Ratos AB (publ)

Good morning and welcome to this presentation covering the third quarter in Ratos for 2024. I am joined by Jonas Viström, our president and CEO, and Jonas Ågrup, our CFO here in the studio, and they will guide us through the results shortly. Starting this quarter, we will also give you a slightly deeper understanding of our individual subsidies in connection to the quarterly report. To do that, we will invite guests to our webcast starting today. First up is the HL Display CEO Björn Borgman, who will join us later on to give us a little bit more insight on HL's recent development and the exciting growth journey. In the end of the presentation, you will be able to raise your questions in our Q&A session, and this webcast is also recorded, so you will find it afterwards at ratos.com. Without further ado, I'll hand over to Jonas Viström.

Thank you, Josefin, and thank you, everyone, for joining this meeting. To listen to what I think is a good result for a good quarter for Ratos, and we start up with a summary. It's really been a busy quarter. Again, I'm happy with the results and coming back to that and the strong cash flows. If we start with all processes we're in, I would like to highlight the merger of Nitech and Semcon, which was announced in the quarter. That process has had a really good start, and we see them as one company with one structure in the beginning of 2025, but it started up very well, and I'm coming back a little bit to this later. We also launched a reconstruction in Plantagen, which is absolutely necessary to do our structural changes forward. And we also finalized the restructuring in Xpin Group. I'm very happy that industry continues to develop actually very strong. We had a temporary weak quarter in construction with tough comparisons, and I will come back to that during the presentation of the business area. And as you see, the order backlog is very strong and also the order intake growth. This quarter is also a quarter in a little bit weaker market than we expected. Net sales is down 6% organic, minus 4%. We have to note that the currency effects were quite substantial this quarter. And again, cash flows continues to be strong, and Jonas is coming back to that, but it's even a little bit stronger than the last year. We're on 167% in cash conversion. So let's take a look into the business areas and starting up then with industry. They had a EBITDA growth of 21%, EBITDA margin close to 10%. I mentioned the merger of Nitech and Semcon. We will create a leading R&D partner for product and digital solutions. I'm really looking forward to that. Also, both companies had very good numbers in the quarter separately. They actually grow 8% in the technical, in the technical consultants grow 8% organic in a quarter with a weaker market. Net sales down 2%, 2% organic, negatively. And again, 2% currency effects. HL and the deal perform add-on acquisitions in the quarter and the effect of that is 3% in structure. We continue to see a lower market in the wind and zero market remains on a low level. We see signs of improvement. EBITDA up 21% and we had increased adjusted EBITDA in both segments and in all our subsidiaries. Again, EBITDA margin close to 10%. Looking into industrial services, we had a bit lower sales here. And EBITDA grow 31% in the quarter. Our EBITDA margin also increased. We had one day more in the quarter, which normally means something. Here we had the two longer days in July, one shorter day in August. The calendar effect is not as strong as it is in theory because of the vacation period. But I'm very happy with the development in industrial services. Coming into product solutions, there we had a net sales growth. We did acquisitions, as I mentioned, in HL display and the deal in the quarter. Sales were negatively affected by the weaker wind market or continued weak wind market, I would say, in DIAB. EBITDA up 15%, EBITDA margin close to 11%. And again, all subsidiaries increased their EBITDA in the quarter. And now I'm really looking forward, Josefin, to listen to Björn Borroman, CEO in HL display. Should I switch the slide here now? No,

I think Björn will come in here. Yeah, indeed. I am super excited to introduce Björn Borroman, the CEO of HL display. Please.

Thank you, Jonas. Thank you, Josefin. And thank you for the opportunity to give some color to the RATOS portfolio companies by talking about my favorite subject, HL display. So I will try to give a short introduction to what HL is about. I'll talk about why we believe this is a good investment for RATOS and about HL's financial development. And then we'll talk a little bit about the exciting buy and build journey we've been on for the last three years. But if we start from an introduction point of view, what is HL? HL is the leader in in-store communication and merchandising solution, helping grocery retailers to build attractive, efficient, and more sustainable stores. This might sound pretty grand, but if we drill down into a little bit more practical examples, what does this mean? For example, when it comes to price communication, the price tag that sits in front of every product on every shelf, whether it's paper, whether it's a digital label, it is likely attached by an HL attachment. And actually, we make these kind of attachments one lap around the world every year to help grocery retailers attach their pricing in-store. So that's just one example of the broad HL portfolio. Another one would be if you step into your supermarket tomorrow, you take a packet of milk, the next one will roll to the front. The rolls they roll on that you don't notice is likely an HL solution. So that's just a few examples of what we do to help grocery retailers deliver better stores and more efficient stores. To do this, we actually deliver these solutions to all major grocery retailers in Europe. We do this through HL's 1,400 dedicated employees. And as a reward, we get a turnover from these grocery retailers, close to 3 billion SEC annually. So that's just a brief introduction of HL and what we do. I'm going to try to step into the next section, which talks about why do we believe HL is a good company in the RATOS portfolio? So there are a few things in the market we operate that are beneficial and are good long-term trends to support development in HL. Firstly, we are exposed towards the grocery market. This grow in general with the population growth 2 to 4% year on year. Then there are a few macro trends within this environment where HL operates and HL benefits from with our product offering that allows us to have organic growth ahead of the grocery market. They are specifically digitalization. So as stores digitalize, HL helps stores to enable this digitalization. The attachment of electronic price labels was one example of that. There are the packaging reduction, which goes into the sustainability investment in stores. This packaging reduction usually needs merchandising solutions that HL provide. And then thirdly, it comes into the efficiency of operating the stores. So how can you operate these stores in a more efficient way? And here comes the milk carton example. You need less people to operate the stores with the HL merchandising solutions. So that's just a few examples on the macro trends helping us to drive ahead of organic growth. That is also helped by the long lasting relationship we have with the major grocery retailers. And this allows us and their commitment to sustainability puts pressure on HL and on the industry to deliver more sustainable solutions. HL's footprint where we produce 80% of what we sell in our own factories allows HL to deliver these solutions of the quality with the recycled content that is requested by our customers. This is not something that is done by our competition in this fragmented market. And this builds into my last point that the competition for HL in this market where we are the undisputed leader is fairly fragmented. And many of our competitors don't run their own production. And as a consequence, they can't deliver on the sustainability journey that the grocery retailers want. And lastly, the fragmentation of this market also helps HL to drive the buy and build journey to consolidate this marketplace and drive good synergies, which we're going to talk about in a while. But I think all these topics and trends together with a strong HL team has allowed HL to deliver great financial performance over the last seven years. So looking at this, we delivered almost 34% average EBITDA CAGR growth over these seven years. And we managed to do this by growing the EBITDA year on year throughout COVID, throughout logistic challenges, throughout inflation, we managed to drive this. So this is something we are really proud of. And we managed to do this following RATOS model of first you create stability in the business, then you create profitability in the business. And once you have good profitability, you start the growth journey. And this growth journey was something we started in 2021. And we managed to do this, or as we started this, we combined our organic growth with acquired growth. And in these last three years, we managed to make 10 add-on acquisitions in HL, either driving market consolidation, offer expansion, or to get full geographical coverage in Europe. Usually, we make these acquisitions at a multiple of five to six times EBITDA. And then after we have benefited from the synergies of bringing this into the HL structure, this lands on about a multiple of three to five. So very good synergies, good multiples as we consolidate this industry. All acquisitions so far has been made in Europe as we have strengthened our leadership position in Europe, except for the last acquisition, which was made on 1st of October, when we acquired a company called Cost Clip in Canada. And I will talk a little bit specifically about this Cost Clip acquisition, because this was an acquisition that was maybe a little bit too early for HL to make an acquisition outside of Europe. However, this was too good an opportunity to miss on. So Cost Clip come from similar heritage as HL. They come from price communication. And they have a leading position in North America when it comes to do exactly what HL has been doing, attaching price to shelf and specifically the electronic shelf labels. And what we see in North America is that the journey we've had in Europe over the last 15 years that you've seen in Canada where Cost Clip is over the last five years are now starting in the US. So this is a great fundament to combine Cost Clip leadership position, the HL experience, to continue to drive and benefit from this strong market trend we're going to see on electronic shelf labels in North America. Secondly, it's a good foundation for HL to cross sell our leading merchandising solutions to Cost Clip's customers in Canada. So a lot of opportunities for HL to continue to accelerate the already strong growth of Cost Clip. So that's just one example of an acquisition, but probably one of the more interesting ones we made in this buy and build journey. So clearly with that, I hope I managed to give you a little bit of color to one of the 17 portfolio companies in the Ratos portfolio. And with that, back to the Ratos studio.

Thank you so much Björn, that was very interesting, always a pleasure. And you will also stay with us for the Q&A session later on. Let's go back to you Jonas Viström and continue with the business area construction and services.

Thank you Josefin.

So here we are,

construction and services. Net sales is down. The strong net sales were in critical infrastructure where Precise Infra had yet another super quarter. If we look at the EBITDA, you can see that what drives EBITDA up is Airteam and Precise Infra. What drives EBITDA down is XBing Group project facing and currency effects. Before I go into the segments, I also want to like to mention here that the order intake was very strong and the order books are very strong in construction. So if we take a look at the segments, again construction and net sales down 14%. We stated it as temporarily and it again has to do with this famous word project facing we have used before, especially for Able. Able came in a little bit lower in the quarter but I'm certain that they will produce another record year. As you remember from Q3 last year, we had very good project endings especially in Hent. So order intake again is strong, order backlog is strong and I think our construction companies and our team is actually doing better than ever in their underlying performance. In critical infrastructure, as I mentioned, I mentioned Able, Precise Infra is doing yet another very good quarter both from sales and EBITDA. When it comes to the lower EBITDA here, it's only due to that the XBing results Q3 last year were overstated. You know that we corrected all EBITDA for XBing group in Q4 2023. So that's the whole reason for this. Let us take a final look on consumer. There we showed a little bit better result. We saw that net sales went down but the main event is of course the reconstruction in Plantagen which we think is absolutely necessary to come to the structure where we want to be. And in connection with that, we also did a write down of Goodwill and the reason for that is that Plantagen going forward is a smaller company but a much more profitable company. So with that, I leave over to you Jonas to talk us through the financials. Thank you Jonas.

So just a quick overview of net sales and adjusted EBITDA if we look at these graphs. Net sales were down as we said before 6%. We saw a negative organic growth in the quarter but we also had a quite large negative currency effect. So you can see here it's 281 million SEC corresponding to 4% of net sales and this is mainly an effect of the weak Norwegian corona but we have also seen a stronger Swedish corona in the quarter. And if we look at the adjusted EBITDA, sorry if we look at the LTM for net sales, we are at 32.4 billion SEC rolling 12 months. Let's move over to the adjusted EBITDA. It's down 9%. It's also here related as Jonas said to the construction and services as I explained earlier and if we look at the EBITDA LTM, we were now at 32.3 billion rolling 12 months roughly. Let's move on to the cash flow. The cash flow from operating activities, you can see we're down 9% but last year in Q3 we had a very strong cash flow quarter. This is yet another strong quarter with 783 million in cash flow from operating activities. We see good change in networking capital as you can see in the table. Networking capital is down a little bit more than 200 million and cash flow from operating activities 783 million and we have a cash conversion around 170%. So it's on a really good strong level. And we continue to work a lot on focusing on the cash flow and reducing the capital tied up in business. This is a focus that we have basically every month going through with all the companies. So it's a really strong focus on this in in in ratos. If we move on to networking capital, you can see that we have a large decrease in networking capital. It corresponds to 0.3%, 16 million and this is then we look at the four quarter average for the capital tied up in the numbers. And you can see that we have good progress in inventory is down and also trade receivables are down and we actually see good development in days for a cancer receivables and inventory. If we look at the DSO, the sales outstanding but also the DIO, this inventory outstanding, we continue to see good positive trends within the group. Then I move on to the the britches. If we look at the net sales bridge, as I said before, we are down 6%. We had some minor acquisitions in HL display and also in in in Lidl. And we also had a very small negative effect from from SEMC on divesting a company in the UK in the quarter or that was made before but we had a negative effect in the quarter. If we look at the organic growth, it's down 299 million. So it's 4% roughly. We saw, as Jonas said, a positive and very strong growth in in in critical infrastructure and that was very much driven by precision infra. We saw a negative organic growth in construction and this is very much a temporary weaker effect because of the project facings that we had last year was where we had a positive effect last year. And then also we saw a negative organic growth in Plantagen and Plantagen is now downsizing its operations and has closed quite a lot of stores in in the quarter. Then we move on to the FX effects, quite large negative effects, 281 million. And this is again the Norwegian Krone mainly which just has been been been weak and then we have no other effects in in the quarter. So that's the bridge on on net sales and if I then move on to the beta, it was down 9% in the quarter. You can see we had some minor positive effects from acquisitions but what I think is interesting to see here is that despite that we have a quite large negative organic growth of almost 300 million, we posted a positive organic growth on a beta 15 million. And this is attributable to the construction, sorry the industry industry companies in the business area industry where we had growth in basically all the companies in in the both the segments. If we look at the FX effect it was down 32 million so it was quite a lot. Here we have a big effect in in industry it's about 15 million but also in construction about 16 million in negative effects. And then we had some various one times effects where we actually had one time costs this quarter of around 10 million which was not adjusted in the adjusted beta and then we had some other minor items. If we look at the leverage we are at 7.00 0.7 times if we adjust for the reversal of the write down enable we were at 1.2 times. If we compare to the same quarter last year we were at 1.3 times so we are on a low level on on leverage. We have seen leverage decreased and we have good cash flows in in the business and we also saw net debt coming down as you can see here. On the slide if we look at the return on capital rose we were at 10.2 percent and if we look at the return on invested capital we posted 7.3 percent in the quarter. We look at the financial targets on the beta we say that the beta should amount to at least 3 billion by 2025. We have a leverage target the leverage should be in between 1.5 to 2.5 times and if we look at the dividend payout it should be in the range of 30 to 50 percent of net profit after tax. So that was all from me over to you.

Thank you Jonas and thank you for mentioning that we have not adjusted for all costs we have had and I spoke about a business area consumer. We had a little bit better result this year. Plantagen improved their EBITDA but also actually KVD improved their EBITDA if we take into account that we had some profit of profit generating projects in the quarter that we didn't adjust for. So with that my final remarks I think again the merger of Nitec and Semcon will really create value going forward so will the reconstruction in Plantagen and we also have finalized the restructuring of the organization in Exbin. We repeated time after time that we continue to do good numbers in industry and Björn is one of the strong contributors. Thank you so much for your presentation Björn. And the week the quarter in construction is what we mean a temporarily weak quarter. I mentioned the order backlogs and order intakes. We mentioned the large negative currency effect but sales are down and we need to recognize that our market is still quite weak and it was a little bit weaker than expected in Q3 and therefore we're even more happy that we're doing so good with the Cash flows continue to be strong or very strong and I dare to say now that the transaction markets at least in M&A and NPE shows signs of improvements. That's how far I go here Josefin. So with that we open up for Q&A Josefin. Yes

let's thank you so much Jonas and Jonas and it's time for our Q&A session. So let's start with Henrik Hinse from ABG. The line is open for you.

Hello this is Henrik here at ABG. So first of all the Plantagen reconstruction. I mean could you just give us some more detail on that? What have you done so far? Where are you now in the process? What remains to be done and how much smaller will the company be when this is completed and what kind of margins are attainable if everything goes as planned in the process?

Yes thank you. Thank you for a question. I think everyone wants to have an answer. I think we can report a little bit of what we've done in terms of stores etc. But we want to comment a letter about the process which is ongoing and which is very important. We don't think that the process itself gains from that we put up our expectations here and now. But Jonas would you like to say something about the number of stores closed so far? We have so far

closed about 35 stores. 10 in Finland and the rest in Norway and Sweden. So that's what we have done so far. But as Jonas said we don't want to comment on sort of the reconstruction process really right now when we are in the middle of it.

We can maybe comment on the headquarter if you want. And tragically of course a lot of people have been laid off also here in the process that has been. But we continue this process and we will come back to you when we have the results.

Okay thank you. So maybe one more about the Semcon Nitech merger then. I'm just wondering what made you pull the trigger on that now? You've owned both companies for a while. What drove that decision?

Also a very good question. As you might know I've been in this industry for quite some time. It's all about people and I wanted to see some collaboration between these companies before we took this step. And the matter of fact is that they have worked together now with important customers. They have learned to know each other a little bit. So we wanted to reduce the risks and this was of course the plan from the beginning when we bought Semcon and when we bought Nitech. We believe this is a business area that will grow. I mean I used to say it's the engineers and vice politicians who drives the green society we all need to live in in the future. And they will now create a really leading partner for R&D and digital solutions in Northern Europe. And I must say that this process has started very well. And in my previous job we did 65 acquisitions. So I have some experience in this area.

Okay very good. And a final question from me then. The margin in the industry segment surprised positively and improved year over year. Could you just explain what drove that? Sorry what? What drove the margin increase in industry? Any particular companies or just the segment? Well

all companies actually grow their beta. We believe very much of course in strong CEOs like Björn. But we also and that's the most important but our RATOS business systems is working very well. And that was something we implemented in 2018 when we had 400 million in EBITDA instead of 2.3 and where we had a leverage of 3.5 or something like that. It has worked very well. It works on industry and industry will be our focus coming forward.

Okay thank you. That's all for me.

Thank you Henrik. Let's move over and see if we have Julia and Geli Strand from Handelsbanken on the line.

Yes I'm here thank you. I just have a follow-up question on Nitech Group. And so just what's your view on the technical consulting market going forward? Have you seen any signs of weakening demand?

Hi Julia. Very good question. Actually the market is a bit weaker. The technical consulting market is like many other markets a little bit weaker in Q3. That's my opinion. And that market I mean it will be a growing market over time. But with the interest rates that has been we have seen going down. We expect they will go down. But I'm not a good forecaster. I used to say that forecasting is astrologic, astrologi in Swedish. But of course sooner or later the market will improve. But it has actually been a little bit weaker. So therefore it's very gratifying that they grow organically 8% Jonas in the quarter. So that's a sign. But it's too very good company.

Okay thank you. So do you think that this could have any impact on the merger? Or when do you think that we will see this market to pick up? If you could just give a broad indication. I

don't think it will have an effect on the merger at all actually. But I think we can see I mean officially after the authorities have approved this merger, which they will do, and quite soon we will see the new shape of the company in the first quarter next year I would say.

Okay I understand. That's

all for me. Thank you. Thank you Julia. Let's move over and see if we have Johan Sjöberg from Kepler Chevrolet on the line. Nope not Johan. You're welcome back another time. Let's move over to Albin Nordmark from Nord-Ea.

Yes hello. Thank you Albin from Nord-Ea here. So we have a good order in taking a Q3 for construction and for Able. So can you give us some sense of how much of that is to be realized now in Q4 and perhaps 2025 as well?

Would you like to answer that?

Yeah I you know we have said that the construction companies will have sort of a weaker market during the second half of this year and so we won't see you know really high sales in Q4. But it will come gradually in 2025 and onwards and the order book looks very good as you can see.

Very good also not in numbers but also I think in the quality of the orders. So yeah.

Perfect thank you. And also the inventory and receivables is continuing down here. Is this normal levels or should we expect the working capital to continue to decline year over year in Q4 as well?

No I mean normally when it comes to accounts receivables and partly also inventory it depends on you know the market and how much you grow and so on. So we have not been growing that much this year. Sales is down as you have seen. So of course that helps a little bit but as I said earlier we have a lot of focus on this and we talk with you know with our subsidiaries on the monthly basis and discuss you know cash flow and how they can improve the capital tied up in the business. And so I expect it to continue but if we start to grow a lot you know in the next year or going forward of course we will tie up more capital in accounts receivables for example that's quite natural.

Yeah but I'm glad that inventory was brought up here because that is really a focus area especially in consumer right and I would say that there has been some success there.

And for example Plantagen they are running an inventory reduction program and we saw reductions in inventory levels also in Q3 so they have been successful and we expect them to meet you know the targets they have set up for the end of the year. And KVD perhaps? They are also down. Yeah so they have also running a program in order to reduce inventory and it looks good.

And last one from me non-recurring items regarding Plantagen and also the write down. Should we expect more here going forward?

No more write downs hopefully but we will have more you know one-time costs in connection to the construction process.

Okay thank you that's all for me.

Thank you and last but definitely not least you're Atling from Pareto. Please line is open.

Yes thank you good morning. I have a couple so bear with me but first on the items affecting comparability the 34 million affecting Ibita. Is that related to restructuring of Plantagen or any other items as well?

It's a combination it's the restructuring of Plantagen it's the restructuring of also in X-Bin that we have some one-time cost in the and it's also the first steps in the merger of Zemkon and Nitec so it's the first step we have taken some cost in Q3 for that but it will come more I expected more to come in Q4 but it will be adjusted because it's a one-time effect and of course we will see then gradually going forward we will see good synergies and cost reductions.

Okay and on Plantagen down 19 percent how much is it possible to quantify how much of this is you know a direct effect of the restructuring?

You don't see that much effect of the restructuring because you know the stores that we have closed down they will keep up keep on running until the end of the year is the plan so we will coverage you know the Christmas season and so on in those stores so it's more that we face a difficult market with you know a poor consumer sentiment I would say.

Okay and on the order intake first on critical infrastructure is done quite materially is there anything to pinpoint here is it just usual volatility because it's down 90 percent?

Good question Jörg it's very much so that precise inflows orders come in in the first half of the year so this is not a high order intake quarter would you comment anything? No but that's the

truth I mean they normally you know get orders in during the first half of the year. Thank

you Jörg for bringing up that question.

And then in because it was still like 400 million or something in the comps but is that from x pin then in the comps?

Yes it's I think 56 it's a big sum.

Yeah and then maybe stay on the critical infrastructure side so 26 percent down on EBITDA but that's obviously mostly to do with x pin. Entirely

not mostly.

And what is so what is the EBITDA growth in critical infra excluding x pin?

Yeah that it's

a number that we don't I'm sorry but we don't disclose that number.

But we I think we can say that we will disclose the numbers for the companies in our annual report each and every company but I can tell you Jörg that it was yet another record number for precision phrase. They're performing well in all aspects. Yeah they are.

And then just a final question on the capital allocation here because you're down to 10 billion now in market cap leverage significantly below your target and still looking to sell more of your portfolio companies. Where are the buybacks to to be very direct because I struggle to see you putting this cash to work in acquisition?

Yeah there are no buybacks now but of course in our plans is also to use this money on improving our EPS and our EBITDA going forward. But the buyback discussion I don't think we should comment it at all. This is of course a question for for our board and that is something we'll come back with if we have anything to report.

Okay what do you think like what would be most effective to drive EPS growth buying your own share here at mid single digit EBITDA multiples or splurging on acquisitions?

No I think the main focus will be on on add-on acquisitions going forward and then then also as we I think we communicated earlier to to acquire you know minority stakes in in our companies.

Yeah when we do add on acquisitions you normally have a buyout option after a couple of years and so on and that is EPS is a very important key pay for us.

Yes that's clear all for me thank you thank you thank you thank

you so much here and I think that was it. Okay so is there one more question from the call coming in please? No more questions as it seems.

What I have raised I raised my hand. Okay perfect hi Aston

Eng welcome please post your question.

Yeah yeah thank you. I was I was mainly asking for Plantagen and what I was mainly wondering is why did you decide to lay off your web shop and how much do you expect to save on that because Plantagen is what we call in Norway destination retailer so is that some kind of is that is web some somewhat wasted resource or what what do you say about yeah quitting the web shop?

I think I mean I think this is an action from Plantagen and not from Ratos so I I we can come back but the best thing is to to talk to Jesper Lian in Ratos about that. So because we're not in from Ratos to to sort of detail instructions on operative actions so so we can't answer that question here.

Okay but you know estimate on how do you expect to save from it by any means in costs?

From from from from closing down the e-trading.

Yeah no

we have no numbers on that.

Okay okay and yes and lastly how do you feel about leaving Finland in Plantagen?

Yeah that was necessary we we tried we tried to to we haven't left Finland but we have we have left left Finland for for Plantagen. Yeah exactly. We're still in in but we you know we need to be able to to close it down. So that is sad but Finland unfortunately has been an unprofitable country for many many years so we couldn't we we can't use our shareholders money on business that is losing money year after year. We gave the stakeholders a chance to find a profitable way forward but we couldn't agree on the terms so that's the answer. Yeah thank you so much. Thank you thank you thank you

and thank you so much for your questions and as said initially this webcast was recorded so you can see it afterwards at ratos.com. Thank you Jonas and thank you Jonas and thank you Björn who was with us to give a bit of more color on the fantastic journey in HL display and thank you for being with us this morning. Thank you and goodbye.

Thank you. Bye bye. Thank you very much.