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.