Welcome to Ependion Q2 Report 2025 presentation. During the questions- and- answers session, participants are able to ask questions by dialing pound key-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 very much. Welcome, everybody, to the Ependion Quarter Two call. The headline for our report this time is "Increased Order Intake and Improved Earnings in an Uncertain Market." We are present in the call, as usual, myself, Jenny Sjödahl, today in Västerås, and with me, I have Joakim Laurén, located in Malmö today. As usual, the agenda looks like this: I will give a general business update first, then Joakim will dig a little bit deeper into the numbers, some concluding notes and outlook from myself, and then we open up for questions and answers. Let's dive right into it. The overall business update for the quarter: I think we all see that the market is still affected by the uncertainty regarding the conditions for international trade, giving a slight hesitation among our customers in terms of investments and so on.
On the other hand, of course, the world has not come to a stop, so there is a lot of activity still going on in our markets, but still a little bit uncertain market conditions. However, in the quarter, the order intake for Ependion AB increased by 16%, where we see growth in both business entities: Westermo at 22% growth and Beijer Electronics at 5%. As you probably know, we have closed the Welotec deal in the quarter, and this company was added as from June, and the organic order intake then comes out at 11%. Sales-wise, our sales are still a little bit affected by the somewhat lower order intake that we have seen in the end of 2023 and beginning of this year, so - 5%, with a pretty strong comparison quarter.
There are also some phase-out effects for Beijer Electronics because, as you know, we have been cleaning up our product portfolio. We have phased out the display solutions volumes as part of the more focused strategy for Beijer Electronics, and that has, of course, had an effect on the sales somewhat because there are no volumes in this quarter from that portfolio anymore. Earnings, we see a slight improvement with the EBIT level at SEK 62 million, or 11%. That's up from 10.2%, same quarter last year. I think we are all aware that there is a currency headwind with a strong Swedish krona, especially compared to the U.S. dollar, and that has affected our result on the EBIT level in the quarter by minus SEK 9 million, corresponding to 1.6 percentage points. Strong free cash flow in the quarter at SEK 62 million.
If we look a little bit more into the two business entities, I mentioned that Westermo sees quite a good order intake pickup, especially in the train and track side segments, while we see the energy segment at stable levels. Welotec has started extremely well with us, so to say, and the integration activities are ongoing full speed. Very positive start. The joint offering that we now have towards especially the energy market is very positive, and we see that Welotec has very strong customer relationships in the energy sector that we can benefit from for the full product portfolio. Sales increase in Westermo 5% thanks to the addition of Welotec GmbH, and if we look organically at fixed FX rates, we are basically moving sideways. Profitability improved to 15.1%.
We have seen strength in gross margins in Westermo over the last quarters, and that we see also now, and that in combination with good cost control keeps the EBIT level in Westermo at a stable and rather high 15%. In Beijer Electronics, we see an order increase of 5%, and that also does not include any of the phased-out volumes, so that's actually quite positive. We do see the demand strengthening, especially in the marine and manufacturing segments, and what is particularly good to see, I think, is that the order intake for the HMI product family, which is really the key product family that we want to focus on going forward, increased with 23% in the quarter, and that is actually before the effect of the new X3 series, actually, because that is just now being launched, as I will come back to in just a minute.
Sales decreased, as I mentioned. That's mainly due to the phased-out products compared to the previous year. What is also good to see is that we are seeing improved gross margins now, and that was the whole idea, basically, with a focused product portfolio and phasing out of low-margin products. It's good to see that we are seeing the effect of that now in our gross margins, and that in combination with the cost reduction program that we did, that we carried out in quarter one, will actually lead to stronger profitability going forward when we see higher volumes, but it also meant a slightly higher EBIT percentage in the quarter compared to previous quarters, so 9.2% for Beijer Electronics. This is, of course, not at all where we want to be, and we are focusing to improve this further going forward.
Positive also is that the massive investment that we have done in the last years in the new generation of HMIs, the X3 series, is now complete, and we are open for orders for this whole portfolio. Deliveries will increase during the second half of the year, and at the same time, we will keep on selling the predecessor X2 because it will take some time for customers to actually transition over to the new series, and we want them to be able to do that in a smooth and controlled way. If we look at the volumes more in a graphical format, I think it's good to see that the order intake, as you can see here, is moving in the right direction despite the FX headwinds that we have both on the order intake, of course, and also on sales. I think I mentioned the numbers.
If we adjust for currency and acquisitions on the order intake side, we are actually up 17%, and the book-to-bill ratio in the quarter of pretty much one, basically, and the backlog also staying quite stable compared to the previous year. With that, I hand over to you, Joakim.
Thank you very much, Jenny. I will take you through the numbers. We start with Ependion . We have the order intake of SEK 558 million in the quarter and the sales of SEK 561 million and an EBIT of SEK 62 million, or 11%. As Jenny pointed out, we see an improvement then compared to last year. Jenny also mentioned that we have some headwind with regards to FX impacting SEK 9 million if we compare the two years, and it's mainly then transactional variances. We also want to inform that we see no material financial impact of the tariffs in the quarter. Westermo is presently exempt from tariffs, and Beijer Electronics, there we have actually increased the prices in the U.S. market to compensate. Cash flow positive in the quarter, plus SEK 62 million, somewhat up compared to last year.
It does include some positive impact of somewhat lower working capital in the quarter. The financial net is somewhat high, and the reason for that is that we have a negative impact of the FX or the weaker U.S. dollar impacting the financial net line in the quarter. Net income at SEK 30.3 million, EPS at SEK 0.98. As Jenny pointed out earlier, we did close the Welotec acquisition in the quarter, and as part of the financing of that, we completed the directed share issue of SEK 300 million in the month of May to then partly finance this acquisition. Next, we move to Westermo. We have an order intake of 359 million, sales of SEK 354 million, and an EBIT of close to SEK 54 million, or 15.1%.
Jenny mentioned before, we do see the growth numbers of 22% and organically the 15%, and the book-to-bill ratio for Westermo just above one, 1.01. Also, the sales then include one month of Welotec , and leading to that, we have an increase of 5% in the quarter organically if we then look at the fixed rates just below the level of last year. Jenny also mentioned that we do see a good profitability development at the stable 15.1% driven by gross margins and cost control, and we do also want to guide that included we have acquisition-related cost of 2.5 million in the quarter. If some of you are looking very closely in the report at the numbers, you can note that there is quite a high level of sales in Welotec GmbH in the first month.
That is really due to a larger order that was shipped in the month of June. Order intake and sales are not on the same picture, but we want to highlight that we had a really good start for Welotec GmbH when it comes to sales. Also, when it comes to contribution to the result, in line with other Westermo, that is what we are guiding there. Beijer Electronics order intake of SEK 200 million, sales of SEK 207 million, and an EBIT of SEK 19 million, or 9.2%.
Jenny also pointed out that the order intake included quite strong HMI bookings at the 23% level, book-to-bill for Beijer Electronics at 0.96 for the quarter, and the drop of the sales line very much related to the fact that now we do not have any of the phase-out volumes in the shipments from Beijer Electronics as we had last year, and that is the main difference compared to the quarter this year and last year. Beijer Electronics, we continue to see a good gross margin, very much driven by the fact that we have less of the phase-out products, so it's a positive mix, and we do also have somewhat lower cost levels as we did a cost restructuring program last quarter, as you for sure remember. Still, the 9.2% EBIT level, not where we want to be, full focus, as Jenny pointed out.
We also want to guide that now we come to the end of the extensive or intensive development phase of the X3 series. We will now, going forward, scale down somewhat of the activity levels in the development side in Beijer Electronics starting the second half of this year. That concludes the numbers, so over to you, Jenny.
Thank you, Joakim. To conclude, I mentioned the uncertainty that we are seeing still, but I also want to mention that we do see stable activity levels among our customers, healthy pipelines. We are staying close to our customers, but because of the uncertainty, of course, we are being very cautious when it comes to costs. I want to also convey that medium and long term, we are as confident as ever about our ability to continue our profitable growth journey because we are present in attractive markets that are bound to grow from the mega trends that we often talk about, and we are well positioned with our products and solutions to actually take advantage of these global trends. Therefore, we continue to balance costs with some really important strategic future investments.
We mentioned in the report, of course, the building up of Westermo's entity in India, which is a very important milestone for us to have an even better geographical coverage. Also, of course, the acquisition of Welotec shows that we are really allocating resources into growing Westermo. For Beijer Electronics, continuing to execute on the strategy, creating stability and higher margins in that business entity. We have invested, as Joakim mentioned, a lot in the new X3 series, which is, of course, very positive for the future. With that, we stay committed to our financial targets. We have not been really moving in maybe the right direction for some time now, but we do see that there is potential for growth, and we are targeting to grow 10% organically on average, have a 15% EBIT margin on the group level, and then to actually be a dividend-paying company.
We stick to these financial targets, and that's what we are working towards. Just the outlook, as I mentioned, we are present in attractive markets, so we do see that we have good prospects for reaching both the growth and profitability targets in the midterm. However, with the geopolitical and economic uncertainty that we are still seeing, it's hard for us to assess the near-term outlook. That concludes our presentation. We open up for questions- and- answers.
If you wish to ask a question, please dial pound key-5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key-6 on your telephone keypad. The next question comes from Marcus Almorud from Carnegie. Please go ahead.
Hi, Jenny. Hi, Joakim. Marcus here from DNB Carnegie. Maybe I'll start with the X3. Can you just talk a little bit about exactly where you are in the launch? You said you are now ready, but you've had some gradual ramp-up in the past quarters as well. Maybe talk a little bit about the gross margins, if you expect for when you have the ramp-up, if the mix will drive the gross margin in the business entity in Beijer Electronics.
Yeah. If I should start with the launch as such, you are right, Marcus. It has been a bit of a gradual launch where the web version of the product family was launched actually already last quarter and actually a little bit starting in the fourth quarter as well. That has been going on for quite some time. In this quarter, we are really releasing the lion part of the product family with all the different sizes and versions being available to the customers. I would say that in this quarter, we really do the big market launch. There are, of course, a few things remaining when it comes to some certifications for specific markets and so on. I would say that, again, the lion part of the product family is now launched, so that's very positive and good feedback from customers as well so far.
When it comes to the gross margin, Joakim, maybe.
Maybe I can comment on that one. Going forward, you can expect gross margins to continue to improve in Beijer Electronics, not really because of X3 compared to X2, rather the fact that we are phasing out the display solutions or the products that are the phase-out product volumes that we have talked about some earlier quarters. That mix effect will improve or strengthen the gross margin going forward. You cannot expect that X3 compared to X2 will mean significant changes in gross margin percentage. Going forward from now, you can expect continuous development as we have seen now in this quarter compared to last year.
Just to follow up, it has been launched. It was launched during the past quarters, that is in Q2, the full range of the X3 series to speak. Yeah?
Yeah. It's open for orders, Marcus, but when it comes to delivery, it's relatively small volumes. Many customers are trying it out. We see very little of high-volume deliveries of X3 yet. That will be a gradual ramp-up, as we stated earlier. You can expect parallel deliveries, X3 and X2, for at least 12 months or even more than that from now and going forward.
If I continue on Beijer Electronics, the HMIs are up 23% in the quarter, and you're up 5% in total. What is it? What parts are falling?
Should I take that, Jenny, or?
Yeah, please.
I mean, what it is is that we have none of the phase-out products, basically.
Okay. I get it. You talked a little bit about your customers being stable and growing, especially on the train and the track side. You also talk about uncertainty. Maybe you can just give us some color on when you are there talking to your customers, given what's going on, and also maybe on the manufacturing side on Beijer Electronics. If you can just talk about the moods, are they hesitating? Do you really feel like the decline in the business cycle? Just give us some more color on what you see out there.
Yeah. I think it's a little bit of a mixed picture. Of course, some customers are hesitating to invest, or they might be postponing projects and so on because of the uncertainty, kind of wait-and-see mode a little bit. We see that with some customers. On the other hand, there are projects and areas where investment needs to happen because of legislation, for example, because there is a need to upgrade, modernize, and so on. A lot of projects are also moving ahead. It's not the very, very strong market that we have seen previously. It's better than it was a year ago because then our customers were very affected by the high interest rates and so on. It's still not a great market. It's okay, I would say. You were talking about, yeah, Beijer Electronics and the manufacturing segment, I think you mentioned as well.
A little bit the same thing there, of course. We can see that Asia, for example, is coming back from the low levels that we saw last year. That is definitely an improvement. On the other hand, the slower business pace in some of the industries, automotive and so on, can have a ripple-down effect on some of the equipment manufacturers as well. It's again not a super strong market, but it's okay, I would say. It's relatively stable.
Okay. Finally, on Welotec , just quickly, you had these strong sales in the first month or in June from Welotec . If you look underlying, what does that market look like, and is it more, you said it was profit-wise in line with the rest of Westermo, but what is the feeling? What is demand for that type of product underlying?
I think we see a very strong demand for their products. Half of Welotec 's business approximately is the energy sector, and there they are very well positioned in this whole energy transition that is happening with, first of all, automation of equipment. Substation automation is happening right now, and then as a next step, substations of different sizes will also be digitalized. That is a work that is going on. All the big transmission system owners in Europe and elsewhere are working on that, and Welotec has a good foothold with several of these players. There I see a positive development. Also, with the rest of their business, they have stable customers. They have business development activities. I think that there's a positive outlook for Welotec , and especially joining forces now with Westermo, we have a very strong and more complete portfolio.
We're off to a good start.
Finally, just a household question, just to clarify, organic growth. When you write organic growth, I assume it's including FX but excluding acquisitions?
Correct.
Because then you have.
Correct.
Okay.
Correct.
Okay. Perfect. Thank you very much.
It's at prevailing rates, and when we talk about compensated for FX, then we write so. Yes.
Okay. Perfect. Thank you very much.
Thank you, Marcus.
Thank you, Marcus.
The next question comes from Henrik Alveskog from Redeye AB. Please go ahead.
Okay. Hello. Henrik here. You hear me?
Hi, Henrik.
Yes. Hi, Henrik.
Hi. First, I'm interested to hear you write here, and I mean, you mentioned it before also that development expenditures will be lower in the second half of this year. Due to the X3 series being launched now, could you give us an idea of the order of magnitude, so to speak, and also maybe the time frame? For how long will it be lower, so to speak? Is the 13%, 14% that you've been at of R&D costs related to sales, is that like a level that you will not return to in the near or midterm future, you think?
I'll take that one, Jenny. First, what we are talking about is Beijer Electronics, just to be clear that it's Beijer Electronics we are talking about. You have most likely noted that we have had a relation R&D expenditure in relation to sales in Beijer Electronics in the levels of 13%, 14%, 15% even percentage points now for a period of 18 months or so. What you can expect is that this will go down to levels that we saw prior to us starting up this X3 project, and those were around 8%- 10%. That is what you can expect over time. That would happen gradually. It will not go, it's not digital from one month to another, of course, but it will gradually go down over time.
You can also see that in this quarter, compared to what you saw in Q4 last year and Q1 this year, Q2 is somewhat lower, but it will continue to go down.
Yeah. Okay. Great. Thanks. Just a quick one on Westermo and the acquisition-related costs that you had in this quarter. Are there possibly more costs related to this acquisition as you see it right now?
Not any material items that will spill over into the Q3, if that's a question.
Yeah. Finally, on the tariff issue, which is tricky, I understand that. First off, Westermo is currently exempt from these tariffs to the U.S., I understand. Do you see any changes in that respect going forward?
I think everyone sees uncertainty on what can come and what will be the outcome of the ongoing discussions. We all know that there are higher tariffs being announced for August 1 and that there are, you could say, counter discussions or statements coming from the commission. It's very hard to predict, and we will not predict. We can only conclude that presently the Westermo volume has been exempt. If that will continue, hard to say. Beijer Electronics were not. There, we had an impact of the 10% tariff, and we have increased our prices in the U.S. market to compensate for that.
Regarding Beijer Electronics and these products that you're shipping to the U.S., is there, I mean, just for the near-term future, are these products that they sort of cannot substitute for other products because, obvious reasons? You're not so sensitive maybe in the short term then anyways.
What you're implying is whether or not we have competition that are in a different position than we are. In general, I would say our customers in Beijer Electronics have specified our products into their solutions, both hardware and software-wise. Of course, there are some hindrances to short-term exchange. We do not foresee that our position will change dramatically with the increases in price that we have done in Beijer Electronics.
Great. Thank you. That was all for me.
Thank you, Henrik.
As a reminder, if you wish to ask a question, please dial pound key- five on your telephone keypad. There are no more phone questions at this time. I hand the conference back to the speakers for any written questions or closing comments.
I don't see any written questions either as far as I can see on the screen here. With that, I think we conclude the call. Thank you all for joining, and have a great rest of the day.
Thank you.
Thanks.