Ferronordic AB (publ) (FNM) Earnings Call Transcript

Welcome to the Ferronordic Q2 2026 Report Presentation. [Operator Instructions] Now I will hand the conference over to speakers, CEO, Henrik Carlborg; and CFO, Erik Danemar. Please go ahead.

Good morning, everyone, and welcome to our presentation of the results for the second quarter of 2026. Starting with some highlights for the quarter. We saw increased earnings in all markets. Revenue increased 43% or up 54% in fixed currency with growth in all segments. Gross margin amounted to 15.8%, somewhat lower than last year on higher equipment share of revenue, but was up in our main market, the U.S. Operating profit improved to SEK 68 million compared to minus SEK 5 million in Q2 last year with profitability in all 3 markets. EBITDA nearly doubled to SEK 180 million compared to SEK 95 million the year before. Net profit improved to SEK 45 million compared to minus SEK 51 million the year before, supported by lower finance costs and currency gain. Thanks to the increased EBITDA and lower net debt quarter-on-quarter, net debt-to-EBITDA improved to 3.0 compared to 4.5 the year before with net debt then down SEK 112 million in the quarter. So in summary, 43% revenue increase, operating result of SEK 68 million, leverage of 3.0 and earnings per share of SEK 3.08. As said before, we saw increased earnings in all markets. We did have a strong quarter with higher earnings. The things we've been working on in recent years are increasingly visible in the results. That is mainly then focus on the aftermarket, cost discipline and increased use of data throughout the operations. I'm really happy to see growth and improved profit in all markets, but the overall earnings increase was driven by high U.S. sales with June being a record month. Focus remains on existing operations. We see untapped potential in all markets, while at the same time, continuing to evaluate selective bolt-on acquisitions. Revenue, as I said, was up 43% to SEK 1.6 billion compared to basically SEK 1.1 billion last year or 54% in fixed currency. Operating profit totaled SEK 68 million with SG&A down 2% despite higher revenue. EBITDA nearly doubled to SEK 180 million, giving us a total net profit of SEK 45 million, supported by currency gain, but mainly covered by the operating improvement. Net debt-to-EBITDA improved to 3.0, which is in line with our financial targets compared to 4.5% a year earlier, with net debt down SEK 112 million in the quarter. Looking at the U.S., in particular, we see strong demand from infrastructure activity and continuously accelerating data center construction activity across the territory. Sales were up 53% in U.S. dollars with equipment sales up 89%, aftermarket up 22% and rental up 15% Equipment growth was driven primarily by articulated haulers, very much needed for data center construction and ground preparation and then an exceptionally strong June. Despite higher equipment share of -- in the total revenue mix, we saw gross margin increasing in the U.S. to 18.2% compared to 17.3% the year before. Operating profit more than doubled to SEK 74 million compared to SEK 26 million last year. EBITDA was up 74% in U.S. dollars. Aftermarket continues to grow nicely, but is somewhat constrained by technician capacity, we could sell more service and parts if we had more people, and we are working to fix that. Sales will vary from quarter-to-quarter, but the underlying drivers installed machine base, aftermarket penetration and rental fleet continue to build, giving us a good base going forward. During the quarter, we also continued to develop the U.S. platform. We signed a service agreement with Volvo Penta, giving us possibility to service and sell parts for Penta engines. And we also extended our cooperation with Sandvik to include underground drills. At the same time, we continue to improve the platform that we have in the U.S. by implementing better sales management processes and working on continued digitalization of the business. So in summary, the market is strong, driven by AI and infrastructure. We have a good platform and a good team, and we are working to improve this further to take a greater share of the potential business in our U.S. territory. Going to Germany, strong deliveries and higher aftermarket sales. The signs of recovery that we've seen earlier continued but modest pace. Registrations of new trucks in our territory was up 7% during the quarter. Our own truck deliveries were up 52% in Europe with 267 units delivered compared to 100 in Q1. This also had a positive effect on working capital, which is now down to 10% of LTM revenue. Each truck delivered expands the population that drives the aftermarket demand going forward. Aftermarket sales then was up 9% in euro on better productivity and pricing with June being the strongest month of the year so far. Gross margin reached 10.9% compared to 13.7% the year before because of higher truck share in the total revenue mix, but the gross profit increase was up 17% to SEK 59 million. SG&A down 14% year-on-year, reflecting the cost reductions that were implemented during 2025. Operating profit then totaled SEK 8 million compared to minus SEK 13 million in Q2 last year. Workshops have more to give. We continue to work on increasing technician capacity, which remains the main constraint in growing the aftermarket business. At the same time, we did sign a lease contract now for a new workshop in Central Hesse about 40 kilometers north of Frankfurt. That will help us to provide even better service to our customers going forward and will grow the profitable aftermarket business. Looking at Kazakhstan, the market was more or less on hold during the quarter due to delays in government spending on infrastructure projects. This is something we expect to pass. Sales were nevertheless up 88% to SEK 49 million, driven by higher equipment sales. Gross margin was flat around 24% and operating profit then totaled SEK 3 million compared to a loss of minus SEK 1 million the year before. Erik, I hand over to you.

Thank you very much, Henrik. I'll turn to the financial statements and look a little bit more in detail how the performance of the quarter is reflected in those statements. Starting with the income statement. Revenue, again, strong across the platform and across the markets, consolidated up 43% to SEK 1.6 billion. It is the strongest revenue we've had since 2022, so very encouraging to see. Growth in all markets. So the mix of revenue across these segments is relatively stable at 62% U.S. 35% Germany and Kazakhstan, 3% of that revenue mix. If we look at the revenue mix across business areas, we see, however, that this quarter was strong in equipment and truck sales, which again, reflects business activities in all segments, but maybe notably in the U.S., very strong equipment sales there, especially towards the end of the quarter and Germany also where we also saw some trucks being delivered from sales in sales activities in the first quarter. So 62% equipment and truck sales, aftermarket, 31% and rental 7%. That compares to last year, it was 49%, 41% and 9%. So a meaningful difference, again, driven by new equipment sales conversions and used in the U.S. and also strong truck deliveries in Germany. Despite that shift in revenue mix year-on-year, the gross margin was relatively stable, down slightly and that decline was driven by Germany. And in turn in Germany was again that big delivery of trucks and the number of fleet deals, which tend to come at a slightly more compressed margin as well. So slightly lower gross margin, but stronger gross profit on that significantly higher revenue -- if we look at SG&A, despite the growth in top line, costs were held back for the group as a whole, SG&A down 2% to SEK 177 million. Some help also from the currency there. The average rate in dollars and euros were lower against the Swedish krona year-on-year. As a percent of revenue, this is a KPI we keep an eye on in all our segments and across the group. SG&A declined to 11.4%. That is, of course, also an effect of higher revenues, so raising that base. Operating profit up to SEK 68 million with a margin of 4.3%. That compares to a negative result last year and a negative margin of 0.4%. So a very strong year-on-year increase there. Net profit of SEK 45 million from that operating profit of SEK 68 million, we had lower net interest costs, so finance costs and we were also supported by a SEK 17 million foreign exchange gain. And with that, I move in to look a bit at the balance sheet. Looking year-on-year for a start on the PP&E. So mind you, this is our properties, but mainly our rental fleet in the U.S. in Germany. That was higher year-on-year. That is reflecting investments in the rental fleet in the U.S. mainly, to some extent also currency effects. Here, we would look at end-of-period FX rates and that worked to increase the PP&E in the consolidated Swedish accounts. If we would look rather quarter-on-quarter, which you can do also in the table there to your left, we also see a slight increase, not as big one. And again, that's partly reflecting that rental fleet in the U.S., which we keep investing in and which has high utilization, which is also reflected in the results of the second quarter. Working capital is at the core of our business and important for our returns on the capital we employ. In the U.S., we saw a decline in working capital from 19% to 14%. That is as a percent of LTM revenue, reflects partly inventory decrease, to some extent, transfers from inventory to the rental fleet and also higher payables. Receivables are up as they would be when sales increase. So that's in line with normal business practice. German working capital also down from 13% to 10% of LTM revenue, last 12 months revenue that is partly reflecting the decline in truck inventory. As mentioned before, we had a buildup of trucks in the end of the first quarter, and that were -- they were delivered through the second quarter, contributing to that decline in working capital. In Kazakhstan, we had an increase in working capital on a currency basis or SEK basis, Swedish krona, but as a percentage of revenue, a decline there as well given the higher revenue in the quarter. Net debt for the group as a whole declined that reflects part of this reduction for the group as a whole quarter-on-quarter reduction in working capital and release of cash and the operating performance and also, to some extent, foreign exchange differences. And the profit for the period as well as, again, FX translation contributed to a higher equity, as we said, and an increase in equity to assets for the group. And with that, I move over to the operating profit dynamics starting year-on-year. Again, last year was a weak quarter at negative 5%. Very strong positive dynamics in the U.S. in this quarter from SEK 26 million last year to SEK 74 million. This is in Swedish krona, of course. So a gain or an increase of SEK 47 million. In Germany, we moved from minus 13% to plus 8%, so an increase of 20%. And in Kazakhstan from negative 1% to plus 3%, so an increase of 4%. All segments, we were happy to say, contributed to the improvement and strong results of this second quarter 2026. Moving to quarter-on-quarter dynamics, a similar picture. Again, all segments contribute to improvement. starting from a higher base from Q1 of this year, the strong performance in the U.S. in Q2 again stands out. also an improvement in Germany on the profitable first quarter we had and then also moving from breakeven to plus 3% in Kazakhstan. On the asset side, so just quickly reminding of the balance sheet, the assets that are generating the returns for the business. We see that the biggest part of our balance sheet is the rental fleets. And then in red, it is mainly the rental fleet in the United States, but also rental fleet in Germany. Second, in terms of weight on our balance sheet are inventories as part of working capital. So these are mainly machines in the U.S., trucks in Germany and machines in Kazakhstan, but also parts, of course, to make sure we have high parts availability to service our clients and customers. And receivables, a natural part of our business. And again, that tends to vary a bit with current sales or sales in the most recent period. And then to your far left, there also our infrastructure, of course, the real estate, our workshops and the fixtures and fittings in those workshops. On the liability side, we, of course, try to work as much with payables to our partners as we can. We also work with our bank partners in bank loans and with our partner, Volvo, with their VFS facilities. And that brings us to a net asset value of SEK 1.4 billion or SEK 97 per share. And with that, Henrik, we move to the financial objectives where we are. We -- starting on the revenue, moving higher from where we were, but not at our target. We have, to some extent, the FX against us where we set the goals. But again, the dynamics is moving higher. In operating margin, good progress in this quarter indeed towards our goal of being above 6%. This, I remind the listeners, is last 12 months trailing, so the last 4 quarters combined. And balance sheet measure, net debt and against the income statement EBITDA trailing, we are now also at our target there, which is very positive and encouraging. So a decrease from 3.8% in the first quarter and 4.5% a year before. Good traction there. With that, Henrik, I turn to you for something on the outlook before we open the floor for questions.

Thank you, Erik. When it comes to the United States, we remain optimistic on the operations and the market ahead. Infrastructure spending remains high. At the same time, AI-related data center investments and related power infrastructure continues to grow across the territory. Customer order books are solid and machine utilization is high. So I mean, all in all, the underlying demand in the U.S. business is good. Q2 then sets a high mark and quarters will vary, but the installed base, our rental fleet and rising aftermarket penetration will keep building, giving us good hopes for the future. In Germany, the gradual recovery is expected to continue as fleet renewal needs accumulate. Customers do continue to use their trucks, securing underlying demand for parts and service. We now have a lower cost base in Germany. We have a stronger aftermarket, and we have an organization that is able to handle larger volumes. So we're well positioned for operational leverage when the market normalizes. In Kazakhstan, we expect activity to improve as government spending resumes, and we continue to see good opportunities in mining and road construction. Thank you. So with that, we pass the word back to the operator, the host of the call for Q&A.

[Operator Instructions] The next question comes from Albin Barnevik from ABG Sundal Collier.

This was Albin at ABG. So a very strong report, of course, highest EBIT since Q4 '22. Perhaps if we would start on splitting out the development, you touched upon this in the presentation as well, but how much of this is the strong rental conversion figure playing in here? And how much is perhaps the strong aftermarket in Germany and the decreasing SG&A? I understand the largest contribution to be, of course, the rental conversion figure in the EBIT development?

Well, actually, if you look -- I mean, it's clear that the U.S. is the main driver here in terms of the positive development. But if you look at the revenue mix and even within the revenue mix, again, we see a big share of equipment sales in the U.S., but it is really actually the new equipment sales that is driving this. So the rental fleet has high utilization, and we do see conversions year-on-year or the conversions are up year-on-year, but it's really the new ones that is driving the sales in this quarter, which is positive. We have high utilization on the rental fleet, and it means that, that is being depreciated and opens up opportunities for conversions going forward. We see growth in aftermarket in the U.S. and in Germany. But I think the quarter as a whole, driven by strong deliveries, again, in the U.S. top line new equipment and also in Germany. But again, positive to see the very important aftermarket grow in both those segments significantly. And we remind you that those machines going out in the market becomes potential for the aftermarket as well to grow in the future.

Yes. And you described the German recovery as gradual and modest at this point and onwards, how should we think about the secular recovery in the underlying market? And perhaps also if we can continue to extrapolate this strong aftermarket development, how do you perceive that?

I mean, I think we -- when it comes to the recovery, we -- customers continue to use their trucks and at some point, they need to be replaced. When that happens will probably depend on when customers feel more confident in the German economy as a whole and so on. But at some point, we expect new sales to take off. At the same time, when customers use the trucks, they will need to service those trucks and they will buy parts and so forth, which will secure the aftermarket business going forward. And then we continue to work on increasing capacity in the workshops so that we can capture a larger share of the potential business that is out there. That is also the reason why we are now expanding the workshop network in Germany to better service customers and grow the aftermarket business.

Yes. Yes, I understand -- and perhaps also on the aftermarket growth, you discussed the constraint by technician capacity being a constraint here rather than perhaps demand. What -- can you put a bit more color on the efforts to relieve the constraints in the coming quarters?

It's really a question of hiring more people and training more people and making sure that we are a very good employer to make sure that people actually stay and to train technicians so that they become more productive. But it's, in a way, a soft question, but it's continuous work to hire and make sure that good people remain.

Yes. And how do you see the SG&A impact of scaling the technician headcount going forward in Germany?

So I mean, the cost-saving measures we have taken have never really affected technicians or workshop. We have been very careful to keep the operational capacity that we have. The cost-saving measures have affected overhead expenses mainly. So of course, the more we grow the business, the better absorption we get on the overhead costs that we have, and that should increase profitability going forward.

Yes. And perhaps moving then to the U.S. U.S. aftermarket you discussed the Volvo Penta service agreement. I understand it that you have not had an agreement with Volvo Penta before. And how much -- how should we think about this in contribution to the aftermarket business in the coming -- looking forward?

Yes, I don't really want to quantify that. The same applies to the extended cooperation with Sandvik, but it's part of the strategy to grow the revenue and to grow the profitable service business. I'm excited about the Penta business because Penta is doing very well in the United States, not only related to engines that are in machines, but also related to the data center constructions that we are seeing.

Yes. Interesting. And on the Sandvik cooperation regarding their underground drills then, is this also an aftermarket activity mainly? Or can you go a bit more detail into this? Is it a...

No, this is both equipment sales and aftermarket. We have a cooperation with Sandvik for surface-based drill rigs since many years in the U.S., and this has now been extended to also include underground machines. All right. Yes. I understand. And yes, of course, you're aware of this, but [ BC ] has, of course, launched many new and updated models during the last couple of years. Do you see yourself capturing market share as a result of this effort as well? You've been talking about the positive development for the articulated haulers, for instance.

Yes. I mean, Volvo has had their biggest launch here ever last year. And of course, we have new generation of excavators. We have a brand-new generation of articulated haulers, and they are very popular, especially for these big ground preparation projects where you need haulers.

Yes. And looking at the income statement, I saw that the selling expenses fell to SEK 14 million from SEK 64 million here, while G&A rose to SEK 163 million from SEK 117 million. So combined roughly flat in total numbers. But have you reclassified any cost items here between those 2 lines or... How should...

No, I think those are reflecting dynamics in the respective segments in terms of those costs. I would probably, in your case, focus more on the total. So no trends or dynamics to that changes in terms of the business.