Ependion AB

Thank you very much and welcome everyone to Appendion's quarter four and full year report. So with me today, as usual, I have Joakim Laurén. We are both here in Malmö today and the agenda is same as usual. I will start by giving a general update. Joakim will dig a little bit deeper into the financial performance and then I will conclude with the concluding notes and outlook and after that we will open up for Q&A. So let's get started. If we look at the fourth quarter, it came in above our expectations with an order intake that was 20% higher than the same period last year. And the increase was actually seen across both business entities and actually also across all our focus segments. And also the sales number came in at the stable level, but sequentially a step up compared to the rather weak quarter three, which was driven then mainly by Vestimo. It's good to see that the strong gross margin development that we have seen in Vestimo for some time actually remains. And I do see that this gross margin level is sustainable over time. And it's due to the changes that we have done in the supply chain in terms of improving efficiency, streamlining operations, working on material costs and so on. And also the pricing factor, of course. All that has led to this increase in gross margin in Vestamo. In Bayer Electronics, the quarter was affected by an unfavorable mix with a larger portion of display solution sales. And we have been talking about that throughout 2024. It is a conscious decision to actually phase out these low margin products. But of course, as we ship them out in the quarter, it does have an unfavorable effect on Bayer Electronics margins. We continue to keep a very tight control over our costs. But at the same time, we are moving ahead with forward-looking investments in line with our strategies. So that's good. We did see an improved profitability in the quarter, where Vestamo actually posts an all-time high level in terms of EBIT percentage. While Baylor Electronics came in at a similar level as last year, actually quite low level, explained by what I just mentioned. And the full year EBIT for 2024 ended up at 11.3, concluding a rather challenging year actually for the group. Positive was that we see a continued good free cash flow in the quarter, 80 million Swedish kronor. And if we look at the whole year, we ended up at the record high level of 187 million Swedish kronor. Looking a little bit deeper into the two business entities, I mentioned the order StepUp in particular in Vestimo. it's good to see that after five quarters of rather sluggish order intake we did see a pretty big step up actually in the fourth quarter and it was driven by all focus segments but in particular the train segment actually doubled in terms of order intake compared to the low level that we saw in the third quarter of 2024 and we did receive sizable orders from several of our key trained customers. Sales also increased sequentially quite significantly with 29% and ended quite close actually to last year. The most important activity that we are doing right now in terms of forward-looking investments, as you are well aware, is the establishment of Estimo India. that is progressing absolutely on plan. I'm very pleased to see that the organization is set up, the production equipment is in place and installed, and we have a strong team in place there that are already starting to interact with customers locally in India. So that's a very positive development. I mentioned the strong profitability in Vestamo at an all-time high EBIT, which was driven by the good gross margin level that I mentioned before in combination with, of course, a tight cost control. And I think that this actually shows the inherent earnings capacity that we see in Vestamo. With those gross margin levels and a decent volume, we do get really nice EBIT levels. In Bayer Electronics, we also see the orders pick up in Q4 compared to the last two quarters, and they also grew 8% compared to the same quarter last year. We're pleased to see that the marine segment continues to develop well. That is really the key focus, I would say, of Bayer Electronics, even though we are also focusing on the manufacturing and the rugged environment segments as well, but also the manufacturing side picked up in the quarter compared to the rather flat development that we had seen earlier in the year. Sales for Bay Electronics at quite stable levels, but I mentioned the unfavorable mix in the quarter. This is actually almost the last portion of Display Solutions volumes, Joakim will come back to that a little bit later, but that had an effect in the quarter, which actually weighed down then on the EBIT level, which was at similar level as last year. But again, we know why, and it's the result also of conscious decisions that we have taken in the business entity. All right. So if we look at this then in a graphical view, we can see that there is a bounce back, so to say, both in terms of order intake and sales on the order intake side. You can see there how this quarter actually was stronger than the last five quarters, not quite as strong as the high levels that we had back in 2023, where we had very, very high order intake from our main train customer. So overall, a very strong quarter, 20% up versus last year. Sales at similar level compared to last year, as you can see here, but a big step up from quarter three of 2024. There were no translation effects, currency effects on the volumes, and the backlog is still at a healthy one billion Swedish kronor. So with that, I will hand over to you, Joakim.

Thank you very much, Jenny. I will take you through more of the detailed financials. I will start with the opinion level where we then see an increase in the order intake and profitability. Order intake came in in the quarter at 572 million, sales at 578 million and EBIT at 65, giving an EBIT margin of 11.3. And as Jenny pointed out, the increases in the profitability is very much driven by the gross margin effects, especially then in Vestamil. And we want to point out also that there are sequential improvements compared to the last quarters in 2024 as well. Including in the numbers, we do have a negative FX impact compared to last year, and it amounts to minus 4 million in the quarter, mainly then transactional variances. Jenny pointed out the good cash flow. We had plus 80 million in the quarter. And the main driver, except of course, compared to the Profit generation is the quite significant reductions of the working capital, predominantly the inventory levels, which is something that we have talked about. We have been on a too high level, I would say, but now we came down in a decent way in the quarter. That's good to see. Net income at 35, slight improvement to last year, and the same goes with earnings per share at 122. I also want to point out that we did a small divestment in the quarter. We sold out the partially owned production unit in Taiwan, the small one related to the previous Querenix range that has then been sold off with a minimal impact on the financials. Let's go to Vestamil, where we then see a strong order intake and an all time high profitability. We had an order intake of 354 million in the quarter, sales at 347, and an EBIT of almost 62, or an EBIT margin of 17.7. So it's good to see the step up in order intake, as Jenny pointed out. And we can also conclude now that we have a quarter with a book-to-bill ratio above one at 1.00. We talked about the bounce back and compared to when we went into the quarter, we talked about the relatively low order backlog going in, but we have had really significant book and turn volumes in the quarter giving this effect. And that of course is something that we are happy about. And the 17.7% profitability in the quarter, the all time high level, As Jenny pointed out, it is the gross margin improvements driven by the operational excellence or efficiency in the organization, the way we do things in the supply chain, combined with a very tight cost control. Nice to see. Jenny has already talked about India. And we also want to point out that the minority investment that we did early in the year in Blue Wireless, that is then progressing according to our plans. Then we have Bayer Electronics. Here we note improved order bookings, but an unfavorable mix in the quarter in the sales. So order intake to 19 million, the sales of 232 and an EBIT of 19 or an EBIT percentage of 8.3. So if we look at the order bookings and we compare that to last year, it is an improvement and also sequentially. still we are reducing our backlog and that relates to a big portion to the phase out of the products and i will guide you with the coming slide here on how the phase out products will impact so we all get the numbers right sales levels in the quarter quite stable similar levels as we've seen now for quite some time And profitability, as Jenny pointed out, this is due to the high portion of low margin deliveries in the quarter. Some impact also of the fact that we have somewhat higher depreciation levels. We do want to point out that we have said for quite some time now, there's a high level of R&D activities ongoing in Bayer Electronics. It is the new generation of HMIs. We call them the X3 families that there's a lot of activities ongoing. And if you look at the R&D spend, we are on a high level in Bayer Electronics. And that is the reason behind it. And also the reason why we see also a relatively high R&D capitalization level. Yes. My final slide is related to bring clarity to all of you when it comes to the phase-out in Bayer Electronics. We did inform in the Q1 report in 2024 about the display solutions volumes in Asia. We had 50 million in 2023. We said then that we expect it to be around 30 million in 2024 and onwards it will be zero. And those are the numbers also in the actuals. What we now add on is that we have another part of low margin products that in 2024 were about 70 million. um that will be phased out now we expect that to be around 20 million spilling over you could say into this year 2025. so if you summarize then 2024 it's about 100 million that will go to 20 million in 2025 and onwards it will be zero And again, we do this because this is relatively low margin. We believe that we will focus according to our strategies. And this is in the line of the strategies that Christine and her team has presented earlier. And of course, as we are phasing out volumes in the beginning of 2025 or the first half of 2025, we will, of course, adjust and align our cost base accordingly. So this one is to bring clarity and hopefully this is helping you to understand what's going to happen in Bayer Electronics. With that I conclude the financials and over to you Jenny to conclude.

Thank you Joakim. So as we have seen the fourth quarter actually marks a shift from the somewhat hesitant pattern that we have seen throughout all of 2024 and actually starting already end of 2023 in terms of customer demand. So that is very positive. We feel that it's still too early to say if it is really a trend shift that we are seeing because external factors, as we all know, remain uncertain. So therefore, our cautious approach to costs remain and we shall see what happens now in the beginning of 2025. But medium and long term, I am very, very confident about our ability to continue to grow profitably. And we have also done a lot of improvements in the two business entities under the hood throughout 2024 and also earlier in 2023. So I feel that we have a very strong platform now in the group to actually grow from, so to say. And of course, in 2024, we didn't really move towards our financial targets. Actually, not at all, you can say. And we are, of course, not pleased with that. But we definitely have those targets in front of us and we are relentlessly working towards achieving those financial targets. And just as a reminder, I think most of you are aware already, but our financial targets are that we should grow 10% on average organically. And then acquired growth will be added to that. Our profitability level in the group should be at least 15% on EBIT level. And we should also be a dividend paying company. So... Concluding that and talking a little bit about the outlook, I believe that we as a company are well positioned in attractive markets that are bound to grow in the coming years due to the big megatrends that we are seeing in terms of digitalization, electrification and so on. So there's no doubt about that. I feel very confident with that. As I mentioned before, in the near term, there is significant uncertainty still, both in a geopolitical and economic sense. But we are actually carefully optimistic about the outlook for the full year 2025. So that concludes our presentation. So now we would like to open up for Q&A.