Volati AB

Good morning and welcome to today's webcast 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 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. 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 short couple of comments on our second quarter. It's a solid quarter which I am very happy about given the circumstances. We have a sales and an EBITDA and thus also margins that came in in line with last year's quarter which is very strong giving 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 the construction market are somewhat lower in this quarter and we do also see some signs of a positive 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. Salix did a very good quarter in the challenging market. The acquisitions helped contribute to an overall 6% sales growth and slightly improved margins. I think Salix 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 the strengths in making add-on acquisitions because it is the the effects of these add-on acquisitions that now gives us the good 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 effort 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 of on an annualized basis of 7.6 billion SEK which counts and an EBITDA of 660 million SEK. As I often mention Voloti 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 below our 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 will operate and start to improve and volume start getting back to 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 12 months 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 are also very comfortable with our long-term financial target and our second financial target the return on adjusted equity came in at 17% versus our financial target of 20% which is lower 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 target regarding our capital structure where our net debt to EBITDA ratio came in at the 2.7 times in the quarter and which is within the range of our financial target ratio over between two and three times which means that we have still a financial capacity left to act on the right acquisition targets that comes our way. So let's look at how our three business areas are performing and let's start with the Salix Group who delivers a solid quarter. Sales increased with the 6% driven by acquisitions and while demand continues to be hampered due to in the construction industry. EBITDA margin improved in the quarter and EBITDA increased with 8 million SEK in nominal terms and during the past two years Salix Group has worked proactively with the 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 a good shape when the demand recovers. The integration of the newly acquired companies training and design is going well and we are also well positioned for further acquisitions going forward. Our second business area etiquette group delivers another strong quarter. Sales increased with the 7% in the quarter and fully through organic growth. Salix etiquette 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 a 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 trust 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 etiquette groups last 12 months margins are now back at the 20% which is a fantastic achievement by the team at etiquette. The business area is 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 where 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 the demand for water damage and remediation products. Sanctaerics performed a stable quarter despite the demand in the construction segment continuing to be weak but Sanctaerics 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 slow down in the international 5G rollout and they also as Andreas mentioned meeting tough comparables from last year. The cost programs that they have implemented in the platform is starting to yield effects and the comparable figures in the next quarters will be easier. In the quarter our last platform Toner 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're taking the necessary actions in communications and Sanctaerics and we're 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 the 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 was trying to remind about this it's binary either you close a 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 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 have 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. So summarize for opening up for questions so 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. It's still a challenge in market conditions for mainly the platform solid groups and theories 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 the platforms and in place and the financial position to act on other acquisitions when acquisition opportunities occur. So with that I leave for any potential questions.

Thank you very much for that presentation and like you said I'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 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 for me you mentioned some negative timing effects for TUNUM. Can you give us some sense of how large these effects are and if they're going to affect the 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 because the 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 in before summer than we've seen this year. A number of reasons behind that but that's typically what we typically see where we this year expect to have done 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 TUNUM.

Thank you and therefore Corventa which was positively affected by floods across Europe. Do you expect that this will impact HD as well or is it 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. Jervis is still at Tough Market with the slow 5G rollout. You mentioned some light on the horizon at least in North America but how is communication working with their compensating for the loss of the 5G rollout?

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. 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 foresee 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. 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 for Salix 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 lights in the demand for Salix here?

Yes we see 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 or slightly less than the overall market which I think is 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 the 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 easier and easier market conditions but we do not expect them to do the most dramatic shift. It's still going to be tough for us.

Thank you all for me.

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 strong earnings growth and improved margins and how sustainable are these rates?

As Martin pointed out these are the results of us getting back to the margins that we have been able to show historically within the Etiquette 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. 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. That's the logic behind the margin improvement in that schedule.

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 when the market gets back. So efficiency improvements coordination benefits between companies within a platform, realizing synergies from the acquisitions that we've done. So all those kind 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'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 answer that. So we had a strong cash flow in the quarter. So I think it was 26 percent 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 short-term liabilities also which is affecting us positively in the quarter. And overall when we look at our cash generation of 103 percent we're very happy with that numbers. 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 thank, 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 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 in today.