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 order intake, 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. Order intake 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. This 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 grew 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 percent 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 then that the organic growth in Q2 last year was a record high 26%. And obviously it was a bit of a boost from the pandemic and COVID-19 related businesses. Daily orders were at a 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 continue 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, Novo Nordisk. They are leading in insulin production and they have experience in great times and extending their production facilities and capacities. So we are uh 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 producer and we have several of our companies delivering both flow components like valves and gas detectors to the Northvolt 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 7%, acquisition plus 7% also, and currencies plus 3%. 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 7%, and currencies plus 3%. And from a geographical perspective and looking at our larger markets, Denmark, Finland, and Switzerland stand out positively this quarter, while UK and North America is a bit weaker. The supply chain issues with long lead times from suppliers and components 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 sensor 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 in 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 fields 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 effect. 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 develop 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 in the 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 a record high 15.3% 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 gross margin continued 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 and resources in business development in a good way. Newly acquired companies continue to show good margin levels and contributed well to improved group margins. 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 medtech 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 but 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 segment. The growth in the medtech and pharma sector was slightly lower because of the higher references last year, obviously partly linked to a strong sales in the COVID-19 related segments. In DACH, 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 sensor 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 EBITDA-wise at 15.3%. And the main drivers for the profitability 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. Our greatest is 7 out of 8 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 value for power generation as an important driver. In DASH, we saw good development in companies exposed to the process industry, including chemicals, along with contribution from newly acquired companies. The business area of Finland and flow technology margins were very strong, but both were supported somewhat by positive 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 aftermarket 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 medtech 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 that 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 favourable. 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 Six out of eight 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 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 level, 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 look at the key data summary then. Total growth for orders and sales was plus 17 and plus 20% respectively in the quarter. And year-to-date, we are up 20% on orders and 22% in sales. Encouraging to see that book-to-bill continue positively in all business areas in the quarter 105% in total and accumulated we are at 108%. The gross margin continued 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% in the quarter and 27% year to date. And the beta margin improved to 15.3% record level versus 15.2 last year. Year-to-date, 15.2 compared to 14.5 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 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 of those 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 revaluations of earnouts either. So 15.3 is a fair and underlying result. Finance net increased with 28% in the quarter, 24 year to date. The increase is driven by higher borrowing and increased interest rates. Tax costs increased in the quarter with 23% and 27% accumulated. And that's basically in line with profit increases, which means that the underlying tax rate is stable at 22%. Earnings per share up 20% in Q2 and 28 year to date. And return on capital employed improved to 23% versus 21% last year. And improvement is mainly driven by the higher result, I would say. Rational 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 well know, then the earn-outs, they will not be paid out if profits are not increased. It distorts a little bit the outcome of the KPI. If you exclude the earn-out liabilities in the calculation, the net debt EBITDA would be 1.3. It's important to note. If we move to cash flow then. Second quarter cash flow, operational cash flow was 622. So that's a 21% decline versus last year. And it's related to stock buildups in many companies because of the supply chain disturbances that we have and the longer lead times from suppliers. And also supplier price increases are impacting stock levels also. That's also a major driver. If you look at the 12 months rolling working capital efficiency, by that I mean working capital in relation to sales, that's in line with last year and quarter four last year. It's still improved versus quarter two last year. If you look at the three months 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% from 1.54 to 1.85 SEC, which is an increase very much in line with the improvement in EBITDA. And if you look at the more long-term trend in EPS The three- and five-year increase in the annual EPS, it was up 90% on the three-year rolling and 18% per year then on the five-year rolling. And finally, the net debt. The interest bearing net debt end of the quarter was almost That's an increase with 1.6 approximately since quarter two last year. 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 talked about. 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% and the net debt EBITDA 1.6, as I said earlier. And excluding earn-out liabilities, 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 that our financial 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 over back to you, Bo.

Thank you, Patrick. I thought I'd elaborate slightly on the character of the Indutrade Group. Over the years, the InterTrade model has demonstrated its strength and resilience. I think we agree on that. It 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 mandates. 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 any single product area any 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 value creations. And by that, it's time to summarize and focus on the key takeaways from this presentation. So despite the very tough comparisons from Q2 last year, as I said, when the organic growth was plus 26%, 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 8 in central Stockholm. But 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 operators.

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 Nordea. Please go ahead.

Hi, it's Carl here from Nordea. 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'll read in the newspapers, etc.?

As we said during the presentation, we basically saw a 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 canceled projects, etc. No changes there either?

No canceled 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 overbought to some extent and built safety stocks. So they are not canceling 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 a fixed effect on inventory in the quarter? Thanks.

If you take the composition of the increase first, it's really difficult, but my high-level assessment would be that it's a 50-50 split between price and volume, and not the significant current impact, I would say. Yeah, we have, in many companies, increased buffer stocks, of course, and the more volatile purchase pattern lead times for suppliers have forced us 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. But it's, of course, a difficult balance, and we now see the increased stock. I don't see a big risk for obsolescence. I think what we have focused on, our companies have 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.

it and bring a little bit the cash flow that true very good and the final one from from my side I think boo you mentioned you you've strength them they they may team or at least you planted 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 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?

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 as some of the beginning of the fall here. 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 dialogue? What sort of threat does that constitute? Or on the other hand, can you capitalize in any way on that, possibly reduce competition, et cetera? Would be interesting to hear.

Yeah, it's a great question. And before I joined in the trade, I've been here now, as some of you know, a bit more than five years. I think the learning... 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 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 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 onwards that we will continue to manage 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 at buying are probably not too interested in them anyway.

All right. On OPEX, you talked about increased OPEX year over year. How much was that approximately, in your view, for sort of traveling exhibitions, et cetera? 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 2022 versus last year? And also, if you could follow up on UK, you talked about this appointing revenues and margins what's your action plan there you I mean you talked about working close to your company it's absolutely but but if there anything else sort of to you can speed that up possibly thanks yeah if I start Patrick and I can hear 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 So a 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. We have 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 also. 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 organic leverage not as good as it has been before. So, I mean, we increased sales organically with with 10%, and the expense levels actually increased slightly more than 10%. 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 slight inflation also impacting. So it's all of that generated increase, which was slightly higher than 10%.

The UK is a bit of a special case, maybe in a very broad perspective. If we look at the types of companies we own in different business areas and 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, but 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'm confident that I mean they were basically at the 15% EBITDA 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 that maybe 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 1. For any further questions, you may press star, then 1 on your keypad. This concludes our question and answer session. I would like to turn the conference back over to Mr. Handvik 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. Bye-bye.