Investment AB Latour (publ)

Welcome to our Q3 report conference for this year, 2024. Very welcome. I'm here together with, as said, Anders Mörk, our CFO. And if we go to the first slide, where we show our group structure, as you can see, the structure is completely unchanged compared to last time we talked. We had a good The third quarter, despite the challenging business climate at the moment, order intake and net sales are growing organically and profitability is at a healthy and strong level. The general demand is fairly subdued in many markets that we operate on, but it varies between the regions and industries. A weaker demand for businesses with exposure to the construction and real estate markets. But the picture is mixed, as we will come back to later. And if we go into the total, yeah, the total return for the listed portfolio, right, exactly. No change within the listed portfolio during the quarter. Earlier this year, we increased our holding in CETEC from 33.0% to 33.5% of the capital and votes. We also participated in HMS Network's new share issue with our Prorata share, which was part of the financing of the acquisition of Red Lion Controls in the US. Value development 17% during the year, whereas 6RX increased 15.2%. And until yesterday, November 5th, the portfolio value was 92.2 billion SEK. Total return amounts thus to 18.2% so far this year, compared to 6 Rx so far this year of 11.4%. And if we continue then into the next slide, the wholly owned industrial operations, if I comment on that. And as I said, the order intake increased by 3% during the quarter. The organic increase was actually 2%. The overall demand is fairly subdued on the markets that were brought on due to the weak business climate. I don't think it's going to be that much weaker than where we are, but let's see. The future will tell, but it will be a fairly prolonged, slower cycle is I think the best guess. In general, the construction and real estate markets are so far most affected by the slowdown. However, our three largest business areas with exposure to these markets still show a relatively positive development. We are most likely gaining market shares in these areas. And net sales has increased by 2% and organic is plus 1% in the third quarter. And the quarterly EBIT amounts to 927 million SEK, which is somewhat affected by slightly negative mix effects in between the business areas. We have good cost control and the gross margin is strong, thus regulating an operating margin of 14.9% in the quarter. So overall, we're satisfied with the outcome of the third quarter. given that we are in a slow economic cycle at the moment, as I said. Then we go into the next slide, and we have the acquisitions during 2024. And we have a high pace within the M&A area right now. We made three acquisitions during the quarter. This has been announced also separately. To Svegen, we acquired a Dutch company, HC Group. a market leader in the area of indoor climate technology with a strong position on the Dutch market, with higher product offering with 10 different business labels covering the entire building's indoor climate systems, including building automation. The company has 386 employees and a net sales in 2023 amounted to north of 100 million euros. BEMSIC acquired a Canadian company, QL, that will strengthen BEMSIC's footprint even more in North America. QL has a full suite of indoor air quality and refrigerant gas detection products. The company has 15 employees, and a net sales in 2023 amounted to $8 million. And then, InnovaLift signed an agreement to acquire the Turkish company Arkel. Closing is expected later this year. And the acquisition of Arkel will give NovaLift a leading position expanding its geographic reach and complement its product portfolio of components for elevators. Arkel is a leading Turkish manufacturing of components for elevators for both new installations and the growing modernization segment. The company has 410 employees and net sales in 2020 amounted to €62 million. And earlier this year, we finalized three transactions B is Tabloti & Overleaf, Electron and IPAS to BEMSIC, PBL and Condor to Nordic Group. It all sums up to six acquisitions so far this year, all with the profit level well in line with Latour's wholly owned operations and in total adding about 2.4 billion SEC in net sales on an annual basis. And we're very happy with that, that we found these six fantastic companies that are now part of our family. And as I said, with very good profitability as well. Last but not the least, Latro Future Solutions have made two investments this year, and now holding a portfolio of nine sustainability-focused Swedish companies. Very exciting. And having said that, I should hand over to Anders. But I think, Katarina, the slide on the list of holdings, right? We should go back to that. No, okay. We skipped that then, for this time. Okay and then I hand over to Anders.

Thank you so much and now we're going to talk about our different business areas and we start with BEMSIC Group. The order intake for BEMSIC grew organically by five percent in the third quarter. Building automation continues to show a stable development while the metering business is a bit more volatile when it comes to the order intake. The total growth in net sales was 29% explained by acquisition but 10% were organic growth. This is a very strong performance then considering this challenging market that we have within real estate and construction industries. The operating profit amounted to 121 million SEK with a strong margin of 24.7%. And this is despite several ongoing initiatives within product developments and completed recruitments during the year so far. So far this year BEMSIC have finalized two acquisitions, both of them performing according to plan and adds 21% acquired growth during the quarter. So very well done Mikael and his team. We turn the page and talk a little bit about Kalyan and as you know Kalyan's customers have been and still are much more conservative when it comes to capital expenditures. The pipeline is slowly increasing and the order intake is now exceeding last year by 25% which of course is very positive but this is still on very low levels. And as an effect of the lower order intake the net sales is below the corresponding period last year. Despite the lower volume Kalyan really shows a good gross margin and good cost control leading to actually an increased operating profit with an operating margin of 15.7%. Very well done Henrik and your team this quarter as well. We go to Hultafors Group and you know Hultafors is of course also in this market with the challenging market condition. The top line reduced by four percent half of it however was explained by currency. The gross margin is just below the corresponding period last year and the operating profit decreased to 227 million kronas with a margin of 14.5% which is still very good under the circumstances. We are continuously investing in product development, sustainability and digitalization to strengthen the company going forward for the long term. So very well managed by Martin and your team. We go for the next business area, which is InnovaLift. The water intake is still hampered by the weaker construction market, especially when it comes to the installations of platform lifts in China and Europe. Consequently, the divisions for lift manufacturing and installation and services are developing a bit slower. However the components and modernization division is reporting a good growth in this market. In total the net sales is 4% behind last year and the gross margin is improving step by step and so are the operating result which increased to 72 million with a margin of 12.1%. This is a nice improvement but we can see that there is a room for further improvement going forward. The only way is up if you know what I mean. InnovaLift has, as said before, signed an agreement to acquire Arkell in Turkey. The transaction has not yet been finalized. It's slow, handled by the authorities in Turkey, but we expect it to take place during the fourth quarter. When completed, this will be a major addition to InnovaLift. All in all, it looks very good for InnovaLift and very well done, Andrea and team. And we go to Latour Industries where the picture is a bit mixed for the remaining businesses after we separated the novelists from this business area. The underlying demand is good for REAC and it's also good for Max AGV. Other businesses like LS AB is depending on the wood and mining industry and is quite weak right now. In total the net sales grew 4% and 5% organically. But the operating profit is suppressed by the business units with low net sales during the quarter. So it reduced to 20 million SEK. Latour Industries is now focusing on continuing finding new platforms to make new business areas for Latour in the future. Tina Hultqvist was appointed the new CFO from 1st of September. Many thanks to former CEO Björn Lennander and well done so far Tina and your team for taking on this job to build new platforms going forward. We go to Nordlock. The business climate is gradually becoming more tough for Nordlok. But even though Nordlok is in line with last year, both in terms of order intake and net sales, which is quite strong, I would say. Currency effects have, however, had a negative impact on both net sales and profits. So the EBIT comes in a bit lower than last year with an operating... margin of 24.1%. Here we have Daniel Vestberg as the new CEO from 1st of August, when he took over after Marcus Lundewald that held the position as acting CEO for a number of months. And Marcus is now being back in the CFO position. So very well done, both Daniel and Marcus and your team. And we go to the last but not the least business area, Svegon. And considering the business climate with its exposure to real estate and construction industries, Svegon is overall performing very well. Ordering takes grow by 5% in total, very much driven by demand in cooling and heating and within services. The net sales grew 7% in total and 4% organically. There is still a mixed picture between segments and geographies, of course. And thanks to a strong gross margin and good cost management, EBIT came in strongly at 13.7%, with an increased EBIT also in absolute terms. And as Johan said before, Sveagon acquired HC Group in Netherlands and this company is included in the figures from 1st of September. Very well done Andreas, and your team. And we leave the business areas and continue with the net asset value that increased from the beginning of the year to 216 krona at the end of September. And if we look at yesterday, it was 218 Swedish kronas per share. And this constitutes a premium if we compare it to our share price yesterday of 36%. The consolidated net debt increased during the quarter from 11.6 to 13.4 billion Swedish krona. And this is of course explained by acquisitions in the period. The cash flow during the period was strong. And this gives us a net debt that corresponds to about 9% of the market value of our investments, leaving a nice headroom for further acquisitions. Thank you so much. And I would like to leave back to Johan.

Thank you, Anders. We will soon come at the financial targets, but I would also like to comment a little bit on our listed holdings. And, you know, a majority of our companies that are listed are now reported with Q3. And the picture of a weaker business climate is consistent also there. Despite this, several of our listed companies are maintaining or actually increases its profitability with margins on good levels. Overall, a really good job in the listed holdings. And also this morning, Actually, at the same time as we released our report, also Securitas released its report. And Securitas is making good progress in obtaining its 2025 margin target of 8%. So fantastic report from Securitas also this morning. So great to see. And the acquisition activities are very high in the list of holdings, I'd like to point out. One example is Tomra, who after the reporting period acquired C-Trace. Germany with digital waste management solutions. With this acquisition, Tomrek can broaden its offering in the waste management and recycling area. Very exciting acquisition there. And then in general, when we talk about our listed companies, we think that the board remuneration has to increase. And I will come back to that in a second. So having said that, our financial targets, as you know, is to grow more than 10 percent, to have an operating margin of more than 15 percent and return on operating capital of more than 15 percent. So during the last 12 months, we had a growth, slightly negative growth on the last 12 months of minus 0.6 percent, a margin of 14.1 percent and return on operating capital of 15.1 percent. This is an outcome we're actually pleased with. The targets are to be seen over a business cycle and long term. And we are right now in an economic downturn. Growth is lower than before, but considering the slowdown in the economy and also that our M&A activities during 2023 were purposely on a low level, we haven't added that much acquired growth. But as I just explained here earlier, obviously going forward this will increase quite significantly in terms of growth from M&A. And the IBIS margin is strong and the return on operating capital is satisfying. Great, so if we move on then to the next slide. Latour is a long-term sustainable investment company and the responsible owner creating long-term value for our shareholders. In our wholly owned operations we continue to invest with a forward-looking mindset regardless of economic climate to enable future growth and profitability and at the end create value for our shareholders going forward. To create value in our listed holdings Latour plays an important role in the nomination committees. truly in both ours and all shareholders' interests that the companies have the best possible boards, which we as active principal shareholders can help ensure in the nomination committee work. In order to attract the best possible board candidates, both domestically, but also internationally, we want to significantly increase the board remuneration to levels that are competitive on an international arena. We believe that this is crucial to reach a broader circle of candidates and in the end ensure a higher quality of competence in our boards. And that's important for our quite large international Swedish based companies. So having said that, we thank you very much for listening in and we now open up also for questions.

If you wish to ask a question, please dial star 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 Linus Sigurdsson from DNB Markets. Please go ahead.

Good morning, Johan. Good morning, Anders. Thanks for taking my questions. Thank you. Now, starting off, you alluded to this earlier in your presentation, but would you say that you've pushed your expectations of markets improving further into 2025, or how should we think about this?

I'm not a macroeconomist, and there are many of those out there, and it's extremely hard to predict the future. My best guess is It won't be a very deep recession, but it will be fairly prolonged. So, you know, I think sometime next year it should it should come back. But it's very hard to say exactly when and so on. And lots of things happens as we speak. And as you know, we have the outcome from the U.S. elections just a couple of hours ago here. And obviously that has an impact as well. So it's quite hard to answer that question. With the best available data right now, you could say like this, if this is the low point in the low economic cycle for Latour, I think we've done quite well in that sense. That's another way of looking at it.

That's a fair response. And if I could ask on acquisitions, as you said, you've made a lot of them during the year, and I'm thinking primarily here about the industrial operations. How would you characterize the current pipeline for M&A in the industrial operations?

I would say it's a good pipeline. We see a healthy number of opportunities out there to continue to add on good acquisitions to all of our seven industrial holdings, wholly owned. So it's a good pipeline out there with touch on wood and let's see. And then, you know, lots of things are in negotiation and so on. But hopefully we'll see more acquisition with that will materialize going forward. Yes.

Thanks. And then a final question, if I may, on Sveagon. You talk about a slightly weaker order intake in Q3 versus the first half, if I understand you correctly. Could you give some color on what's driving that in Q3 specifically, and should we expect that weakness to continue into Q4?

No, I would say I'm asking Anders to chip in here as well, but overall, on all the seven wholly owned business areas, we actually saw organically positive order intake growth in Q3. And I hope that will continue also going forward. Anders, if you want to comment more.

I think the question actually is that you see that it's seasonally lowered during the autumn than the seasonally normally higher spring. So for us, we look at quarter to quarter basis. We have organic growth. And that is a good sign for a company like Svegon when we do have this growth. exposure to the construction and real estate markets, which we know that the market itself is not very good.

To sum up, rolling 12 for underlying growth is there, but if you look at it seasonally, it can vary. If you compare to the same period, it's still growing, which is quite strong. That's the point we're doing in a fairly weak construction market. To grow is quite

Okay, much appreciated. Thank you.

Then, as I can see, I guess there's no more questions lined up. And there's no written questions either. So from myself and Anders, thank you very much for listening in and hope to speak to you again when we release the full year report in the beginning of next year. So thank you very much and goodbye.