Investment AB Latour (publ)

Welcome to the presentation of Investment Regulator's interim report for the first quarter of 2024. The first part of the presentation will be in lesson-only mode, and we then open up for questions. To be able to ask a question, dial star five on your telephone keypad or use the chat window. I will now hand over to CEO Johan Gastonsson and CFO Anders Mörk.

Thank you, Katarina, for that introduction. Johan Jafthansson speaking. I'm here together with Anders Mörk to present our Q1 report for 2024. If we start with the first slide, considering the business climate, a good start of the year for our businesses. The general demand is quite good in many markets that we operate in, but it varies, of course, between regions and industries. A weaker demand for businesses with exposure to construction and real estate markets, of course, but the picture is quite nice. We continue to invest in our companies and put a lot of efforts into our sustainability work. I'd like to highlight that in April, we arranged the fourth Latour Sustainability Day in Gothenburg with more than 140 participants, participating executives. fully owned and listed companies. Very inspiring and a true pleasure to see you all, and this is all a great initiative of progress that's going on in all of our holdings. Sustainability is a very important topic for Natu, for two main reasons. One, because it's the right thing to do. Our morale and with our hearts, we really want to drive the sustainability agenda for future generations to come. Secondly, and that's from an investment point of view, we do not want to own businesses that do not long-term take sustainability seriously. As you can see on this slide, the overall group structure is unchanged. We still have two major business lines with our investment portfolio and our wholly-owned operations. But I would like to highlight that we have a new business area in our wholly-owned operations, which is reported separately as of the second quarter this year. And I will talk more about EnovaLift within brief. If we go to the next slide, it's our listed holdings. Our portfolio is 10 listed companies, as you know. The development of our listed companies that has reported the Q1 also about the same trend. i.e., somewhat lower oil ring tech and FTAs with lower results as a consequence, but from high levels. Clearly very positive underlying growth and profit development over the last years. I think it's important, especially when we are in a downturn in the economy, to look at the long-term trends in our listed companies. We own quality companies who have the ability to grow and win market shares in both booms and recessions. Acquisition-wise, HMS finalized the requisition of Red Lion controls in the U.S. in April. With full support from Latour, we participated in the new share issues with our pro or alpha share, which was part of the acquisition financing of Red Lion. If we go to the, we have the total return of the listed portfolio. And as I said, there's no changes in the portfolio during the quarter. At the end of the quarter, development was 5.4%, and the 6RX had 7.9%. And until yesterday, April 25, the portfolio value was $78.2 billion, with a total return which is about flat compared to the start of the year, whereas 6RX, as of yesterday evening, And we go and then have some comments. I have some comments on our operations. Intake has decreased by a percent during the quarter. Organically, it's minus 3%. I'd like to highlight that the overall demand is still quite good in many markets. It's mainly the operations with exposure to the construction and real estate markets that is most affected by a slowdown. But the picture is mixed. Sweden had a quite good order intake, Demsik a bit lower than before, Hultafors Group is organically lower than last year's high volumes, and Kaljan is starting to see more activities in the pipeline, and the order intake is growing again. Latour Indices and Nordlok Group are developing positively. Net sales has decreased by 4%, organically minus 6%. We are comparing, I think it's very important to highlight, against the record quarter last year with a somewhat boosted and duped net sales when we delivered out on a very, very high order backlog after the supply chain disruptions that we had during 2022, which is when we came out of the pandemic. Also this year, Easter came, as you know, fully in Q1, which was not the case last year. And actually, it means three working days less in March. And March is a very important month normally. So that affects us well. So the quarterly EBIT amounted to 856 milliseconds against 989 last year. And it's affected mainly by the lower volumes. I'm very happy to report that we have a very good cost control and that especially the gross margin is still strong despite the lower volumes. Therefore, we can show an operating margin of strong 14% in the quarter. So considering all of the mentioned aspects of last year's record levels and calendar effects, we are quite pleased with the Q1 results of 2024. And as you all know, those of you that followed that tour and have followed that tour for a long time, also in a downturn in market, we do invest heavily into product development, marketing, and sales going forward. So when the market turns, which it will, we will have a very strong platform to continue our growth journey. And if you look at the next slide, you will see that it's a new slide here. We have the innovative business area. And here I'd like to present an overview to you. And Latour Indices business concept is to long-term develop independent entities to virtually become separate business areas within Latour. And now, once again, Latour Indices is delivering a new business area to Latour. Before, last time it was BEMSIC. Before that it was NordLock. that you know are now two new business areas in Latur. And now for the first time, we have now Innovalist. And Innovalist is now ready to operate as a separate business area starting from the second quarter as of now. And Innovalist is a new division within, it was formed within the Latur industries as a new division as late as Q4 last year. But the companies in the group has been added continuously since 2016, when the Aristo Group was acquired. Turnover in 2016 was 372 million SEK with less than 160 employees. Now it has grown to consist of eight companies with an annual turnover pro forma of 2.6 billion SEK. and with about 850 employees, so a fantastic development during these years, and it's time to stand on your own feet now and further develop this fantastic area going forward. And Andover Lift has platform lifts as its main business and a lift modernization business, like the two main business areas, with key market drivers as accessibility, requirements, cost, and sustainability benefits of modernization of lifts instead of full replacements. So I'm very much looking forward to seeing NOVA LIFT's journey going forward with Andrea Veggen as the CEO and Niklas Nylund as the CFO. So best of luck to both of you and all team members in NOVA LIFT for a fantastic uplifting journey into the future. So if we go into the next slide, we have our acquisitions during 2024. We started this year with pre-tanelized tract fractions quite early in the year. We have the BIOS Tableau to InnovaLift, before mentioned InnovaLift. And BIOS Tableau is the German leading manufacturer of components for elevators manufactures and sells bespoke fixtures for elevated cabins and a broad range of electronic components for lift operators and OEMs, mostly targeting modernization projects. Net sales about 6 million euros. We also acquired Electron and IPAS to BEMSIC. Electron is an Italian provider of the KNX technology and has over 25 years of experience in development of hardware and software devices. for smart buildings, energy efficiency, and hospitality applications. IPAS is a German developer and manufacturer of Kelex and DALI building automation devices. And DALI stands for Digital Addressable Lighting Interface, for those of you that did not know that. Together, Elektronen IPAS has an estimated net sales of Euro 26 million. And finally, we acquired TBL and Condor for the NordLock Group. TBL is a NordLock Group distributor in the western Canada, and Condor is a niche manufacturer of specialized metal components. Together, TBL and Condor has estimated net sales of $7 million Canadian dollars. And lastly, also after the reporting period, Latour Future Solutions entered as minority owner through a new share issue in the Swedish company, Plant. Plant offers climate calculations in property projects and climate declarations for environmental certification of properties. When used, industry stakeholders together can work towards reducing the climate impact of a property. That's a very interesting business to follow going forward. So having said that and done these overall comments and present with the NOVA list. I, with big pleasure, hands over to our CFO Anders Mörs. Over to you, Anders.

Thank you so much, Johan. Thank you for that. And we will start going through the business areas separately then. And we start with BEMSIC as the first business area. We have had a volatile market climate for BEMSIC. The order intake grew by 12%, but this was explained by the acquisition of Electron. So, if we only look on the organic growth, it was minus 5% decrease. So, and as I said, the demand has been somewhat volatile, especially within the metering business. And we think that in the short term, the market climate will be a little bit uncertain, but long term, we know that BEM6 market position is very good and we are in a very positive environment. The total growth in net sale was 15%, but this counted down to an organic decline of 2%. But it should also be said that this is compared to our first quarter last year. That was very, very strong for FEMCIC. So the operating profit came in at 140 million kronas with an operating margin of 22.8. And even though this is lower than last year, we need to point out that the start of 2023 was extremely strong with a margin of 26.9%. We have several ongoing investments in R&D that will lead to a number of product launches during 2024. And all these investments are taken through the profit and loss. And as said before by Johan, there was an acquisition of Electron and EPAS during January this year. So all in all, very well done, Mikael and your team. And we go to the next business area, which then is Tallinn. And we now have seen for a very, very long time that the market condition has been tough, where the customers, the big customers have been very conservative when it comes to capital expenditures. And therefore, the order intake has been and still are on a very low level. And on a lower level than we of course would like it to be in the long term. The pipeline is increasing and the market activities are gradually starting to increase. But as we noted before, the assessment in the short term is that the net sales will continue to be at lower levels in the short term. And as a consequence, net sales then also this quarter was well below corresponding period last year. And this resulted in an operating profit considerably lower than last year with an operating margin of 9.3%. So we think that this can actually not be a surprise to anyone. Kellyanne has conducted a cost-saving program, or rather several cost-saving programs, so it has been a very, very good job carried out by Henrik Olesen and his team. So thank you very much for that in this, yeah, demanding market climate. I think we go to the next business area, which should be Kultafors Group. And also for Hultafoss Group, that has a strong presence in Northern Europe, it has been challenging market condition. So they were hit by a weakening demand, meaning that the net sales for Hultafoss decreased by 9% organically. the weakening demand affects the two hardware divisions tougher than the PPE segment within the group, but in total 9% down. And despite that, The gross margin is strong and contributes to a good profitability together with the effective cost control. And all in all, this resulted in an operating level slightly lower than last year, but with a very good margin of 16.1%. And this actually shows with the tough climate that Hultafoss result is very resilient to a tougher business climate. Very well handled, I must say. And we don't think we are losing market share, and we think we are in a challenging market climate in the Northern Europe, as all know, with the construction markets quite negative at the moment. So all in all, I must say very well done also to Martin and your team. We go to the next business area, which should be Latour Industries. And this quarter then, InnovaList is still a part of Latour Industries. And overall, a very positive development of order intake and organic growth by 2%. Most units are doing well. Net sales grew by 7% in total, which when we look on organic growth corresponds to 4% growth. Profitability is increasing, and the quarter result is outperforming last year with 29%, reaching 94 million with an operating margin of 8.7%. And we have said it before. this business area is building new business areas. And that means they are taking costs for the future and having the potential for higher profitability going forward. So, and now the mission accomplished when it comes to InnovaList, congratulations now to Bjorn and your team for doing that, very good. Okay, let's go to NordLock. Also for NordLock, the order intake came in relatively strong considering the market condition just below the strong corresponding quarter of last year. Also strong with an organic growth of 1%. EBIT was slightly below last year, but this was due to the product mix, and the operating margin came in at 24.8%. And as Johan said before, Nordlok made the acquisition of both PBL and Condor in Canada during the quarter. We should also note that Daniel Westberg has been appointed the new CEO of Nordrot from 1st of August this year, and that Marcus Lundevall, the CEO, is acting as the CEO until then. So very well done, Marcus, and your team, and also very much welcome to Daniel from 1st of August. So we're looking forward to that. Let's go to Svegon, the last business area. The majority of the business units within Svegon are actually performing quite well on order intake, but compared to a very strong last year, the order intake decreased by 3% organically. There is still, of course, a lower demand in the residential business. However, that was quite expected. Net sales shows an organic decrease of 5%. And thanks to a strong gross margin and good cost control, sorry, the EBIT margin came in strongly at 12%. And as a reminder, 2023 was extremely strong in the beginning of the year. So very well done, Andreas and team. And we go to the net asset value. The net asset value increased by 2.8% during the quarter to 204 kronas per share. And the share price at the end of March was 282, which means there was a premium to our net asset value of 38%. Yesterday, the net asset value was 198. which gave a premium of 44% since the share price then was 265. Our consolidated net debt increased during the quarter from 10 to 10.3 billion. Of course, this was explained by the acquisitions that we have made, combined with a relatively stable cash flow for the first three months. And the net debt now corresponds to about 8% of the market value of our investments, leaving a very good headroom for investments going further in the business.

So, Johan, I'll leave it back to you. Thank you, Anders. Excellent presentation of our business areas and net asset value development. We'll go to the next slide. And we have the financial targets. As you know, we changed those last year, and our financial targets is now to grow over a cycle of more than 10%, to have an operating margin of about 15%, and a return on operating capital of about 15%. So during the last 12 months, we had a growth of 5.6%, we had an EBIT margin of 14.5%, and a return on operating capital of 15.7%. This is an outcome that we're very pleased with. Growth is lower than before, but considering the economic climate that we've just, you know, talked about, and also since we have had lower M&A activity during 2014, we haven't added as much acquired growth as we usually do. And this has been a conscious decision from our part to slow down because the year before we had a very high pace in terms of M&A, and now we have integrated that, and I'm pleased to inform that we have a very strong pipeline of potential M&A targets going forward. So we expect to pick up M&A activities during this year. And the EBIT margin is strong, and the return on operating capital is more than satisfying. So once again, I think given the climate, Actually, slightly negative growth in total, still doing 40% in EBIT margin in Q1 in our industrial operations. That shows our resilience and also to Anders point that we continue with heavy investments in R&D and marketing space during this time. That means we have a very, very strong platform when the economy will start to pick up. So we are quite confident, you know, going forward. And if we go to next slide, we have the international growth potential, and that's kind of the next statement. We are a long-term sustainable investment company and a responsible owner creating value long-term for our shareholders. In all of our holdings, we have a strong corporate culture that we cherish and nurture and further develop. which is of great value where we move forward in a quite turbulent global world. We own profitable and stable companies, both in the fully owned and listed side of our business, and we have a strong financial position, which enabled us to continue investing in both existing and new holdings to enable further growth. And then I think the key takeaway of this slide is that you see we have 81% of our who are safe in Europe, 14 in the U.S., and five in Asia. What we want to say with this slide is that the future is bright. The sky is the limit. There's a lot of potential to further grow within our different areas going forward. So the presentation part of the Q1 report from myself and Anders, and then we open up the Q&A session.

Hi, good morning.

I have a couple of questions here. So first, if you could comment on the order book for the industrial operations, was it up or down from Q4? Thanks.

Anders, I hand that to you.

Yeah. Can you give me a minute? I will comment on that. So you can take the second question first because I don't have it in the back of my head.

Okay. Then I'll follow up with a question on . You highlighted somewhat weaker conditions for hardware, and especially North America looks to be down in the high teens here. So if you could elaborate perhaps a bit more on the result here and what visibility you have for the coming quarters, if I remember correctly. The order book is a lot shorter for Hultapors, so it would be interesting to hear how you think about this development going forward. Thank you.

Yeah, I can comment on that. The order intake and the net sales of Hultapors is almost the same number. Of course, orders placed are delivered kind of the day after. So you can see like a perfect correlation between order intake and net sales. There's no delay in the Hultapors. And it's true in Hultafors, we still see very good strong demand in the PTE segment and then the hardware segment somewhat weaker and also a bit more in North America. I think it's quite natural and to the background that we have talked about, a lot of the hard, especially the hardware products are sold into the construction. part of the industry, which is both professional constructions, carpenters and so on, but also for the home builder that has slowed down. So that we are not losing market shares, it's just a weaker market in that sense, and hopefully interest rates will come down and consumer and construction spending and investments will come back in. I hope that gives some light to your question, David.

Yeah, thanks for the clarity there. And lastly, on your new business area in Novalist, it's good to see another business forming out of LaPorte Industries, but perhaps a question on the margin here. Obviously, good development over the past several years, but it's well below your operating target of 15% and maybe also in relation to your other business area. So first, if you could comment a bit on the margin development in Innovalift and how you think about this progression, maybe longer term. And then my second question would be looking at maybe comparable valuation multiples for this business. How do you think about Innovalift maybe in comparison to your other business area? I believe the Average now is 15.5 times and lower for a Latour industry. This is also reflective how we should view this business. Thank you.

If I comment the margin question and maybe Anders, you can take the valuation question. First of all, yes, they have somewhat lower margin than the average for the whole business. Our target is to have an EBIT margin of well above 50% and rest assured the management team and the team members in the business area are very well aware of that. And I would also like to say we would not have formed a new business area if we didn't think it would be possible to lift the margins well above our target levels. If this happens in the next quarters or slightly more into the future, I can't say at this point, but we're very confident that we will obtain and reach very good margins in NovaLift. And then, Anders, I think it's all a good question, and then some comments around the valuation of NovaLift, right?

As you know, David, we haven't disclosed the order book in the report, so maybe we shouldn't comment about the level, but it's more or less unchanged, and it's a slight increase, but it also should be an increase in the order book in the beginning of the year. But it's nothing dramatic. The big dramatic thing about the order book is that it's now normal. And if you compare one year back, that wasn't normal as it looked at that time. And as you know, for the longer lead times that all companies in the industry had last year and also the year before. When it comes to valuation, of course, we cannot say now how we will evaluate Innovalift going forward, but we have tried, of course, before to look into which kind of peers we will use. And the problem not only with InnovaList but also for many of the existing business areas is that the peer groups are not extremely perfect, so to say. So it's difficult to find a good and fitting peer group. But I don't think that you should expect that there should be a big difference in the total of separating between InnovaList and the rest of Latour Industries. So I don't know if that's the answer you're looking for, David, but I think in this context it's also wise to comment about the valuation method that we have. We do not consider that we actually gives the right or the correct value for our net asset value it's only a guiding and it's up to everyone to think about is this average 15.5 as you say relevant or not relevant for businesses that we have in our industrial operations and it's a possibility for anyone to say that it should be 15 or 10 or 20 or 25 or whatever So we only use this to guide for the net asset value in the future, but we do not really think that it is the correct valuation, so to say. And I hope that has been clear over the years.

Yeah, perfectly clear on this. I'll get back into it. Thanks. Thanks.

Thanks, David.

Good morning, Johan. Good morning, Anders, and thanks for taking my questions. I wanted to start off with sort of a high-level question on construction demand. Is there anything you can say about what you see in terms of regional differences, say perhaps between Sweden and the rest of Europe or Northern Europe?

Thank you. Very good question. You could summarize it like this. I would say North America is still quite good demand. Europe weaker. Northern Europe slightly weaker than that. And actually, within Europe, I would say Sweden and Finland are the most depressed in that sense on the construction market. That's a very general note. Having said that, I think we are at the bottom. Right now, we see no declines in the Nordic markets as such. But if you take the whole world market together, it's fairly okay. But I would divide it more or less the way I said, in that sense, in terms of demand on the construction market.

Thanks for that, Kalle. And then I'd like to follow up on Innovalex. Obviously, it's going to be very Exciting to follow a new business area here, and you talk about the prospects of increasing profitability, and I wanted to ask if you could elaborate on the drivers there. I mean, are we talking about sort of stripping out growth investments, or is it more about operating leverage coming through? Any color there would be appreciated. Thank you.

It's mainly finding more synergies, of course, within this group and these companies. It's because of a much higher focus that we will have now with a more focused and dedicated management team. Thirdly, we think there are very nice M&A opportunities to consolidate this market to do with nice margins going forward. And then most importantly, maybe the fourth point is we see very strong long-term macro trends. One is accessibility, we're becoming older, so to speak, and therefore this platform lift operation business would be a very good macro, you know, demand long term. And the other part is the modernization part of lifts, and that's not only platform lifts, but that's any lift, right? also big potential going forward, rather than modernize a lift in a building instead of replacing it. So those, I would say, are the main drivers. So it's the market and it's the demand that should drive this volume that has good profitability, more trilogy within the companies, and very nice M&A opportunities for profitable, nice niche companies that we can potentially acquire going forward.

Thanks. And then one final question on my end. If you could talk a bit more about what's driving the relatively strong water intake in Sveagon, it would be interesting to hear.

Thanks. Yeah, let's elaborate on that. I think, yeah, you could say on one hand, Sveagon is quite exposed to the construction work that we just discussed. On the other hand, Sveagon's products really drive good energy efficiency in the buildings. And it also promotes a very strong indoor climate. And we also see that there is a higher demand and a higher focus on a better indoor climate in buildings, especially after the pandemic. And there is a big focus on energy efficient buildings going forward. So even though Sveagon is exposed to the construction industry, there are very good and strong growth in, you know, the sub-segments within the construction industry.

And just to follow up, if I may, I mean, do you sort of see Svig on taking market share in those sort of sub-segments that you're referring to?

Yes, I would definitely say that Svig takes market share in those sub-segments by, you know, very long-term committed strategic fellow... We identified this long time ago, and it's in the core of the Sveagon brand positioning, and it's always been. So we are really looking forward to the benefits of that in the future.

So, yes. Okay. Thank you very much.

Okay, there are no further questions aligned here, and are there no other written questions?

No written questions on the web.

Okay. Fantastic. Then Anders and I, on behalf of myself and Anders, I'd like to thank you all for listening in, and thank you for the questions, and looking forward to speak with you again on the Q2. So thank you all, and when we come there, I wish you all a fantastic weekend. Thanks.