Ferronordic AB (publ)

Then we move to slide number two here and we continue to see strong performance in the US and that led us, was much contributing to a 77% revenue growth. We had an operating result that increased to 2 million kroner. If we exclude a one-off effect of an impairment of inventory in Germany, it was 32 million kroner. Net debt of 1.792 billion SEK and that is after the acquisition of the US operation and also partly driven by expansion of our rental in the United States. Total equity of close to 1.5 billion and we also presented on October 2nd new financial objectives on our capital markets day. So we move a little further and speak more about the US. The operations there are continuing to perform well. We have a revenue of 686 million operating profit of 53 million which then gives us an operating margin of 7.7%. We had lower machine sales actually. The market is slightly down from high levels in 23 but the revenue was higher also than in last quarter and that is we had a good mix. We sold a large machine. We do have a higher inventory and a higher rental fleet which is in line with our strategy to take market shares in the excavator segment mainly. So US looks good in Germany. The market is declining big time by 40% in the third quarter. Our own deliveries were down by 60% which we had a comparable quarter in 23 but the market is down. The economy is not going well at all and we see price pressure. We've had previous customer cancellations of orders and obviously we as you know we then took a decision to make it 31 million impairment of inventory in Germany to allow ourselves to be in line with the markets as it is at the moment. What is very positive in Germany however is that we see good development on some of them underlying factors really. Service and parts business continued to increase by 6%. In the quarter we saw order intake on new trucks improving and we saw the electric rental business which was developing positively. We also saw the results now of our cost reduction program and we are in line now with the annual target or savings overrun rates of 60 million kronor per year. In Kazakhstan we had a better quarter as well with the sales of new machines and units which increased to 21. Come back to the numbers a bit more there. So summary on the next slide here. Revenue as I said 77% up to 1.141 billion. US of 686 million. German revenue was down 35% not as much as deliveries of trucks thanks to good performance in the aftermarket to 372 million and Kazakhstan revenue is up 19% to 82 million and that then gives us an operating profit of 2 million kronor and we saw obviously a good contribution from the US but also the German underlying development is positive although the impairment obviously created a decrease in the operating profit in Germany and in Central Asia we increased from 0 to a positive 3 million in terms of operating profits. We had a big foreign exchange losses in the quarter and therefore the net income increased to minus 88 million and as I mentioned that then increased to 1.792 million and again this is mainly of course the acquisition of the American operations but also attempts to increase our market share in the rental fleet in Germany through excavators and to take market share in a very prospective market for excavators where we see opportunities to grow. So if we take some more operational highlights in the

US,

historically the market is around between in North America totally 52 to 56,000 units for the Volvo products that we are representing. Our area covers approximately 8% of the North American market. Nine months the market for GPE segment, larger construction equipment in total North America declined by 10%. It was a slightly more decline in our area by 21% but if we compare then Q3, 23 to Q3 despite the decline in the market we increased our sales of new machines and conversions of machines from the rental fleet by 2% and obviously then we're taking market shares. We also saw good sales of Sandvik drills in the quarter. So all in all in Q3 we sold 61 new units, 10 used units and 36 units were then converted from the rental fleet to sales. Service and parts business relatively stable in Q3 and that gives us a mix of 49% of revenue related to sales on new and used equipment and conversions, 11% to rental and 40% to service and parts. In Germany as I said the market is down 40% in the quarter. In our area it's down actually more by 47% and we had a big fall in our deliveries of new units. But again we saw order intake on the trucks for future deliveries then obviously it started to pick up in the quarter which is positive and we see some signs that activities are going in the right direction in our industry. Used truck sales in units also down. That is a deliberate choice that we've taken in this downturn now to decrease our stock of used trucks and also our conventional rental fleet. So that's in line with what we want actually. And then price competition from a supply demand imbalance and the margin pressure then triggered a decision to prepare a potential device, 31 million kroner. But again very positive. We see continued demand for service and parts and our off the market services may grow strongly actually. So we could actually sell more service and parts if we had more educated and trained mechanics out there. So off the market demand is still high. If we then talk about our efficiency program in Germany, we launched in Q43, we launched the program to make our organization in Germany more efficient and resilient. And obviously one key objective is to increase our absorption level which means how much of a fixed cost are covered by gross profit from the off the market business which is a very very important target for us. And as off the market is usually more stable and actually even in the downturn usually continues to grow away from the form well. And we are now at

the level where we do expect the scope of 2016 and we are now at the corner on an annual basis starting in Q43. And we believe that we actually continue to invest in our off the market business and in e-mobility. In Malaysia with the

economy and supporting government investments at least this is made on infrastructure investments coming up. But the market for construction equipment still remains challenging. Structure attendance competition from mainly Chinese equipment and lack of customer funding is creating hurdles for the market to grow. Still in Q3 we expect that we believe that the market has grown by roughly 9-10 percent. We saw an increase in units to

21

but our profit at the expense of gross margins and used equipment of eight units. And so service and parts business actually declined in the quarter because we saw flag business activity decrease.

But also we're making in CASA good progress on the inventory position.

Actually we've had in Germany as a result of the effects of the abnormal situations during COVID when there was a lack of supply and then after COVID when there were no system cancellations etc. And we're almost back to normal when it comes to inventory positions in Germany and also in Kazakhstan. We're not there yet but we're on a good way and I think in Q3 we've made good progress on on icing our inventory positions. So we talk a little about the US network. You see where we are here on page nine in the Midwest with the headquarter in Louisville, Kentucky and then we have 13 outlets in nine states basically. This is a very interesting part of the United States. A lot of the planned infrastructure investments are going to happen in this area and also a lot of private investments in terms of data centers from the tech companies are being built or planned to be built. So it looks we're positive about it and as you might know we are not that only distributed to all the CEE in the area but also other strong brands like CIG and Sandvik as we mentioned, link belt cranes and Bergman, smaller articulated trucks and obviously the United States is the world's second largest we should say market for construction equipment and again substantive infrastructure investment programs planned or have been started actually. As for Germany our network currently looks like we have 20 outlets in Germany and in Kazakhstan we have seven outlets spread out like you can see on this map and by that I hand over to Erik our CFO for a little more on numbers and economic development.

Thank you very much Loris. I hope you can hear me well. As for you I start with a little bit of a macroeconomic context. In the United States we have seen a community strong economic performance. We had .8% GDP growth in Q3 and 2% projected for the full year. As I think Loris mentioned we have seen some hesitance on customers in the run up to the elections and we do believe that there is some scope for such a wait and see strategy so to say to some side and therefore for some projects that have been on hold to be released and now following the elections. In Placen stable above 2% but this way down and that's one of the reasons why the Fed has started low whether the market rates shot up after the election so potentially a pricing in a slower period or a higher trajectory at least for that but it's coming down for our customers and it's good for us. We are predominantly voting within our funding so lower translates to lower funding costs for us. Germany very different picture negative growth in the quarter

and in the middle of

October from September which is unwelcome but I think also in Eurozone the lower rates and we will probably open up for more rate cuts there. Kazakhstan relativists from Congress in a way we expect .5% or not we from the monetary authority expect .5% growth in 2024. Inflation rate is coming down there but from a high base .3% the bank is still very high at .25% and that's also reflected in conditions for our customers. Funding conditions are tight in Kazakhstan do feel that is for a lot of our customers lack of access to funding. If we move on to our results for the group as a whole we are split by our different segments you can see this slide here so it's one of the very strong revenue growth but that's much driven by the question of the US of course. If we look at the 60% US that's where we're also in the second quarter 60% of revenue less Germany and a bit more if I remember correctly .5% year to date in the second quarter so the first six months good that Kazakhstan has picked up we've sold more there indeed but I would say it's more Germany being low Germany should be higher and Kazakhstan is more closer to where we want to see it then we believe there's still more potential there so that behind I think where we are we want to see Germany significantly higher also on the new equipment sales and truck happy that the aftermarket is continuing strong but again we need the new truck sales also to pick up. If we look rather at revenue mix yeah 52% with trucks 39% aftermarket and 9% other in that other you would have rental income mainly that's what we have there. Here as well happy to see a high number for parts and services those 39% but also again the reflection of a revenue that should be higher and that would in a proportion make aftermarket look lower but again it should be rather high revenue. Gross profit much driven by the US up strong both by US volume so to say that comes in but also from strong gross margin performance so a positive effect on both of those. FGNA up on the addition but down as a percentage of revenue for the group and again we have an effect from lower than potential revenue in Germany. Higher revenue would push that measure down and that's of course what we're aiming for for the group to go our new base. Operating margin just above break even with that two million that we have would be higher without that of course by impairment that we had in Germany on of 31 million so operating profit two million would have been 32 without it which compressed to minus 28 last year. Net income mind you it's very exposed to foreign exchange moves in the third quarter the Swedish Krona did strength against our currencies and by ours I mean euros in Germany and US dollars in the United States of course. We don't make forecasts as you know but judging by where those currencies are today in relation to the Swedish Krona one might expect that that trend to reverse in the fourth quarter but we shall see how the currencies move going forward. If we move on to next slide it's largely the same one I'm just picking this out of our report so to guide you towards that if you want to see the results for the group by segment I flag here also those unallocated group costs as we call them lower than usual and in the footnote there you will see that we had releases of reserves and accruals of 7.1 million in the quarter so that's reducing that cost side and last year we had a similar it was 6.5 then but that's worth noting. If we move on to the balance sheet and starting from the top with our property flatland equipment our fixed assets up significantly year on year and that's really additional of US of course and notably the rental fee there the vehicles that we put in and rent them for our customers and then continue renting or convert and as I mentioned the excavator strategy effort we have there being a part of it if you would look quarter on quarter rather so compared to the second quarter then you see that there is little different we had a build up of that rental fleet in Q1 and through Q2 to the end of Q2. In central Asia which is Kazakhstan networking capital increased despite those sales which of course trimmed our inventory we are making good progress on normalizing inventory in Kazakhstan but payables came down quicker we had payables coming due from our suppliers and settled those and that resulted in a higher working capital. Germany slightly lower and sort of balanced effect there between payables and inventories so mostly a receivables effect in the US and increase in there like in Kazakhstan but for different reasons was an effect of lower payables really so that's the driver there and then net debt increase by 121 million to 1.8 billion Swedish and this is to large part due to non-cash re-classifications of accounts payable to debt I will come back to that just on our summary slide for net debt and our equity assets is slightly lower stands at 31 percent. Just a movement in EBIT year on year to summarize that so to say we started Q3 last year without the US minus 28 for the group through this quarter plus 53 from the US leaves the results for the group significantly. Germany minus 24 versus last year but again then mind you plus seven versus last year without the inventory impairment that we took. Slightly lower in HQ and we land at the two that we see in the third quarter of this year. If we look at net debt can be cut and pieced together in different ways but this is what it looks like and what I'd like to draw your probably attention to here would be the 441 their non-cash debt increase. So explaining that briefly we have payables from our suppliers mainly Volvo, Truck and VC for a certain number of days we don't disclose that but they're of a different length depending on product and segment i.e. market. Once those payables come to maturity if we don't sell the vehicle and repay the payables before the end of the payables term the number of days then they move over to VFS without cash so we don't get cash from the VFS and then use that cash to pay the supplier Volvo, Truck or VC for example. It's just transfer so that's a non-cash transaction and that can look different to what some people would expect in the cash flow of the financial statements. With that I would move to the balance sheet and really just a summary a graphic representation of our balance sheet maybe pointing then to the inventory where we had the adjustments this time as Laura's pointed out the mark to market in Germany where we have worked we've written about it in from Q4 report to reduce our inventory in a market that had supply pressure which has translated into price competition price pressure and we have analyzed closely and come to the conclusion that we had to make this right off as we did in the third quarter. Then I move to our new financial targets which are quite fresh as you know we had a capital markets day on the second of October and there was a board decision on these financial objectives the day before that. We have set ourselves ambitious targets doubling our revenue over five years reaching an operating margin above six and keeping net debt to a bit below three and well we've made the first baby steps on revenue the operating margin while up has a long way to go so this is last 12 months mind you so we're not looking at the quarter here minus negative point one and then a net a bit at four point eight that is excluding IFRS 16 effects and with that I think I'm ready to hand back to you Lars before we take questions and maybe a few words on outlook.

Yeah so clearly we we're optimistic about our expansion into the US and the opportunities we see there there is a strong demand and supported by the dynamic economy and a significant need to upgrade the country's infrastructure and there are extensive federal and state programs for doing so and these are needed and are being addressed and obviously we expect that these will support demand for construction equipment throughout the cycle and also other large construction projects battery plants data centers etc in the US midwest will continue to drive good demand in our markets. In Germany the economy remains weak but as we talked about in our organization we

experience

and we believe in continued strong demand in the aftermarket business and we are optimistic about the long-term potential in the German market and opportunities in the sustainable transport solutions. We see a big downturn now in the market which we expect to normalize in the future and we see some signs of that. KALSEX is a small part as I said of our business but we see a long-term potential in the country so by that I'm handing over four questions

and answers please.

If you wish to ask a question please dial pound key five on your telephone keypad to enter the queue if you wish to withdraw your question please dial pound key six on your telephone keypad. The next question comes from Adrian Jelani from ABG Sundial Collier. Please go ahead

Hello and good morning I'd like to start off with a few questions on the German business and you comment in the report that there was an increase in new orders for future truck deliveries in Germany and can you give some indication on the lead times of these? I mean if orders increase now when can we expect these to sort of start materializing

as deliveries? Well I mean the usual delivery

times for a truck in usual times we haven't seen usual times Adrian in four years once upon a time during Covid then which is what has created our over stock was that we had 14-15 months of delivery time for a while and that was then very abruptly cut very short now it's more normalized and back to normal which means that the delivery times are roughly three four months usually and then again I mean it depends on customers when they want them so and they can be spread over a long period of time if it's many trucks or because they can't accept all of them at the same time and they don't want them at the same time so it's very very difficult to give an exact answer to that but delivery times are normalized if I put it that way which is good to see.

Okay understood and then you did mention you're now at the 60 million per annum run rate on the savings target but given that there's no you know clear improvement in the market yet are there any plans of continuing to cut costs from from these levels?

We're continuously looking into where we can cut costs without of course hurting our possibilities to earn which is in the market and also in sustainable transport solutions we then as we talked about we see actually an uptick now in our ordering so we have to be careful we're not hurting ourselves too much but of course we're always looking to see where we can take up more but we are now and that has been a big big job actually too and maybe take a bit longer than we hoped to come to the target of 60 million savings per year but clearly we can we can only hope that we find more opportunities to do that without then hurting because we as we mentioned we need to invest continuously in our aftermarket business we need to hire more mechanics because there is demand and we can earn more if we had more mechanics as we write in the report as well so it's a mixed picture to be honest.

Okay and then moving over to the US regarding your prior comments about there being some hesitancy among customers to invest ahead of the election I understand it's only been a week or so since the election but have you experienced any sort of shift in behavior or any increased activity since then?

Adrian I think it's more a sentiment shift and you know we're court is giving guidance but I think it's natural that people are a bit hesitant and in these how do you say pre-election times and then almost regardless of what the outcome is when the certainty is there that they're more free to act they know with bigger certainty what they can expect. Okay and then also the

in general usually the kind of seasonality if you want in the end of the year there are usually more conversions from the rental fee than during the year so customers are used to renting machines in the let's say in the beginning of the season and in the end of the year that is a normal cycle so to speak which runs every

year with or without elections.

Okay that's helpful and then just regarding the specific VC products that you sell in the US are they for the most part domestically produced or imported into the US because I'm thinking of potential tariffs on imported machines and whether that would have a negative impact on Volvo's competitiveness compared to the local brands in the US.

Now the majority of the brands are imported and not

all of them but to the majority are. Hello can you hear me? Yeah can you hear it?

You cut out as you were starting to answer the question so Oh sorry sorry.

The majority of the Volvo products that we sell are imported not all of them but the majority at least for the time being they are so that's the answer I can give.

Understood and a final question more of an accounting question regarding the payables moving into net debt just to double check that I'm understanding that correctly it's a reclassification of an operational item into a financial one so it makes the operational cash flow artificially boosted you can say in reality the non-cash adjustments in the financial part should be seen as operational is that a fair assumption? Yeah I

think that's a correct reflection I mean with indirect cash flow creation the way it's done this cash this movement as you say will reclassification of payables the reduction in payables and the increase in financial items yes would have that effect.

Okay okay perfect in that case that's all for me so thank you.

Thank you.

The next question comes from Anders Ekerblom from Nordea please go ahead.

Hi Lars and Erik good morning thank you for taking my questions so I have a few ones primarily on Germany I guess starting off on kind of the order intake that you comment on increasing somewhat I mean to what extent can we kind of attribute this to a better market more so than kind of a catch-up of some of the postponed or delayed orders in Q2 is there some effect from that that you kind of bundled together so to speak?

Well I mean let's answer that I think it's a combination of a few different things first of all as we have as you can see then we have lost more sales in this year than the market and we don't we need population in our area to serve it because it's in the aftermarket where you make the margins really in our business in the truck business so but of course customers have seemed to have woken up and usually we are quite early into the cycle in our industry so at least we see a bigger activity and replacements that might not have been made or at least being planned to be made which is a positive sign so I don't know if I can give you more and obviously I mean as you can see then we see that pricing is an important part of it and that is the reason why we had to make an impairment of our old inventory clearly the pricing in the market has changed and that has also had an effect on we have been able to take more orders for sure.

Okay thank you for that I think that's a good segue into something else I was thinking about which is kind of I mean speaking of the pricing pressure in the market I thought you mentioned something about Chinese players and now and the call could you just elaborate on this kind of what ends of the market that this pricing pressure is is it European based to some extent or is it mostly kind of the low price the Asian competitors that are pushing down prices?

Well in Germany we don't have any Chinese competitors at all in Germany the competitors are basically the the big seven as they're called which are the European manufacturers when we refer to Chinese competition is mainly in Kazakhstan where they are very active and very very successful I should say also so in Kazakhstan we have a situation where we are we are then competing in the premium segment together with the other famous western brands with our way of going to market with considerably higher pricing but also higher productivity higher residual values and efficiency and good service setup to make sure that these machines are are working when they should but in Kazakhstan there is still a lot of a lot of Chinese competition which is successful in Germany there is not so whatever happens in the

market

is determined by the seven players in European players and obviously that is driving the markets and at the moment clearly we see a price pressure downwards and we have seen for for quite some time I should say we have not been able to to respond in in quantities to that as you can see in our deliveries but we and in the impairment that we're taking now which is an effect of that but we are we are playing now if I put it that

way okay so should I kind of interpret that in in terms of I mean the the write down that you had now and kind of the non-recurring or recurring nature of that should we see that as maybe being you've mostly adjusted to this now in terms of your inventory or or could we expect something more they're also going forward

we we we expect and we hope that this is a one-time effect obviously and that we we have we're now in the position where we have so to speak the future in our hands and and we feel that that is is what we have done really and and we're we're taking down the cost we see good good progress in the aftermarket and we have an inventory which is in line with the market and so so we actually from and we see order intake picking up so from that perspective we're actually quite positive although we're not at all happy with the result in the forward it we clean out a little if I put it that

way yeah all right good to hear thank you lastly kind of on on north america and and kind of if you could elaborate a bit on I mean the the rental fleet obviously is is increasing and kind of your progression of taking market share in in kind of the the excavator segment it would be interesting to hear what what you're able to say there

yeah well I mean in terms of market share we've already taken a lot of market share this year and we're very happy about that because obviously again and we we want machines out there to to service them and we also want machines to to make money when we sell them and when we rent them and when we convert them so so traditionally in the area the the market share for for for reloaders and articulated holders have been good but not for for excavators and we see an opportunity to to grow in that segment but it's a very

the the way that the center is thing in view and then most

of the times buying it out after a period of time and that we call conversion um so that is if we want to take market share in the rent in the excavator segment we need to and the rental fleet to to be able to do so and that is what we've done during during the year and obviously then we we have and we expect to continue to take market shares not only in excavators but but in other areas as well but that is how the market works and and and that's that's how you do it basically

yeah all right perfect thank you for for the nuanced answers i appreciate that um all right that's all for me then so uh have a have a nice day

to

both of you

thank you thank you

as a reminder if you wish to ask a question please dial pound key five on your telephone keypad

um while

we wait for more questions online um i have two questions uh sorry well from the conference call i have two questions online one is uh whether we can expect to see better cash flow going forward and a strengthening of the balance sheet and i think here we are cautious to give forecasts but i i think yeah we have increased the rental fleet in the u.s and why that is an important part of our our strategy in the u.s so there will be a rental fleet i think also plan is not to put these machines into work and and then convert them in in the future and that will generate cash flows and uh to some some extent strengthen the balance sheet in uh germany and uh kowsackstan as we've said we are working to reduce the inventory positions in in in both those countries and are making progress there so that would also contribute to some extent um in terms of the balance sheet overall i can but refer to our strategic objectives there where we want to keep overall net debt below three over the long term and over the cycle and that's what we're aiming towards there is a a follow-up question on that whether we may sail and lease back some of our properties in our portfolio that refers specifically to germany but i i guess it could be applicable to the u.s as well and and here i would probably also give a fairly generic answer that we are looking for for the most efficient way uh to to use our balance sheet so if we would would find terms that that would make sense in that way then then we would definitely consider it the properties are are fairly specific though that's worth being in mind it's not sort of residential in downtown uh frankfurt or louisville for that matter um so it may need that one looks at portfolio solutions and and those kind of structures but the stock answer would be that we are always looking in and pondering how we can use our our balance sheet as efficiently as possible um so so those are questions uh that i got online um anything else operator yet from the conference call

there are no more questions at this time so i hand the conference back to the speakers for any closing comments

okay thank you very much and

and thank you everybody who has listened in and asked questions and looking forward to presenting the fourth quarter so have a good day everybody thank you