Prevas AB

Good morning and welcome to today's webcast presentation where we have Prevas who will be presenting the Q1 report for 2024. With us presenting we have the CEO Magnus Vilén and CFO Helena Burström. If you're calling in and would like to ask a question please press star 9 to raise your hand and star 6 to unmute yourself. We will then announce if it's your turn by saying the last four digits of your phone number. You can also use the form that is located to the right. And with that said, please go ahead with your presentation.

Hello, everybody, and welcome to this presentation of the Q1 results for Prevaz. My name, as it was announced, is Magnus Vilén, and together I'm the CEO of Prevaz. And together with me, I have... Helena Bjursson. who is the CFO of Prevas. And the agenda for today's brief meeting is that we will start with this brief introduction, and then we will review our financial performance for the quarter, look a little bit into the market. Then we will spend some more time on the exciting acquisition we have made in NMAC. And then we will finalize this meeting with a Q&A session as we normally do. So how did we perform during Q1? Looking into the revenues, we actually managed to grow during the quarter. So despite the calendar effect that was negative during this quarter and the rather dynamic or in some parts also quite challenging market, we managed to grow our top line. And then the question is, of course, how do we perform in terms of EBITDA? We actually delivered a strong result in the quarter of an EBITDA margin of 13.2%, which we believe is strong, given that we actually have the negative calendar effect. One day in Sweden, three days in Norway. So it's a quite substantial effect on the result due to the negative calendar effect. And also due to this rather dynamic market, we are quite proud actually that we managed to deliver such a strong result in the first quarter. We have also managed to increase our prices in order to maintain our margins. One of the key aspects of that is, of course, the pricing. And we continuously work to increase our prices. And we can see that in the first quarter that the prices has been increasing in all our countries, which is really good, of course. What we also see in the first quarter is that the cash flow for Prevaz continues to be very, very strong. And for this quarter, it was substantially above last year as well as the last quarter for the last year. And also exciting for this first quarter is that we announced the acquisition of Enmac, where Prevaz established a strong foothold, a strong strategic platform in Finland. So Prevaz is moving ahead in many different ways. Looking into more detail of the quarter, as I was mentioning, we managed to deliver a strong EBITDA margin given the calendar effect. And we also delivered an EBIT of 44.2 million SEK. That is a little bit lower than the last year. And one effect that we see here is due to the acquisition related items of totally 9.2 million SEK that affects the EBIT and also the EPS for the quarter. Out of those 9.2 million SEK, 7 million were transaction costs related to the acquisition of NMAC. All in all, we believe that we start the year in a quite good way. You can see also the cash flow here, where we increased it from 22.8 million up to 27.1. So that was one quarter. Once again, one quarter. But what is happening, if we zoom out a little bit, You can see in these two graphs, the exciting development that Peos has had since 2017, where the company has continuously increased our EBITDA. And last year, we also increased our target for the EBITDA. So actually our target now is 12% over time. And this quarter, we are very glad to present that we actually overachieved compared to our financial target in terms of EBITDA. So you can see that we have a continuous growth in EBITDA. Last year's has been a rather flat development around our target of 12% EBITDA. In the other graph, you can see that we have continued to grow. The rolling 12 revenue growth figure is in that graph. And you can see that we have a continuous growth in Prevas. Even the first quarter, we actually managed to grow despite this calendar effect and also the rather challenging market that we see today. So this is one thing that we managed to grow the EBITDA. We managed to grow the revenue. But most important, of course, from a shareholder perspective, is that we managed to turn this into earnings per share. And here you can see the development of earnings per share the last years, and also that we have increased the dividend per share over time. So for us, it's very important that we continuously work and focus on earnings per share, so that we grow over time in that very, very important metric for Privas. So this is a little bit about the quarter, a little bit zoom out regarding earnings per share and dividend. And now I would ask Helena to look into our financial position.

Thank you, Magnus. As Magnus said, we have increased cash flow from operating activities with 4 million SEK compared to Q1 last year. amounting to 27 million SEK compared to 2023, Q1 2023. And this is mainly driven by a reduction of operating receivables. Since the final day of Q1 was during the week and amortization was deducted beginning April and thus affecting financing activities positively with approximately 6 million SEK. Cash amounted to 130 million SEK at the end of Q1 2024 compared to 83 million SEK in Q1 2023. Prevas financial position remains strong. We can see here that Prevas is well below the financial target of maximum two times EBITDA. Net debt in relation to EBITDA is still negative. Our equity ratio remains as well strong and amounts to 60.9% in Q1. Q1 2023 equity ratio amounted to 59.3%. And then Magnus, can you please give some market updates?

Yes, of course. Thank you, Elena. Very good to see that we have a strong financial position in Prevas. Looking into the market, what we have seen in the first quarter is a similar market as we have seen in Q3 and Q4 2023, where we have some areas with really high demands. The green transition is driving a lot of demands in different parts of the industry, which Prevas is very well represented. We have a growing business within cybersecurity, headed by our Danish unit and also sold throughout in Sweden and also other countries, of course. And also, we continue to see a high demand in the defense industry. There are also sectors where we see continuously a rather high competition, especially in terms of time and material consultants' assignments. And I would classify that more of general IT consultants, where we see that there is a rather high competition, which affects Prevas. The good news is that that is a very, very small part of Prevas, actually. So in all, we believe that the market It's very similar to Q3, Q4, but very stable and actually starting to look a little bit better compared to how it has been in the past. We have received some signals from some customers that the positive signals seem to turn into more requests, more tenders, more bids in order to find new business. But still, we haven't seen that it's materialized into a booming business climate. But we see some small signs here and there that we see that it's starting to move in the right direction in the marketplace. And globally speaking, Prevas is very well positioned because we are in many different industries, as you can see in the graph, which means we have a low risk and also good opportunity in that sense, because we can balance our resources and focus on the areas where we see demands. That is a very positive thing. And that we do continuously within Prevas. We also have a very fantastic, nice customer list. And our five largest customers, Saab, Ericsson, ABB, Atlas Copco and Sandvik, they are less than 25% of our turnover. So we have a very, very good position in the marketplace. And so we are very, very prepared to turn from this more or less flat development we see now and to meet a more increased demand moving forward. Which we hope, of course, will materialize as well. So that's a little bit about the market. And then we move into our exciting progress in Finland. Because during this quarter, we announced that we will acquire NMAC. Enmac is a premium company in Finland with around 200 employees. They have eight locations across the country. Total turnover of around 23 million euros with a healthy EBITDA margin of around 14%. And Enmac has been growing over time. So it's a growing company coming into Prevas. Together, if we merge then Enmac and Prevas, we will establish a pan-Nordic industry group operating across Sweden, Norway, Denmark and now Finland with around 1,100 employees and a total turnover of 1.75 billion SEK of annual turnover. So it's a very big step we do for Prevas from a strategic point of view moving into Finland. So a little bit about Enmac. Enmac is a premium company. Their core is production and process development. They have an edge in industrial automation, technical design, advanced calculations, firm calculations, CFD calculations, product development, process and piping design. And they are also very strong in system deliveries where they deliver more advanced and complex solutions to customers. What is common between Enmac and Prius is that we come to our best when it's very advanced solutions and when it's a little bit more tricky. When I met the team in Enmac, it was very nice to meet the people and see that it felt like coming home, actually, because they are engineers, they are working with the more complex solutions, and they have the customer first and driving a lot of interesting business and assignments for the team. And Enmac has been around since 1985. So they've been in the market for a long time, building long-term relationship with very, very interesting companies, mainly based in Finland, but they have also some businesses in Sweden as well, and also some other markets, but to a very small extent. Some of the customers that Enmark has been working with is Valmet, Andris, Chemira, Metzeg Group and Fortrum. So they are very, very big companies that they have been working with for a long, long, long time. Another positive thing about the team in Finland now coming into Prevas is that 70% of what they do comes delivered from their own offices, so to say, in-house work and project business and assignments. And the part of time and material consultants out in the customer place is around 30%. And that means that it's high-end deliveries that NMAC is delivering. So I'm very positive, as you imagine, to move forward together with NMAC. And then a little bit for you as investors to understand the rationale. Why is this good for Prevas and for Enmac? At first, it's very important for us that moving into a new market, that we get a strong foothold, a strong platform. And Enmac, with its eight offices and 200 employees, they have a critical mass in order to be a foundation for continued growth into Finland. They also bring additional expertise into Prevas. For example, one niche area where NMAC is really, really good is in piping design. It's a niche, but they are absolutely one of the top suppliers in Finland. And I would actually say in the Nordic market in this niche. So there are some niches where NMAC is very strong, where Prevas is not so strong. But there are also niches in Prevas, for example, with industrial IoT, embedded systems and software, where NMAC is not so strong. So we foresee that we can take the expertise from Prevas and also create new business in Finland through the NMAC channels, which of course is a good thing. As I mentioned, Enmark has a very large customer base and very high potential. Okay, it's a big company, but still there is a lot of market shares to take in the present customer base as well, which of course is also a rationale for this acquisition. But as you all know, acquiring companies in the consultancy business It's of course related to risk, but one thing to mitigate the risk is that we have a strong cultural fit between the two companies. Both Enmac and Prevas are premium companies. They work with high-level engineering, high-level solutions. They go for things that are a little bit more complex. And Enmac, as well as Prevas, is a very decentralized, agile organization, which, of course, makes us a very, very good fit to bring Enmac into the Prevas family. We also foresee strong future market synergies. Enmac is strong also in the Nordic part of Europe, of Finland and Prevost has offices in the northern parts of Sweden as you all know it's a heavy investments going on up in the northern parts of Sweden but also in the northern parts of Finland and together we can utilize that market and those investments in a good way so we see strong future market synergies between Enmac and Prevost as well Another positive thing about this acquisition is that the very successful management team, they remain as owners in Prevas after the transition, proving that they are here to stay for building a new future together. And last but not least, Enmac has the capability to do M&As. They have acquired companies in the past. They have a strong pipeline today. So with the foundation of Enmac, we will continue also to look into further M&As in Finland to build a stronger position on top of the organic growth that we see. So this is the rationale from a business point of view. Looking into the acquisition from a financial point of view, Helena, could you give some comments?

Yes, of course. The purchase price for the acquired shares amounts to 90 million euro, approximately 220 million SEK, which corresponds to a valuation of 25 million euro, approximately 280 million SEK. or 100% of the company on a cash and debt-free basis. In addition, possible contingent consideration amounting to a maximum of 2 million euro may be paid depending on NMAX probability development during 2024 financial year. Upfront enterprise value divided with EBITDA local gap is 7.6 times. The acquisition will be financed through existing cash and a new credit facility amounting to 200 million SEK. And Prevas balance sheet will remain strong. Net debt through EBITDA post the deal is approximately one point the target compared to our financial goal of maximum 2.0 EBITDA. And we will with NMAC continue our positive EPS development as shown in previous slides. This acquisition is subject to regulatory approval and it will take up to four months and the acquisition is expected to be completed during the third quarter of 2024. Magnus, I hand over to you again.

Thank you. Very nice to see that we still have a strong balance sheet, Helena, so that we actually can continue to build Prevas into the future. So, a summary of this presentation. A strong Q1, we delivered 13.2% EBITDA, despite this rather dynamic market and also the calendar effect. So that is a good thing. We also managed to grow both organically and through the acquisitions during Q1. We acquired Enmac and established a strong platform in Finland, which is very exciting for the future, a strategic step for Prevas moving into the future. We had a strong cash flow for Q1, and as Helena was mentioning, a solid financial platform even after the acquisition. So we look forward to continue to build Prevas growing organically, but also continuing looking into further M&A activities. But of course, we will be picky, as we always are, in order to find the right gems, so to say, to fit into the Prevas family. And Prevas, we are well positioned in the growing sectors and we have a fantastic range of customers. And we look forward also to, over time, a more booming business climate so that we can also show that we are able to grow both through these acquisitions and organically moving forward. So with this, I would like to conclude our presentation today. And now we move into the Q&A sessions. So I hope we get a lot of interesting questions. Thank you.

Thank you very much for that presentation. And like you said, now we'll jump into the Q&A part. If you're calling in and would like to ask a question, you can press star nine to raise your hand and then star six to unmute yourself. We will then announce if it's your turn by saying the last four digits of your phone number. And we've got a person calling in with a phone number ending of 8637. Please go ahead. You have the word.

Morning, Magnus and Helena. This is Stefan from ABG. A couple of questions from my side. You mentioned the continued weak demand in certain areas. I was just thinking which type of customers that are most hesitant and if you have seen any different behavior from them of late?

I would put it like this. The demand in some areas went down last summer, more or less, and has been in a rather flat development since then. For example, consumer industry is not a big thing for Prevas, but we had some regions where we're working, for example, with UX and for services for consumer industry, and they have been quite low for quite some quarters now. Although we believe that we will see an upturn because based on experience, these kind of companies, they reduce their spendings, but eventually it will come back because they need to develop as well as everybody does. So the consumer industry is one area. And also we have seen in the public sector, it's very small for Prevost, but we have seen that in those areas has been quite low demands as well.

Okay, perfect. Then on Finland and NMAC, I know you talked a lot about NMAC here and seems really exciting. They will constitute around 15% of the group once consolidated. But how do you view the Finnish market long term for you as a group?

I believe it's a very, very interesting market for Prevas. And I was trying to explain, Enmark has a very strong position in a number of customers in Finland, but there are many other customers where we see that we together can grow outside of the present market, the present customer base of Enmark. We also foresee that we can add additional offerings to the Finnish market with the expertise we have mainly in Sweden and Denmark, but also from Norway. One example could be in enterprise asset management. It's an area where we have a strong position in the other countries. The customer base at Enmac has a very nice potential for EEM business. Another area where we can grow is within, for example, embedded system and more general software, because NMAC is strong in industrial automation and PLC. But we see that there are opportunities in the customer base for more of IoT services and also more software related services. So in that sense, we believe that the old cliche, one plus one should be three. So we strongly believe in the future potential for the Finnish market as well.

very good and then lastly from my side you know you had a strong profitability here in q1 despite the calendar effects that were in play will it continue to be focused for the remainder of 2024 and how do you view the price salary equation now when we approach q2 where where the salaries for 2024 usually are adjusted

I believe that we will continue to focus on the margins for this year. But over time, it is priority for Plevas to maintain a good margin. And the way we do it is we work a lot with business development in order to deliver a stronger customer value, thus driving up the pricing in average, thus, so to say, taking out the effect of the salary increases. So we work quite a lot in order to balance the cost and the revenue in order to maintain the margins in a good way.

Perfect. Thank you very much. That was all for me.

We'll move along here in the Q&A with some written questions and we'll take the first one here. Given the high demand in growth areas such as energy, electrification and sustainability, how do you intend to capitalize on these opportunities and expand its market presence?

Actually, we do that in several different paths. For example, what we do is that we take competences from different regions and putting that together in order to create more interesting offerings for those industries. That is one way of capitalizing and growing in those areas. And actually, we are growing in specific customers related with where we see those demands. But unfortunately, that is also offset in other areas where we, so to say, have a little bit less demands. So in total, we managed to grow this quarter with 3.2%. But looking into the details, you can see that we have been growing in certain regions. We actually are growing organically in order to meet the demands. But also, unfortunately, in some regions, it's more tough market situation. There we actually have been decreasing the number of people in the company in order to maintain the margins as such.

Okay, thank you. And could you provide any more insights into the operational benefits that Udde Holm expects to achieve by implementing the new manufacturing execution systems by Prevas?

That's a specific question, but of course, I can give you some light on that. What we do is actually that we are developing a MES system, manufacturing execution system. And what a system like that is doing is actually giving the production management a clear view of their operations you know how the plant is running you can control it you can also plan more efficient how you run your productions so so the benefits if you have a very good media system is that you increase the efficiency in in the production and that means that as as the whole and all manufacturing or process facilities A big part of the cost in those is operational effectiveness. And by introducing a MES system and also working at the same time with the process that you can make substantial improvement in efficiency. So for Uddeholm and also other customers we're working with production efficiency is really good upside in terms of increased efficiency. That is the upside.

And what measures have you taken to ensure effective integration and synergy realization following the acquisition of the NMAC group, especially considering its significant presence in growth areas such as energy and industrial automation?

To be honest, actually, today we are in a period we have not closed. We have signed, but the closing is due to governmental improvements. So at present, we are in sort of in between in that area. And of course, we have a lot of plans and a lot of ideas and a structure how to capitalize on this and move forward. But I would actually like to come back to that in the next quarterly presentation, as we are in this middle period, so to say, right now.

Okay, and we take one final question here. How do you plan to leverage your strengthening presence in Finland following the acquisition of the EMAC Group as we just talked about to further penetrate and capitalize on the opportunities in the Nordic market?

I would put it like this. It's many different parts, but one obvious short-term thing is that Enmac has certain strengths in system deliveries, for example, where we actually can deliver those to Sweden. That is one way of capitalizing, opening up customer base in Sweden and selling the offerings from Enmac in Finland into Sweden. That is one way of increasing the common business together. Then of course we also, as I said, looking into adding more offerings into the NMAC portfolio in Finland based on the strengths of historical or the strengths that we have in Prevas. So it's a way of cross-selling, it's one way of utilizing that. And then also we will continue to look into further M&A's in Finland as well to strengthen our position. and that is also one way of doing it so so there are a lot of different actions that we will take with nmac but we can't take them right now due to that we are in this middle period so understood we actually got a few questions that just arrived here how much wage inflation do you expect of this year i would put it like this the the what is it called the the The collective agreement is a little bit above 3%. I believe that we will be in that area or slightly higher in that sense. So it's in that area. It's not like when we had those years with extremely high salary demands. But still, it will increase the costs, of course. But we base our expectations on the common agreement. And then it could be slightly higher than that in order to maintain the people we have.

Okay, and now we'll take the final question here. How much recruitment do you expect to make this year?

We expect to grow and recruit in this year as well. We don't give forecasts in that sense, but we are convinced that we will grow organically in terms of employees during this year. And we are, so to say, preparing for that. And we are also growing in some regions as well. in order to cope with specific demands. So we will continue to recruit, but although I can't give you a figure, but I expect after summer, we will see that the business climate is moving upwards and we will continue to recruit. And actually we are recruiting right now and during the second quarter, we'll also continue because recruiting is an integrated part in our business. We need to recruit all the time and we do that.

okay thank you very much magnus and helena for a interesting presentation and thank everyone who followed along for this q1 presentation with prevas and until next time thank you very much and goodbye everyone thank you everybody thank you thanks for excellent questions bye