Investment AB Latour (publ)

Good morning and welcome to the presentation of Investment Dabilator's interim report for the second quarter 2024. 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. And I will now hand over to our CEO Johan Jattonsson and CFO Anders Mörk.

Thank you, Katarina. I'm here together with Anders Mörk, our CFO. Welcome to the Q2 quarterly presentation. We start with the first slide, Katarina. The overall group structure is unchanged compared to last time we spoke. We had a good second quarter despite the weak business climate. Order intake is growing again organically. We actually had plus five percent organic growth in the quarter, which I think is quite strong given the economic business climate we're in. While SNET sales were slightly below last year's high volumes with a slightly lower result as a consequence. The general demand is still quite good in many markets that we operate on. But it varies between regions and industries. A weaker demand for businesses with exposure to construction and real estate is especially beyond the light. But it's a mixed picture. If we go to the next page, which is about our listed portfolio. Also here, there's no major change within the Lister portfolio. We've done some minor changes with increasing our holdings in CETEC from 33 to 33.5% of the capital of votes. We also participated in HMS Network's new chair issue with our pro rata share, which was part of the financing of the acquisition of the red line controls in the U.S. All of our companies have now reported for the Q2 and the picture of a weaker business climate is consistent. But despite this, a number of the companies are actually increasing the results. So really good. Value development plus 5.7 percent during the year at the end of the reporting period, where 6RX was 10.6. And until yesterday, August 19th, the portfolio value was 87 billion SEK. And the total return amounts to 11.3% so far this year, where 6RX comparably is at 11.1. And then if we go to the next slide, to comment wholly on industrial operations, as I said, was the order intake increased by five percent organically and actually in absolute with all in included it was seven percent in the quarter the overall demand is still good on markets to operate on despite the weak business climates and like the underlying order intake is a bit volatile in between the months So development on the short term is a bit hard to estimate in general. But you can say in general that operations with exposure to the construction and real estate markets are so far mostly affected by the slowdown. However, our three largest business areas with exposure show a relatively positive development. Sveagor and Bensic is growing and holds the first group on the same level as last year. And all of these business areas have a high exposure to the construction and real estate market. So that's really strong. And as I said, the net sales has decreased by 1% or again at minus 4%. But once again, which is the most important forward looking is that order intake has increased by 5%. And we're comparing against the record quarter last year where net sales was boosted due to the recovery from previous supply chain disruptions. Important to keep in mind. So the quarterly EBIT that was affected by lower volumes amounted to 939 million SEK compared to a little bit more than a billion a year ago. We have good cost control and the gross margin is strong. And this results at a strong operating margin of 14.4%. So overall, we're satisfied with the outcome in the second quarter. And if I comment a bit on acquisitions, we have a high pace within the M&A area. And those of you that follow us closely, you know that we deliberately last year had a lower pace in M&A because we wanted to consolidate and integrate all of the acquisitions we did in the year before. In 2022, I think we did more than 20 acquisitions. And now we feel that that's fully in place and we are geared up for a higher tempo in the M&A area. And we started 2024 this year with three transactions. B.S. Stavlot, Innoval, Elovalik, Electron, Enipas, The BEMSEC, PBL and Condor to Nordland Group. And during the quarter, Natura Future Solutions have entered into a minority-only position through new shares in two Swedish companies, Plant and Econauts. Both companies offer different tools and software for climate calculations and impacts of properties. Quite interesting. And after the reporting period, we have announced during this summer three more acquisitions within the Holy Old Operations. Svegan has signed an agreement that acquired a Dutch company, Hosea Group, uh with expected closing as of this month also group is a market leader in the area of indoor climate technology with a strong position on the dutch market with high end product offering of 10 business labels covering the entire buildings indoor climate systems including building automation the company has 386 employees 86 employees and net sales last year amounted to 106 million euros In Overlift, this summer has signed an agreement to acquire the Turkish company Arkel. The acquisition will give Overlift a leading position and expand its geographic reach and complement its product portfolio of components for elevators. Arkel is a leading Turkish manufacturer of components for elevators for both new installations and the growing modernization segment. The company has about 410 employees, and net sales last year amounted to 62 million euros. And then finally, BEMSIC have acquired the Canadian company QL, and it strengthens its footprint even more in North America. QL has a full suite of indoor air quality and refrigerant gas detection products, and the company has 15 employees, and net sales last year amounted to 8 million Canadian dollars. All these free acquisitions that is done after the reporting period have a profit level well in the line or above Latour's wholly owned operations. So all in all, the transaction so far this year will add about 2.4 billion CET in acquired growth, which amounts to a little bit less than 10% of our net sales run rate, you could say. So we're very happy with that and very happy with these acquisitions that we have in place. So having said that, as an introduction, I hand over with a warm hand to Anders to comment on our business areas and other things as well. So over to you, Anders.

Thank you so much, Johan. And we start with the first business area, which is BEMSIC. After a somewhat weaker first quarter, order intake grew organically by 10% in the second quarter. And this was, of course, a very positive signal, even though it's too early to draw any long-term conclusions yet, but very positive in the second quarter. The total growth in net sales was 17%, but when it comes to sales, then that means translated to organic growth, it was a decline of 2% compared to the strong corresponding quarter last year. The operating profit increased to 108 million SEK with a strong operating margin of 21.8%. And as you all said before, the acquisition journey continues for BEMSIC when Canadian company Kell was acquired by BEMSIC now in August. So very well done, Mikael and your team. And we go to the next business area, which is Kylian. and for a while now you all know that customers to Kalyan have been and still are more conservative when it comes to capital expenditures and therefore the order intake continues on a low level for Kalyan. Pipeline is slowly increasing but this has not yet materialized in order intake. Both water intake and net sales is therefore on lower levels than we wish, well below corresponding period last year. And the lower volumes resulted in an operating profit lower than last year with an operating margin of 12.8%, which is considering the very tough situation very well handled in this steep downturn. Kalyan has conducted cost-saving program to decrease fixed costs resulting in a 12% lower cost base than last year. So many thanks to Henrik and your team for taking care of this very special situation. We go to the next business area, Hultafoss Group. And in a tough market, net sales continues to be slightly below last year, which is not a surprise considering the situation. The weakening demand affects the European market somewhat more than the North American market. The hardware divisions, however, are recovering just a little bit from lower levels during the quarter. Organic growth was negative with 1% and thanks to strong gross margin and also to effective cost management this resulted in a very good operating profit of 267 million SEK with a good operating margin of 15.8%. So Martin and your team very well managed to you. And then we go to the new business area in Ovalift. This is the first quarter that we make a separate statement of this newly established business area. So we say very much welcome to Andrea Vedjan and your team. Order intake was hampered by an overall weaker construction market, especially low demand than for new installations in China, which has been low for a while now as well. The modernization division is, however, growing. And net sales grew by 1% in total, but organically it was 2% behind last year. Gross profit is still improving, but not enough to compensate for the lower volumes. So we're looking forward to even better gross profit going forward. The quarterly result amounts to 62 million Swedish kronor with a margin of 9.6%. And then, as Johan said before, we have signed an agreement now to acquire Arkell in Turkey. The important thing is, and you know that we like companies in leading position, that it will move the position that Innovalift have in the lift modernization market to a leading position. And it will also double the size of the components and modernization business within the business area. So we're really looking forward to that. It's really exciting. So once again, welcome and very well done, Andrea and your team. So we go to the next business area, which is Latour Industries. And Latour Industries had an overall positive development of order intake with an organic growth of 12% during the quarter. And net sales grew 6% in total and 4% organically, very much driven by REAC that has a very positive development in the US market at the moment. EBIT is in line with last year, but with somewhat lower margin. After a successful launch in Overlift as a new business area, the focus is now to continue to build and develop the remaining holdings within Latour Industries and also to find new platform investments for Latour Industries going forward. And here we shall also make a very big thank you to Bjorn Lennander that will leave after 10 years and step down in the role of CEO. Try to find a new position for him there. And Tina Hultqvist that was CEO before us since the beginning of this year and also part of the today's executive management team will take on the role as the new CEO from the 1st of September. So many thanks Björn for all your valuable contributions over a very long time and also thank you to your team for your achievements and also then Tina good luck to you. We go to the next business area, which is Nordlok. And when it comes to order intake, it was very positive and a record high, actually. It grew by 14%, of which 12% were organic growth. Also quite strong net sales, considering the business climate with an organic growth of 2%. And we saw especially good growth in Asia Pacific. EBIT was slightly below last year, but still on a high level with an operating margin of 24%. And then as we announced last quarter, Daniel Westberg has now been recruited as the new CEO of Nordlok Group. And he now started his position in the beginning of August. So good luck to you, Daniel, going forward. But however, for the past quarter, we think it's very much worth highlighting that Marcus Lundavall, CFO and also acting CEO until recently, handled the group for a while now and also the transition period in an extremely professional manner. So many thanks to you, Marcus, and also to the whole Nordlock team. And then we come to the last, but not the least, business area, Sveagom, where we can see that the majority of the business units are performing very well, especially when we consider how the overall business climate looks like right now. Order intake grew by 12%, of which 11% was organic growth. very much driven by cooling and heating. And this is, of course, explained by the very positive exposure to the commercial heat pumps market. But it was also very good in the North American market. In total, net sales is in line with the corresponding quarter last year, but there is a mixed picture between the segments and geographies. Thanks to a strong gross margin and effective cost management, EBIT margin comes in strongly at 12.8%. And as a reminder, once again, the second cost last year was boosted by the supply chain recovery situation that we had at that point. And as Johan said before, Sveagon signed the agreement to acquire HC Group in the Netherlands, and the transaction has been finalized in August. It also brings Sweden to a leading position in the Netherlands. And to remind everyone, that's what we're looking for in all our niches leading position. Very much well done, Andreas and your team. And we have one picture left for me before I leave back to Johan. And it's about the net asset value. And our conservative way of doing the valuation of our wholly owned operation leads to a net a net asset value of 198 kronas per share at the end of June, which was an increase of 1.8% from the beginning of the year. The share price was 286 at that moment, which means it was a premium to the net asset value of 44%. And yesterday, the net asset value was 204, so an increase by 6 kronas. and the share price at the same day closed at 300 SEK, which then gives a premium valuation of 47% when we look at the share price. Our consolidated net debt increased during the quarter from 10.3 billion to 11.6 billion SEK. This is explained by the paid dividend in the period. And the net debt corresponds to about 8% of the market value of our investments, leaving a nice headroom for further acquisitions. Even after then we have completed two of the three acquisitions, but we will of course also complete the third one later on this autumn. So we see a good headroom for further acquisitions. Thank you very much and back to you, Johan.

Thank you very much, Anders. Great presentation. Let's comment the financial targets. As you know, our financial target is to grow above 10%, operating margin about 15%, and return on operating capital about 15%. As you know, who follows us closely, that we, beginning of last year, we put higher targets on operating margin from 10 to 15%. So they're relatively new, these numbers. So during the last 12 months, we had a growth rate of about 1%, EBIT margin of 14.3% and return on operating capital of 15.3%. And this is actually an outcome that we're pleased with. Growth is lower than before. As I said, But considering the economic climate, it is expected. And also, since we have a low M&A activity during 2023, we haven't added as much acquired growth as before. But as I said earlier, and as Anders also pointed out earlier in this presentation, this will obviously increase quite a lot going forward. Since we have almost 10% acquired growth already, so to speak, signed. So that will come through the numbers going forward. An EBIT margin is still strong and return on operating capital is satisfying. And if we look at our next page, the international growth potential. Natur is a long-term sustainable investment company and the responsible owner creating value for our shareholders. We continue to invest forward-looking in both existing and new holdings, regardless of the economic climate to enable future growth. We're very long-term, as you all know. And this is core of our long-term perspective and the gain of being financially strong. We have an ambition to grow both organically and through acquisitions, but a large part of potential remains. If you look at the map, we have 81% in Europe, 14% in America, and 5% in Asia and the rest of the world. So there is a lot of potential to grow also outside Europe, I think is the main message of this picture. So thank you. And there we open up for questions with hopefully some answers to follow as well. Q&A.

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 David Johanson from Naudia Markets. Please go ahead.

Hi, good morning. Thank you for taking my questions. I wanted to start off with a question on Sveagon, which to me looks to be very strong here. I think you mentioned the cooling and heating business performing exceptionally well in North America, sort of the main driver. And perhaps if you could expand on the demand and also the margin development in the quarter and sort of, I think, your expectations now as we look towards H2. Thank you. Thank you, David. I hand over to Anders.

Thank you, Johan. And I gladly take that question. First of all, it was a misunderstanding that the heat pumps are not growing in the North American market. That's the ventilation business that we have, which is seeing a positive development from rather low level but it's a market with great potential but when it comes to heat pumps and commercial heat pumps then that's as you know that we have in our portfolio that is growing very much in Europe in the European market which is very positive and well we don't make any forecast but we think we have a very good position going forward in this market doing great business so

and we have had confidence about that for a long time now and it's good to see that there has been some really great orders coming in okay thank you thank you Anders and then if I could perhaps follow up with a question on Kaljan obviously you're not happy with this performance but you mentioned now that you think the order intake is starting to bottom out at least. Is this mainly sort of looking at easy comparables for Q3, or are there some underlying developments in terms of changing demand as we look towards the second half of the year? I think you also mentioned some light at the end of the tunnel, so perhaps if you could expand on that one. Thank you.

Yeah. I guess to backtrack a little bit, David, in fact, for asking a good question, And I think it's important to point out that it's not that we're unhappy with Calyon. We think Calyon is doing a great job in the present market macro environment that they operate in. And if you backtrack a couple of years, you know, during the pandemic, many logistic companies overinvested heavily when e-commerce exploded. So I would say at that time, the market was up almost 100%. It also did Calyon sales. increase with over 100% during those pandemic years. And then the pandemic was over and I think reality caught many large logistic companies and the volumes came down quite a lot in e-commerce and therefore they have been overinvested for a while. So this is kind of a big backlog that needs to be worked out of the system. And to your point, David, I think we are starting to see signs because the long-term trend is there that e-commerce and logistic will continue to grow it was just an unnormal exceptionally high growth rate during the pandemic and then a normal exceptionally low growth rate the years directly after the pandemic but we're seeing signs that this will now start to normalize back to kind of normal growth rates for for the industry in that sense i hope that that sheds some light on your uh on your question, David.

Yeah, thank you. It did. And then if I could end with a question on InnovaLift. A bit better margin than expected for me, actually. highlight a bit on the construction exposure and also China as sort of the main drivers for the decline in the quarter. And I think, you know, since this is a new company for you, I think if you could, you know, talk a little bit more about the end market exposure here and sort of the main trends to look out for and perhaps also what you expect in terms of growth as we look forward here. Thank you.

Yeah, I can start and Anders, you can fill in, I think. It's not a new company for us. We've had InnovaLeap for a long time, but it's the first time we exposed it publicly, so to speak, and we have it as a business. We're very pleased with the first quarter of InnovaLeap. And I think InnovaLeap is mainly two divisions. One is elevators and so forth, more for an elderly population, so to speak, elevators that you can install at home. and so on. And that market we see is down a little bit, and especially the Chinese part of that market. But the long term growth trend is very strong. We have an aging population globally. People want to invest to be able to stay at home. There's a very strong, you know, long term growth story in that in that part of the global division. And the other division, and that's also really where we did this large acquisition that I just mentioned in Arkel in Turkey, is the whole modernization business of modernizing present elevators, normal elevators that you see everywhere. And there we see very, very high growth going forward. And among other things, this is driven a lot about the environmental concerns to not clean out the complete elevator shaft with new elevators and everything but rather modernize elevators that you have with new control systems and components and therefore save on on on material for instance so and when it comes to uh the margins so we expect very high growth rates going forward in and nobody it will be because of the acquisition now it's a big rocket you could say it's a flying start this new business area. I agree with you that the margins, the EBIT margins are developing in a nice way. But remember our EBIT target is 15% and we think over time InnovaLeap will also make 15% as an EBIT target going forward. So with that rather long answer, I don't know if you want to add Anders to that.

I think you made it very good Johan.

Okay, thank you. Thank you very much. Those are my questions. Thank you, David.

I don't see any more questions on the chat.

No, we've done that. There's no more questions being asked, basically. Okay, we know there's a lot of people calling in, listening in to this. We highly appreciate that. So thank you very much for listening to the Q2 report and I hope to, within brackets, see you all in the Q3 report later this year. So thanks from Anders and Marcel, and have a great day, everybody out there. Thanks.