Addtech AB (publ.)

Good morning and most welcome to the Adtech quarter and year end result presentation. Starting with the highlights for the fourth quarter which can be summarized as a solid end to another strong year for Adtech. The business situation remained stable at good levels in most of our key segments with the solid order intake even if it continues to be variations. And we backlogged volume on par with last year. I'm also proud to conclude that we passed a milestone of 20 billion SEC in yearly turnover and also with record high margins. So once again a very good work from my team and our companies. More on that when we summarize the full year but first to the quarter. The fourth quarter was a challenging quarter in terms of sales growth. Down 3% in total and 7% organic. We had extremely tough comps and also fewer working days due to Easter in March and this has of course some negative effect on the outcome. But still the total sales was on the list when commenting on the business areas. But that said the underlying demand remained stable on the high level as I said in the beginning despite the somewhat softening markets sentiment and of course very satisfying to see that the general momentum in the customer activity in general remains. We entered the new fiscal year now with a well-filled order book and with the good quality. And also this new year has started on positive notes. If you look on EBITDA development overall the positive margin trend continued in the quarter and was at the record high 15% margin. And this is a mix of active work in our companies to add value and improve the product of course keeping strict cost control and combined with good contributions from acquisitions. As stated in the report and I will come back to this later on as well we had a customer claim within the business area energy which resulted in a settlement this quarter affecting the result negatively with the one of 39 million sets. Despite that our EBITDA was in line with last year and as I said with the record high margin of 15% and this is primarily thanks to strong contributions within the industry solution and process technology. I would also like to highlight our important financial measurement R2RK reached a new record high level of 68%. Cash flow is down year on year but still on very satisfactory level. Marlin will come back with details within short. So moving on some very brief comments on the market development within each of the business areas. Automation delivered a solid end to the fiscal year. Good sales trend for companies applying to process and defense industry. A bit flattening trend within the mechanical industry and medical technology. Here we have seen customer destocking effects quite clear but I believe that we are now back to a more normalized level going into the new year. Electification as you've seen in the numbers had a challenging quarter. Several factors affecting the outcome. First of all tough comps mainly in the battery systems. Among other things last year we had large telecom orders in the battery systems. Also destocking effects still here in the quarter normalized supply chains and negative effects from a weaker construction market has also affected the battery systems. But there have also been some specific challenges in some of the other companies in the business areas. So in general the demand within the key segments for electrification were stable and also defense continues to have a strong development. Moving on to energy when looking at the figures here of course you have to take out the one-off effects from the customer claim settlement which also had quite a lot of effect on top line not only in the quarter but also earlier in this year. But adjusting for this the organic sales growth in the quarter would have been positive and also the profits. Overall the business situation within energy continues to be sustainable. Demand for infrastructure products within electrical transmission and distribution continues to be strong on most of the geographical markets we are present here. Market situation for companies supplying to mechanical industry here was stable but we saw some positive signs from customer demand within wind power. So more on the demand side still. Building installation weakened during the quarter as we write in the report also somewhat affecting infrastructure and non-residential that are our core markets here. Industry solution a bit lower sales volume this quarter primarily due to the special vehicle segment. It varies here between different end markets where primarily the construction market was weaker due to lower demand earlier this year. Sales towards forest sommel industry remained at high levels with a solid number of product deliveries with high profitability. The market for new projects are still a bit on hold due to the high interest rate and weak construction market primarily. Strong contributions from acquisitions is also important to mention that also explains the strong margin in the quarter. Last but not least process technology delivers a solid fourth quarter. Of course variations between the segments. Sales to energy and processing industry is keeping up well especially towards oil and gas. Here we also note a bit weaker demand towards forestry and also the special vehicle market. Medical and marine flattened out on a high level. So that was a brief summary of each business area. Now Malin over to you for some more comments on the results.

Thank you Niklas and exactly as you said our profit margins continue to improve during the quarter. In general thanks to increased value add in our value proposition. Strategically improving our product mix and not least of course good leverage from acquired companies. On top of that we continue to keep a firm grip on the costs very pleasing to see that the cost efficiency continues to improve quarter by quarter. The solid increase in Q4 to a record high 15 percent is fueled by industrial solutions as Niklas said and the positive effects from good margin project deliveries. On the other hand we had negative effects from one-off effects. However the underlying trend is positive with sequential improvements over the year. We expect

rolling

12 levels

to persist with gradual improvements. Inventory levels has

been a key topic throughout the year so it's of course very satisfying to see that the positive trend continues both in absolute terms and as an improvement in relation to sales. Our long-term target profit of working capital remains a record high level 68 percent. Continuing to generate solid cash flow. Operating cash flow is still at very good levels but down in the quarter due to lower profit affected by higher costs for depth and less positive effects from working capital compared to the same quarter last year. Soly related to accounts receivables and payables. Our financial position remains strong with sequential improvement as expected. As you know the key figures do vary over the year but are at very reassuring levels which gives us plenty of headroom to support our ambitions going forward. Over back to you Niklas.

Thank you Malin and as we all know this is also a full year for us. So some full year comments. As I said we passed 20 billion SEK for the first time and sale is up seven percent. Quite much in line with what we had expected I would say. And as I've been saying customer activity has remained high. An EBITDA growth of 13 percent with improved profitability. So I would say all in all this year again the clear proof of the robustness of our business model and the diversification of our business. Strong positions in attractive segments. We acquired 10 companies all well-run high performers. I will come back to those in a few minutes. We can also proudly pronounce that we in the beginning of May now was approved by Science Based Target Initiative. So we have increased our focus even further to work with our climate footprint throughout the whole value chain. So I think I mentioned quite a lot on this picture already. The flat organic sales development can to large extent be explained by the product mix with lower volume sales. Very tough comps of course going into the year and some challenges in for instance this customer claim in energy affecting also top line quite a lot. But all five business areas increased the profits and as we've been saying now for a while the industry solution process technology being the main contributors. EPS growth was 9 percent and at yesterday's board meeting the board decided to propose a dividend of 2.8 SEC per share. I would just also like to take the opportunity to mention very briefly the summarize of each of the business area for the full year then. Automation as you all know this is much about OEM related business. Mechanical process medtech industries being the primary customer segments. And automation had quite a challenging start of the year with especially the negative effects on demand from customer destocking and that has pretty much followed automation throughout the year. Even if it has improved sequentially and landed sales volume at the same level as last year and with improved margins. Automation made one acquisition last year the Danish company BV Teknik that designs and builds customer high-tech equipment for automation industry primarily towards the medtech segment. Electrification has a broad offering to support our customers in the electrification transition. With challenging comparisons this year and especially the weekend as we said they landed fairly flatish you could say. And partly explained by low demand in some segments combined with some internal structure changes within the battery business. I've been talking about that earlier quarters. But it's very important to underline our view of the potential in this business area and with electrification of equipment, our customers positions and also our battery solutions. We have still a very strong positive view of this area. Late April last year we acquired the Swedish company Electrum automation that has a strong position on the market but also adds important software integration competence to our business area here. Moving on to energy. As you know the driver is the investment in electrical transmission and distribution and the demand among the grid owners in the markets we are present remained high throughout the year also with a positive outlook. But the sales growth on the top line was hampered by both a strategic lowering of volume business as well as negative effects related to this customer claim. But this product mix is also shown in the very much increased margins in energy. One acquisition made during the fiscal year, Tygisen, that is have a good position in the transmission segment in Denmark. Industrial solution had again a very strong year characterized by the well-filled order books fueling the sales towards the Somal industry. Also a wide rates of acquisitions completed here with good margins also. Two of these companies are complementing our subsea offering an area we find interesting to be in and one supplying the industry with solutions for industry painting. And lastly also our first acquisition in Canada that offers ergonomic solutions for special vehicles especially to mining industry. Last but not least process technology. One core product range here is products to measure and decrease environmental impact in production and also marine segments. And this generates strong business opportunity for our companies here. All in all it's been a profitability that complements and strengthens the strategy in the business area. One in Germany, one in UK and one in Denmark. So if you summarize what I've just been saying with acquisitions, 10 during the year and we have started this year with another three after closing. One German company Novomatic, a leading supplier of compact electric motors to OEM customers. One UK company Cellpak Solutions that manufacture and market battery solutions under its own brand with good margins. And last one late April required a Norwegian company Go Drive supplying frequency converters. In total these 13 acquisitions adds an annual turnover of approximately 1.1 billion and 265 new colleagues are welcomed into our family. We continue to focus on more value add companies have an unchanged positive view of the M&A market. There are plenty of possibilities in our focus areas primarily in the Northern Europe and thanks to our strong balance sheets and attractive pipeline we expect to keep a high acquisition pace also going forward. Some statistics following now a couple of slides. One is international expansion. As you saw we have been we have managed to keep a good mix between both geographies and strategic niches. Our activities in selected markets outside Nordics are accelerating with an increasing deal inflow. And during the fiscal year about half of the required volume was outside of Nordic markets. And this means that we now both organically through export and following our customers to new markets and with acquisitions we have as per end of the year 38% of our sales coming outside of Nordics compared to approximately 15% five six years ago. So it's clearly that we are increasing our international footprint. These two pie chart is showing the sales per geography and to the right and to the left per customer segments. All in all now we operate in some 20 countries and export to another 20 markets. And if you look on the market development over the year it's been I would say a mixed bag for our companies in the Nordics. Sweden had a good development. It was stable in Finland, weak in Denmark and a strong development in Norway. And on the international market we've seen a stable demand in Benelux and a bit weaker in Dash but positive development in UK. The pie chart to the left the market segment spread. We have a good diversification among our segments which is according to our long-term strategy not to be too dependent on any singular segment. And since our sales during last year was very broad based proves that we have a solid growth drivers in the strategically chosen niches. So not many changes if you look on this pie chart year over year. And NED continues to be our largest market segment. All in all what this picture is showing that it gives us a resilience to our business that will also be a key going forward. Marlene maybe you want to mention something on this picture?

Yes I can. The combination of our strong position in attractive segments with solid underlying growth trends many linked to the green shift together with our highly diversified business and a very strong corporate culture based on the decentralized responsibility and entrepreneurship gives us the edge and agility to handle challenges and capture opportunities also going forward. The ultimate evidence of the strength of our business model and strategy is we over the last 20 years plus have managed to create an average annual EBITDA growth exceeding 21 percent. To grow our earnings with above 15 percent of our business cycle is one out of two very easy to understand financial targets that sets the requirements for the entire operations. With that background it's of course very satisfying to show this graph. We have over a long time exceeded our target with lots of headroom. Our solid and stable earnings growth over time together with our low capex operations and attractive product mix are the basis to maintain our return on capital employed at high levels and create sustainable shareholder value over time.

Great. So the last picture before moving into Q&A. All in all I'm very pleased with the development during the year. Not least on back of the very tough comps and the softening market sentiment we have felt during the year. Customer activity remained in the fourth quarter and we continue to fill our order book as I said in the beginning. So we are entering the new financial year with the well-filled high quality order books. Cash flow generation, a strong financial position gives us lots of firepower to support the ambitions. We have started the year in a good way when it comes to acquisitions and expect as I said to continue to keep up the pace. So as a final remark regardless of what I would say is kind of a mixed market signals right now. If you look on more of a macro perspective we have a positive view going into the new fiscal year and have an ambitious plan for continued growth. And I have as always confidence in the potential and robustness of our culture and the niches. So

with

that said

let's open up for questions.

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page. The next question comes from

Zeno Engdalen-Riutti from Handelsbanken. Please go ahead.

Hello Niklas and Malin and thanks for taking our questions. I would like to start good morning with the outlook which is available for the next coming quarters. Would you say that on an aggregated level that you've become incrementally more positive during your quarter four?

You mean the if

I compare what we were in the end of December to the situation end of March is it a positive development on the outlook than the opposite?

Yes, yes if your expectations have or your view has become more positive or if it's just a continuation.

I think if anything I would say rather more slighted on the

positive side. Okay very good

and jumping into industrial solutions you've had project completions for a while now which has increased margins together with acquisitions but on the project's completions could you give some kind of indication when you expect these to taper off?

It's expected to taper

off a lower degree of the completions.

Yeah okay I mean we've been talking about our order books here for a long time and and as we have said now for a couple of quarters or number of quarters and also stated in this report is still quite low activity on new projects filling into the order book. So we have you know some two three quarters ahead with filled order books. So I guess that's answering your question. Yes very

good and lastly on M&A you emphasize the points now that your the share of acquisition outside the Nordic has increased. How much is it explained that prices maybe might be more attractive outside the Nordics or simply as just a way of scaling your pace of acquisition?

I would say it's rather the latter. I mean to some extent maybe you can say that the competition is slightly higher in the Nordics because there are you know a number of acquiring companies here but with the kind of way how we work with acquisitions with relation based and building up the pipelines bottom up that doesn't really matter to us. So the price levels I would say all in all is quite similar across the different geographies. It rather varies when you go into different technical segments looking from that perspective. But so our growth and our continuation to fill in the pipeline outside Nordics is more our own ambitions to broaden the scope and to be open up new geographical markets.

Very good thank you that's all for me. Thank you.

The next question comes from Carl Ragnestam

from Nordea. Please go ahead.

Good

morning it's Carl here from Nordea. A few questions here. I mean you managed to lift the gross margin quite nicely to an all-time high level 33 percent almost. Do you help us with the dynamics of the gross margin uplift a little bit on pricing project completions I guess is also helping and would you say that the new established level is sort of sustainable?

Yeah so good morning Carl. I mean I think what we see is that the margin improvements and the gross margins and also EBITDA but if you focus on gross margin it's very broad based. We can see that a large number of our companies have been able to increase the gross margins. So it's rather that than you know some few things affecting like project completion. So it's really broad based scenario and I would say that is a mix of a focus on the better product mix. We've been talking the whole year about lowering some volume sales with lower margins. So that focus has been one. A very active work with the strategic pricing in many of our companies. Not only you know to handle the inflation situation but also overall working with more price strategic projects. So I would say that these margins margin levels are sustainable.

Okay that's good because when I look at the SGA level it is in absolute number up year over year. I guess the claim is in SG&A if you adjust for that flat year over year. Are you considering lowering SG&A given the sort of organic drop even though it's partly by design or what is the plan? And also if you could give some flavor on the sort of organic development of the SG&A level in the quarter because it's quite hard for us to strip out various effects.

Do you want to start answering that?

Yeah I think that if we talk about the overhead costs we have seen that they have been very tight all throughout the year. Very low organic growth on costs. Then of course we have the one-off this quarter affecting the -in-all overhead that you see in the report. But organically I believe that we have a firm grip of the costs and that will continue also going forward. But I'm not really sure that there are sort of things to see specifically besides the one-off in the quarter if you ask about the organic costs.

Okay very good and also when you touched upon the customer claim here and the settlement dispute. I mean could elaborate a little bit on the background. Is this a recurring customer for you? Is this a Q1 effect as well or is it finalized here and also the sales effect in the quarter from this if you can.

Thanks. Yeah okay sure. Due to you know kind of strict NDA settlement with the customer we cannot go into any details on that. But it is a recurring customer and the customer relation continues. It has affected top line for energy with some a couple of percentage on the yearly turnover. So it has affected the top line for energy increasingly over the year. So especially in the Q4 but a little bit also during the rest of the year. But as I said the customer relation continues so it will gradually come back. The Q1 so you know it's difficult to really say you know from a one-off cost perspective it will not have an effect in Q1. This was a one-off in the fourth quarter.

Okay

that's very clear. And also in your guidance you seem quite satisfied with the environment you're operating in. Is it mainly margins or is it organic growth as well you're sort of guiding on into the next coming quarters. I mean you had negative seven here. Obviously you're facing out low less profitable projects. You also had the working day headwind. So what do you see now in April and maybe also maybe perhaps in May here in terms of the demand situation and also relate that to your sort of guidance.

Yeah I mean so our guidance is both on demand side our view at this moment on the coming quarter and also the margins. As Marley mentioned we believe we can keep the rolling 12 margins also going forward. Also as always we have the plan to steadily increase margins as well. If you look on April and you know what we've seen so far it seems stable. It has started in a good way. So and you know like overall as I also mentioned our view of the kind of macro signals you get and also looking at the different market segments is kind of very varied view of where the market is really heading. What we always say is that we be able to grow you know some percentages better than industry average and that is our view and ambition also going forward.

And if you sort of strip out the phased out volumes or your intention to take less of the lower profitable margin contract in energy and also look on your April and May developments so far would you say that you're turning into organic growth yet or is it too soon or what needs to happen for you to return to organic growth you

say? Sorry I didn't really hear it first you said that the volume the low volume. You're facing less

profitable volumes right. That is hampering organic growth especially in energy. So I mean looking when do you think that you'll turn into positive organic growth again? I mean you're positive in your guidance but that does that mean that you're expecting to turn to organic growth anytime soon or?

Yeah are you talking about energy in specific or? Group

level but also I

mean I mean we don't really guide specifically on you know organic growth and you know when will it come back but you know my best stance at this point is that you know during the year that we're going into now we should be able to see some organic growth. But then again it depends on the kind of general market development and interest rate development and we can see that there are hesitations in investment especially in capex related investments so depending on how that develops that will affect but so I guess my message is not saying specifically it will be in Q1 or in Q2 but during the year we get into we expect to see organic growth.

Thank

you so much. Thank you.

The next question comes from Carl Bockvist from ABG please go

ahead.

Thank you good morning my first one has been touched upon briefly I would say but just given your outlook comment there about seeing favorable demand considering the negative seven percent organic growth this quarter even though you might not be able to you know go into detail about the settlement effects and so on but just to understand the comment you make about you know being positive in the future considering the negative organic growth this quarter and I understand the comparables will become gradually easier but is there something else that you are seeing that you would be willing to share?

I think at one general comment I would like to see the Q4 figures a little bit isolated in the way you know we knew that it would be a tough quarter I mean we were facing 21 percent organic growth last year so extremely tough comps also the Easter effect has some effect and then as I've been through now a couple of things affecting like this claim and also some some other issues in a couple of companies so I would rather see you know this as an isolated thing when we talk about outlook we look on on the book to bill in quarter we're looking on the demand we see right now and also ongoing project discussions with a lot of our customers that is what is giving us a positive view going forward

Understood and then the comment you made there about the strategic decision to lower volume business can you expand a little bit upon that because as you say if we adjust for the settlement costs on the energy margins are very good

Sorry what was the link of the first part of your question and energy margin?

Yeah no sorry I mean there was one comment you made about the strategic decision to lower the volume business and then I guess that decision is because you feel that this will have a positive effect on profitability and then my question is also on what what you know drove the margin in energy because if we adjust for the settlement cost that is also as you said have a good profitability level

Yes yeah I mean this you know to avoid high volume low margin business that is really the core business for us we always work on that you know we want to find the niches where we can get out good profitability so to lower the volume business is like a general approach we have this year it's been particularly focused in in the energy segment and we've been talking about I think it was after Q2 we talk about especially in the transmission distribution market there are so many huge projects so you have to really pick what kind of product you want you want to take and so if we look all in all in on the energy margin again if you adjust for these one-offs it is a really good margin we see in energy and that is primarily due to several factors relating to that product mix was that answering your question

yeah it was I mean it was just helpful to understand and then the final is on the end market demand last year for example medical technology grew very very strongly and it's not one of your biggest market exposures but just to help us understand what do you see within medtech apart from you know tough comparables

yeah

I mean I would say that you know yeah some segments where we have seen you know like medical it's been a mixed bag throughout the year some parts some customers some segments have been positive but here we have also seen quite a lot of destocking effects we've been talking about that for a couple of quarters so I would not say that the medical segments has been particularly strong for us the year that that passed it's more now that we are more in kind of a normalized level so we've seen the destocking effect especially in in medical electronics and mechanical industry I would say and here our our main view is that we are more more now back on on the normalized level going into to the coming year here

understood that's that's that was what I was

after thank you thank you

the next question comes from Johan Lonkvist Sunden from Carnegie please go ahead

hi Niklas and Marlin thank

you for taking my question

morning

a few from my side as well and if we we haven't talked that much about the cash flow and I noted that the receivables was up year over year despite that you had negative development on the top line is it possible to give some comments on the why receivables up especially in the light of the project business industry solutions being having such a strong margins

yes hello Johan I think that I'm not quite sure how the project you mean would fit together with the question about the receivables but we can come to that so first about the receivables it's it's very hard to say actually why the receivables has increased even though sales were a bit lower than last year but we believe that actually the fact that we had some Easter and holidays in the end of the month actually can affect this that's at least what we have heard from the companies that that affects both receivables actually and payables and then it was the project in industrial solutions affecting the receivables

yeah basically as you have more kind of solution exposure than a few years ago the kind of project accounting becomes more important for your margins and that's as far of tie towards receivables or contract assets more status how that is bundled within the the receivables and if that is driving the uptick in receivables year over year

I'm not quite sure if that is actually an explanation for for that but absolutely as you say it can affect receivables both when it comes to these payments in advance and also when it comes to the project and where in the readiness they are how much they have actually invoiced so absolutely it can affect but it's not that we see a big part of that right now

perfect

and

then if we remain on the industrial solution for another question it's it's on the order book going forward and Niklas you said that you have at least on the Somal side say two three quarters left with the welfare law for the segment is it possible to comment on pricing in the order book is there any risk that there's some weaker pricing in the coming project and we have had of the last few quarters given that the sentiment in the market has been weaker

um now i would say in in in general it's not not uh you know a big risk in in in that it's still still we foresee good margins in in these um in the order books

um perfect and just

a final question industrial solutions if you is it possible to quantify the kind of effect from the project completions here in q4 you mean on on the margin yeah how much it may be boosted the margin in the short term

yes um well actually you want we will not comment specifically on that but i mean we have said that it is somewhat boost but actually if you look at the year in total the effect is absolutely not not that high

um important not not to to to steer the focus too much on that i mean going back to what we've been saying it's really a broad-based margin improvement both organically but also from good good good boost from from acquisitions as well and that that's why we also say that that in going forward we we believe we have a resilient rolling 12 margin we have

also seen good margins

all

broad

-based in all

business

areas

so

yeah that's

clear um and then this uh final question on my side it's on uh your outlook on the future of the company and I think that you're more optimistic and preparing for growth going forward does that mean that you have a general order to all your companies to to prepare for growth or how how is that going to impact say sgna levels going forward or what what is planning assumptions from your side

yeah of course that that's always a balance i mean if you have a very positive stance the risk is on on the inventory levels and sgna of course i mean the way how we work in in adtech is not like a top top down message to all of our companies we work with our targets bottom up and and every single company have their you know single position and situation so it's not that i'm going out with a general message saying that now guys let's go for full full full steam ahead it's really really different situations in in each of the companies so i would i would rather say it like this i mean we we have always shown that we are really good in keeping a cost good cost control um so we we are kind of managing this step by step and since again the market sentiment is you know a little bit difficult to estimate at the moment we keep one foot on the brake and one foot on on the gas depending on the different situations

excellent

and just one one final question also back to reclaiming the energy segment uh is it and i i i know that you said that you're on the nnd and day so let's see if you can answer or not but is it is it related to a project or is the problem related to a problem with the product or what what kind of reason is behind the claim

yeah you you always free free to ask questions joan i'm sorry but i cannot really go into details but just to put it like this in the kind of business that we are running providing technical advanced solutions to different kind of customer segments what what has occurred is really part of you know this can happen from time to time so it's not like a huge massive issue of course it has been a quite difficult situation but it's something that that could occur in the kind of business we have

and as you said one specific

client it's isolated there right or is it a risk that we can have similar claims coming into other client relationships going forward

so it's difficult really to to to to say anything about that but hopefully we have or hopefully we we believe we have this situation under control and this this quite big impact i mean it's very seldom we have this kind of impact for us so we don't see that to to to come come in the future

perfect thanks let's take my questions thank you

there are no more questions at this time so i hand the conference back to the speakers for any written questions and closing comments

yeah okay so we have

got one written question how should we see the organic development in in EBITDA growth so if you look on on the full year you can say you know overall you can say it's been kind of an 50 50 split on on organic and uh growth here so then i guess we close this call and thank you all for listening in and

asking

as always very relevant questions so have a good day and thank you so much

thank you