Addtech AB (publ.)

Welcome to Adtech's first quarter report presentation. We start with Adtech in brief. If there are any newcomers on the call, a quick summary of the key fundamentals. We are a group of 150 independent and strictly decentralized companies in 20 countries with a clear business-to-business offering in five business areas. The value proposition is centered around high-tech products and solutions primarily to the manufacturing and infrastructure sectors. We have a dual growth ending approach, focused to develop and grow the business organically, together with our entrepreneurs, and then complement and strengthen our strategic niches with acquisitions funded by our own cash flow. Size-wise, we have a turnover of over 22 billion, run the operations with an EBITDA margin of 15%, and employ around 4,500 people throughout the organization. Highlights of Q1 then. In summary, a strong start of the year with continued growth and improved profitability. The overarching activity remained high and we increased our net sales by 7%, of which 1% was organic. We report an EBITDA growth of 11% with a high margin of 15.8 compared to 15.3 in the same quarter last year. Adjusted for revaluation of earnouts still at very good levels of 15.4. Our cash flow remains at satisfying levels and we acquired two companies during the quarter. Some more details on the sales. Solid growth for the group. And as you see in the graph, energy industrial solutions sticks out as key drivers, while challenges within automation remained. As I said, total net sales grew 7%. The strong SEC also generates negative currency effects of 4%. The overall activity remained at high levels, but with continued variation between segments, geographies and companies. However, our backlog remained well filled and we had a solid order intake during the quarter, also with a sequential improvement over the quarter. The electrical transmission and defense markets remained strongest, while most of the other key segments were stable at an overarching level. Small signs of a market improvement within the sawmill industry as well as in the segment special vehicles. I will come back to that shortly. Here you see development on EBITDA and the margin and the strong trend continues. As I said the EBITDA increased with 11%. Also this quarter a strong contribution from energy but also industrial solution had a good quarter with 14% growth. Our EBITDA margin improved to a new record level and also strong long-term trend in increasing our profit over working capital that increased from already high levels and rolling 12 ended at 77% compared to 71% last year and also a sequential improvement from fourth quarter. Some comments on market development in each business area. As I mentioned, the tough situation for business area automation remained in the first quarter. The weak sales development continued, which negatively also affected our earnings and operating margin in the period. And there are a number of things causing this. First of all, this business area is mostly affected of all business areas of the general industry climate, where we have had quite low demand in some segments previous quarters that is affecting sales this quarter. So still an effect of a general bit of a hesitation to invest in the market. However, the market situation and order intake was good in the quarter. It sequentially improved also month by month. So a stable demand for companies supplying to energy mechanical process industry, while medical technology was still a bit on the weak side. A growing share of total sales to the defense segment, approximately 15% now of the business area, and that continued to develop strongly. We take measures, of course, to adjust costs in some of our companies that are still struggling, and we expect to see full effect from that in the later part of our fiscal year. Electrification delivered a stable first quarter, solid demand and sales development. Market situation also here varied between segments. A bit weaker demand in energy, mechanical, electronics, while medical and defense continued on a strong note. Companies supplying special vehicles, customer, had in general a stable quarter in electrification. Energy, yet another strong quarter with very strong organic sales development and a good product mix contributing to high profit margin in the quarter. Key driver as in previous quarters was infrastructure products for national and regional grids and also installation material for data halls continue to be strong. Building installation remained on the weak side, while the market situation for niche products for electrical distribution and also traffic safety continued to be favorable. All in all, a very strong quarter with exceptional growth. And I want to point out that we don't expect to keep the same exceptional growth in the coming quarter, even though it's a really, really good market to be in for the long run. Business Area Industrial Solutions delivered good sales development with solid contributions from acquisitions, also contributing in a nice way to keep up our high margin in the business area. We saw a somewhat improved market situation, as I mentioned in the beginning, in companies supplying to forest and sawmill industry. And also OEM customers in special vehicles segment, we saw an improvement in the quarter. The remaining niche segments like waste management, both stable and subsea had a strong quarter. So all in all, a good start to the new year. And finally, process technology delivered all in all a stable Q1. Sales were affected negatively by timing effects in project deliveries, which were offset by solid contributions from acquisitions. The market situation sequentially improved broad-based with favorable development within marine, medical and the oil and gas parts of process industry segment. Also after market sales to forest industry had a positive quarter. Mechanical industry and also energy was more stable the quarter. To sum up the whole picture, we continue to have a market situation that varied, but broad exposure and strong positions in attractive segments supports stability and good growth also in times of more headwinds and hesitations on the market. With that said, I would like to hand over to you, Malin, and some detailed comments on the results.

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 as well as from organic growth. We can see that the trend line of total cost still has a good development and our overhead costs in relation to sales are stable. We have a firm grip on overhead costs and as we have talked about during the recent quarters we are taking actions where needed if we see a long-term weakness in the market conditions or the need for organizational changes. But we also invest where we see good potential for future growth which is also very important in this business model. We had a positive effect on profits from revaluations of earnouts of about SEK 17 million and about the same negative currency effect from revaluation of balance sheet items. The currency effect in our operating companies comes mainly from unrealized effects when revaluating the balance sheet items. Last year, the net of these effects, earnouts and currency effects, was approximately the same as this year. Our cash flow from operating activities was somewhat lower than the previous year, but remains at good levels. The change in working capital was relatively weaker compared to the same quarter last year, mainly due to changes in accounts receivable and accounts payable, which are affected by the timing of sales and invoicing during the quarter. Inventory continues to decrease organically, even though not to the same extent as during the beginning of last year. The inventory value remains at satisfactory levels in relation to the order backlog and sales and all in all our long term target profit of working capital continued to improve and reached 77 percent in the quarter. Our financial position remained very strong and our gearing and leverage are in a long-term perspective on very low levels. Our strong balance sheet gives us a lot of headroom to operate according to our growth strategy. And with those short comments, I hand back to you, Niklas.

Thank you. Acquisitions, as Malin mentioned, a very important part of our growth. We have started the year with two acquisitions during the quarter, one UK-based company, Amp Power Protection, and they develop and sell uninterruptible power supplies, so UPS systems and power protection systems for defense, marine and transport industries. And also one Canadian company, Novatec, a leading supplier of analytical instrumentation and engineered systems for measurement of gases and liquids. In total, these companies add 330 million SEK in turnover with good profitability. And we also welcome some new employees to the group from these acquisitions. So a warm welcome to you. We continue to have an unchanged positive view of the acquisition market. There are plenty of possibilities in our niches and we expect to continue to mix both Nordic and European companies. And obviously, we can also buy companies in other geographies where we find really, really good companies fitting into our niches. We will continue to look for normal size and maybe a few larger companies also going forward. Thanks to our scalability and strong balance sheet and also an attractive pipeline with good companies, we expect to keep a high acquisition pace throughout the year. Let's conclude then. I'm very pleased with the start of the new fiscal year, not least on back of the high global uncertainty that we have around us. The high activity continued, solid order intake and order book remains well filled. Cash flow generation is still very good, as Molly mentioned, and a strong financial position that gives us a lot of firepower to support our ambitions going forward. Short-term outlook is good. We have an ambitious growth plan and with our well-proven business model and strong positions in attractive niches, we are well prepared and equipped for continued profitable growth.

The next question comes from Zeno Engdahl and Rick Chudy from Handelsbanken. Please go ahead.

You're starting off in the energy segment, which of course delivered a very strong result this quarter as well. Could you go into a bit on the margin dynamics and explain the results you got in the segment?

Yes, so as you said, another strong quarter of energy. This is an exceptional growth this quarter. And moving on to the margin situation, it's a combination of strong incremental margins on the good organic increase and also strong contributions from acquisitions. So it's a combination of that. And it's also important to highlight, I mean, this is a very, very good market to be in. It varies quarter by quarter. It's also worth noticing is that we are facing very tough comps here the coming quarters. So a good market. We have said many times that it will not be a hockey stick every quarter. So yeah, it's good to mention. This was a really, really strong quarter.

Yeah, and as I said on the growth side, would you say that this was like an exceptional quarter in the sense that there were maybe more volumes? Of course, there will be tougher comps, but was the volume maybe a bit higher than you would have expected to deliver in this quarter?

Yeah, I mean, in energy We have, of course, a lot of different things in energy, but just the transmission and distribution side that is a key driver. It's quite a lot of project related business and in some quarters there are more deliveries and some less.

And as you indicate, this quarter was very strong on the volume side.

and just linking it back to the margin you were quite confident on the margin in the last quarter that this was a reasonable level but it sounds and maybe this is not the sustainable margin going forward is that the fair interpretation yes exactly what we said after the fourth quarter we talked about the rolling 12 margin in in energy and again I mean it can vary a very little bit quarter by quarter but this is exceptionally good and then going into automation you it was weak also also previously I wonder if you could also explain a bit about the margin drop and you also commented that there could be some one-off costs in the segment in this quarter and if there were could you quantify those?

Yeah I mean so automation is still weak and I mean this is the business area that is mostly affected by the general industry climate due to in willingness to invest especially in Capex related investment so The drop in sales here is relating to a lower demand in previous quarters. We did see a positive development in demand this quarter, sequentially also month by month. So that is positive. Looking at the margin, the margin drop is relating to the lower sales volume. So gross margins are on a good level and on the cost side as well. I mean, we are doing things to compensate for a lower sales level. We have done that over a couple of quarters. There are still some costs to take, and we are working on those measures. But it's nothing in this quarter that sticks out in that respect. So that's why we haven't written out anything on that. It's more of an ongoing work to get some companies to the right cost levels.

Okay. And on the last topic from me in industrial solutions, I don't know if this is the first time you've made a positive comment on the forestry and soil mill industry, probably from relatively low levels, but could you explain a bit what you're seeing?

Yes, I mean, industrial solution, as I mentioned in the last quarter, I mean, we have headwinds on the sawmill sector. But as I said, then we have other companies that will compensate both organically, but also strong performance by acquisitions. And that's what we see in this quarter from industrial solution. And on the sawmill side, I mean, it's been, as we all know, a very weak market for new products for a long time. We have seen some positive signs this quarter with a number of projects signed. Also beginning of July, we had another couple of good projects. There is a slight improvement here, but too early to talk about, I would say, a new trend.

But some positive developments. Okay, great. Thank you. I'll get back in line. Thank you.

Next question comes from Carl Boakvist from ABG Sundahl Collier. Please go ahead.

Thank you. Good morning. A follow-up here, if we just look at what you disclose as forest and process-related sales, and perhaps especially in industrial, that part of the sales mix grew, to my understanding, double digits year-over-year. So I'm just curious here if the process part in this mix is what is helping it, or if it's the case also that perhaps the forestry sales are not down as much as perhaps well as one might have thought considering the soft comments a couple of quarters back.

Yes I would say that I mean it's a mix because we have a lot of different companies performing in different ways but I would say that this quarter the sawmill sector was not as bad as previous quarter and also less negative than the market probably expected and that is due to acquisition effects so the company we bought last year that we had a good order stock coming into this year and had very good deliveries this quarter. The mix effect is affecting the margin a little bit here but on the sales side it was not as much drop in the sawmill side.

Understood and then on process technology here you right in the presentation that there were some negative effects from delayed deliveries but that these were offset by a good contribution from M&A. So these delayed project deliveries, is it possible to either talk about the timing and or the impact of these if we look ahead?

Now, it's a little bit difficult to quantify and also to give some kind of timing effect. I mean, to summarize the situation in process technology, we have had a bit weak order intake for a couple of quarters. Going back, it improved a bit in the fourth quarter and also good improvement now in the first quarter here. But the project-related part of this business, we saw some delays on the projects, which is quite normal. That usually happens in these quite big, complex projects. So it's nothing strange about that. But it had a quite big effect on the sales this quarter. But the products are still alive and will come back. But when and how much that will affect the coming quarters is a bit difficult to go into details.

Understood. And my final question is also on the comment you make about... a somewhat improved situation also for special vehicles so is there anything should we have kind of similar thinking regarding how you talk about the sawmill industry that maybe not yet the start of a new trend but some positive signs or is there any difference here?

Yeah, I mean, the special vehicle market for us was, as you know, quite weak the whole year last year. We have seen, I would say, quite broad-based increase this quarter. And when we speak to some of our big OM customers, it's a more positive sentiment on the coming forecasts for the coming quarters and years. maybe a little bit more stable sign of an improvement, I would say, but from quite low levels.

Understood. My final one, sorry for that, is just what you write in the outlook statements regarding a well-filled order book. So would it be kind of fair to assume that a book to build is still above one in this quarter?

The book to build is slightly below one this quarter. But with a gradual improvement during the quarter, so I think we have a quite good trend.

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

The next question comes from Elvin Rolder from DNB Carnegie. Please go ahead.

Yes, thank you. Good morning, Niklas and Malin. We have a couple of questions here, but some have already been answered by you. But maybe a little bit more on the M&A contribution on EBITDA year over year. Would it be possible to quantify the magnitude of that effect? And if there's some seasonality in the units you've acquired that we should have respect for going forward or is there any difference between those seasonalities that have impacted uh either positively or the universe here in this quarter that we should have respect for going forward um yeah i mean when it comes to um to to uh uh to uh

the profit increase effect of M&A. I mean, it's the majority of the growth we have this quarter is from acquisitions. We still have some good growth also from the organic growth, but the majority is absolutely from acquisitions. Talking about seasonality, I wouldn't really put it that way, that there are some seasonality effects, but it's more that some of the companies we have acquired have a little bit of a project related business and that can vary quarter by quarter. So it's not really a seasonality effect. It's more that the products are coming in different quarters.

Yeah, it's more of a timing effect, I guess, than anything. Yeah, exactly. Exactly. Great. I think that was all from our side, actually. Thank you so much for taking the questions. Thank you.

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

Okay, so thank you for listening and of course we are available for additional questions during the day if you have any.

With that said, I wish you a good rest of the day. Bye-bye. Bye.