Ferronordic AB (publ) (FNM) Earnings Call Transcript & Summary

Welcome to the Ferronordic Q4 2025 Report Presentation. [Operator Instructions] Now I will hand the conference over to speakers, CEO, Henrik Carlborg; and CFO, Erik Danemar. Please go ahead.

Good morning, everybody, and welcome to Ferronordic's presentation of the fourth quarter of 2025. I'll start by looking at some of the group highlights. Revenue in the quarter decreased by 10% in Swedish kroner to SEK 1.2 billion. Adjusted for currency, the revenue was more stable and was down 4%. Despite this, we increased gross profit by 12%, while at the same time, increasing SG&A by only 1%. As a result, operating profit increased to SEK 31 million despite one-off costs in the quarter of SEK 23 million. Net finance costs declined by 24% to SEK 26 million. Net profit improved to SEK 15 million despite further foreign exchange losses of SEK 18 million. Net debt at the end of the quarter decreased to SEK 1.6 billion and net debt to EBITDA improved to 3.4. Equity at the end of the quarter amounted to SEK 1.3 billion, roughly translating to SEK 90 per share. During the quarter, we worked to further strengthen customer relations and improve profitability across the group. Revenue was down 10%, but fairly stable adjusted for currency. We saw increased revenue in the U.S. despite continued currency headwind, offset by lower truck sales in Germany. Operating profit increased to SEK 31 million or SEK 54 million, excluding one-off costs during the quarter compared to SEK 19 million, excluding one-off costs in Q4 '24. Finance costs were 24% lower year-on-year, and net debt to EBITDA improved to 3.4x compared to 5.2x a year earlier. We saw a strong quarter in the U.S. with revenue increasing by 7% in Swedish krona and operating profit increasing by 13% despite significantly weaker dollar. Lower revenue in Germany, mainly driven by lower truck sales, but with higher gross profit, lower SG&A, including the one-off costs we took and lower working capital. In Kazakhstan, we continue to clear old inventory, resulting in higher sales but lower margins. Operating profit, excluding one-off costs in Kazakhstan was around 0. Looking at the U.S., we see continued strong demand, good customer activity, good customer optimism supported by strong backlogs. We see continuously high activity in various infrastructure projects, road construction and a lot of new data center projects. The GPE market in our territory grew by 16% in Q4 and 9% for the full year. Competition in the market remains intense when it comes to pricing and price increases related to tariffs and the weaker dollar are only being implemented gradually. Equipment sales increased by 17% or as much as 26% in U.S. dollars, partly then driven by tax incentives for investments that we introduced earlier in the year. Rental utilization softened normal for the season but continued to improve year-on-year. And as a result of this, rental sales increased by 11% in Swedish krona and 20% in U.S. dollars. Service and parts sales declined by 6% in Swedish krona, increased by 1% in U.S. dollars. Our cost level remained stable and operating profit then increased by 13% to SEK 73 million compared to SEK 65 million the year before. That was a 21% increase in U.S. dollars. We continue to focus on gaining market share and improving our aftermarket penetration. We still see plenty of potential to take a larger share of the potential business in our territory. Operationally, we continue to work on various projects to make our business stronger, particularly when it comes to IT. We are implementing a CRM system, a new CRM system, and that is progressing well. And we are also taking steps then related to the CRM to relaunch our system for automatic lead generation. After the quarter, we closed the acquisition of Housby Heavy, the Volvo CE dealer in most of the state of Iowa. That deal was completed on the 30th of January. So since February 1, Housby Heavy is part of our U.S. segment. This was an asset deal where we bought the assets relating to the business, and we took over operational employees. The transaction did not include any real estate. All liabilities relating to the business in the past remains with the seller and all the corporate employees that were supporting this business remain with the seller. This is now a fully integrated U.S. branch supported by our corporate office in Louisville. When it comes to revenue and market size, this area is about 10% of our U.S. segment before the deal. And over time, we expect profitability and return on invested capital levels to reach the same level as our branches in the U.S. Purchase price in total amounted to SEK 17.7 million, of which SEK 17.3 million were basically machines and spare parts in inventory and rental fleet. We do not expect to recognize any goodwill related to this transaction, which was then primarily debt financed. Looking at the German business, demand overall remained soft, even though we see signs of recovery. Customers continue to operate their fleets. And at some point, they will have to replace the trucks that they are using. So that is good. Registration in our area increased 8% in the quarter. So the market is recovering. At the same time, our truck sales decreased by 50% or 48% in Europe. This should then compared to very high truck sales in Q4 '24, partly driven by inventory clearances taking place that quarter. Service and parts sales remained flat in euro. Margins improved overall, but then from a low comparative quarter, which included, as I said, clearance sales and impairments of inventory. Service and parts sales are developing more slowly than we would like due to continued shortage of technicians, but we also need to focus on workshop productivity. We have a lot of newly hired technicians that need to become more experienced before they reach the required efficiency level. And in some workshops, we need to improve activity and improve utilization of the technicians we have. The situation differs from workshop to workshop. And one thing that gives us optimism now is our new service organization introduced at the end of last year with a more clearly defined local P&L responsibility, which should lead to a lot of smaller improvements in each and every workshop, but all in all will generate big improvements overall. We took measures to reduce our costs going forward in the quarter. These measures are expected to result in SEK 16 million to SEK 17 million annual savings going forward, but resulted in SEK 17 million one-off costs in the quarter. Including these one-offs, operating profit in Germany improved to minus SEK 9 million compared to minus SEK 28 million, excluding one-off costs in Q4 '24. Now this is, of course, still well below the potential we see and are working for in the German business. Working capital on lower inventories and lower receivables reduced by 72% to SEK 108 million, amounting to 7% of last 12 months revenue. So something we are pleased with. In Kazakhstan, we saw continued market recovery supported by increasing equity in mining and road construction. The GPE market is estimated to have grown by 30% in the quarter, so quite substantial growth. We continue to focus on clearing older inventory to improve inventory quality further. Year-on-year, the inventories are now reduced by 55% with very few old machines remaining. As a result, equipment sales increased 42%, but margins were lower than last year, while service and parts sales declined by 9%. We recognized a SEK 3 million impairment loss in the quarter relating to inventory and some other assets. Operating profit and excluding the one-off costs improved to break-even. We now have a new management in place in Kazakhstan. We have a partly new and improved sales organization. We have a much leaner balance sheet and the recovering market, so we feel positive and well positioned for the year to come. Erik, I think that was it on the operational questions.

Thank you very much, Henrik. Turning to financial side of how that translates into the financial side of our business. Starting by looking at the income statement and at 4Q. We can see, as you mentioned, Henrik, revenue down 10% to SEK 1.2 billion. That's minus 4% adjusted for currency effects. Looking at the geographical revenue mix, we see 2/3, 67% coming out of the U.S., 3/10 from Germany and 3% from Kazakhstan. And in terms of revenue mix with regards to the revenue streams, 56% equipment and trucks, 36% parts and service of the aftermarket, that is the stable part of our business. So the percentage attributed to that varies more driven by what happens in the equipment and truck segment of the business. And 8% rental, also an important part of our business, especially in the U.S. business model. Gross profit up 12% and gross margin increased by 3.5 percentage points to 17.7%, and that's driven by improvements in all operating segments, improvements in Germany and Kazakhstan and a small improvement year-on-year in the U.S. as well. SG&A increased 1% for the group as a whole, so almost flat. And on the back of slightly lower revenue than the SG&A as a percentage of revenue ticks up somewhat to 15% versus 13.4% a year ago. Operating margin in the fourth quarter at 2.6%, a good improvement on last year, but still far from where we want to be with our operating profitability. In terms of Swedish krona, that's SEK 31 million, and that is then after one-off costs in the quarter of about SEK 23 million, so SEK 54 million adjusted or excluding those costs and provisions that we would consider to be one-off and nonrecurring. Net income at SEK 15 million, supported by lower financing costs, which in turn is partly driven by lower working capital and related to that, lower net debt for the group as a whole. We did have further FX losses, mainly related to our U.S. assets. Moving over to the year to see where we landed the full year. Revenue on a full-year basis, down 6%. Again, adjusting for FX effects, most important of which were in the U.S., that would be flat. So same revenue as last year if we would keep foreign exchange rates at the same level as last year. And mix relatively similar to the quarterly distribution, 64% U.S., 1/3 Germany and 3% Kazakhstan and similar picture also in terms of the business areas, 53% equipment and trucks, 39% parts and service and 8% rental, again as it was in the fourth quarter. Gross profit up 2% year-on-year, again, despite the revenue coming down, and that is driven by a margin increase. And here, if we look year-on-year, that is driven by higher margins in Germany and Kazakhstan, partly offset by slightly lower margins in the U.S. As you can see in the U.S. for the year as a whole, we came down from 20.5% to 19.1% in terms of our gross profit. SG&A up slightly to SEK 724 million, that's 4%. And as share of revenue then a small increase as well 0.4% there increase. So largely flat as a percent of revenue. Operating margin increased for the year as a whole to 1.7% and the operating profit to SEK 277 million, up from SEK 21 million. That is again with those one-off costs in the fourth quarter without which that would have been SEK 100 million flat. We did carry on the year as a whole, meaningful FX losses indeed, and that's again driven by the -- mainly the U.S. assets that we hold on the parent company level, but also to a smaller extent, our investments in Germany. Moving on to the balance sheet for an overview there. We can see year-on-year PP&E is down slightly. Much of that is again FX driven, stronger Swedish krona making the assets we carry mainly in the U.S. and to a small extent, Germany smaller in our overall balance, but also a rental fleet reduction in Germany. In looking at working capital and then moving to quarter-on-quarter also versus the previous period, we have an increase in net working capital in the U.S., and that's mainly driven by strong sales in the end of the year, reflected in the revenue in the U.S., which drove up receivables in the business, but also higher inventories. In Germany, increase in net working capital from 6% to 7% of long-term revenue, and that's mainly driven by the lower revenue rather than the asset side or the payables in the quarter. In Kazakhstan, net working capital decreased as we continue to clear inventory there, so a result of lower inventories, but also higher payables as we start ordering for next year in Kazakhstan. And net debt declined, partly also an effect of FX, but also of the results that we show in the quarter. Equity to assets, 1 percentage point up there from the previous quarter and 3 percentage points year-on-year. Next slide, I'll jump through fairly quickly. It's a reminder to those that follow our company that in 2024, we presented the U.S. segment differently from how we did starting from first quarter of this year. In this report, that has been harmonized. So it is like-for-like when you look fourth quarter '25 versus fourth quarter '24. But if you would go back to the report released in fourth quarter '24, you would see a difference, and that's what we outlined here. The differences in presentation and its presentation only does not affect EBIT level. It does impact to a small extent revenue and it moves some costs from SG&A to COGS. So it does impact also the gross margin, again, explained on this slide here as a summary, and you will also find it on Page 9 in the quarterly report. Moving to an overview of EBIT movement year-on-year. As mentioned, we had improvements in all segments. U.S. up SEK 8 million on what was a strong quarter in the fourth quarter of last year. And without FX effect, that SEK 8 million would have been SEK 14 million. So it is a good result. But again, the foreign exchange is weighing on our translation of our U.S. results. Germany, up SEK 12 million. So that also factors in, of course, this SEK 21 million of which is related to Germany. There were one-offs in last year's period as well. But again, the delta there year-on-year, the improvement would have been bigger had we not carried those one-off costs, which, however, are investments into our future. So it is, I think, important steps that we are taking there to put ourselves in a better position going into next year. Kazakhstan, also up SEK 7 million year-on-year. There, I remind you also there were one-offs on the inventory side. We did take some impairments to clear out that inventory and that was SEK 3 million, so should have been SEK 3 million higher. Now going on to quarter-on-quarter, different picture. Big increase in the U.S. there really to a very strong finish of the year in -- especially on the top line in revenue. Germany, we were at break-even EBIT in Q3, close to that, so a decline. Again, this delta of minus SEK 27 million includes that one-off of SEK 20 million. So SEK 7 million would have been the difference otherwise. And then Kazakhstan, also lower than in the previous quarter. So for the group as a whole, we're down SEK 6 million quarter-on-quarter. This slide I usually share with you that follow the company highlighting where our assets are on the balance sheet and you will see that the rental fleet is the biggest piece, the red part of it being the rental fleet in the U.S. and the gray part being the one in Germany. Second would be our inventories, again, biggest in the U.S., which reflects the scale and potential of that business. And then trade and receivables from our customers as number three and real estate, including, of course, IFRS 16 to your far left there in real estate. And on the liability side of this bridge, you'll see the biggest piece being our VFS floor plan, of course, reflecting inventory and also rental fleet. And then to the far left here, the trade and other payables also supporting our inventory position across the group and then bank loans also underpinning the business, which gets us to an equity or NAV of SEK 1.3 billion, which translates into SEK 90 per share. Finishing off with our financial objectives before handing it back to Henrik again. We are lagging our revenue target. Part of this is again an FX effect. We started last year at -- or at least we were in February, I remember at SEK 11.2 against the dollar and around SEK 9 now. So that is a big change in that foreign exchange environment. On the operating margin, we are improving. We continue to move towards our long-term target there. And again, year-on-year, we've made progress but still have some way to go. And similarly, on the net debt situation, a big decrease in working capital, especially in Germany and Kazakhstan to make our use of capital more efficient and to increase our capital turnover and thereby enhance our return on invested capital. And when we pull that working capital back, we've also reduced our net debt as you can see here, we're at 3.4x, we were at 5.2x a year ago. So that's a good progress on that side as well. And with that, I would hand it back to Henrik for a bit of outlook before we take Q&A from the audience.

Thank you, Erik. Looking at the future and the year ahead, we are optimistic about the U.S. Of course, we recognize there is ongoing uncertainty when it comes to tariffs and the weaker dollars, but our customers do have very good backlogs and activity is high. Infrastructure spending remains at a high level, driving them not only construction work, but also various industries that are related to infrastructure projects, in particular, the quarries and aggregates. And we see continued increased activity when it comes to data centers and various investments related to the tech industry and the AI boom. And so overall, we see good opportunities for further development and expansion in the U.S. In Germany, we expect the market recovery to continue, driven by the need to replace current fleets. Customers are using their trucks and eventually, we have to change them. And the fact that the customers also continue to using their fleets also drives continued need for service and parts. And we then need to ensure that we have enough resources to capture this need, while at the same time, working on optimizing productivity across our network. Now we have an even lower cost base, but we still maintain an organization that can handle bigger volumes. So all in all, we remain optimistic when it comes to the German operations. In Kazakhstan, we are also seeing signs of recovery. We have a new management in place, and we have a much leaner balance sheet. And all in all, we see good opportunities to increase sales and earnings in Kazakhstan. Thank you.

So with that, we hand back to the operator for Q&A.

[Operator Instructions] The next question comes from Albin Barnevik from ABG Sundal Collier.

So if we start with the U.S., where you delivered a very strong performance, do you consider this an exceptionally strong quarter? Or are we seeing underlying structural improvements here?

It was a good quarter. I wouldn't say that it's sort of an extraordinary quarter. A good quarter following the patterns that are in the U.S. where you would have larger equipment sales at the end of the year, partly driven then by customers having tax incentives to boost up their investments at the end of the year. So in terms of revenue and margins overall, I don't think it's extraordinary. I think we managed well when it comes to managing costs, which then, of course, leads to improved results.

Right. Understood. And on that note, we've seen a rebound in the U.S. ISM Manufacturing PMI in January, which was well above the consensus. Are you seeing a corresponding improvement in trading so far in Q1?

I would just repeat what I said earlier. We see very good activity across the industry in our industry. A lot of infrastructure projects going on and a lot of the data center constructions.

Yes. I see. And on the German impairments, if the market were to remain subdued for longer, should we assume that most of the necessary adjustments have already been made? Or could there be additional one-offs generated going forward?

So when it comes to impairments in Germany, we were referring to Q4 '24. That's when we made the inventory impairments. We have not made any impairments in '25.

But if you refer to the restructuring...

The restructuring costs. Yes, exactly. Yes, that's what I'm referring to.

Exactly. And I mean, technically, there was an impairment of the office that we use in Frankfurt because it's booked as an IFRS. So that would actually qualify as an impairment. But most of it is restructuring. And I mean, I think we've taken like 2 big steps cuts to our cost base in Germany. We did so earlier also starting in 2023 and which was then implemented in '24. And we're taking sort of another cut now. And I think we really are getting to a very efficient base and more resilient in a weaker market if that would be protracted for longer. But we've been, again, very cautious not to sort of in any way hurt and to the extent possible, instead develop and continue to grow our service organization. We continue to hire mechanics. So I think, yes, Albin we are now in a very good position to both capture a growing market, but also being more resilient if the market remains a bit weaker for longer.

Right. I hear you, Erik. And regarding group costs, they've been kept at a lower level now 2 quarters in a row. Is this a structural change? Or were they unusually low this quarter as well?

I think Albin, there -- I mean, there are like 2 effects. On the one hand, yes, we try really to look at costs where we can pull them back and do. So there are some of these costs that are indeed structural, I would call them. Then there are effects also of provisions that we make in the first half, including bonus provisions that we make in the first half of the year. And if we're not reaching our targets, then you pull them back or reverse them in the second half of the year. So you have some of that, which is then more you could argue a temporary. It's structural as well because if you don't reach targets, then you would have those costs, but a little bit different, I think, in how you would look at those costs.

All right. And lastly, it was encouraging to see you executing on your stated bolt-on strategy now with the Housby acquisition in Q1. Can you give some color on how you perceive the M&A potential going forward? And can we expect more of this? Of course, there are some certain debt constraints, but could you give some color on this?

I think -- I mean, this was an important first step in expanding our U.S. platform. And we continue to look for opportunities. But when and how and where and so on is not something we can go into in detail. But we follow a strategy that we have that we want to expand the business.

[Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

We'll start with questions coming online. We have one question, I think you may be best at addressing Henrik, with regards to the competitive landscape in the U.S. and specifically how we compete against giants such as United Rentals, an example there, the person brings up in the question.

Okay. I mean when it comes to the overall competitive landscape, when it comes to the manufacturers and brands available and so on, it's very similar to Europe. Of course, it's a good question in the sense that U.S. is special when it comes to the big rental companies because in Europe, we don't really have this continent-wide rental companies. But I wouldn't really say that we compete with these companies. They -- we fill different roles in the markets. They are big companies that do rent-to-rent only, and they buy immense fleets of fairly simple and standardized machines to make money on their volumes and being able to replace them very quickly. I mean we also have a rental business in the U.S., but it's more focused on rent being a first channel before sale, maybe more than rent to rent. And as a dealer, we focus more on more complex machines that require more, I don't know, much more service and parts support and in more complex solutions rather than more standardized products. So I wouldn't say that we compete with the rental companies, maybe in some deals and to a certain extent, they are our customers, but it's more like we complement each other in the market.

Thank you, Henrik. And another question, which I'll try to take on regards capital allocation, and how we reason. And the person who asked the question takes the example of the Housby acquisition versus buybacks given that our stock trades below book value and says that that's maybe a Board decision, and I would deflect that way. And yes, I would say it is a prerogative of the Board. But I think we can also say that we do look at, of course, what we believe are in the best long-term interest of our shareholders. And this acquisition that Henrik outlined a bit of in this presentation is very much in line with the strategy that we see in the U.S. This is an adjacent state to us. We can apply our corporate functions and overheads and leverage the capacity we have there in this expanded area of sales and business for us and really scale our business and get better returns on the fixed costs we have. So I think this is very much fitting what we want to do and want to achieve. And I would maybe add to that also that the specifics of this transaction, which is an asset deal really, what we're buying is inventory, and that's something that we do all the time. And here, we acquire a large bit of inventory that we will probably need to buy in a way and especially when we do that in an environment where there has been pressure on the dollar and uncertainties about tariffs, these are attractive assets to have in our view. And with that also comes that you can arrange basically inventory financing for this, which isn't certain that you would have the same terms for if you would use the capital for other purposes. And in addition to that, there is also liquidity on the stock that we would consider, of course. So with that, I hope I've addressed that question. And I think that's it. I'm going to see if there's anything new on the online here. But I see no more questions online. So Henrik, is there anything you want to say to wrap up? Or should we give it back to the operator?

We give it back to the operator. Thank you very much for listening to us.

Thank you very much for your interest in Ferronordic, and we give it back to the operator. Thank you.