Volati AB

Good morning and welcome to today's Webcast presentation where we have Volati presenting. With us we have the CEO Andreas D.A. Mbeck and CFO Martin Ahnonsson. 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 in today. Let's begin today's presentation. Firstly just a short reminder Volati we're a fast growing and acquisitive group consisting of well managed platform, six well managed platform 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 Etikettigroup are also our natural business areas and the remaining four platforms are within our business area industry and we will for example get into psychedetics and 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 Volati is best evaluated over time. I made that point about a year ago when we had just recently showed a 55 percent of the 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 also more specifically since last summer is that we've now also affected Q1. Secondly the construction market has been even weaker than a year ago affecting our platforms in psychedetics and solix. 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 quarter but a year ago was that it also hit the professional part and so now we see both the construction and the professional rated part being a bit weaker. 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 then affected our two platforms solix and sacterics. Last year the market in 2023 the market was down a bit more than 50 percent 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 and sacterics and 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 but peak market. We will see the effects of this once we have the construction market coming with us again. So once we have that market starting growing and that will lead to an 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 we signed in in 2003, 2023 in Q4 and these two are adding about CX 500 million 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 a bit later on. So with all that let's get into our numbers and on this next slide you can see 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 solix 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 networking 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 comment on it but I said earlier that it's hard to predict individual quarters of a lot 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 down a perspective while we were expecting lower results in Q1 this year. 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 you looked at full year rolling 12 months 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 our financial goal. Having said that once the market returns we will compensate for the last year slower growth rates in duration 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 our platforms affecting the growth negatively and we are now at 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 EBITDA ratio which came 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 debt 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 start with our business area Sallis Group. Sallis 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 Sallis Group driven by the construction industry but despite this the sales decline the EBITDA margin only decreased with one percentage by points 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 realized insinuities and working with coordination initiatives within the group and all in all we believe that that really makes Sallis Group to be in a good shape when the demand recovers. Moving over to our next business area Etiketto Group who concludes a solid quarter in 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 Etiketto Group and to me 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. EBITDA in the quarter increased with the three million and the margins increased with two percentage points and that means that now a full year margin is at 18.8 percent and that means that we're now getting close to the historical margins of roughly 20 percent and that is possible through Etiketto Group working very systematically with extracting synergies from the acquisitions that they have completed but also working with operation improvements throughout the business. Historically Etiketto 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 percent and they're going from 81 million to 24 million in the quarter. As Andreas mentioned the industry consists of four platforms and for the platform Sankt Erik the construction market continues to be challenging and that is the construction related part of Sankt Erik negatively. Also the Easter as Andreas mentioned and also the cold weather had a negative impact on sales for Sankt Erik. For the platform communications we continue to see a market headwind for that platform and that is predominantly due to the slowdown in the five-year rollout that we already saw in during last half year. They are meeting strong comparables from quarter one 2023. During the past nine to twelve months we have really taken actions to adapt to the current market situation both in Sankt Erik and communications. 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 amount for Corventa's products for water damage remediation. Our last platform Tonung Group is also performing well and they are increasing the full year 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 of our four platforms are performing well 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 decentralized model with add-on acquisitions to our 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 a transaction or you don't and right now the outlook is positive so I feel confident where we are right 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 and 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 M&A activities 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 Beslagen 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 acquisitions to Salix Group and more specifically our home and fittings business where we also already have companies and operations like Habbo and Pislap operating in the same segment. This acquisition complements our existing businesses done very well and we will have opportunities for example within the areas of e-commerce, supply chain and purchasing. I'm also very happy to see that Salix is able to show consistency in our 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. In order to make acquisitions one has to have their finances in 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 EBITDA expansion that we anticipate. To summarize before opening up for questions, I think we are we're 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 we've had in recent years. We're well positioned for continued acquisitions. I think the activity level is good and we are comfortable with where our net that EBITDA 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 and 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 seeing 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 okay, can you hear me?

Yep 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 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?

What I can say is that we really saw fairly rapid slowdown last summer which hit our Q3 and Q4 and also now our Q1 numbers. I think the overall 5G rollout pace haven'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 you know we that's what we expect also in the coming month. We do not expect any dramatic shifts either way.

Okay but the last Q2 quarter was not as bad as Q3 and Q4. One

was in line with Q3 and Q4 so it's been slow the last nine months.

Okay and for Corelanta had a great start this year. Do you see Corelanta continuing to develop well in Q2 as well?

The dynamics of Corelanta is how much rain you get or floodings you get in the large markets that we address and that's impossible to forecast that. We know that long term I think unfortunately with weather shifts that's in favor of a business like Corelanta but whether that will happen you know this Q2 or Q3 that's impossible for us to have a view on.

All right thank you and Etiquette has a good market share in Sweden and Norway regarding M&A DC for the opportunities in these countries or which countries are most likely for Etiquette to go forward.

It's a very good question Albin. 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 we are looking at acquisitions that depends on the platform. So we can take for example Etiquette 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. So we're most definitely looking at the Nordics.

All right and also for Etiquette you continue to increase the margin on the back of the last acquisitions and you mentioned 20 percent as some kind of starting or normal as margin but is that some kind of limit or would you say that as Etiquette grows that you can realize even more synergies and end up above a 20 percent as a normal as margin?

I think so 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 and 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. Whether that will take us in excess of our financial gold that's not something that I could comment but 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 with the first one here. What were the reasons behind the eight percent 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 5G rollout is slower than last year. It's still also slower than it was Q1 last year so that's the main reason. When it comes to what we do to address that it's really important for us to kind of 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. I think that's the balance where we feel happy that we're handling in a very good way. Thirdly I think what's important is that we do not lose market share. That's what I mean with sometimes you can have structural problems but we we rather feel that we on the margin gain market share than lose market share That's of course something that we're

tracking. How have Salix Group and Steynt ERX been impacted by the construction 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 half year since the consumer related part of this construction market started hitting us they worked on kind of 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 Steynt ERX and Steynt ERX was hit a bit later last spring we saw the real market related effects there but they are 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 Beslag 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 for yes Q1 was a tough quarter and it's market related which we touched upon a number of times. I think we are or 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 and until next time thank you very much and goodbye thank

you very much thank you have a good day.