Vestum AB

Hello, everyone, and welcome to our presentation of Vestum's report for the third quarter 2024. My name is Simon Gothberg, CEO of Vestum, and together with me, I also have Olof Andersson, CFO of the company. Let's have a look at some highlights from Q3. Despite rather challenging market conditions, we have successfully improved profitability in the quarter with an adjusted beta margin of 11.5%. The margin uptake is mainly driven by our increased focus on product companies. And these companies have market leading positions and have in general experienced a solid market. Products now represent 50% of Group Ibiza, both in the quarter and on an LTM basis. And looking at overall demand, the positive shift in market outlook from Q2 has continued. but organic growth remains negative at minus 10.7% driven by the softer economy. That said, we continue to see very strong demand in the water segment, not least in the UK, and thanks to solid cash flow in Q3 with operational cash flow of 200 million, leverage has only increased slightly to 2.8 times EBITDA, even though we made a rather large acquisition in August And going forward, we remain balanced in our capital allocation between acquisitions and reducing leverage. Now let's have a look at the segments, starting with the water segments. Demand has continued to be strong with sales growth of 43%, driven by both the PDES acquisition and organic growth. Essentially, all markets have performed well. And as with previous quarters, highest growth was seen in the UK. EBITDA grew by 35%, of which 9% organically. And the margin was slightly lower than last year, driven by the acquisition of PDAS. PDAS has, however, performed in line with expectation and continues to improve its EBITDA margin, driven by the highly scalable and profitable subscription business of intelligent monitoring systems. And we have also already extracted procurement synergies with pump supplies by significantly increasing the discount rate with the largest supplier. And we're actively pursuing additional acquisitions to the segment. Moving on to the services segment, the property market remained challenging in the third quarter, which impacted both volumes and profitability. However, sales decreased at the lowest rate since at the beginning of the year, and the lower margin in the quarter was mainly driven by lower volumes and increased competition in the market. And as in the second quarter, we continue to see an improved market outlook with short-term lead times to our customers, and we expect to be back at volume growth in 2025. Lastly, let's have a look at the infrastructure segment. Profitability was strong in the quarter with an EBITDA margin of 13.1%, mainly driven by our product companies. Products represented 30% of the segments EBITDA in Q3 compared to 23% last year. And the decrease in sales in the quarter was driven by certain businesses that are between project completion and project start. And as with the services segment, we continue to experience an improved market outlook, even though short-term challenges remain. Now we have for over a year talked about the importance of products in our portfolio. And as mentioned, 50% of Group Ibita On an LTM basis, it's made up by market-leading product companies investing, and as seen by the pink bars, this share has increased rapidly since 2021 and continues to do so. These companies have leading positions with price leadership and accumulated EBITDA margins above 15%, and an EBITDA over networking capital of 67%, which I think really stands out. Some companies have own products that can be exported to other markets and some are value added distributors. Our capital allocation in M&A is focused on acquiring additional market leading product companies and one should expect the EBITDA share of 50% to increase substantially going forward. Now over to Olof.

Thank you. have a look at our net sales and EBITDA development over the past couple of quarters. And let's begin with the chart on the left, which shows net sales, where we saw a decrease compared to the same period last year, driven, just like the previous quarter, by the services and infrastructure segments, as Simon also mentioned. And if we move on to the chart in the middle, showing adjusted EBITDA development, we see pretty much the same pattern with a decrease, again, driven by the services and infrastructure segments. However, finally, in the chart to the right, the adjusted EBITDA margin actually strengthened compared to the same period last year, from 11.4% to 11.5%. And we move on to net sales development. And Q3 net sales decreased by 8% compared to last year, with the organic growth being negative by 11%. And worth noting is also that we had a negative impact on net sales growth due to the divestment of Floor Slageren in the second quarter, while the acquisition of PDAS in the third quarter contributed. We'll proceed to have a look at operating cash flow during the last 12 months. The operating cash flow decreased versus last quarter, driven almost entirely by networking capital. And the cash conversion also decreased somewhat compared to previous quarter, but still remains quite solid at 100%. So that was operating cash flow. Now let's look at free cash flow. And we define free cash flow as cash flow from operating activities. So that is including interest and taxes paid and change in net working capital. And then we subtract capex spending, i.e. investments in fixed assets. And we also subtract leasing amortizations. So basically, free cash flow is cash that can be used for dividends, acquisition and repayment of debt. And for the last 12 months, the free cash flow amounted to 379 million SEK, down from 441 million SEK in the previous quarter. And the main driver of the decrease was the net working capital developments. And the free cash flow of 379 million SEC amounted to 69% of EBITDA. So basically 69% of EBITDA was converted into free cash flow. Now, if you strip out change in net working capital from free cash flow, you get a free cash flow for the last 12 months of 325 million SEC. And you're still close to 60% of EBITDA. And we think that that is a quite strong number to emphasize when you consider the fact that we still have a quite expensive capital structure with a bond of 600 million SEC with a margin of 638 basis points plus stable. And let's move on to net debt and leverage development. The net debt is represented here by the pink bars and amounted to 2.1 billion SEC, down from 2.4 billion SEC same period last year. And leverage increased from 2.7 to 2.8 times sequentially from last quarter, driven by the acquisition of HIDAS. It is worth noting that we reduced the own-up debt from 80 million to 62 million in Q3. And when taking into account earn-out debt, the leverage multiple increased from 2.8 in Q2 to 2.9 times, again driven by the acquisition of SIDA. And by that, I hand it back to you, Simon.

All right, thank you. So in summary, we have successfully improved profitability, although market conditions remained challenging. This is driven by our increased focus on product companies, which now represent 50% of Group Ibita, both in the quarter and on a multi-end basis. Cash flow was solid in the quarter with operational cash flow 200 million and free cash flow 87 million. We continue to experience strong demand in the water segment in basically all markets, but with highest growth in the UK. We have also successfully onboarded the acquisition of PDAS. And further acquisitions are expected mainly in the UK. That said, we remain balanced in our capital allocation between reducing leverage and investing in growth, but we also acknowledge that we generate strong cash flows. And as with previous quarters in 2024, market uncertainties remain in the short term, but the positive shift in market outlook has continued in Q3 and we expect to return to volume growth in 2025. And we have already initiated several organic growth activities across the portfolio that will show results next year. And with that, we open up for questions.