Addtech AB (publ.)

If you are listening to the presentation via webcast, you can ask written questions using the form below. Now I will hand the conference over to CEO Niklas Stenberg and CFO Malin Ennarsson. Please go ahead.

Good morning and most welcome everyone to the ABTEX second quarter report presentation. The setup is as usual, that Malin and I will use approximately 20 minutes to summarize and give our comments on the results, followed by a Q&A session. Before we dig into the results, just a very quick summary of the key fundamentals of AdTech. We are a group of 150 independent and strictly decentralized companies operating in 20 countries with a clear business-to-business offering. Since 1st of October, we operate in six business areas, all with clear strategies and a value proposition centered around niche products and solutions, primarily to the manufacturing and infrastructure sectors. I will come back to more details about the reorganization later in my presentation. Our focus is to develop and grow the business organically together with our entrepreneurs and then complement and strengthen our strategic niches with acquisitions funded primarily by own cash flow. Size-wise, we have a turnover of over 22 billion SEK and run the operations with an EBITDA margin above 15%. and employ around 4,500 throughout the organization with a small and efficient central team. Let's head on to the highlights of the second quarter then. We summarize a solid second quarter with continued high overarching customer activity and a good demand situation supporting continued profitable growth. We increased our net sales by 6%, of which 4% was organic. And as we write in the report, approximately half of the organic growth is related to very strong product outcomes within industrial solutions. We report an EBITDA growth of 11%, the same as in the first quarter, with a high margin of 15.5% compared to 14.9% in the same quarter last year. So we continue our positive long-term trend to increase our margin, which is very satisfying. Our cash flow increased in very good way during the quarter, and we completed one acquisition. And as I said, from 1st of October, we have a new strengthened organization. More on net sales development in the second quarter. A good mix of organic and acquired growth. The solid-state growth of group level continued and industrial solution, as you can see, sticks out as a key driver. Primarily, as I said, related to very strong product outcomes within primarily sawmill industry, but also good growth in special vehicles and other segments like subsea and marine. The previously very strong trend within electrical transmission flattened out as expected during the quarter in business area energy and delivered flat sales development towards tough comps in the transmission side. But this was clearly offset by solid sales growth within other segments such as traffic safety, wind and data halls, supporting good development for energy as a total. And the challenging business situation within automation continued with tough comps for defense in the quarter and somewhat weaker development within mechanical. But this was partly offset by a positive development in medical. That's an important segment for automation. To sum up sales development in the quarter, overall activity remained high with a solid broad-based order intake, a positive book-to-bill in the quarter, which is an improvement relating to previous quarters. We grew order intake organically in four of our five business areas. And I will come back to market development in each segment shortly. But first, some highlights on the EBITDA development. As I mentioned, we increased for the group by 11%, of which about half is organic and half acquired. Also this quarter, energy contributed strongly with almost 20% growth, but also industrial solution and electrification have double-digit growth numbers. Our EBITDA margin increased, as I said, to 15.5. And we continue to increase our gross margins. Good product mix, but also good performance on strategic pricing in a number of companies. Our long-term financial target, profitable working capital, was unchanged sequentially at 77%, but clearly up compared to the same quarter last year of 71%. Malin will elaborate more on the P&L in a minute. So moving to some brief comments on the quarterly development within each business area. Automation, as we know, has had a quite long period of challenging market situation. Important to remember that automation is the business area that is most affected by the hesitant general industry segment. But I would say that automation is step by step moving in the right direction. The market situation was overall favorable within business area during the second quarter for automation. Continued solid order intake that has sequentially improved over a couple of quarters now. Segment defense, which stands for about 15-20% of the turnover, continued to be strong. And we also saw more positive market situation in medical, while mechanical and process industry continued to be flattish on the more subdued level. So despite a somewhat more positive outlook for automation, the lower sales volume in the quarter, primarily in mechanical and defense on tough comps, was partly offset by the positive development in medical. And this in combination with one of costs of approximately 10 million SEK related to restructuring hampered the result and margins also in this quarter. During the later part of the fiscal year we however expect to see positive effects from both the slightly more positive market situations and the measures that we have taken. Electrification delivered a solid second quarter with stable sales and a good market situation for defense, energy, electronics and mechanical segments. Companies supplying special vehicle customers had in general a stable quarter development while the medical segment was somewhat weaker towards tough comps. The operating margin improved in the quarter primarily due to an improved product mix. Over to energy and despite tough comps the strong sales growth continued in the quarter. This quarter primarily driven by sub-segments, traffic safety, wind power, data holes. In line with expectations and that we also talked about after first quarter, the demand on infrastructure products for national and regional grids weakened in the quarter, especially on the Swedish market. And this is due to bottlenecks on the customer side. This should, however, be seen as a temporary dip. We expect projects to increase again in the beginning of next quarter already, and the long-term potential remains unchanged. Building installation remains subdued, while medical wind and data kept up at good levels if we look at market situation. Business area, industrial solution delivered, as said, a very strong quarter. Sales growth close to 30%, close to the same quarter last year. And this was driven by the strong product deliveries and product revenue settlements, primarily in the sawmill business. We also saw a slight uptick in demand from low levels in the sawmill business during the quarter. But important to note that the underlying market situation remained weak in this segment. So the outcome this quarter should not be extrapolated. Sales situation in sawmill will be weaker second half of the year. And that's why we are clear on that. The positive trend for OM customers in the special vehicle segment continued in the quarter, as we also saw in the previous quarter. Finally, process technology delivered another stable quarter. Total sales volumes were marginally up. Still negative effects from postponed product deliveries, but this was offset by solid contributions from acquisitions. In general, the market situation was favorable with strong demand for companies supplying the process industry, especially oil and gas, mining and energy segment. Also marine and special vehicles had a good demand situation, while medical, mechanical and forestry were stable. So it's kind of a mixed situation here. To sum up, clear variations in market situation between both company segments and geographies remained. But with the broad diversified exposure, the overall market situation was good. and very few trend changes I would say during the quarter. Expect the predicted temporary product dip within electric transmission and the positive trend with special vehicles. Okay, so go over to a brief summary of the first half. We can conclude two very solid quarters. given the general weaker climate that we we believe that we are in and also constant rapid changes in the global global environment over the whole period the overarching activity and order intake has been good which is again a clear proof of the strength of our diversified and decentralized business model and with a large portfolio of entrepreneurial companies So all in all, solid sales growth in the period, partly offset by the strong SEC. And we have throughout the period been good at getting the volumes into the results. Over the period, EBITDA up 11% and strong margins, 15.6 compared to 15.1 in the same quarter last year. Also, cash conversion remains strong and we strengthen our EPS year on year. And you will elaborate a bit more here, Malin.

Yes, I will repeat some of this, I think also. It's worth repeating. Yes. Thank you, Niklas. We heard you describe the business and market situation. So let me do a quick summary of key financials and also give some additional information. Sales increased 6% during the quarter and 7% in the period. A good EBITDA increase of 11% both in the quarter and year to date with an increased margin. I will elaborate further on this later on. Net financial items have come down during the quarter as well as during the year, which is primarily due to a lower reference rate. This decrease is offset by a natural increase in current tax driven by a profit increase and a higher effective tax rate due to more business in countries with higher tax rates. All in all, earnings per share is steadily increasing and amount to 380 so far this year, which is an increase of 13%. Our operating cash flow was very strong during the quarter and increased by 45%. Profitable working capital increased to 77% and our leverage was still low at 1.5. I will come back to all of this later on. Our consistently strong return on capital employed of 22% over a long period demonstrates our efficient use of capital. This reflects our disciplined approach to profitable growth and capital allocation, ensuring continued high returns for our shareholders. As Niklas commented, our EBITDA grew and the profit margin continued to improve. The improvement over time regarding the margin is broad based and is in general thanks to active work to increase the value add in our value proposition, good pricing power and to strategically improve our product mix and not least good contributions from acquired companies as well as good leverage from organic growth. Of course, a firm grip of overhead costs is also contributing to the outcome, and 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. During the quarter, our measures in businesses where we see persistently lower market conditions continued, as always, and especially in business area automation, this had an effect on costs in the quarter of approximately 10 million, related to layoffs and other cutdowns. Regarding other operating income and expenses, we had a positive effect on profits from revaluations of earnouts of about 4 million compared to a negative effect of 6 last year. Other items, including currency effects from revaluation of balance sheet items, was essentially in line with last year. Group items are higher in the quarter as well as year to date, both from an increased cost base, but it is mainly due to the fact that the final allocation of the management fee has not yet been made this year. Our cash flow from operating activities was strong during the quarter, strengthened by higher earnings and positive working capital development. Cash conversion remained stable since profit increased relatively more than the cash flow. Total working capital and inventory continue to decrease organically and our long term target profitable working capital remains stable at high levels sequentially and reached 77% in the quarter. The inventory value remains at satisfactory levels in relation to the order backlog and sales and decreased somewhat during the quarter. Our financial position remained very strong and our gearing and leverage was kept on low levels despite the payout of dividend during the quarter. Thanks to good cash flow and that net debt was in line with last year. Our strong balance sheet gives us plenty of room to maneuver according to our growth strategy and invest in attractive acquisitions, which I believe that you're about to talk about now, Niklas.

Yes. So in total we have acquired three companies so far this year and have added approximately half a billion second revenue with good margins. During the second quarter we completed one acquisition, a German company Innovatec, developing customized cooling systems for industrial applications. The acquisition pace varies as always throughout the year and this is related to timing in the pipeline and ongoing projects. We have a positive view of the acquisition market. Malin mentioned our strong balance sheet and cash flow and there are plenty of opportunities in our niches and our pipeline is well filled and continue to grow. So we also have a number of projects ongoing in different phases. So bottom line is giving this background we expect to acquire according to our growth strategy for the full year. As I mentioned and that we announced late September, we have a new strengthened organization from 1st of October, now comprising six business areas and 15 business units. Fundamentally, this is very undramatic and something we usually do now and then. We have now had very strong growth for a long period, so the timing was, we believe, very good. So we do this to scale up and vitalize the business organization to capture future growth even better. So I will briefly walk you through the key elements of the reorganization. Firstly, we have streamlined business area energy to focus primarily on electrical transmission distribution to capture the very high demand for materials for power lines and substations in connection with expansion and renovation of the grids, where we see a long-term underlying growth on many markets. We have also clarified another new strategy in this business area linked to increasing demand for power supply for electricity demanding industries. Secondly, we have made some company rearrangement within business area electrification, now with an even clearer focus on electrification of equipment in three areas, power, mobility and batteries. And finally, with the basis of the former business unit, Energy Products, complemented with some companies from electrification, we have formed a new business area called Safety. And we have a fairly broad scope centered around safety and aim to capture the potential from stricter legal requirements and the more complex threat landscape. and and increasingly digitalized world so we see a interesting underlying growth within these areas we have today a number of companies with products and solutions that work with preventing risks and creating safety and security for people industries and and society broadly so we see good potential here going forward both organically and through acquisitions And one important part with a real organization like this that should not be underestimated is that we add new ad tech people with new responsibilities. So we now have two new business area managers for energy and safety that are members of my management team, both with long history and experience within ad tech and their respective niches. So I'm very happy about this. To conclude, this is a scale-up of the business organization that gives us a solid foundation to even better capture future growth opportunities, both in existing niches, but also to continue to explore new attractive niches. From third quarter, we will report according to this new organization and we expect pro forma figures to be published no later than early January. To summarize, all in all, I'm very pleased with the second quarter. Overall high customer activity and the favorable business climate in a number of areas continue to give us good growth. Even though we still see some hesitation in certain segments, especially for larger products and investment, but we continue to have a positive order intake in the quarter. Our balance sheet is strong and with a well-filled pipeline we expect to acquire according to plan for the full fiscal year. Short-term outlook as we write in the report is good and with our new strengthened organization we are well equipped to capture future growth also going forward. 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 Zeno Englund-Ricciuti from Handelsbanken. Please go ahead.

Yes, good day, and thanks for taking our questions. You've already answered several of mine, but I would like to ask on the industrial solutions. You highlighted in the report the order deliveries or project deliveries in sub-C, but now said that SOM is the major contributor. Can we get a sense of how important the sub-C deliveries were for this quarter?

Yeah, good morning, Sino. Well, I mean, we've had a period with good development in the subsea sector. Why we highlight that, I mean, the very strong growth in industrial solution should not be extrapolated going forward. So, I mean, it was very strong performance from Subsea and primarily the sawmill part. So I would say the absolute majority of these project deliveries is within the sawmill business. So it's not the Subsea segment. It's primarily the sawmill.

Just to hear about the incremental margin given that it doesn't really stick out given that the product deliveries were that high. Can you comment on the incremental margin on the deliveries?

Yes, I mean that's of course an important question, but I would rather say that the margins on those product deliveries are rather lower than adding to the margin. So it's not an incremental margin increase on those sales.

Very clear. Like to ask also on a bit more as a long term questions with how you scale and then it saves the business area. Given your decentralized structure, how does a new business area actually help you with growing aside, of course, from the from lifting people up in the organization?

I mean, I would say this is really part of our culture that we kind of call it small scale focus. I mean, when we put certain niches in position and we recruit and lift up really talented people that knows these areas in a good way, we get the better focus on that. So it's really about driving growth both organically and and through more focused acquisition work. So it's really running down to responsibilities and having the right people on the right positions. This is what has been driving our growth for basically all the time since we were listed. And the times we have done this restructuring, this has usually vitalized the organization.

Understood. And a follow up to that, we'll probably have this structure down for a couple of years now. But is this how we should expect AdTech to scale by adding more business areas? And how long do you think you can do that?

Yes, I mean this is a usual question and my view on this is that we have a very scalable organization and I have said now for a couple of years that it's probably in the foreseeable future we will have another business area to scale up and this is what we do now. And the way I see it, we can continue to work with this structure for many, many years to come. So as I see it right now, it's likely that we sometime in the future will do the same again. But right now, I think we have a very good setup for the coming years here.

Sounds very promising. Thank you.

Thank you.

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

Good morning. It's Carl here from Nordia. A couple of questions from my side as well. Firstly, on energy. I mean, we saw the deceleration of organic growth. Obviously, as you said, taking the high-level perspective demand obviously looks great. You mentioned that you'll see a recovery in early next quarter. Is it possible to give any quantification or more flavor if it's a minor positive sort of sequential recovery you see, or is it that it will be back at the teens organic growth again? And also on that note, do you see it being able to offset the more maybe sluggish forestry market short term?

Hi Carl, what was your second, I didn't get the second part, you said something on sawmill.

Yeah sure, no but if it's the recovery you see in energy, if you think it's enough to offset the sort of potentially more sluggish forestry market now after the big deliveries of the backlog.

Yeah okay. So to start off with the situation on the grids, again, important to to remember that the underlying investment plans are very, very strong. The other markets we are operating in here are having good development. The tough comps here is primarily on the Swedish market. But when we talk with our customers here, that is not focusing on a specific quarter. They see this as kind of a normal business. So this is a very... a temporary product dip. So as far as we see and when we look on the products that are on the table and on discussions, we believe that, as I said, it will come back beginning of 26. We are having tough comes here, as you know, in energy in the coming quarters. It will hopefully be partly offset by other things that are growing now. But to talk about when will we have organic growth on transmission aside the coming quarters, that's really difficult to say because it depends on development on the other markets and also how quick these products will come up. And whether this will offset the tough sawmill market is really difficult to give a clear answer on that. Again, we have 150 companies operating in many, many different markets. The growth will come from one way or another. to link energy transmission and sawmill to each other is to make it a bit too narrow I would say so it's difficult to give a clear answer there.

Fair enough but you said that you see you expect improvements already next quarter is it something you see in deliveries as of now then or is it more in discussions with the customers who said that they will I mean projects will start

I mean, we have a good order stock on this side that we will continue to deliver. But when we talk about an uptick in beginning of next year, it's primarily on the demand side. So it's a temporary product dip. We have a good order stock we're delivering out on. But yeah, that's the situation.

Okay, very clear. And I would like to continue a bit on the order intake side. You seemed satisfied. You saw a positive book to bill. Could you give some flavor on which four segments you see a positive order intake development, where if it's possible to quantify sort of what magnitude you see? I know it's, I mean, I mean,

you have some book and bill as well i mean that not everything is projects right too but but some flavor would be good uh yeah i mean i mentioned four out of five i mean it it's um it's in the energy segment uh and and relating to this temporary project if that's where we see despite slight lower uh uh order intake uh all other business areas of how are having good growth on order intake. And that is quite broad-based. Of course, there are a couple of areas with very strong growth, like defense. We also talked about special vehicles from a bit lower level, but we see a strong increase there. But I think the most important part to mention is it's a quite broad-based positive development.

Okay, the final one from my side is on automation, surprisingly strong margin, I think, at least versus my expectation. So is the margin improvement sequentially? Is it driven by the full effect of the cost savings? And also on that note, will it come more from the already announced ones? But of course, on top of the 10 you took now, if you get the point, meaning that During the quarter, was it the full effect of the previous ones and then we should add the 10 on top of it from Q3 onwards?

Yeah, I mean, as you say, if you take out these 10, it's a good margin improvement, especially sequentially in automation. And this is a combination of the product mix. We have worked with taking away some low margin business. So that's on one side. And then we start to see... positive effects from all the cost-cutting measures we have done there, whether there are still more to come. We decided to put this 10 million on clear in the report to kind of highlight that this was an exceptional quarter on that side. I wouldn't say we will not continue to do some cost-cutting in some companies, but I I would say in general that we have now done most of it and with a positive book to build and with a new kind of cost structure. We, as I said, we believe that especially starting from the fourth quarter, we will see an improvement here.

Okay, that's very clear. Thank you. Thank you.

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

Thank you. Good morning. A question on M&A here and your ambition to do acquisitions in line with your strategy. If we think perhaps contribution to profits instead. I believe that last year you delivered upon the target and right now it's a bit below. Just to understand it, the first question is really, with that comment, are you referring to kind of your growth strategy or a number of acquisitions in mind?

Yeah. Hi, Carl. I mean, we always focus on the growth strategy. We don't focus on number of companies. actually, because it depends on the size of the companies and, of course, the margins in the companies we acquire. We always focus on profit growth. So when I say that we expect us to do according to our financial targets, it relates to profit growth.

What was that? That's clear. Absolutely. absolutely so and then my second one you mentioned data hall growth and this might be just a bit more specific when it comes to numbers and when you disclose data and telecom for example it seems like that kind of area of sales is still down year-over-year albeit against tougher comparables so it's just to understand one if the data whole demand is within that category of sales and two does that mean you know is it more about tough comps or is it that other things within data and telecom are developing slow slower and thereby offsetting the strong demand in that area

Yes, I would say the answer is kind of yes on all you said. I mean, it's in data and telecom, but it's depending on that it's rather weak in a couple of other areas within data telecom. So that's the reason behind it. So we still have good development on the data halls.

Okay understood and then the final one is just when it comes to defense activity which you say is high and should we assume that those defense related areas and companies that they will be moved to safety or is it still that for example automation will maintain this kind of high exposure to defense?

Yes, I mean, again, when you get the set of numbers for the new organization, of course, we will talk about this more in detail. But, I mean, as I see it, we have defense exposure actually in every business area, but primarily in automation and electrification. I would say that this new organization will not change on that side. But again, I mean, within safety, we will have exposure to defense as well. But yeah, so the reorganization will not change the fact that automation and electrification has quite a lot defense exposure.

Okay, that's all from my side. Thank you. Thank you.

The next question comes from Johan Lankvist Sundhien from DNB Carnegie. Please go ahead.

Hi, Niklas and Malin. Thank you for taking my questions. Hi. First, maybe a quick follow-up and just a clarification on a question from Carl earlier on the transmission grid side. When you say that you expect demand to pick up beginning of 2026, Do you refer to sales that hit your P&L or do you refer to orders intake?

Yeah, more order intake. This is an ongoing, I mean, again, the activity with our customers are very high on an ongoing basis. So it's a little bit of a moving target. Usually we have maybe one, two quarters from order intake to sales in our books. But again, as I said before, it's very difficult to say here at this time when demand will get into sales. And we have a good order stock to deliver from as well.

Okay, but best guess from now is Q4 during this fiscal year for you?

Yeah, especially on demand side.

Great. Dan, we've discussed a lot of trends here already, but I think we should just take it. We'd also be interested to hear a little bit on your electrification side. I think, from my perspective, the revenue growth there was a little bit light, and margins was probably a little bit light as well, given that margins was down a bit last year as well in Q2. Give some color what you see, what's happening, what is the driving forces and what you expect going forward given the favorite order intake.

I mean for electrification it's a really mixed bag. We have a number of companies performing very well and a number of companies that are kind of struggling. And like one side that was quite strong last year that is slower now is on electrical production. But we have strong and also tough comps on part of the medical, but going forward, I would say that we will see more positive development on that side. So, I mean, all in all, a positive book to bill in elitification that is giving us comfort now. As of now, a flattish development and margins, as you say it was a bit down in q2 last year but i think uh the margin in this quarter to be a second quarter for elification is is is a good margin and that is relating to to the product product mix and and a very good increase on the gross margin so uh um yeah i think we have a good good outlook here and any comment on the kind of vehicle side

on the electrification area, the battery side, for example. We're waiting for a pickup for quite some time. Any indication there?

Yeah, I mean, as you say, it's been the last couple of years and all things happening around us has slowed down what we initially expected on that delivery. It's still a bit slower, a little bit improvement here, I would say, during this period. where especially one of our customers have gone into serial production. So it is a gradual improvement, but still on a slower pace than expected. So as for now, we are expecting this to pick up in a better way during 26.

Perfect. And my final question is, it's on margins in acquired entities. I think when you look through the kind of comments you have on your M&A activity, it seems like margins have been a little bit lower than we maybe were used to a couple of years ago. Is there anything specific to pinpoint that companies are underperforming that you acquired, or is it just the pure mixed effect and the timing that the companies as of now have lower margins than they had maybe one, two years ago?

I'm not sure I would agree on that, that it's a lower margin. I mean, if I look on the margins on the acquired, The acquired effect in this period is on a very good level. And if you look on the companies we have acquired, most of them are performing according to plan. A couple are performing better, but then we have a couple of companies underperforming as of now. But all in all, I would say that we are pretty much on track. I mean, the companies we acquire now should add to our average margin. That's how it is. But then, of course, it can be some variations over a quarter or two quarters, depending on. We have a couple of companies we acquired that is more product related, where it can really, really differ. So one company we acquired last year has underperformed, but very strong demand the last couple of quarters. So that will pick up during the remainder of this year. So it's more relating to individual companies.

I understand. I think we covered most of the important aspects. I'll get back in there. Thanks a lot.

Thank you.

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

So since there are no written questions, we are wrapping up. And thank you for listening in and good questions. And have a good day.

Thank you. Bye.