Ependion AB

Ladies and gentlemen, welcome to the Appendian Financial Statement 2023 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 during the call you require immediate assistance, please press star and then zero for the operator. This call is being recorded on Thursday, January the 25th, 2024. I would now like to hand over the call to Jenny Shortell, President and CEO. Please begin.

Thank you very much for that. Good afternoon everyone and welcome to this quarter four and full year report for the Appendion Group. With me here in Malmö I have Joakim Laurén as usual. We are the ones that will be conducting this call and as usual our agenda looks like this. I will start by giving you a general business update then Joakim will dig a little bit deeper into our numbers, followed by me giving some concluding notes and outlook. And after that, we will move on to the Q&A session. So, starting with the overall summary of the quarter, we can see that we have a fourth quarter pretty much in line with last year. when it comes to sales and earnings. And we are still seeing the more mixed pattern in our business that we have seen now for also in quarter three. And the order bookings, as you have noted, came in on the lower level compared to same period last year. There are two parts to this. First of all, we could see that Vestimo's order intake came in a little bit weaker than maybe we had expected. And the main reason behind that is that we had some adjustments. on our train networks backlog. You remember we had very high bookings both in quarter one and quarter two related to a very big customer of ours in the rail industry. And there has been some adjustments in the backlog from that customer in this fourth quarter, which has meant that the order intake in the train network segment has been unusually low in the quarter. combined with a little bit of hesitation as well in the other segments that Vestimo is targeting. And that's in combination then with the same pattern that we have seen now for a couple of quarters in Bayer Electronics, where there is an effect from the generally slower economic activity, especially in Asia, but also a little bit of hesitation in Europe and America, although those regions are being quite stable. we came out at a lower order booking level compared to the same period in 2022. When it comes to sales, we had a good sales growth in Vestimo. We continued to deliver on a high pace to all our key segments, whereas in Bayer Electronics, we saw a decrease in sales due to basically the lower order booking level that we have seen in the last quarters. And the EBIT level overall for the group came in at a similar level as last year at 10.4%. That is, of course, below what we are happy with, so to say. We are not pleased with that EBIT level. But on the other hand, if you look at the whole year, we can see that we have taken significant steps forward compared to where we are coming from. What was also good in the quarter was that we managed to get a real nice cash flow out of our operations, free cash flow of 109 million in the quarter. And overall, we sum up a record year for Appendion in 2023 in terms of sales, earnings, and also revenue. cash flow and and for those of you that have followed us for some time i would like to say that we have established ourselves on on a new level basically that we of course want to work further with but given where we're coming from we are actually very happy with with the full year of 2023 and the board also proposes a doubling of the dividend to one krona per share Looking a little bit more into the two business entities, I already mentioned some of these things. And again, Investimo, we are very sure about our strategy. We are in the midterm, very, very optimistic about the demand side. We have a very strong order backlog still, we have a very high activity level in different sales organizations, and we have a super strong pipeline as well. So I am not at all worried about Vestimo in the midterm, although we see that we are a little bit affected by the overall weaker demand, which is very much related to projects being delayed due to higher costs of financing and so on. But overall, I'm still extremely optimistic about the demand side in Vestimo. Happy to see that the good sales level remains and also the profit level concludes a record year for Vestimo. We have done a lot of improvements in the Vestamo business entity, both in quarter four and throughout the whole of 2023, mostly related to making our supply chain even stronger and more resilient so that we are prepared for the future growth journey. And we also decided in the quarter to establish ourselves in India. And that is a key market for us. going forward especially we see that there are huge investments happening in India when it comes to the rail infrastructure and that's why we see that that's a very good market for us to be present in together with also opportunities on the on the energy side when it comes to their electronics again I mentioned it a pretty slow order intake We can see that Europe remains quite stable, while we are seeing the same pattern as before in Asia-Pacific, and also China, which remains weak, and America somewhat slower, but still quite stable. We see the lower sales volume due to the order intake and that is also why we launched already in quarter three the cost restructuring program of around 20 million Swedish kronor which is now finalized and is taking full effect as of now basically. I'm very happy to see that the strategy work that Christine and the team have been doing now for four months in Bayer Electronics is now ready. And we will actually present that new strategy in our capital markets day that we will hold on the 5th of March in Stockholm. But we can really see that the unit has come up with a more focused strategy, which is exactly what they need, so to say. So I'm very pleased about that. Also very high activity within R&D. Some of you may know that we are working on the next generation of HMIs, which is strategically extremely important for us. And that generation will be launched by end of 2024. So the work is really very much ongoing now on finalizing that product range. Also the new production unit in Sweden here in Malmö is completed. We are just waiting for one certificate but the series production is due to start now in the first quarter of this year. So if we just look at this in a more graphical format, I think we already mentioned it, orders are down 21% versus last year, sales still on a stable level. We didn't have any big effects in the quarter, and we still have a very healthy backlog situation of 1.2 billion, most of which relates to the Vestimo business entity, which traditionally has longer order horizons. So with that, I will hand over to you Joakim.

Thank you very much. And I will go through the numbers more in detail and I'll start then with the pendulum. The order intake in the quarter ended up at 478 million. The sales came in at 590 and the EBIT at 61.5 million or an EBIT percentage of 10.4%. The effect of FX, we have had quite a few quarters now in a row with positive contribution on the EBIT line on FX. This quarter, we don't see that. We see a small negative number. So the tailwind from the FX is not longer there. As Jenny pointed out, we have talked about the cash flow situation and the fact that we have not been able to generate cash flow as we have tied a lot of capital, especially in the inventory side. But now in Q4, we were quite happy to see that we start to see effect and 109 million generated in the quarter. For you that also follow the P&L below the EBIT line, you can notice that the financial net costs has increased quite significantly compared to last year. I think we all understand with the general higher market interest levels that is also affecting us and that is the reason behind this. Net income came in at 34 million, earnings per share in the quarter at 1.18 million. So if we then summarize the full year, I mean, we can conclude we have a sales of 2.5 billion or a growth of 16% and an EBIT of 322 million or 13%. And as a year, this, as Jenny pointed out, is a record, of course, for us as a group. Let's go to Vestamu. Here we see an order intake in the quarter of 277 million, a sales of 362 and an EBIT of almost 56 million or 15.4%. Jenny laid out the reason for the orders that we have and we want to emphasize that it is very much an adjustment of the big order backlog that we received in the first half of this year. It's also worth pointing out that looking at the full year, there is a growth of the order side of 13%. We also want to highlight now that we have had a long period investment due to the component shortage with delays in the supply chain. Now we have ended that period. We are back to more normal lead times in our supply chain. When it comes to R&D activities, we continue to have that on a high level in Vestano also in the fourth quarter with the focus on future growth and including our service offering that we have as a focus segment within Vestano in the WeGrowth strategy. As Jenny also mentioned, we have taken a decision to establish ourselves in India. The initial investment means around 10 million and it involves about 10 employees to start up with in the India investment. We also continue to expand, and we have opened up a sales entity in Denmark for Vestamo. And worth mentioning again, looking at the full year, it is a record year for Vestamo, and the full year ended with an EBIT level of 16.5%. Then we go to Bayer Electronics. Here we see an order intake in the quarter of 201 million, a sales of 228, and an EBIT of about 19 or 8.3%. As Jenny pointed out, the order bookings basically what same picture as we've seen now for a few quarters, where MAI is stable and APAC is slow. um and then what we have seen also previously in 2023 with a pattern of shorter order horizons by the customers and that is also seen now in the q4 sales came in if you look sequentially somewhat lower than we saw in q3 basically affected by the lower order pace that we have seen in the last quarter the profitability came in not on the levels that we would like to see but we did launch a cost reduction program as Jenny pointed out at the last that was informed in the last quarterly report and we see full effect of that or we expect full effect of that now from 2024 and onwards with an annual effect of 20 million Also worth pointing out is that we continue on the longer horizon with R&D activities in Bayer Electronics in the quarter, where we focus on the next generation of HMIs, where we have planned release of this new product generation by the end of this year. So if we summarize the year for Bayer Electronics, we have sales of about 1 billion and a profitability level of just below 13%. That concludes the numbers. So back to you Jenny.