Addtech AB (publ.)

Thank you and most welcome everyone to Adtech's third quarter report presentation. As usual, we will spend approximately 15-20 minutes to summarize and give our comments on the results and then followed by a Q&A session. Let's start with some highlights from the quarter. Overall, the activity in the quarter remained high and we increased our sales by 11%, of which 3% were organic. We report a very satisfying EBITDA growth of 17% and increased our margins to 14.4%, comparable with 13.6% same quarter last year. Our cash flow remained on good levels and we kept the high pace of acquisitions in the quarter, now totaling 11 acquisitions during the fiscal year, adding a total of 1.4 billion SEC in sales. So in conclusion, a strong result in a quite demanding environment. A bit more on the sales. Despite calendar effects and the weaker sentiment in some customer segments, it's very satisfying to see that all of our five business areas contributing positively to the quarterly sales growth. As I said, 11% of which 3% organic with solid contributions from three of the business areas. So again, a quarter with good based sales on high level of activity, but with clear variations between segments and geographies. Our backlog remains well filled and we had a solid order intake during the quarter and also good start of this last quarter. The overarching customer segment trends are more or less unchanged. Energy sticks out this quarter, continues to be very strong, broad-based growth, where transmission and distribution remains the key driver. Companies exposed to building and installation, forestry and parts of special vehicles continue to meet the challenging market. I will come back to more details about the development within different business areas in a minute. Looking at the result development, as I said, EBITDA was up very satisfying 17%. A clear proof of our ability to get sales into the result and positive contributions across the line. But again, as you can see in the bottom graph, a very positive trend in energy, which is a combination on leverage on the organic and acquired growth, improved product mix and solid pricing power. EBITDA margin improved to 14.4% and a strong trend in increasing our profitable working capital continued and the cash flow remained strong. Some more in-depth of each of the business areas. Automation delivered a satisfying quarter with solid top-line growth, mainly due to the important OEM customer segments, such as medical, mechanical, and process industries stabilizing during the quarter. Sales growth towards defense industry also contributed in a good way. Demand was somewhat weaker than expected in the quarter as a total due to continued sluggish market situations, especially for our companies in Finland and partly also in Daesh. The margin in automation was a bit on the weaker side. This is due to the product mix combined with negative calendar effects. We also, as we mentioned in the second quarter, we have a bit too high costs in some companies due to expected growth that has not materialized yet. Move over to electrification, delivers a good third quarter, good earnings contribution, both organically and from acquisitions. The overall market situation within the business area was strong. Again, clear variations between different parts of the business. But key drivers in the quarter, medical technology and defense industry. Building installation remained weak, but this was partly offset by a slight uptick within data and telecom. Energy then, as you can see, continued on a positive note with yet a very strong and broad-based growth in the quarter. And the key segments, infrastructure products for electrical transmission and also niche products for power distribution remained very good. Also sales towards data centers continue to develop in a very good way. And wind power is picking up still and also traffic safety segment continued in a positive way. Building installation, another quarter where it's still a bit sluggish. All in all, very good momentum and energy, and we expect this to give us nice contribution also going into next financial year. Industrial Solution delivered another solid quarter with a good business situation on total level. Sales related to project deliveries towards the forest and sawmill industry remain good, while the demand for new projects continue to be on hold. The other important leg within industrial solutions, special vehicles, continued weak market, especially in construction machines. But we do see a tendency that parts of the OEM market here will pick up during 2025, which is also partly thanks to that some of our companies are winning new projects and taking market shares here. The niche segments, apart from the two I mentioned, waste management, subsea, continued strength during the quarter. Finally, process technology on total level, a stable quarter. Also here, variations between different parts of the business. So one thing we notice here is that there is a hesitation to launch major investments. We have talked about that a couple of quarters now. And we saw this quarter that this also affected some of our project companies in the period or in the quarter when it comes to the sales. Also in process technology, we have companies exposed to the aftermarket towards the forest industry. And here we saw also a weakening during the quarter. The segment's energy-special vehicle, again, a bit weaker, but marine showed continued strength, and also medical and process industry were stable. To sum up, we have a market situation that varies, but the strength of running a well-diversified portfolio that we always talk about is that is shown in this quarter. So when some are struggling, we have really good tailwinds in other parts. Bottom line, we continue to see high activity and when the sentiment and the will to invest returns that we foresee will happen when the interest rates are kicking in, our companies are in a good position to capture growth. A few words on the period. We can conclude all in all solid growth on all lines. Net sales up 7% accumulated, of which 2% organic. So very satisfying to see that we kept organic growth over the quarters with a slight uptick now in the Q3. And the key strength that I was already mentioned, which is valid also in the quarter, is that we managed to get the volumes down into the earnings. So EBITDA is up 14% in the period and a high margin of 14.9% to be compared with 14% margin same period last year. All in all, a successful year so far. Solid sales growth and good order intake in the quite challenging market and good leverage on the result and margins. So earnings per share for the period is up 13% to slightly above 5 SEC. With that said, over to you, Malin.

Thank you. And as Niklas commented, our profit margin in the quarter continued to improve. The improvement over time is broad based and is 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 can see that the trend line of total costs still has a good development and our overhead costs in relation to sales are stable. We take actions where needed if we see a long-term weakness in the market conditions, but we also invest where we see good potential for future growth, which is also very important. One foot on the brake and one on the gas. Gas, as always. Our long-term target profitable working capital reached 74% in the quarter, and cash flow was stable at high level during the quarter as well as during the period. We had a positive effect from working capital development, but it was relatively lower than last year's third quarter, mainly due to increase in accounts receivables and inventory levels. Inventory levels are always one of our most important focus areas, and we still see a decrease organically year on year, even though comps are quite tough for the time being. Inventories in relation to order backlog and sales are on satisfactory levels. Our financial position remained strong and as expected, our gearing decreased sequentially from the second quarter. As you know, the key figures do vary over the year, but are still at very reassuring levels. Our balance sheet is strong and gives us plenty of headroom to support our ambitions going forward. And with those short comments, I hand back to you, Niklas.

So acquisitions then, the high pace continued in the quarter and we strengthened our operations with three acquisitions followed by one more after closing. So we have started this year also, or this quarter already with acquisitions. In total for the fiscal year, that means... The 11 high performing companies, of which eight of them are outside Nordics, adds a total turnover of approximately 1.4 billion SEK with good profitability. And as I said, one more quarter remaining on the financial year. We have now already acquired slightly above our financial targets on acquired growth. Just a brief comments on the two most recent acquisitions, NanoSystek completed early November and KOL Motors in mid-January. So the German company NanoSystek has a leading position in its niche. which is developing and producing equipment for manufacture of optoelectronics and precision mechanics to customers, primarily in data communication and medical technology, where there is a demand of high degree of precision. And then Korn Motori, a very nice company in Italy. So the third Italian companies we acquired this year. This company is focused on the niche within electrical brake motors and brake modules with patents on the products for industrial application in European markets. And this also complements our offer within electrical drivelines in a very good way. In general, we still have a very positive view of the acquisition market. There are plenty of possibilities and our pipeline of attractive companies, both in Nordics and other selected markets, is well filled. And it's also very satisfying that we constantly continue to find and drink coffee, as we say, with new potential prospects. So we are also further filling our pipeline. So all in all, a strong financial position gives us a good possibility and ability to act. And we expect to continue to acquire in a good pace in accordance with our strategy. So to conclude, all in all, a strong report. Customer activity remains high. but with variations between segments. Solid top line growth in the quarter, and we get the volumes down to the result in a very satisfying way. Order intake was good during the period, and our backlog remains well filled. And our international footprint, which is really part of our strategy, continues to increase. Finally, forward looking, the macroeconomic situation remains uncertain and that will, of course, continue to impact the market sentiment for at least some of our companies. But given our backlog and strong positions in the attractive niches and the diversified business in general, gives us a positive short term outlook. And as we often emphasize, our business model entitles us to act quickly and adapt to change market conditions. So we are well prepared when the general market picks up. With that said, let's open up for questions.

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

Hello, Niklas and Malin. Thank you for taking my questions. If we start with the U.S. tariffs, and I appreciate things are changing fast and there's a small share of your total sales, but can you talk about how we should think about a potential impact from new tariffs? And maybe this is more related to your battery business in electric vehicles.

Good morning, Markus. Well, this is, of course, the topic of the day in general and a very important question. I think it's really difficult for us to comment at this point how this will affect, because it seems that it's changing pretty much from day to day. I mean, of course, in general, tariffs like this is not good for us because we work with international trade and are moving our products over the world. So that's one side of it. Our direct exposure in this question is, I would say, very limited because we have very little direct export to U.S. Indirectly, It's difficult to say, but many of our customers, of course, have U.S. as an important export market. But it's really difficult to have an opinion on that. also on battery market. I mean, we don't have much sales into the US in the battery. So I don't think it's hard to see that it will have a high direct impact.

Okay. And then my second question, if I may. Energy was very strong and spoke about data centers performing well. Could you say if you've noticed any impact in the discussions with your clients with the introduction of DeepSeek? Are they more hesitant to invest? Have you noticed anything at all?

Yeah, no, we have not noticed any changes. We still see a very positive outlook when it comes to expanding the data centers. I mean, we have a footprint here based on our operations in UK, but we have customers around Europe. And in the discussions with them, they still see a high demand to continue to expand. And I think in general, I mean, it's difficult to say how this will impact, but in general, you know, it will be a lot of investments in AI overall. And this will require a lot of data centers. So we are still very optimistic.

Okay. Those were my questions. Thank you.

Thank you.

The next question comes from Carl Ragnarstam from Nordea. Please go ahead.

Good morning. It's Carl here from Nordea. A couple of questions from my side as well. You commented a bit on the order intake in the report, so I'm curious to delve into it a bit more. Could you give any flavor on the book to build in the quarter, both including and excluding the sawmill subsegment, I guess, And also on the sawmill side, you write that the order intake is still a tad weak. Could you comment or give any insights into the book to build in industrial solutions as well and where the backlog is in order for us to perhaps get a better understanding of the organic trajectory from here? Thanks.

Yeah. Hi, Carl. So overall, I would say that, I mean, book to bill was slightly below one, that it has been, you know, more or less around one the last few quarters. So all in all in ad tech, this quarter is slightly below one. But it's also important to know here that we have some segments with very good long-term development, but it can vary a bit quarter by quarter on the projects. For instance, in the defence sector, that was a bit lower order intake this quarter, but it doesn't affect the long-term story. If you look on industrial solution, I mean, of course, this is affecting industrial solution. Also a bit on sales this quarter. We can see that the lower order index starts to affect the sales in industrial solution. If we take out sawmill from the general market, Book-to-bill in ad tech, it's definitely above one. So the sawmill part is affecting. So book-to-bill is negative in industrial solution at the moment. And if you look at The order stock, we have said the whole year that we have a well-filled order stock that will give us confidence during this financial year. Moving into next year, as it looks right now, of course, it will be tough comps for industrial solution. We see some due to acquisitions we have done, but also some other existing companies we see that will partly be offset the challenge incomes for next year. And we also get some positive signals that the willingness to invest in SOMIs will come back during 2025. But at least beginning of next year, it will be a bit challenging for industrial solution.

That is very clear. Thank you. You also mentioned too high cost in some companies in order to be ready for recovery. I think it was in automation which didn't come seemingly so far at least. Will you stick with the elevated cost levels and hope that demand will come back soon or will you start to take out costs or what is the plan in automation there?

Yeah, I mean, this is always a balance, of course. I mean, it's difficult to hire good people. And this is always the case, you know, to have the balance of keeping people and securing the market in the short term. But we have a number of companies in automation where we are working on that. cost efficiency measures. So, yeah, so it's a little bit of a mix. It's not any, you know, really major things we're doing here. It's a couple of companies that have a bit too high cost that we are looking into.

Sounds fair enough. Thank you. And the final one, we have discussed it before, but But if you look on the margin delta year over year, what portion would you say is organically driven and what portion is M&A in the quarter just to see the operating leverage on the organic growth?

Yeah, I mean, I think this is one of the strong, really strong part in this report that we get so much leverage on the organic growth. So I would say approximately 50-50 is organic and acquired growth.

Okay, very clear.

Thank you so much.

The next question comes from Zeno Engdalen Richiuti from Handelsbanken. Please go ahead.

Hello, thanks for taking our questions. Just starting off with a broader question on demand, given your comments on continuing high activity but still some hesitancy to invest. Several other companies are currently expecting a more broad recovery in demand during the second half of 2025. Is that a message you feel is correct for Altec as well?

Yes. I mean, it's... I mean, the parts of our business that are requiring a higher kind of investment willingness, I would say it's, of course, in every business area, but primarily industrial solution when it comes to the sawmill sector. And here I mentioned that we see signals that it should pick up second half of 2025. The second part where we have the highest portion of this is in process technology. And we get, I would say, same signals there. more active dialogue with the customers in projects and that has been, you know, a bit on hold. So all in all, and also, of course, when interest rates is starting to kick in with the lower level, that should also affect positively. So all in all, we are optimistic for 2025, but it will probably take a couple of quarters before we really see it in the figures.

Very clear. And moving on to process technology on the mix there, which you said way down on the margin. Was that explained by the lower aftermarket sales you also highlighted in the report?

Yes, it's, I would say, primarily that. And also we have some calendar effects due to a longer holiday period. But that is one explanation of it.

And would you say that it's in the aftermarket system that this of it's a fair level given the current market environment towards this lower than you think is would think is normal yeah it's difficult to answer what what is normal i mean this can vary

a bit from time to time. I mean, what we saw this quarter, I mean, we have a lot of aftermarket sales in process technology in various parts of industry. What was a bit clear in this quarter was the aftermarket towards the sawmill sector. The other aftermarket and services, that can really vary quarter by quarter. So If this in the solar sector was like a shift or if that will also come back, it's difficult to say really. This can vary quarter by quarter.

Understood. And just to make it clear on the inventories, did you say that you organically decreased the for comparable units. I'm thinking on that slide where inventory is related to sales increased.

Do you want to answer that? Yes, we see a slight increase when it comes to inventory levels in relation to sales, if you look sequentially. No real worry there. We have quite tough comps since we had a very good release in inventory levels last year. So it's sort of stabilizing now, we believe. Very important, of course, focus area going forward. But what was the first question? It was...

I think you said that it decreased on comparable units.

Yes. If you look year on year, it's an organic decrease. Right. Sorry.

Very clear. Thank you. That's all for me. I'll get back in line.

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

Thank you. Good morning. My first one is just on the product mix being unfavorable in automation. Is this any particular category that you believe could be a headwind for more than just a quarter here or a quarter there?

Hi. No, I wouldn't say that. I mean, what we saw in the quarter, we mentioned last quarter that we still saw some of the bigger market segments like medical, that some customers were still reducing their stock levels. This quarter that has picked up. So I think we are in a positive position. development here the product mix quarter by quarter is more relating to to projects and this can vary this can really vary so we don't see any any you know direct headwinds uh uh looking into that but then again I mean automation have had a number of quarters now with a little bit negative book to build which means that the shorter order book is slightly lower so Q4 is usually a very strong quarter for automation but So I want to highlight that the shorter order stock is slightly lower than normal in automation. But the long-term development we feel is positive here.

Understood. And then when just looking at how you report with sales, forest and process-related sales still grew 18%. So just to understand this in connection to There might be some M&A in there as well, but would you say that the growth is due to the process side since it seems like you still continue to flag that forestry remains a weak area?

Yes, I think you can say that all in all, the growth comes from that. But if you look on sales on sawmill, I would say it's rather flattish compared to last year. The total sales we're having in this quarter. But the growth is more coming from the process side.

Understood. And my final one is just on the scaling of the acquisition pace both in this quarter and also when looking at the past two years the number of acquisitions have you know they've been they've been solid but they were a bit higher a few years back so but the contribution has still been very good so just looking forward to understand it from a strategic perspective do you think that we should expect more of a kind of a gradual increase in the number of acquisitions or that you are now actually targeting a bit bigger companies.

Yes. I mean, our strategy here, I would say, is to have a little bit of both. I usually say that what we want to avoid is ending up in a situation where we only buy a few very big companies because then it's too much risk. We prefer to buy a bit medium-sized companies where the average size of the company should gradually increase. That we also see that it does. I mean, if you compare the average acquisition now compared to a couple of years ago, it is slightly bigger. I would say over the years going forward, we will see a bit more in number of acquisitions, but also a bit higher average size of acquisitions. That's the plan, at least.

Understood. That's all from my side.

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 Lundqvist Sundin from Carnegie. Please go ahead.

Hi, Niklas and Malin. Thank you for taking my questions. A couple of numbers question from my side, if I may. Yes. So the first one, if we look at the P&L, just to understand the year-over-year delta on the other operating income and expenses where you were minus 10, same quarter last year, now plus 22. What is driving, what is behind that line and what is driving the change year-over-year?

The big change there is the exchange rates. Well, the revaluation of receivables and payables and currency accounts. So we had a minus there last year and this year it's a big plus. So that is actually revaluations.

Okay excellent and then if we stay at the P&L and I heard your comment on the drop through and on the organic EBITDA growth just curious to understand why how you can manage that while also seeing gross margins you had this quite good uptick in gross money for a couple of quarters now we've seen that fading is that pure mixed effect from the acquisition you acquired or what is driving the lower kind of gross margin uptick in this quarter?

I would say that if we look at the organic side, it's rather the product mix in the quarter that affects the development there. And Maybe you should take the acquisition part then.

Yeah, but I would say it's a product mix effect here as well. I mean, we are focusing on acquiring companies that are adding to our average EBITDA margin, but also on the gross margin side. Then that we have been talking about for a number of quarters is that or at some calls before, it's also a matter of financial reporting or what costs you put in gross margin and what you put on lower down in the P&L. So, I mean, in general, we are acquiring companies that are adding also on the gross margin. But it's really, really a matter of mix effect in the different quarters.

Okay, so we should not be... afraid that the kind of good organic earnings growth we saw here in Q3 is not sustainable?

No, I mean, no, I wouldn't say that. I mean, as long as we get organic top line growth and we keep our costs in shape and a good product mix, then we should be able to get the leverage.

Excellent. Then on the cash flow, you had a good explanation why inventories were up a little bit year over year. Can you give a similar kind of background to why receivables was up?

Yes, I think that it's one part calendar effect due to the fact that it was a bit of close downs in the end of December from customers. And also that we had actually quite good invoicing in some areas, both in November and December. So depending then, of course, on the agreements, we had a lot of actually accounts receivables going out of Q3.

Makes sense. And then on the calendar, in fact, I know it's hard to quantify, but as you're highlighting that when you talk about organic growth in a quarter, same number of days, how much higher would the organic growth in this quarter have been? Best guess.

It's actually it's impossible to guess. I mean, it has had an effect for sure. I mean, fewer invoicing days means, you know, it is affecting our sales. But, you know, with the portfolio we have with the mix of projects and day to day business, it's really difficult to even guess on that.

it would have it would have been a bit better with with a better holiday season season but how much yeah impossible i understand no problem at all and then just the final clarification when you were talking about the kind of potential pick up in activity levels during 2025. When you say that, Niklas, are you referring to your fiscal year or are you referring to the calendar year of 2025?

To our fiscal year. So I think, I mean... You know, like after summer, this was what we said last year as well. Everybody thought it would be a pickup after summer last year. But I mean, it's pretty much the same feeling we have now. But I'd rather talk about our fiscal year. So let's say, you know, after summer, we have a positive feeling.

Perfect. I stopped there to get back in line.

Thank you.

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

Yes, good afternoon everyone. Just one question really on energy. I think you talked about good visibility into next fiscal year in terms of Yeah, the order book status, et cetera. Sounded quite optimistic, obviously a very strong quarter in that division. But I was just wondering, looking back historically on that division, it's been a bit lumpy up and down. I was just thinking, what sort of duration do you have in that order book currently? Is it well above what you're used to in energy? Is it a lot of project sales currently? Or just to understand that your visibility in that division particularly?

Yes. Hi, Johan. I mean, we usually have, I would say, longer visibility in energy. compared to the average. And this goes also for this situation. We have a lot of projects in the order books for energy, so we have longer visibility. And it's a positive momentum here. So that's why we feel quite optimistic for also next year.

Got you. And have you seen, I guess in the past, to some extent, it's been a matter of getting the products out to customers, given a strong order book, how they've been able to sort of take on products. Is that better? Is that situation better now compared to in the past, would you say, or, you know, fairly similar?

Yeah, that's a very good question, because as you say, we have always said that we can deliver on a much higher pace. We are not the bottleneck. It's more on, you know, on the installers and the permit process, etc. We can see now, I mean, this quarter that it is possible to get a little bit higher pace. What that means going forward, it's interesting. It's difficult to say. We can just conclude that apparently it do work when everybody working the same the same direction. So so I mean, your question is really relating to can we see, you know, much higher pace going forward as well? Or will it be, you know, a little bit more slow and steady growth? And that is difficult, really, to give a clear answer. I mean, we. We have a really good order intake. We can deliver in a higher pace. So it's really relating to if there is enough capacity for installing the products and also the permit process. But I would say it looks promising.

All right. Thanks so much. Thank you.

The next question comes from Carl Bokvist from ABG Sundell Collier. Please go ahead.

Thank you. Hello again. So just some follow-ups on one being the wind power side here. Obviously, there's been quite a drastic change in sentiment mainly across the Atlantic. But when you look at your wind power customers and what they say, you know, How should we assess the kind of improvement in sentiment on their side, on their order intake to deliveries in wind power sales for you?

Yes, hello. Yeah, of course, I mean, what Trump is talking about, you know, stopping and only drill, baby drill, et cetera. Of course, this is affecting the sentiment. But when we talk to our customers, first of all, their exposure to U.S. at this point, when you look at our current business, is relatively low. At some point, I mean, if they are really making – what they say, that it will stop every product, especially on offshore. Of course, that will in the long run affect. But in the short term, when we are discussing with our customers, they are very optimistic and we have good order intake on ongoing projects. So what we can see, it's not having any effect, at least not in the shorter term.

But just to get a bit of an understanding, it might be difficult to say for the group as a whole, but when it comes to these kinds of projects and these kinds of segments, how long would you say that it is from you receiving an order then to it being delivered and resulting in higher sales?

You mean resulting in higher sales for us? I'm not sure I understood. When are we coming into the project?

So just basically lead times in these kinds of areas might be difficult for the group since you have a lot of in-for-out business too. But in these segments, if one of your subsidiaries get an order for within wind power, for example, how long until that is actually delivered?

Yeah. Yeah, so it varies, of course. I mean, we have a lot of companies delivering to the wind power segment, but I would say generally quite short lead times, maybe like a quarter or something like that. It's usually not very long lead times.

Okay, understood. My final one is just on the sawmill business here. You now flagged also that the aftermarket had started to weakening a little bit but just when looking at I would say both industrial and process I mean margins stay quite good on a high level when taking seasonality into account so I mean would you say that there is a notable difference in OEM versus aftermarket in this business since you still seem to protect the profitability in a very good way?

Yeah, I mean, it's a little bit different here because the OEM side is primarily in industrial solution and aftermarket is more in process technology. So you have to compare business area by business area and not, if you understand my point. So generally... Yeah, I mean, we have had very good margins in the OEM side here as well. And the margins in aftermarket in process technology is also very high. So maybe they are kind of comparable in the kind of margins on those, even though it's in different business areas. I don't know if that answer made sense, but...

Okay, so in general they're both good for their respective divisions. That's how to think about it. Okay, thank you.

Thank you.

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

Thank you very much for listening in and a lot of, as always, relevant questions. So thank you and have a good day.

Thank you.

Bye bye. Bye.