Ependion AB

Welcome to Ependion Q2 Report 2026 presentation. During the Q&A session, participants are able to ask questions by dialing pound key 5 on their telephone keypad. Now I will hand the conference over to the speakers, President and CEO Jenny Shadal and EVP and CFO Joachim Lorien. Please go ahead.

Thank you very much. Good afternoon, everyone. And thank you for joining us today. With me, as usual, I have Joakim Larén, CFO. located in Malmö. I myself am sitting in Västerås today. So the agenda is the same as usual. I will start by giving a general business update. And after that, Joakim will walk you through some more details on the financials. And I will finish off with some concluding notes and our outlook. And after that, we will open up for Q&A. All right, let's dive right into it. So we have now delivered three consecutive quarters of strong order intake growth, which is increasingly translated into sales growth and also improved profitability. So order intake up 24% or 15% adjusted for acquisitions and currency effects. We see broad-based order booking across both business entities and across most of our key segments. On the sales side, we did achieve a record sales level of 682 million. That's 22% up year on year, where of 10% organic and currency adjusted. And the book to build for the quarter ended up at 1.02%. The profitability improved despite continued investments in various growth initiatives and also despite, as we will see, some non-recurring costs in Vestimo. EBITDA grew by 30% to 84 million Swedish kronor, lifting the margin then to 12.4 compared to 11.6 last year. On the free cash flow side, we had a bit of a challenging quarter. We achieved 40 million SEK. And the main reason for working capital increase was actually that we had a lot of invoicing towards the end of the quarter, which of course affected this somewhat elevated safety inventory as well. But the main effect was actually the accounts receivable. On the inventory side, you are all aware about the memory circuit supply situation, which remains extremely strained. And we are putting a lot of effort in the whole company on securing supply. That's really our number one priority right now to make sure that we can deliver to our customers. And of course, also as much as we can offsetting the cost increases that we are seeing through price adjustments towards our customers. When it comes to defense, this is still a small segment for us, but strategically important. It's developing according to plan in both business entities, although, of course, from a low standpoint, starting point we are doing some targeted investments in both business entities especially adding a couple of sales people with a background from the defense industry and we are also we have also tested some of our products against military standards so that we can with confidence go to these customers and talk about what we can do to support them. So that's working out according to plan. As we all know, the geopolitical uncertainty is still there. I feel the organization is focused on what we can influence, focusing on profitable growth and building on recent years significant investments. All right, let's then move into the Vestamo business entity. In Vestamo, we delivered record sales and a strong order intake despite a temporarily weaker trade market. The energy and trackside segments grew nicely. There were no major project orders in the quarter, and I think most of you are aware that Our train business is relatively volatile between quarters, so it doesn't mean that the demand as such has lowered. It's just that in this particular quarter, the order bookings were somewhat lower than in a record high Q1 quarter. Energy is actually becoming a major growth driver within Vestimo, very much supported by the Velotech acquisition. Sales up 28% or 9% organically. That's a record high level for Vestimo. And I'm pleased to see that we are starting to convert the high order bookings from the last quarters into sales now. Book to build actually at one, exactly at one for the quarter. EBITDA grew by 22%, 15.3% margin. It's a little bit lower than what we would expect from Vestamo with this kind of of nice top line, but we did absorb around 8 million Swedish kronor of non-recurring cost items in the quarter. And those cost items relates to strategy work and some business improvement projects that we have been running in the quarter. And as I mentioned, Vela Tech continues to develop very strongly contributing to both growth and profitability. One thing worth mentioning in Vestamo, which is not in the slide, is that we also achieved on the sustainability side and Ecovadi's platinum status, moving from silver to platinum, And that is thanks to all the hard work that has been done in the business entity to move that area forward. And this is something that our customers actually care about. So we are happy about that. If you look at the graph there to the right, you can see that the order intake pace is well above the sales graph, which is, of course, positive. Year to date, we see a healthy order growth and also sales growth. So that's so far so good. All right, let's then move into the Bayer Electronics business entity. I'm very pleased to see that the long-term transformation work in Bayer Electronics is actually now starting to translate into increased stability, sales growth and also higher margins. And that is very, very good to see because the team has been working really hard for a long time now without really seeing clear results. But now we are starting to see the tangible results as well. Order intake up 22%, driven mainly by the energy and marine segments. Sales grew 11%, book to bill 1.05 in the quarter. As we mentioned in the report, we have established a formalized energy as a focus segment. And that's just really because we already have strong positions with key customers in this area. We have a good product fit and also we see a growing customer demand. So we are working in areas such as data centers, EV charging, carbon capturing and so on. So it makes a lot of sense for us to actually formalize energy as a focus segment in Bayer Electronics as well. The higher sales level lifted the EBITDA significantly and the margin improved to 12.3% from 9.5% in the previous year. You know that the team is working hard on the launch of the new X3 platform and that is also proceeding according to plan. We are seeing high interest from customers in this new modern platform. We see still a lot of new customers ordering this product which is very promising and the migration of existing customers from the X2 series to X3 is also proceeding according to plan. What is not mentioned here, but we mentioned it in the report, is that the R&D spend in Bayer Electronics is also now normalizing according to plan as we have launched X3 last year. All right. So with that, I hand over to you, Joakim, for the financials.

Thank you very much, Jenny. And I will take you through some more details on the financial side. And I will start with the volume development. And as Jenny pointed out, really good over the quarter, third in a row on the higher or stronger levels of the 24% growth. compared to last year, 15 is then organic. 11 comes from the acquisition of Velotech and a smaller portion of FX. If we look at year to date, we are at plus 33% or organically 23. So really good numbers for the first half of the year. Sales, as Jenny pointed out, it's all time high for Ependion as a group and also actually for Vestamo plus 22 organically is then 10% in the quarter of then Velotec is adding then the 12 to the 22. Year to date, 16 in total of what organically is plus six. If we look at sequentially compared to Q1, obviously the orders is somewhat lower. And as Jenny pointed out, The main reason is really that the train segments that we know is bumpy came in at somewhat lower levels in this quarter compared to the really strong levels in Q1. So that's the reason for the sequential downtick. But sales increased 14% if we compare Q2 to Q1. If we look then at profit, the EBITDA raised 30% to 84 million for the quarter. And if we look at profitability, we saw almost 1% or 0.8 percentage points improvement from the 11.6 to 12.4. for Q2. And also here, in terms of sequential, we basically came in on the same kind of level that we saw in Q1. And the reasons is really within Vestimo and the non-recurring cost items that Jenny just mentioned. So if we look then at the total income statement, we can conclude that the EBIT increased with 24% in the quarter. The net profit increased with 50% to 45 million for the quarter. And if we look at the first half of the year, we are up 38%. So it's quite big numbers here. We do want to point out that in the quarter we had some total negative currency impacts of minus 2.4 million of what translational transactions or transactional differences is most of that negative impact. If we then move forward, let's look at cash flow. 40 million in the quarter to be compared to the 68. Jenny also earlier pointed out that the reason for the somewhat lower is that we still sit with relatively high inventory levels related to safety levels that has been increased due to the constraints in the memory market you could say for supplying components to our manufacturing and also the major impact is actually the accounts receivables that came in relatively high due to phasing on towards the later part of the quarter. The net debt EBITDA covenant is moving downwards as improving levels. We came in just below 1.2, which is then emphasizing that we have a solid balance sheet and some financial muscles to continue our M&A agenda. That completes the financials. So back to you, Jenny.

Thank you for that Joakim. So to conclude, I think that after a couple of challenging years in 2024 and 2025, what we are seeing now with a little bit of a stronger market is that these results confirm the strategic direction that we have chosen that is actually working. despite the fact that we still see geopolitical and macroeconomic uncertainty. We see a higher activity level across our customer base now compared to 25 and especially 24, which is of course good. It's not extremely high, it's important to point that out, but it's on a healthy and good level, so that's great. As I mentioned before, we are very focused on capitalizing on the investments that we have done in recent years. And I'm talking about, of course, the establishment in India for Vestimo, the big investment that we have done in the X3 platform. Thank you very much. And we see that there is structural growth in our target segments driven by as we have talked a lot about electrification, sustainability and so on. And we are well positioned as a group to actually take advantage of that growth. And looking then at our financial targets, they remain the same. Our medium term ambition is to deliver an organic growth level of at least 10 percent per year. In quarter two, we were we are there, so to say, in this specific quarter with with an adjustment. adjusted growth of 10% while the order growth was 15%. So this gives us somewhat confidence that the underlying demand environment remains relatively supportive and we are targeting to reach that level. In terms of profitability, a beta margin of at least 15%, that target remains. We reached 12.4% now, up from 11.6% last year. And as we mentioned, a key contributor to this is actually Bayer Electronics' improved margin, which really... demonstrates that the transformation is working. And of course, both business entities need to contribute in order to reach this target. So that's encouraging to see that we are at least moving in the right direction there. So finally, the outlook then. We feel that we are operating, as I mentioned, in attractive markets that has a solid underlying growth. So we feel the medium term prospects for us to achieve both our growth and profitability targets are good. However, in the short term, geopolitical and economic uncertainty persists. But in general, we are positive about the outlook for 2026. So that concludes our presentation, and we will now move into the Q&A section.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Marcus Almarid from DNB Carnegie. Please go ahead.

Yeah. Hi, Jenny. Hi, Jo. Can you hear me? Yes. Yes. Yes. I've got a number of questions. Let's start with maybe the train segment where you talk about some weakness. I'm just curious to hear about the demand side and maybe underlying because we talked last quarter and the quarter before about financing for the project may be starting to ease up and then you see these projects starting to come through. So I'm just curious if any of this has changed or if it's simply a normal bulkiness of orders that you're seeing.

Yeah, I can answer that question. I think it's more of a normal bumpiness in the order pattern. We are, of course, following the development of our key customers in the trade segment. And there we have a couple of big customers, of course, and they are doing quite well. They have high order bookings. They have high order stocks that they need to deliver on in the coming years. so I think it's more of a natural variation than anything else the underlying growth is stable we see the India market being very very active which will of course also contribute here so I think overall the demand is good yeah okay excellent and then

My next question is on Velotech, if you can talk a little bit about the progress of the cross-selling between the old energy segment and Velotech.

Yeah, I think what we are seeing, and that is of course very positive, is that Velotech is really working as a catalyst, so to say, in the energy activities because With the previous portfolio that Vestamore alone had, we had to kick out competitors that were already incumbents within our customers. And that is quite tough to do and it takes a lot of time. But with the Benotech offering, I think that we can open up different doors, so to say, with these customers. And their offering is... somewhat more unique, if you like, in terms of what customers are looking for right now when they are modernizing their grids, when they are digitalizing their substations and so on. Vialotec's offering is spot on and fit very well into those conversations. So I really feel that the combined offering and Vialotec acting as a door opener and as a catalyst, that seems to be working well, actually. And we have a lot of joint customer visits and exhibitions and so on and so forth. So, yeah, so far so good.

And when you talk about energy going particularly well, is it mainly developing driving that right now or is it both? And kind of the old portfolio, if you call it that, is this kind of catching up?

Yeah, I think that the main growth driver right now is actually the Velotech business, for sure. But again, complimented very nicely by the Vestimo already existing offering.

And that on energy in the Bay Electronic side, where you put that as a focus segment, is that That was part of the, you kind of break that out from the other segment. Is that correct?

Yeah. Yeah, the change that we did actually a couple of years ago, we had energy as a key segment in Bayer Electronics. But the last few years, the focus has been on marine, on manufacturing and on what we call the rugged applications. And now we have seen that a lot of the growth pockets that we can see in the market are actually within what you could qualify as energy markets. applications so power solutions for data centers for example is one of those EV charging different types of carbon capturing projects and so on and so forth and that's why and those are of course also rugged applications but we do feel that energy is a better label so to say on this business because that's really what it is and that's why we decided to make this change

Okay, okay. So it's basically the entire rugged segment which turns into energy segment?

Not really, because there are rugged applications also within marine, for example, especially somewhat in manufacturing, but in particular also in marine. So the rugged theme kind of goes across the segments, you can say.

And going forward, there will be a rugged also in defense?

Yes, correct.

Okay, okay.

And then in also continuing on the electronics, the manufacturing side, do you see any like light in the tunnel as you're turning up?

The simple answer is no. It's pretty much moving sideways. It's not improving very much, but it's not deteriorating either. So it's pretty much moving sideways. Of course, a lot of that business is in Europe and the manufacturing industry in Europe is not very, maybe not so healthy right now. So no, I think it's the same situation as we have seen before.

Okay, okay. And then if you could give us some details on the X3. I think you've previously given us what kind of how many orders and how much has been kind of new customers, etc. If you could just shed some light on that.

Yeah, you are right. And we decided that we cannot continue to give numbers forever. But the pace is looking good. We have more than 300 customers now that have ordered X3 and we still see the same trend that around 20% of these are actually customers that are new to us or that have not ordered anything from us in the last couple of years so I think that the pace is good it's going according to plan we don't want to push customers too hard to move from X2 to X3 we want them to do it in their own pace so to say but yeah so far I think it's moving ahead as we had planned okay

And then finally, just a household question, the extraordinary cost investment. You might have said this and I might have missed it, but what is that extraordinary cost?

It's a number of items, but the key ones are actually related to a strategy review project that we have done in the quarter together with a couple of, let's say, business improvements projects that have been driving some costs as well.

Okay. All right. Perfect. Thank you very much.

Thank you, Marcus.

Thank you.

The next question comes from Daniel Linkovist from Dansky Bank. Please go ahead.

Hi, perfect. Can you hear me?

Yes. Hi, Daniel.

Yeah, great. Hey, Daniel. Hi. So Joakim, you always said it all starts with the order intake, so this is both well for the future. But talking about the orders and the order book, the conversion time in the order books we have gotten used to certain times historically. It changed somewhat in baritonics in Q1, and now we have strong orders once again. And then we have maybe less orders in Vestamo on the train side than normally. So what should we expect of the conversion cycle? Is there a longer order conversion cycle than normally in Bay electronics and is it perhaps shorter in Western mode this time around?

When we start with Bailtronics, obviously, if you compare the order bookings in Q1 and the invoicing in Q2, there is a somewhat longer conversion rate for some of the orders. That is correct. In general, I wouldn't say that that is the case, but for certain orders, of the volumes or the order bookings that we saw in Q1. That has been like that. In terms of Vestamo, I would say that we normally talk about a six to 12 months conversion in Vestamo. This is, again, general. The fact that we've had lower bookings in this quarter compared to Q1, Again, it's normal within the train segment that we see the bumpiness as we talked about earlier. And that is not something that indicates that we have a larger change in the horizon. When it comes to the train side, we have a longer perspective. It's within the range of six to 12 months. I would say in general for the train side, it's more towards the 12 and the six.

Okay, cool. But should I interpret that as that the orders in Q1 in beta dissonance was more lengthy than the orders we see now in Q2 that perhaps will convert slightly faster?

I would say so.

Okay, great. And then just last question from my side. I mean, this was the last quarter where we have real tech reported separately, and it's been really convenient to have it that way. But what can we bring with us for the future on the growth rates? What's a reasonable growth rate for that unit? Has it been something that's been extra strong this year when we've seen in the numbers or is this what you would say a rather reasonable pace for the future as well?

When we acquired Velotech, we informed about that they have seen a good growth pace over time. That was impressive. Of course, as we just discussed, there are some really good synergies working together with Västernorr and Velotech, and that is adding on to the growth. So we are happy with the development. We see that Velotek or the energy segment is growing at a really high pace and we expect that to continue when it comes to Velotek. We will not show or report the details for Velotech moving forward. That we will not be because it's becoming more and more an integrated part of Vestamo and you need to keep track on the energy segments within Vestamo to really understand how the development goes.

yeah so but we have a starting point now after this year so yeah we'll hold on to Velotech contra the other energy as long as I can and then it would be impossible naturally but for now okay so great so nothing special and it could even be a pace that is increased from time to time in the future then given the synergies with on the same side that is what we're hoping for okay perfect thank you so much I'll get back in line thanks

The next question comes from Henrik Alveskog from Red Eye AB. Please go ahead.

Okay, hello, and congrats on solid numbers.

Hi, Henrik.

You hear me now?

Yeah.

Hi. Hey, Henrik. Yeah, great. Hello. Hey. So, well, first off, regarding the issue with sourcing of critical components, Do you see any easing or is it basically the same situation as earlier this year? Well, let's start there.

No, we don't see any improvement. The situation is still somewhat strained. But we do see that the price increase pace, especially on memory chips, has decreased a little bit compared to end of 2025, beginning of 2026. So that is at least good. But the situation remains... challenging, I would say, and we are monitoring and handling it very, very closely and carefully.

Yeah. Okay. And then also regarding your price adjustments, according, I mean, as a consequence of this, is it, let's say, How fast can you implement it and is it fairly easy, so to speak, to do it?

It's never easy to implement cost increases or price increases, and it depends a little bit on the businesses. In Bay Electronics, we have been quite successfully implementing price increases related to this. There we have a shorter order horizon, so to say, which makes it a little bit easier in that respect. In Vestamo, we have more of the very big customer contracts that need negotiating and so on. So that makes it a little bit more tricky, but we are putting a lot of effort in doing it there as well. The VLOTech business has been very successful in passing on cost increases to customers because its memories are such a big part of an industrial computer, if you like. So it's very natural to do that and customers very well understand the situation. So it's a little bit of a mixed picture, but We are definitely focusing on getting the cost increases covered from customers.

I have one question for you, Joachim, I guess. Net finance minus 13 this quarter. Maybe you split it up somewhere in the report, but I couldn't find it. How much is interest and how much is other?

Yeah, that is not a number that I have in my head, but normally the interest part is relatively stable as there's not a lot of movements and that is related then to the debt that we have to the financial institutes. The other or the movements in general, that is related to FX movements and revaluations. And so I would say that is the reason why you see changes in between the quarters. But the split, I don't have right now. Yeah.

Okay. Then on Western movements, and the strategic review. I don't know if there's something you already want to share with us in terms of conclusions, but maybe not. Then you would probably write about it. But I'm just interested to hear, should we expect that you will present some changes in the near future? Or is this more like an internal... exercise, if you will, that you're doing. I see you, Yannick.

Yeah, good question. It's not a major strategic change, so to say. It's more a pressure testing of our existing strategy and some adjustments as to where we should be putting our efforts. So it's nothing major. I would assume that we will talk about it a little bit more in Q3. We have just concluded it and we are about to communicate to the organization now after the summer period and so on. So we would probably mention it, but there's nothing dramatic in that update, actually.

Yeah, I understand. And then I'm also curious about India and how big your operations is in India. Could you give us any numbers on approximate sales levels on a running basis or annual or something like that. And also if you could say something about your targets for India, like in the next couple of years.

normally we are not giving such details it's still relatively small it's a manufacturing entity the market is is really big there's good opportunities and we have talked about both the rail side and and the energy side there's good potential and good growth potentials and we are started up well What more can we say, Jenny?

No, I think it's fair to say that, of course, this is still in a scale up in an investment phase, so to say, even though, you know, business is growing nicely. We are acquiring on average two new customers a month so far this year. So we are well received, so to say, on the India market. And it's, of course, both about leveraging on the existing relationships that we have with the big global rolling stock manufacturers. but also of course creating relationships and businesses with a lot of local manufacturers which are increasingly gaining ground in India as the Indian government is really focusing on building up local competence and so on. So I think we are, you know, Off to a good start in India. It's a very, very fast growing market. Lots of things happening and we are building our organization as we go along and we are increasingly moving more and more products to be manufactured locally in India. So step by step, we are building the team and the business there.

Yeah. Thank you. Yeah, that was all for me.

Okay. Thank you, Annette.

There are no more phone questions at this time, so I hand the conference back to the speakers for any written questions and closing comments.

Yes, there doesn't seem to be any written questions as far as I can see.

No, there are no written questions.

With that, we will conclude this call and thank you all for listening in.

Thank you all.