Welcome to the Ferronordic QT 2025 Report Presentation. For the first part of the presentation, participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing the pound key five on their telephone keypad. Now, I will hand the conference over to speakers CEO Henrik Carlborg and CFO Erik Danemar. Please go ahead.
Good morning, everybody. Thank you for your interest in Ferronordic and welcome to our presentation on the results of the second quarter 2025. Looking at some highlights for the group during the quarter, we had stable sales and stable cash flows. Revenue amounted to SEK 1.088 billion, slightly lower than last year. Cash flows from operating activities amounted to SEK 262 million compared to SEK 270 million last year. Gross profit declined by 4% to SEK 177 million compared to SEK 185 million last year. Gross margin was largely unchanged at 16.3%, with higher gross margin in Germany and lower gross margin in the U.S. SG&A across the group decreased by 6%. All in all, we had an operating profit of - SEK 5 million compared to - SEK 4 million last year.
Net finance costs decreased by 26% during the quarter to SEK 29 million, and net debt increased to SEK 1.679 billion. During the quarter, we took further steps toward profitability. I started as new CEO in mid-May, and during these months, I have traveled extensively throughout the organization to meet colleagues, partners, and customers in my new role. It's been very exciting. Revenue was stable despite continued uncertainty in the U.S. and persistent stagnation in Germany. Operating profit was negative at SEK 5 million due to lower contribution from the U.S. segment. This, however, was not primarily because of softening the market, but mainly due to our own measures to improve and grow the business going forward. In the U.S., demand was holding up, and the market in our U.S. territory was up 10%. In Germany, the operating result improved year on year but remained negative.
Here, the main priority remains to continue increasing the number of technicians to fully meet the demand from our customers. During the quarter, we continued to optimize inventories, and they are now generally in balance, and we continue to reduce our debt. This led to lower financing costs, which positively impacted the net result. Looking at the group financials in summary, revenue, as I said before, amounted to SEK 1.088 billion, down 2%. Revenue in the U.S. was down 4% in Swedish kronor at SEK 695 million, but was up 4% in U.S. dollars. In Germany, revenue increased by 10% to SEK 366 million, and that was 12% up in Euros. In Kazakhstan, revenue declined by 54% to SEK 26 million and was down 45% in local currency. Operating profit at -SEK 5 million mainly because of lower contribution from the U.S.
segment, where the operating profit decreased from SEK 51 million to SEK 26 million. In Germany, operating profit increased from -SEK 27 million to - SEK 13 million. In Kazakhstan, operating profit was largely unchanged at - SEK 1 million. Unallocated group costs decreased from SEK 27 million to SEK 17 million. Net income increased to -SEK 51 million compared to -SEK 81 million in the second quarter of last year, primarily on lower finance costs, and continued despite continued foreign exchange losses. Net debt decreased to SEK 1.679 b illion , mainly on loan repayments and currency effects. Equity at the end of the quarter was equal to 31% of total assets, and the book equity was SEK 1.302 b illion at the end of the quarter. Looking at the operations, in the U.S., we see consistent demand despite uncertainty, primarily regarding trade policy and tax. Activity remains high, predominantly in the infrastructure segment.
Customers are optimistic, and they have strong backlogs for the future. The market in our U.S. territory then increased by 10% during the quarter. One uncertainty has been related to the continuation of tax incentives for investments. The passing of the so-called Big Beautiful Bill in July should remove those uncertainties, which should support demand going forward. We currently do not foresee that tariffs will affect our operations in the U.S. worse than anybody else in the market. Our market share during the quarter, however, decreased somewhat as we added fewer new machines to the rental fleet. One positive thing we have seen during the quarter is that rental revenue increased consistently during the quarter as rental utilization improved. Service and parts sales were stable.
During the quarter, we took actions to optimize our rental fleet and to increase our rental utilization by selling certain low utilization machines at a loss. This added SEK 19 million to revenue but reduced gross profit by SEK 2 million . We also made an impairment of certain parts and components amounting to SEK 5 million , affecting the gross profit with the same amount. Without these effects, gross margin was largely in line with the previous year. I would also add that we had some costs that were somewhat high during the quarter relating to maintenance of rental equipment and service vehicles, and we're taking actions to address this. As a result, operating profit in the U.S. was down significantly compared to last year in this quarter.
Naturally, this is not a result that we are happy about, but the good news is that we see we are now in a good position going forward. Looking at Germany, demand for new and used trucks remains soft. Many customers continue to delay new investments. Truck registrations in Germany as a whole decreased by 27%. In our Germany territory, truck registrations decreased by 38%. Our territory represented about 18% of the total German market. Our sales of new trucks, however, increased by 53% in units to SEK 155 million and by 32% to SEK 180 million in revenue. The good news is that customers continue to actively utilize their fleets. Even if they postpone purchases of new trucks, they use their old ones. This results in continued demand for service and parts. Service and parts sales increased by 6% to SEK 152 million, which is positive, but it's not enough.
We have increased capacity in our workshops, but we will continue to increase the number of technicians going forward to fully meet the demand that exists from our customers. Gross margin improved and gross profit increased by 33%. Despite this, our expenses declined. Inventory was 53% lower than last year at SEK 218 million compared to SEK 461 million at the end of the second quarter of 2024. This also resulted in lower debt in Germany and lower financing costs. Looking at Kazakhstan, the economy continued to grow. However, the activity in the mining sector, which is important to us because many of our larger customers are active there, remained low. The market for larger machines thus declined by 27% year -on- year. Our equipment sales were down 79%, as we sold less new and used machines. However, service and parts sales increased significantly by 65% year -on -year.
The gross margin improved, despite making an impairment of spare parts of SEK 1 million . We also had lower expenses during the quarter despite SEK 1 million of restructuring costs. Inventory reduced to SEK 68 million at the end of Q2 compared to SEK 209 million at the end of Q2 last year. I hand over to you, Erik.
Thank you very much, Henrik. As per usual, I start with a bit of an economic backdrop to the macroeconomic context we worked in, starting with our biggest market in the United States, GDP growth 2% in the quarter, but 3% quarter -on -quarter. Positive development there. Between 1.3% and 1.5% expected for the year as a whole. Looking at inflation, 2.8%, seemed to be signs of some room for the Fed to potentially lower rates, which would be positive. At the moment, the Fed Funds Rate effective is unchanged at 4.33%.
Germany up 0.4% year -on- year, but slightly lower quarter on quarter. The economy remains sluggish, and that is to some extent, as Henrik said, reflected in the market. 0% expected for the year and an inflation rate at 2%, just below where the ECB has its rate at the moment. Kazakhstan, strong growth at 5%. That's year to date, so six months actually. The mining sector being quite slow for more structural reasons there, and that affects the demand for Ferronordic and our biggest customers who are active in that segment of the economy. Inflation rate 11.8%, and the central bank rate at 16.5%. Financing and access to liquidity is a limiting factor in Kazakhstan, so positive when monetary conditions can ease up a bit in that market.
Moving over to our income statement and performance, looking at some of the detail, Henrik covered the big picture there. We saw, again, total revenue down to about SEK 1.1 billion. That's 2% negative, but that's with the USD that on an average basis versus last year, lost 9% versus the Swedish krona and the Euro about 2%. Adjusted for that, we would have a positive development on revenue year -on- year. Looking at the distribution of our business, almost 2/3, 64% in the United States. Almost 1/3, just above at 34%, is Germany, and Kazakhstan making up only 2.4% in this quarter.
In terms of revenue mix, which is a factor also on gross margin, as we know, with different margin pictures in the different revenue streams, 49% to about half coming from equipment and trucks in the quarter, 41% aftermarket, and 9% other, and that other is mainly, mind you, rental. Positive to see that grow in the United States and also positive to see strong aftermarket in both our big markets, the United States and being stable and growth in Germany. Looking at gross profit, slight decline there, 4%. Partly currency driven. If we look on margin basis, we're more or less flat year on year, down slightly, and that's a lower margin in the United States compensated by a higher margin in Germany. Our overheads or SG&A, selling, general, and administrative costs, down 6% year- on- year. That's about SEK 12 million in the single quarter.
That in turn reflects lower costs in Germany, partly driven by our cost reduction program there, lower costs in Kazakhstan, and lower group costs, whereas we did have higher administrative costs in the U.S. and selling costs. That's again something we're looking at to address going forward. As a % of revenue, SG&A declined in the quarter versus where we were last year. Operating margin more or less flat year on year, and we have operating profit slightly down to negative five versus negative five last year, and that's mainly on a lower contribution from the U.S. Looking below the operating profit, we had a net income of - 51, which was up versus last year. Lower financing costs.
We have brought down debt, and net finance costs were down 26%, but we did experience negative currency differences in this quarter as well as last year, -1 5 versus - 35 last year. Turning to the balance sheet, we had a slight increase in PPE, so our property, plant, and equipment, and that's despite a weaker foreign exchange situation in the sense that Swedish strengthened about 13% against the dollar and 3% against the euro if we compare year on year. Growth in property, plant, and equipment driven mainly by addition of rental fleet in the United States and electric rental fleet in Germany, not conventional. That is slightly down year on year rather in Germany. In the U.S., looking specifically, net working capital decreased somewhat from 17% - 14% of last 12 months revenue as a result of inventory and receivables decreasing more than payables.
In Germany, net working capital also decreased meaningfully as a % of last 12 months revenue from 16% - 11%. Mainly there, a result of lower receivables. Receivables were down SEK 85 million quarter on quarter. That in turn was much driven by receipt of subsidies from the state on our electric trucks rental fleet. In Kazakhstan, net working capital was down in currency in SEK, but slightly higher as a % of revenue due to lower revenue rather than higher working capital. Overall, I think we brought down working capital, as you can see in the table to your left there, quite significantly year on year, but also about SEK 200 million movement quarter on quarter. Reducing debt while growing sales is in line with our effort to increase capital turnover and also raise our return on capital.
Happy to see that come through, and it is also reflected in lower debt and financing costs, as we have pointed out. Net debt indeed being down SEK 146 million quarter- on- quarter to SEK 1.679 million. Equity to assets slightly higher by 1% at 31%. With that, I turn to the next slide, slightly technical, just to remind those of you that follow our business, and of course, those of you who are new to our business as well, that we have, as of the start of this year, made a change in the presentation of the income statement of our U.S. segment. We present in the report, and here to your left, what the U.S. segment looked like in Q2 when released last year and what it looks like now following these changes in presentations.
In the pink-colored column here, the difference between the two, so you can follow that, and you will see that we have brought some costs from SG&A up to cost of goods sold and also made an adjustment of some other income rather being classified as revenue. The net of this is a reduction in the gross profit and therefore the margin, but it has no impact on the operating profit or below. It is a difference in presentation. Moving to the big dynamics in terms of operating profit year on year, just to summarize, really, a decline in the U.S. if we look year on year, which we talked about, an improvement in Germany, which lifts the group's results, but we're not in Germany where we want to be. We're still negative. We are making progress, and we're confident that we'll get there.
Kazakhstan being largely flat year on year, and again, efforts to rein in on group costs, also a reduction on the group level there. That brings us to more or less a stable year on year, down by SEK 1 million. I summarized for us our balance sheet. Looking at the asset side first, on this slide, you will see that the biggest part of our assets are in our rental fleets, red being the United States and gray here on this slide being Germany. Inventories, further to the right on this ladder graph, being another big piece or the next biggest piece on the asset side of the balance sheet. A smaller blue line there also for the inventory in Kazakhstan. To the right of inventories, you will see trade and receivables also being a meaningful part.
To your far left, worth noting also the real estate that we have in the United States and in Germany. In Kazakhstan, we only have short-term leases, really. Liability side to bring the balance sheet together. To our far left, you'll see our trade and other payables, interest-free, and then moving right, our bank loans and then our floor plan directly linked to inventory and rental fleet there, bringing us to the book equity position of SEK 1.3 billion. With that, I reach our financial objectives. Last 12 months in Q2, we're at SEK 1.02 billion, the revenue we started from. Still a long way to go, but we want to make sure that we are efficient in growing in terms of our capital structure and again making sure that we increase capital turnover when we grow. We improve return on capital also as we expand our revenue.
In terms of operating margin, working there as well, we want to again expand aftermarket and the business in Germany. In Germany, an important component of that is getting these service technicians up and running, qualified and trained, and that's something we're working hard on. Of course, in the U.S., to keep those margins and continue to grow the business, it is encouraging to see really that our customers are in good spirit and there are good backlogs in their order books and strong demand in the market. Our net debt debitor is lower, and we will continue to watch that KPI also to get to our target levels. With that, Henrik, I hand back to you for an outlook before we pass over to Q&A.
Thank you, Erik. Recapping the outlook statement from the report, we remain optimistic about the operations in the U.S. and the long-term opportunities there.
We expect activity in the infrastructure sector to remain good as the need to maintain American roads and other infrastructure is significant. We see clear opportunities to further develop and expand the U.S. operations going forward. In Germany, truck demand remains low, but demand for service and parts is holding up relatively well. When the economy eventually starts to recover, demand for both new trucks and service and parts should increase as well. We must then ensure that we have enough capacity in our workshops to fully meet the demand. Meanwhile, we have reduced our cost base in Germany. We have reduced our inventory levels, and we have reduced our financing costs. Overall, we are optimistic about the operations in Germany too. Kazakhstan is currently a small part of the group's business, but we see promising opportunities in that market as well over the longer term. That concludes our presentation.
We are now open for questions.
If you wish to 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 Adrian Gilani from ABG Sundal Collier. Please go ahead.
Yes, hello. A couple of questions from my end. Starting off in the U.S. and trying to understand the different components and the gross margin, you mentioned you're selling some machines from the rental fleet at a loss to replace them with better ones. Is that sort of a one-time thing in this quarter, or is this something we should expect will continue going forward?
I would say that we have plenty of opportunities to grow in the U.S. and to gain market share, particularly in big metropolitan areas. We have invested in the rental fleet to approach some newer customer segments for us. That has taken a little bit more time when it comes to certain machine models, and for that reason, we decided to rip the Band-Aid and sell off some machines that we had low utilization on. Overall, the rental fleet is balanced, both when it comes to size and composition. As we've seen during the quarter, our rental utilization has improved, and rental revenue has followed consistently throughout the quarter.
Maybe to add to that, Abraham, we also, as you saw, took an impairment on some of the spare parts. That, I mean, we would classify as a single event. We obviously constantly review our inventory, but that was something that we made a decision on in this quarter specifically.
Okay. That was going to be my next question, but it sounds like you're confident that there's not any more inventory that might not be sellable at book value?
No, in general, we find the rental fleet in balance.
Okay. Understood. I remember last quarter, you talked about the gross margin being pressured by price pressure on certain machines. I mean, that might be the thing you mentioned before and selling at lower, selling certain machines at a loss. In general, the pricing situation, has it gotten better or worse, or is it the same as in Q1?
I would say that the market remains strong, but it's also a competitive market, and we are fighting on every deal. In general, I think we are protecting our margin pretty well. If you take away the special events that happened during the quarter, our underlying margin is more or less the same as last year.
Yeah. And then a final one on the cash flow. Since you sort of switched to booking the U.S. rental business under working capital instead of capital employed, we've seen some big swings in the working capital levels. Can you give us some indication of, with this new or with this change in accounting, what's the sort of normal working capital level that we should expect in a, I guess, medium-term sense?
Adrian, if I understand your question correctly, I mean, the working capital itself, yeah, I mean, that's built up from the balance sheet, right? That's not going to, we've always kept the U.S. rental fleet and the German rental fleet in PPE, and then inventory for direct sales in inventory clearly, and receivables, and then deducted the payables we have. That I don't think is going to change. If you're rather looking at the cash flow statement, then I think you can use, I mean, we have this way of presenting this year. I think you can use, and obviously, we corrected the previous years as well to be in line. I think you can use the current quarter and the previous quarter. I mean, we were stable also, as you'll see, year on year.
If we're looking at operating cash flow at SEK 262 million, I think it was versus SEK 270 million. That's probably something you should be looking out for going forward.
To sort of maintain that 200 level, you will need to release further working capital as well, because that's been boosted quite a bit by working capital releases.
Yeah.
You're expecting that part to continue?
Adrian, so we're clear on that. I mean, the operating cash flow is, you'll see in the financing adjustments, there you have floor plan coming down as a result of the release of capital, working capital. You see the operating cash flow coming out, but then again, in the financing, you see repayment of that to floor plan providers, in addition to which you have, of course, usual redemption of bank debt that we do. You need to match those together.
Understood. Perfect. In that case, that's all from me. Thank you.
Thanks, Adrian.
The next question comes from Anders Åckerblom from Nordea. Please go ahead.
Yes. Good morning. Thank you for taking my questions. Just two quick ones from my end. On the first, it would be interesting to hear you again just elaborate a bit on your view that you do not expect to be more adversely affected by the current tariff scheme in the U.S. relative to competitors. That's my first question.
Okay. I'll take that. First of all, the situation has been changing throughout the quarter, and it remains quite unclear what the final outcome will be. What the situation looks like today, however, is that basically all goods that are imported to the United States are subject to tariffs. That goes for complete machines or components that are needed for local production. All players in the market, whether they are sort of considered local or they would be headquartered outside of the United States, they all import a lot of things to the U.S., both complete machines that are made in factories abroad, as well as components and raw material for domestic production. Based on that, we don't really see that the brands that we represent would be affected by this worse than others.
The important thing for us here is that customers remain busy, which we think they will be based on the continued high activity in the market.
Makes sense. Thank you. In Germany, it would also be interesting to hear just sort of the diverging performance between, I guess, your sales and the clearly negative market growth in Germany. If you could elaborate a bit on the components driving this, and also if there is sort of a component of recent product launches from Volvo having been supportive for your performance, or if you expect that to come through in the quarters ahead, that would be interesting to hear as well.
Yeah. We had good traction on truck sales, and we've gained market share during the first half of the year, which is clear from our sales in units in Germany. That's positive because we build a population of trucks that we can continue to maintain and repair in our workshops and grow our service and parts business further.
Recent product launches from Volvo, do you expect sort of a supportive dynamic from that?
I don't speculate. I mean, this is a great truck that should help us to grow and improve in Germany. To what extent?
Nothing you really see.
I don't want to speculate, but it's a great product.
Okay. Nothing you really see thus far, or?
No, I can't really say that.
Okay. Okay. That's all from my end. Thank you very much.
Thank you, Anders.
As a reminder, if you wish to ask a question, please dial the pound key five on your telephone keypad.
We have one question over email. I think maybe Henrik, it's close to what you just touched on from a London-based fund. Could you give some flavor on pricing of trucks in Germany, please? Some of the price tension in the German market, anything we can comment on there?
I can only say that the market remains highly competitive. We have been successful in the first part of the year to grow share. We continue to fight for every deal.
There are no more questions at this time. I hand the conference back to the speakers for any closing comments.
I seem to have no more questions online or over email. Henrik, I think we're ready to wrap up.
Sounds good. Thank you all for your interest in Ferronordic, and I wish you all a great day. Thank you very much.
Thank you.