Prevas AB (PREVB) Earnings Call Transcript

Hello, and welcome to today's webcast with Prevas. With us presented today, we have the CEO, Magnus Welen; and CFO, Helena Burstrom. If -- and with that said, I hand over to you, guys, and I'll be back for the Q&A.

Thank you very much, and I welcome you all to the presentation of the Q3 results for Prevas. The agenda for this short meeting looks like this. We will start with this introduction, then we will have a review of our financial performance for the third quarter, then we will have a market update, and we finalize this meeting with a Q&A session. So looking into the third quarter of 2026 for Prevas. Prevas delivered a stable performance in the third quarter of 2026 with improving key metrics. We can see that Prevas is returning to a positive organic growth after 6 quarters. This means that we are delivering a net sales of SEK 357 million compared to last year's SEK 355.2 million, despite the fact that we are a lower number of -- the EBITDA for the quarter was SEK 30.1 million compared to last year of SEK 30 million. And the EBITA margin was unchanged, 8.4%. We can see that we had a very positive development of the operating cash flow for the quarter. We delivered SEK 31.9 million in operative cash flow compared to last year of SEK 21.3 million. The EPS for the quarter was SEK 1.37 compared to last year, SEK 1.34. So all in all, Q3 was a clear step in the right direction for Prevas. We managed to grow our turnover, and we delivered 8.4% of EBITDA with less employees. This reflecting increased efficiency, thanks to all the different actions we have taken in Prevas and the sales focus we've been working on for the last quarters and also during the third quarter. Another fact is that we have a higher delivery volume in areas with higher value add in this quarter, where we actually have higher margins in those offerings that we have been growing in the third quarter. Looking then into more of the details, what is driving the improvements we make in Prevas. Looking into Sweden, we can see that the EBITA grew with 12% versus Q3 of last year, and we reached an EBITA margin of 9.7% in Sweden. And the reason for this is absolutely quite simple, higher utilization, improved efficiency, thanks to the actions we have taken, but also that we are, especially in Sweden, increasing our part of the business where we deliver in higher-value projects with higher margins, and that is improving the margins we make in Sweden. Then I'm very pleased to see that in Denmark, we are once again back to after 3 loss-making quarters, now Denmark is back on track. We delivered an EBITA margin in Denmark of 7.9%. And this once again is thanks to higher utilization and improved efficiency. The team in Denmark has been working very, very hard in order to adapt to a more tough market that we have seen, and this now pays off. We also see in Denmark a growth. And the growth is in cybersecurity and defense, the 2 priority areas we see in Denmark right now. We also see that we actually have net growth in terms of employees in Denmark. If we compare the first month in the quarter and to the end of the quarter, we actually have a net growth in Denmark in terms of employees, which, of course, is promising for the future. Looking into Finland, we can see that during the third quarter that Finland is improving, but we need to do more. We can see the EBITDA, it reached now a positive EBITDA of SEK 0.7 million, 1.5%. This is still below our ambitions. Of course, we need to improve. But we have taken measures in Q2 that we see the results now in Q3. These measures has made us increasing the utilization and also made our cost base substantially lower. During the second quarter, we signed orders that contributed positively to the third quarter's results. But one thing that has affected the quarter negative is that the defense orders we made in Q2, the plan was to start them immediately in Q3. But unfortunately, these defense projects has been -- they are now started, but they started later than planned, and this influenced the quarter negatively. But naturally, we will see a positive effect of these defense projects when we move into the coming quarters. We also see a growth in data centers in Finland recently. We see this in other parts of Prevas as well, but most particularly in Finland, we see interesting growth in that area, which, of course, is very welcome in the Finnish market that still is quite tough, to be honest. Our focus is very simple in Finland. It's -- we focus on sales. We focus on turning our orders into revenue, into margins and to improve our -- we have a new organization in place since Q2. We have a motivated team, and they work extremely hard to prove that Finland can and will deliver strong margins. I'm so convinced that we will see this in the future. So with this, I hand over to you, Helena, to -- will talk a little bit about our cash flow and the financial position we have in Prevas.

Thank you, Magnus. As said in the beginning, cash flow from operating activities amounted to SEK 32 million in Q3 compared with SEK 21 million in the corresponding quarter last year. This represents a continued strong recovery compared with the corresponding periods in recent years. The higher cash outflow from financing activities compared with last year was mainly explained by the repayment of SEK 13 drawn on the overdraft facility in Q2 2026, combined with a positive impact of SEK 11 million from new borrowings in the corresponding period last year. Cash at the end of the quarter amounted to SEK 1 million compared to SEK 7 million last year. And net debt in relation to rolling 12-month EBITDA was 0.9. Our financial target is not to exceed 2.0 over time, meaning that we remain well within our financial target. An equity ratio then 54% compared with 50% year. Magnus, back to you and the market update.

Thank you very much, Helena. Thank you. So a view on the market. What we see is a rather similar market compared with Q2 of 2026. The conditions continue to vary across customer segments, industries and regions. We continue to see very strong demands in defense, in the energy sector, in data centers and in cybersecurity. We also see a weak demand in pulp and paper industry and the main part is in Finland, where we see a weak demand, a continued weak demand in that area. We see clear signs of recovery in Denmark. We also see positive signals from the export industry in the Nordics, except for automotive. And talking about automotive, the segment automotive and transportation, as you can see in the industry breakdown represents 6% of the total group revenue for Prevas. The car companies like Volvo Cars is only a small fraction of the 6%. This means that Prevas is not directly exposed to the current difficulties that we see in the car industry. Of course, we are affected on an indirect level when companies like Volvo Cars is making big reductions in terms of personnel in the Gothenburg area, but we have no direct effect for Prevas related to those kinds of reductions. We can also see in the industry breakdown that the share of our revenue for defense has increased from 15% up to 17% for the first 3 quarters of 2026. Then I also would like to emphasize that the top 5 customers of Prevas represent around 25% of the revenue for the third quarter 2026. So we are positioned in a good way. We have many different segments that we work with, and we have a very -- many different customers, and we're not high dependent on specific customers. Looking a little bit more into the defense area. Defense continues to be a key growth driver for Prevas. During the third quarter, we managed to produce 6% of organic growth within defense. Sweden and Denmark actually increased by 19%, which is a strong growth. The reason that the group only comes in on 6% organic growth for defense is that Finland had a very strong comparison quarter last year with a big project delivery, including a lot of material. So underlying, we continue to grow in defense. The sales in the third quarter was SEK 61 million. Rolling 12, we are now at SEK 283 million towards the defense industry. And for the third quarter, that equals 17% of the group sales and last year was 16%. Something else that happened during this quarter and also the previous quarter as well is that we signed contracts now with new customers in the defense area. It takes quite a long time to come into new customers in this area, but we now see that our devoted work pays off. So we have signed new customers, attracted new customers in the area with nice growth potential in Sweden, in Finland and in Denmark. Then I would like to talk a little bit about some other growth areas in Prevas. We have an area called Enterprise Asset Management, EAM. We are a partner with [ Octave ] when we as a reseller for their software within Enterprise Asset Management, and we support our customers to improve the way they work with the maintenance of their assets, creating a lot of customer value in this. During the first 3 quarters of this year, we have managed 35% of organic growth in this very prioritized market for us. We have signed several large orders in 2026, totally well above SEK 100 million in orders in this area for companies like [ Lunera, Oslostad ], et cetera. And what we deliver is, of course, services. We help our customers to improve, but we will also get the recurring license revenue. from -- as a part of these deliveries within EAM. And then we have the cybersecurity area. What we see in cybersecurity is that demand is actually accelerating even more. There comes more strict requirements right now like the CRA regulation that actually drives this demand even more across products and production, the areas where Prevas are present. Then we have data centers. This is an area that is quite new to Prevas. We have seen a rapid growth from very, very low levels in 2025, and we now grow into 2026 in this area. We delivered traditional Prevas services like automation services, piping design, electrical design, et cetera, towards customers within the data center area. So what you see is that we have specific areas with growth. And what do we do in order to meet this growth? We are starting up recruitments. In Q3, we started recruitments, and we will continue to recruit for the forthcoming quarters as well to meet these specific customer demands. Then I would like to talk a little bit about AI in Prevas. It's on everybody's list right now, the topic of AI. I would like to share it into 2 parts. First, what do we do for our customers? We work with AI solutions where we sell AI as a part of our supplies and solutions to our customers. One example is within AI-powered vision systems, where we use the latest AI technology on the edge to solve problems that were impossible to solve in the -- and all this, of course, due to the fantastic technology within AI. We work with intelligent software and data solutions in our customers' products and processes. So that is one part. Another part is that we utilize AI to deliver faster and with higher quality. Within software development today throughout Prevas, we work with agentic software development. We work with AI-supported testing, and we use LLM-assisted LLMs to assist with data analysis of log data, et cetera. So we are very agile and active in utilizing the benefits of AI to improve our deliveries to our customers. And that is one part. The other part is inside of Prevas. We also utilize AI to be more internally. One part is in sales and bids. We use AI. We have made applications and solutions that make our process to make bids, offers and concept more efficient. We also utilize AI in our own internal support functions, automating administrative services with AI agents. This is new technology. It's quite -- it's brand new, but we are very active and utilize the possibilities that come through the technology. We also use this for increased efficiency in analytics. And then as a summary, the business we make in Prevas is linked to the development of physical products, manufacturing systems, industrial operations. It's not a pure software solution that we are selling to our customers. We are linked to the physical -- and I know that AI will automate parts of the engineering work, and it's fantastic. But it does not automate the responsibility for designing the correct products, solving the right problems, building and operating real-world industrial products and production system. Doing that, you need to have domain knowledge. You need to have people. You need to have what Prevas is offering. So going forward, I'm convinced that we will see there will be more value to be created through the combination of engineering expertise, the senior premium expertise that Prevas has, the deep domain knowledge that we have in Prevas and of course, AI as a part of this. And we see AI as an opportunity for Prevas and act very agile to utilize this opportunity in the future. And then I would like to give one example of what we actually do in AI because one thing is talking. Another thing is delivering value. For Alleima, a world leader in manufacturing of steel rods, we have together with them, developed an AI-based machine vision system for automated quality control of steel rods. I could talk 10 minutes about this case, and I will not do it. But it's very, very complex and it's very, very high value for the customers, and we utilize the latest AI technology. Doing what we do now was impossible, I would say, 6 or 9 months ago. So we are an agile company, utilizing the benefits of AI. And then a summary of the third quarter of 2026. Prevas delivered a stable performance in Q3. We returned to positive organic growth. We delivered an EBITA margin of 8.4%, which is a significant increase from the second quarter and in line with last year. Actually, the EBITA in SEK was slightly above last year as well. We improved the cash flow substantially. We increased the EPS. So the key metrics were developing in a very good way in the third quarter of 2026. Why is this? The reason is that we have operational improvements delivering results in Prevas. Sweden delivered higher EBITDA and an organic growth. Denmark returned to profitability. Finland improved. We increased utilization. We have lowered the cost. We have a new organization and a motivated team that now work very hard to secure that Finland will come back on track in terms of profitability. Looking into the priorities ahead, we need to convert the demands we see in the priority areas that I presented to you into profitable growth. The focus is very simple. We focus on sales. We focus on high utilization, cost control, which end up and the consequence will be profitable organic growth for the company. Another priority for us, of course, is to improve the profitability in Finland. And then we will continue to recruit in areas where we see strong demand, moving Prevas towards profitable organic growth. And as a summary from my point of view, I think Prevas has taken clear steps forward in the right direction in the third quarter of 2026. This quarter confirms that our focus and actions we take pays off. And now with this -- and we now focus to convert the strong demand we see in selected areas into profitable organic growth and also to continue to improve the profitability in Finland. And with this, I thank you for listening. And now we move on to the Q&A session.

Yes. Thank you for that presentation. We will now open up for a short Q&A session. We...

Dafina from ABG here. My first question is on organic growth, which turned positive in the quarter. How much of this came from price increases, high utilization and volume, respectively?

Thank you very much for a very good question. And the answer to this is, as you say, split between different parts. Actually, we have increased the volumes in areas where we have a higher margin and higher value add, and that has increased the average prices in Prevas. So that is a part of the explanation. Another part is that we -- our utilization, our efficiency has increased. So that's also one part. A third part for this is that we also have seen an increase in our subconsultancy revenue for this quarter and also a minor increase in revenue from materials. So it's a mix of different aspects that has created this growth. And we need to remember also that we are less number of employees this year compared to last year. So all in all, for my optics, I believe it's a proof that we have taken the right actions in the quarters before Q3.

And just on pricing, have you seen any change in your ability to raise prices with customers? You spoke a little bit about that, but are price increases now in line with or above salary increases this year?

I would put it like this. The average prices in Prevas has been adjusted and are now in line with the salary increases we have seen for the year.

Okay. And Finland has been a tough market, and you made some restructuring changes in previous quarters. What are the main factors behind the improvement now? And when do you expect margins to return to normalized levels?

When we expect to get back -- this is something that will take time. Looking into Sweden, we are very close to 10% in Q3, and we expect to continue to have a positive development in Sweden. Denmark went up to 7.9%. And of course, that's a consequence of the action we have taken in Denmark. We now have a more positive market. So there also, we have a positive journey ahead. Of course, looking into Finland, when we make 1.5% of EBITDA, that's where we have the big margin growth to make, and that is also where we focus together with a very motivated team to increase the EBITDA. So definitely, our focus is to increase the EBITDA to a more reasonable level. That's for sure. But we don't give forecast. I can't actually say when we expect that to happen.

Yes. Okay. And just on the segment, you mentioned strong demand in data centers. How large is this area for Prevas today roughly? And also on just pulp and paper, is that a large exposure for you in Finland?

I'll start with the second question. Pulp and Paper used to be a big part of the business we make in Finland, and it has reduced substantially compared to a couple of years ago. So in that sense, we have already taken the hit from the lower demand in the pulp and paper industry. So that is one part. And then the other question about data centers. It's an interesting new business for us, but it comes from very, very low levels in '25. So it's not a huge part of Prevas yet. But in percentage, we see very strong growth right now, especially, I would say, in Finland. But also in Sweden, we see growth in this area as well. And I can't give you a figure for that now, sorry.

Thank you so much for questions. We can go straight ahead. The first question that we have is, have you been able to sign new customers during the quarter, diversifying from Valmet in Finland and Novo in Denmark?

Yes, we have. Both -- in Denmark, for example, we have growth in defense area where we have signed new customers. Actually, one example is a company called QuadSAT that we actually have now a reference case on our web page. So that is something we can talk about. So that is a new customer that we're working with, with hardware designed for drones for defense. So definitely, we have signed new customers in Denmark. And in Finland, we see, as I was mentioning about the data centers where we have now also -- those are new customers to the Finnish operations for this year so that we're starting to grow right now. So definitely, we have found new customers in both Denmark and in Finland.

Yes. Thank you. While we are on the track on Finland, will defense orders in Finland materialize more in Q4? How much will they affect Finland sales and margin?