Addtech AB (publ.)

Good morning and most welcome everyone to Adtec's first quarter report presentation. Today's setup is that Malin and I will use approximately 50 minutes to summarize the highlights and give our comments to the results and followed by a Q&A session. All in all, the new fiscal year has started off in a good way. In general, the customer activity remains stable at high levels, resulting in a solid net sales growth of 7%, of which 2% organic growth. We also continue to strengthen our profitability. EBITDA is up 19% in the quarter, with a very satisfying margin of 15.3%, and also a further improvement of our profitable working capital.

Cash flow continues to be at very low levels. And as you have noticed, our acquisition pace was high during the period. More about that. in short. A bit deeper into sales. As I've already said, high activity in all business areas. We grew net, say, 7% And as I said, we were back to organic growth with 2.2% in the period. And as you see in the lower graph, it was broad-based. the highest contribution from electrification and process technology. Custom activity, as I mentioned, is stable at high levels. but it's variations between and also within segments. I will come back a bit more into details about market development.

We strengthened the profitability and the positive margin trend continued. We reached a new record level of 15.3%. and rolling 12, 14.7. And I must say it's very satisfying to see that the effect from our long-term initiatives to increase added value in our proposition, meaning more own and modified products and solution and improved product mix. And this is partly cutting tails that we always do, but also taking down some volume business. So the product mix is very on a good level.

And of course, our focus to acquire more profitable companies. So good contributions from acquisitions as well. All in all, EBITDA 90 percent and as you also can see that is good contributions from all business areas R2RK or professional working capital surpassed the new record level 70 percent and cash flow continued to improve. Molly will come back with more details on that. So a little bit brief comments on each business area. Automation had a solid business situation with stable state development compared to the same quarter last year. On the positive side, Good sales trend towards process industry continued. Same goes with companies delivering to the defense sector. Mechanical industry is stable. in different geographical areas, but all stable. And a slight drop in MedTech due to softer demand during the fourth quarter. And also we have comps year on year this first quarter. Also electrification delivered this quarter. This situation continues to vary here. as well between segments. Positive development in electrification of special vehicles, also mechanical industry and energy, as well as defense. all of this sector is stable to positive development. Data telecom and building installation remains weak, and the electronic as well as medtech developed more flattish.

We've been talking last year quite a lot about the battery group. And here we can conclude that the situation has stabilized as we have foreseen. So the market situation is gradually strengthening, given that the high inventory levels of customers have been pretty much phased out. So we are more in a normalized situation there. Business situation for energy continued on a positive note. with stable net sales. And the key segments infrastructure products for electrical transmission and also niche products for power distribution remained very good. And overall, the market situation was stable in mechanical industry, still weak in the building installation sector, while wind power demand continued to show positive signs.

Data telecom buried. The build out of fiber optic networks have been weak for quite some time now. And it remains to be weak. while electrical components to data centers developed in a positive way. Industrial solutions, stable as a whole, if you look on sales, The state-of-the-art forest and storm industry remains at high levels with strong product deliveries with good profitability. The market for new projects is still a bit on hold and as we've been mentioning before this is still due to high interest rates and the weak construction markets industry special vehicles continue to be flattish on the weak side when it comes to special vehicles, especially on on construction machines. So this is also partly relating to the construction market. And here we can see that some of our bigger OM companies are signaling slower demand for 2024. The new area for us, but that showed a good development. Not least process technology delivered a very strong first quarter. Basically cross segments and sales were also boosted by a large amount of deliveries to a couple of customers.

If we look on demand, energy, medtech, process industry in general stable. Marine remains good. A bit weaker in special vehicles here as well, as I mentioned in industrial solution. And also forest industry. And also the aftermarket business was a bit weaker year on year. So all in all for process technology, really strong sales, but somewhat more soft on demand. So that was a bit brief summary of the market situation. Over to you, Malin.

Yes, thank you. As we said, our profit margins continue to improve during the quarter. And as you mentioned, Niklas, it's in general thanks to active work to increase the value add in our value proposition and to make sure to charge for it, strategically improve our product mix and not least, of course, good leverage from acquired companies.

I would also like to emphasize 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 strong long-term development is broad-based, but one of the key drivers is of course the positive effect within industrial solutions and their good marketing project deliveries. The hike in Q1 for energy is primarily driven by an improved product mix. and of course also solid contributions from recently acquired companies. For the group, we expect margin to persist around the rolling 12 level with gradual improvements through the year. of course, still, despite the slight increase in Q1, mainly due to the season and the bunkering ahead of the summer and effects from high pace of acquisitions. I'm very pleased with the long trend, both in absolute terms and also as an improvement in relation to sales. Our long-term target profit of working capital surpassed 70% in the quarter. cash flow. Our operating cash flow has improved, both quarter by quarter and rolling 12, which is primarily related to the increased profits. Our financial position remains strong with sequential improvements as expected. As you know, the key figures do vary over the year, but are at a very reassuring level for the moment, which gives us plenty of headroom to support our ambitions going forward. Thank you. Some words on acquisitions. We have had a good start to the year.

mentioned in the end of fourth quarter, we did foresee a strong start for this year. So we did four acquisitions during the first quarter and continued after closing with three more. The latest one actually this week, an Italian company we have known for many years, Romani Components, that strengthened our position in continental Europe when it comes to linear products within automation. We have several companies already in the group with similar offerings and also with good margins here. So all in all, seven well-run, high-performing companies that we have welcomed, adding some 860 million in turnover approximately with good profitability. It's also great to see that our efforts to grow on the international market continues.

And my take on the acquisition market going forward remains positive. We have a well-filled a continued five power and plenty of possibilities in our focus areas, both from a geographical point of view in the Nordics and northern part of Europe, and also looking at our selected niche segments. So as a summary here, as I said, we have started the year strongly. We have not changed our general growth profile or strategy, which means that you should not calculate with this The same high pace going forward. We are not lacking opportunities. Actually, the other way around. But again, our long-term growth plans are consistent. So let's summarize and look ahead. Very pleased with the first quarter of course and the high activity and good contributions across the line. Despite some hesitation, as we say in the outlook, there is some hesitation in the market still and continued variations between segments. But we grew our top line and improved the profitability in a very good way. to me it's becoming increasingly clear how scalable our model is and how well it works regardless of geography. The economic situation is still uncertain as I said and some hesitation we can see in CapEx related investment decisions so of course we keep a clear eye on the development but we have well filled order books

And as I always say, our ability to quickly adapt to new market conditions, irrespective of taking opportunities or handling challenges, we have a very good way of making quick decisions. So we are all in all positive to the coming quarters. With that said, let's open up for questions.

If you wish to ask a question, please dial 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial 6 on your telephone keypad. The next question comes from Johan Skoglund from DNB Markets. Please go ahead.

Good morning. Johan from DNB here. A few clarifying questions from me. The first one is on organic growth already in Q1. Good to see. Is there any effect here or any other extraordinary dynamics that we should be aware of? Hi Johan, good morning. What was the first you said? Is there any... Easter effects from working days etc. Yeah I mean It might be, of course, some eastern effect. I mean, our fourth quarter was a bit on the weaker side. And there we explained it partly due to eastern. So it could be some spillover effect. Apart from that, as I mentioned, it's in a process that's normally very, very strong deliver on sales. And as I mentioned, a couple of strong deliveries to a couple of customers partly in the farm so a little bit boost effect on process technology okay thank you and are those boost effects are you able to quantify those roughly No, I don't think we will go into that detail. But I think, I guess my point is that, as I also mentioned, part of the demand in process technology some of the segments were coming down a little bit in the quarter so you should not extrapolate this strong growth in process technology in the coming quarter so a more normalized situation is is what we would foresee. Good. I think you answered my next question there. So just a final one from me here. On your plan to acquire more profitable companies, do you see any multiple differences here on these compared to the lower margin companies? Yeah, that's a quite common question we get.

And the short answer is no. We still have pretty much the same multiples. Of course, it varies from case to case. But all in all, when we look at the multiples so far, what we have acquired is still on the same level. And I would say this is partly due to how we work on acquisitions, the relation based process we have. And also that is still pretty small companies still that we are acquiring. So still the same multiples.

Okay, very good. I'll get back in line.

Thank you and good luck with Q2.

The next question comes from Zeno Engdalen-Richuti from Handelsbanken.

Please go ahead.

Yes, hello. Thanks for taking our questions. I just have a couple of ones here. electrification, how can you assess the positive impact that comes from a better market compared with the customer results of customer coming back after three years of reinvestment? Hi, good morning. So your question is how much is driven by some kind of mega trend and how much is just coming back to normalize the situation. Is that your question? Yeah. It's a good question, but it's quite difficult to answer, actually, because it's, of course, a combination of the two. I'm trying to think of a good answer here. It's really a combination of the two. It's difficult to quantify. Okay, I get it. And just secondly, you mentioned in the interview that the sales towards data hosts were strong. Could you say roughly how large the exposure in that segment is towards data hosts? I mean, it's not that big. I mean, like... The biggest part in NAD is the transmission and distribution side. Apart from that, we have several different sub-segments we deliver to, but... So all in all, in the group data holes, let's say...

I have to do some calculations here. I would say maybe some roughly 2-3%, maybe 2%. Okay, okay.

And just very lastly on process technology, I think you've been very clear with how we should look on it forward, but if you're looking on The other exposures apart from this large deliveries, you highlight that marine was good, but the other segments were flat or weak in the underlying market. Just an aggregate on the others, would you say that it's just rather flattish, excluding this very good delivery?

Yeah, I would say that's a good view. I mean, all in all, I would say that we talk about a kind of a solid situation. If we look on demand as a group, it's like the sentiment and what people are saying. saying some kind of a soft landing and i would say all in all that is pretty much what we what we feel i mean we have good order order books which give some comfort but on the demand side kind of a flat situation with variations. But in process, yeah, I would say if you take that out, it's kind of flat. Okay, very good. Thank you. The next question comes from Johan Lantvist-Sanden from Carnegie. Please go ahead. Good morning. Thank you for taking my questions. Yeah. I joined the call a bit late due to another company report this morning. But just to ask again. And if it's possible to give some more color on what type of one-off project this was. Because there's other companies with exposure towards the pharma industry that see a strong market and more talking about structural trends rather than one-off. It's possible to give some more color to this. Yeah, I mean, we also see structural growth in the biotech and pharma sector. In this sector we definitely see a structural growth but more how to say more

a steady, stable growth. In this quarter, we had, I mean, I'm not going into details, but it was primarily a couple of customers, one relating to the pharma sector, strong deliveries from previous ordering. And the other one was more relating to an insurance situation for one other customer in a totally different sector. So, yeah, I don't know if that's answering your question. We do see a good stable underlying growth, but more on a kind of a normalized growth.

We haven't seen these hikes in process technology really before in this sector. But it's clearly one part that is giving good delivery for process technology. We have also done a number of acquisitions that are exposed to this sector. This is also giving positive development. Great. And just also, given the comment from Malin, were there any specific kind of project deliveries in the industrial solutions worth highlighting? I think I can answer, because you look like you didn't understand the question. You will understand the question, but you should. Maybe I can answer that way. I would say that for the moment they have very good projects with very good margins. And I think we also mentioned it in Q4 that it of course depends on when the project has been sold and then of course the underlying pricing so for the time being they have good margins there even though the baseline margin there is always good. It's a bit boosted for the moment, except for the same reasons as it was in Q4. But I think it's also important to highlight what you also mentioned now, that we have good contributions both from acquisitions and also the underlying margin is good. So I would say you should not overestimate the effect on this product delivery. And not think that it could also be very weak because it is a strong margin business.

Exactly. Yeah, that's clear. When we're talking about industrial solutions, can you give some more color on the order side, specifically on the sawmill side? which has been discussed quite a lot in the last few quarters.

Yeah, I mean, it's still, as I mentioned, and as we write in the report, it's still hesitations. We have quite a lot of discussions and projects, but there are hesitations to make kind of final decisions. And that is... Some different reasons behind it.

High price on timber, that's one thing, affecting the weak construction . So it's kind of that combination that is giving the kind of hesitation. Even though we have some signals that it's pretty much reaching some kind of bottom, but the clear water intake or finally the situation here is still a bit on hold. The current water situation, how many quarters do you cover? Is there any big difference compared to the message in May? No, it's no difference. So I would say a couple of quarters ahead. Great. From my side, if I may. The first of those are on the year-on-year EBITDA growth. Is it possible to quantify how much of the year-on-year EBITDA growth was related to acquisition? So I guess that you've quite recently had much higher margins than the group average. Yes, that is true, but it's also actually it's also really good good contribution also from the organic side so it's really mixed so is it possible divided 50-50 from acquisitions and organic. Yeah, pretty much. Excellent. And my last question is for Malin on the cash flow and the balance sheet. I heard your comments on the kind of cash flow development.

I note that inventories are down while receivables is up. Is there any reason why receivables is up? Because I guess if you are reducing inventories the way you do, you should have a better kind of of cash conversion than you have in this quarter?

Yeah, of course, if you first just look at this quarter isolated, I think that the receivables are up due to the fact that we had good invoicing in the beginning of this quarter. If you look at the cash flow, it's actually so that last year If you compare last year to this year when it comes to cash flow. So last year we had a completely different situation in the accounts receivables during Q1 due to very, very strong invoicing in Q4.

So that's why they have developed very differently if you compare last first quarter first quarter. But if you just see the development on the balance sheet, it depends on, of course, when do we have the invoicing. And it has been strong during the quarter. So that's why there are more receivables now than last year. And I think... Also, if you compare to last year, it's down, but if you compare to before, it's actually up a bit, as I mentioned. Organically down from last year. Yeah. Okay. Yeah, maybe we can take that and start the conversation afterwards. to go through it in more detail. I think I stopped there. There's just more questions. The next question comes from Carl Bockvist from ABG Sundale, California. Hi, can you hear me now? Yes, yes. Hi, Carl. We can hear you now. Hi. All right. Okay. Great. Good morning. Good morning. So, just my first plan is on M&A. It's Porter alone, I understand, is just three months or not even that perhaps. But it seems like the companies you've acquired so far have had very high margins. And I'm just curious to know, on aggregate, it looks very good, but is there one or two inputs? particular that drives this. Sorry, look, when you say the more decisions in the

You talk about the acquisition effect in the quarter or the acquisitions that were made.

The contribution that you talk about, about the recently acquired companies on profit and sales.

Okay. No, I would actually, of course it varies, certainly. And maybe there is there's one company that contributes even more on the margin. But really, all in all, I would say it's more broad-based. I mean, it's good deliveries and strong margins in the absolute majority of the acquisitions. So, yeah. Understood.

And then the comment I believe you made, Malin, about pricing power and

and so on without perhaps I understand you might not be willing to quantify but compared to like what we saw a few years ago where the pricing component was pretty significant Is it still, you know, a notable portion now? Good question. It's... Let's think. Yeah. I... I would say I don't think the price component is so much in this. It's clearly more volume driven. Absolutely. And it's been all over time as well. So... Yeah, but I mean, if we said 30, 70... then it was also mainly volume-driven as now. Now it's more back to normal, I would say. Yes, absolutely. Absolutely. So I'd say the pricing pattern Now, I would say it's more related to the fact that we are able to uphold the pricing levels. Of course, there are variations and discussions with some countries. about lowering prices. We have all of these kind of discussions. So I think the fact that we are now able to uphold the pricing levels is more like that. In general, it's like that. I think also I commented in energy specifically. I think it's depending on what kind of project that they have very good pricing power in some kind of projects, which then, of course, affect... understood and my final one the statement you when you you disclose sales into like data and telecom electronics etc the statement called other I realized other simply might include a lot of different things.

Are there any more sizable end markets in that segment because it seems to have been growing very nicely here?

Yes and it's like you say it's a mix of different things and other the main driving sector here is the defense sector, clearly. And defense is, let's say, around 3% of our total sales in ad tech. So it's still quite low, but the big driver in other segments is defense.

Okay. Understood. That's all from my side. Thank you. Thank you.

There are no more questions at this time, so I hand the conference back to the speakers for any writing questions and closing comments.

So, thank you for listening and thank you for, as always, good questions. To summarize, we are happy with the quarter, of course, and then we wish you