Prevas AB (PREVB) Earnings Call Transcript & Summary

So looking into the second quarter of 2026 for Prevas. Prevas delivered a stable revenue performance in a quite cautious market. We delivered SEK 405.1 million versus last year of SEK 408.8 million. That equals a negative growth of 0.9%. The EBITA was clearly below our ambitions. The EBITA adjusted for restructuring was SEK 23.1 million, 5.7%. During this quarter, we have made several initiatives in the group to reach a more agile and efficient organization, for future profitable growth. And we have taken restructuring costs of a total of SEK 8 million during the quarter. We also, during this quarter, had a negative EBITA in Finland that affected the EBITA, of course. And that was due to the restructuring costs we have taken for a change program, which I will come back to later on in the presentation. We had postponed projects in Finland and also low utilization. Excluding Finland, Prevas as a group delivered improved EBITA versus last year. We delivered, excluding Finland, 6.6% in EBITA for the second quarter. The reported EBITDA was 3.7%, equals to SEK 15.1 million. The operating cash flow continued to be strong. We've delivered SEK 42 million in operating cash flow for the quarter compared to last year of SEK 49.6 million. EPS, SEK 0.50 versus last year, SEK 0.73. But all in all, if we look into the second quarter, it was clearly below our ambitions. And to be honest, I'm not satisfied with what we are delivering. The quarter was mainly impacted by Finland and the restructuring cost of SEK 8 million. We have taken necessary actions throughout the group to increase efficiency and to reach improved profitability and growth for the future. Looking into the business in Prevas as a total, we can see that the underlying business continues to improve. We have a continuous trend with increased utilization in the group in major parts of the group, I would say. And that is -- that is driven by operational improvements that we have been doing. One example is that we -- during the first quarter and also affecting the second quarter, we had three business units in Malmo, Lund area that we merged into two focused units. We also closed an unprofitable unit in Malmo. We have worked with adaptions to demand in several units in order to adapt the workforce towards actual demands in order to increase the efficiency of Prevas as such. But that is one part, the operational improvements. Another important part is that we are growing as well. We are growing in several areas in Prevas, like in AI-based vision system, a clear niche where we have a strong position. The core of Prevas embedded systems software development is growing in Prevas in total. We are growing in defense. We are growing in enterprise asset management systems. We're growing in smart production. So we have many areas in Prevas that actually are growing. So if you combine the operational improvements and actions we have taken in that area, combine that with the growth we see, that drives increased utilization that we also see in major parts in Prevas for the second quarter. Looking into Denmark, as it previously informed, we had a slowdown in demand in the Life Science sector, and that affected our Danish unit. So we have reduced the number of employees in Denmark, taking those kinds of actions. We have also focused on sales and growth, especially in cybersecurity area and industrial dealers in Denmark. What we see now is that the actions and the focus we have taken gives effect. We see a trend that is positive in Denmark. We had a positive EBITA in June, which proves once again that we are going in the right direction in Denmark. Another positive thing is that we see a slow recovery in the life science demand, which affects Denmark in a positive way. But all in all, the underlying business in Prevas is improving, and we see increased EBITA for the second quarter in for the Group, excluding Finland. And looking into Finland, what are we doing in Finland? What we're doing right now is that we are repositioning our Finland -- Finnish operations to improve profitability. I would like to zoom out a little bit to explain more the context around Finland. We made the acquisition of Enmac in 2024. Since then, the market dynamics has changed quite dramatically. It has been a weak market with slow demand in Finland more or less since then and most particularly in the pulp and paper area for quite a long time. And one example in this is a customer called Valmet -- in 2024, Valmet was the single largest customer in Prevas -- Prevas, Finland. That customer is now negotiating for temporary layoffs of 2,400 people in Finland. That is 40% of the staff. And changes like this actually affects the demand for external services that Prevas are delivering to customers like Valmet. So what we have been doing in Finland and the team has been working very hard with is to change and to adapt to this more changed market dynamics that we have seen. And we have had good progress for six consecutive quarters, but what we have seen with positive figures. But what we have seen is that the margins that we present, that we are delivering in Finland have been too low. So in Q2, we decided to implement a change program. What we see in the second quarter is also that the EBITA was actually negative. That was due to the cost for this change program, the restructuring cost connected to the Change Program, but also due to postponed investment from our customers and low utilization. Coming back to the change program for Finland, what are we doing? We are revising our organization when we have new leadership in place for our largest units, the unit that we have seen the largest challenges connected to the change in the market. So this unit is now designed and set for growth and higher margins after this change program. We have been focusing on areas with growth like in the defense sector, in energy sector, in the nuclear area, where there are nice demand in Finland. We focus on new sales to new customers as well on top of the present ones, of course. One good example there is within Internet of Things. We have signed a breakthrough order in that area towards a global industrial customer that is a new customer to Prevas. So we opened up a new account through this. And it's not a huge order, but it's a breakthrough order because it's in IoT, it's in data collection, and we are delivering services in Finland that we historically are very strong delivering in Denmark and in Sweden. But this was the first time that we now are entering this kind of business also in Finland. So that's also part of the logic when we acquired Enmac to take the strength that we have in the rest of Prevas, also implementing that into, to Finland. And that we now have a breakthrough order in that sense. So I'm very happy for that, of course. Generally, we see effects of the things we do. We had a very strong order intake at the end of the second quarter in Finland, a total of SEK 55 million at the end of Q2, including major orders from defense customers and not the defense customers we had in the past, for new customers in the defense area in Finland. And of course, that is very positive for the future as well. Adding those SEK 55 million in orders to the total backlog, we see that the total order backlog for Finland is actually larger now than one year ago. So we enter the second half of the year with a very strong foundation. We have a new efficient organization in place. We have a driven team that are very, very focused on delivering, and we have an increased order backlog for Finland. So I'm really looking forward to what our team in Finland will do for the forthcoming quarters. So with this, I ask you, Helena, to review a little bit about the cash flow and the financial position in Prevas.

Thank you, Magnus. Cash flow from operating activities amounted to SEK 42 million in Q2 compared to SEK 50 million last year. The decline was mainly driven by a change in working capital, reflecting different billing terms in projects compared with the corresponding quarter last year. The overdraft facility of SEK 100 million was used with SEK 24 million end of the quarter. Cash at the end of the quarter amounted to SEK 1 million compared to SEK 17 million last year. Net debt in relation to EBITDA rolling 12 was 1.06x. Prevas financial goal is not to exceed two over time. Equity ratio was 49.8% compared to 48.4% last year. And with that, back to you again, Magnus, for some market updates.

Thank you very much, Helena. So looking into the market, we see that it's quite a flat development that we have seen for quite many quarters now in our business. We see a high variation between different industries, between different customers in terms of demand. But what also has continued in this quarter is the continued strong demand from the defense sector and also in the cybersecurity area. A new thing for this quarter is that we see positive signals in Life Science. Life Science is a big part of Prevas. We have a strong position in life science. What we see now is that investment decisions are being taken in terms of R&D. And our -- what we see is that they take more decisions and they are more forward leaning in the life science area. And that is very important for Prevas into the future because we have a very strong position, supporting these customers in R&D. We also see that the funding for start-ups in this area is slowly picking up. It has been more or less dead for years. But now we see that start-ups is starting to get money also in the life science area. And that's also something that will help the demand for Prevas actually. I'm also pleased to see that the market activity in Finland end of Q2 has increased. And generally speaking, I would say that we see some positive signs despite the continued uncertainty we have in the global economy as such. One thing is the Swedish PMI for manufacturing. That metric increased to 58.3% in June, and that is actually the highest level since 2022, and that is above the historical average for a longer period. And this is indicating increasing demands moving into the second half of 2026 and also '27. I've been in the business for many, many years. And my view is that there is a correlation between the PMI for manufacturing and the actual demand for engineering services, although there's a time lag before we actually see the effect in the consultancy industry. But for me, that is an early positive sign. Also, the European PMI is also increasing actually. It's now above 50%, indicating growth as well. So as a summary, continued flat market development. We have a strong variation between different customers, different segments. We have a continued growth in defense, and we see some positive market signs. A short view upon the growth in defense. For the second quarter, Prevas grew with 8% organically in the defense sector versus last year. The rolling 12 sales was around SEK 280 million, and that equals 17% of group sales. So we continue to grow in the defense area. We are growing on existing customers, but I'm very pleased to see that during this quarter, we also have signed new customers, if not a bunch of customers, but it's new customer in Sweden, Finland and Denmark in this quarter. It's not major orders for these customers, but it takes time to grow and you need to build the trust in the defense sector, all sectors, but most particularly, I would say, in the defense. And Prevas comes in with a strong heritage, strong references and now we're aiming also, of course, to come into new customers also in the defense area. Then a little bit about some customer cases in Prevas. We signed a contract with Lunera Energi in Trondheim, Norway. A contract was -- the value for the first 6 years was SEK 20 million. This is an implementation of Octave Enterprise Asset Management. It's systems for improving asset management and maintenance in customers. And Octave is actually a part of Hexagon that was sold out from Hexagon. So our partnership with Hexagon is now a partnership with Octave instead. And what are we delivering to Lunera? What we do is that we support the customer by optimizing maintenance operations within the customer, extending equipment lifespan and reducing costly downtime. So it's very profitable for the customer to work with these kinds of implementations that we support with from Prevas. Another interesting case is Kahrs. It's a wooden tree manufacturer. In that case, we have delivered AI-based vision system for quality assurance, fully automized in production. And this is -- sounds easy, but it's not easy. It's actually truly complex, and it's possible now, thanks to the AI technology that we are implementing into this solution for this customer. So we have a clear connection with the rapid development in AI and new business in Prevas. And for the customer, what does this mean for the customer? They can maximize the value from each manufactured plank. So very positive. And I think these two cases, they are showing that Prevas are winning contracts in the strategic growth areas where we have strong positions, like in the AI area, vision area, like in defense, like in maintenance systems, et cetera. So we see that where we have the strong position that Prevas continue to win contracts in those areas. And then a summary of the second quarter of 2026 for Prevas. Q2 was clearly below our ambitions. That was mainly due to Finland and restructuring costs. And these restructuring costs, we need to remember that. It's a consequence of the several actions we take in order to create a more focused and efficient Prevas in Finland and in the group for the future. So actually, in one way of thinking, we are investing in the future by doing these necessary actions in order to improve. But it's also important to bear in mind that the underlying business in Prevas performs. The EBITA outside of Finland grew in Q2. We had a positive progress in Denmark, where we had a positive EBITA in June. So things are in motion. We continue to grow in the defense area, 8% of organic growth and now up to 17% of the total revenue of Prevas. And that is in an area where we continue to see strong demand. So we have a very good position in that area also for the rest of the year and all the years to come. Prevas has a very solid financial position, as Helena was mentioning, and we generate a strong cash flow. This means that Prevas has the ability to take the actions that we need in order to build a long-term and a short-term fantastic company and enable future profitable growth. And as a summary, we now have an improved position for the second half of 2026. We have a more focused and more efficient organization in place. We have a stronger order backlog, especially in Finland. We have a continued growth in the defense area, and we have positive market signals in selected areas. As a summary, Prevas is entering the second half of the year in a much better position in order to improve our profitability and to reach growth. So for me, myself and my team, we already look forward to the autumn to show and to prove what we really can do in Prevas. So with this, we move on to the Q&A session, and I hope and look forward to interesting questions this time as we normally have. Thank you very much.

Thank you, Magnus, for this presentation. We go further to the questions from the audience. What does management turnover in Finland look like? Is the challenging performance related to a significant number of senior managers having left the company?

No. Actually, it is like this. The turnover in our management team in Finland is very, very low. The core team that came in through the acquisition remains, and they are also shareholders. So we have a very stable management team in Finland. And the challenge we have in Finland is related to the market development as such, not to the -- that what can happen in the consultancy industry that you acquire a company and the team that managed the company disappears. And that is not the case in Finland. We have a strong management team very committed.

You mentioned that conditions are improving in the Life Science sector. What share of your revenue comes from Life Science? And how do you expect that to develop going forward?

Thank you. Very good question. The share of revenue to Life Science was 13% in the second quarter. So it is an important segment for us at Prevas. Regarding the future development, of course, it's quite hard for me to judge. But as I mentioned in the presentation, we see positive signs. We see that our customers take decisions for new R&D-related projects, which is positive for Prevas. And we also see that funding for start-ups is coming back again in this area. So all in all, we see positive signals. But as I said, it's difficult to judge the future in that sense.

Why did the telecom segment grew by 38% during the quarter?

Yes, it was -- it's not a big segment for Prevas. So the percentage changes are quite big. The reason for that was that we had a large order that we delivered on for automation to a data center project in Sweden.

You mentioned that you plan to recruit, which areas or competencies are you recruiting for?

We are actually recruiting in many parts of Prevas right now and in more or less -- not all of the competencies we have, but many of the different competencies we have in Prevas. Specifically, we see demands in like cybersecurity, in embedded systems. We have a very strong position in AI vision systems. We look for engineers with those kinds of experience as well, automation, electrical and power engineering and design. So in quite many areas, we see needs to recruit in Prevas right now.

Okay. Enmac had an EBIT margin of minus 16%. What happened with the turnaround in Finland? Could you -- could this became even worse?

So take the question again.