Addtech AB (publ.)

Good morning and most welcome everyone to ADTEC's second quarter report presentation. The setup is as usual that Malin and I will spend approximately 15 minutes to summarize the highlights and give our comments on the results and then followed by a Q&A session. So a brief overview. We conclude a good quarter for ADTEC on the whole with high activity and continued growth. We increased our sales with 5%, of which 2% were organic, and we defend our high-level margins at 14.9%. The cash flow remains strong. We kept up the high pace of acquisitions also during the second quarter and have year-to-date announced nine acquisitions, adding a total of approximately 1.2 billion SEC in sales. All in all, satisfying to see that the group continued to deliver growth in a partly challenging market. Looking a bit more into sales in the quarter, given, as I said, the market uncertainty, it's great to see that four out of five business areas contribute positively, and three of five with continued organic growth. And the basis for this is that the overarching market situation remains stable at the high level, but with clear variations between segments and our units. The order intake during Q2 was good and with a sequential increase month by month, which is, of course, comforting in a short-term perspective. However, the uptick in demand after summer that many expected has been postponed. And right now, there is still a weaker sentiment among customers in parts of the business. For instance, OEM components towards customers in Europe, so Germany and other markets in Central Europe, partly due to still high inventory levels and also We see a weaker market in special vehicle segments. We still see hesitations for larger projects. Customer activity remains high. And by that, I mean that our companies are in, so to say, pole position when investment climate eases up. But we still see that the decisions keep being postponed. But as we always point out, the strength of running a well-diversified portfolio as we do is that when some units or markets are struggling a bit, something else has tailwinds. And as you can see in the lower graph, energy's total sales stands out on the positive side with a broad-based growth. Although, of course, transmission and distribution remains a key driver. also a continued positive trend in process technology. I will come back with a bit more details about market development within the different areas. Moving over to EBITDA development in the quarter, it was also up 5%, partly hampered by negative currency effects and a weaker result within automation. The EBITDA development in automation is mainly explained by the lower sales volume in the quarter. Also worth to mention here, industrial solution had a drop in the quarter, but when adjusting for unrealized currency effects, they landed on a satisfying par compared with last year. Once again here, as you can see in the graph, mitigated by a very positive trend in energy. which is a combination of improved product mix, a strong market, high pricing power, and the good contributions from acquisitions. And as I said in the beginning, unchanged EBITDA margin at the high level, very much in line with the plan. I would also like to highlight that our strong trend in increasing our R3RK from already record high levels continued and the cash flow also remains strong. Malin will come back to that within short. This picture summarizes the market situation and development per business area during the quarter. Some brief comments. Automation, all in all, a fairly stable business situation. Sales were down, as I said, partly due to challenging comps. But also negative effects from, as I mentioned, a softer demand in continental Europe. Looking in the segment, demand within mechanical process industry were stable, while the medical segment was still a bit weak, which is due to inventory reductions at some customers. So we still had that issue in some companies. But this was partly offset by a good market situation supplying to defense industry. And the lower sales volume in the quarter hit EBITDA with a weaker margin as a result, as I said. But gross margin improved in a satisfying way also this quarter. So we have a good product mix in automation and good pricing power. Electrification delivered a good quarter. Market situation was overall stable, but with variations between segments. A solid demand within mechanical, medical, electronics, and also defense. Special vehicles and energy were more stable. We've been talking about the battery group. And as we talked about going into this year, we said that we would have a comeback this year. And the market situation has clearly improved, and the order intake was strong for the battery group this quarter. Business situation for energy. I mean, it's a really strong quarter for energy. Strong growth in sales. The key segments infrastructure products for transmission and distribution remains very good. stable in mechanical industry, what we are supplying there to industry, and also a bit still improvement within wind power. Fiber optic networks remain weak, but components to data centers still developed very strongly. So all in all, a good momentum in energy, as you can obviously see. Industrial Solutions, stable as a whole. Sales related to project deliveries towards sawmill industry remained at good levels, while demand for new projects continued to be on hold. Another important leg within Industrial Solutions is special vehicles, where we saw a softening during the quarter, especially towards construction machines. Which is a sub-segment that we expect to remain soft throughout the year. But other niche segments such as waste management sub-C showed strength and together with companies acquired lately we expect to balance up and support future sales growth and profitability. Last but not least, for process technology, the business situation remained good. Solid sales growth more or less across the line. We saw flat demand within energy and forest and process segments, but a positive trend within medical and marine. And also within this business area, special vehicles softened during the quarter. If we summarize the period, I would say that Q1 was good with a fairly positive sentiment and momentum. Q2, still a good development. But again, the uptick that many were expecting has been kind of delayed. So still quite of a how to say, partly challenging market and more on a stable level, I would say. Also important to underline that the general order intake in the second quarter was good. So it's still on a good level. And to summarize, energy segments, stronger development during the period while special vehicle was weaker. Those, I would say, are the most Significant changes. But again, this is where the strength of running a large and diversified portfolio come in. We have seen this year by year ever since Adtech started. So we are good at putting our efforts in where we can see good developments. All in all, in the period, solid EBITDA growth, up 12%, with a margin of 15.1 compared to 14.3, the same period last year. We should be happy about that. And cash conversion remained strong, and we strengthened our earnings per share in a good way, year on year. So with that said, over to you, Malin.

Thank you. And as Niklas commented, our profit margin in the quarter is unchanged compared to the same quarter last year. And as you can see from the graph, we come from a long strike of quarters with improved margin. The improvement over time is broad based and it's in general thanks to active work to increase the value add in our value proposition and make sure to charge for it. Strategically improve our product mix and not least good leverage from acquired companies. We continue to keep a firm grip on the costs and take actions where needed if we see a long-term weakness in the market conditions. Important to remember what we always say, the margin can be higher or lower in single quarters. We have to keep our eyes on the long-term trend, the rolling 12 margin and a continuous increase, steady and stable. Cash flow was stable on a high level during the quarter as well as during the period. Both the profit and margin were in line with last year's second quarter and a continued focus on working capital development made cash flow remain at a good level. I'm very satisfied with the long trend regarding the working capital development, even though inventories always tend to increase during summer period due to bunkering ahead of vacations in the supply chain. And our long-term target, profitable working capital, reached 72% in the quarter. Our financial position remains strong and as expected, our gearing increased as the second quarter is often strained due to the payout of dividends. As you know, the key figures do vary over the year, but are still at very reassuring levels, which gives us plenty of headroom to support our ambitions going forward. So with those short comments, I hand back to you, Niklas.

Thank you. So a few words on acquisitions, as you know, an important part. And as Malin said, acquisitions are contributing in a good way for us. And the high pace continued in the quarter. We strengthened our operations with three acquisitions and signed agreements to acquire two more. And in total, that means nine high performing companies that adds a total turnover of approximately 1.2 billion with good profitability. The two most recently announced acquisitions are Unilite in Denmark and PGS in Germany. Unilite is not yet completed. We're waiting for approval for competition authority. But Unilite is a supplier of fire safety and ventilation solutions for commercial and public buildings. The main driver here is on rebuilds based on regulatory demands. PGS Tech is a German company specialized in customized water and gas supply systems to primarily pharma and laboratory customers. So that would complement the business we already have in process technology in a very good way. In general, as I always say, our view of the acquisition market remains positive. We have a well-filled pipeline that we continue to fill with new prospects. As Malin indicated, we have continued firepower and plenty of possibilities. So both in the Nordics, we still see good potential in Nordics, but also in an increased way, especially in northern parts of Europe. So a high pace so far, and I would like to underline that we have not changed our general growth profile or strategy. So focusing on adding a minimum of 7.5% earnings growth from acquisitions on own cash flow. That is still our objective. So to summarize, overarching and satisfying second quarter. Activity level still high. We continue to grow our business both organically and through a good pace of acquisitions. And for the group as a whole, market situation remained stable and overall order intake was good. Looking ahead, as we write in the report, of course, the economy situation and where we are in the cycle will, of course, set the tone. But given our well-filled order book, still good order intake and the strong positions in attractive niches. and the diversified situation we have. The outlook looks good. We're always having one foot on the brake and one on the gas. This is one of our main competence. And also, as we usually say, to capture potential and going into actions where needed, where we can see some challenges. All in all, I feel satisfied and I'm sure we will continue to create conditions for long term profitable growth. With that said, let's open up for questions.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key. 6 on your telephone keypad. Please limit your questions to a maximum of two. If you have additional questions, feel free to rejoin the queue. The next question comes from Zeno Engdalen-Richuti from Handelsbanken. Please go ahead.

Yes, hello, and thanks for taking our questions. I would just like to start off on the order intake, which, if I understood you correctly, improved sequentially compared with the trend you expect during the quarter. Would you say that when you're saying that the quarter ended, so to say, in a more strong way than it started, or would you say that it was rather flat to your expectations?

Yes. Hello. Well, also looking into the first weeks in October, it has started in a good way, I would say. When you talk about expectations, I think the best way to summarize it is that we were kind of expecting a higher pace looking back to the summer period. considering that there is a bit overall a softer situation, especially in Europe, that is kind of affecting. But on the whole, I would say that the development in the quarter, our book-to-bill and also the sequential trend has been on a good level.

And quick follow up, could you say then that book to bill was above one?

Slightly below one.

Okay, thank you. And on the second question, when you commented on automation, that there's still some inventories among your customers, have you had any indication to when that effect could disappear?

Yes, but yes, we have, because if we look on the development and order intake again, quarter by quarter and sequentially, we can conclude that it seems that we have kind of flattened out here on a bit lower level, so to say. So maybe that is an indication that we have now reached some kind of bottom and that the order intake would rather start to increase there.

Okay, thank you. I'll get back in line.

The next question comes from Carl Bockvist from ABG Sundal Collier. Please go ahead.

Thank you. Good morning. First question is on the comment you said there about the hesitation among customers on larger projects. Is this related mainly to the forestry side or are there other areas as well where you see this behavior?

Good morning Carl. No, this is I would say more broad-based. When we talk about high activity, we can see that we have a lot of quotations on projects, and this is both in automation. We have a number of more project-related companies in automation, where we have, as I said, good ongoing discussions, but there is hesitation to really pull the trigger. Process technology, same thing. So the same kind of behavior. And also in the sawmill market, where we have a really good quotation situation. So it's more kind of broad-based.

Okay, understood. And then, apologies if I missed that, but the margins within automation, was there anything in particular that affected the year-over-year declines?

yeah i mean if you look yeah it's basically sales driven so a little bit down on sales and that is affecting effect in the margin understood okay thank you so i mean another comment there i mean automation is is one area where some of our companies went into this year with with the the feeling that we will have good growth. So we have a number of companies in automation where we really have to look into cost efficiency situation. So that is the situation here, I would say. Good gross margins, but lower sales, which means we have to look over a couple of companies' cost situation.

Understood.

The next question comes from Johan Dahl from Danske Bank. Please go ahead.

Yes, good morning everyone. Just two quick questions. Firstly, Niklas and Malin, just looking on industrial solutions, trying to sort of pick here what the organic growth it seems like a you know fairly double-digit decline organic growth in industrial solutions does that tell you with your numbers and also what do you make anything out of that in terms of client activity especially since you talked about fairly optimistically regarding order intake.

Hi Johan I couldn't really hear you so well it's a lot of noise in the background can you hear me?

It seems like organic growth in industrial solution was sort of down double digits. Does that tally with your view of organic growth in industrial solutions for this quarter? I was wondering, do you make anything out of that? Is there any specific client behavior? that is causing that, and also in light of what you referred to as fairly good organic growth, I'm just trying to understand that number a bit better, if you could provide any comments.

Yes, okay. So it's not double-digit, it's more mid-single-digit, I would say. And this is primarily driven by, or actually it is driven by the special vehicle markets. So a slight drop in that market. um so that that's the background on that and and your question of what we do about it um i'm not sure really what you mean by that uh i mean as i said we have a lot if you talk about the sawmill market uh as i indicated that there is a really high activity on discussions but but hesitations on on on pulling the trigger for for investments um so But maybe your question was related to something else.

No, that's fair enough. I hear you. The mid-single-digit organic growth doesn't seem that dramatic. But secondly, you've had a good margin tailwind in the last couple of years, resulting from these initiatives that you've been driving, that Malin talked about. Do you see those initiatives progressing going forward? you know, in a fairly sort of even manner, or is there anything in particular, any change in the business mix, you know, causing that we don't see this in this quarter?

Hi, Johan. I think that you could say that it's hard to conclude from a single quarter. I think those initiatives, they are going on all the time, and I think that we have still work to do there, so there's still potential. This quarter, I mean, we had weaker margins, mainly in automation, as Niklas talked about why. And also in industrial solutions where we had first, of course, we have always talked about that margin, that it has been very high. And it depends on the project in the sawmill industry, but also, as Niklas said, a bit lower sales in special vehicles. So that is more of a temporary situation, I would say, due to the market conditions. But that we have more to give when it comes to increasing the margin over time, I'm fairly sure.

Excellent. Thank you so much.

Sorry for the noise. No problem. Thank you.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. The next question comes from Johan Lankvist Sundin from Carnegie. Please go ahead.

Hi, Niklas and Malin. A couple of questions from my side as well. The first one is on the margin levels in acquisition consolidated during the period. Well, looking through the report, you have a paragraph where you refer to the contribution from acquisitions, both year to date and if you compare it to the contribution in Q1, it seems like the margin has come down quite a lot just quarter to quarter. Can you give some color what has happened? Is there any seasonality effect impacting or is there any kind of weakness in recently acquired units that we should be aware of?

Hi Johan, no I would say I mean it's more you know as we usually indicate you know we have some project companies And there can be differences from quarter to quarter. All in all, if you look over the period, I think it's more important to look on the delivery on a little bit longer period. And we have good contributions from the acquisition during the period. So it's really nothing to, you know, there are a couple of companies that had a little bit weaker development this quarter, but really nothing that sticks out.

And when we look at the kind of acquisitions that you have announced and the impact from them during the coming, say, two, three quarters, what all-part margin level should we assume they could have had?

You mean the margin on acquisitions we have acquired lately?

Yeah.

Yeah, I mean, the average margin is... clearly above our average margin. So it should really contribute in a good way.

Okay thanks for that comment and then on going back to the automation business area you talked about looking over cost going forward. Should we expect you to do some restructuring initiatives in the coming quarter or Should that be done without taking upfront costs or how should you comment?

Yeah, I mean, first of all, you can say that we are always very quick on the companies. This is something that is going on all the time, even in really good times in the portfolio we have, we always have companies that are underperforming. So this is really part of our running business. In automation, there are a number of activities going on in a couple of our bigger companies that are affecting quite a lot. So there will be measures taken in the quarter that comes now. Yes.

And if you have over the years made smaller restructuring initiatives of a couple of millions, is that in that ballpark that we should be expecting, or it's just this smaller?

No, maybe in that ballpark.

Excellent. Final question from me. It's on electrification and on the battery situation. We've had a little bit of a turmoil on the tariff side, specifically on cars and electric vehicles in that sense. Are there any impact on kind of tariffs on batteries that are either positive for you or negative? I'm not an expert on that area, but just interesting to hear and give me your background in the battery group, Niklas.

Yes, I can absolutely understand where your question comes from. I would say that if any impact is rather a positive impact, but uh it it's nothing that we can really see i mean we are in the whole we are a quite small player if you look in the whole battery market in the world so uh it it will not have any significant impact but if any it will rather be on the positive side excellent and just one final question for marlin if i may uh and it's uh on receivables

noting that it continues to pick up here. Any reason for receivers coming up given the muted organic growth?

Well I think that during summer period we have a bit of a special situation when it comes to working capsule. It is a bit seasonal that we get a bit different situation than all the other quarters. So it's nothing in particular to see when it comes to accounts receivables. It's just, I would say, season and where we are. And depending also, of course, on how good sales we have in each month of the quarter, that also affects. So it can vary.

Excellent. Thank you for questioning.

Okay, so there are no more questions, but we've got one question here. In the chat. In the chat, exactly. Thank you. So one we have already answered. One is, please elaborate on the strength in energy. I mean, to make it shortly, I mean, energy has its transmission and distribution leg that is a quite big part of energy, and that is, as we've been talking about for many quarters, a really strong market. We have a broad-based position on a lot of geographies, and we see a strong development here. And also, apart from that, we have an uptick on the wind power side. We have a good position in data centers that is growing right now. We have public safety as one area also growing in a good way. So actually right now, there's a lot of things going in the right direction for energy. The only thing that is weak is building an installation, but that is not a very big part for us. So it's a broad-based situation. Another question from the same person, when is the order book enforced, the process growing up likely to impact sales and earnings? And I mean, we... We have order books for the remaining part of this year. We have also filled it up with an acquisition here with a good order book situation. So the remaining part of this year looks stable. It's more looking into 2025, 26 of the next year. Of course, we have to see some positive progression here. Otherwise, we have to to look into other measures to protect the margins. So, the remainder of the year looks solid. Yes, we have another question here, I think.

The next question comes from Carl Bockvist from ABG Sundal Collier. Please go ahead.

Yes, thank you. Just two follow-ups or maybe one split into two sub-questions here. But on the first, just regarding exposure. First, if you could, if possible, give a bit of insight into data centers, how much that is now of energy and or the business. And the second regarding special vehicles. I know you talked about this before, but what kind of special vehicles we're talking about and And why that market is weak right now?

So, yeah, data centers, I mean, it's still still not so on the whole, it's not so much. So, I mean, we talk about maybe a couple of percent of the total sales. So it's really not a big market, but with a strong growth, of course, that is giving a good effect. For M&D, it's a bit more than 2%, maybe 5%, 6% or something like that. The second question, yeah, I mean, when we talk about special vehicles, we are off-road vehicles. So we are not in on-road vehicles at all, but off-road vehicles. And so it's towards forest industry, mining, construction, etc. So basically all kind of, especially also in public sector. So we have trains and buses and things like that. And those markets, what I said in the end, they are developing in a very good way. The really weak part is on the construction machines. And that's, of course, relating to to the slower construction market. All right.

Yes. Great. Thanks for the added color. Thank you.

Thank you. Okay. Yeah. So since there were no more questions, thank you for listening in and for your questions. And have a good day.

Thank you. Bye.