Volati AB

Good morning, and welcome to today's web class presentation with Volati. With us presenting today, we have the CEO, Andrea Stenbeck, and CFO, Martin Aronsson. We'll do a Q&A after the presentation, and you can either type in your question using the form that is located to the right, or if you're calling in and would like to ask a question, please press star nine to raise your hand, and then star six to unmute. We will then announce if it's your turn by saying the last four digits of your phone number. With that said, I'll give the floor to you guys. Please go ahead with your presentation.

Thank you, and thank you everyone for listening in today. Despite the summer that we have outside, let's start by getting into the presentation. First, a couple of comments on our second quarter. It's a solid quarter, which I am very happy about, given the circumstances. We have sales and EBITDA, and thus also margins that came in line with last year's quarter, which is very strong, given that we still see a challenging market environment with declining volumes, both in the construction market and the 5G rollout. However, we do see some positive signs on the horizon as the volume decline in our part of the construction market are somewhat lower in this quarter. And we do also see some signs of a positive signs with regards to the 5G rollout in the North American market. However, we do not expect any dramatic shifts short term. Some short comments on the business areas then. SOLIX did a very good quarter in the challenging market. Acquisitions helped contribute to an overall 6% sales growth and slightly improved margins. And I think SOLIX is a very good example of how we now successfully balance short-term cost savings and long-term value creation. Etiketto had a very strong quarter, organically growing top line with 7% and significantly improved the margins. And that resulted in a 30% EBITDA growth. And Etiketto then being a great example of a platform where we see that strength in making add-on acquisitions, because it is the effects of these add-on acquisitions that now gives us the good results EBITDA growth, we are continuously improving margins as we realize synergies and we implement efficient improvements in the companies that we have acquired. Industry showing a decline in sales in EBITDA and that's mainly market driven and it's attributable to the significantly slower 5G rollout pace that we have in the platform communication. And what we should keep in mind is that we had a very strong 5G rollout in the comparable quarter last year. So we're also meeting some tough comparables in that business area. The operational cash flow in the quarter was strong, 26% improvement compared to last year. And last year, the operational cash flow was actually quite good as well. The net debt came in at 2.7, which is a level which we're comfortable with and provides room for further acquisitions. And lastly on this introduction, we have added Åsa Holmgren to our leadership team, which will strengthen and increase our efforts within strategic HR. So very happy to welcome her here joining us of the summer in August. Looking on the next slide with some more detailed numbers, as you can see, sales and EBITDA in line with last year, and also an operational cash flow coming in at around 210 million SEK, which is then a 26% improvement compared to last year. Taking a step back and looking at the last 12 numbers, as well as some more historical figures, We're now showing a sales on an annualized basis of 7.6 billion Swedish crowns and an EBITDA of 660 million. As I often mention, Volati is best evaluated over time. And looking at the development from 2018, we have been able to show an average annual growth rate of 19% per year. So that's since 2018 in our continuous operations. However, which can also be seen on this slide, since 2021, the growth rate has been a lower financial goal, so below 15% per year. And that has been market driven. And it's something that we expect to compensate for with accelerated organic growth once the market we operate in start to improve and volume start getting back to normal levels. With that, I leave the world to Martin.

Thank you, Andreas. So let's look at our performance in relation to our three financial targets, starting with the EBITDA growth per common share during the last one month. And as Andreas mentioned, right now we have a market headwind in a few of our platforms affecting growth negatively. And we are now at minus 17% EBITDA growth versus our target of 15%. However, it's worth noting that our target is measured over business cycles and our five-year average growth is 21%. Over time, we're also very comfortable with our long-term financial target. And our second financial target, the return on the adjusted equity, came in at 17% versus our financial target of 20%, which is below our target, and that is driven by a lower EBITDA growth. However, taking a longer term perspective also there, during the past five years, we have delivered on average 30% return on equity. And lastly, our financial targets regarding our capital structure, where our net after EBITDA ratio came in at 2.7 times in the quarter, which is within the range of our financial target ratio between two and three times, which means that we have still financial capacity left to act on the right acquisition targets that comes our way. And so let's look at how our three business areas are performing. And let's start with the Solix Group, who delivers a solid quarter. Sales increased with a 6% driven by acquisitions, while demand continues to be hampered due to headwind in the construction industry. The EBITDA margin improved in the quarter and the EBITDA increased with 8 million SEK in nominal terms. And during the past two years, Sarlik Group has worked proactively with cost control and also with realizing coordination benefits and synergies while also working with the market development. And this is really showing effect now with the last 12 months margins now being higher compared to one year back, despite that they have a lower volume. And also with the measures that they have taken, we are confident that Salix is in good shape when the demand recovers. The integration of the newly acquired companies Trejan and Beslag Design is going well, and we are also well positioned for further acquisitions going forward. Our second business area, Etiketto Group, delivers another strong quarter. Sales increased with 7% in the quarter, fully through organic growth. Etiketto Group is meeting a good demand with a solid order intake, and that is especially in the Swedish business, and they are now in the process of expanding their production capacity to be able to meet the demand that they see. We're also happy to see that the trend of increasing EBITDA continues, as Andreas mentioned, and we are now four percentage points higher EBITDA margin in the quarter compared to last year. And to us, this really shows that the strategy of acquiring companies with a lower margin and then working with synergies and operation improvements is really paying off. And Etiketto Group's last one month margins are now back at 20%, which is a fantastic achievement by the team at Etiketto. The business areas are looking for further acquisitions, both in the Nordics and the rest of Europe, and we see a significant potential to grow going forward. Lastly, we have our business area industry, which Q2 concludes a tough quarter with a sales decline of 12% and an EBITDA decline of 19%. Our platform within the business area, Corventa performed well in the quarter due to early summer storms in Europe, which is driving the demand for water damage remediation products. Sankt Eriks performed a stable quarter despite the demand in the construction segment continuing to be weak, but Sankt Eriks is also continuously seeing positive effect from the cost programs that they have implemented. As in quarter one, we see a continued market headwind for the platform communications due to a slowdown in the international 5G rollout. And they also, as Andreas mentioned, are meeting tough comparables from last year. The cost programs that they have implemented in the platform are starting to yield effects and the comparable figures in the next quarters will be easier. In the quarter, our last platform, Tuner Group, is meeting a slightly slower demand in the agricultural segment, which is mainly explained by timing effects. But all in all, this concludes a tough quarter for industry, with a few platforms performing below what we expect in a normalized market. But as mentioned, we are taking the necessary actions in communications and snack theorics, and we are confident that we are well positioned when the market returns. With that, I leave the word to you, Andreas.

Thank you. So let's get into our acquisition work. So as can be seen on this slide, so two acquisitions have been completed during the first half of this year. In total, since 2020, we have finalized 24 acquisitions, so 22 out of those being add-on acquisitions to existing platforms, and two of them forming a new platform within business area industry. And for me, this really shows that our decentralized model with add-on acquisitions to platforms work. Looking at the activity levels right now, so during the last 12 months, we have made acquisitions contributing to almost 700 million Swedish crowns of yearly turnover. And we're in a positive momentum with regards to that because we had a slightly slower pace fall 2022 and spring 2023. M&A work. I always try to remind about this. It's very binary. Either you close the transaction or you don't. But right now, the outlook is positive. We have a good activity in the platforms, but the deal is not done until it's closed. Discipline is extremely important for us. We do not want, or I do not want, the organization to get stressed about the short-term acquisition pace. We're in it for the long-term, and the return from the acquisitions that we do, that's the central piece of it. But as I said, the pipeline in the platform right now look good, and activity levels are good. Important is also that we are in a good financial position to act on acquisitions when the right opportunities occur. And that can be seen on this slide. We have had a positive and a good operational cash flow in Q2. So we have also, looking at the last 12 months, we've had a cash conversion of 103%, which is a level which I'm very happy with. Short term this year, we have the stronger cash flow quarters ahead of us. So from an acquisition point of view, that is good. And also, I think what we need to keep in mind right now is that once the market come back and we will start seeing a positive effect on the net debt to EBITDA ratio also from the EBITDA expansion. To summarize, before opening up for questions, I'm very happy and proud about the Q2 that we were able to show. It shows that we were able to balance the short-term profitability and the long-term value creation within Volati Group and our platforms. And it's still a challenge in market conditions for mainly the platform solace groups and communications. But we are very well positioned for once the market comes back, then we will experience an accelerated organic growth pace. Finally, we do have the platforms in place and the financial position to act on add-on acquisitions when acquisition opportunities occur. So with that, I leave for potential questions.

Thank you very much for that presentation, and like you said, now we'll jump into the Q&A section here. If you're calling in and would like to ask a question, please press star 9 to raise your hand, and then 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've got the first person calling in with a phone number ending in 2616. Please go ahead, you have the word.

Yes. Hello, Andreas and Martin. It's Albin here from Nordea. So a couple of questions from me. You mentioned some negative timing effects for Fortunum. Can you give us some sense of how large these effects are and if they're going to affect Q3 in a positive way?

Thank you, Albin, and good to have you on the call. One thing that is important to keep in mind with regards to TUNUM is that It's a project business, and most of the revenue recognition occurs once those projects are delivered. So when we talk about timing effects in that platform, that simply relates to how the projects are planned throughout the year. Typically, you have more deliveries or projects before summer than we've seen this year. A number of reasons behind that, but that's what we typically see. Where we this year expect to have relatively more deliveries actually in the second half of the year and mainly actually Q4. We don't give any detailed guidelines with regards to volumes, unfortunately, but that's the main dynamics in Tulum.

Okay, thank you. And for Coruventa, which was positively affected by floods across Europe, do you expect that this will impact HD as well, or is it too early to tell?

As you know, it's hard to predict, but there are floodings out there right now. We started to see some effects from those late Q2. Typically, some of that effect we will also see in Q3. But then the main driver will be how the rest of the summer and the fall ends with regards to summer storms and rain throughout Europe.

Okay, perfect. Thanks a lot. And for communication, lastly, you have still a tough market with the slow 5G rollout, mentioned some light on the horizon, at least in North America, but how is communication working with compensating for the loss of the 5G rollout?

Yeah, so it's a very good and relevant question. Of course, communication is not only dependent on the 5G rollout, even though it's an important driver. So I would say that the other segments that we're providing products to has been fairly stable or even good throughout the last 12 months. So the main shift that we've seen has been in the 5G rollout pace. And that's a demand that it's still there. It will come back. I think everyone is comfortable about that. But we can't see the timing for that return. However, as I said, we do... Basically, the North American market was slow throughout most of last year. And now we have seen a slight improvement there. We're actually building order book in North America. So I do not know if that's a sign for the overall market coming back, but at least we see some good signs on the horizon. We do. And also lastly, it was last summer, so in Q3, that the real slowdown hit communication. So we will meet easier comparables from Q3 and onwards.

Lastly, I think you have now eight quarters in a row with negative organic growth, meeting easier comps here as well, but do you see any light in the demand for Solix here?

some lights there as well. I think a couple of comments on that. Firstly, there has been an overall market decline and all external statistics supports that. I believe when we look into it, we are rather increasing our market share. So we are rather declining slightly lower than the overall market, slightly less than the overall market, which I think it's very important for us that we follow up and see how we position ourselves. And I would say that we have rather strengthened our position. Looking at the statistics for Q2 in relation to Q1, we don't have the U numbers yet for the overall statistics, but it shows that the decline has somewhat slowed down, but it's still a decline. So we're going from fairly tough declining numbers to still a decline, but a bit slower. External statistics show that the market will get back to growth in 2025. I don't know if that's, you know, future will tell if that's true. But if that would be the case, I think the trend that we see now will continue. So we will get better and easier and easier market conditions. But we do not expect a dramatic shift. It's still going to be tougher yet sometimes.

Okay, thanks. That's all for me. Very helpful. Thank you, Albin.

Okay, we'll move on with the questions here. And a reminder, if you're calling in, please press star 9 to raise your hand and then star 6 to unmute. We'll move on with the question here. What are the main drivers behind Ethico Group's strong earning growth and improved margins, and how sustainable are these rates?

As Martin pointed out, there's also us getting back to the margins that we have been able to show historically within Etiketter Group. We've been at these levels historically. What has happened is that we have added on acquisitions, added on companies to that group. which then typically operate with lower margins. And through realizing synergies, through improvement efficiency in the acquisitions that we do, we increase the acquisitions profitability to the levels that we have been able to show in the past. And now we're getting there. But what will happen if we are looking for further acquisitions, and the acquisitions that we'll do in the future will most likely also operate under lower margins, and the same logic will apply to that, that we will then improve those margins also over time. So that's the logic behind the margin improvement in that category.

Okay, thank you for that answer. I'll take the next question here. How do you balance the focus between short-term profitability and long-term value growth in such a challenging market?

It's a relevant question. So for all, it's all about the long-term value creation and that means that you sometimes have to leave some short-term profitability on the table. If you believe that over the longer term, that will benefit you. So for us in practice, that means that our cost measures focuses mostly on long-term measures, structural measures, which we feel that we could still benefit from in when the market gets back. So efficiency improvement, coordination benefits between companies within a platform, realizing synergies from the acquisitions that we've done. So all those kinds of cost measures, which will also benefit us when we get the volumes come back, those are the type of cost measures that we focus on. I would say that that's the main answer to that.

Thank you for that. And can you elaborate on the cash flow development in Q2 compared to last year?

Absolutely, I can try to answer that. So we had a strong cash flow in the quarter. So I think it was 26% higher than last year. And the main drivers behind that is, of course, a lot of hard work. And it's mainly from that we are now trying to hold on to our money a bit more, so we're having less investments than in previous quarter last year. And also, we have improved the relationship between our receivables and our our short-term liabilities also which is affecting us positively in the quarter. And overall when we look at our cash generation of 103% we're very happy with that number so that's a good result from a lot of hard work in the organization.

Okay that's all of the questions that we have. Do you have any concluding remarks Andreas?

Yes, so before finalizing this call, I would just want to start by thanking all my colleagues who are doing a fantastic job. And they are the main reason why I'm very happy about the position that we're in. Overall, Volati is in a good shape. We are ready to capitalize on our position once the overall market returns. We have the platforms in place. We have the financial position in place. And we have an active acquisition pipeline, which will contribute to our long-term value creation. So very happy where we're at. And I'm wishing all my colleagues and the ones listening in a happy summer holiday once that comes. Thank you very much for listening.