Ependion AB (EPEN) Earnings Call Transcript & Summary

Welcome to Ependion Q2 Report 2026 presentation. [Operator Instructions] Now I will hand the conference over to the speakers, President and CEO, Jenny Sjodahl, and EVP and CFO, Joakim Lauren. Please go ahead.

Thank you very much. Good afternoon, everyone, and thank you for joining us today. With me, as usual, I have Joakim Lauren, CFO. Located in Malmo. I myself, I'm sitting in Westeros 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 3 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 a 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 SEK 682 million. That's 22% up year-on-year, whereof 10% organic and currency adjusted. And the book-to-bill for the quarter ended up at SEK 1.02 billion. The profitability improved despite continued investments in various growth initiatives and also despite, as we will see some nonrecurring cost in Westermo. EBITA grew by 30% to SEK 84 million, 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 SEK 40 million, 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 #1 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 starting point. We are doing some targeted investments in both business entities, especially adding a couple of salespeople 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 Westermo business entity. In Westermo, 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 is lower. It's just that, in this particular quarter, the order bookings were somewhat lower in our record high Q1 quarter. Energy is actually becoming a major growth driver within Westermo, very much supported by the Welotec acquisition. Sales up 28% or 9% organically. That's a record high level for Westermo. 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-bill actually at 1 -- exactly at 1 for the quarter. EBITA grew by 22%, 15.3% margin. It's a little bit lower than what we would expect from Westermo with this kind of nice top line, but we did absorb around SEK 8 million of nonrecurring cost items in the quarter. And that -- those cost items relates to strategy work and some business improvement projects that we have been running in the quarter. And as I mentioned, Welotec continues to develop very strongly, contributing to both growth and profitability. One thing worth mentioning Westermo, which is not in the slide is that we also achieved on the sustainability side and EcoVadis 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 to the right, you can see that order intake place is well above the sales graph, which is, of course, positive. And 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 Beijer Electronics business entity. I'm very pleased to see that the long-term transformation work in Beijer 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 & 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 is 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 Beijer Electronics as well. The higher sales level lifted the EBITA 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 Beijer Electronics is also now normalizing according to plan as we have launched at 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 Welotec, and a smaller portion of FX. If we look at year-to-date, we are at plus 33% 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 Westermo, plus 22%, organically is the 10% in the quarter. Of then Welotec is adding than the 12 to the 22. Year-to-date, 16 in total of what organically is plus 6. 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 EBITA raised 30% to SEK 84 million for the quarter. And if we look at profitability, we saw almost 1% or 0.8 percentage points improvement from the SEK 11.6 million to SEK 12.4 million 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 Westermo and the nonrecurring 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 SEK 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 SEK 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. SEK 40 million in the quarter to be compared to the SEK 68 million. 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 SEK 1.2 billion 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 you, 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 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 Westimo, the big investment that we have done in the X3 platform, the acquisition of Welotec and so on. And of course, there's much more to be done there, and we are really focusing on making that happen. So over the medium and long term, we are confident in -- that we can continue our profitable growth towards our financial targets. 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% per year. In quarter 2, we were -- we are there, so to say, in this specific quarter with an adjusted growth of 10%, while the order growth was 15%. So this gives us somewhat confident that the underlying demand environment remains relatively supportive, and we are targeting to reach that level. In terms of profitability, EBITA margin of at least 15%. That target remains. We reached 12.4% now, up from 11.6% last year, and as we mentioned, the 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 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.

[Operator Instructions] The next question comes from Markus Almerud from DNB Carnegie.

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?

Yes. I can answer that question. I think it's more of a normal bumpiness in the order pattern. We do see -- 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.

Okay. Excellent. And then my next question is on Welotec. If you can talk a little bit about the progress of the cross-selling between the old energy segment of Welotec? Yes.

Yes. I think what we are seeing, and that is, of course, very positive is that Welotec is really working as a catalyst, so to say, in our -- in the energy activities because with the previous portfolio that Westermo alone had, we had to kick out competitors that were already incumbents within our customers. And that is quite have to do, and it takes a lot of time. But with Welotec offering, I think that we have -- 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. Welotec's offering is spot on and fit very well into those conversations. So I really feel that the combined offering and Welotec 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 yes, so far so good.

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

Yes. I think that the main growth driver right now is actually the Welotec business, for sure. But again, complemented very nicely by the Westermo already existing offering.

And then on energy in -- on energy in the Bayer Electronics 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?

Yes. 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. 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 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 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 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, that will be rugged also in defense.

Yes, correct.

Okay. And then also continuing on Bayer Electronics, the manufacturing find, do you see any like light in the tunnel, if 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 at if you could just shed some light on that?

Yes, 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 -- 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 yes, so far, I think it's moving ahead as we had planned.

Okay. And then finally, just a household question. The extraordinary cost in Westermo. You might have said this, and I might miss 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 improvement projects that have been driving some costs as well.

The next question comes from Daniel Lindkvist from Danske Bank.

Perfect. Can you hear me?

Yes.