Earnings call transcript: Alleima AB sees stock dip amid Q2 2025 earnings

Alleima AB reported its second-quarter 2025 earnings, revealing a decline in both earnings per share (EPS) and revenue compared to forecasts. The company posted an adjusted EPS of SEK 1.35, falling short of the forecasted 1.65. This resulted in a significant market reaction, with the stock price dropping 10.95% to SEK 72.00, reflecting investor concerns over missed expectations and broader market uncertainties. According to InvestingPro analysis, the company maintains a "GREAT" financial health score of 3.09, suggesting strong fundamentals despite the recent earnings miss. The stock’s current P/E ratio of 12.41 appears attractive relative to its growth potential.

Key Takeaways

• Alleima AB’s adjusted EPS of SEK 1.35 missed the forecast of 1.65.
• Revenue for the quarter was just below SEK 4.8 billion, with organic growth declining by 4%.
• Stock price fell by 10.95% following the earnings release, indicating investor dissatisfaction.
• The company highlighted strong performance in its medical segment and continued investment in sustainable technologies.
• Alleima faces challenges from weakened demand in Europe and North America and geopolitical tensions.

Company Performance

Alleima AB’s performance in Q2 2025 showed a decline in key financial metrics. The company reported revenues just below SEK 4.8 billion, marking a 4% organic decline. Despite challenges, Alleima maintained a strong financial position with net cash of SEK 33 million and continued to focus on innovation and sustainable technologies. The medical segment showed strong momentum, contrasting with weakened demand in other regions. InvestingPro data reveals the company’s solid financial foundation, with a healthy current ratio of 2.77 and a gross profit margin of 21.74%. These metrics are among the 100+ financial indicators available to Pro subscribers, helping investors make informed decisions.

Financial Highlights

• Revenue: Just below SEK 4.8 billion (organic growth -4%)
• Earnings per share: SEK 1.35
• Adjusted EBIT: SEK 454 million (9.5% margin)
• Free operating cash flow: SEK 347 million
• Net cash: SEK 33 million

Earnings vs. Forecast

Alleima AB’s Q2 2025 earnings fell short of expectations, with an EPS of SEK 1.35 compared to the forecasted 1.65. This represents a significant miss, likely contributing to the negative market reaction. The company’s revenue also did not meet the forecast of SEK 5.02 billion, coming in just below SEK 4.8 billion.

Market Reaction

Following the earnings announcement, Alleima AB’s stock price fell by 10.95%, closing at SEK 72.00. The stock’s decline reflects investor concerns over the earnings miss and broader market uncertainties. The price drop places the stock closer to its 52-week low of SEK 63.65, highlighting the market’s negative sentiment. Based on InvestingPro’s Fair Value analysis, the stock appears undervalued at current levels. The company offers a dividend yield of 2.84% and has maintained dividend growth for three consecutive years. Discover more undervalued opportunities at Investing.com’s Most Undervalued Stocks.

Outlook & Guidance

Looking ahead, Alleima expects challenges in Q3 2025, including seasonal maintenance stops, currency headwinds, and potential under-absorption of costs. The company maintains its full-year CapEx guidance at SEK 1.2 billion and anticipates a tax rate of 23-25%. Despite uncertainties, Alleima remains committed to its strategic agenda and investment in sustainable technologies. For detailed analysis of Alleima’s future prospects and comprehensive valuation metrics, access the full Pro Research Report, available exclusively to InvestingPro subscribers.

Executive Commentary

CEO Joergmann emphasized the company’s ability to adjust to market changes, stating, "Our diversified exposure to customer segments... has proven to be successful." He also highlighted the importance of agility, saying, "We need to stay agile and adjust cost and capacity." Joergmann expressed confidence in the company’s financial position, noting, "Financial position remains strong, which will enable us to continue to execute on our strategic agenda."

Risks and Challenges

• Weakened demand in Europe and North America could impact future revenues.
• Geopolitical tensions and trade barriers increase market uncertainty.
• Currency headwinds and seasonal maintenance may affect Q3 performance.
• Investment hesitancy among customers could slow growth.
• Production efficiency challenges in the strip division may impact profitability.

Q&A

During the earnings call, analysts inquired about Alleima’s confidence in the Oil & Gas segment and the positive book-to-bill ratio driven by the medical segment. Questions also addressed production efficiency challenges in the strip division and the overall market’s investment hesitancy. Executives confirmed no significant changes in order size patterns, reflecting a stable demand landscape despite external challenges.

Full transcript - Alleima AB (ALLEI) Q2 2025:

Emily Alm, Head of Investor Relations, Allerma: Hi, everyone, and welcome to the presentation of the Second Quarter twenty twenty five Interim Report for Allerma. My name is Emily Alm, and I am Head of Investor Relations. I’m joined by Joergmann, President and CEO and Urdhof Beintzon, CFO. So as usual, Joergmann and Urdhof will take you through the results, and then we will have a Q and A session. You can ask questions either in the chat, in the webcast or on the conference call.

And as always, safety is our top priority, and we trust that you know the safe routines of where you are located. So with that, I would like to hand over to you, Jaram.

Joergmann, President and CEO, Allerma: Thank you, Emily. Hi, everyone, and thank you for listening. So I’ll start with the highlights of the quarter. Well, I think we’re performing okay in a challenging market environment with the mixed demand. Our broad exposure reduces volatility.

But of course, we note a negative organic top line growth. Where order intake rolling 12 declined 2% and revenues in the quarter minus 4% from high comps last year. Our backlog is still good in important segments such as oil and gas, in nuclear and in medical, a good product mix and visibility for the near term future. In the more volume business like Industrial segment and in ChemPetro, in Europe, in particular, the backlog is weaker. Our adjusted EBIT margin declined to year on year 9.5%, which I think, considering the lower revenues and a significant FX headwind, shows resilience and a good leverage.

And I take this as a proof that we are doing a lot of things right with our strategy. We have a good product mix. Excluding FX, the margin would have been 11.4%. But at the same time, there is room for improvement. So I think parts of the business is performing well, while others clearly have some challenges.

We did not have any significant direct effects from tariffs, and we have been successful in passing along these costs to our customers. But even though we have production in The U. S, the pricing has, of course, increased, which is impacting demand. And the ongoing turbulence stemming from tariffs, trade barriers has been lower than global economic environment and demand, which we now see effects from, with an increased uncertainty and customers postponing their investments. Our financial position enables us to stay with our strategy, where we have several ongoing proper growth projects.

At the same time, we are actively reviewing our footprint and capacity, ensuring profitability also moving forward. Move to sustainability. As I’ve said many times before, we are generating positive impact both through our operations and our product offering. Let’s start with operation. Safety is always the top priority in Aleema, and we are continuously and actively implementing measures to maintain safety as a top priority.

And the development is again trending in the right direction. And the accident frequency is actually now on record low levels, which is something I’m very happy with. Our share of recycle still remains high and over 80%. I think that’s a good figure given our product mix. CO2 emissions are steadily decreasing both on rolling twelve months basis and year over year, and the reduction is 615%, respectively.

And the proportion of female managers continue to increase now to 25.4%. And again, important to recognize this is only one aspect of the broader diversity inclusion initiatives. During the quarter, we announced that together with their strategic partner Danieli, will deliver pilot scale electric process gas heater to Msteel DRI plant in Abu Dhabi. This is the first time Kantal delivers its patented ProTal technology for commercial purposes. The heater, which is compatible with hydrogen and natural gas as well as a combination of the two, enables retrofitting and adds flexibility in our customers’ choice of technology.

The technology as such plays an important role in the transition towards more sustainable steel production and reduce the dependency of fossil fuels. I believe this is an important step in the scale up development of Praet Tal technology. We will collect data, experience and know how and will serve as a reference point, I would say, proof of concept moving forward. Moving into the market development. Overall, we continue to see mixed market sentiment, and the macro environment uncertainty has increased.

The market sentiment weakened, especially in Europe, and demand was, in general, continued low in North America. In Asia, demand held up better, but also there, we noticed some signs of hesitation. We have momentum in several of our key segments, and I will walk you through the development in each segment, starting with oil and gas. And we noted, of course, the volatility in oil price and the uncertainty has increased. However, we still view the underlying demand on high levels, and the project list of upcoming tenders and potential future order is solid.

Last quarter, we said that the backlog for umbilicals were getting shorter, but we have now booked more orders, and we have not consumed backlog. The book to bill was above one in the quarter, and the OCG backlog remains very strong. Chemical and petrochemical year on year down. Europe is down the most, while North America more flattish but on low levels. We also see an impact of higher uncertainty in Asia, but still on an okay level.

Industrial segment. Last quarter, we noted an improving year on year demand in the Industrial segment. This quarter demand is worsening on the low value add products, which is what we normally is down prioritizing when we don’t need that volume. And this is especially clear in Europe, but also in North America, we noticed I mean, in North America, we noticed some rebound in quarter one. This was due to pre buys, it’s difficult to say, as this business has been running low for quite some time.

The biggest impact on North America we saw in quarter one came from oil and gas, nuclear and medical, and those segments are segments where we would not expect such pre buys. And industrial, Asia, still on an okay level. Industrial heating, flat demand year over year and continued hesitance from customers in placing orders, which refers mainly to CapEx related business. For the solar segment, especially, we also had high comps from last year. However, was continued positive in some applications, for instance, ceramic elements for electronics, both including semiconductors and the glass industry, but weaker in solar and metals.

Consumer demand is now on a good level, mainly driven by the white goods industry in the strip division. Medical continues to be strong with several drivers, and momentum is strong across the product portfolio. Mining construction, flat underlying demand year over year. Nuclear, the high activity and growing demand continues, where we’re building good backlog to execute for a long time. Transportation demand decreased year over year.

Aerospace has a really long backlog, but with some tendency of inventory adjustments among customers sorry, automotive worsened. Other than renewable energy is still a bit mixed. This is a wider segment where some businesses are doing better than others. We booked orders for carbon capture and storage and for biofuels, but no clear signs that this is taking off quite yet. Looking to order intake and revenue.

Order intake rolling 12 amounts to SEK 18,900,000,000.0 with a negative organic growth of 2%. This is mainly coming from the chemical and petrochemical and industrial segment, especially in Europe. North America is weak overall and Asia noted a slight setback, but on high levels. Industrial heating was flat year over year on a continued low level. Nuclear, medical, consumer grew, while oil and gas was quite stable, though on a high level.

Revenues declined organically 4%, where Tube and Contal declined while Spirit grew. Chemical and Petrochemical and Industrial Heater noted the biggest declines, where we could see that the weak order backlog for those two segments impacted revenues in the quarter. Rolling twelve months book to bill of 97%, building backlog in oil and gas and nuclear, while consuming backlog in chem, petrol, industrial and industrial heating. This means that the order backlog is still solid in important segments like oil and gas, in nuclear and medical, so an overall positive product mix. But total volumes in the backlog is on the low side going into quarter three.

Let’s move it to earnings. Adjusted EBIT amounted SEK $454,000,000, SEK with a margin of 9.5. And considering the SEK 150,000,000 negative impact from currencies, meaning that the underlying margin would have been 11.4% adjusted for FX, I think we’re performing okay given the lower revenues and the uncertainties in some of the segments. I think this is due to several factors. We are seeing margin contribution from more segments now than in the past, of course, Medical being the prime example of this, but also in Oil and Gas and in Nuclear, but also the way our Asian business has evolved.

We also managed improve our performance in the OCTG business as well as in the Transportation segment, both contributing to the margin resilience. All in all, product mix is solid, with higher contribution from highly profitable segments and less deliveries for low refined business being mainly the industrial segments. Looking at divisions, I think Q performed well. Pincantal continued to mitigate lower volumes in a good way, while Strip’s performance was not in line with expectation, but I will come back to that. Free operating cash flow of SEK $347,000,000 lower than last year, impacted by lower operating profit, lower working capital and higher CapEx.

Overall, I’m confident in our long term strategy. We are benefiting from our diverse exposure, and we continue to drive positive product mix shift while maintaining our order booking discipline in the weaker market conditions. We also adjusted cost and capacity to mitigate lower volumes, and we’re prepared to do more if volumes continue to decrease. But I think at the same time, we should stay cool and not make too hazardous decisions. We need to be ready to deliver once the market demand and volumes bounce back.

Let’s look at the division, starting with Tube. Tube noted an organic order growth of minus 6% for the rolling twelve month period, where we continue to see a weak Europe with more uncertainties now than a quarter ago. North America still on low levels and a general sense of caution. Asia is still on high levels, although also there we noticed a small decline in quarter two. In general, we see customers hesitating taking investment decision, which impacts our business.

The chemical and petrochemical and industrial segment noted the largest decline. Backlog in key segments like Nuclear and Oil and Gas is still solid, and we maintain our positive view on both those segments. Organic revenue growth of minus 10%, mainly driven by the negative development in Chem, Petrochem and the Industrial segment, somewhat mitigated by nuclear. Book to bill was 94%, rolling 12%. Adjusted EBIT margin amounted to 11.2%, which is a good level given the lower revenues as we continue to utilize our capacity in a good way by prioritizing more profitable orders.

As mentioned, the product mix was solid, and we have a positive contribution from performance improvements in oil and gas. The OCTG business have improved well, both commercially and operationally. Also the business within Transportation segment, where we have had problems, has improved well. We also had some positive one off effects, for example, inventory buildup during the first half of the year ahead of this year’s maintenance stop during the summer, which will be somewhat longer than normal in one of the larger factories in Sandviken. We will be replacing the expansion press in the largest extrusion press.

This is a maintenance investment, replacing a plus 60 year old machine, but it will also bring advantage with a higher level automation, generating increased productivity and also safety for operators. This will bring some positive cost absorption effects both in quarter one and in quarter two, which will reverse in quarter three. The lower volumes from mainly chemical and petrochemical, lower refined products to the industrial segment, both in Europe and North America, had negative impact. And we are expecting these low volumes to have an even more visible impact in quarter three as volumes and absorption of cost is low anyhow for normal seasonality reasons. And FX headwind of minus SEK81 million, meaning that the underlying margin was strong at SEK13.6 million.

In the quarter, we consider it to be on the weaker side. Moving over to Camtall. Organic order intake growth for the rolling twelve month period of 1%, still on low comparables. Medical is strong and Industrial Heating remains soft. Demand was still positive in some applications for ceramic elements for electronics, including semiconductors and glass industry.

And the previously announced investment in both Sakura in Japan and Proton Scotland are both related to those customer segments and is part of our ceramic heating elements offering. The Medical segment is maintaining a strong momentum, growing in order intake and maintaining a good revenue level, and backlog remains solid. Book to bill of 102% rolling 12%, this is partly due to the negative revenue growth, but also an increase in the medical backlog. CANTOL has for some quarters now been affected by lower volumes from the industrial heating, a segment with several end markets and development differs between these end markets and regions, where Europe is the weakest. But in general, customers are hesitant to make CapEx related investment decision, and it’s difficult to foresee when that demand will turn positive again.

But the sentiment is not getting worse. The adjusted EBIT margin was 16.7% in the quarter, which is solid considering development in Industrial Heating and an FX headwind of SEK 29,000,000. Underlying margin adjusted for FX would have been SEK 19,600,000.0. I think Antal has proven ability to adjust capacity and reduce costs when needed, which is why margin levels are maintained. And I’m confident they will continue to do so moving forward as well, if that will be needed.

But short term, due to low volumes and with expected FX headwind, we expect some temporary under absorption effects hitting the margins in quarter three. Moving to strip. Facing low comparable, Strip continued to grow its top line with organic order intake and revenue growth in all segments. Organic order intake grew 30% on a rolling twelve months basis with growth in all segments. The Consumer segment is the main driver where the main product is compressor valve steel for white goods and air conditioners.

Organic revenue growth of 19% in the quarter, all segments contributing. And with that, book to bill rolling 12140%. Adjusted EBIT margin, 2.4%. And I have, for several quarters now, made comments related to that strip is consolidating the pre coated strip steel for fuel cells, and that, that business due to low volumes has a negative impact on strip margins. This is also true in this quarter.

However, this is not the main reason for the low margin in strip. The underlying strip performance is not in line with expectations. Main reason are production efficiency issues, poor mix in the Sanddikken side and some inventory write downs. They also had an FX headwind, and in that case, minus SEK 9,000,000. Mitigating activities are ongoing, and we expect an improvement during the second half of the year.

But since strips production is located in Sweden, they normally have a significant impact from under absorption of cost in quarter three due to the maintenance stop during the summer. We expect that to be the case also this year and that performance improvements will be more visible in quarter four. And with that, over to you, Olof.

Urdhof Beintzon, CFO, Allerma: Thank you, Joran. And then let’s go to the financial summary for the quarter and the half year. So if we look to the right to the bridge there, you can see that the order intake amounts to SEK 18,900,000,000.0 on a rolling twelve month basis. That corresponds to an organic growth of minus 2%. We show a total growth on the rolling twelve month order intake of minus six, wherein total four percentage points of those come from currencies and alloys, with a stronger Swedish krona and lower metal prices impacting.

Quarterly revenues, just below SEK 4,800,000,000.0 with a 4% negative organic growth, coming mainly then from the slower European and North American markets. Revenue also affected by the strongest Swedish krona, mainly against the U. S. Dollar, with total currency effects of minus 4%. Alloys, some negative alloy effects on orders, minus 2% on the rolling twelve month basis and minus 3% on the quarterly revenues.

And we see a continued negative alloy effect both on the rolling twelve month order intake and revenues going into the next quarter. On structure, we have our latest acquisition of Endox in Kantal. It’s fairly small, so it doesn’t show up in the table, but it’s contributing positively to both order intake and revenues in the quarter. And going to the big table on the left, and I’ll come back to the adjusted EBIT in a minute. If we talk about the reported EBIT, the margin decreased to 5.9% compared to 12.8% last year, and this is impacted by the low revenues, currency headwind and by the negative metal price effects amounting to a negative 171,000,000 this year.

Last year, we had positive effects of plus SEK 96,000,000, so quite a big swing at the line. Metal prices have come down year over year in U. S. Dollar terms. They have been fairly stable quarter by quarter.

But in addition to the prices in dollars, we also have a strong Swedish krona that impacts our Swedish krona metal price effect. Net financial items in the quarter amounted to a positive SEK 18,000,000 compared to a positive SEK 137,000,000 last year. And the finance debt consists of the positive interest net on our cash balances in the quarter yielding approximately 2.2%, but also of interest charges on leases, pension liability and bank charges. And in addition to this, also revaluations from derivatives not qualifying for hedge accounting, and that gives a positive effect this quarter. Last year, the high positive number was affected by accounting adjustments in the hedge reserve, and we had in total positive effects of SEK 125,000,000 from this in that quarter last year.

The normalized tax rate comes out at 24.1% in the quarter, in line with the guidance. By the reported rate, it’s not in the table, but the reported rate was 32.2%, which is a high number. And that high number comes from one off items, in this case, a nondeductible withholding tax on an internal dividend. Free operating cash flow was SEK $347,000,000 in the quarter, and I’ll get back to that as well soon. Finally, adjusted earnings per share in the quarter, SEK 1.35 per share, impacted negatively from the lower adjusted EBIT, the high tax rate and the lower finance debt.

Going then to the bridge on adjusted EBIT, going from last year’s SEK $592,000,000 or 11.1% to this year’s $454,000,000 or 9.5%. We note an organic decline of SEK 26,000,000 in the quarter, and that gives an operating leverage of 12% on lower revenues. And we find that to be a fairly good outcome in this falling revenue scenario. So we mitigated the lower volumes in a good way, we think, in the divisions. Main impact in the quarter comes from currencies, where we’re impacted by the strength in Swedish krona, mainly against the U.

S. Dollar, but also, for instance, against the Chinese yuan. And the split between transaction and translation is about fifty-fifty in that number. And this corresponds to a margin dilution of 1.9% in the quarter. Structure is the acquisition of Endox that is contributing to our earnings.

And then we go to capital efficiency, looking at the balance sheet. Net working capital, than last year in absolute terms, coming mainly then from currency effects and lower metal prices. It’s higher as a percentage of revenues at 36.1% compared to 32.7% last year. And this comes mainly from the lower quarterly revenues that we saw in our calculation. The sequential decrease is mainly driven by currencies, decrease of accounts receivables and inventories.

And to continue on inventories, they are lower in both value, both sequentially and year over year, coming from both lower volumes tons in inventory and lower metal prices. We have a lot of focus in our logistics on controlling the physical inventory. And despite the fact that this year, we had built extra inventory volumes for the prolonged summer stock, we are lower both in tonnes and value compared to last year. Year over year, capital employed, excluding cash, increased to SEK 16,400,000,000.0 from SEK 15,800,000,000.0 last year. This increase comes partly from our increased CapEx levels that include fixed assets.

And then looking at return on capital employed, excluding cash, and this is done based on the operating profit, including the metal price effect. It was SEK 9,200,000.0 in the quarter based on rolling twelve months and roughly at the same level as last year’s SEK 9,300,000.0. Cash flow then amounting to the free operating cash flow amounting to SEK $347,000,000. That is lower than last year, coming mainly then from the lower earnings, including the negative metal price effects. And noncash items, that refers to, for example, provision releases in the operating result that have no cash flow impact.

We have a positive impact from lower working capital in the quarter. It’s mainly lower accounts receivable and inventory. The CapEx increase comes from our growth CapEx projects. And if you look at the year to date number, the extra cash flow impact from CapEx is about $100,000,000 compared to the same period last year. Next slide, amortization of lease liabilities on par with last year.

So in total, we have a lower free operating cash flow compared to last year, but the lower earnings are from a cash flow point of view compensated for by a working capital release from the lower invoiced volumes and metal prices in the quarter. And if you take this in round terms, looking at the total cash flow, the business has generated about SEK 400,000,000, including finance net items in the quarter. Then we paid taxes and dividends in total approximately SEK 800,000,000, and that gives a net change of approximately SEK 400,000,000 on our cash balance compared to last quarter. This leads us to the strong financial position. It remains strong.

We are well below our targets, so our financial target of net debt to equity of being below 0.3. We’re actually at zero at the quarter end. If you prefer to use the net debt to adjusted EBITA, it also comes out at very close to zero. And looking at the components then of the net debt, the net pension liabilities, they increased from SEK $761,000,000 last year to $813,000,000 this year, coming mainly then from lower discount rates compared to a year ago. Leasing liabilities, $462,000,000, more or less on par with last year’s SEK $457,000,000.

Cash position remains strong. I mean this year, we have spent SEK 130,000,000 on an acquisition and then paid the dividend in May of SEK $577,000,000. And still, we have a cash position of SEK 1,300,000,000.0 and a net debt position then of SEK 33,000,000. That’s actually a net cash position. And we also have, of course, our unutilized EUR 3,000,000,000 revolving credit facility.

So we have a very strong financial position in total. And this gives us room to execute and operate on our strategy of profitable growth. Looking then how well we managed to guide you ahead of this quarter or the last quarter. Year to date CapEx of SEK $456,000,000. We’re guiding for a full year of SEK 1,200,000,000.0.

So I would say we are waiting in that range as we normally have more CapEx in the second half of the year. Currency transaction and translation effects at 123,000,000 in the quarter, fairly close to the guidance of 130,000,000. And if we look at the total currency effect, it came out at SEK 115,000,000 in the quarter. Metal prices affected us negatively with 171,000,000 in the quarter. We guided for negative SEK 150,000,000.

I think the main difference here is that the strong Swedish krona gave an extra effect here on the metal price effect. Normalized tax rate, 23.8%. Our guidance is 23 to 25%. That’s the year to date rate, the 23.8%. So in the lower part of the range, or actually fairly close to the middle.

For the quarter, the normalized tax rate was 24.1%. Then looking at the guidance for the coming quarter, guide for a full year CapEx of 1.2%. We’re staying at that guidance. As I just mentioned, we are normally having more CapEx in the second half of the year. Currency effects, still quite considerable, 150,000,000 for Q3 for transaction and translation.

And then for the metal price effect, with the strong Swedish krona, the metal prices at the June, we think that we will be around 150,000,000 negative on that line. And tax, the guidance remains at 23% to 25% for the full year 2025. And I would like to hand back to you, Joran, for the outlook.

Joergmann, President and CEO, Allerma: Yes. And before I do that, I think I was wrong on two numbers. The margin excluding FX should be 13.1% in tube and 18.3% in control, nothing else. So outlook for the third quarter, I would say the general economic environment weakened during the second quarter. And considering the changing global trade policy situation, the uncertainty concerning future development has increased.

Backlog is solid in several key segments where we have good visibility in the near term deliveries. At the same time, challenges were noted in other customer segments, particularly in Europe and North America, which may impact near term deliveries. Order intake, revenues and adjusted EBIT margin are normally lower during the third quarter compared with the second quarter due to seasonal variations stemming from maintenance stoppage during summer. And stoppage in one of the larger production sites in Sanddik in this year is planned to last slightly longer than last year, which is expected to lead to temporary higher than normal under absorption effects in the third quarter. Product mix is expected to be similar to the second quarter, and we continue to expect a currency headwind in the third quarter.

Cash flow is normally high in the second half of the year compared to first half. And with that, to summarize, overall, we showed continued earnings resilience. The company is in good shape, and we deliver on our financial and strategic targets. In quarter two, we noted a continued mixed market sentiment with weakened demand, especially in Europe. North America remained soft.

And what we see is delays in some customer investment decisions. The near term future is difficult to foresee as of the turbulence in the market related trade barriers and geopolitics. In key segments like oil and gas, nuclear and medical, continued good momentum. And I think our diversified exposure to customer segment, different stages of the business cycle as well as our strategy to grow within more profitable, less cyclical niches have proven to be successful. Revenues declined organically in the quarter, mainly on back on weak development in chem and petrochem, Industrial and Industrial Heating segments.

EBIT margin declined year over year, mainly due to FX adjusted, but FX margin grew year over year. And this shows how we long term has driven a positive product mix and maintain our order booking discipline and weaker market position, thus able to maintain profitability. And we need to continue to stay agile and adjust cost and capacity where we have a weaker backlog. Q4 three is seasonally weaker quarter due to maintenance stops during the summer, and we expect some margin dilution from under absorption of costs as we have a longer than normal stop plan for this summer in the larger extrusion press. In addition, volumes are low in segments like chem and petrochem and industrial, mainly in Europe and North America, and we also expect FX to remain a headwind in the near term.

We have several ongoing growth initiatives, which will strengthen the company in the long term. Our strategy has always been to have global footprint, meaning production close to our customers. And all the announced investments are strengthened this further, and they are progressing according to plan. Financial position remains strong, which will enable us to continue to execute on our strategic agenda. And then I hand back to you, Emily.

Emily Alm, Head of Investor Relations, Allerma: Thank you, Johan and Olof. It’s now time to start the Q and A session. So operator, please go ahead.

Conference Operator: We will now begin the question and answer The first question comes from the line of Adrian Delaney from ABG. Please go ahead.

Adrian Delaney, Analyst, ABG: Yes, hello. I’d like to start off with a question on tube, where I see the book to bill fell quite sharply compared to Q1. And of course, you mentioned this is, to an extent, driven by the short cyclical industrial orders. But I guess, is there a component here also of order backlog in oil and gas starting to come down? And are you still as confident in the oil and gas outlook for the coming two to three quarters, let’s say?

Joergmann, President and CEO, Allerma: We are quite positive on the oil and gas outlook. On umbilicals, the order backlogs grew slightly, and there is quite a lot of projects still out there. So now oil and gas was not the main reason for that.

Adrian Delaney, Analyst, ABG: Okay. Understood. And a bit of a similar question in Kemtal here. Rather, the book to bill came up a bit. And is that entirely driven by Medical?

Or are you seeing an increase also in Industrial Heating orders?

Joergmann, President and CEO, Allerma: It’s I think, as I said, there are two reasons why book to bill went up. One is lower revenues and then Medical has a good development. So it’s mainly Medical.

Adrian Delaney, Analyst, ABG: Okay. Understood. In Strip, the organic EBIT is down SEK 21,000,000 in this bridge that you show, while organic revenues are up 8%. So it seems sort of the cost efficiency has gotten significantly worse compared to last year. Can you sort of explain what drove that?

Joergmann, President and CEO, Allerma: Yes. I try to do that in my presentation. I think I mean, first of all, we’re not pleased with that, to be clear. There is a number of reasons. One is production efficiency reasons.

Due to where strip is coming from with lower volumes before, that is still orders that we invoice. So there is a, I would say, time takes some time to flush through the poor production efficiency we had before, and it will be better going forward. Another reason is that we have had some bottlenecks issues. So the most profitable products produced in the big production site has had bottlenecks problems. So the invoice mix compared to quarter two last year is much worse.

And that is, I would say, the main effect. And then there is some inventory write downs due to yield issues.

Adrian Delaney, Analyst, ABG: Okay. And the write downs, did Sorry? You specify the Did you specify the amount on the write downs as well?

Joergmann, President and CEO, Allerma: 10,000,000, I think it was.

Adrian Delaney, Analyst, ABG: Perfect. Jose, all of these are

Joergmann, President and CEO, Allerma: addressed. All the issues are addressed and actions are ongoing. Okay. Perfect. That’s helpful.

Adrian Delaney, Analyst, ABG: I guess a final one for me. For Q3 specifically, you first of all have the SEK 115,000,000 FX headwind. And I guess that in isolation would take you to around SEK 200,000,000 on adjusted EBIT. And then when you mentioned sort of longer than usual maintenance shutdowns and greater under absorption, I take that as sort of soft guidance that organic EBIT will also be negative year on year. Am I sort of assuming that correctly?

Because that would take you somewhere below SEK 200,000,000 on Q3 EBIT.

Joergmann, President and CEO, Allerma: That’s the I mean, that calculation makes sense.

Adrian Delaney, Analyst, ABG: Okay. Thank you. In that case, that’s all for me.

Conference Operator: We have now a question from the line of Viktor Trollsten from Danske Bank. Please go ahead.

Viktor Trollsten, Analyst, Danske Bank: Yes. Thank you, operator, and good afternoon, everyone. So firstly, on the Q3 guidance and under absorption that you flagged, just wondering from a broader sort of perspective, how much of a one off is this in business? And just how we broadly should treat it beyond Q3. This something that we should count on happening quite a number of quarters?

Or is it truly a one off? I’ll start there.

Joergmann, President and CEO, Allerma: That’s a one off, yes.

Viktor Trollsten, Analyst, Danske Bank: Yes. Yes. No, good. Yes, that’s clear. That’s clear.

And then secondly, guess, it’s quite volatile and difficult times, of course. But in the context of some of your industrial peers talking about signs or the start of some sort of short cycle recovery and volumes finally turning slightly positive. I do see that the decision charges has been messy. But could you speak a little bit more around how the quarter has developed months to months perhaps if there’s any difference from your CapEx customers to OpEx customers? I’m just trying to understand here why you don’t feel the signs that some of the others are seeing in the Q3?

Joergmann, President and CEO, Allerma: Yes. I also see in the others, since I don’t know their business in detail, I cannot comment on that. But what we see in the quarter when the quarter started stronger than it ended, Then, of course, we need to look at the quarter and exclude bigger orders like we, for instance, had for we have good order intake end of the month for medical, and we have some umbilicals. But if I look at sort of the more volume related business, I would say the second half of the quarter is worse than the first half of the quarter. And of course, we even though we compensate for tariffs, of course, we see saw a change in Americas when tariffs suddenly move from 25% to 50%.

And even if we have quite a lot of production in The U. S, I mean, there’s a significant price increase for the customers, and that has made the market so uncertain, and they postponed their investments.

Viktor Trollsten, Analyst, Danske Bank: Okay. That’s clear. It’s interesting times in the month, so let’s see what happens.

Joergmann, President and CEO, Allerma: It’s a lot of uncertainty. If you don’t know that so if the tariffs going up or down, when will there be trade agreements, all of that creates a lot of uncertainty. And when there is high tariffs, I think quite a number of customers speculate that it will go down if they don’t need steel at this certain moment, they wait with their purchase.

Viktor Trollsten, Analyst, Danske Bank: Yes. No, that’s really interesting. But I guess, you are mostly CapEx driven, correct. It’s not that much OpEx driven demand typically for you. Or I’m just thinking there’s a difference between the CapEx programs that you can sort of delay and OpEx is more you need to run into the business.

Joergmann, President and CEO, Allerma: Yes. And we have quite long value chain, so it’s not always easy to see where our stuff is ending up. Mean we don’t see oil and gas. We don’t see nuclear impact. But if you can delay a month or so, I think they are willing to do that even if it’s CapEx related.

I mean I know I would react if tariffs suddenly went from 25 to 50.

Viktor Trollsten, Analyst, Danske Bank: Fair point. Fair point. That’s all from me. Thank you very much, guys. Thank you.

Joergmann, President and CEO, Allerma: Thanks, Victor.

Conference Operator: The next question comes from the line of Igor Tjubic, DNB. Please go ahead.

Igor Tjubic, Analyst, DNB: Thank you, operator, and thank you, team. I just have a couple of follow ups here. Can you please quantify in some way about the under absorption in the Q3? I mean, what should we expect on the cost base if we start there? And then the second question is, do you see any difference in the chemical versus the petrochemical business in terms of demand?

Or is it relatively weak similar weakness in both, so

Adrian Delaney, Analyst, ABG: to say? I’ll start there.

Joergmann, President and CEO, Allerma: I will start with the last question. Now we don’t see any difference. I’m not sure I know that actually. And it’s somewhat mixed. Now I don’t I cannot say that there is a difference.

Regarding the extra stop, I mean, we estimate a little bit less than 100 basis points impact in quarter three.

Igor Tjubic, Analyst, DNB: Okay. Thank you. And then also the last one, do you see any I don’t know if you are looking at the size of the orders. Are there are you still receiving small a number of smaller sized orders and then the larger ones are not as common as before? Or can you comment anything about that?

Joergmann, President and CEO, Allerma: I don’t think we see any pattern like that, to be fair. I mean, in some of the segments like oil and gas and nuclear is more what kind of project it is. So no, we don’t see any pattern like that.

Igor Tjubic, Analyst, DNB: Okay. And the decline in chemical and petrochemical, was that related to any larger orders? Or is it

Joergmann, President and CEO, Allerma: overall just I’d say it’s overall Compared to clean up. Is a large order? I think we see it both in heat exchanger, we see it in instrumentation and hydraulic tubes. From a patent point of view, it’s more geographically than order size and where Europe is sort of the one that’s gone down most. On the other hand, North America was really low from the start.

Igor Tjubic, Analyst, DNB: Okay. I see. And the last one, sorry. But do you see have you lost any orders due to the FX, would you say? Or is it an overall market thing that

Joergmann, President and CEO, Allerma: That’s the volumes are I mean, impossible to answer that directly. We don’t see that, at least not clear, because there are so many orders and we don’t know what they are not buying. But that’s not what we see. What we see is a very uncertain market with a lot of hesitancy to even place orders. And of course, I cannot be sure of that.

I mean, if you take U. S, for instance, there are not much local competition, and I haven’t seen I haven’t I mean, I don’t have reports from sales organizations saying, okay, so we are increasing price and that’s why we’re losing orders. That is not what we see. We see market waiting.

Igor Tjubic, Analyst, DNB: Okay. Yes, I see. Okay. That was all for me. Thank you very much.

Conference Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Emilie Am for any closing remarks. Please go ahead.

Emily Alm, Head of Investor Relations, Allerma: Thank you, operator. Yes, so that concludes the Q and A session. And back to you, Viaram.

Joergmann, President and CEO, Allerma: And before ending today’s session, I would like to take the opportunity to thank Olof and Emily since this is actually your last quarter report for Aleema. Olof is retiring, and Emily is moving on to new challenges. Both of you have been strong contributors to the successful listing and the positive development of Leimas. I would like to thank you both, and I will miss you both a lot. This, of course, means that next quarter will be myself, anyone and someone from Investor Relations.

Urdhof Beintzon, CFO, Allerma: Thank you, Jorgen. It’s been a pleasure.

Emily Alm, Head of Investor Relations, Allerma: Thank you, Jorgen, and all the best, Uglove. And also a big thank you to all our analysts and investors for a good collaboration. So that concludes today’s call. So we wish you all a good summer. Goodbye.

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