Ependion AB

Thank you very much. Welcome, everybody, to this quarter three presentation. As usual, we have Joakim Laurén and myself, Jenny Sjödahl, sitting here in Malmö for this call today. The agenda is the usual one. I will start with the general business update. Then Joakim will dig deeper into our financial performance. And then I will give some concluding notes and outlook. And then after that, we open up for Q&A. So summarizing quarter three of 2024, we can see that the challenging demand situation that we have been seeing now for quite some time remains. We see a relatively weak demand still in the marketplace in basically all our key segments, which is affecting our order bookings and sales. So the trick now really that we have been focusing a lot on is really to balance the forward-looking activities that we are doing, such as our investment in the India market for Vestimo with short-term cost reductions to balance the lower sales volumes. When we look at the order intake, we see similar order levels as last quarter. No larger orders booked in the period as we sometimes have, but not this time. And we see a similar pattern actually for both Vestimo and Bay Electronics. The sales drop that we see is, of course, compared to an extremely strong quarter free of last year, where we were delivering on a very large late backlog in the Vestamo business entity. So a very strong quarter to compare with. But also sequentially, we see a drop, which is mainly due to that we went into the quarter with an unusually weak order book in the train segment in Vestimo. What is really positive and what I'm really, really happy about, given the situation that we are in, is that we are seeing a very strong development of the gross margin where especially Vestimo shows significant improvement. We have been struggling since the component crisis with very high costs of purchased goods. And despite the price increases, we have had a pressure on the gross margins during that time. And now we are slowly but surely seeing how that level is improving thanks to the cost level being more normalized, but also thanks to us adjusting our labor costs to the lower volumes. So overall on the whole group we see an improvement of 1.7 percentage points driven mainly by Vestamo but also by Bay Electronics. And as I mentioned I think the teams are doing a good job in generally controlling the cost level, everything that we can do to take out costs, we are actually doing to balance the lower deliveries. And we do see, we have the operational leverage that we have been talking about many times. So we do see an EBIT percentage drop versus a very strong quarter last year. But what I'm actually also happy to see is that compared to last quarter, sequentially, we are keeping a stable level on the EBIT percentage side. which is something that we have not historically seen in this group. So that's important to note. So looking a little bit more into the business entities. Bestimo, we do see that customers are being a little bit more cautious. It's the same pattern that we have seen for quite some time now. The high interest rates have led to projects being delayed, hesitation in customers making decision. It is our firm belief that we are not losing market share. We are not losing business, so to say, or customers for that matter. And the underlying long-term demand within the focus segments are assessed still to be very, very robust. So mid-term, we are very positive about that. The sales drop that I mentioned compared to record levels last year was due to a lower order book for this particular quarter. Positively, the India establishment is progressing according to plan and not only are we setting up the organization with all the paperwork related to that, but we are also seeing customers both in this quarter and also in last quarter, which is very positive and with good feedback from the customers in the Indian market. Our plan is to be fully operational in this entity by the end of the year. We are, as you know, also setting up assembly of, as a first step, our rail products in Bangalore in India. And on top of that, we are continuing with important strategic development work in our R&D teams, which are forward looking and which are related to important business opportunities going forward. In Bayer Electronics, orders again impacted by the weak business climates that we have seen for quite a while now. It's also important to remember that the phase out of the product group display solutions is impacting the volumes in this quarter, while the key product, our HMI range, the volumes of that one is remaining stable. And as part of the new strategy, there is a review going on regarding the portfolio in the electronics. We want to prune the portfolio to focus on even more on high margin offerings. So that's where that work is going on. If we look at the sales level last 12 months, they are actually quite stable, but on the lower level than we saw in the 22 and 23. There's a very strong focus in the organization on launching the next generation of HMIs. That is really a key project for Bayer Electronics going forward. And we are very pleased that the first part of this launch will actually happen very soon now in November when the X3 web product will be launched. which also is very well adapted to the software platform WebIQ. So there we will have a very strong offering with those two products combined. And then throughout the rest of 24 and throughout 2025, there will be a gradual release of the whole X3 family, which is something that will lift our competitiveness and the functionality level of this important family. If we look at those volumes in a more graphical way here, you can see what we just mentioned orders at 456 or minus 11% versus last year, sequentially minus five and the sales level minus 20 versus last year, sequentially at minus 16 for the reasons that I just mentioned. only smaller negative effects in the quarter. And even though we have been reducing our backlog now in 2024, we still have a healthy backlog level at around 1 billion Swedish kronor. So with that, I hand over to you Joakim.

Thank you very much. I will take you through more of the numbers and we will start with the opinion. We had the order intake of 456, sales of 493, and then an EBIT of 51 million or 10.3%. And as Jenny said, the drop in profit and profitability compared to last year, that is really due to the lower sales volumes. But then sequentially, the profitability maintained actually went up 0.1% compared to Q2 due to strengths and gross margins, as Jenny pointed out, and then the tight cost control. Looking at the numbers, the total FX impact on the EBIT level compared to last year, here we have somewhat of an uphill. minus 14, so quite significant numbers, 14 million. And the main part of that is then transactional variances. Looking at cash flow, we improved quite significantly compared to last year, and we came in at plus 56 million in cash flow for the quarter. Still, when it comes to working capital, there is more to do to reduce those levels. For those of you that focus on what's below the EBIT line, so to say, you can note that the tax cost rate is somewhat lower, and that's due to that we have some activations of losses carried forward in the quarter. Net income at 31 million and EPS of 1.08. Let's go to Westermilk. Order intake 278 million, sales 269 million and an EBIT of 37 and an EBIT percentage of 13.9. Obviously, orders and sales on similar levels in this quarter. We're actually with a somewhat positive or book to bill above 1, 1.03. Jendi pointed out that we do see a sequential drop of sales. And it was about minus 20%, so it's quite significant. And that's also then behind that is that we had an unusual low order book for the train side. We do want to point out that we increase profitability in Vestamil to this 13.9, despite that we have this drop of sales. And the reason or what's behind that is, gross margins and the tight cost control as said. High activity forward looking on R&D as said. We also want to note or tell you about that we are continuing to look on the efficiency side on the supply chains in Vestamo and one activity that is Decided now is that we will close down a small assembly facility in Switzerland and move that to the Swedish facility in Stua Sundby. The sales and product center will remain in the Swiss entity, so it's only the production side. Last point, last quarter we talked about the minority investment in Blue Wireless. The collaboration work with Blue Wireless is progressing. according to plan. Let's go to Bale Electronics. The order intake of almost 180 and the sales of 224 and an EBIT of 26 million or 11.5%. If you look at the order bookings over time, it is stable on HMIs as Jenny pointed out. And the variations is basically display solutions volumes. And that is also a product area that we have communicated that we are facing out. Sales relatively stable as well. But then you have, again, deliveries of the display solutions. And we communicated last quarter that we had quite a big chunk of display solutions at relatively low margins. We had less of that in this quarter. sequentially basically maintain profitability. And behind that is then the mix of what we are selling and delivering and the fact that we have a really tight cost control in the electronics as well. And as Jenny pointed out, high level of activity on the X3 family. Also, you can note that the fact that we are focusing on x3 we do have an unusual high level of capitalization of r d and that is behind the uh the reason for that is then the focus on x3 and we also want to point out that even though it's not released yet we are depreciating starting depreciation of some of the elements that's been capitalized the software elements already in 2024, impacting the results. That concludes the numbers. So back to you, Jenny, for conclusions.

Thank you for that. So summarizing this, we can see now with three quarters in the pocket that this year will be a transitional year for Appendion after the record strong 2023. And the reason being that the external market situation is weak and uncertain. The order booked for the fourth quarter is relatively weak, similar to what was stated last quarter. But more importantly, we are very confident about the medium and long term outlook. because we are well positioned in attractive markets. And as the demand starts to pick up, we are well positioned to start to grow again and also improve our profitability thanks to our operational leverage. And we are really focusing on what we can affect, i.e. our own activities, really looking at short-term cost savings, but also keeping our eyes on the very important strategic growth initiatives that we are working on, such as Vestamo India, such as the X3 family, and also, in general, a high product development pace in Vestamo tied to important customer opportunities. So we definitely see a potential for margin improvement in the group as demand increases. And just to be clear as well, we are keeping our eyes on our financial targets. The demand market situation is a bit tough right now, but nevertheless, we strongly believe that it is absolutely reachable for us to come back to a growth situation with 10% average annual growth organically. a 15% margin on the group level, and also, of course, a healthy dividend paying policy. So we are still focusing on reaching those targets, of course. Summarizing the outlook, we think that we operate in attractive markets, as I mentioned, with good underlying growth, thanks to digitalization, electrification, sustainability and so on. And therefore, we have good prospects for reaching the targets, as I just mentioned. But we still see a great deal of uncertainty in 2024, both in geopolitical economic terms and so that view remains and that is why our view is that we expect the situation to persist throughout the rest of this year. So with that we would like to open up for Q&A.