Welcome to the VBG Group Q1 Report 2025 presentation. During the Q&A session, participants are able to ask questions by dialing pound key five on their telephone keypad. Now, I will hand the conference over to the speakers, CEO Anders Erkén and CFO Fredrik Jignéus. Please go ahead.
Very, very welcome to the VBG Group presentation on the Q1 Report 2025. Just a short recap of our decentralized divisional organization from left to right. We have division Truck and Trailer Equipment, mainly active in the, as you know, the truck and trailer segment in the European market. We have in the middle our largest division, Mobile Thermal Solutions, active in the HVAC applications, for mobile applications, and with the main market in North America. Last but not least, our third division, Ringfeder Power Transmission, acting in mechanical power transmission, motion control in several industrial applications. If we step into the Q1 Report, and I will give you a brief summary of how we see highlights of the Q1 Report. As we look back at the Q1 of 2025, we have experienced some headwinds in the business cycle, most notably in North America and Europe.
The escalating trade war has introduced a layer of uncertainty and unpredictability to the market. Overall, as you can see, revenue declined by 12% compared to the Q1 of 2024, which is a tough comp since it was all-time high, with a reduction concentrated into three key segments. First, the compact segment within Mobile Thermal Solutions' off-road business in North America. Secondly, a major bus customer that has phased out production in the US in the transit bus segment. Third, the semi-trailer business in Europe. These three areas alone accounted for more than 80% of the total decline. Outside of these, the rest of the sales have remained largely in line with Q1 of last year. However, there is a bright spot worth highlighting: that sales outside Europe and North America increased by 25%.
This growth not only offsets some of the decline but also gives us a more balanced and stable geographic footprint. If we look at the quarter by month- to- month, we can say that the start of the quarter was challenging, primarily due to supply chain issues affecting some of the bus customers and the postponement of certain project orders within Ringfeder Power Transmission. However, I'm pleased to report that the sales picked up gradually as the quarter progressed. Despite the weaker demand, we have managed to maintain our gross margin, and this is really a strong effort by the organization, thanks to strong cost control and favorable changes in our product mix. The strengthening of the Swedish krona at the end of the quarter had a negative impact of SEK 8 million on our results.
Nevertheless, the group delivered a solid EBITDA margin of 13.1%, and if we exclude the SEK 8 million in currency differences, it would have been 13.7%. We also made two strategic acquisitions this year that support our long-term growth. In January, we acquired Italytec, the leading domestic supplier of HVAC systems for off-road vehicles in Brazil. This acquisition, a perfect complement to our Mobile Thermal Solutions division, strengthens our position in South America, expands our customer base, and opens up new segments, including in agriculture and construction.
In April, we further broadened our offering with the acquisition of Ledson Lights AB, a company specializing in modern sustainable vehicle lighting for both B2B and B2C markets. This move strengthens our presence in the accessories and aftermarket business. In summary, while the quarter began with challenges, we have taken meaningful steps to stabilize our position, diversify our footprint, and invest in future growth.
Fredrik, could you give us the details, please?
Yes. Like Anders said, despite the headwind in the business cycles, lower sales volume, especially in North America, we can see a resistance in our gross margin due to our ability to adopt our production capacity. Our EBITDA margin declined from 16.9%, which is the best quarter ever in VBG Group history in the Q1 of 2024, down to 13.1% in the Q1 of 2025. In the end of the quarter, sales started to strengthen and have an impact on the group, especially in truck and trailer equipment, but also on financial items where we reevaluate our loans, et cetera, et cetera. We'll now go through the Q1 with some touchdowns on each division. Truck and Trailer Equipments, to start with, sales for the division decreased by 1% compared to the same quarter last year.
As announced in previous quarters, it's the European semi- trailer market that has declined and causing the division's sales decline. After eight consecutive quarters of decline, we now can see that it's bottomed out, and the sales trend is positive at the end of the quarter. Strong sales in Australia and New Zealand, in combination with a slow European market, give us a favorable product mix, and the division delivers a strong margin for the quarter. The FX effect from the strengthening of the SEK, especially towards euro at the end of the quarter, affects the profit and loss with SEK 6.4 million negatively compared to the Q1 last year. This is relating to revaluation of the balance sheet items like inventory and accounts receivables.
Moving to Mobile Thermal Solutions, sales decreased by 18% in the quarter, and this is mainly due to two reasons: the decline in the compact segment and a slow start for the HVAC system to the transit bus market. Customers in the compact segment still experience a slow market, and the bus producers in the US had supply chain issues mainly related to lack of seats in the beginning of the quarter, which decreased the sales for us in the beginning of the quarter. Sales pick up in the end of the quarter and will continue to pick up during Q2 . Moving to Ringfeder Power Transmission, the division's sales decreased during the quarter by 11%, adjusted for FX and acquired sales of 11% and 10%. Q1 started not so favorable way, where some project orders were postponed, mainly for the German and European market.
The quarter had a not favorable product mix that contributed to a weaker EBITDA margin compared to the Q1 in 2024. We can see an increased order book compared to the Q1 2024, which will have a positive impact on sales at the end of the Q2 and beyond. Given the market development in North America for our products and the proportion of North American sales has decreased over the three last quarters and now amounts to 50% of total sales. Sales outside Europe and North America increased by 25%. The acquisition of Italytec in Brazil is a large portion of this growth. This growth not only offsets some of the decline but also gives us a more balanced and stable geographical footprint. Note that we have an off-market business of approximately 23% of the group sales on average.
Despite the lower volumes the Q1, we are glad to see that our activities to reduce capacity in production have been successful, which shows in our resistance in gross margins. For the Q1 of 2025, the cash flow came in lower than the comparable quarter last year. The result is mainly the reason for that, but also higher working capital tied up, especially in accounts receivables, due to the pickup of sales in the end of the quarter. After the Q1, we have a net debt position if we adjust for pension liabilities and leasing commitments of SEK 163 million. During the Q1, we acquired Italytec. VBG Group has still a strong financial position that can be used to develop the group going forward.
Like Anders said, in the beginning of the Q2, we acquired Ledson Lights and strengthened our position of safety on road products. Our KPI ROCE has decreased from a level of almost 40% in Q1 2024 down to 34.1%. The acquisition of the land in Toronto in October 2024 is the larger explanation for this decrease, together with somewhat lower EBITDA compared to 2024. This KPI is not a pro forma, which means that Italytec has contributed with two out of 12 months in the rolling 12-month EBITDA. Over to you, Anders.
Thank you, Fredrik. If we look at our future focus, we can say as we navigate through the Q2 of 2025, global developments continue to pose challenges. Geopolitical uncertainty and the trade wars, particularly linked to the ongoing US tariffs, remain a top concern for us. These factors are shaping the market landscape and influence our strategic response. It's clear, like many other companies, that the topic of US tariffs has been front and center this quarter, especially given that over 40% of our sales are generated in the United States. Fortunately, we are well positioned with three production facilities located in the US, which gives us a solid foundation to manage these headwinds. When it comes to impact, our off-road product segment will see minimal tariff impact as these air conditioning systems are USMCA qualified.
You probably remember the old NAFTA agreement, and this is the new one, USMCA, that will be in practice until 1 July 2026. To counter these effects of increased cost in steel and aluminum, we will implement a modest price increase in the low single-digit range starting 1 May 2025 . The bus segment in the US will have a larger impact, mainly due to the import of some Chinese components. To mitigate this, we will introduce price increases in the mid-single-digit range, also effective 1 May 2025 . The organization has really taken good initiatives around this. We have started to write letters already in March to our customers, and these have gone out. The majority of the customers will have a single line on the invoice. Some customers will have it included in the fees price, and there is one customer who wants a monthly invoice.
Everything is prepared for the 1 May pricing increase. Overall, while tariffs remain a challenge, their net impact on our operations will be marginal, as you see all these consequences. Looking ahead, I do anticipate continued market volatility and geopolitical tension. However, we remain cautiously optimistic. Our stable order book going forward, coupled with our strong cash flow and solid balance sheet, provides a robust platform for long-term sustainable and profitable growth. We will maintain our dual approach to growth. On one hand, we are committed to complementary acquisitions, strategically expanding our reach and capabilities. As we have announced in previous quarters, we aim to make one to three acquisitions per year. As you have seen, we have done two, but we continue our search in this area. On the other hand, we are investing in organic growth, which remains a key priority.
A clear example of this is our performance in the Q1, where we achieved, as Fredrik said, 25% growth outside Europe and North America. This was, of course, largely driven by our broadened solution offering and the acquisition of Italytec in Brazil, which continues to attract new customers and open new market segments. In closing, as a summary, our financial strength, customer-focused innovation, and strategic flexibility ensure we are well- prepared for what lies ahead. Sustainable profitability is just not a goal. It's really embedded in our DNA. By that, we end the presentation, and we are open for questions and answers.
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 Gustav Berneblad from Nordea. Please go ahead.
Yes, good morning. It's Gustav here from Nordea. If we start off in truck and trailer, more specifically the latter there, you comment on seeing the semi-trailer market, some signs of demand having bottomed out. You've talked about it in a while here, but now actually picking up slightly. Can you give more flavor on that?
No, I mean, thank you, Gustav, for the question. As we see, we have had eight consecutive quarters of decline, and we can see signs now in the end of the quarter, beginning of Q2 , that it is picking up, but of course, from low volumes. As we have indicated before, this will not be a quick ramp-up. I more see it as a gradual increase over time. It is, of course, connected also to what Volvo is indicating with its increase in production capacity, that tractors and semi-trailers will continuously increase in Europe over the coming quarters. I think Volvo is the best business intelligence that we have and that they foresee, and they stand with the forecast of improvement over the coming quarters. We can see that gradually by the order book and by the sales.
Yeah, okay, that's very clear. When it comes to the compact off-road segment and the weakness you are seeing there, is it still related to the inventories in the distribution chains, or has something else happened? Why you, sort-of, continue to see the weaker demand?
Our conclusion is that the slow inventory cuts that have been done in the distribution chain have now sort of finalized. It is more that it takes some time for demand to pick up. That is our view of it, that the inventory reduction in the chains has finalized.
Yeah, okay, perfect. On MTS here, are you seeing any signs of pre-buying from customers, would you say, in the quarter?
No, we can't see that. As Fredrik mentioned, we had a really tough start of the quarter, basically on supply chain issues by some customers related to seats. We have a really strong order book going forward in this area. I think I repeat myself, and as many have done, I mean, it's the two words: uncertainty and unpredictability when it comes to the US market at the moment. With our visibility in the next coming months, we see a good and stable order book going forward.
Okay . Just continuing on the price hikes you are making now, what are you hearing, or what's the general response from customers when you now have announced the price hikes?
I mean, it's, I would say, a bad expression maybe, but it's flying under the radar. All customers in the US are well aware of what's going on and the impact of tariffs. We have been calculated on product level, and we are also fairly transparent with our customers. At the moment, the response is understanding that is the... As we can see on the off-road side, I think it's very marginal price increases that we do. On top of that, we are selling from our Toronto facility free onboard or ex-works delivery terms. It will have a marginal impact. The larger impact is on the bus side. We are talking about mid-single digit price increases. Of course, looking forward, I mean, we are part of this, and it's hard to say what the indirect effect will be on the demand side.
It's clear from our perspective that it will drive... It's not just us. I think everyone will try to offset the tariffs with price increase. What will happen with the customer demand, that is something that we have... It's hard to explain. As I use the word unpredictability, I think, of course, we have the 10% tariffs now. What will happen after 9 July when this is done? It's hard to say.
Yeah, it makes sense. Makes sense. Sorry, the last question also here on Ringfeder Power Transmission. You comment on a slow start here, but increased orders during the quarter. Can you give any more comments on that? Also, the weaker mix, is that something we should extrapolate also here in the short term, or?
No, no, no. If you follow Ringfeder Power Transmission over some years, it's ups and downs related to project orders and so on, and also product mix. If we go back to Q4 , it was the strongest quarter ever in this division. Now we had a really slow start, but order intake is strong, and it's a lot of project orders in the pipe. It will be up and down for Ringfeder Power Transmission, but we see it positively.
Yeah, okay, perfect. That was all for me. Thank you very much.
Thank you.
Okay, then we have some written questions.
There are no more questions at this time. I hand the conference back to the speakers for any written questions and closing comments.
Okay, thank you. Now we have some written questions to start with. Are you aiming for more acquisitions during 2025? I know that already one and a half years ago, you announced that you struggle with organic growth and that you need acquisition-driven growth. Like Anders said, we have a goal to make one to three acquisitions a year. We need to add around SEK 500 million to 600 million to the group each year. This is what we work intensively with all the time. To start with, this Q1, we have made two acquisitions in Italytec and Ledson. We are focusing on the growth target for VBG Group. Question number two, are there plans to diversify into markets other than Europe and North America? Yes, we have a target for us to grow outside these markets, which means for us in Brazil, in India, and so on.
Relating to that, we made an acquisition in 2023 where we purchased Rathi Transpower in India. Now we also made an acquisition in Brazil with Italytec. We have focusing on outside Europe and North America. In the quarter, we grew by 25% outside North America and Europe. The last question, are you aiming for more... Which are the main initiatives to increase the after-sale position? Is there a long-term percentage compared to new sales?
I think this is a strategic, really important question for us. We are working intensively with the aftermarket or after-sales position, both when it comes to product development, but also it is highlighted in our acquisition funnel as well. I have hard to explain our target, but at least it should be somewhere between 25% and 30% over time. By that, we have no further questions. We thank you for the participation. We end the conference call now. Thank you very much.
Thank you.