Vestum AB (publ)

Welcome to our presentation of Vestum's Interim Report for Q1 2025. My name is Simon Gothberg, CEO of Vestum and together with me also Olaf Andersson, CFO of the company. Now let's have a look at some highlights from the quarter. Our focus on growth and investments in both organic initiatives and acquisitions has proved successful. In the first quarter, Vestum generated an organic growth of 3% while profitability was strengthened. And this is the first time in two years that existing operations have generated positive organic growth. Leverage came down to 2.1 times reported EBDA, mainly driven by divestitures. Cash flow decreased as expected in the quarter, driven by an increase in investments in organic growth, increased working capital tie-up and some financial one-time costs related to the early redemption of Vestum's last outstanding bond. The investments mainly relate to geographical expansion in both our UK operations within the market and the global market. We have market-leading positions within water infrastructure and within the niche product segment in the Swedish market. After end of quarter, we acquired Nordtech, a UK market leader in monitoring and control technology in the structurally growing energy and water distribution sector in the UK. The company generates high margins and high return on capital. Acquisition will be consolidated into Vestum from the second quarter. Now let's have a look at the segments, starting with the flow technology segment. Demand has continued to be stable with sales growth of 13%, driven by the PDES acquisition. We have faced some tough reference figures from last year, mainly in the UK, but even we continue to generate strong numbers. The margin was as expected lower than last year, driven by again the acquisition of PDES. And as with previous quarter, PDES continues to perform in line with expectation and continues to improve its EBITDA margin. And focus for the segment going forward is growth. Moving on to niche products. The positive growth trend continues and for the first time in two years, we break negative growth to neutral development, while the EBITDA margin improves from .7% to 10.0%. Certain parts of the segment continues to face a challenging market where we focus on improving profitability and while we're still allocating capital to growth in other parts, where the return on capital and demand remain high. Lastly, let's have a look at the solution segment. We have divested several companies during the quarter, including the largest and third largest company in the segment, meaning that sales and profits in absolute terms decreased. The first quarter is seasonally the weakest quarter of the year. However, organic growth in the segment is positive, mainly driven by increased demand within our niche infrastructure services companies. Profitability strength in the quarter, the EBITDA margin of 4.8%. And we are foremost focused on continuing to improve profitability in the segment. As briefly mentioned in the beginning, we have completed a fantastic acquisition after end of quarter. The company is Nortek and is a UK market leading designer and supplier of monitoring and control technology to the UK energy and water distribution sector. Nortek has proprietary products specializing in fault location, communication and automation, as well as the proprietary software platform iHost. Nortek has been a supplier to our existing UK companies Pump Supplies and PDAS for a decade. And this is basically the main reason why we were successful in making the acquisition. The company shows great financials and will strengthen our already very strong position in this space in the UK. And we look forward to leveraging our position in further acquisitions down the line. Now over to Olof.

So let's have a look at net sales and EBITDA development over the past couple of quarters. And if we begin with the chart on the left, which shows net sales, where we saw a decrease compared to the same period last year driven by the divestments in the solutions segment that Simon mentioned previously. And if we move on to the chart in the middle showing adjusted EBITDA development, we also see a decrease driven by the same divestments. And finally, in the chart to the right, the EBITDA margin increased by half a percentage point compared to the same period last year, driven by the fact that the divested businesses had lower profitability than the remainder of the group, but also by the niche product segment, which increased its margin compared to last year. And we move on to sales, net sales development and the divestments in the solutions segment put pressure on the net sales in the quarter, as I just mentioned previously. But we saw positive organic growth of 3% in the quarter. Again, as Simon mentioned before, this was a trend shift after two years of negative organic sales development. And in total, net sales in Q1 decreased by 9% compared to last year. So moving on to operating cash flow. And I should say that this is operating cash flow for the last 12 months. And the operating cash flow and the cash conversion decreased compared to the last quarter, mainly driven by changing network and capital, but also by higher cap expanding, which in turn was mostly driven by investments in our flow tech businesses in the UK and some of the niche product businesses. So that was the operating cash flow. Now let's look at the free cash flow development. And we define free cash flow as cash flow from operating activities. So that is including interests and taxes paid and change in net capital. And then we subtract cap expanding, i.e. investments in fixed assets. And we also subtract leasing amortization. So basically free cash flow is cash that can be used for dividends, acquisitions and repayment of debt. And the free cash flow has, among other things, been quite negatively impacted by one-off expenses, mainly driven by the early repayment of bonds, which we have done during this 12 month period. So in total, these one-offs added up to just under 14 million, as Swedish Kronor, of which approximately 25 million occurred in the first quarter of 2025. And it's important to note that this change in our capital structure is expected to lead to significantly lower financial expenses going forward. So let's move on to net debt and leverage development. And the net debt is represented here by the pink bars and amounted to 1.4 billion SEC, which was slightly lower than the previous quarter. And leverage also decreased slightly from 2.2 to 2.1 times sequentially from last quarter. And earn out debt was reduced slightly from 19 million in Q4, 20.4 to 17 million SEC in Q1. And when taking into account earn out debt, the leverage multiple was 2.2. And by that, I hand it back to you, Simon. Very good. Thank

you. So in summary, we have for the first time in two years showcased organic growth while the beta margin is improved. The flow technology segment continues to do very well, and we expect this to continue, not least supported by acquisitions. Our new capital structure was established in March 2025, and we're now from April and onward looking at significant interest cost savings. Our capital allocation will continue to be focused on growth. As with last year, market uncertainties remain in the short term, partly driven by the current global trade barriers. We don't have any direct exposure to the tariffs, but the level of uncertainty that we are now experiencing is never great. That said, we have truly laid a new foundation for Rastum, both platform-wise and balance and we will now start to capitalize on the structural improvements implemented in recent years, which we look forward to. And with that, we open up for questions.

The next question comes from Simon Johnson from ABG Sundal Collier. Please go ahead.

Hello Simon and Olof. So my first question is on organic growth, and maybe if you can elaborate a bit more on the different segments. I mean, you grew, you had positive organic growth, but I assume that in flow technology, it was a bit down organically. Correct me if I'm wrong. So what was the main drivers, would you say?

Yeah, hi Simon. It's Simon here. And yeah, you're absolutely right. So I would say that most of the organic growth is driven by the solution segments. Looking at the flow technology, that segment was impacted by roughly 40 million coming from PDAS, which is obviously acquisitive growth. And I would say in flow technology that the UK faced some really tough reference figures from last year, given that in 2023, there was a record amount of floodings, which basically caused the water levels to remain at very high levels throughout the first four to five months of 2024. And now when we go into 2025, there's basically been zero floodings that has positively impacted our business. And even so, we generate some really, really solid numbers here. And this basically means that we have reached a new sort of normalized level for our UK companies, where they become less dependent on extreme weather. And looking at niche products, that segment was roughly neutral, right? So yeah.

Got it. Thank you. And so about the more service oriented units, I mean, how should we think about that in the coming quarters, you would say? Are they sort of back to on a positive organic growth trajectory and should accelerate coming quarters? So how do you view that and how do you view the underlying markets?

Yeah, you know, so basically our services based companies in the solution segments, they have sequentially improved their organic growth over the last five quarters, basically. Q1 last year was, I think, the worst quarter for them. And then sequentially, it has basically improved. And now we're back at the organic growth. And this is seen in both of the two subsectors of solutions, both installation work and infrastructure services. And where we have the best sort of visibility is in our infrastructure services companies. And they have, as I think I've said over the last, at least over the last quarter, they have stronger order books now than they had a year ago. And this is now shown in the numbers. And same story for the current quarter, for the second quarter. So I think most things are looking to quite similarly as they did in Q1 for the solution segments.

Got it. And sort of the trend for the other products, niche product companies, what do you say there? I mean, it has been some headwinds, but now it seems to be relatively flat year over year. So what's the momentum for the segments?

Yes, same thing for niche products. They have sequentially also improved their organic growth, right? It's been negative for quite some time. And now for the first time, I think in two years, it's neutral. And roughly 70% or -70% of that segment is exposed to investments going into different types of commercial properties and public properties, hospitals, schools, etc. And those companies have seen a much better market now than a year ago. That said, now with the market uncertainty that's going on with trade barriers and tariffs, obviously these companies don't have any direct exposure. But if the uncertainty basically leads to property owners and different clients in Sweden holding on to their cash, then that will have an impact on our companies as well. But it's a bit too early to say. And what we've seen in the first quarter and going into the second quarter is that we're in an improved market than a year ago.

All right, interesting. So basically what you're saying is that construction-related product sales is back to at least neutral and the installation is growing currently.

That's what I'm saying.

Good to hear. Then on the cash flow, I understand there are a few one-offs like the bond redemption, some increases in working capital. But CapEx was also a bit higher than expected, I think. So how should we view that going forward? Was there a one-off in CapEx as well? What should we expect from CapEx this year and also in terms of what you expect in cash conversion if we talk about free cash flow to Ibiza? Can you still achieve above 50%?

Yeah, so talking about CapEx, I think we mentioned over the last six months or so that we're now investing both organically and in new acquisitions. And what do we mean by investing in organic initiatives? Well, basically that we invest in our platform companies where we can achieve high return on capital and where they can achieve high organic growth, i.e. where the market is growing. And the investments in Q1 of roughly 20 million was basically allocated towards the UK where we're opening up additional depots for palm supplies, which is super great news, obviously. And the other part was in our container related businesses. We're also looking to expand. We own the market leader and the second biggest company on the market in this niche. And going forward, I think we'll continue to invest in organic growth. That said, it's not going to be materially different than last year, but it will most likely be somewhat higher than last year since we're now investing in growth. And our shift has gone from playing a bit defense to basically investing growth, both organically and in acquisitions. So I think it's really great news. And looking at cash conversion, we typically don't guide on specific numbers. But what I've said historically is that we would want to be at a free cash flow of 60% of our EBITDA. And I think that's still achievable. All of the structural changes and improvements we made over the last couple of years are now starting to show with the numbers, starting from basically April and onward. And this is partly related to financial items, interest cost savings, not least, which is basically 15 million interest cost savings per quarter now going forward. So we're quite optimistic that free cash flow can grow from Q1 and onward now.

Right. Interesting. Thank you so much. That's all for me.

Thank

you. The next question comes from Anton Lunn from Kepler Shoevue. Please go ahead.

Hi, Simon. Hi, Olaf. Can you hear me?

Yes, very well.

Great. Thanks. Many good questions asked already, but I also have one question on the cash flow. I know the 555 million SEC that you received from the divestment that you announced in November. Can you please walk me through here? Because I thought it would be somewhere around 700 million that you would receive. What am I missing here?

Yeah, not exactly sure where you're coming from. This might be easier to go through step by step separately. But basically, if you look at the enterprise value that we usually lay out in press releases and then go from sort of an enterprise value to a purchase price or an equity value, you have to take into consideration that the equity bridge in an M&A transaction is different than it is for Vestima as a listed company. And the reason for that is because we have different definitions of working capital net debt. So for example, in an M&A transaction, tax liability is a net debt item, which reduces the equity value. But for Vestima as a listed company, we put tax liability in working capital. And in an M&A transaction, you also normalize cash. So if we sell a company and the cash position is really high, that typically means that working capital is low and then you do a normalization and you reach an equity value. But when we release a quarterly report, we will obviously have that cash position in the domestic company leaving Vestin. But what is maybe forgotten is that working capital is quite high, meaning that we will release working capital going forward, etc. So, yeah, it's a little bit complicated. But if you want a thorough sort of breakdown, I'm happy to give you that after the call.

Sounds good. Many thanks. That's all for me.

The next question comes from Jakob Marken from Danske Bank. Please go ahead.

Hi guys, a couple of questions from my side as well. First on the recent acquisition of Nordtech, if you can just help us with your expectations on margin, organic growth going forward, of course, very strong numbers here in recent years. But what do you expect going forward? And also, is there anything about seasonality that we should know about this company?

Sure. Hi Jakob, Simon here. So, yeah, the company is a true market leader with very, very high market share. And that obviously means that they can take high prices for their stuff. All of their things are basically proprietary, both hardware and software. The margin has, over the last five years, averaged at 30 percent. And we expect the company to continue to perform in line with historical levels. They have grown strongly over the last five years at 16 percent. We don't expect the company to continue to grow by 16 percent on an annual basis going forward. I think someone on the lines of 10 percent is more reasonable. And we did conduct a commercial market study very thoroughly. And basically all these things were confirmed in that. And let's see your other part of the question. You asked about the margin profile. I'm

just wondering if there's any seasonality that we should know. Oh,

yeah, seasonality. Yeah, so the company typically doesn't have any seasonality. But then again, it can be a little bit sluggish depending on when orders are coming in from the company. And then they can also have their customers. So, yeah, there's no there's no sort of seasonality that is dependent on weather or that sort of thing.

Okay, perfect. That is very helpful. And then on the same note, but on the divestment side, is there anything we should know in comparable numbers on the divestments when we try to estimate this year?

Yeah, I think they performed quite linear last year. So, I mean, we've divested 25 million avibita. I think as an analyst, you can sort of plug into your models that they performed roughly 6 million per quarter. So they did 6 million avibita in Q1. And I think the last sort of 7 million was in Q4. So I think that should give you a quite good understanding on how they performed last year.

Perfect. Thank you. And my final question is that you is on solution segments. You talk about growing order book. I'm just wondering if you can share some details on margin development in that order book and how we should view that.

Yeah, so again, that order book is mostly related to the infrastructure services companies. And those companies have historically been at margins that are above our financial target. And I don't expect these companies to come back to 22, 23 levels already in 2025, but they are growing now, which is really great. But then again, also from quite low numbers, right? Last year in the first half, it was a little bit of a weaker market than it is today. And we are expecting gradual improvements on profitability.

Perfect. Thanks for the help. I'll get back in line.

Okay. Thank you, Jacob.

Okay,

doesn't seem to be any written questions. So with that, we thanks for paying attention and for listening in. Thank you so much. Bye bye.