Ependion AB

Thank you very much. Welcome, everybody, to the Appendion Quarter 2 call. The headline for our report this time is Increased order intake and improved earnings in an uncertain market. So, we present in the call is, as usual, myself, Jenny Sködahl, today in Västerås. And with me, I have Joakim Laurén located in Malmö today. And as usual, the agenda looks like this. I will give a general business update first, then Joakim will dig a little bit deeper into the numbers, some concluding notes and outlook from myself, and then we open up for questions and answers. so let's dive right into it so the overall business update for the quarter well i think we all see that the market is still affected by the uncertainty regarding the conditions for international trade giving a slight hesitation among our customers in terms of investments and so on on the other hand of course the world has not come to a stop so there's a lot of activity still going on in in our markets but but still a little bit uncertain market conditions. However, in the quarter, the order intake for Appendion increased by 16%, where we see growth in both business entities, Vestamo at 22% growth and Bayer Electronics at 5%. And as you probably know, we have closed the Velotech deal in the quarter and this company was added as from June and the organic order intake then comes out at 11%. Sales-wise, our sales are still a little bit affected by the somewhat lower order intake that we have seen in end of 2024 and beginning of this year, so minus 5%, with a pretty strong comparison quarter. And there are also some phase-out effects for Bayer Electronics, because as you know, we have been cleaning up our product portfolio We have phased out the display solutions volumes as part of the more focused strategy for Bay Electronics and that has of course had an effect on the sales somewhat because there are no volumes in this quarter from that portfolio anymore. Earnings, we see a slight improvement with the EBIT level at 62 million Swedish kronor or 11%. That's up from 10.2 same quarter last year. I think we are all aware that there is currency headwind with a strong Swedish kronor, especially compared to the US dollar. And that has affected our result on the EBIT level in the quarter by minus 9 million Swedish kronor corresponding to 1.6 percentage points. Strong free cash flow in the quarter at 62 million Swedish kronor. If we look a little bit more into the two business entities, I mentioned that Vestimo sees quite a good order intake pickup, especially in the train and trackside segments, while we see the energy segment at stable levels. VLOTech has started extremely well with us, so to say, and the integration activities are ongoing full speed. A very positive start, the joint offering that we now have towards especially the energy market is very positive and we see that Bielotek has very strong customer relationships in the energy sector that we can benefit from for the full product portfolio. Sales increase in Vestimo 5%, thanks to the addition of Yellowtech. And if we look organically at fixed FX rates, we are basically moving sideways. Profitability improved to 15.1%. We have seen strengthened gross margins in Vestimo over the last quarters and that we see also now and that in combination with good cost control keeps the EBIT level in Vestimo at a stable and rather high 15%. In Bayer Electronics we see an order increase of 5% and that also does not include any of the phased out volumes, so that's actually quite positive. We do see the demand strengthening, especially in the marine and manufacturing segments. And what is particularly good to see, I think, is that the order intake for the HMI product family, which is really the key product family that we want to focus on going forward, increased with 23% in the quarter. And that is actually before the effect of the new X3 series, actually, because that is just now being launched, as I will come back to in just a minute. Sales decreased as I mentioned, that's mainly due to the phased out product compared to the previous year. What is also good to see is that we are seeing improved gross margins now and that was the whole idea basically with the focused product portfolio facing out of low margin products. It's good to see that we are seeing the effect of that now in our gross margins and that in combination with the cost reduction program that we carried out in quarter one will actually lead to stronger profitability going forward when we see higher volumes, but it also meant a slightly higher EBIT percentage in the quarter compared to previous quarters, so 9.2% for Bay Electronics. This is of course not at all where we want to be, and we are focusing to improve this further going forward. Positive also is that the massive investment that we have done in the last years in the new generation of HMIs, the X3 family, is now complete and we are open for orders for this whole portfolio. deliveries will increase during the second half of the year and at the same time we will keep on selling the predecessor X2 because it will take some time for customers to actually transition over to the new family and we want them to be able to do that in a smooth and controlled way. So if we look at the volumes more in a graphical format, I think it's good to see that the order intake, as you can see here, is moving in the right direction, despite the FX headwinds that we have both on the order intake, of course, and also on sales. I think I mentioned the numbers. If we adjust for currency and acquisitions on the order intake side, we are actually up 17%. And the book-to-bill ratio in the quarter of pretty much one, basically. And the backlog also staying quite stable compared to previous year. So with that, I hand over to you Joakim.

Thank you very much Jenny. I will take you through the numbers. We start with Appendion. We have the order intake of 558 in the quarter and the sales of 561 and an EBIT of 62 or 11%. And as Jenny pointed out, we see an improvement then compared to last year. Jenny also mentioned that we have some headwind with regards to FX impacting 9 million if we compare the two years and it's mainly then transactional variances. We also want to inform that we see no material financial impact of the tariffs in the quarter. Vestamo is presently exempt from tariffs and Bayer Electronics, there we have actually increased the prices in the US market to compensate. cash flow positive in the quarter it's a plus 62 million somewhat up compared to last year it does include some positive impact of somewhat lower working capital in the quarter The financial net is somewhat high and the reason for that is that we have a negative impact of the FX or the weaker US dollar impacting the financial net line in the quarter. Net income at 30.3 million, EPS at 0.98 Swedish krona. As Jenny pointed out earlier, we did close the Velotech acquisition in the quarter. And as part of the financing of that, we completed the directed share issue of 300 million in the month of May to then partly finance this acquisition. Then let's move to Vestimo. We have an order intake of 359. sales of 354 and an EBIT of close to 54 million or 15.1%. Jenny mentioned before, we do see the growth numbers of 22% and organically the 15 and the book to bill ratio for Vestamo just above one, 1.01. And also the sales then includes one month of Velotech and leading to that we have an increase of 5% in the quarter. Organically, if we then look at the fixed rates just below the level of last year. Jenny also mentioned that we do see a good profitability development at the stable 15.1%. driven by gross margins and cost control. And we do also want to guide that included we have acquisition related cost of 2.5 million in the quarter. If some of you are looking very closely in the report at the numbers, you can note that there is quite a high level of sales in Velotech in the first month. That is really due to a larger order that was shipped in the month of June. Order intake and sales are not on the same picture, but we want to highlight that we had a really good start for Velotech when it comes to sales and also when it comes to contribution to the result. Well, in line with other Vestamo. That is what we are guiding there. Bayer Electronics order intake of 200 million, sales of 207 and an EBIT of 19 or 9.2%. Jenny also pointed out that the order intake included quite strong HMI bookings at the 23% level, book to bill for Bayer Electronics at 0.96 for the quarter. And the drop of the sales line very much related to the fact that now we do not have any of the phase-out volumes in the shipments from Bayer Electronics as we had last year. And that is the main difference compared to the quarter this year and last year. Bayer Electronics, we continue to see a good gross margin. uh very much driven by the fact that we have less of the phase out products so it's a positive mix and we do also have somewhat lower cost levels as we did a cost restructuring program last quarter as you uh for sure remember um still the 9.2 percent a bit level not where we want to be full focus as jenny pointed out um we also want to guide that now with uh the we come to the end of the extensive or intensive development phase of the X3 family. We will now going forward scale down somewhat of the activity levels in the development side in Bayer Electronics starting the second half of this year. That concludes the numbers, so over to you Jenny.

Thank you Joakim. So to conclude, I mentioned the uncertainty that we are seeing still, but I also want to mention that we do see stable activity levels among our customers, healthy pipelines, we are staying close to our customers. But because of the uncertainty, of course, we are being very cautious when it comes to costs. But also I want to convey that medium and long term we are as confident as ever about our ability to continue our profitable growth journey because we are present in attractive markets that are bound to grow from the mega trends that we often talk about and we are well positioned with our products and solutions to actually take advantage of these global trends. So therefore, we continue to balance costs with some really important strategic future investments. We mentioned in the report, of course, the building up of the most entity in India, which is a very important milestone for us to have an even better geographical coverage. And also, of course, the acquisition of Velotech shows that we are really allocating resources into growing Vestimo. And for Bayer Electronics, continuing to execute on the strategy, creating stability and higher margins in that business entity. And we have invested, as Joakim mentioned, a lot in the new X3 generation, which is, of course, very positive for the future. so with that we stay committed to our financial targets we are have not been really moving in maybe the right direction for some time now but we do see that there is potential for growth and we should be we are targeting to grow 10 percent organically on average and have a 15 ebit margin on the group level and then to actually be a dividend paying company so we stick to these financial targets and that's what we are working towards And then just the outlook. As I mentioned, we are present in attractive markets, so we do see that we have good prospects for reaching both the growth and profitability targets in the mid-term. However, with the geopolitical and economic uncertainty that we are still seeing, it's hard for us to assess the near-term outlook. So that concludes our presentation. So then we open up for questions and answers.