Addtech AB (publ.)

Good morning everyone and most welcome to Adtech's third quarter report presentation. We will use approximately 20 minutes to summarize and give our comments on the result and then followed by a Q&A session. Before we dig into that, a very quick summary of the key fundamentals of Adtech. We are a group of plus 150 independent and strictly decentralized companies in 20 countries with a clear business to business offering. We operate now in six business areas, all with clear strategies and value propositions centered around niche products and solutions primarily to manufacturing and infrastructure sectors. Since this is the first quarter according to the new organization, I will come back with a few comments to that a bit later. We have a dual growth engine. Our focus is to develop and grow our businesses organically together with our entrepreneurs running the data operations and then complement the strategic niches with acquiring leading niche companies with a strong offering. And we fund our growth by own cash flow. Science-wise we have a turnover of approximately 22 billion SEK and run the operations with an EBITDA margin around 15% with a small and efficient central team. Now over to the quarter and some highlights. We sum up another solid quarter with a high demand, good earnings growth and a high acquisition pace. We increased our net sales by 1% of which 1% was organic and the negative currency effect of 3%. And bear in mind that even if the market situation has partly improved during the year, it is partly dampened the kind of general business cycle. We report a solid EBITDA growth of 9% with an improved margin of 15.6 compared to 14.4 in the same quarter last year. So a very strong margin. Our cash flow also strengthened from high levels and we signed four acquisitions during the quarter. And last night, yesterday, we signed another agreement, this one to acquire a company in Germany, a quite large company for us, approximately 38 million euro in turnover, strengthening our position within electrification. I will come back to that a bit later. Finally, as I said, we will also talk a bit about the new organization structure. A bit more on net sales in the quarter. As I said, 1% organic. We saw a continued variation in the business situation between the customer segments. And primarily this quarter, the segment energy and special vehicles were on the positive side, while medical sawmill and defense, especially due to tough comps, but that had a weak development in the quarter. Sales wise, the business area, electrification, industry and process were the main drivers compared to last year, while we saw a slight decrease in energy and safety and that is due to primarily I would say tough comps and also negative currency effects. Automation also had a sales drop year over year in the quarter. But here I would say we see a positive sales trend starting to materialize with a solid improvement in the business situation sequentially. During the quarter we also saw a recovery in demand for grid infrastructure products compared to the somewhat lower product. We had a little product dip in the second quarter as we talked about at that time. So all in all, a solid business situation. I would say overall customer activity was high, a good order intake, broad based and a positive book to build. We still see hesitations on larger investment decisions, primarily affecting our business area process. Some more details on the business areas shortly. And looking at earnings, EBITDA increased for the group, as I said, with solid 9%, where more than half was organic. And also this quarter, energy contributed strongly with 20 plus growth on EBITDA. And same with industry that continued to deliver double-digit growth, as well as solid contributions from both electrification and safety. Our EBITDA margin increased as I said to 15.6 and that is very satisfactory of course and what we see is that we also continue to increase our gross margin steadily in all business areas in the quarter and this is primarily driven by an improved product mix but also good performance in active pricing. The long-term financial target profit over working capital continues to improve 78% in the quarter, clearly up compared to the same quarter last year of 74%. So a few words then on the new organization. So before we head over to comment on the business development in these segments, we walk you quickly through the changes that we did. Just as a quick reminder, first of all, important to say that this is a very undramatic change, something we do from time to time. And we do this with some interval to balance up the business area size and to make sure that we have the best setup for vitalizing future growth. To boil it down, it's primarily two major changes that we have implemented. First, we have streamlined business area energy to focus primarily on the electrical transmission and distribution. So the potential related to the expansion and renovation of national and regional grids on the markets where we are present. but also a strategy to leverage on the growth linked to the increased demand for power supply to the demanding industry and data halls and hospitals and other segments. Secondly, we have on the basis on the former business unit energy products, complemented with some companies, primarily from electrification, we formed a new business area, safety. And we have a fairly broad approach to safety as a concept, taking our starting point in the idea and aim to capture potential from a stricter legal requirement, a more complex threat landscape, and also an increasingly automated digitalized world from a safety, running a safe business. In total, we have today around 20 companies in safety with products and solutions that prevent risks and create safety, security and continuous operations. And we see good growth potential here, both organic and through acquisitions. Finally, we have moved a number of companies within electrical production from electrification to industry. So you will learn more along the way around this. But to conclude, we have scaled up the business organization. And as always, we recruit internally. So we have added some more skilled Attica employees with increased responsibilities. So then, some brief comments on the development for every business area. Starting with automation, as you can see, the partly challenging market situation remains, but we are moving step by step in the right direction. We still have a way to go before we have automation to a kind of normalized volumes where we want it to be, but we are going in the right direction here. The positive trend in order intake continued in this quarter and of course satisfying to see also an improvement when it comes to sales sequentially. Automation increased gross margin in the quarter and we also saw that the cost-saving initiatives are starting to take effect. If we adjust for a one-off cost of 6 million SEK, the EBITDA margin increased somewhat year on year, despite the lower sales volume. So that is proving that we are getting out the effects. So all in all, a solid quarter development, good demand and key segments, mechanical and defense were the main drivers, while medical and process had more of a flattish or negative development. Electrification, we saw in the third quarter that the market situation was very strong. We saw good demand and solid order intake in all key segments, such as electronics, energy, special vehicles and the medical industry. The underlying business was stable, but the slightly weaker product mix and increased input costs in a couple of companies hampered the earnings growth and profitability in the quarter. Moving on to energy, adjusted for the negative currency effects, the total sales were flat despite very tough comps in the quarter. And the strong earnings and margin trend continued, primarily driven by an improved product mix and leverage on organic growth. And important to note that the margin in this quarter is very strong and should not be extrapolated going forward. We should rather look at the rolling 12 margin, I would say, for energy going forward. As I mentioned in the beginning, we saw a recovery in demand for the grids compared to the temporary decline in product orders in the second quarter. And apart from that, in energy, the demand within renewable energy, railway and niche products for power distribution was favorable. But data telecom, which is primarily fiber for energy, was still weak. Business area industry delivered yet another very good quarter. Market situation was overall strong with the continued good demand within subsea. We had also strong order intake in electrical production. So companies coming from electrification into industry and also not the least special vehicles with the continued positive momentum. Sawmill industry remained weak in this quarter while companies supplying customers within waste management, mechanical industry and electronics had stable demand. So all in all for industry, a strong market on aggregated level with good order intake and increased margins driven by an improved product mix and solid contributions from acquisitions. Moving on to process where total sales grew by a very satisfying 8%. But with the weaker product mix in combination, as we write in the report, with too high costs in a few producing companies, we saw negative effects on margins in the quarter. So we are working on some company specific initiatives but with a bit cautious approach here. It's a matter of balance to protect profitability short term and at the same time be ready when sentiment in product deliveries improves. So it's the product mix I would say in the quarter that have a negative effect on the margin. But the market situation was primarily favorable here with the segments energy and special vehicles, while mechanical and forest and process was stable. Marine sector had a bit weaker development this quarter, primarily due to tough comps. last but not least then our new business area safety despite a sales drop year on year we saw an improvement in profitability due to a better product mix but also clear positive effects from some earlier initiated cost cutting initiatives in a few companies so market situation for safety i would say was okay but with large variations between segments We saw it was tough comps here, both in demand and sales from, I would say, especially data halls, but also in the segment medical. Market situation with the building installation, which is the largest segment for safety, remained challenging, but with some glimmers of hope for improvement in 2026. This means that when the construction market starts to bounce back, it will have a material impact on sales within safety. The key driver in the quarter for safety was traffic safety, while electronics and energy were more flat. So to sum up the market situation in the quarter, the variations in the market situation is still there, both between companies and segments. We still see the hesitation in investing in larger products in a number of segments. Despite this, we can conclude a solid quarter and especially good order intake that is fairly broad based. So we are optimistic about the future and are well prepared to support our customers in our 15 niches. And before I hand over to Malin to dig a bit deeper on the result, some short comments about the period. So when summarizing the three quarters, we have already concluded that despite the partly challenging market, we have continued to grow steadily. And despite headwinds from currency, total net sales are up 5%, of which 2% organic. So organic growth in every quarter. And overarching customer activity in order intake has been good throughout the period. And I would say this is, as I usually say, the utmost proof of the strength of the ad tech model of running a large portfolio, that we can have this outcome even in a bit dampened markets. So all in all, we have throughout the period good at getting the volumes into the result, EBITDA up 10% with very strong margins of 15.6 compared to 14.9. And cash conversion remains strong. I'm sure you will elaborate on that more now, Malin.

I will, absolutely. Thank you, Niklas. We have now heard you describe the business and market situation. So let me do a quick summary of key financials and also give you some additional information. Sales increased 1% during the quarter and 5% in the period. A good EBITDA increase of 9% in the quarter and 10% during the period with an increased margin. I will elaborate on the margin further 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 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 570 so far this year, which is an increase of 13% and a very good growth of 16% in the quarter. Our operating cash flow was strong during the quarter and increased by 22%. Profitable working capital increased to 78% and our leverage was historically low at 1.2. 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 improved compared to last year. Adjusting both years from revaluations of earnouts and one-offs, we get an increase of one percentage point. The one-off effects that affected the quarter were primarily due to a shutdown of an unprofitable production site in one of our companies within automation. The relocation of several companies between our business areas that occurred in connection with our reorganization into six business areas resulted in a reallocation of management fees that impacted electrification negatively and safety positively in the quarter. This, of course, has no effect on group level. And if we look at the accumulated figures, these are correct also on business area level. As we always point out, when considering a long-term sustainable margin, you should always start with a rolling 12 as a base. The margin improvement over time 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 contribution 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 in relation to sales still has a good development. During the quarter, our measures in businesses where we see persistently lower market conditions continued as always. Regarding other operating income and expenses, we had a positive effect on profits from revaluations of earnouts of about 13 million SEK in the quarter compared to three last year. Other items, including currency effects from revaluation of balance sheet items, had a significantly less positive effect this year compared to the third quarter of last year when the Swedish krona was weaker. Our cash flow from operating activities was strong during the quarter, strengthened by higher earnings and positive working capital development. Cash conversion developed slightly positively since the cash flow strengthened relatively more than profit increased. Total working capital and inventory continued to decrease organically, and our long-term target profitable working capital continued to improve and reached 78% 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 strengthened further during the quarter and our gearing and leverage reduced from already low levels thanks to good cash flow and that net debt was lower than 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 you will talk more about right now, Niklas, right?

Yes, exactly. And as expected, we have paced up acquisitions during the quarter. So four companies in attractive niches signed during the quarter and all four of them were completed in the beginning of January. And we have also started the new quarter strongly with another acquisition signed, as I said yesterday. And the German company Rame is a leading manufacturer of electric motors, primarily for maritime electrification. So a well-managed niche player with a strong offering under its own brand in an area with structural underlying growth. So I'm very proud to welcome them to the ATIC group. In total, this means that we have added eight new companies to the group during the fiscal year, adding almost 1.5 billion SEK in revenue with the creative margins and welcoming close to 400 new employees to the group. Looking ahead, we have a positive view of the acquisition market. There are plenty of opportunities in our niches. Our pipeline is well filled and we continue to grow it with high performing companies in all business areas and on our different niches. So bottom line, giving our strong finances, as Malin just pointed out, and the well-filled pipeline, we expect to continue to acquire in a good pace, also continuing in 2026. So to summarize, solid quarter, continuous strong demand, high pace of acquisitions and good earnings growth. Overawking market situation was favorable, even though variations between the segments remained. And of course, there are still uncertainties on some of the markets. But order intake was good and positive book to bill in the quarter. And the cash flow strengthened and we expect to keep up the high acquisitions also going forward. With that said, let's open up for questions.