Indutrade AB (publ)

Welcome and good morning on our behalf as well. We are quite happy with this quarter. It's good to be back in terms of organic growth and having a strong EBITDA margin. Let's start with some highlights. As I said, stable order intake, growth of 6% in total, where of 1% organically. Continued good demand in medical technology and pharmaceutical and also the process industry. It's basically the same segments and sectors as in quarter one. Net sales increased 5%, organically 1%, despite strong references and supported by some more working days.

margin of 14.8%, exactly the same as the underlying EBITDA margin last year. Inventory, slightly down from quarter one, 2024. And also a good acquisition pace, six acquisitions completed in quarter two and 12 so far in 2024. And the inflow of interesting companies to acquire remains strong. If we then comment a bit more on the order intake and savings, it's a continued aggregated stable high demand in terms of order intake and an increased invoicing pays versus the first quarter, resulting in record high 8.5 billion SEK. Both ordering taken as increase plus 1% organically versus high levels last And as I said, somewhat helped by more working . Total load intake and net sales increased with 6 percent and 5 percent respectively.

We still see some variations between segments and companies, and I will elaborate a bit more on this later. In terms of segments, the medtech and pharma sectors were good. In particular, we can mention that the diabetes area was good, both in terms of insulin production in the Danish solar market, but also device sales in the Scandinavian Nordic markets. And we also saw a good demand in the process industry more broadly there. As I've said before, we benefit or our companies benefit from the green transformation quite broadly in the Scandinavian area particularly, but quite a lot of projects also outside in the Western European sector or geography.

the demand from the customers in the engineering sector was stable more sort of varied picture there also I would say geographically a bit stronger in the Nordic area, Scandinavian area, a little bit weaker, further south in Europe. The business climate in the infrastructure and construction sector was continued dampened. But they see some light, at least. more discussions in terms of projects since the expectation of a better financial climate in the second half of the year is going to have a positive impact. probably a fairly slow comeback, more impact in 2020. I would guess. If we then comment on the sales in the geographical perspective, As you can see on the slide here, strong development in the Nordics with the highest stage growth in Denmark. Finland aggregated slightly lower growth, but underlying good. references last year from larger deliveries of pulp and paper customers. As you also know, there is more of a basic industry in Finland having usually a situation with lower demand early in the cycle. come back more quickly also when the cycle turns. This climate is slightly weaker in general in central parts of Europe, with a stronger development in Germany among the larger markets, and weakest in the area. States in North America and Asia is slightly volatile for us, and the development can fluctuate with single projects and companies.

And this year so far, more activities and projects noted primarily from the U.S. customers. If we then look at the EBITDA margins overall recovery which was obviously very good to see and we weren't really happy with the development in quarter one and now we bounce back to more the level where we should be 14.8 percent driven by sequentially improved sales. It's also, as I said, exactly the same level as last year, excluding the positive one loss we had then. Compared to last year's EBITDA increased with in total 3%, where minus 2% organically plus 5% from acquisitions.

Organically, the gross margin strengthens slightly also this quarter. but the sales growth did not fully compensate for the increase in expenses. The organic expense growth was, however, below 2%, so we see impact from better cost management things. and I assume this will continue also in H2. If we look at the different business areas, we can say that Half of the company showed a sales growth in the quarter and three out of five business areas. The strongest development was in life science and technology and system solutions. And the growth in lifestyle was driven by sales of diabetes-related products in the Nordics and production equipment in the Nordics in Denmark. And the positive sales development in technology and systems solution came from several customer segments. and the majority of the company showed growth. Broad and good state development also in the business area process energy. In water, partly offset by strong references in valves for power generation. And then lastly, slightly dampened market climate impacts business and industrial and engineering and infrastructure and construction. more dampened situation in the industrial and engineering area versus what we have seen before nothing dramatic and as we have also commented before It's good to remember that most of our companies are small to medium-sized and can usually find business opportunities by being entrepreneurial and innovative.

If we look at the EBITDA margin by business area, I would say it was solid margin performance with improvements in three out of five. And the development and level in industrial engineering and infrastructure and construction was held back by the dampened market and organic sales decline. But acquisitions and divestment supported a margin improvement in infrastructure and construction. The good margin levels and development in life science, process energy and water, and technology and systems solutions was driven by a positive organic gross margin development and solid sales growth. In terms of acquisitions, we have a high pace so far in 2024.

Well-managed companies require a combined annual sales of more than 1.1 billion SEK. All business chairs have one or more than one company. And we have a number of projects in different phases ongoing, so I would guess that we will have all in all a good acquisition year. We have, as we have said before, capability to acquire around 20 companies per year, and the conditions are continued good, I would say, going forward here. And we don't measure really the acquisitions by quarter. It's better to see that over a longer time period. When you compare 2023 to 2024 so far, it's good to remember that we prolonged deliberately some processes in 2023. pace so far this year and towards the right there you see the effects from acquisitions and in quarter one the effects were not that strong around 30 million second and now in quarter two we are coming up to more normal level 60 million and the acquisitions we closed now in in quarter two had maybe a margin of around 16 percent And I think the effects will continue to be positive in the remainder of the year. And by that, I ask you, Patrick, to go through the financials in some more detail. Yes, thank you, Bo.

Total growth for orders and sales in the quarter was 6% and 5% respectively. And if you look at the year-to-date orders, they've grown 3% and sales is in line with the high levels of last year. Book-to-bill in the quarter slightly below one, but looking at the year-to-day accumulated number, it's still above one. Continue with the good growth margin development in the quarter, good to see, 35.4 versus 34.6 last year, and almost the same in the year-to-date numbers. Beta increased with 3% in the quarter and mainly thanks then to contribution from acquisitions. Year-to-date we're still below last year.

Margin for the quarter was 14.8 compared to 2015, but as mentioned we had We had some positive one-offs last year, primarily related to earn-outs. And if you exclude that, the margin was last year also 14.8. So in line with each other. FinanceNet. up 15% in the quarter and 16% year-to-date and entirely related to the interest rates, the higher interest rates. Tax costs up 1% in the quarter and down 11% year-to-date. And that's in line with the result, which means that the underlying tax rate is the same as last year, around 23%. Earnings per share increased with 1%. in the quarter and we'll look at the graphical trend in the slides to come. Return on capital employed declined but it's still on a good level of 20%. 20% in line with our financial target. Operational cash flow is good in the quarter around 1 billion but slightly weaker than last year. Accumulated cash flow is 1.5 versus 1.5 Net debt EBITDA end of the quarter is 1.7 versus 1.9 last year. We will come back to the net debt later on. So then cash flow. And as I said, slightly more than 1 billion stake in the quarter. And that is slightly lower than last year. But I would say it's a good level. It's the second highest quarter to ever as you can see from the slide. The decrease versus last year is mainly driven by less favorable working capital movements.

In inventories as we are focusing on declined organically slightly since last quarter. Then also good to highlight is that our companies are relatively capital light and continuously we have a strong underlying operational cash flow coming from the companies and that is reflected in a good cash conversion. Which we have added them to this slide. Right now we are trending them on 140%. If you measure them cash conversion as net profit. The operating cash flow compared to net profit less capex. That's how we defined it here in the slide. 140% on a rolling four quarter basis.

And the working capital efficiency, which is a focus area for us. The level, however, is relatively unchanged at the end of this quarter compared to last year and also compared to year end. And the low organic sales, of course, is creating some headwind in the work here. But we continue to push on this area. And if we continue with. Looking at earnings per share development. Earnings per share for the quarter was 2 kronor. That is an increase of 1% last year. increase of course driven by the higher EBITDA, but dampened slightly by the increase in interest costs and amortizations. And if you look at the longer perspective the growth in three and five years rolling four quarter earnings per share for 12 and 14% respectively. And then finally coming back to the the debt situation. The interest-bearing debt increased step-by-step compared to Q1 and was then 9.5 at the end of Q1. And that increase is entirely driven by the dividend payout. And because of this quarter two is normally the quarter with the highest debt. Might be good to remember. But when it comes down to the debt ratios, net debt equity was 63% versus 74% last year, and net debt equity was 1.7% versus 1.9% last year. exclude earnouts which we always include in the net. It would have been slightly lower 1.6 versus 1.7 last year.

So to summarize despite the high acquisition pace our debt ratios are well balanced and we have strong financial position. By that I think I end and leave back over to Bo.

Thanks. We thought we could elaborate a little bit on our sustainability situation and we have worked diligently and focused on that for some years now. And last year we introduced something we call the Indutrade Sustainability Awards. Many know that we successfully have used financial benchmarking awards since a very long time in the group. And based on that, we have copied this into the sustainability area.

And obviously, we want to acknowledge great work, share knowledge. and inspire each other to improve. The companies can nominate themselves or nominate other companies. We have three categories. It's within people, the environment, and products and customers. And the winners this time was in the people category for a Finnish trading company called YTM, a fairly large company providing, you can say, critical confidence. components to the Finnish process industry. They have done a fantastic job to basically improve culture, work with diversity, inclusiveness, and also improve KPIs business-wise. And in terms of the environmental area, we have a Swedish company called ETP. They manufacture hydraulic shaft connections and tool holders and components like that. And they have done a fantastic job, I would say, on the environmental side to really decarbonize large portions of their value chain. Really impressive. And then we have a Danish company called BPI, which we talked about. fairly recently, and they provide customer-specific and engineered foam solutions and they are extremely structured in terms of how they go about the whole sustainability area and work towards becoming And that is also having good business impact. So good for you to understand a little bit about this.

And at the end of this quarter, we have also applied to have our updated climate targets validated by science-based targets initiative. And as soon as we have more to update in terms of this, we will obviously communicate that as well. But all in all, a lot happens, I would say, in terms of sustainability. And we see that as a clear business opportunity within the trade. Then time to summarize the key takeaways. So stable demand and increasing net sales despite challenging references and a solid EBITDA margin and cash flow. And I think maybe the highest gross margin at least since I joined into trade.

Record high acquisition face 12 acquisitions so far in 2024 and with a combined annual sales of 1.1 billion SEK. And the uncertainty around the general business climate remains for the second half of the year but with the strong acquisition pace and the solid backlog we have and somewhat easier references we are quite optimistic about H2 and all in all well positioned for further growth with a strong portfolio of entrepreneurial companies in a new group structure. which we think will have a positive impact in the medium and long term, not least linked to organic sales and growth. By then, we end the formal presentation. presentations and leave the work over to the facilitator.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue.

If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Zeno Engdahl and Richie T. from Handelsbanken. Please go ahead. Hello, Bo and Patrik, and thanks for taking our questions. I would like to start in life science and talk a bit about the sequential margin development. You mentioned that you had some deliveries now. Can you talk about how they have impacted the margins?

Yeah, I would say it's a broad-based good situation and we highlighted the companies related to production increases and build outs at Novo Nordisk and also device sales in the Nordic markets of diabetes equipment but there are a lot of other companies also having a good market situation Still, I would say more potential to come in terms of the single-use area. Their customers have still had quite high inventories of products and we haven't seen real order intake taking off again there.

Hopefully that happens towards Later this year, early next year, it's difficult to say exactly when, but there is potential to come in that area. And the Novo Nordisk situation will continue. to be strong for several years. They have different phases of their different types of extensions, so it's not something we only live with, you know, very short term now, and then this will disappear, but it's more more several types of engagement, I would say. Was that answering your question? Yes. And then moving on to processed energy on water, you also had a good margin development and you mentioned that it's a relatively good environment there. Can you also talk a bit about the drivers there in the margin and also if you think that those drivers are more sustainable I think that's quite sustainable as well. It's quite broad-based. It's not just a few companies doing extraordinary well, it's more a broader good situation and to some extent project-based, but there are always new projects, and as I said, not least linked to the green transformation, which is ongoing, continuing. There are also some projects linked to the defense area, which will also be interesting for several years going forward. Maybe a little bit lower market for pulp and paper, for example, which is a big flow technology error usually, at least in the Nordics now, but that will eventually come back, I think.

So, no, fairly broad-based good situation, and no, it will be hopefully continued at the level where we are.

Okay. And just lastly from me, we talked last quarter a bit about some of the companies not being on their toes as much with cost when they faced headwinds and it looks better now. Do you think that there's anything there worth mentioning regarding the work that has been done in the quarter with your companies managing costs?

I would say it's... In general, Indutrade companies and Indutrade team members are good in terms of cost consciousness.

Maybe part of this has been linked to organic growth investments. now when the market in some sectors and segments has been a bit subdued there hasn't been pay off from those initiatives and And in general, maybe that could have been a little bit more quick response to manage costs when they have seen that water intake has stabilized or perhaps even been weaker in some specific companies and so on and so forth. And yeah, just clear dialogue between business area management and companies and both. and companies to manage this well.

And we have seen some effects from this later in Q2, and I assume this will continue to be sort of well-managed in Q3, Q4.

I don't know, Patrick, if you want to elaborate anything on this. No, I think you expressed it well. I think we have... slightly lower cost level in quarter in this quarter compared to the first and it's the right trend I think and I also think as you say that will continue improvement during the second half of the year Okay, good. That was all for me. Thanks, and I hope you have a nice summer. Okay. Thank you. The next question comes from Carl Ragnarstam from Nordea. Please go ahead. Good morning, it's Carl from Rodea. Just a follow-up on the boss idea as you mentioned.

Just, I mean, if I understood it correctly, you had two percentage points lower increase in SG&A sequential here. Is it fair to assume a similar increase sort of deceleration of the acceleration of the costs or sequential entry Q3 as well.

Patrick, do you want to make an example?

Well, I think what you will see is it's not a sort of a dramatic decrease in cost. It's more of a, if we have them partly because of inflation and partly because of inflation, growth investment in selected companies. We've seen an increase during last year. And step one is to stabilize that. And I think we managed to do that. And I don't think it will go down dramatically. I think it will be stabilized, maybe slightly down here and there in certain companies that see a more soft climate.

I think you will see sort of a sideways going cost level. If not, demand will turn into a worse situation, then of course companies need to act. But that is not sort of our prediction. And then when you see here and there, I guess you're building costs a little bit in, I guess, life science, parts of life science, and lower in construction. Yeah, and in general, I think you've heard that, Carl, we work with a structured portfolio management. model, we define the companies where they are in terms of strategy and business climate, etc. And the companies that are clearly categorized as growth companies Here we allow or even push for investments and doing more. We will continue to do, but then companies that are not ready to grow, they of course need to be much more cautious. especially when you have soft business climate. You need to push and work with this very selective being adopted to the companies. That's good. touched upon the NOVA volumes a bit here, but you said that it's a long-term trend. Should we expect continued volatility between the quarters, or should we expect more stable development in the delivery of the coming few quarters here, I guess? And the second part, are you taking new orders from the same customer? Or is it that you're actually totally draining the backlog with every delivery? We are definitely taking new orders. We'll do so for quite some time. There could be volatility between quarters, I would say, but maybe not over four quarters or so, more of a stable trend.

And the volatility is probably higher order intake wise than on sales wise.

Okay, very clear. And also looked a bit on sort of central costs in the quarter up to 100 million. Is it any revaluation acquisition cost we should consider there?

What we define as group items is much more than... Yeah, for sure. We have, of course, sort of the central cost, but then you have also then, as you refer to, own-out releases, potential write-downs, and other things, IS adjustments. So it is a bit up and down, I would say. And last Q2, we had some own-out releases, so I think that's

the major thing pulling down the levels last year and we did not have that basically this year so that's the big deviation I would say Okay that is also very clear and now you had the new group structure for half a year or so. Could you update us a bit on what you've seen so far in terms of collaboration between the companies, the deal flow, which was supposed to, I guess, be better when the same type of company perhaps talk to each other in a easier way and also on perhaps cost efficiency the latter is perhaps a bit far fetched but anyway yeah we are In early days, I would say, it's extremely important that individual companies fill the core of Indutrade or the collection of 200 plus individual companies and that we are not pushing for too much coordination or cooperation in some sort of word way if you understand what I mean so now we have these 30 plus segment and 30 plus segment leaders and they usually have from 3-4 companies to 10 companies Some of them are maybe still MDs in a specific company in addition to this role, and some of these people have this as a full-time job, you can say. and they have started now to visit companies engage in the boards and have some initial segment meetings but this is like a slower

If you use that word and I think and we think the benefits are more medium term than short term. So now we are assessing potential areas of sharing and soft synergies sort of and they are also building this wide spot acquisition agendas but it's going to take you know probably a year or two before we really see any material effect from it I would think.

That's very clear and the final one from me is a bit on infrastructure and construction and You said the demand is still muted, but we still saw positive organic order growth in the quarter.

Is it that you had any big projects in, I guess, the organic growth or, yeah, how There were some specific companies who had quite good order intake. So I would still say that it's a bit muted to set yourself as an area. So no quick bounce back in Q3, Q4, or more slow potential progress and more impacting 2025 will be my guess. If I add also, I think the comment on the segment is sort of more of an overall assessment. And if you look at our business area structure, many of the companies are selling to different types or more. more than one customer segment and we also have the technology system solution that is more of a technology and product oriented business area and they sell also broadly to all customer segments so for instance in that segment there is more dampened development towards infrastructure and construction segments. So it is more of an overall assessment rather than the business area development. Okay, fair enough. Thank you so much. The next question comes from Johan from D&B Markets. Please go ahead.

Good morning. Johan from DNB here. Congratulations on the Q2 report. Just a couple of short questions, building on the many good ones that were already asked. So, continuing on infrastructure and construction, the margins that are progressing well, do you see that segment performing in line with the Group 1's demand situation normalizes, or do you see any higher or lower potential there going forward?

No. I expect them to be at 14% in a normal business climate. And maybe also going beyond that. So it's not a collection of weaker companies, less quality companies. It's also really good companies in that

business area, so now they should come back to a more industry standard level. Okay, that's very good to hear. And the final question is on the gross margins, which were strong in Q2. they're mainly driven by price hikes, but have you also seen purchasing gains from lowering prices or more efficient purchasing here? I wish I could have said that we have been that we have become you know much more professional in the purchasing area I think that's a slow process so maybe more raw material market swings you know maybe prices going down and things like that. But it's more on the price side than effective purchasing reductions, I would say. Okay, are you able to quantify how much of growth was price and how much was volume? No, we have very difficult analysis for us with this type of problem. We can't do that now. Okay, well, thank you for answering my questions, and good luck with Q3. Thank you so much. Ask a question, please dial pound key 5 on your telephone keypad. this time. So I hand the conference back to the speakers for any closing comments.

The next question comes from Carl Bockwist from ABG Sundal Collier. Please go ahead.

Thank you. Good morning. My first question is on just if we take Q1 and Q2 together now. As you said, Q1 perhaps a bit below what you had hoped. Q2 seems to be back on track. But Are you fully back on track now compared to what we might say normal levels and the headwinds you described in Q1 and what the units have done to recover that in Q2?

I don't know how we should interpret the word fully but I would say

We might even have a slightly better cost situation in Q3, expense situation in Q3, Q4, or H2 versus H1, definitely. and we strive to continue to manage cross-mortgage in a good way and I think that amount situation will be quite okay in H2. So yeah, quite positive. Okay, understood. You already discussed it a bit now during the call here, but the special deliveries you mentioned in Q1 that were, I believe you said they were partly delayed. Are they kind of back to normal now in Q2? special delivery. Yeah, I might have misinterpreted, but I think you partly said like single use and stuff year over year was a bit challenging, but also I think it was some projects that Deliveries that might have not been delivered at the full extent that you had hoped for in Q1. Single use is still rather weak in Q2. So hopefully better in Q4, but maybe even Q1 next year so that the area will be a little bit still for some time, I think. The inventory situation that those customers are in is definitely much better. At some point now, they definitely need to place new orders to a higher extent.

I think the delays we talked about in Q1 was related to Novo DoDisk. We have a good backlog and we did not deliver that much in Q1 because there were delays from the customer side, basically. That has been much better in Q2 and we expect The levels from quarter two, we will see those also in the second half of the year. It is slightly volatile between quarters. It's not sort of the same amount every month, but the projection is that we will see basically what we saw in Q2 also in the second half of the year.

Understood. And now when there's been a bit more time with the new divisions here, I heard a comment you said about construction in the normal business climate to be at 14% or so.

But when you look at the other divisions, is there anything worth pointing out for these divisions going forward compared to the two? two years that you have disclosed for us to consider? Basically, all of them have growth potential. Obviously, construction and infrastructure are at that low EBITDA level right now. The expectation level is much higher that they should perform better quicker when the market life size is at 18% or even above it's a good level and obviously it's a bit more demanding for them to go from 18 to 2022 but I would say all areas just have the potential to increase and improve and if we then We talked about growth and EBITDA margin improvement. We are extremely set on trying to deliver on our target of 10% growth per year. If we can do that at stable margins where we are now, I think that's quite good. But over time, I think we have ambitions to also improve the EBITDA margin, but it's, as we have said before, it's a bit of a struggle. slower rates and in a fairly normal market situation maybe maybe have a bit of a percent you know over two years or something like that organically, which can be expected. And then it can go quicker if we are successful in terms of acquisition and projects.

So, yeah.

All right. Understood. Thank you.

Thanks.

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

Then again, we say thanks for listening in and being engaged at the call here, and we wish you a great summer. Thanks from us.