Interim Report January—September 2024: Margin protection and growth focus in a challenging market
The third quarter
- Order intake decreased to 456 MSEK (514).
- Net sales decreased to 493 MSEK (619).
- EBIT amounted to 50.8 MSEK (89.2).
- EBIT margin was 10.3% (14.4).
- Profit after tax amounted to 31.1 MSEK (52.5).
- Earnings per share reached 1.08 SEK (1.81).
- Free cash flow tripled to 55.6 MSEK (17.5).
- Cost control and strengthened gross margin resulted in maintained EBIT margin compared to the second quarter of 2024.
Nine months
- Order intake decreased to 1,467 MSEK (1,829).
- Net sales amounted to 1,680 MSEK (1,881).
- EBIT was 185.4 MSEK (260.2).
- EBIT margin amounted to 11.0% (13.8).
- Profit after tax amounted to 122.1 MSEK (166.2).
- Earnings per share was 4.22 SEK (5.75).
COMMENTS FROM THE CEO, JENNY SJÖDAHL
"As expected, the third quarter remained challenging for Ependion, where weak demand during the past twelve-month period continued to negatively impact our sales and order intake pace. The uncertainty in the global economy and high interest rates have slowed down customers’ pace of investment. I maintain my view that the current downturn is temporary and linked to a weaker economic cycle. We are working diligently to strengthen our position for when the economy recovers. During the period, we have continued to balance offensive investments in line with our growth strategies with short-term measures to mitigate the impact of the downturn on the Group’s results.
Order intake decreased to 456 MSEK in the third quarter, with no major new orders recorded. Westermo’s order intake remained relatively stable at 278 MSEK, while Beijer Electronics’ order intake declined to 180 MSEK, primarily driven by lower bookings in Display Solutions which is being phased out. Although the economic downturn is now evident across all focus segments, except for the marine sector, we see significant potential for the future. During the period, a large number of forward-looking market initiatives were carried out. Westermo participated in Innotrans, the world’s leading exhibition for the transport sector, and continued its efforts to establish operations in India, with a planned operational launch in the fourth quarter of 2024. Beijer Electronics also showcased the web-based interface WebIQ and the new HMI family X3 at the important marine exhibition SMM.
As a result of lower order intake pace in recent quarters, the Group’s sales decreased to 493 MSEK for the period. For Westermo, sales dropped to 269 MSEK compared to the exceptionally strong third quarter last year, mainly due to an unusually weak order book in the rail segment during this period. For Beijer Electronic, sales decreased slightly to 225 MSEK. Beijer Electronics is driving an extensive transformation aligned with the new strategy, focusing on three focus segments: the marine sector, machine builders in manufacturing industries, and applications for demanding environments. A review of the business entity’s portfolio is ongoing, with the ambition to gradually phase out lowermargin products and contracts.
Ependion’s EBIT for the period amounted to 51 MSEK, with an EBIT margin of 10.3%, negatively impacted by total currency effects amounting to -14 MSEK. Although the EBIT margin is clearly lower than during the strong comparison period, it remains stable compared to the previous quarter. Westermo’s gross margin, which was pressured during the component crisis, is now significantly improving despite lower volumes, which gives reason for optimism. Compared to the previous quarter, the Group’s gross margin increased by 1.7 percentage points. Both business entities have maintained a strong focus on cost control, while also making strategic investments for future profitable growth. This combination positions us well to take the next step toward our financial targets when demand recovers.
The Group’s financial position was further strengthened during the period, and free cash flow increased to 56 MSEK. The equity ratio rose to 46.1%. During the period, Ependion extended its financing agreement until 2027, providing the capacity to continue executing complementary acquisitions in line with the Group’s active acquisition agenda.
Ependion’s product development expenses amounted to 14.5% of the Group’s revenue during the period, reflecting continued significant investments for future growth within the business entities’ focus segments. For Westermo, this involves further developing its offering within rail, railway, energy and services, where a substantial portion of development projects are linked to concrete business opportunities, particularly within the important cybersecurity area. Beijer Electronics is in the final stages of developing the next generation of HMIs, with the first products in the new X3 family set to launch in the fourth quarter of this year.
During the period, a double materiality analysis for the Group was completed, defining the Group’s priorities for future sustainability reporting. At the same time, the Group’s scope 1 and 2 emissions were mapped, enabling the establishment of clear, science-based targets for emissions reduction, to be set during the fourth quarter. The mapping of scope 3 emissions is ongoing. I am pleased that the Group’s and business entities’ important sustainability work is now advancing rapidly.
With three-quarters of the year completed, we can conclude that 2024 is somewhat of a transitional year for Ependion after a record-breaking 2023. External factors remain uncertain, and we continue to see caution among many of our customers. The interest rate cuts now taking place are expected to contribute to increased activity, but it will take time for their effects to materialize. In the short term, this negatively affects the Group’s business conditions, and we anticipate a relatively weak order book for the fourth quarter as well. In the medium to long term, however, the prospects for profitable growth are very strong, given the structural growth in our focus segments, combined with our clear positioning to meet customer needs. The business entities’ efforts to mitigate the effects of the short-term downturn mean that the Group’s EBIT margin today demonstrates greater stability across an economic cycle than what has historically been the case, and we see potential for margin improvements as demand increases. We are optimistic about the future."
INVITATION TO PRESENTATION OF THE REPORT
Today a web and teleconference will be held for press and analysts, where President and CEO Jenny Sjödahl and CFO Joakim Laurén present the company and comment on the report.
Time: Friday, October 25, 13:30 CET
If you wish to participate via webcast please use the link below.
If you wish to participate via teleconference please register on the link below. After registration you will be provided phone numbers and a conference ID to access the conference. You can ask questions verbally via the teleconference.
The report and the presentation will be available at the company’s website www.ependion.com. A recording of the webcast will also be available here after the event.
Welcome to join!
This disclosure contains information that Ependion AB is obliged to make public pursuant to the EU Market Abuse Regulation (EU nr 596/2014). The information was submitted for publication, through the agency of the contact person, on 25-10-2024 13:00 CET.
