Volati AB

Good morning and welcome to today's presentation with Volati. With us presenting today we have the CEO Andrea Stenberg and CFO Martin Aronsson. We'll do a Q&A after the presentation. You can either type in your question using the form that's located to the right or if you're calling in like to ask a question please press star 9 to raise your hand and then star 6 to unmute. And with that said I'll give the floor to you guys. Please go ahead with your presentation.

Thank you very much and thank you for listening to this quarterly presentation. Let's go directly into it. And just to start with Q3 in brief. This is another quarter in line with last year which of course leaves me with a feeling that I want more. But I also feel that we are doing a very good job in our platforms given the circumstances that we're operating under. We saw challenging market environments affecting four of our six platforms. But a very positive exception is at the Etiketto Group where we saw a strong organic growth with 15% the quarter and improved margins up to 21% last 12 months. And that means now that Etiketto has gone from basically reached the same margins as before we started our acquisition journey with that platform meaning that we have gone from a Nibita of 50 million in 2019 to almost 190 million the last 12 months. Our second business area Salix Group they deliver yet another strong quarter given the circumstances they're still operating in a declining market. However, they showed an acquisition driven growth of 5% and the margins in line with last year. And that means that for the second quarter now in a row they have shown a stronger or improved EBITDA compared to last year. In industry we have seen a mixed development. Corventa had a strong quarter and communication showed growth from a very low level in the yet slow market. And then we have Sanctirix. They are experiencing a challenging construction market while the infrastructure segment is holding up well. So in Q3 we still met relatively strong comparables from last year which we will ease up the coming quarters. And then our final platform just briefly gives my words on TUNUM. They had a very tough quarter. This is a platform that can show quite some variations over time and currently we're affected by the slowest market in Europe for farmers in many years. And this in communication with slower than anticipated deliveries in Spain on the back of a strong order book there that resulted in a very weak quarter. We do not expect any rapid changes to the market environment in the short term. But thanks to our long term focus we have a good cost structure and maintain or strengthen our market position in our platform. So once markets improve we will really see the effect from those market positions that we have achieved. Now digging into the more detailed numbers. On the next slide we can see that in the quarter group turnover increased 4% to 1.9 billion Swedish crowns. The EBITDA came in slightly behind last year so 6 million behind last year but with a maintained EBITDA margin of 10%. The operational cash flow came in at 177 million which means that we are now operating on a 94% cash conversion during the last couple of months. And then finally the net debt we're now at 2.8 it's still within our range and if you take that into consideration in combination with that we have the strongest cash generating quarter ahead of us. That provides a solid foundation for continued add-on acquisitions. On this slide we take a bit more long term view on Volati and I tend to say to you fairly often that we should be evaluated over time and which can be seen we're now operating under 7.7 billion of turnover and almost 660 million of EBITDA on an annual basis. That means that we have grown on average 18% per year since 2018 which is given the poor growth the last couple of years below what we could be expected of us. Since 2021 the growth has been below our financial goal of at least 50% that's been mainly market driven but we also expect the next year to compensate for that the next years to compensate for that with accelerated organic growth once the market to operate in start to improve and volume start getting back to normal level. One way of looking at it I mentioned in the quarterly report in 2021 we showed revenues of some 7.3 billion and with an 11% EBITDA margin which could then be compared to what we're currently showing and if you then also take into account that we have acquired 1.7 billion of annual turnover since then that should leave us with the potential of at least 9 million and improved markets. So that is something that we're really looking forward to capture once market starts normalizing. With that I leave the word to Martin.

Thank you Andreas. So let's start with looking 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 the QoR platforms affecting the growth negatively and we are now at minus 16% versus our target of over 15%. It's worth noting however that our target is over business cycles and our five year average EBITDA growth per common share is 19%. Our second financial target is our return on adjusted equity which came in at 15% versus our financial target of 15%. So that is below our financial target which is driven by a lower EBITDA growth during the year. However, during the past five years we have delivered on average 34% return on adjusted equity. And lastly we have our capital structure where our next EBITDA ratio came in at 2.8 which is within the range of our financial target ratio between two and three times. So that means that we still have financial capacity left to do the right acquisitions when they come. So let's move to our business areas and let's start with Sallix Group who delivers a solid quarter. Sales increased with roughly 5% in the quarter driven by acquisitions and they continue to see a challenging market situation in the industrial and professional segments but we some green sprouts in the consumer related parts of the business even though we must say that that's early days still. And I guess that one of the million dollar questions that we have is when the market will start to show growth and what we see now is that the external sector estimates point towards an overall construction market growth in 2025. And for Sallix Group despite lower organic volumes they managed to keep the EBITDA margin at the same level as last year and EBITDA in nominal terms came in at 4 million SEK above last year. For us this means that this is a result of two years of Sallix Group working actively with cost control, coordination benefits and synergy realisation and also working with the market. So with the measures that we have taken or that Sallix Group has taken we are confident that Sallix Group is in a good shape when the demand recovers. So Etiquette Group delivers another strong quarter so sales increased organically with 15% in the quarter and we see a good demand in the business area with a solid order intake especially in the Swedish business and they're expanding the production capacity to meet the demand both through investing in new machines but also through increasing the utilisation of the current machines. And we're happy to see that the upward EBITDA margin trend is continuing with a 4% higher margin in the quarter and the last four months margin is now at 21% which is a little bit of a milestone for Etiquette Group because that is now higher than the previous record year in 2019. And to us that really shows that the strategy of acquiring companies with a lower margin and then working with extracting synergies and working with operation improvements is really paying off. And as Andreas mentioned the EBITDA has now almost quadrupled from the 50 million in 2019 to the roughly 190 million that we have in the last 12 months. And the business area is well positioned for further acquisitions and they're looking for acquisitions both in the Nordics and the rest of Europe and we see significant potential to grow in the business area. Let's move over to industry who concludes another tough quarter with an EBITDA of 50 million versus 91 million last year. The performance of the platform varies but the drop in EBITDA is explained by Tonum Group and Sanctiris. So starting with Tonum Group who is meeting a tough market due to low demand in the agriculture segment and in this segment Tonum Group is dependent on the farmers who in turn are dependent on favorable grain prices and year contributions which both are not working in their favor at the moment. Tonum Group also saw a lower contribution than expected from the Spanish business due to lower than anticipated deliveries. And Sanctiris continue to face a challenging market situation in the construction segment while the demand in the infrastructure segment is quite stable. This market situation is not new and earlier in the year Sanctiris implemented a cost program that increasingly did positive effects for the platform and also has some As I already mentioned last year's quarter was quite strong so Sanctiris is meeting tough comparables in the quarter but from Q4 onwards the comparables will be easier. As in quarter one and quarter two communications is meeting a slow market but the platform improves EBITDA in the quarter compared to last year and will continue to meet quite soft comparables in the next quarters. Our last platform Corventa is performing well in the quarter both through strong performance in the base business but also driven by floodings in Europe which then as we have talked about before drives the demand for Corventa's products for water damage remediation. So all in all this concludes another tough quarter for industry with a few platforms performing below what we expect in the normalized market but we're confident that we have taken right actions to position our companies for when the markets return. With that I leave the floor to you Andres.

Thank you so then we'll go into the acquisitions. We've done three acquisitions during the last 12 months and 24 acquisitions since 2020. And that shows that our decentralized model of doing add-on acquisitions to our platforms really work and we have a couple of times earlier today mentioned our exceptional example Etiketto where we over this period of time are actually taking that company from 250 to 900 million in turnover with maintained margins or even slightly improved margins then through an add-on acquisition journey. Looking at our acquisition pace over time that has been okay the last 12 months from a slower pace fall 22 and spring 23. We want to finalize one or a few transactions in the next two quarters in order to keep this pain or maintain this pace and right now it looks promising but as always with M&A it's a very binary a deal is not done until it's closed so and it's very important for us to maintain our discipline work. I do not want the organization to get stressed out about the short acquisition pace but we're in it for the long term. Looking at our financial position which of course is linked to our ability to do acquisitions. I've already touched upon this a couple of times but I think that our cash conversion is at good levels. Short term this year we'll have the strongest cash flow quarter ahead of us in Q4 and once the market comes back we'll see a positive effect on net debt to EBITDA rates also from the EBITDA expansion. So just to summarize performance in Q3 roughly in line with last year's and we still operate under weak market conditions in a number of our platforms but our long-term focus the cost structure that has even improved in recent years and the fact that we have maintained or strengthened our market positions speaks for accelerated organic growth once the market returns and then the M&A work and the M&A model is in place so we have a good foundation for continued growth through acquisitions. So with that I'll leave the word for any potential questions.

Thank you so much for that presentation Andreas and Martin and we'll start with the first question here. You mentioned that a market turnaround is getting closer could you elaborate on this?

As Martin pointed out one of the main markets that has affected us negatively the last couple of years is the construction market and when we look at external sources that we follow now they are pretty much in line all of them that we will see a slight growth in 2025 meaning that and during the course of the next 18 months or so at least those external resources see that we will turn from a negative to a positive growth.

Okay thank you and we've got a person calling in so when you're given the word please press star six to unmute yourself. We've got a person calling in with a phone number 2616 please go ahead you have the word.

I think you need to unmute again I can see that from here as well.

Yes Albin here from Nordea can you hear me? Yes we can hear you hi Albin. Perfect I was kicked off of the call several times so sorry if you answered my questions already but looking at the margins here in Etiquette they're obviously very impressive. How should one think is this sustainable?

No I think that's something that we've been clear about already from the start with Etiquette that this was the level that we wanted to get back to and this is kind of the main logic behind our ad and acquisition journey with Etiquette that is our mature operations in Etiquette which is now basically all including also the acquisitions that we've done so far they are able to operate under this but then we also want to add new companies to the group and that will in the short term then dilute the margin again because we know that we are operating under industry-leading margins so most likely the next acquisition that we do is going to dilute the margin short term and then our value add as an owner is to start the work with increasing those margins.

Yeah perfect thank you for that and for Turnum here we know it's volatile is it just a weak market or anything special in any timing effects that will make you for a particularly stronger than usual or yeah is the market just challenging overall here?

If one turns to industry reports you can see that it's a weak market in basically all parts of Europe and that is going to be with us in the next coming quarters. Having said that we still have a decent order book and I mentioned Spain explicitly in the call earlier where we have a strong order book and part of the reason for not reaching kind of profit that we wanted in Turnum in Q3 were that we weren't really able to deliver on all those order that we wanted to and that is something that we're going to be able to do in Q4 but overall we don't see a dramatic shift in the market short term and then Martin also mentioned basically Turnum is operating under two segments so we have the farmers and the grain farmers that's really the segment that is suffering. We also have an industry segment where Landspennen it's a big contract that we took late last year and that is something that's going to help us mainly 2025 and 2026 and the industrial customers are generally doing better so that's helping us somewhat.

All right that's very helpful and then lastly for Corventa had a good quarter here do you see Q4 and Q1 also be good in terms of

the question to ask. Those situations tend to come on a short notice so last year we had some good deliveries to UK which I think some of you might remember so we had some floodings in UK over winter time which helped us whether something similar would happen this year it's impossible to foresee but where we are right now we still see a good activity. One can just read the newspaper to see that there are floodings throughout Europe which we are then helping supporting and being a part of the solution for.

I thought if it was if it was like long-term damages from the floods that already happened that you see will continue to need support from Corventa or yeah that may be not possible to answer.

It's also impossible but of course it's always you need to keep those machines for yet some time after the floodings but in order to get that to hold into Q1 for example that you asked for then you also need new occasions occurring. Yeah all

right thank you that's all for very helpful.

We'll take the next question here. Can you provide more information on the new project for Torlund Group with Lantmännen and how it will affect the platform?

So that's actually the project that I mentioned while answering Albert so it's one of the biggest projects of its kind in Sweden in many years. I think it's a strength that with Torlund was invited and actually you know won that contract that shows the strengths of the group that we've built. Typically those kind of contracts has gone to international and larger players and we now see ourselves as you know a very good competitor to those. We've had some small deliveries this year but the main effect of that we will see in 2025 and 2026. So yeah that's what a few words on the Lantmännen project and sorry Albin for calling you Albert. I know it's Albin.

Okay thank you and that's a wrap of the Q&A section here. Andreas do you have any concluding remarks?

I think I just want to start by thanking all colleagues. I think they're all doing a fantastic job and are the main reasons why I'm confident about how we handle the position we're currently in and then I know that all of us are really looking forward to see the full potential of our group once the market starts normalizing. So I think that's what I want to live with myself and I want to live with you. Thank you very much.