Indutrade AB (publ)

Welcome and good morning on our behalf as well. As usual, let's start with this quarter's highlights. We had stable order intake. The growth was 4% in total and 2% organically. And four out of five business areas had organic order intake growth. The strongest demand for companies in the process industry and in the energy sector. Net sales increased 2% in total. Organically it was flat versus last year. EBITDA margin was stable and at the high level 14.8%. We continued with inventory reductions in the quarter and we also had a strong cash flow. One acquisition completed in Q3, one so far in Q4 and 13 in total 2024 and a continued strong pipeline. And I will elaborate more on all these points in the presentation here. So if we start with the order intake and the sales situation, as I said, order intake plus 4% and sales plus 2% in total. And this was supported by a good acquisition pace and acquisition impacted with plus 5%, both in order intake and sales. Organically, order intake grew 2%, and for the sales, it was flat. And we should also note that we had one more working day in the quarter versus Q3 last year. Book-to-bill was below one in the quarter, partly because of seasonal variations. We usually start the year in quarter one with a really good book-to-bill and quarter three, it can be a little bit weaker, but the ratio this quarter was above last year's level. Four out of five business areas and more than half of the companies had positive organic or green take growth. But as usual, there were large variations between companies, segments and countries. And companies with customers more broadly in the process industry and the energy sector had the strongest demand, whilst the business climate in the infrastructure and construction and also parts of the engineering customer segments remained more dampened. And I will comment a bit more on all these points when we talk about the business areas. If we look at sales in a market country perspective, as it has been for some while, the strongest development was in the Nordic with the highest sales growth in Denmark. And as we have had it for some quarters, the growth in Denmark mainly related to pharma production and deliveries to Novo Nordisk. Aggregated slightly lower growth in general. We have also commented on this. Quite a lot of base industry CapEx driven sort of business in Finland and that's a bit weaker now. The decline in the UK Ireland mainly relates to weaker sales within the construction segment in the UK. And we also had strong pharma customer references on Ireland. In central parts of Europe, the general business climate continues to be dampened. I would say Germany is the driver in terms of a weaker business situation there and broadly the automotive sector. And sales to North America and Asia is slightly volatile and the development can fluctuate with single projects since these areas are rather small for us. And this year so far more activities and projects noted primarily from US customers. In terms of profitability, EBITDA margin was stable and high at 14.8%. But lower than the 15.2% we had the same period last year. Organic sales development in combination with slightly higher expenses are the main drivers of the EBITDA margin decline. The gross margin was slightly better than last year if we exclude some one-off items and acquisitions and divestments were margin accretive. All in all, EBITDA decreased within total 1% compared to last year, where of 4% organically and acquisitions and divestments did however have a positive effect of plus 6%. If we then turn to the business areas on an aggregated level, almost half of the companies showed organic sales growth in the quarter. Business area life science had the strongest development, mainly driven by sales of diabetes related products in the Nordics. And as mentioned previously, production equipment in Denmark. Stable and high sales for process energy and water with good contribution from for instance the energy sector but also the marine sector. Again partly offset by weaker market situation in Finland. The slightly dampened market climate continues to impact business area, industrial engineering and also infrastructure and construction. If we talk about industrial and engineering I would say it's broadly linked to the automotive sector and companies with direct and indirect business relationship to this sector. This can for example be cutting tools or production equipment related. It's mostly demanding in Germany I would say but also other countries around Germany. Offsetting positively is the automotive aftermarket, which develops well for those companies involved in that sector. And if we take infrastructure and construction, I would say it's sequentially rather flat and it's not getting worse, rather expecting positive improvements at some point next year. And this is obviously linked to expected lower interest rates and the more positive investment climate in that area. The organic sales development in technology and system solutions is mainly explained by strong references in a few companies. During Q3 last year, some companies had exceptionally high sales growth. For example, in the marine segment driven by regulatory requirements for shipping vessels, as well as strong growth within leak detection for hydrogen tanks. As mentioned earlier the organic sales development and slightly higher expenses was the main driver of the EBITDA margin decline. The gross margin continued on a good level and the margin in industrial engineering and process energy and water was basically in line with the same period last year. Infrastructure and construction had positive contributions from acquisitions and divestments which supported their margin improvement. And the margin in life science was record high in Q3 last year, presenting a challenging reference for this year, driven, for instance, by strong sales in the single use area. This year, we had a less favorable product mix in the sales and also some one offs impacting the result. The margin decline in business area, technology and system solutions was mainly connected to lower sales in combination with a slightly increased expense level. I would say in general, The companies are working with their cost situations and in general our companies are as you know entrepreneurial, opportunity driven and a bit hesitant to reduce cost too quickly if they see that their activity levels will generate growth in a medium term. It's also in general difficult to find really good people. I would say a logic hesitation to lay off people because of that. But there are absolutely some companies working with cost reductions and this will have effect already in Q4. If we then look at acquisitions it's been a high pace in general so far in 2024. We have been able to acquire 13 well-managed companies and the combined annual sales account for a bit more than 1.2 billion SEK. If we look at this geographically 60% Nordic companies and 40% outside the Nordics. In Q4 we have welcomed one company so far, but I would say that the pipeline is still very strong and we have a number of projects in different phases ongoing. So you can expect that we will be able to conclude some further acquisitions already this year and hopefully a good start of 2025. When we look at our acquisition track record we usually say that it's good to have a longer time period perspective on this and as I said so far in 2024 good contributions in Q2 and Q3 following a weaker Q1. Regarding the financial effects, the bridge effects from acquisitions over the last 12 months have added close to 60 million SEK to the group's EBITDA in the quarter, corresponding to an EBITDA margin of around 16%. By that I leave the word over to you, Patrik, to comment more on the financials.

Thank you, Bo. Let's dive into the details. So total growth in orders and sales for the quarter was 4% and 2% respectively. Year-to-date orders have increased by 3% and sales are 1% higher than last year. Book-to-bill ratio in the quarter was 95 and is 99, almost on the same level as year-to-date. said earlier Q3 is normally a seasonally weaker book to bill quarter. As also then mentioned earlier, we had some one offs impacted the gross margin. So excluding these one offs, the gross margin was actually slightly better than quarter three last year. And if you look at the year to date, the gross margin shows a small improvement. EBITDA decreased with 1% in the quarter, mainly due to soft organic sales development and slightly higher expenses. And if we elaborate on the expenses slightly more, They are slightly higher than last year, but if you look at the sequential development during this year, it is flat or even slightly declining, I would say. So I think the trend is on the right path, so to say. And coming back to the EBITDA development year to date, we are 4% behind last year. On the margin side, we came in at 14.8 compared to 15.2, slightly lower than last year. And behind the scenes, we had some one-offs in the quarter, primarily connected to earn-outs and write-downs, but the net effect was close to zero. And accumulated, we are on 40.3 versus 15.1 last year. Continuing down in the P&L, the finance net increased with 7% in the quarter and 12% year to date, driven by the higher interest rates. Tax costs were actually down 21% for the quarter, resulting in a relatively low tax rate of around 20%. And this This comes from the tax treatment of the different one-offs we have. So the lower tax rate is temporary during this quarter. Year-to-date tax cost is decreased with 14%. Earnings per share increased with 3% in the quarter, but is down 7% accumulated. And we will look at the trend on a coming slide. Return on capital employed amounted to 90%, slightly lower than our target level due to the flat earnings development. We had the last couple of quarters, but continued high acquisition activity. Cash flow remains strong, I would say, at around 1 billion for the quarter, but it's slightly weaker compared to last year, when we had a lot of the release of working capital. The accumulated operational cash flow for the quarter, for the full year, was 2.5 billion, down 15%. percent compared to last year. And lastly then the net debt to EBITDA ratio improved slightly to 1.6 versus 1.7 last year. And then elaborating some more on the cash flow and it is as I said slightly more than 1 billion in the quarter and that's lower than last year and but still at a good level and actually the second highest Q3 ever. And the decrease, as I said, we had a lot of working capital release last year, and we have that also this year, but not to the same extent. And if you dive into the inventories, those continue to decline organically also during this year and this quarter, so that is good. And I think also if you zoom out, I think it's important then to emphasize and highlight that we have capitalized companies and we normally have strong underlying cash flow, which is normally seen in a good cash conversion, as you can see then in this slide. And we're right now trending on a rolling four-quarter basis at 130% compared to net profit less capex. And in terms of working capital efficiency, the lower organic sales development is, of course, creating some headwinds, but the metric improved slightly during the quarter compared to last year. But we are pushing on this, and we continue to work with it in a structured way going forward. Moving to the EPS, earnings per share for the quarter, it came in at 1.92, an increase of 3% versus last year. And earnings before taxes was slightly lower than last year, so the increase comes from the lower tax rate I talked about due to these one offs in the quarter. If we zoom out and look at the longer perspective, longer term perspective, the growth, the three year growth average and the five year growth average is 10% and 13% respectively. Lastly then, looking at the net debt and the financial position development. And as a consequence, as an effect of the strong cash flow we have, net debt decreased both sequentially and compared to the same period last year to around 8.8 billion. And looking at the ratios, net debt equity was low, 56%. 66% last year. And the net EBITDA, as I said, 1.6 versus 1.7. And if you exclude earnouts, which we of course include in the official measurement, if you exclude them, it was 1.4 versus 1.5. So in summary, despite continuing to push on with high acquisition pace, our debt ratios are well balanced and a strong financial position. Then I leave back over to you Bo.

Thank you. Some comments on the organization. As you know we launched a new organization from the beginning of the year. The reason for this is that we want to proactively scale the group and we introduced five new business areas but more importantly we also introduced a new layer in the organization of approximately 30 business segments and we appointed 30 business segment leaders. And these persons now drive clusters of five, ten companies and they were all internally sort of promoted into these roles so they know our values well, our culture well and the business sort of logic we use in a really good way. And they can now work a little bit closer to the companies and proactively support them organically and also actively work with the acquisition agendas in these 30 respective segments. So I think. medium term long term this will drive both organic growth and and definitely also acquisition growth of internally generated projects and also drive learning better knowledge sharing between companies and I think we will also be better sort of owners board members in our companies with more specific sort of segment market specific knowledge So we are very optimistic and positive about this organizational change. So by that, let's summarize the quarters and focus on the key takeaways here. So we had organic order growth and stable high profitability. We have a solid financial position and a strong cash flow. We have completed 13 acquisitions so far in 2024 with annual sales of a bit more than 1.2 billion SEK and we have a really good inflow of acquisition projects and are in a number of projects in different stages. There is some uncertainty in the general business climate but we have a diversified Business structure and entrepreneurial agile companies and this together will provide resilience. And the business segment structure implemented to improve the capability to grow both organically and through acquisitions. So all in all good conditions for further sustainable profitable growth and the competitive value creation going forward. So by that we end the formal presentation.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Carl Ragnestam from Nordea. Please go ahead.

Good morning. It's Carl here from Nordea. Just on the gross margin, you said that you had an inventory right down there of a couple of tens of basis points. Is it due to product obsolescence, or what is it due to? And also, do you expect it to continue over the coming one, two quarters as well?

I think it's a bit linked to that we have reorganized and we have some new, as I said... segment leaders, chairpersons in our companies and some fresh new eyes on these businesses and it's quite usual then that they detect certain things and in some cases now there are some inventory obsolescence which we have discussed and now decided to sort of deal with. It's more a one-time situation linked to the reorganization, new perspectives and should not sort of expect that this will sort of continue quarter by quarter going forward.

And what segment is it mainly related to? I mean obviously I can see when I look at it the technology system solutions there you have a pretty broad big organic drop there. Is it the main effect or is it in other segments as well?

Carl, these one offs we actually put them together and took them on the central level so the one offs are not impacting the business area performance.

So coming back then to technology and system solutions. I mean with organic drop of 16% you mentioned elevated cost you also talked about the cost reductions coming into effect in Q4 are they I guess they are partly linked together or how should we you could explain a little bit what you're doing on cost and also the magnitude and the ramp of the cost savings?

All activities are linked to individual companies and not sort of general. So it's difficult to convey a business area sort of answer for you in this. So within that business area, there are companies which are doing really well have positive order intake and growing and there are some who are more struggling linked to a difficult business climate and they deal with their cost situation individually so I can't give you any sort of numbers which are relevant for the business area in that perspective unfortunately okay fair enough

Looking at the order pace, fairly good, especially in this type of market. Have you experienced any variations in the order intake during the quarter? How do you see the general situation here from an order point of view?

I cannot say that it was much stronger in the beginning of the quarter and much weaker at the end of the quarter. I think the numbers reflect the quarter in general in a quite okay way. sequentially maybe it's the industrial engineering area automotive Germany which is a little bit more challenging. But our exposure is not really big there either. But apart from that, I don't expect any really significant sequential sort of differences between Q4 and Q3.

Okay, fair enough. And the final one from my side is looking at M&A, as you said, 1.2 billion worth of acquisitions, 13 companies. it is still even though it's a good pace it's still a bit below at least your former targets right or ambitions to reach with the pipeline you have you talked about a good pipeline in this in in q4 perhaps also in q125 but do you think you'll manage to stay within your historical range of the ambition of number of quiet companies here and

Yeah, what we have said the last couple of years is when we had eight business areas, we have said that we will do 16 to 24 acquisitions per year. And I think this year we will be within that range. Medium term in a couple of years, we hope to be able to go up towards 30 acquisitions per year, which is more linked to one acquisition per year. for these segments we have now introduced. But that's a couple of years in front of us, not sort of really short term. It takes some time to build that pipeline. So I'm quite happy with the number of acquisitions, the general size. on average is a little bit small this year. So that adds up to as I said a little bit more right now than 1.2 billion. So that could have been a little bit more. So number of acquisitions quite okay. Size of the acquisitions a little bit on the smaller side perhaps. But I think we are in the scope we have spoken about. However, perhaps in the lower part of the scope. But it's anyway, I would say in general, a quite positive climate.

Okay, very clear. That's all for me. Thank you.

Thank you.

The next question comes from Mats Lis from Kepler-Tjuvriax. Please go ahead.

Yeah, hi. Thank you for taking my question, a couple of them. Looking at the, coming back to the acquisition strategy that you sort of upgraded this year, I just had a sort of easy one, I guess. In which segment do you see more opportunities, or could it be a sort of, give some more color on that?

Yeah. It's actually much in all the five business areas opportunities and nothing really stands out dramatically between the five areas. Obviously we are a little bit perhaps more reluctant to heavily go into the infrastructure and construction area right now because the market is a little bit weaker there. Otherwise, I would say all areas have, you know, these are small companies, 10, 15 million, 20 million euros in sales. So we're looking for these jewels, niche companies, and they can be found in all these areas. It's not either so that we want to fish where everyone else is fishing and the price levels tend to increase dramatically. So we are looking for a little bit more hidden jewels. However, having said that, we have quite deliberately built a life science portfolio in the last five years, which is quite sizable now, and that's an area we appreciate, because it's less cyclical, good profitability in general in the sector and so on and so forth. process energy and water we have a really strong market position on an aggregate level in that area so that's also obviously something we appreciate but Also within industrial and engineering, for example, they have the DNA of Indutrade in terms of products with a very recurring purchasing patterns, like filters in an industrial system, for example. So there are also good opportunities in that area. And technology and system solutions, sensors and measurement technology are also a good area for us. Long answer Mats, but quite broad actually.

You have raised the target now in the mid to

longer term to 30 targets a year or acquisitions is it in the in the same fishing area or upon that you are looking at more yeah no it's linked to these 30 segments and that we hope for more internally generated projects than relying on brokers so all these 30 business segment leaders have the task now to build an acquisition agenda and It's usually so that they might have companies in five European markets just as an example and then it would be in five markets where they have sort of white spots and then the task for them is to see what type of companies are there in that particular segment which would fit the Indutrade scope so they can work both desktop and with business relations to identify these potential companies and start to contact them and build relationships and eventually hopefully acquire some of them. So that's the plan.

And it's in Europe, I guess. Is it still sort of the Nordic and Central Europe?

We have started to discuss North America, but we haven't launched any sort of major initiative linked to that yet. But perhaps down the line that... could be interesting for us. But right now we are from the Nordics down to the northern part of Italy, I would say. Great.

And just to follow up there, gross margin and inventory correction, I guess, that affected you. Did I hear you right that the gross margin would be slightly higher adjusting for that correction?

Yeah. So without one of us, it would be above the 34.8, which we had last year.

Okay, great. Thank you very much.

Thanks, Mats.

As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. The next question comes from Carl Bockvist from ABG Sundal Collier. Please go ahead.

Thank you, good morning. Just one apologies I was a bit late in here but when I look at the report and we consider the four million in non-recurring items, the positive effect of re-measurements and then the negative effect of the restructuring costs and so on I get that the net impact is still a positive plus eight or am I missing something just in terms of when you think about saying excluding something would have been higher, or are we only talking about the gross margin impact?

The net effect is the 4 million. I think last year, I think we had around two or three million. So the bridge effect is basically zero.

Understood, understood. Okay, so it's 112 versus 108, so net four. Okay. Then again, sorry if you talked about it, but in terms of lead times and cycles across the divisions here, when you talk about construction, technology, et cetera, et cetera, are there any of these segments where you feel that if we do see signs of activity improving, these segments will be the ones that pick up first? And of course, you already have some divisions such as life science and so on that already performs well.

I would say life science and process, energy and water are performing well and no sort of big sort of pickup linked to a better macroeconomic situation perhaps. It's infrastructure and construction which have performed the weakest for some quarters now, as you know, and they would obviously benefit from a better higher start of construction projects now at some point hopefully than in 2025. And if you look at the products they supply, it's not really too much CapEx oriented. It's more tools and equipments which are used at the construction site. So I think they can have a fairly quick uptake when the projects start in a bigger scale or larger scale.

Understood. And then I realize you might not want to go into details here in terms of numbers, but just in general, the pricing environment, how do you feel that's progressing overall? And is it still possible to have a positive contribution from price mix for the group as a whole?

I think the companies in general work mostly with defending their gross margins and if they can do a bit better. I mean we have introduced value-based pricing since some years back and they think in those terms and if you have a bit of a unique offering and so on you obviously try to take advantage of that. But I think it's mostly now to defend good gross margin levels and perhaps do something small on pricing rather than expect any significant pricing steps.

All right. Understood. That's all for me. Thank you.

Thank you.

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

Then we thank you all for listening in and wish you a continued good day.