Ferronordic AB (publ)

Hello, everybody. This is Lars Cornelissen here, and welcome to this presentation of the second quarter results for Ferro Nordic of 2024. So we see continued strength in the U.S. in the quarter. Overall, we have 62% revenue growth, and that is driven by the addition of the U.S. operations. operating results minus 4 million and net profit decreased to minus 81 million and that was mainly as a result of exchange rate losses. Net debt increased slightly to 1.671 million after obviously the acquisition and consolidation of balance sheets in the US operations and total equity then decreased to 1.627. If we talk about the US, it's continuing to perform well. We had a revenue of slightly above 700 million in Q2 with an operating margin of 7.3%, 51 million kronor. We saw the market in the US the first five months was going down slightly from a very high base in 23, 6% lower. We however delivered more machines to customers and obviously then we gained quite some market shares actually. And as we saw the construction season started during the quarter also we saw utilization of the rental fleet improving and also demand for aftermarket increasing. However in Germany we had a challenging in quarter Overall, the market grew by 11% for our own deliveries of new trucks in units declined. Aftermarket business, however, is stable despite high level of absence among our mechanics and quite a lot of work in progress moving into Q3. One important thing in Germany we talked about is our cost reduction program. And we see now that we are expecting the result of that saving of approximately 60 million from the end of Q2. We believe we are there. In Kazakhstan also challenging in Q2. The economy is still growing, but the market for construction equipment declined. So due to the slow sales in Germany and Kazakhstan, inventory are still too high, and we will work to normalize those stock levels throughout 2024. So very brief on financials, as I said, 62% to close to 1.1 billion SEK. with the US 700 million, German revenue down minus 44% to 332 million SEK and Central Asia then Kazakhstan down to 56 million. Profit contribution from the US operation 51, German decreased to 27 million and in Kazakhstan to minus one. If we go to the next slide. A bit more on the operations. The market for construction equipment in North America is historically around 52 to 56,000,000 units. Our area then covers approximately 8% of the North American market. In the quarter, actually, we estimate that the market for larger construction equipment or general purpose equipment segment has decreased by 27% in the area by a decrease in crawler excavators and articulated haulers. However, our own sales, actually only then, decreased by 7% compared to Q2-23. And obviously, we continue to gain the market share that we started doing in Q1, And we see solid demand continuous despite the drop in Q2. There is a lot of activities going on and we sold 70 new units, 25 used units and also 10 units that were converted to sales from rental. and also service and parts business remain strong due to 24. So basically then 39% of the revenue came from aftermarket market business and 11% related to other sales, mainly rentals, so 50% then from equipment sales. So continuously good performance and looking good in the United States. If we go to Germany, the total market then for heavy trucks increased by 11% in Q2 and increased by 3% in the first half year, despite the economy indicators pointing downwards for quite some time now. In our own area, it was increased by 22%. And then that's again approximately 18% of the total German market. Our own new truck sales decreased by 65% to 101 units. This was compared to a strong Q2 in 23. And this is a result of us maybe not responding to the price competition that we saw in previous quarters as the supply starting to From a low supply base to maybe an oversupply base, we saw price competition from certain competitors in the market, and we refrained from acting to that, and we obviously lost market shares. What is very, very positive, though, is that a greater share of our new truck sales were rigid trucks. And they generally have a much better potential for service and part sales going forward. So the main competition was in truck tractors, which are running on the highways. Used vehicle sales performed better and declined 10% to 80 units. And we are continuing, obviously, to decrease our used trucks inventory and a rental fleet to reduce capital commitment and focus on how these operations can support new sales. And the aftermarket business in the weekly market. And aftermarket sales were broadly flat year on year. Aftermarket sales share of revenue up 19% respond to 43%. So also we launched the efficiency program to make our business in Germany more efficient and resilient. Obviously we need to get to an absorption level of 100%. So that means that how much of the fixed costs we can cover by the gross profit from a growing aftermarket business. And we're looking into all Vertical, horizontal administrative units. We reduced the number of regions, removed the number of middle management roles. And unfortunately, the program has taken more time and cost more than we initially anticipated. But we are confident now that starting from end of Q2, we see an annual saving going forward of 60 million kroner. And obviously we continue to work on streamlining the organization and at the same time continue to invest in our off-the-market business and in e-mobility. When it comes to Kazakhstan, Central Asia, as I said, fairly strong economy. Going forward, we see supportive government investments. But the equipment market stays challenging. We estimate that the total market might have grown by 9%, but it's complex tender structures, Chinese competition, and the lack of funding in the market that creates hurdles for premium segments and premium brands. So our sales in Q2 decreased to 11 units and used equipment to 12 units, and we saw a slight decline in aftermarket sales. We do have a high inventory in Kazakhstan, as I mentioned, and we work to normalize that, and we expect to have that normalized by the end of 2024. So next slide, we see our U.S. network. We're active in, we have 13 outlets and we're active in a number of states in the Midwest. And as I mentioned, so far so good. And it's looking good going forward as well. German network looked like this. We closed one sub dealer, the only one we had actually in May. So now we have 21 outlets in Germany. And the Kazakh network, we have seven outlets and they're placed like this in the geography. So by that I hand over to Erik for some more on economy and the financials. Please Erik.

Thank you very much Lars. I start off as I usually do with a bit of the macro context. A number of indicators one can follow. below the GDP level, but GDP is also really a macro indicator of the activity of the economy and that trickles down to the construction industry. So starting in what is now our biggest segment or biggest market, the United States, we had 2.8% GDP growth in the second quarter and more than 2%, 2.1% is expected in 2024. That's still a good, strong growth. Meanwhile, core PCE inflation is trailing lower. So it was 2.6 in June. You may have heard that the CPI yesterday was reported at 2.9, which was the lowest reading in quite some time. So very high likelihood now being priced in by futures for a cut next month by the Fed. from the current level, which is a bit above 5%, so potentially some interest rate cutting there, providing a bit more liquidity into the economy. Germany, very different picture, sluggish Q2, negative 0.1. Lars said that the market was up, so it was, but Really, we look at industrial production, we look at purchase managers index and IFO, which is the business sentiment, and they're all still pointing negatively in Germany. So sentiment is still not there. But there is an expectation for a turn in GDP, as you can see, positive reading and with inflation lower. The ECB is taking steps to lower the rate. So we are hoping for a bit of the revival coming to the German economy. But at the moment, it's been fairly sluggish going. Kazakhstan, strong growth still in 23 reported and still expected in 2024, even if less so from 5.1 to 3.1. Inflation rate there very high by our standards, but much lower from where it was. So it continues to trail down and therefore also the central bank rate. That is not unimportant. I mean, Lars mentioned hurdles. in the market for construction equipment and funding conditions in the market. Funding for local customers is one of the problems in Kazakhstan. Moving on to the numbers. Lars has discussed how the business was doing. This is how it's reflected in the numbers. Starting with a more of a top view of the situation. We can see that revenue, yes, is up 62%. That's much driven by the US acquisition. The business now for the group, 65% of revenue is US. So that's about two thirds. A bit more than a quarter, 30% is Germany and Kazakhstan is but 5% of the total. If we look at the revenue mix, a bit more than half is equipment and trucks. So new equipment sells really and used. And aftermarket being high in this quarter, clearly driven partly by lower revenue in Germany and Kazakhstan than we would expect to see there. just below 40%, and then 9% in other, you will have mainly the rental income from the rental fleets in the US and also in Germany. If we look at the single indicators, they're mostly driven by the acquisition of the US, so that's why you would see the big increases in gross profit, SG&A, and the other metrics. I would rather maybe look in the table to our left of the text there, and on the right side of that, we see, again, strong U.S. performance, lower EBIT margin, but still very healthy at 7.3%, and a 51 million Swedish operating profit from that revenue of 707%. million Swedish. Germany, a big decline in revenue, as we have discussed, and it's very much driven by the truck sales. And that feeds through to a significantly lower gross profit, 35 million lower than the same period in 2023. And with a cost base that then in the quarter still remained too high. Again, this cost program that we have been driving since really mid-November last year, we estimate we got to where we wanted at the end of this quarter, the second quarter that is, but still through big parts of the quarter, our cost base remained too high. And on that lower sale and gross profit, That balance just doesn't make. So we need to get the revenue up again and then see the fruits of these cost cuts that we've been working hard on to reach in Germany. And then Kazakhstan, a negative minus one on the operating profit line. So less impact from Kazakhstan. But of course, we want Kazakhstan to be a positive contribution to the group as a whole. as it was in the same period of last year, as you can see, of 7 million there. And we believe that there is indeed more potential in Kazakhstan. So when we take group costs into account, we end up at negative four in the period versus the positive number that we posted in the previous quarter. So below operating profit, worth noting that We're seeing the other side of foreign exchange. In the first quarter, you may recall that we had a significant positive effect of a weaker Swedish krona or rather a stronger euro and dollar versus the Swedish krona. In this quarter, we had the opposite effect and therefore foreign exchange losses also dragging the net result, the net income down. This slide is really taken from the report, just to show how we report the different segments year on year. Worth maybe commenting as well, you will see there an increase in the group overhead costs, but it's really, it was the release of a provision as we wrote in our report last year. So I highlight that for you, that lowered the group costs in that period last year. Moving on to the balance sheet. Again, a lot of it driven by the US if we look year on year. Some FX effects also there having impact on what the balance sheet looks like. Looking at some of the separate segments at working capital, Lars mentioned that we're still too high in Kazakhstan. We are. Networking capital is down there, both on lower receivables and lower inventories. But again, we want to trim that inventory position further to be more efficient in our return on capital as a whole. Germany, different, but share some similarities, still too high working capital there as well. There we have a small increase, but the inventory is lower there. And it's more a reflection of the lower revenue when we look at it as a percentage of revenue. And in the US, you have a more normal inventory situation, arguably at 15% there. The net debt increased. Part of that is driven by transfers from payables to debt in the US. as part of inventory or moved from inventory to the rental fleet in the US. So that's what I probably would mention on the balance sheet. Happy to take your questions on that. Further on, looking at the EBIT Dynamics year on year, last year we were at minus 10 and we see here the very positive contribution. So this is again, mind you, the difference versus last year. We didn't have a US in the second quarter of last year. So this is pure Q2 2024, therefore plus 51. In Germany, we have a negative result and dynamic versus last year. As we do in Kazakhstan, again, a positive seven last year versus the negative one of this year. And then we have a negative effect on the headquarter as well. So despite this very strong contribution and performance in the US, We're not there yet in Germany, clearly. And that needs to become a contributor also, as we plan to make it for the group as a whole. And also, of course, bring Kazakhstan to positive contribution levels. A quick look at the net equity and our NAV to show you where the net assets are. We see that we have trade and receivables at your far left there, and then a meaningful inventory position. And then you have the US rental fleet, which I remind you, it is rented, but it's also used for so-called sales conversions in the US, meaning customers buy out vehicles from the rental fleet. And then we have property plant and equipment, which also contain the German rental fleet in that piece, actually. And then you have, of course, property plant and equipment in more traditional sense or buildings, fixtures and fittings and infrastructure. And then you have the liability side. So still a healthy NAV there for the group as a whole. And with that, I hand back to you, Lars, to say something about the outcome.

yeah thank you um so looking forward we are obviously we're optimistic about our expansion into the united states and the further opportunities we see there it's the it's the second uh biggest market in in the world for construction equipment and we we continue to see a dynamic economy and a significant need to upgrade the country's infrastructure with extensive federal and state programmes for those investments. And they should provide a stable foundation for construction equipment demand, even in case of broader fluctuations in the general economy. And in particular, maybe in our area, we see further large construction projects including data centers, battery plants and logistic centers that have started or are about to start quite some gigantic projects actually planned and starting up. What we see in Germany is that it remains weak economy and the market sentiment is negative. And as we've talked about, we are taking actions to make our organization and cost structure more resilient. We believe, however, in continued strong demand in the aftermarket business and about the long-term potential in the German market. And we are continuing to promote e-mobility and sustainable transport solutions, and we believe very much in the opportunities they provide us with. And also Kazakhstan, it's a small part of our business, but we continue to see long term potential in the country. So I think that was about what we wanted to present to you. So open up for questions, please.