Investment AB Latour (publ)

Good morning, and welcome to the presentation of Investment Able Approves Year-End Report for 2023. The first part of the presentation will be in listen-only mode, and we then open up for questions. To be able to ask a question, dial star 5 on your telephone keypad or use the chat window. I will now hand over to CEO Johan Jastensson and CFO Anders Schmerz.

Thank you, Katarina. Welcome, everybody, to our Q report earnings call. I'm here together with our CFO, Anders Mørk, as mentioned. Very welcome, everybody. If we start with the first slide, our usual slide that we have, and we'd like to say then that our group structure is unchanged. We had a good end of the year despite the declining economic climate turbulence last year, as you know. Despite that, we had a record high profit for the full year and actually a record high operating margin. Order intake has slowed down somewhat in the last quarters, but mixed picture between geographies and markets. The residential segment has been hit harder in the downturn while the energy efficient sector is growing. We're well prepared to adapt if needed. I would also like to highlight that the energy efficient sector It's an important area for Latour, and we're well positioned within this segment. Our efforts in sustainability continues. We have established for all our holdings, wholly owned and listed companies, to commit to the science-based targets initiative, SPTI, with verified targets. As per today, our wholly owned businesses of size have committed and are now working with target setting. The majority of our listed holding has committed and four or, and three or, verified targets, Asavloid, Fargo, and Securitas. So congratulations to those three. And then if we go on to the next slide, you have a picture of all our 10 holdings, listed holdings. Clearly a very positive underlying growth from profit development in the last 10, you can see. We own quality companies who have the ability to grow and win market shares in both booms and recessions. Our holding development in 2020 has, in general, been good. Some of them very good. The ordering intake has weakened for most of the companies, but the picture is mixed. Net sales and profit development has been positive, and we see that the absolute majority of the companies who have reported up until today have proposed increased dividends. Acquisition has been a very active year. For example, we can mention that has analyzed acquisition of hardware and home improvement and also conducted a high level of add-on acquisitions during last year. HMS has signed an agreement to acquire Red Lion Controls in the U.S. with full support from Latour, and we will participate in the new share issues during 2024, which is part of the financing for the aforementioned . And if we go to the next slide, total reserve for the portfolio, we have increased our what has changed since we talked last time. We have increased our holdings in during the quarter, from 41.6% to 33% of the shares in the company. Apart from that, no changes in our listed portfolio. Top market ended strongly after a very volatile year. During the year, the investment portfolio value has increased to 78.8 billion SEK, an increase of 23.9%, whereas the 6RX increased 19.2%. Until Friday of last week, the portfolio value was 73.6 billion sacks, with a total return so far this year of minus 6.7, where the six dollars is minus 1.4. And if we go over, next slide, and we talk about our wholly owned operations. The wholly owned operations ended the year in a solid manner, despite the economic slowdown. Order intake has decreased in the last quarter. However, we had organic growth in the last quarter, partly given by a few large orders three times. We have set the customer purchase behavior. It's now normalized to a large extent. Our operations targeting the rest of the segment has noticed a decline in demand. Also, Kalyan's order intake has been on a lower level since a year and a half. which is the normalization effect, very strong water intake during the pandemic years of 21 and 22. However, demand for example, energy efficient products is developing. Our whole yield operations are spread over different markets and geographies, all of them not affected by a slowdown at the same time. Looking at the industrial operations as a whole, water intake in the quarter increased by 11%. organic 5% and net sales increased by 1% organic compared to a very strong last quarter of 2022. Quarterly yielded results amounted to $8.56 million, a decline of 8% compared to a record quarter last year with higher volumes, and margins amounted to 14.2%. Full year, our businesses have good cost control. On the whole year, our businesses have good cost control, protects the profit in an effective manner, changing environment. We have delivered on the very high order book that we ended the year with last year. Total growth for order intake was 5% and 13%. Operating profit total growth of 19%. to 3,807,000,000 SEK, and the EBIT mark was 14.9% for the full year. And lastly, we had a very strong cash flow generation amounting to 4.7 billion SEK last year. So in summary, it's a very strong result and yet another record year, and we are very happy and proud of this result on behalf of all team members in Latour. And if we talk a bit about acquisitions, going into the next slide. After many acquisitions during 21 and 22, we lowered the tempo. Activities are still ongoing throughout the year with a good pace, and we started 2024 with three finalized transactions. In 2023, we are going to acquire Dallaire in January, and Latour Future Solutions invested in Quantify in July. This year, 24 in January, B.S. Tableau was acquired to Latour Industries. B.S. Tableau is the German manufacturer of components for elevators, manufacturers of self-disposed fixtures for elevator cabins and a broad range of electronic components for lift operators and OEMs. OEMs mostly targeting modernization projects. Net sales is around 6 million euros. And also in January, we acquired Electron and EPAS to Bemstick. Electron is an Italian pioneer within the KNX technology and has over 25 years of experience in the development of hardware software devices for smart buildings, energy efficiency, and hospitality applications. IFAS is a German developer and manufacturer of KNX and DALI building automation devices. Together, Electro and IFAS has an estimated net sales, yearly net sales of Euro 26 million. And lastly, we acquired PDL and Condor to the NordLock Group. PDL is a NordLock distributor in the Western Canada, and Condor is a niche manufacturer of specialized components. Together, PBL and Ponder has an estimated net sales of 7 million Canadian dollars. Having said that, I would like to hand over to Anders. So over to you. Thank you.

Thank you so much, Johan, and it's a pleasure to speak about all of our business areas. We start with BEMSIC on the first picture. And for BEMSIC, the order intake was slightly weak compared to the very strong previous quarters. And then with weaker, we mean it was only growing organically by 6%, whereas the full year had organic growth of 10%. The total growth in net sales was 6%, and that, however, was an organic decline for the quarter with minus 7%. So it was a little bit deep in net sales, but very good order intake. BAMSIC have ongoing investments in R&D leading to several product launches in 2024, and this will have a slightly negative effect on the margin, but only in the short run. The operating result was as an outcome of a little bit lower sales, 55 million for the quarter, and at the record level then for this whole year. And as Johan said, we made two acquisitions, or rather one in bringing two companies to us in January. In the short term, the market climate is a little bit uncertain, but in the long term, it's in a positive market sentiment. So very well done, Mikael and team, for the achievements during 2023. Let's go to the next business area, which is Kalyan. And as you can see, in the five-year shot, the business is now double the size than in 2020. This is more or less all because of organic growth. But as you also know, we have concluded for quite many quarters now that the water intake has been on a low level. But the growth that came before this should be in hindsight when we think about this. Customers overall for Italian has been more conservative when it comes to capital expenditures, and therefore their order intake is on a lower level. Market activities are gradually starting to increase, but as we noted before, the assessment is that net sales will continue to decrease in the short term. Net sales in the quarter was well below corresponding period last year, but still on a quite decent level, considerably higher than the present order intake. However, the lower volumes resulted in an operating profit lower than last year. Kalyan has conducted a cost-saving program to decrease fixed costs and has closed down the production facility in Denmark to consolidate the capacity for Latvia and the US instead. The full-year profit for Kalyan is the second highest so far in Kalyan's history and a good operating margin of 17.9%. Thank you very much, Henrik and team, for taking care of this situation in a very professional manner. And we go to the next business area, which is Hultafors Group. Slightly weaker development during the quarter for Hultafors, but you should bear in mind that the fourth quarter in 2022, in very many ways, was a record quarter. So the business unit personal protective equipment within Hultapås is developing very, very strong, but slightly weaker number than for the other business areas. And we also see a bit more volatility in the demand from month to month. And this is very typical for Hultapås when the business climate is a little bit more uncertain. The gross margins have been strong and contributes to a very good profitability to go together with effective cost management. So the result then for Hultapås was a little bit lower but still on a strong level for the quarter at 307 million Swedish krona. Full year has been very positive with record EBIT amounting to 1.1 billion Swedish Kronos. Very, very good. Very well done, Martin and team. And we go to the next business area, which then is Latour Industries. Here we have a mixed picture regarding order intake between the business units, but overall on a quite good level with organic growth. The market is, however, a bit hesitant, and order intake also here quite volatile between the months. Net sales grew by 7% in total and 3% organically. But as said, then with a very different picture for the different business units. Earnings and profitability as a whole is developing in the right direction and operating profit grew by 34% to 95 million SEK with an operating margin of 8.2%. And then, as you can see in the heading for this picture, this business area are building the basis for future business areas. And this means that the profitability has good prospects to grow even stronger going forward. And you can see in the five year shot that that is true as well. During the quarter, the Lyft-related companies, together with the recently acquired BAS Tableau that was acquired in January, now has formed a business unit called InnovaLyft. We're really looking forward to that going forward. All in all, very well done, Björn and your team, and also summing up to Latour Industries' best year ever. Very, very good. We go to the next business area, which is Nordlok, and the order intake is just below corresponding quarter last year, which at that point was a record high quarter. The sales, net sales, showed strong organic growth of 13%, all regions and segments then contributing positively. These high volumes are contributing to the best quarter for Nordlok ever, so the best fourth quarter, sorry for that, with an EBIT of 98 million Swedish krona, despite the negative effects from restructuring costs of about 8 million Swedish kronas. And also the full year was the best year ever for Nordlok. And in January, then Nordic Megavis acquisitions in Canada that Johan mentioned before. So very, very well done, Fredrik and your team. And also many thanks to you, Fredrik, now that you have decided to leave us for new challenges outside Latour. And you should remember, we will always be here for you. So let's go to Svegon, the last business area. Svegon had a very strong order intake that grew by 14% in the quarter, which of course is very positive. It was partly driven by a few large orders, but also with a good demand within commercial buildings overall. Sweden and the Nordics are still hit by the lower demand within the residential sector. We see relatively strong demand within sustainable solutions, HVAC systems, cooling and heating systems, service. Net sales for the quarter was organically lower than last year. And as you know, the corresponding period last year was boasted after the recovery that we had from when we had major disruptions in the supply chain during the summer 2022. And this then explaining the lower EBIT level this year compared to last year. Full year for Svegon was very, very strong, growing by 25% and with an EBIT margin of 12.8%, summing up to yet another record year. So very well done, Andreas and team, and summing up, very well done everyone in the business areas. We turn to the next page, Katarina, and we see the net asset value growing during the year by 27.5 year to 198 kronas per share. And this then could be compared to the index that grew by 19.2%. This means when we compare with the share price at December, that was 263 kronas. Sorry, my computer went down, so I lost my picture. I hope you can hear me. So I will speak without picture. Sorry for that. Yeah, we have a premium then when we compare the share price to the net asset value of 33%. And on this Friday last week, we also measured the net asset value. It had decreased a bit to 196, and the share price at the same day closed at 270, which then was a premium to the net asset value of about 42%. Also, I should mention the net debt, which decreased during the quarter from 11.7 billion Swedish krona to 10, a very large decrease. And this was because of a very, very strong operation of cash flow in the period. and partly also because strengthening of the Swedish krona that reduced our debt a little bit. So very good development on the net that now corresponds to about 7% of our investments leaving a pretty nice headroom for further acquisitions. Now Johan, I will leave back to you.

Thank you, Anders. Excellent presentation. Thanks a lot. So we go over to our financial targets. And as you know, fairly recently, we changed and increased our financial targets. So in summary, the targets are to be growing more than 10% per year, having an operating margin of about 15%, and the return on operating capital of about 15%. So during the last month, which is last year, our growth was 13%. The EBIT margin was 14.9%, and the return on operating capital was 16%. So a very strong performance, and we're very happy to that. 0.1 percentage points left for the operating margin targets. And then if we go back to our dividend slide, The good development and our strong financial position gives us the possibility to increase our dividend again to 4.10 kronor per share, which is an increase of 11%, and this is proposed by the Board of Directors. And the proposal is aligned with the dividend policy, and as you can see on the chart, We have a very strong history in increased dividends, and we hope that shall continue going forward. And lastly, on the last slide, overall, as a summary, I'd like to say it was a very strong year for Latour, both in the listed and wholly owned operations. And Latour is a long-term sustainable investment company and a responsible owner, creating value for our shareholders. We own profitable companies, and we have a strong financial position, which will enable us to continue investing in both existing and new holdings to enable things to grow. We have an ambition to grow both organically acquisitions, but a large portion of the potential still remains. As you can see on this map, we have 80% of our operations in Europe, only 14 in America. So ample and large room to grow, lots of possibilities going forward. Having said that, that's the last slide and the last part of the listen-only mode. And now Anders and myself, we're open to take questions from you. Thanks.

Hi, good morning. I have three questions. First, could you comment a bit on the water intake, which to me looks quite strong here, actually? To what extent would you say this is driven by a larger type of projects, or should we view this more as a broad-based recovery now? And if you have any view looking at 2024, I'll leave it there for my first question.

Okay, thanks, David. I just... I think, yeah, we're also happy that strong border intake, to underline your point, in the quarter. It's to some extent some fairly large orders that we got in the quarter, but I think it's also, and nobody will know, right, but hopefully, I mean, we are in a downturn. We are in a recession. That's clear, but hopefully it will be a fairly soft landing going forward. But I'm not a macro economist, so that macro view. But hopefully there's a soft landing coming in. I think one can think maybe the next one or two quarters will be a little bit more. And then if you're optimistic, 4.3, 4.4 should be better. But there's also some geographic effects into this. You see North America is fairly strong. And you see Europe is fairly okay, but a little bit less strong than Europe. And Northern Europe may be a little bit weaker. And actually, Sweden is one of the weaker countries. And as you can see from our numbers, a very large portion of our sales and order intake is outside Sweden in that sense. And also to underline again, that as I said in the report, yes, Latour has many of our businesses are fairly related to the building sector. I would say the building sector is more depressed in Sweden than elsewhere, to my earlier comment. And secondly, as we have highlighted, we are very well positioned in the energy-efficient sector within the building sector. For instance, with Fagerhund's energy-efficient lighting, Sveagol's very energy-efficient ventilation products, BEV6 room controllers for building automation and saving energy in buildings, so And that's a growing segment within the building sector. So very long answer to an important and short question.

I appreciate the clarity there. And my second question on Sveagon, I think circling back to your comments on volumes and maybe tougher comparative figures. Could you talk a bit on the growth drivers here, looking at orders, and do you think it will be enough for sales to grow now in 24? And also, if you could break down the volume impact on margins here in the quarter as well, that would be helpful. Thanks.

Yeah, but I can't do all of your jobs, David, right? Okay. All right. You have to analyze a little bit. I think, as I said earlier, I think, I don't think we should be more specific for companies, but my earlier comments on order intake still holds, and they're very valid for Sveagon as well. I think we can say that.

No, I just can't say that. You know that we have had these comments about normalization before, and you know also that, for example, the third quarter was weak on order intake, and we tried to explain at that point that the normalization is not over yet. And now we say that the normalization are more or less true. And so the order intake that we will see going forward now will be more of a true picture. But we still had some normalizations effects in the fourth quarter. And that said, that would mean that the order intake was quite good in the, also in the fourth quarter if we reduce the, one off, so to say. And of course, when it comes to margins, as you ask about, that will be a mixed effect also going forward. But you never know. We don't look for one quarter ahead. We look for many, many years ahead when we are going forward. And we see that we have a good position for long-term, very profitable growth.

Thank you for that, Anders. And the last one from me on Kalyan. I think you said in the report that activity looks better now with quite hefty growth on orders compared to previous quarters at least. Does this mean that these types of bigger projects will increase now from customer in 24? And also struggling a bit with the margin here. Would you say a Q4 now is at a more normalized level? And do you think 17, 18% margin is possible now looking at the full year, given your current pipeline? Thank you.

Thank you, David. I can take that, and then you can add, Anders, if you want, I think. Remember, during the pandemic, I mean, Kalyan sells automation equipment to the logistic sector, right? During the pandemic, when... e-commerce grew through the roof. Kaljarna actually increased its order intake and sales by about 100%, fully organic. That's quite a lot to handle. And then when the pandemic went over, as you know, e-commerce normalized and came down, and then also investments into logistics centers and so on. On top of that, these investments are capital investments, And that's the first thing you do. You stop capital investments in a downturn. But we see it in some months back. We see early signs that this is reversing. And that's the big logistic companies need to start investing again in their logistic centers. So hopefully, bottom out on the order intake at this level. And it should increase throughout the year. And when it comes to operating margins, I think It should be considerably higher than those that are reported when we have a more normalized order intake in Tanya. I don't want to be more specific than that, but they should be better than the ones you see now.

Yes. Thank you for that, those were my questions. Thank you, David.

Thank you, Johan and Anders, and good morning. So I'd like to start off with a question on M&A. You say that you end the year with a good M&A pipeline. Is it fair to assume that this commentary holds true also after the acquisitions you've made now in the start of the year? And also, should we expect more sort of continued bolt-on type acquisitions rather than larger transactions as we go further into the year? Thank you.

Thank you, Linus. Great questions. So despite the three acquisitions were actually five companies in free transactions that we did in January, that does not mean that our M&A pipeline is depleted in any way. We have a strong and good pipeline going forward. And to your second question, yes, you will see Bolton acquisitions, but you may also see new platform investments or larger acquisitions. on top of that. So we don't exclude the one for the other. And to end on this point, we have a good firepower, so to speak, in our balance sheet and can have a very active M&A agenda going forward. And we have released our organization to have a stronger and more active M&A agenda going forward. Deliberately, it was slower last year because we suggested that we integrate some 22 companies that were acquired in 21 and 22. So it was all in control and we had a slower pace. And we also think pricing and valuation on companies is more realistic now and going forward.

Yeah. Thank you, Deva. Understood. Thank you for those clarifications. And then secondly, so cost inflation seems to have come through more than it did at the start of 23. Would you agree on that analysis, and are there any details you can give on what's driving that? Thank you.

Yeah, cost inflation is coming through. We've also been very good in driving our price management, and you would see that growth in most of our operations and businesses, and it's to a large extent because of good cost control, but also because of good price management. The weaker EBITS result in percentages is, I would say, is attributable mainly to lower volume in Q4, and therefore less fixed costs in Q4. Do you want to add, Anders?

Yeah.

No, it's correct, lower volumes, specifically for some of our companies were boasted in the end of 2022. Great.

Thanks. Those are my questions. Thank you, Linus.

Thank you, Linus. And we do not have any questions on the chat, Johan.

No. Okay. Then I think we are complete with our Q&A session. And thank you, everybody, for listening in. And hopefully I will speak to you all and listen to your questions in our Q&A report coming up later this year. So over and out. And thanks a lot from Anders and Max.