Networks customers, both in the first and the second quarter of this year. So it was somewhat not surprising that the level was a lot lower this quarter. However, we are seeing a very strong activity level in Vestimo in all our key segments, the train segment included. So I see this as an abnormally low level in the quarter itself. Very good sales levels. We had another record quarter for Vestimo, and I'm pleased to see that we can now ship out large quantities of products, we are no longer restricted by component issues and so on. So we have a much more favorable situation now when it comes to our invoicing. Results-wise, you could see that we came out in the group at a record high 14.4% EBIT. So we are approaching our financial target, which we will come back to later. Investimo, thanks to the strong sales numbers, we came in at a record high 17.6 EBIT level, but also in Bayer Electronics, despite the lower volumes, the EBIT level kept at a good level of 12.7%. Working capital still is a headache for us, still very high levels, which limits the free cash flow. which came out at 18 million in the quarter. So if we look a little bit more on the business entities, I already mentioned the result and the record quarter for Vestimo. And I think I mentioned actually everything that is already written there, as you can see here. A strong situation in Vestimo. And we are looking at also a stable situation going forward. Bayer Electronics, I mentioned the normalization on the order intake. There are two things affecting that. As we said already and saw already last quarter, customers are going back to a more normal order pattern. So they are ordering products one to four months ahead, like they did before the pandemic. as opposed to 12 plus months ahead during the component crisis. However, we do see some signs that customers are starting to place orders again and that they are depleting their inventories. Sales lowered somewhat compared to the previous quarter, but the EBIT percentage, as mentioned, came in at the stable level. We have also implemented or are in the process of implementing a cost reduction program in Bayer Electronics to actually compensate for the lower order intake that we have seen for some time now. And that cost reduction program is focusing on the Asia region, where we are seeing the weakening order intake the most. We also mentioned previously that there is a strategy review going on in Bayer Electronics and that work is proceeding as planned. If we then look at the orders and sales in a more graphical format here, you can see the effect on the order intake, minus 17% compared to the same quarter last year, minus 19% if you take into account the FX effect as well. Sales, however, on a reasonably strong level, 9% versus last year, so that is keeping up quite well, and we still have a very high backlog at 1.4 billion Swedish kronor, somewhat lower than before, which I think is a good thing, because we needed to reduce the late backlog, especially in Vestamo, but still we have a healthy backlog in the group. So with that, I'd like to hand over to you, Joachim, to dig a little bit deeper into this.

Thank you very much. So I will go through the financials, and then I will start with the pendulum. And as Jenny said, the order intake was 514 million for the quarter, sales at 619, and the EBIT at 89, or 14.4%. And we can conclude that the level of 89 million as an EBIT, that is a record for us in Appendian, and also the profitability of 14.4% is also a record for us, which is, of course, nice to conclude. Second point, we do have a tailwind when it comes to FX with a weaker chrono. we have a positive impact on the EBIT of, in total, 11 million in the quarter, predominantly transactional variances. Looking at the cash flow, as Jenny said, 18 million, but working capital is still on high levels, or too high levels, I would say. And it is because of the remains of the component crisis period. that we are still seeing impacts of when it comes to deliveries from our suppliers. I want to highlight the fact that the financial net is actually, there's a high increase on the financial net cost, up to 14 million in the quarter compared to just 1.4 the previous year. And the main reason behind this is that, like we all know now, that we have a general higher interest level in the market. And then, of course, that impacts us. Net income then, because of this, just increased to 52 million compared to the 51 last year. And also the EPS increased to 181 for the quarter. Let's move to Vestamil. The order intake in Vestamil for the quarter, $292 million. and sales, 380 million, and an EBIT of 67 million, or 17.6%. Order intake, Jenny has already commented that one. And when it comes to deliveries, obviously our supply chains have been able to pace up and reduce the delays on them. that we had in the backlog, and that is giving them the all-time high sales levels in the quarter. Further within Vestamil, we are continuing our work that we talked about before, that we are looking into our supply chains and with the target of expanding the capacity for being able to accommodate future growth. The R&D activities continues on the plan level, full focus for the future offer for going forward and to support our growth. Another thing that we would like to highlight is that we, Investimo, we inaugurated a new site in Dublin. And the reason for that is that we plan for expansion further in the wireless data communication area. And we're happy to open up a new facility in Dublin. And that is also something that happened during the quarter. Let's move to Bayer Electronics. Here we had an order intake of 223 million in the quarter, a sales of 241, and an EBIT of almost 31 million, or 17.7%. 12.7%. If you look at the order intake of 223, If we look sequentially, that is an increase of 10% compared to Q2. Still, it is on the lower levels as we kind of saw already in Q2. We want also to highlight that we have gone through our order backlog and we have adjusted the backlog for Bayer Electronics with 34 million. And the reason are that we have some uncertain orders that was booked in China during 2022. So that one has then affected the backlog numbers in the quarter for Bayer Electronics. The sales levels is lower than compared to last year and also sequentially. And that is then basically expected, given the order pace that we have seen previous quarters. However, due to good price management, being able to generate good gross margins and cautious on the spending, we have been able to make sure that we can deliver an EBIT percent of 12.7 in the quarter. We do want to highlight that the activities within R&D that continues according to plan and we are working towards new generation of products for the future. And then as Jenny pointed out, we have introduced a cost reduction package with focus on Asia, meaning that we will reduce our cost base with about 20 million as from beginning of 2024. And the cost for the package, that has been then taken in the third quarter already. And the last point, as you might remember, last quarter we acquired a company, Smart HMI. That integration activity is ongoing, and it develops in a good way, and our customers are really welcoming this technology that we can now offer. That kind of concludes the financial part, so back to you, Jenny.