Ratos AB (publ)

Good morning and welcome to Ratos and welcome to the presentation of the second quarter. With us today we have our CEO, Jonas Wiström, and our CFO, Anna Vilogorak, who joined us fairly recently at Ratos. The following hour will look as following. We will first listen to the presentations and after that you will get the possibility to put forward your questions. So busy hour. I think we should get started. Please go ahead, Jonas.

Thank you, Katarina. And thank you, everyone, for joining us this wonderful summer morning in Stockholm, at least. So we're going to go through the in-dream report for the Q2. I just want to start to say that we're quite happy in Ratos today. This is not only a strategically very important quarter, we're also actually quite happy with the numbers, including the fact that we have an organic growth in a subdued and uncertain market. The fact that we could execute on our strategy towards industry and critical infrastructure, that means that, and you can see it in the report, that our EBITDA margins is actually growing with 3.5%. What is not as easy to see for those who are new visitors to Ratos is that we will have lower volatility in cash flows mainly, but also in EBITDA and of course better EBITDA margins, as I mentioned. This volatility could be over one billion in a quarter. We do also have a strong financial position. Anna will come back to this, but we have still 40% roughly in shares in Sentia with a value of some 2.5 billion SEK. We will also talk about plantation. We have an improved profitability and, of course, much better stability in plantation after financial reconstruction. But there are some special things that is worth to mention about the effects of the reconstruction in the second quarter. So, if we start just to look at our EBITDA development since we introduced the new strategy in 2018, we have actually grown our EBITDA LTM 29% in an average. This quarter, though, were a little bit lower in Edvita than last year. And the fact is, and Anna will go through this in details, but the closed stores as an effect of the reconstruction, we closed down 35% of our stores. Those stores were unprofitable. They couldn't bear their costs. But in the second quarter, if we would have them still, they would have contributed actually quite a lot in this quarter. So that's the reason why Plantagen actually have a lower EBITDA, but a better profit margin. But Anna comes back to that. Adjusted EBITDA margin is up 3.5% compared to the old structure and is up a little bit if we look at the total group. We do have improved EBITDA margins in all segments except industrial services, which I will come back to, including the calendar effect. If we took a look at a sale, sales is down again. We'll come back to Plantation and the closed-down businesses in X-Pin Group. But we do have an organic growth, and I'm quite happy with that, actually. We had also in construction and services, or should we say critical infrastructure, really good organic growth in precise infra. They continue to do very well also on the sales side. In industry, we have a slightly negative effect in sales, and you can relate that to the negative calendar effect for industrial services. I will come back to that. Overall, of course, not the best market in times. It's uncertain and subdued. Consumer down in sales also organically due to quite bad weather, especially in Norway in May. Structural effects, I mentioned those already in Plantagen X-Spin attributes with 6.3% actually in sales. So there we have the bridge. I'm sure Anna will describe it even closer. Let's take a look to industry. We had a good development in product solution, but the negative calendar effects in industrial services were significant. We had one day in Scandinavia. We had two days in Brazil. We had what we say in Swedish, klemdagar or squeeze days during this quarter also. I'm happy to say that in spite of that, Nitech Group, our coming big consultant in or leading consulting in digital solutions and R&D, they actually increased their utilization rate in the quarter, which I think is a sign of strength. They've also took some real good orders here in the end of the quarter. When we're into the industrial services business, we have to mention weaker results in TFS with a continued slow biotech market. I think also it's good to say that we had all our companies in the industry in product solutions actually increase their sales, except for Oase Outdoors. Adjusted EBITDA margin 9.6% in this short quarter for industrial services. I think that is quite okay given that calendar effect. Let's go into construction services, which is critical infrastructure basically today. I was into the sales with organic growth of 15.8%. We have had FX effects, and I will come back to that also, but we have a strong Swedish crown, not the least if you compare with the Norwegian crown, which we see here. I think we do have a robust underlying sentiment for infrastructure. We hear that on the news every day, almost. However, we still have a slow market for electrification of railroads in Finland, which is the core area for the Exbin Group. I'm sure that that market will show itself next year with more orders coming in. Order backlog is good, and this order backlog doesn't include the numbers for Able and Sentia, of course. Adjusted EBITDA up 10%. We have talked much about Precise Infra Sales, but of course they have also a strong EBITDA development. In ABLE, we had a negative unrealized currency effect in the financial items. Operationally, they continue to do very good on the way on a new record year for ABLE, I dare to say. And the adjusted EBITDA margin is 21%. You know that we don't bring in the revenue from ABLE in these numbers. And not Centio also, which was a short time. So, consumer again, Plantagen is in a much better shape and our reconstruction really shows the better profitability and stability. I tried to explain why Q2 was lower in sales and EBITDA for Plantagen. But this is very important for Plantagen going forward. And Plantagen, I want to say that we have very good customer satisfaction surveys and they are the leading business for plants and flowers in the Nordics. Just EBITDA down then because of plantation. KVD continue to increase EBITDA in, I could say, a tough market. I think KVD is doing a great job actually. EBITDA margin for the quarter up again at 23.1%. And that, I think, is a 23.1% is a good way to leave over to you, Anna. So happy to have you here now. And please.

Thank you, Jonas. So let us dig down into a bit more details in regards to financials. And just to set the scene, first of all, this quarter has entailed a large and transforming strategic change of us divesting Aeroteam and listing Sentia. And of course, this will lower our exposure towards the construction industry as a whole. So the construction and services which is left is essentially critical infrastructure. And you recognize the companies. It consists now of majority ownership in Precise Infra and Expin. And on top of that, then we have the minorities, Able, which we've had for a long time. And then adding Sentia to the picture where we have kept the 40% share in Sentia. Moving into net sales and EBITDA bridges, I would say if we turn our attention on the top graph, we see a good organic development, which we are very pleased to see in this uncertain and subdued markets. So posting an organic growth of plus 1.3%. Going into M&A, so we have been active in bolt-on acquisitions in our stable and profitable companies. So I would say majority of them have been within the industry segment and in particular HL display. That is adding additional two percentage points to this picture. So all in all, a growth of three, including these two. Then if we move to the left in the graph, I would say that you see quite a dramatic impact from what we called other. This is actually deliberate operational changes that we have made. One, of course, being Plantation, which we have mentioned quite a lot of times because we are so proud of it. And the other one is shutting down legal entities in Expen, also a deliberate operational decision. But what we can see is of course that if you look at the EBIT margin impact, it's actually accretive. Then moving into FX, Jonas mentioned it, we do have SEC strengthening against many currencies, and for us, especially Norwegian crown is important, giving us a negative impact of 3.3 percentage points, 3.3%. And then looking into the last part, which is our minorities, and this is able effect, I would say. It's unfortunately negative and margin diluting of 0.3%. Able is doing fantastically well, so there is nothing to be worried about. They're actually heading towards yet another record year. But as we are integrating their earnings after tax, we get that financial net impact, which stems from unrealized currency effects. Moving into how this EBITDA bridge looks like, if we were to split it out by our business areas and business segments, we see a good development in construction and services, the remaining part. We also see a contribution from our product solution companies. And then, as Jonas mentioned, industrial solutions have been impacted by that working day impact. The adverse calendar is here, we can see it, and also to some extent subdued markets. Moving into consumer part, it looks very dramatic, but if we were to split that out to 57 million negative, 53 out of those are actually the shut down stores. That was their contribution in the same period last year. So it's a structural impact, you can call it. And if we were to adjust like for like, EBITDA for plantation is on the same level as it was last year. And then just to put it in a little bit longer perspective, if we look at the year to date for Plantagen, we can clearly see that these structural changes and operational improvements are biting. So we see that EBITDA, which is in the boxes, is essentially the same, but we have lost 22% of the top line. Six of them coming organically and the additional 16 from these network of stores closures. And as you can clearly see, the margin then, it's 400 basis points up. So I would really say that Plantation is a much more resilient business now than it used to be. Then just summarizing the EBITDA margin for our business areas, starting with construction and services. And I would say this is a mix of operational improvements, but also the top line growth, which we see in many of these. Construction and services up, very nice EBITDA margin development. And on the left hand side, the 8.7, that is construction and services according to the old structure. Product solutions decline. Again, there is a large share of that which is calendar related. Industrial services slightly upwards, but still in the right direction. And then consumer, as you can say, it's a good EBITDA margin increase. Now working ourselves into networking capital. And again, it's a bit of a difficult quarter because we do have this group total, which then includes Sentia and Airtim. But we try to adjust the networking capital for the new structure. And what we see quarter over quarter comparing with last year is actually networking capital in absolute terms is down slightly and also in relative terms. So networking capital to sales is actually also down slightly. What I would say now is that we will have a change structure here, has to do with us exiting construction market, which normally comes with very large prepayments, which you normally see in contract liabilities. And that's where you in the table can see quite a significant decline. And to Juna's point, we will have a much more predictable networking capital and much lower swings in the new ratos. Then taking a step into the cash conversion, so networking capital actually contributed positively. The same goes here. This is for the old structure cash flow. If we were to adjust for the new structure, I would say the decline is similar. What is happening here, I would give some credit to Expin Group, a very good cash contribution versus previous year. So they are also moving up in the right direction. But of course, considering plantations, fewer stores and a bit more of a headache with weather in May, that I would say is the biggest decline. But many companies are doing really well. KVD, Diab, a lot more to mention, which are doing great in the cash. And the cash conversion was above 100, which is good to see. And then here we actually see our gearing, our balance sheet leverage. As we communicated earlier, we knew that disposal or listing of Sentia would have negative impact on our net debt. And why is that? Again, going back to the prepayments. So we have shifted upwards and I'm talking now about the adjusted leverage, which for the quarter landed at 1.7%. 0.8, the reported one, is of course favorably impacting of us delivering capital gains of almost 3 billion SEC for the divisement of Airtime and Sentia. So I would say 1.7 is a better number to look at and to be compared with 1.2 in quarter two last year. What I also would like to mention is that that 40% stake in Sentia, that is worth currently 2.5 billion SEC. And if we were to liquidate that asset, that will actually lower the gearing by 1.2. So ending this presentation of saying that we do have a very strong balance sheet and hence a lot of flexibility. And then turning to you, Jonas, to conclude on the second quarter.