Ependion Q1 Report 2025 presentation. During the Q&A session, participants are able to ask questions by dialing #5 on their telephone keypad. Now, I will hand the conference over to CEO Jenny Sjödahl and CFO Joakim Laurén. Please go ahead. Thank you. Hi everyone, and welcome to the Q1 Update for Ependion. As usual, it is myself and Joakim Laurén hosting the call, myself being in Västerås today, and Joakim is in Malmö. The agenda is almost as usual, with one exception: we are going to share a few, say a few words on the recent acquisition of Welotec. Apart from that, the agenda looks like it usually does. Let's move into the business update for the quarter then in general. It was an eventful first quarter for Ependion. Lots of activities and progressive investments in combination with a cost-saving program, as you have probably seen. The highlight for the quarter was that order intake increased by 5%, and both business entities contributed to this: Westermo with 2% and Beijer Electronics with 8%. Sales, however, came in lower than last year, driven by both business entities. It could be important to remember that Westermo, in particular, had a very strong comparison quarter in 2024 due to some catching-up effects from the components crisis in 2023. We have implemented a cost-saving program in the Beijer Electronics business entity. We are, of course, not satisfied with the profitability level of the group of 9%, driven by the weak result in Beijer Electronics. This is a step in order to safeguard profitability going forward. Earnings then came in at SEK 49 million, or 9%. This result was impacted by a few things: negative currency effects being one, and quite a big chunk of non-recurring cost items of in total SEK 10 million. Joakim will come back and elaborate a little bit more on that. What I'm extremely pleased about, however, is the agreement that we did at the beginning of April to acquire the German company Welotec. I will come back to that in a moment, but the strategic rationale behind this is actually twofold. One is that it significantly strengthens our position in the energy segment, which is one of our key segments, as I think you are well aware. In addition to that, it gives us access to a complementary new technology, which we call edge computing. Again, I will share a few words on that in just a bit. Looking a little bit deeper into the two business entities, Westermo, as I mentioned, a relatively stable quarter, orders at almost the same level as last year. As you all know by now, the order intake in Westermo can vary quite a lot between quarters due to how larger orders from our train customers, for example, fall in the different quarters. Now we can see that we have had a little bit less of train bookings in this quarter, while our energy bookings were at stable levels. One highlight in the quarter, and we have been talking a lot about the Westermo India establishment, we actually inaugurated this entity officially together with customers now in March. It was very, very, very well received by our customers. We also received our first local order of SEK 11 million in March. That was from one of the big local rolling stock manufacturers in India. I think we're off to a really good start there, and I'm excited about the future of Westermo India. Sales, as I mentioned, came in lower than the strong Q1 last year. On the other hand, we do see a continued strong gross margin in Westermo, and in combination with solid cost control, we managed to maintain a stable and relatively high profitability level at 15.7% for the period. This actually also includes acquisition-related costs of SEK 2.5 million. Taking that into account, we would be at 16.5% actually. Beijer Electronics, the highlight there, if we start with a positive, and I think this is a good sign, is that orders are actually up 8%. That is despite the fact that there is no order volume related to the phased-out products included in this quarter at all. That means that order intake of our key product range, the HMIs, increased at 18% in the quarter. That is really positive to see. We do see a pickup, actually, in Beijer Electronics from the Asian region, which has been extremely weak now for quite some time. We see that picking up, albeit from low levels, but still moving in the right direction. Sales declined slightly, and there were still some final deliveries of these low-margin products that we have been talking about for quite some time now. Those are the last deliveries that actually came out now in the quarter. We had a pretty strong negative FX impact in the quarter, which had a big hit on the result. This combined with an unfavorable product mix and also the restructuring cost, we came in at a very weak 6.7% in the period. On a positive note, deliveries of the new X3 family have started now, early April, after the quarter. We are very excited about the second quarter now, where the main part of the new X3 series will actually be launched. We are also very proud that this new product range has received the Red Dot Award, which is a design award, really, for 2025, which is a really positive thing as well. Looking at the volumes in a more graphical format, as I mentioned, order intake came up, and you can see that we did not quite reach the level of Q4, which was a relatively strong quarter. If you compare to the order intake end of 2023 and the first three quarters of 2024, you can still see that it is a step up compared to that period. Sales, however, has not picked up significantly. We are down 8%-9% compared to last year. Our book-to-bill is at least around 1 now for the first quarter. We do hope, of course, to see that becoming bigger, so to say, going forward. At least it is stable at 1. The backlog is still at a decent SEK 1 billion for the group. A few words about Welotec. I know some of you joined the call that we had right after the acquisition, but I just want to remind everybody why we are doing this. This is a significant acquisition for Westermo and for Ependion. As I said, two main reasons for doing this. First of all, Welotec is a very strong player in the fast-growing market of substation automation. These industrial servers that you see on the picture here are actually playing a key role in digitalizing the substations and also eventually virtualizing a lot of the functionality that you have inside a substation so that you can actually remove more and more hardware and replace it with software functions running on such a computer. Welotec is really focusing on large system integrators in the energy sector. They also play in the manufacturing segment with strong relationships to some very interesting machine builders. They have been around for a long time, and their experience in the substation automation market also goes back a long time. Very skilled team, actually, and I'm very excited about joining forces with them. Around 70 employees in Laer in Germany, and the sales last year of EUR 24 million. They have shown a very stable growth, actually, over the last years, which is also positive. EBIT margin is slightly below Westermo at this point, but as we have seen with our other acquisitions, this is, of course, something that we will work with going forward. Strong and mature business, I would say. Looking a little bit on the energy market, it's interesting to see what's actually going on when it comes to the power grids. I mean, you can just see what happened in Spain yesterday with this big power outage. It is clear that the power grids need modernization. They are very old in Europe, but also in other parts of the world. There is massive investment happening into the power grids, both in Europe but all around the world, actually, in order to cater for the increased need of electricity in the next decades. A lot of this investment is actually going into digitalization of the substations because that's the only way that the grid owners can actually manage and control and protect the grid stability. We see a lot of opportunity in this area going forward. With the Welotec acquisition, we strengthen our position significantly. They are very knowledgeable in the area of substation automation, and they have excellent relationships with many of the key players in this industry. With that, I hand over to you, Joakim, to give you a little bit more detail on the financing of this acquisition. Thank you, Jenny. Yeah. Some facts on the acquisition and some words about the financing also. The initial payment at closing will be EUR 35 million on a cash and debt-free basis. The agreement also includes a performance-based earn-out opportunity up to EUR 14.8 million. That will then be depending on result achievements in 2025 and 2026. This acquisition is expected to be contributing to our EPS going forward. When it comes to closing, the completion of this acquisition is expected to occur now within this quarter, the second quarter this year. When it comes to financing, we will ask the general meeting on the 13th of May to give a mandate of doing a directed share issue of SEK 300 million. That will then part-finance the acquisition. The rest will come from existing facilities and existing cash that we have within the group. If for some reason that we don't expect the share issue not to take place before closing, then there is a bridge facility in place. We also want to point out that Stena Adactum and Svolder, the two largest shareholders of the group, they have expressed that they have the intention to invest in the directed share issue up to their corresponding ownership. In total, Stena and Svolder together, they own about 45% of the shares in Ependion. That completes the words on Welotec. Let's move forward into the financials, more details. We start with Ependion. The headline, order growth and challenging profitability. Order intake of SEK 551 million in the quarter, sales of SEK 545 million, and then an EBIT of SEK 49 million or 9%. As Jenny pointed out, the earnings have been impacted by the negative FX and the unfavorable mix within Beijer Electronics. These non-recurring cost items of about SEK 10 million. In the report, we have been defining these SEK 10 million, but I can remind you there is these restructuring costs within Beijer Electronics of SEK 3.4 million. We have transactional costs related to the Welotec acquisition in Westermo of SEK 2.5 million. The balance is some one-off items within the parent company. FX, as stated, that was against us in the quarter, about SEK 4 million, mainly transactional variances. That is basically all within Beijer Electronics in the quarter. Some words on tariffs that everyone almost is talking about right now. No financial impact for Ependion regarding the tariffs in the quarter. We have ongoing activities to prepare for mitigation of the potential impact, both in Westermo and in Beijer Electronics. To give you a rough understanding of the exposure, in total, we have about SEK 300 million of annual sales volumes in the U.S. Free cash flow in the quarter at minus SEK 12 million. Normally, we do have a weak cash flow in the first quarter, and so also this year. Net income SEK 32 million and an EPS of SEK 1.10. Let's move on to Westermo. We can conclude a solid profitability development for Westermo in the quarter with an order intake of SEK 317 million, sales of SEK 321 million, and an EBIT of just north of SEK 50 million or 15.7%. Book-to-bill in Westermo at 0.99, so basically at 1. We have also heard from Jenny that the reason why we see the drop in sales, you know, we have a very tough comparison quarter where we have some spillovers from 2023 into the first quarter last year. As Jenny also said, solid profitability in the quarter, good gross margin development, really depending on the fact that we have lower material costs and keeping prices, and then a solid cost control within the business entity. We have also taken acquisition-related cost of SEK 2.5 million in the quarter for Westermo. Stability and good profitability in Westermo in this quarter. Beijer Electronics, here we do see the order growth. As Jenny said, also taking the cost reduction program. Order intake SEK 35 million for the quarter, sales SEK 26 million, and an EBIT of SEK 15 million or 6.7%. Orders then plus 8%, as stated, and as Jenny also stated before, HMIs were up at 18%. That is a really nice development that we are happy to see. Book-to-bill for Beijer Electronics at 1.04 for the quarter. Looking at the sales levels, you can see that in the graph in the bottom left corner, basically moving sideways, quite stable. In this quarter also, we do have some final deliveries of the phased-out products, the ones that we have talked about for quite some time. We also gave guidance on the volumes last quarter presentation. As stated before, the FX is impacting quite heavily for Beijer Electronics in the quarter, minus SEK 4 million. We have the restructuring cost of SEK 3.4 million, and this unfavorable mix that is the reason why we came in as low as these 6.7%. Some words on the cost reduction program that we have implemented in the quarter. It affects 33 people, positions, mainly in the U.S. and in Taiwan. That will reduce our cost base with SEK 22 million on an annual basis. About SEK 18 million of these will then impact this current year, 2025. That concludes the financials. Over to you, Jenny. Thank you very much, Joakim. With that concluding notes on this quarter, two things. There are a lot of positive activities going on that will build our capability for growth going forward. For example, the establishment in India, the X3 range in Beijer Electronics that is about to be launched now in the near future, and also the acquisition of Welotec. However, we are, of course, not satisfied with the financial performance in the quarter. That is also why we have taken this step to reduce costs significantly in Beijer Electronics. It is also still positive to see that we see a high activity level among our customers despite the turbulent times. It's really hard to say how the trade barriers and the trade war is going to affect our customers. The uncertainty is high. The unpredictability situation is, of course, also worrying. That is why we are monitoring the situation really closely, and we maintain our cautious approach to costs in this environment. However, as before, medium and long term, we are very confident about our ability to continue our profitable growth journey because we are well positioned in segments that are bound to grow due to the big mega trends that we are always talking about, the electrification, sustainability, digitalization, and so on. We continue to balance cost discipline with these future investments, as I mentioned. Of course, we are focusing on what we can influence and are committed to creating value regardless of the market conditions. The financial targets, you can argue that we are not exactly moving in the right direction in this quarter when it comes to our financial targets. However, I remain confident that these financial targets are within reach for Ependion. Of course, a bit of tailwind will be needed in terms of market conditions in order because, as you all know, we have a very high operational leverage in our business. Volumes matter a lot when it comes to profitability. Again, focusing on what we can influence, step-by-step building a stronger and better company is what we are focusing on. Our goal is still to reach these financial targets over time. Outlook, harder than ever, of course, to say much about the future. We are merely just concluding that the uncertainty remains high. It is even higher than it was before the new administration took office. That is why the short-term outlook for us is really difficult to assess at this point. With that, that concludes our presentation, and we now open up for Q&A. 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 Henrik Alveskog from Rede ye AB. Please go ahead. Okay. Hello. Do you hear me? Yes. Hi, Henrik. Great. Thanks. Hi. First, on gross margins, 54% is quite impressive. Is this then all related to improvements in Westermo, considering you said that Beijer Electronics had an unfavorable sales mix? Yes. Do you want to answer that, Joakim? Don't you hear me? Yeah. Yeah, now we hear you. Very good. Yeah. Yes. Right. Henrik, the 54 is driven by Westermo. Correct. Beijer is moving sideways, you could say, completely if we compare to what we saw last quarter. Beijer Electronics' unfavorable sales mix, is that related to, well, these phased-out products that you are, I don't know, accelerating now or? Not accelerating, but final deliveries. That we guided that we will have that also in the first part of this year. That is also what we see. Correct it though. That is the unfavorable mix. Yep. Yeah. Just very briefly on U.S. tariffs. If I understand correctly, it's a 10% tariff from imports from Taiwan also to the U.S. now and the European Union. Are you basically adding this 10% to your quotes for new contracts in the U.S., or how does it work? When it comes to tariffs, there are also some exceptions. Some products are actually exempted from these tariffs. Some of our product range is actually within that range for now. As we all know, things can change quite rapidly. You can actually do some activities when it comes to how you handle the transfer or the shipment into the country to mitigate somewhat. That is also looked upon. When it comes to handling or compensating for this, we have stated that price adjustment can absolutely be one of the ways that we will mitigate. First, we need to get clarity on the exposure fully. That is now ongoing. We are not ruling out the fact of using the price mechanism to compensate ourselves. Yeah. Okay. Thanks. The cost cuts that you're doing now in Beijer Electronics, is that entirely related to the phased-out products, or is it also something more? If you could give us some color on that. That is a combination. As Jenny said, we are not happy with the profitability development. Some of it, we have stated before that we will adjust according to the fact that we are phasing out products, but also to improve our profitability going forward. It is a combination, you could say. I want to express that the program has been done. It is all done within the quarter. Yeah. Great, then. Just on the acquisition of Welotec, I'm interested in the earnout, the potential earnout. Is that related to improved earnings compared to 2024? If they don't improve them, there will be no earnout? I guess that one is for me also, Jenny. Yes. Go ahead. Yeah. We won't go too deep into all the details. In general, yes, the way you express it is correct. To achieve an earnout, you need to see improvements. Yes. If we see improvements, that could be valid. Yeah. How difficult is it to reach the maximum amount? Would you be surprised if you said the maximum amount? To reach the cap level, it needs to be a very, very strong development. We will be happy. Our shareholders will be happy, and so will the sellers be. That is why you have earnout mechanisms in acquisitions like this. Yeah. Of course. Just finally, I read on Welotec's homepage that they expect closing to be June 2. Is that also your plan? That is in line with what we have stated. We have stated that it will take place in the quarter. Yep. Okay. Great. That's all from me. Thanks. Thanks, Henrik. The next question comes from Marcus Almerud from Carnegie. Please go ahead. Yeah. Hi, Marcus from Carnegie. Can you hear me? Yes. Hi, Marcus. Yes. Perfect. Perfect. My first question is just to make sure that the mix effect we're seeing, the order intake for the phased-out products is 0. I mean, that means that the mix effect going forward is zero. There will be no more. All of that is done behind us. Yes. Correct. Can you say anything about you saw the HMI order intake was up by 18% in the quarter. Can you say anything about the margin in the order book in Beijer Electronics? I mean, without giving specific numbers, but if you can talk a little bit about direction of the order book. In general, if we compare to the products that we're phasing out, HMIs have good gross margins. And as we've had this order development lately, the majority of the order book is then related to HMIs. So you can expect the level in the order book to be on decent levels. Okay. Just on FX, is it the FX effect? I assume it's mainly the krona-dollar movement that is behind the dollar effect, the FX effect? The Swedish krona versus the euro is the majority, but also the somewhat stronger krona compared to the dollar. We have an element of Turkish lira versus euros and Taiwanese dollars versus U.S. dollars going in the different direction in the quarter in Beijer Electronics. The exposure is, as said, euro-SEK or US dollar-SEK. Okay. The krona has strengthened. You should be clear that what we are talking about here is what you compare with and what we are comparing with the first quarter last year. Here we see the Swedish krona being significantly stronger than we saw one year back. Yeah. Exactly. This is kind of why I'm asking because, I mean, just looking at we don't know how the quarter will develop. We see a lot of movements, I mean, day by day. It has actually worsened even further in April. We see a bigger movement in April. That is especially in the dollar rather than the euro. That is kind of why I was asking if it was mainly the dollar effect or euro effect. It's mainly the euro effect. It's more euros than dollars because we do have purchases in dollars. Lots of electronics is actually bought or in prices related to U.S. dollars. There is kind of a natural hedge with our exposure in sales in dollars compared to our purchases that are related to dollars. Okay. And the overhead cost, you saw some higher overhead cost. You talked about one-off costs in the corporate line. What was that, if I may? Yeah. Let's put it like that. The majority of that was related to one-off adjustments of our LTI program and the effects of that. Okay. Perfect. Thank you very much. Thank you, Marcus. Reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. No more phone questions at this time. I hand the conference back to the speakers for any written questions and closing comments. Thank you for that. We can't see that there are any written questions. Do you see any questions, Joakim, there? No. I can't see any questions. No. We agree there are no written questions. With that, thank you very much for listening in, and have a great day. Thank you.