Indutrade AB (publ)

Thank you, operator and good morning on our behalf as well. Today, we are happy to present yet another strong quarter and first half year of 2022. And let's start by moving to the overall highlights. Q2 last year was a very strong quarter for us. It's therefore satisfying that we this year continue to grow in ordering take sales and profits with a record high EBITDA margin. This thanks to great performance from our companies and employees who continue to navigate the challenging market situation in a great way. We saw a positive demand situation during the second quarter in most business areas. There is however increased variations between companies and geographical areas, which is partly due to the strong references from the same period last year. Ordering take grow in total with 17% of which 7% organically. Net sales grow a total of 20% to 6.7 billion. Despite continued supply chain disturbances, we also grow sequentially. They should not however be seen as the supply chain disturbances are easing. It's more related to good performance from our companies. And we see no clear indication of an improvement when it comes to the supply chains in the short term. We also grow EBITDA up 21% from the same period last year. And for the first time ever, EBITDA exceeded 1 billion SEC, a new milestone achieved for us within Indutrade. EBITDA margin was slightly better than Q2 last year, record high 15.3%. And in terms of acquisitions, the activity level during the first quarter and the first half has been intense. We have completed 10 acquisitions so far this year, adding 780 million SEC in annual revenues to the group. In Q2, we closed five transactions and another three has been completed after the end of the quarter. If we look more specifically then on order intake, the demand was, as I said, continued strong in the quarter and orders grow organically by 7% versus the high Q2 last year. And for those who follow us more regularly, you might remember them that the organic growth in Q2 last year was record high 26%. And obviously it was a bit of a boost from the pandemic and COVID-19 related businesses. Daily orders were at the high and stable level during the whole quarter in line with the levels of March. The growth continued to be broad based with an aggregated positive order development versus last year in most segments. The process industry broadly in general continued to stand out positively with a good development for almost all companies and geographies. In most of the other segments, we see a bigger variation between companies and geographies partly of course also due to the strong references last year. Orders grew organically in six out of eight business areas during the quarter and the strongest developments were in business area, industrial components and flow technology. The order backlog increased in all business areas and order intake was aggregated 5% higher than sales in the quarter. So a positive book to build still. The average lead time in the backlog is now longer than normal. And that's mainly because of lead times from our suppliers. But the quality of the backlog still feels good and solid. Just some examples of orders starting maybe in Denmark. We have a large company, Nova Nordisk. They are leading in insulin production and they have experiencing great times and extending their production facilities and capacities. So we are having and gaining some orders from some of our flow companies linked to that. Our high pressure valves company have now received a large order for components to a new solar power plant, a concentrated solar power plant in South Africa. We have flow equipment from one of our companies in Austria to the Brazilian pulp producers, Sarano. And we have several of our companies delivering both flow components like valves and gas detectors to the North World group. So high activity level and not least linked to the sustainability transformation in the energy sector, I would say. Total growth in the quarter was plus 17% where organic was, as I said, plus seven, acquisition plus seven also and currencies plus three. If we then turn to sales, the sales development was also strong during quarter, improved both versus last year and sequentially despite tough comparables also here. Total net sales development in the quarter was plus 20% and the organic development was plus 10, acquisitions plus seven and currencies plus three. And from a geographical perspective and looking at our larger markets, Denmark, Finland and Switzerland, they're now positively this quarter while UK and North America is a bit weaker. The supply chain issues with long lead times from suppliers and component and product shortages continue during the quarter. It's an issue for companies in all business areas but the worst impact is within business area measurement and central technology, which is a bit more electronics intense perhaps than the other business areas. A few companies report a slight improvement but it is not a clear trend. The consequences of all this are an increase to order backlog and also slightly lower sales than if things were normal. It's very hard to estimate but the aggregated held back invoicing is probably still around the same level as it was in quarter one. In general, companies are doing a great job to manage the situation. They are flexible and creative and as you know, most of them operate with low to medium volumes. So our situation is not as bad as high volume producers within the feeds like automotive, electronics, white goods and so on. We have in general, I would say a different supplier base than those types of industries and companies. Organic sales growth trends. The highest priority for us really strategically is to engage with our companies and support them to grow organically. Organic sustainable profitable growth is key for generating sustainable value over time and it's a verification that you have a competitive offering appreciated by the customers. We have now seen seven consecutive quarters with organic sales growth despite challenging references and this is of course benefited by a global strong demand situation and now also a high price effects but the foundation we believe is our well positioned and competitive companies. All business areas grow organically in the quarter and the majority of the companies develops positively. Risks are increasing ahead because of the continued supply chain issues and geopolitical tensions, also high inflation and increasing interest rates. The record high backlog however, gives us a good base to deliver further organic growth the coming quarter. And I would say that uncertainty is obviously can provide difficulty but into trade is basically at its best and will operate and manage better than an integrated industrial group on average and this is of course based on the entrepreneurial and decentralized model we have. EBITDA increased during the quarter with 21%, it exceeded one billion as I said for the first time and the EBITDA margin increased to record high .3% versus 15.2 last year. And organically EBITDA increased with 9%, acquisitions added 8% and currencies 4%. We still see supplier price increases which is creating a tough headwind but our companies continue to manage this in a great way. The organic growth margin continue on a high level and was in line with Q1 and slightly higher than last year. The organic EBITDA margin development was however slightly subdued driven mainly by an increased activity and expense level in many companies. Since we have been basically having a quarter free from travel restrictions there's been quite a lot of exhibitions and physical customer meetings and basically invested time resource in business development in a good way. A newly acquired companies continue to show good margin levels and contributed well to improved group margin. in the last few years. If we then turn to the business areas and start with the sales situation, six of our eight business areas showed strong organic growth in the quarter. We saw the strongest growth in business area flow technology, industrial components and fluids and mechanical solutions with most companies developing positively. The process industry and med tech and pharma sectors stand out positively in these business areas. In fluid and mechanical solutions, the sales development was held back somewhat by the automotive aftermarket group that has had business in Russia and Belarus which has been stopped since basically the start of the war in Ukraine. In Benelux sales also developed positively in a majority of the companies and segments. For instance, in valves for power generation and in the infrastructure and construction segments. The growth in the med tech and pharma sector was slightly lower because of the high references last year. Obviously partly linked to a strong new sales in the COVID-19 related segments. In DAH, the Swiss process industry including chemical industry was the clear driver of the sales development while the development in business area Finland was more broad based. Growth was a bit weaker in business areas measurement and central technology and UK with variations between segments and companies. Supply chain issues and component shortages had an adverse effect on the development and particularly in the business area MST. And if we continue with business areas and discuss the margins profitability, we had as I said a record high level of it wise at 15.3%. And the main drivers for the ability development is the continued strong gross margin development along with good performance from our newly acquired companies. The organic development was dampened somewhat but by an increased activity and expense level as I said in many companies this quarter. A grade to see seven out of eight business areas with margins at or above 15%. This is a clear improvement just versus a couple of years ago. Benelux noted the strongest improvement with bands for power generation as an important driver. In that we saw good development in companies exposed to the process industry including chemicals along with contribution from newly acquired companies. The business area Finland and flow technology margins were very strong but both were supported somewhat by post the one offs from facility divestments. Flow technology was still better than last year excluding this one off. But Finland was slightly lower than last year mainly because of a strong Q2 last year and also increases in activity and expense levels. Profitability development in business area fluids and mechanical solutions was good both organically and for newly acquired companies but the automotive after market segment which stopped sales to Russia and Belarus impacted negatively. Without that they would have held stable margins I would say. The margin in business area industrial components was continued good but declined somewhat compared to last year. Very high level which was supported by a couple of med tech companies benefiting from the pandemic as I said before. Business area measurement and sensor technology defended their high margin from last year despite the low organic growth and supply chain challenges. We did unfortunately not see the margin increase in business area UK as we hoped for. UK were perhaps worst hit by COVID-19 among all our largest countries and in addition to this Brexit have also impacted business. All in all we have not recovered volumes and sales in UK since before the pandemic as we have in the other business areas. And the product and company mix in the UK is somewhat less favorable. We are however driving improvement activities and seeing progress and we are confident that we will stepwise improve also in the UK. If we then turn to acquisitions as stated before the first half of 2022 has been strong for us in terms of acquisitions. The challenging external factors have not had any impact on our acquisition activity I would say. And it's continued really on a high level. So far this year we have acquired 10 great companies with strong competitive and sustainable business models and good growth potential. This is one more acquisition this year compared to the same period last year. Adding 780 million SEC in annual turnover compared to last year's 730 million. 6 out of 8 business areas have completed at least one acquisition so far this year. And our pipeline remains good and the flow of incoming leads are also good. We are thus confident that we can continue to acquire good companies at attractive prices during the rest of 2022. As we have stated before the ambition we have is that each business area should make two to three acquisitions per year. And adding that on the group level means 16 to 24 acquisitions on group level per year. And we are also adding a few extra acquisition specialists in the group both on group level but even more on business area that I would say. And by that I hand over the word to you Patrick to comment more on the financials.

Thanks Bo.

Yes. Let's let's look at the key data summary then. Total growth for orders and sales was plus 17 and plus 20 percent respectively in the quarter. And yet to date we are up 20 percent on orders and 22 percent in sales. Encouraging to see that book to bill continue positively in all business areas in the quarter. 105 percent in total and accumulated we are at 108 percent. The gross margin continue to develop positively despite the supply chain issues and increased supplier and freight prices. 34.9 in the quarter versus 34.8 last year accumulated. 34.7 compared to 34.6 last year. And organically excluding acquisitions and currency we actually have improved slightly more than this. Beta grew 21 percent in the quarter and 27 percent yet to date and the beta margin improved to 15.3 percent record level versus 15.2 last year. Yet to date 15.2 compared to 14 and a half last year. And there are always a few one-offs of course in a quarterly closing but I would say that the net effect of these this quarter is around zero in the quarter. So the margin of 15.3 is a fair underlying result I would say. The positive facility related one off we talked about in flow and business area Finland. They were offset by we had some provisions write downs of receivables in Russia relating to Russia. And we didn't do any any revaluations of earn out either. So it 15.3 is a fair and underlying result. Finance net increased with 28 percent in the quarter 24 year to date. The increase is driven by higher borrowing and increased interest rates. Tax cost increased in the quarter with 23 percent and 27 percent accumulated. And that's basically in line with profit profit increases which means that the underlying tax rate is stable at 22 percent. Earnings per share up 20 percent in quarter two and 28 year to date. And return on capital employed improved to 23 percent versus 21 percent last year. And improvement is mainly driven by the higher result I would say. Racial cash flow declined versus last year. And I will come back to that elaborate a little bit more on the next slide. Net debt EBDA is maintained on a low level 1.6 versus 1.5 last year. Maybe note on this KPI is that we include earn out liabilities of course in the net debt calculation. But as you as you well know then the earn out they will not be paid out. If profits are not increased. So it's distorts a little bit the outcome of the KPI. So if you exclude the earn out liabilities in the calculations the net debt EBDA would be 1.3. It's important to note. OK so if we move to cash flow then. Second quarter cash flow operational cash flow was 622. So that's 21 percent decline versus last year. And it's it's related to stock build up in many companies because of the supply chain disturbances that we that we have and the longer lead times from from suppliers. And also supplier price increases are impacting the stock levels also. That's also a major driver. If you look at the 12 month rolling work in capital efficiency by that I mean then working capital in relation to sales. That's in line with last year and the quarter for last year. And it's still improved versus quarter two last year. If you look at the three month rolling trend that's also in line with year end but declined however than versus the same period last year. Earnings per share grew with 20 percent from 1.54 to 1.85 SEC which is an increase very much in line with the improvement in EBDA. And if you look at the more long long term trend in EPS the three and five year increase in the annual EPS it was up 90 percent on the three year rolling and 18 percent per year then on the five year rolling. And finally the net debt. The interest bearing net debt end of the quarter was almost 7 billion and that's an increase with the 1.6 approximately since quarter two last year. And the increase is mainly connected to the high acquisition pace that we've had the last year and also then the slightly lower operational cash I told you. The net debt ratios however they are still they increased somewhat but they are still at low levels from an historical perspective I would say. The net debt equity ratio was 64 percent and the net debt EBDA 1.6 as I said earlier. And excluding earn outlay abilities it was 1.3. In June we issued a new long term bond. Main purpose was to replace some short term debt we had but also to proactively secure long term funds for this autumn's acquisition activities. And in addition to that bond we also have ample amount of long term unused credit facilities. And to summarize I would say then our finance position remains solid and strong. Increased but still low debt ratios and also a good headroom between short term debt and guaranteed long term facilities. Yes and by that I leave leave over back to you Bo.

Thank you Patrick. I thought I'll elaborate slightly on the character of the Indutrade Group and over the years the Indutrade model has demonstrated its strength and resilience. I think we agree on that. Started in 1978 and we have been profitable ever since. And our diversified structure with more than 200 companies in many sectors and geographic markets provides us with good risk diversification which creates the prerequisite for stability. And by constantly adding new well managed and successful companies our portfolio is further diversified and the aggregated economic risk is reduced. But the opportunity for organic growth improves. And through our proven decentralized business model driven entrepreneurs are given the opportunity to maintain independence with full operational responsibility and mandate. We are confident that the best decisions are made locally close to the customers and the market. And you can see on the slide that we as a group have very little dependency on any single market segment and a single product area and the company, customer, supplier or whatever dimension you choose to analyze. So I think we are well positioned to manage different economic cycles with strong stability and professionalism. Also talking a bit about a leadership conference we recently had. We really have a long-term commitment to ensuring that both our people and companies can grow. And we contribute to our own development and that of society at large I would say by giving more people and companies the chance to become part of a business world driven by true entrepreneurial spirit. Our employees are of course the key to our future success. We strive to derive the greatest value and benefits from our employees by sharing and spreading best practice throughout the group. And one key activity for this is knowledge sharing and to facilitate networking between our companies. So during quarter two we had the Indutrade Leadership Conference in Stockholm where we were plus 200 managing directors and other key people from the group. We gathered to exchange ideas, workshop and to learn from each other and obviously also celebrate successes. And we have during the last year increased the focus as I've said several times on organic growth but also on sustainability in all aspects of the business. And it's really inspiring to see the engagement from our companies on these topics. Together we are working actively on innovation and product development, finding new partners, finding add-on products and other opportunities to strengthen the competitive edge even further. In addition we see sustainability as a business opportunity. It will be key that we reduce our own CO2 footprint as well as ensure that we offer solutions that help reduce customers CO2 footprint. And during the conference we also gave out awards to the best performing companies. We've done that since many years back and the first award is what we call the benchmarking winners. We look at a number of financial KPIs to award the companies who have had the greatest performance. But new for this year we also had a sustainability award where we recognize the companies who stand out in three different categories. It's the people dimension, climate, environment and last but not least what we call profitable growth slash innovation. And not only is it important to celebrate victories but I would also say that the awards are also a great opportunity to further ignite the winner mentality of our MDs if now that's possible. They are quite driven already in terms of this I would say. And it's clear that we have exciting times ahead of us and good prerequisites in place for continued innovation. And value creation. And by that it's time to summarize and focus on the key takeaways from this presentation. So despite the very tough comparisons for from Q2 last year as I said when the organic growth was plus 26 percent. And a general challenging market situation in the trade had a very strong performance in the first half of 2022. Our companies are doing a fantastic job showing good flexibility and working closely with our customers and suppliers. The business risk for the second half have however increased and supply chain disturbances continues to be a challenge. It's therefore satisfying that our order backlog is record high which provides confidence in our ability to provide good invoicing and profit development also in the short term. And I'm also very happy that the Indutrade family has been strengthened by 10 new quality companies so far this year. And as I said before the pipeline is strong and we have good acquisition activity in all business areas. I'm convinced that our robust business model which is based on decentralization and diversification with decision power close to the customer is able to cope with any changed conditions in a very good way. We are continuously developing our ability to generate sustainable profitable growth and we have a stable platform as the starting point for continued value creation. Lastly I'd also like to highlight that we will host a capital markets day on November 8th in central Stockholm. Where we obviously will give some more flavor on our strategy and priorities for the years to come. So please mark this in your calendars and we will send an invitation with registration details soon to you. By that I say thank you for participating listening and I leave the word over to the operator.

Thank you we will now begin the question and answer session. To ask a question you may press star then 1 on your telephone keypad. If you are using a speakerphone please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question please press star then 2. At this time we will pause momentarily to assemble our roster. The first question is from Carl Ragnarstam with Nordia. Please go ahead.

Hi it's Carl from Nordia. A few questions. Firstly I wonder if you have seen any changes in the demand situation throughout the quarter or entering July. And also you talk a bit about an uncertainty of course we have the inflation etc. But is it something you have seen in any of your end markets or is it more something we will read in the newspapers etc.

As we said during the presentation we basically saw stable order intake in line with the March level in all the individual months of quarter two. So it's been been stable and good so we don't really see experience we haven't really seen experience anything

yet.

So we are more on the newspaper headline stage as you said yourself.

And also in your construction slash infrastructure is your largest end market. You haven't even seen any changes there or postponed or cancelled projects etc. Or no changes there either?

No cancelled projects. One area where we are experiencing a bit of a dynamic situation is maybe more the pharmaceutical area. Where we have some companies who have supplied to vaccine producers and they have over bought to some extent and built safety stocks. They are not cancelling orders but the order growth will probably be a bit hampered in the fall and maybe the beginning of next year. But I would say in the construction sector and infrastructure sector it's a little bit too early to be anything visible for our companies yet.

Okay super and also Patrick a question on the cash flow as you also mentioned a fairly significant change in inventory at least. Could you help us understand your thinking regarding inventory management the risk of sitting with too much inventory in a potentially at least weakening market. And also if it's possible to quantify the pricing and maybe effects effect on inventory in the quarter. Thanks.

If you take the sort of the competition of the increase first it's really difficult but I would my high level assessment would be that it's a 50 split between price and volume. Not the significant current impact I would say. Then yeah we have in many companies increased buffer stocks of course and the sort of the more volatile purchase pattern. Lead times of suppliers have made it a force to do that and I think in many cases it has been good. I think we feel that many companies have also been able actually to gain market share as they have been able to deliver. It's of course difficult balance and we now see the increased stock and I don't see big risk for solace. I think what we have focused on our companies are focused on is of course the high runners and making sure that they are on the shelf. So I don't really see a big risk for obsolescence. No but it is hampering a little bit the cash flow.

That's true. Very good and the final one from my side as I think you mentioned you've strengthened the M&A team or at least you plan to do so centrally as well as locally. Could you perhaps update us where you are on that journey currently?

Yeah we think we have made one two three maybe four appointments. And I think most of them will start basically right after the holidays in August September.

And the remaining I guess four positions or did you plan to fill them in second half or?

Yeah basically all business areas work on their staffing situation and are solving this in different ways. But all of them will strengthen their acquisition capability during this year and most of them will have it in place at the beginning of the fall year.

Okay

very good thank you.

Thank you. The next question is from Johan Dahl with Danske Bank. Please go ahead.

Thanks good morning everyone. Just a question on your acquisition pipeline here. I mean it's a totally new world out there for debt funded acquisitions in your space I guess. How do you see that impacting your dialogues? What sort of threats does that constitute or on the other hand can you capitalize in any way on that? Possibly reduce competition etc. Would be interesting to hear.

Yeah it's a great question and before I joined Indutrade I've been here now as some of you know a bit more than five years. I think the learning was that it was a little bit weaker acquisition activity in a weak business climate. And sellers of profitable successful companies they don't really want to reduce their price level. So then they rather hesitated to sell at that time and waited until there was an agreement between seller buyer on the price level they wanted. And I assume that has probably not changed too much. But we have also grown as a group and we are even more established well known and have also more own resources. So I think our capability to build pipeline by you know having 200 companies and employees in these companies keeping their eyes open for potential acquisition targets. Plus being recognized as a good I would say acquirer from brokers also in quite a lot of new countries and so on. I'm making I'm quite confident that we will be able to keep this 16 to 24 type of level in the next couple of years. Even if the economic cycle is weakening potentially a bit. So yeah I'm really optimistic about the second half of this year and also rather confident for 2023 and upwards that we will continue to munch in a good way. If we benefit from this versus competitors other acquirers. Yeah potentially some of these very opportunistic high leveraged buyers with less equity sort of by themselves go away a bit. But I'm not sure that they have been too much of a problem for us either in the past. The companies we are geared up at buying are probably not too interested in them anyway.

All right on OPEC you talked about increased OPEC year over year. How much was that approximately in your view for sort of traveling exhibitions etc. And if you were to sort of take the full year view given that that activity remains. How much sort of a headwind is that for 22 versus last year. And also if you could follow up on UK you talked about disappointing revenues and margins. What's your action plan there? You talked about working close to your companies absolutely but is there anything else sort of to you can speed that up possibly. Thanks.

If I start Patrick and I can give the word over to you soon. But my take on the expense and activity level is that it was at a certain level in Q1 and then it increased quite a lot. There are usually quite a lot of exhibitions in the spring time. And a lot of our companies engaged in that and as I said also traveled physically to customers and so on. Depending on how COVID develops in Q3 here it might also be if there are sort of few travel restrictions. It might be a fairly high activity level also in Q3 but then I think they have reinvested in their relationships and so on. And we will benefit again from digital solutions and digital means of talking to customers and so on in Q4 and onwards. So slightly higher in Q2 and potentially in Q3 also but going back to a lower level or normal level. So a new normal I think I don't think we will go back to the expense level from an activity point of view which we had pre-COVID. But lower in Q1, Q4, a little bit higher in Q2 potentially also in Q3. I don't know Patrick if you want to comment on any numbers before I take the UK question.

Yeah I mean the expense increase made the sort of the organic leverage not as good as it has been before. So I mean we increased sales organically with 10 percent and the expense levels actually increased slightly more than 10 percent. Then of course you have to remember that last year we still had COVID so activity levels were pushed down. So they are back now and you have some slight inflation also impacting. So it's all of that generated increase which was slightly higher than 10 percent.

Now UK is

a bit of a special case maybe in a very sort of broad perspective. If we look at the types of company we own in different business areas and sort of large markets. We have slightly I would say lower gross margin levels on an aggregated level of the companies in the UK. And if they experience volume drops there is a profitability impact of sales a little bit quicker in UK versus in most of the other business areas. And we have had in the UK portfolio there is also segments which are a little bit unusual. Maybe we have one very successful company linked to the aerospace industry. So when COVID hit no planes were built and no components needed. So they went drastically down and we have a few other cases like that where industries were impacted by COVID. A little bit what we didn't maybe see in other business areas because we didn't have that type of business in other business areas. So they were more specifically hit by certain COVID particularities. And step by step they will improve now I think. And then we have had some as normal in a portfolio some issues here and there in the UK which the management there are working on and improving. So I am confident that they were basically at 15% in the data level pre-COVID. And step by step they will work their way back. But there is no general medicine if I say so. It's more surgical company by company to solve certain situations. And also then hope for a fairly okay economic sort of activity level in the UK. I guess it doesn't help maybe short term that there is politically a bit of instability. But maybe it doesn't impact too much neither. But I think the fall might be slightly better for the UK than the first half.

Right thanks.

Again if you have a question please press star then one. For any further questions you may press star then one on your keypad. This concludes our question and answer session. I would like to turn the conference back over to Mr. Andriik for any closing remarks.

Then we say thank you again for participating listening engaging in our quarterly report. And we wish you all a great summer and hope to see you at our capital markets day later in the fall. And sooner hopefully to speak to you. All the best.