Ferronordic AB (publ)

Thank you. Good morning. Good afternoon, everybody. This is Lars Corneliuson speaking, CEO of Ferro Nordic, and I'm very happy to be here with you to present the result of the first quarter 2024 for us. Let's start with... A summary of the quarter on the slide that we're trying to arrange here. Here we go. First quarter again, then we, as you know, we invested into the US in the end of last year, actually in the beginning of December. And we have had a good start in the US. Our expansion there has had a very good start and so Q1 was the first full quarter where we consolidated our US operations into our reporting and that very much led to then an 86 revenue growth which is mainly driven by the US. Our operating results increased to 21 million Swedish kronor obviously on strong contribution from our US operations. profits landed at 70 million, which is partly then a result of exchange rate gains. Net debt also increased to one and a half billion, obviously, after acquisition and then consolidation of the balance sheet in our US operations. So all in all, 86% revenue growth, 21% operating profit, 1.8% operating profit margin and an EPS of 4.83 Swedish kronor. Then we move to the next slide. And again, good start. We had a revenue in Q1 in the US, business of 700 million, operating profit of 60 million, then with a margin or operating margin of 8.6. The market in the US was down 80% compared to the quarter. Again, it remains strong. It is a strong market still. And we also gained market share in this market, and especially we did so in the segment of articulated haulers, which is very good for us. It's an important segment. Volvo has a strong position in that segment, and it's also something which is boding well for future sales of service and spare parts. In Germany, the situation remains challenging. Demand is weak. Economy is not showing very good signs at all. And customers are in this situation obviously delaying renewals of their fleet. What is, however, very important for us is that we continue to grow our off-the-market business, and we did that by 9% in the quarter, which is very good, obviously, for our profit and loss statement, but also for kind of receipt that we're making the right things and having invested into the network and getting closer to our customers and increasing after markets also in a market and an economy and a general activity in the market, which actually goes down. So that's a good sign, I think. We are continuing our work to reduce costs and create a leaner organization in Germany. It's hard work and we are expecting to see then the results of that work, meaning a run rate of minus 60 million compared to last year then by the end of Q2 2024. So we are in the midst of that process. We're also working to normalize our inventory that will continue throughout 2024. In the quarter, we sold six battery electric trucks, and we have also increased our rental fleet of electric trucks. We have now 40 trucks in that fleet, and we have received governmental grants for all of them, actually. Kazakhstan in Q1 was also challenging. The economy is growing, the market for construction equipment declined. And due to that and the slow sales, obviously, we have a 2i inventory in Kazakhstan as well, which we're working on reducing. That will take some time, but it is moving in the right direction at least. Let's see if we can. Yes. So next slide, very brief on financials then. So 86% growth to 1.1272. Obviously, US is now our biggest market with 700 million. German revenue was down 20% to 440 million. And in Kazakhstan, we had a 60% drop in revenue due to machine sales. to 34, operating profit increased to 21 million. Out of that, we had a contribution from the US of 60 million. So net income then to 70 million, as I said, and the net debt that has increased to 1.5 with 33% equity to total assets. and the book equity as of March 31 of 1.7 billion kroner. More on the US. The total market is roughly in North America, we should say, is around historically 52 to 56. The area where we are currently covering is around 8% of that market. The estimations are then that it actually decreased in Q1 by 8%. We should remember that it was very high in Q1 2023. And the decline is driven mainly by crawler excavators, but the markets for articulated haulers increased in Q1 2024, and basically we drove that increase in the market by selling a lot of more articulated haulers. In Q1 2024, Rudd then had 81 new units. Rudd, which is the company that we have invested in in the US, 23 units and then 23 units are converted from sales Two sales from the rental fleet which is a very very common way of going to the markets in the US where you first rent out machines and customers are then converting them and buying them out basically. We had a strong service and parts business also and basically the mix was that 30% of revenue came from the aftermarket and 8% from other sales which is mainly rental and obviously the rest then from from machine sales and conversions. If we move into Germany, the market for heavy trucks decreased by 5% in the quarter, with a bigger decrease in March than in the beginning of the quarter. In our area, the decrease was 2%. and so our area is basically 18% of the total German market. Our own sales decreased by 36% to 157 units compared to a very strong Q1 actually that we had in 2023. We are releasing inventory in our used vehicles department and we grew that by 27% So we're actually trying to reduce both our used stock, but also we are making our rental fleet smaller, basically, to adapt to the current demand situation in the market. And we see that the demand for rental actually is declining for diesel trucks, Service and parts sales, again, very, very important. 9% increase, that's a combination of organic growth and acquisitions. But we're still moving, we're still targeting towards absorption rate of 100%, as we call it, where then the gross profit we make in the aftermarket should cover our fixed costs. And we believe that we're on track doing that in Germany, although we had hoped to be there already, obviously. But it's good to see that we have a continuously strong growth in the off-the-market, even in the downturn markets. So that means that then our share of the sales, the off-the-market actually increased 10% point and was share of revenue to 37%. And as we already announced last quarter, we are working on the efficiency program in Germany. We launched it in Q4 23, and that with the aim to make our organization more efficient and resilient. And again, then to increase our absorption level, which is an important task and target for us, basically. We're reducing then costs both in horizontal and vertical administration units, and we have reduced the number of regions. We have changed the organization, become more flat, removed a number of middle management roles, and basically analyzed that cost structure across all functional areas to identify opportunities to reduce costs. obviously this needs to be taken we need to take into account that we see a continuously growing aftermarket business uh very healthy and and good to see and and so that should be seen in the light of a cost efficiency program we're obviously continuing to invest into to the aftermarket and we also see opportunities to grow the electric business so that We're taking that into account when making this efficiency program. It will continue. Obviously, we continued it in Q1. It will continue in Q2. By the end of Q2, we expect to see approximately 60 million savings annually. That's what the target is. We're looking good to reach that. And again, we continue to invest in our ultimate business and also in mobility, e-mobility. In the next slide on the Central Asia, as I said, the Kazakh market has an increasing role as a regional hub. Commodity prices are fairly high in big infrastructure projects and the economy is growing quite nicely, but uh the market for construction equipment continues to decline as it did last year anyway so we had a decrease in ourselves quite a big one actually in q1 the numbers are very very small i should say so so a few deals here and a few deals there make a big difference in between quarters But both new and used equipment sales decreased, whereas again, aftermarket sales were stable in the quarter. And we expect that our inventory position, which currently is too high in Central Asia, that that should normalize towards the end of 2024. So if we look at slide number nine here with the U.S. network, where we are again in November, Late November 23, we filed 100% of the shares in Rudd Equipment Company. And Rudd is one of the largest distributors of Volvo construction equipment in the US, in North America, and as well are also representing other strong brands such as Hitachi, Sandvik, Link Built Cranes, and Bergman. Our area then, covering all or parts of nine states in Kentucky, West Virginia, Ohio, Indiana, Western Pennsylvania, Eastern Missouri, Southern Illinois, and some counties in Tennessee and Maryland. Again, US is the world's second largest market for construction equipment, and there are substantive infrastructure investment programs In our territory, there are also big, big projects, massive projects for building data centers, for building battery factories. So also that type of construction is going very well. In 22, which is the latest really statistics that we have for the For the market in the area abroad, approximately 4,000 machines, which has been basically corresponding to that 8% of the total market. So that's the market we are in in the US currently. If we go to the German work, this is a map of where we are. And as you can see, we now have 22 outlets in the territory where we are operating in Germany, which is covering then roughly, the market is around 18% of the total German market. And here is our networking in Kazakhstan, where we're basically also covering the main economic central and activities for the business of construction equipment in Kazakhstan. So basically that was the development on the operational side. I hand over to Erik for some more on economics and financials, please.

Thank you, Lars. I, as usual, start with a bit of the environment that we've been operating in on a macro level, starting with our biggest as it is clearly by revenue in the quarter market in the US. So the US grew 3% in Q1, expected 2.1% in the full year. So there is an expectation of some slowdown in the rest of the year. But we have seen the US economy being very resilient and looking very strong. Core PC inflation at 2.8% in March. Some of you will have heard about the readings this week, which came down a bit softer. and at least not above forecasts or consensus forecasts this time. So giving the Fed some more room to maybe lower rates or at least not raise rates further. Fed Funds stands at 5.3. We are in our DEX structure in the US on floating rates. So lower rates translate into lower funding costs for Ferronordic. Looking at Germany, a different picture. Lars has spoken of this. We saw a decline in GDP in the first quarter. There is an expectation of that turning the other way in the year to go, so second to fourth quarter. But we still see business confidence in our sector as being quite weak. customers being reluctant and hesitant to renew their fleets, place orders and taking a wait and hold stance to see more speed in the economy before making those or placing those orders. Inflation rate is coming down in Euro land, which again gives more room for Miss Lagarde to to follow the Swedish Riksbank and potentially lower rates in latter parts of this year. Kazakhstan, strong growth, 5.1 in 2023, still strong in 2024 and even stronger expected in 2025. But even at that, as I said already, weak market construction equipment, the macro economy disrupted by natural disasters, floodings and earthquakes, and there's also been political changes which disrupt some of the infrastructure investments that is otherwise going on in the country. Inflation rate high from a European and US standard, but significantly lower in Kazakhstan, so coming down and so are rates, although again they remain high of course. If we turn closer to Fair Nordic and look at our income statement. A table there with quite a few columns for you but what you will have to your left is by segment as we say so our geographical markets the reference quarter the same quarter same period in 2023 starting with Central Asia, i.e. Kazakhstan, as it is at the moment, Germany, and then the US, which we didn't have, of course, in the first quarter of 2023, adding up to the group and then operating profit there of minus 14. And then you have the segments for 2024 first quarter and what we can see we had a decrease in Kazakhstan driven from the top line very low sales in the first quarter of this year so a negative operating results mainly as a result of that Germany similar low new sales resilient aftermarket that was still up but lower revenue there again driven by sale of new trucks. And then of course us not making as fast progress on our cost reduction program that Lars discussed. That continues and we hope to see the full fruits of that again at the end of the second quarter. But the combination of the time that takes and again the lower top line puts us at a negative EBIT of minus 12. And then we have the US which had a strong quarter that should be distressed as well. Q1 was very good there. So contributing 60 million Swedish in EBIT and bringing the group to a positive 21. Looking at some of the metrics in there the distribution of revenue in the first quarter than 60% in the US 37 in in Germany and three in Kazakhstan Again Kazakhstan was was very low in terms of revenue Germany new sales low so maybe a more Typical picture would be 55-45% in that order. It will vary, of course, in the segments, especially quarter on quarter. You can have swings between the quarter, but that may be a more typical picture. Between the revenue streams, 61% equipment and trucks in the quarter, 33% aftermarket and 6% other. Remind you that in the other one, there is mostly a rental revenue. Yeah, at least in Germany, a higher share of aftermarket given the resilience of that while the new sales were lower. Similar in Kazakhstan, again, there also Aftermarket was largely flat while the equipment sales was low and then in the US you had strong on both. So potentially again you'd see bigger equipment and truck sales as a share of revenue. Moving on, gross margin also looking very strong year on year. That's, of course, with the contribution from the US, the strong performance there, and the product mix that we had in the US. Lars mentioned that we did sell a lot of articulated haulers in the US, and that's one of the bigger and complex machines, which is good in terms of margins, but also in terms of potential for future aftermarket business. FG&A up driven by again US acquisition as a percentage of revenue 18.7%. Mention again low revenue there in Germany and Kazakhstan on a comparative period basis. So we'd expect that to be higher there and then working to bring down the costs in Germany. um operating margin 1.8 uh good to see that in in a positive territory but of course we we want to drive continue to drive that higher and then in absolute numbers 21 million net income quite affected by the forex gains in the quarter, which in turn is driven by net assets positive in US dollars. That was the main effect, but also Euro in the quarter again. Just taking this table, moving on to the next slide, very similar to the previous one, but the one that you will find in the financial report showing the segments in the first quarter adding up and also showing the group costs that we had. That's the component that was missing or not missing but included in the consolidation on the previous slide. So adding up to the total and a group apparatus that is still built for a bigger operation than we have at the moment. Moving on to the balance sheet, explaining some of the dynamics there, year on year, but also versus last quarter. Of course, big growth in property, plant and equipment. That's very much driven by the US acquisition. In this property, plant and equipment, we have our workshops, but also importantly, we have the rental fleet in Germany. but also in the US. Lars mentioned the sales channel which is rental conversions in the US and that's an important part of the competitive landscape and how US dealers operate. So taking machines into rental fleet, renting them to customers and then the customers buy these machines out. These machines do not sit in our inventory but they sit in our PPE And in the cash flow statement, you will see that then as capex going into the rental fleet rather than as movement in working capital. So that's worth bearing in mind. Looking at the segments in Central Asia, i.e. Kazakhstan, a high level of working capital, 29%. of last 12 months revenue. That's a weak revenue in especially Q1, but even Q4 last year was also not strong. And admittedly, a high inventory that we have at the moment, which we will work down through this year. In Germany, similar picture, but for different reasons. Also a networking capital of 30%. I've mentioned lower sales of especially new equipment in the quarter that ties into that last 12 months. But also a higher working capital on lower payables that have come due. In both these markets inventory levels are high as we write about in the report and we will work through 2024 to bring those levels down to more normal levels. In the US, lower working capital, quarter on quarter, partly a result, in contrast to Germany, of higher payables. And then again, noting here the difference in accounting where these rental conversions sits in PPE, and they do so because of average rental periods being more than 12 months. Debt increased somewhat during the quarter and that is to a large extent driven by reinvesting cash flow from operations into rental fleet and inventory in the United States in our operations there. Equity to assets was almost precisely flat at 33% versus the end of the year. Moving on to some graphics, just to illustrate the movements over the year. So this is delta, meaning the difference year on year, not the absolutes. So you would have our starting point at minus 14. That is an absolute. And then the difference, we didn't have US, so that adds 60 to us. In Germany, we were plus five and moved to minus 12. Rounding makes that 16. Similarly, in Kazakhstan, we were in first quarter of 2023 at plus seven, now at minus three, again rounding to minus 11, and then slightly lower costs at the group level brings us for the group overall at 21 million. Moving forward and looking at Net debt development, this is quarter on quarter, mind you, so from the 31st of December. Again, capex in US, mainly driven, this is capex for the group, so it includes also smaller investments into real estate, but these in the context are again minor. But investments into the rental fleet in the US, Some investments in rental fleet in Germany, partly also driven by investment into our electric rental fleet in Germany. Income tax pay, that's a lagging one that we've had on gains from our disposal of the business in Russia. came through in this quarter, interest pay, and then FX effects and some movements in working capital as well, which levels out to some extent across the group. And that brings us to a, again, higher net debt at the end of the quarter. So very much driven by the investment into rental fees in the US. Moving on to NAV. So the balance sheet, basically. Looking at cash and equivalents, where we are there, partly driven by the previous slide, meaning the movements in net debt. Trade in receivables, building up, starting off on the asset side. That includes subsidies for electric trucks in Germany that is due from the German government. But then, of course, usual receivables from customers in our three segments. Inventory, Kazakhstan, Germany and the US. And then we have property, plant and equipment. And here I split out the US rental fleet so you can see the part of that. But these sit together in the balance sheet that you will find in the report. And then we have other assets. We have our payables to our suppliers. and borrowings, mainly Volvo Financial Services, and also the acquisition debt to Nordea and working capital facility that we have with them in the United States. And then we have some lease for our properties. And that brings us to our NAD of 1.7, or about 117 Swedish kronor per share. And with that, I hand back to Lars for an outlook before we take questions from the audience.

Yes, thank you. I'm looking forward and we're obviously optimistic about our expansion into the US and the opportunities we see there to grow and take market share and expand our current business and potentially also other businesses. It is the second largest market in the world of construction equipment, and demand is supported by a dynamic economy and extensive support programs for infrastructure investment. The German economy appears weak. The truck market is expected to decrease in 2024. And then, as we talked about, we are taking actions to adapt our organization and cost structure to that weaker market. But again, we believe in continued strong demand in the aftermarket business. And we certainly remain optimistic about the long-term potential in the German market and also the opportunities in e-mobility and sustainable transport solutions. Our operations in Kazakhstan, they continue to develop although they are and they will represent a relatively small part of our operations in the future. So that's about it. And we have time for questions, please.