Good morning and welcome to ENCON's Q2 report presentation. My name is Stig Engström, CEO, and with me today I have our CFO Marcus Asplund. Let's take a look at what's happening during the quarter. One thing has probably not missed anyone's attention, the CEO change that took place on May 1. My main task is to bring ENCON back to the financial targets adopted by the board. 20% annual growth and 20% EBIT margin. I have begun the journey towards those targets and identified some focus areas. We'll go into them later but it's about optimizing the product around customer needs, focusing on efforts on the right markets and creating the right conditions for the company's core functions and of course ensuring strong cost discipline throughout the company including this crease of stock levels we can conclude that it was a good quarter revenue was strong and the margin shows a recovery also including a 13 million swedish crowns restructuring cost it's a good result which shows the strengths of our business model at the same time i know we have more to give now begins a new chapter in an old story we'd focused on the core areas that built the company quickly strongly and profitably back to basic let me explain this a little bit more in detail on the next slide so how will we reach the 2020 targets it's never a good idea to do everything at once it's about doing the right things in the right order on the journey i see the following areas as the most critical we need the right product to the right market our most advanced solution in the ec3 platform for mature markets with hardest competition simpler configurations is good enough to open the door into markets where the many customers have not yet bought their first tip-to-tator growth where the conditions are right you don't cross the river to fetch water the same goes for sales in the nordics where the construction activity will come back from low levels and on the key european markets where awareness is rising penetration is low and we already have the competent sales people that can act this is where we focus our efforts going forward at the same time we must build capacity for the next level in production and purchasing stromson and poland work well for today's volumes and with smaller investment we can reach three times today's level the rp change took a lot of time from all of us not least within production and purchasing we can now use that time for process improvements in purchasing and prepare our production facilities we will look into every part in the organization to prepare the business for the next level focus on cost control and capital tied up Cost control must run through the organization And capital must be directed Where it creates the most value I'm not satisfied with our stock level In certain markets We have taken actions And we can already see effect The income spirit has always been the key To our long-term success And it's about the whole organization Taking responsibility And have innovative thinking Close to our customers And that is what we are returning to i'm tired of all empty discussions regarding the most important questions for our planet sustainability and especially co2 emission we have started our transformation for decreasing use of fossil energy we have a clear ambition to step by step turn off the fossil tap and we have already taken local action in that direction i hope others companies and politicians etc. will follow. To make this work the whole company needs to support what really drives Oinko forward development, marketing and production. Everything else in the company should make it easier for these functions to do their job. That's how we remove unnecessary complexity and get back to speed. This sounds boring but it's also everyday industry life is about. dig where you stand a principle that defines both our core product and how we should operate as a company let me briefly comment on the quarter marcus will deeper from where he stands in number but this is how i see it net says is increasing with 13 the growth comes close to home from the nordics we also see some support from europe it's in these two regions i see encom's greatest potential going forward order intake also driven by the nordics europe is weaker during the quarter the global situation has not been very helpful not least given what's happening in the middle east the uncertainty in is spilling over to the economy in general and especially oil prices and customers are becoming careful after conflict comes peace and what has been destroyed must be rebuilt we expect higher levels over time when the conditions are in place not least in europe machines from north europe will be sent out and the prices for used excavators will increase that's good news for new machine sales in the nordics and close to 100 of those needs a new tilt rotator gross margin the gross margin is affected of a large share of sales in the nordics where the competition is toughest we adjusted prices during the second quarter the main effect will come in the third quarter with some delay due to dealer agreements we are also reviewing our product portfolio and purchasing an R&D processes to improve this level over time we have for a long time sold products with extra everything but only with the price of a standard this is sometimes necessary but we need to find the right balance ebit margin the margin was affected by restructuring costs related to organizational change improvements that in the right direction but we have more to give the coming changes are intended to lift this level over time and take us towards the 20 target i have strong hopes that by the end of the year we will see a clear and stable trend with profitability moving in the right direction return on capital employed 40 40 percent is in line with financial targets the markets will talk more about this here we see the development development over time the direction is clear the bars are moving on the right way both for order intake and net sales net sales reach a record level for a second quarter order intake was also at a high level But leaves a little bit more to wish After a good start 2026, it's calmed down Again in March The last two quarters were very strong Partly due to Pre-buying around year end Which has led to somewhat Calmer period now And as I mentioned earlier The geopolitical Situation has not been Very helpful Both saves and order intake are above 2 billion on a rolling 12 months basis one quarter can go up or down that's normal but over time this shows the underlying strength of Encon's business let's start close to home in the nordics net sales continue to grow strong and have passed 300 million swedish crowns the year started with a strong order book which have moved through during the spring sweden is the strongest right now customers and dealers are more positive which created a strong pre-buying effect at the end of last year excavator sales are increasing clearly around 20 to 40 percent depending on model this is what we now see coming through in our deliveries in norway we have seen increased sales to key dealers even though the market is fairly weak at moment order intake is not developing at the same pace sales have not fully come back everywhere like in finland that there are some positive signals also here the market in sweden has become more positive and these are more willing to place orders earlier last year we did not see the same confidence right now we are still waiting for the start the quarter is good but the engine is not still not running on all cylinders in the nordics in general we expect higher construction activity and more machine investment after several weak years the finnish economy has been developing weak and we hope to see a return here in denmark the economy is a lot better and there is also extra penetration to be captured we also expect more impact from pricing increases during the second half of the year moving over to europe we see a somewhat weaker period in a long trend of positive development the weaker development in the quarter is partly about timing no significant orders in the dutch region campaigns in earlier quarters making this a little bit slower some customers waiting for upcoming trade fairs the world is uncertain the situation in the middle east is making customers more cautious in the long term the potential in europe is huge europe has some of the world's largest excavator markets yet most operators have still not experienced their first tilt-rotator we have spent years creating the conditions to capture this potential through marketing by training skilled people in our sales companies and by building a strong partnership in the dutch region coming back to dig where you stand it is on the key markets in europe we should focus our efforts going forward benelux a small region geographically where world travels fast across borders penetration is already the highest in europe we are close to the point where the growth can accelerate quickly by itself uk a large excavator market with around 20 000 machines per year partly characterized by large rental fleets and the local quick hitch pick up the pin standard by focusing development on these products we open up a significant potential market france we have done a good job in the north where penetration is higher many customers there understand the teacher concept and our attachments in the south there's still a lot of work left to do dash we have a strong partner in zero degree and all quick germany together we have quickly built momentum in europe's largest excavator market america's and asia oceania sales in stable but low level reduced expectations for 2026 and 2027 huge markets but a lot of work to get volumes and sales and the profitability up focusing now on established stable teams in our sales companies and give support and service to our existing customers in japan we participated in the cspi expo in june a lot of tilt rotators in the show and increased awareness the tariff situation in the u.s mark makes nothing better we will make some changes in our product portfolio to better up to these virginal markets our good contacts with the oems will continue but we also will reduce our stock levels and with that i'll leave work of artists to go through the numbers thank you steve
we delivered strong net sales in the quarter this marks a record high revenue level for any second quarter in our history this wreck record q2 top line of 594 million sec was achieved despite the persistent negative currency effect we have become accustomed to talking about in previous quarters although we're starting to see the currency headwinds diminishing this is even more true further down in the income statement where we actually see a small tailwind through positive revaluations of balance sheet items at the closing rate gross margin came in at 38.4 and as steve mentioned earlier a large part of the sales increase comes from the nordics and that affects the market mix we make well-founded commercial decisions every day but at the same time this is also the region where competition is toughest and that naturally leaves a mark on the margin that said i do believe this is a low level with an upside from here last time i talked about the price increase we have introduced up to five percent on an average order since a large share of sales is still going into the Nordic market from a longer order book we are yet to see the effects from that and also the agreements we have with larger dealers should start to show in pricing from July onwards selling expenses or 5 million lower than last year despite the higher volume the main explanation here is trade shows bauma which was in q2 last year and connexpo our main trade show this year was in q1 our administrative expenses rose with 12 million sec due to decisive corporate restructuring actions implemented to sharpen operational efficiency in total selling general and admin came in at 19 percent and we can see that we're getting some operational leverage from a higher net sales however to be fully satisfied i would like to see this ratio move closer to 15 percent as a first milestone the rollout of the third generation tilt rotators leads to lower level of capitalized r d expense expenditure however total r d spend as a percentage of sales remains at the same level as last year both for the quarter and year to date at the bottom line EBIT came in at 102 million sec corresponding to a margin of 17.2 percent all things considered an okay level yet the result clearly influenced by the strong sales growth in the Nordic as well as the restructuring measured carried out during the quarter to see our true operational momentum we look at the normalized margin adjusted for the 13 million sec in one-off restructuring costs we achieved 19.4 percent proving we are steadily closing the gap to our long-term financial targets putting this into perspective i think this is a solid result we are up eight percent compared with the previous year and even with the restructuring costs included, we are still ahead of most quarters along the way. To me, that says a lot about the strength of Encon's business model and our products. And as Stig's roadmap is gradually rolled out, I also feel positive about the profitability development going forward. Cash flow from operating activities improved, driven primarily by higher operating profits and positive changes in networking capital for example inventory we began seeing the positive effect of improved networking capital management towards the end of the quarter as steve mentioned earlier following that the return on capital employed reach our long-term sustainable target coming in at 40.1 percent and 41.6 percent adjusted and on that note i'll pass it back to you steve to summarize and give us the outlook thank you marcus even if we can do so many things better
we still deliver an okay level my and our main job is to clean up in our processes and not expand more than our resources the nordic market is a mature market and here we have to fight for market share with our top level products the tilt rotator market will follow excavator sales to almost 100 but i'm very positive to a recovery after several years with the low investments and that the house building business is coming back on top of that we have a great opportunity to sell used machines including titratators to east europe when that time comes in the rest of europe the penetration is low so here we can increase our business regardless level of excavator sales if we do the right things beside the market and sales we have to come back to the internal income spirit a flat organization delegated responsibility a big portion common sense and most of all having fun this has worked for 30 years and will work also in the future together with this we will set up a concrete target for our sustainability work that everyone can understand and accept small steps for mankind but a big step for the climate dig where you stand makes efficiency and cost savings with a tiltrotator and for ankle and with that i leave the work to the operator to start the q a if you wish to ask a question
Operator
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 Agnieszka Valela from Nordia. Please go ahead.
Thank you so much and good morning. Yes, Stig, you mentioned some hesitance in the market demand due to the oil prices and the Middle East conflict which affected your orders in Q2.
Can you tell us what kind of orders growth do you expect now in H2 in the second half of the year and also what you see so far in July? we have a wet blanket of the market because i think the under everything this is really a positive signal from the most of the nordic and european markets but something is holding them back and they're quite sure i can't tell you when it's going to happen but it will absolutely be better when the time comes and the the east and the the west crazy guys have stopped shooting at each other that's the problem i think it's the oil price will be stable and we can have a better situation there and i think they will open up for us definitely and you think that it will you know benefit both your trend in in europe and in the nordics when that happens yes absolutely in in the nordic i see we are talking a lot of house building companies and they are really positive but we have not seen it on the machine investment and we know also that the machine investments have been low for three years and normally these customers they want to buy to new machines and so they're waiting and from the exhibition i also visiting this summer and this autumn uh in the spring i mean i also heard a lot that half of the dealers they think that's it's already coming uh the boom but some are waiting for the boom so i i mean i'm certain
positive for the nordic market and as i also said in the european market we have so much to do besides the new states we have so much machines that don't have been come together with the first titotator yet yep yep and and then maybe just on your strategy like you it looks like you maybe the prioritize a bit uh asia and america's uh what should we expect in terms of uh you know your orders development during the coming kind of mid-term. Do you think that you have enough presence still in these markets to still be able to drive positive order growth?
I think we will have a flat development in these markets for the next coming two years. Don't expect an increase, but not in decrease either. I think they will be flat.
Perfect, thank you for that for the call. And the last question, I think to Marcus rather, just a clarification the restructuring costs for the quarter was included in the your administrative expenses is that correct yeah 12 out of 13 million is in admin yeah so actually if you look at your admin and selling that's already running at about say 17 of sales and the question really is like should we expect this kind of same similar selling at admin costs on absolute level in the coming quarters and also just if you could tell us if you do expect any more restructuring costs to happen?
Not in the near future at least, not any planned, but we will work on, as Stig was into, also the cost discipline that is meant to be done here definitely, but not as any big, it's more of an ongoing thing here. And as I said also, So I think that the ratio for the SG&A, I would like to see it come down to at least as a first milestone to 15 here percent. Of course, we need the top line there to make that happen also, but we are putting pressure on our costs as well in going forward here in H2 by the end of year.
Thank you, these were my questions.
Operator
The next question comes from Marcus Develius from DNB Carnegie. Please go ahead.
Hello, Marcus. I just have one follow-up question.
Can you repeat that? You're coming in a bit low. Any effects from something in the U.S. I heard, but what?
From tariffs repayments, if you can hear me now.
Yeah, we have actually already gotten, it's not a big one. I mean, the big one for us has been the steel and aluminium tariffs and so forth. But on the other hand, we have already some 100,000 U.S. coming in the beginning of July here, and there will be some more coming in as well. But that's not big for us, and it's also time-bound to a specific period here so we didn't send so much during that period as we did for example last year or before the tariffs actually came in so to say so yeah we have seen some but not not big amounts okay thank you that was my question thank you as a reminder if you wish to ask a question please dial pound key five on your telephone keypad there are no more questions
at this time so i hand the conference back to the speakers for any closing comments so we only want to wish you a nice summer and thank you for has to be said in this presentation thank you thank you
