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Volati AB
4/25/2024
good morning and welcome to today's webcast presentation where we have a lot to presenting with us we have the ceo andrea stenbeck and cfo martin annonson we'll do a q a after the presentation and you can either type in your questioning in the form that is located to the right or 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 we will then announce if it's your turn but since in the last four digits of your phone number And with that said, please go ahead with your presentation, Andreas and Martin.
Thank you. Good to see so many of you listening today. Let's dig into today's presentation. Firstly, just a short reminder, Volati, we're a fast-growing and acquisitive group consisting of six well-managed platforms that over time have proven to show strong growth, earnings and cash flows. We consider Sweden, Norway, and Finland as our home markets, but we're also active in large parts of Europe. Two of our platforms, Solix Group and Etikett Group, are also our natural business areas, and the remaining four platforms are within our business area industry. And we will, for example, get into scientific communication a bit more in detail later today. So let's talk about this recent quarter in a bit more detail. Before doing that, firstly, I would like to point out that Volat is best evaluated over time. I made that point about a year ago when we had just recently showed a 55% EBITDA growth in our record quarter last year. And I'm reminding you about the same thing today when we saw a sharp decline compared to last year. I also understand that our quarters are hard to predict. This year, we expected to come in lower than last year. And that was for a couple of reasons. Firstly, 5G rollout pace was at its peak last year. Which led to that we had a very good result, well above our own expectations in platform communication. What has happened since then and more specifically since last summer is that we've seen a sharp decline in the rollout pace, which is also now affecting us in Q1. Secondly, the construction market has been even weaker than a year ago, affecting our platforms in St. Derek's and Salix. The consumer-related part of the construction market hit us and the general market about one and a half year ago. But what happened one year ago, about the same time as this call, but a year ago, was that it also hit the professional part. And so now we see both the construction and the professional related part being a bit weaker. And lastly, we have calendar effects. And that is from the Easter being in Q1 this year. However, even though we expected to come in behind last year's, we also came in slightly behind our own expectations. And what's the reason for that then? That's mainly attributed to an even slower construction market that we saw, and that affected our two platforms, Salix and Saktiarit. Last year, the market in 2023, the market was down a bit more than 15% compared to the last year before, the general construction market that we're serving. And we see a similar development in the beginning of this year. Having said all this, I'm a bit more positive about the quarter to come. We have a number of reasons for that. We do not expect any dramatic shift in the market short term, but we still see that we are over the year going to meet easier comparables. We also see that we will continue to see effects from our cost saving measures, which will help us then to mitigate tough market. And lastly, we will have support from the acquisitions that we have already done, which will drive some of the growth going forward. Under these tough market conditions, it's very important, and I'm especially thinking about my colleagues in Solix, Sankt Eriksson Communication, it's very important to keep the energy up, to continue every day making the right decision with the long term in mind. We're getting closer to a shift in the market. And at one point in time, we will go from having a fierce market-related headwind in the face every day we go to work to meet somewhat of a breeze. And then suddenly we will have the wind in our backs. And when that day comes, and that's on our next slide, we will be in a very good position. I believe that we have successfully balanced the short-term profits to drive that, but still keeping the long-term value creation in mind. We have really focused on the structural measures, and these measures we will have with us once the market returns. I said this already last quarter, that currently we're not operating where I think we should be in a normal market. And I say normal market, not peak market. We will see the effects from this once we have the construction market coming with us again. So once we have that market starting growing, and that will lead to accelerated organic growth for us. We are also very well positioned to continue being active doing acquisitions. We finalized two acquisitions in the first quarter. One of them was signed in 2023 in Q4. And these two are adding about SEK 500 millions of yearly revenue. I also see a positive outlook for a maintained good acquisition pace, but we will never prioritize growth to the expense of poor returns. We're currently at 2.6 net debt to EBITDA. So that's in the middle of our financial goal, but we're also confident to be there to drive further acquisitions. And we will get back to that a bit later on. So with all that, let's get into our numbers. And on this next slide, you can see, let's see, I'm just gonna start. On this next slide, you can see that our sales in Q1 were down 8%, and EBITDA came in at 90 million compared to 159 last year. And the main reasons for that I already touched upon. It's market related, it's not structural, and it's mainly attributable to solid sanctuaries and communication. We are also more volume sensitive in a small quarter like Q1, where the lower sales have a larger impact on our margins. The cash flow in the quarter, I'm okay with. It's lower than last year, but then we had a situation with high net working capital release in our platforms. So looking at the last 12 months, our cash conversion is at 96%. So that's a level which I'm happy with. The net debt to EBITDA, as stated earlier, it's in the middle of our financial goal. We are comfortable being there. Q1 is usually a negative cash flow quarter, and this year we also finalized two acquisitions, and we have the strong cash flow quarters ahead of us. Looking at this next slide, I will just briefly comment on it. But I said earlier that it's hard to predict individual quarters of Volati. And I think that this is a good way of illustrating that. I can see two things on this slide. Firstly, predicting 2023 Q1 was really hard because it's a positive outlier looking at the history. But it also provides a perspective why we were expecting lower results in Q1 this year. So we will have those negative and positive outliers also going forward. And when we have that, it's very important to return to the long-term perspective. Talking about then the long-term perspective, the last five years, if we looked at full year, a rolling 12-month figures, we have shown a CAGR, so an average growth rate on EBITDA of 20%. So despite the recent year's lower growth rates, on average, we're still above our financial goal. Having said that, once the market returns, we will compensate for the last year's slower growth rates in relation to our financial goals, which Martin will now tell you a bit more about.
Yes, thank you, Andreas. So let's look at our performance in relation to our three financial targets. And let's start with our growth in EBITDA per ordinary share. And as Andreas mentioned, we have right now a bit of a headwind in a few of our platforms affecting the growth negatively. And we are now at the EBITDA growth per ordinary share of roughly 13%. And that should be compared to our target of 15%. It is worth noting, though, that our target is measured over business cycles and If you take a longer-term perspective, our five-year average EBITDA growth per ordinary share is 23%. And over time, that means that we are comfortable with our long-term financial EBITDA growth target. And our second financial target is our return on adjusted equity, which came in at 18% versus our financial target of roughly 20%. So that is below and that is driven by a lower EBITDA growth during this quarter. Taking a longer term perspective, however, during the past five years, we have delivered an average return on adjusted equity of roughly 29%. Our last financial target is our capital structure, which is our net debt to EDA ratio, which came in at 2.6 times in the end of the quarter. which is in the middle range of our financial target of a ratio between two and three times net EBITDA. And that means that we still have a financial capacity left to act on when we find the right acquisition opportunity. So let's look at our three business areas and let's Let's start with our business area, Salix Group. Salix Group saw sales decline with 5% in the quarter, and EBITDA declined with roughly 9 million SEK in the quarter. And the demand continues to be hampered for Salix Group, driven by the headwind in the construction industry. But despite this, the sales decline, the EBITDA margin only decreased with 1 percentage point. And why do I say only? Well, it's because the first quarter structure is the smallest quarter with the lowest margin. And that also makes it more sensitive to volume reductions. That means that the margins actually held up quite well. And that is due to successfully working with cost savings initiatives in the business area. And that is increasingly also yielding effects as we go along. And they have also successfully worked with the realizing synergies and working with coordination initiatives within the group. And all in all, we believe that that really makes Sarlix Group to be in a good shape when the demand recovers. Moving over to our next business area, Etiquetta Group, who concludes a solid quarter in the quarter one. They had a slight sales decline, but the order intake in the quarter is very healthy, especially in the Swedish part of the business, which is the largest part of Etiketter Group. And to meet this increased demand, the Swedish part of the business is ramping up capacity through adding shifts to the machines that they have. However, as we mentioned already in the last quarter, we still have lower volumes in Norway. If it day in the quarter increase with with the 3 million and the mortgage increase with two percentage points, and that means that now. Fully emergency is that the 18.8% and that means that we're now getting close to the historical monuments of roughly 20%. And that is possible through to get the group working very systematically with extracting synergies from the positions that they have completed, but also working with operation improvements throughout the business. Historically, Etikett Group has grown substantially through acquisitions, and they are actively looking for new acquisition targets. And that is both in the Nordics, but also across Europe. So moving to our last business area, which is business area industry. They conclude a tough quarter with a sales decline of roughly 12%, and they're going from 81 million to 24 million SEK in the quarter. As Andreas mentioned, the industry consists of four platforms. And for the platform St. Eriks, the construction market continues to be challenging. And that is affecting the construction related part of St. Eriks negatively. Also the Easter, as Andreas mentioned, and also the cold weather had a negative impact on sales for St. Eriks. Jone Peter Reistadler, For the platform communications, we continue to see a market headwind for for that platform, and that is predominantly due to the slow down the five year rollout that we already saw in in during last year. Jone Peter Reistadler, They are also meeting strong compared to us from from a quarter 123. Jone Peter Reistadler, During the past nine to 12 months, we have really taken actions to that to the current market situation, both in St Eric's and communications. Jone Peter Reistadler, And then, on a more positive note, the year has started very well for our platform Corventa and that is driven by the aftermath of the late storms in 2023, which is resulting in a good demand for Corventa's products for water damage remediation. Our last platform, Tone Group, is also performing well and they are increasing the fully margins compared to one year back. And they are also seeing a positive contribution from the newly acquired companies in Mesa. However, if we summarize, all in all, this concludes a tough quarter for industry, where two out of our four platforms are performing well below what we expect in a normalized market. But as also mentioned, we have taken the necessary actions in communications and secretaries and And we are really confident that we are well positioned when the market returns. So with that, I leave the word to you, Andreas.
Thank you, Martin. Then we will spend a few minutes on acquisitions. So first, looking at this slide, we've completed two acquisitions during Q1, one of which was signed already last year. I think also this slide shows in a good way that our model, the Soundclass model with add-on acquisitions for platforms really works. We've done now 24 acquisitions in five out of six platforms since 2020. Looking at the M&A pace then, it has picked up again from a slower fall 2022 and spring 2023. We're now up at the levels where we see we should be in the long term. I want to remind you about that M&A work is very binary. Either you close the transaction or you don't. And right now the outlook is positive. So I feel confident where we are right now, but the deal is not done until it's closed. Discipline is of extreme importance. I do not want the organization to get stressed out about the short term acquisition pace. We're in it for the long term. It's really the return that's important for us from the acquisitions that we do. Having said all that, I'm happy with the pipeline that we have in our platforms. I think the activity is on the level where I want it to be. And as I said earlier, I think we are also in a good position to keep up the acquisition pace once the right opportunities occur. I want to spend a few minutes also on our most recent acquisition, Beslag & Design, a very nice family-owned business based out of Bostad in Sweden that we've had our eyes on for many years. This is an add-on acquisition to Salix Group, and more specifically our home and fittings business, where we also already have companies and operations like Habbo and Pissla operating in the same segment. This acquisition complements our existing businesses done very well and we will have synergies for example within the areas of e-commerce, supply chain and purchasing. I'm also very happy to see that Solix is able to show consistency in their M&A work. It's our largest platform and it has now done nine acquisitions since 2020, also under the more recent tougher market conditions. And in order to make acquisitions, one has to have their finances in place. And we've touched upon most of this, but what I really want to highlight when it comes to our financial position is that the cash conversion is where we want it to be. The largest effects in this small quarter is the cash flow that we directed towards the two acquisitions that we've done. short term this year we have the stronger cash flow quarters ahead of us and once the market comes back we will see a positive effect from the ebda expansion that we anticipate To summarize before opening up for questions, I think we are best evaluated over time. Individual quarters are hard to predict. Last year we had a record quarter, this year we are below our own expectations and that's market related. We have a more positive outlook for the coming quarters. We see that we're meeting somewhat easier comparables. We have cost measures showing effect and we will get also help from the recently done acquisitions. And we're also very eager for when the market comes back because we know that then we will be in a very good position to also compensate for some of the lower growth that we've had in recent years. We're well positioned for for continued acquisitions. I think the activity level is good and we are comfortable with where our NETA GBTA are at the moment so that will not compromise our acquisition pace. So with that I leave the word for questions.
Thank you very much Andreas and Martin for that presentation and we'll jump into the Q&A section here. If you'd like to ask Andreas Martin a question, you can either use the form that's located to the right, or if you're calling in, please press star 9 to raise your hand and star 6 to unmute. We will then announce if it's your turn by saying the last four digits of your phone number. And we'll start by the person calling in from 2616. Please go ahead, you have the word.
Hello? Hello, can you hear me? Yeah, we can hear you well. Yeah, perfect. I've been here from Nordea. So thank you for taking my questions. So communication phase, the last tough quarter of this Q1. Can you comment on the development now and going forward? Is it rather stable or do we see further decline as a result of the challenging market?
Yeah. What I can say is that we really saw a fairly rapid slowdown last summer, which hit our Q3 and Q4 and also now our Q1 numbers. I think the overall 5G rollout pace hasn't dramatically changed over these three quarters. So it's not that we have a constantly declining market or that the slowdown is rapidly going in either direction. And with regards to forward looking, that's what we expect also in the coming month. We do not expect any dramatic shifts either way.
Okay, but the last Q2 was not as bad as Q3 and Q4?
was in line with Q3 and Q4. So it's been slow the last nine months.
Again, for Corventa had a great start to this year. Do you see Corventa continuing to develop well in Q2 as well?
The dynamics of Corventa is how much rain you get or flooding you get in the large markets that we address. uh and that's impossible to forecast that uh we know that long term i think uh unfortunately with the weather shifts uh that's in favor of a business like corventa but whether that will happen you know this q2 or q3 uh that's um that's impossible for us to to to have a view on uh
All right, thank you. And Etiquette has a good market share in Sweden and Norway. Regarding M&A, do you see further opportunities in these countries or which countries are most likely for Etiquette going forward?
It's a very good question. So when it comes to acquisitions, I think we've proven now the last couple of years that we're not only focusing on our home markets, but also addressing other markets. So we've been doing acquisitions in Spain, we've been doing it in UK, we've been very active in Norway and Finland. And that's the reason why we now consider them our home markets. So the answer to where we are looking at acquisitions, that depends on the platform. So we could take, for example, Etceta Group as an example, where we feel that we have a strong position in Sweden and Norway, but we also want to expand that group outside of the Nordics. So then we're looking into many other countries like Germany, Poland, the Baltics. We could even look at the UK. We're most definitely looking also outside of the Nordics.
All right, and also for Etiketter, you continue to increase the margin on the back of the last acquisitions. And you mentioned 20% as some kind of starting or normalised margin, but is that some kind of limit or would you say that as Etiketter grows that you can realise even more synergies and end up above 20% as a normalised margin?
I think what we've seen so far is that we've been very successful on realizing the synergies that we saw or identified when we did the acquisitions. But what we also see now, it's been some years since we did the first acquisitions, we also see the potential of actually bringing even more value to those businesses that we acquired over time. That means that we have also showed that we are improving margins beyond what we kind of had in our investment cases when we did the acquisitions. uh whether that will take us in excess of our financial goal uh that's not something that you know uh i could comment but but we we most definitely still see a positive trend that's for sure i think that's all for me thank you albin okay we'll move on with the q a here and we've got a few questions coming in and we'll start uh with the first one here
What were the reasons behind the 8% decrease in net sales for the quarter? And how do you plan to address this decline?
I think that's what we try to address in this call. Firstly, it's market driven, not structural driven. So for that, what that means is that The main reason for our decline in sales is that the construction market is slower than it was last year. The five-year rollout is still also slower than it was Q1 last year. That's the main reason. When it comes to what we do to address that, it's really important for us to find a balance between short-term profit optimization and creating the best potential for when the market comes back and our long-term value creation perspective. And I think that's the balance where we feel happy that we're handling in a very good way. And thirdly, I think what's important is that we do not lose market share. So that's what I mean with sometimes you can have structural
uh problems but we we rather feel that we on the margin gain the market share than lose market share so that's of course something that we're tracking okay and how have uh solix group and saint eric's been impacted by the reconstruction industry and what strategies are in place to mitigate these effects
It's a very similar answer to the answer that I gave before. In Salix now, for the last one and a half years, since the consumer-related part of this construction market started hitting us, they worked on balancing these short-term cost programs with also creating the best potential for the long-term value creation. And that means for Salix, for example, looking at accelerating the benefits of the synergies within Salix Group. So that's structural measures that they have been successfully working with. And we have similar action addressed in Sankt Eriks. And Sankt Eriks was hit a bit later. Last spring, we saw the real market related effects there. But they are acting in a similar way.
And how do recent acquisitions such as Beslag Design AB and Trejon Försäljning AB contribute to your overall strategy and growth prospects?
They're both the perfect examples of the type of add-on acquisitions that we want to do. And that's been within our strategy or acquisition strategy for the last now five years or so. So we want to add add-on acquisitions to our existing platforms in order to accelerate the strategies that we have in the platforms in place. And Trejon and Beslagen Design are perfectly good examples of that.
Okay, that's a wrap of the Q&A section here. Thank you very much. And Andreas, do you have any concluding remarks?
Yeah, thank you. Running a bit late on time, I think. But just short comments from me is that yes, Q1 was a tough quarter and it's market related, which we touched upon a number of times. I think we are more positive of the quarters to come. We have easier comparables, we have cost saving and acquisitions that will help us to mitigate the market dynamics that we see. And once the market rebounds, once we get the market in our favor, we're very confident that we will see an organic growth that will compensate for the slower growth that we've seen for now two years or so.
Okay, thank you very much for presenting today and answering all questions. And also thank you to everyone who followed along for this webcast presentation with Volati. Until next time, thank you very much and goodbye.
Thank you very much. Thank you. Have a good day.