Hello, ladies and gentlemen, and welcome to the Momentum Group AB Q4 Report for 2018-2019. Today, I'm pleased to present CEO Ulf Lilius and CFO Niklas Enmark. For the first part of this, all participants will be in a listen-only mode, and afterwards, there'll be a question and answer session. I'll now hand you over to speakers. Please begin.
Thank you. First, I would like to say welcome to our web meeting presenting our financial report together with my colleague, Niklas Enmark, Executive Vice President and CFO. If we turn to next page, I will give you some highlights from the fourth quarter. On the whole, the industrial markets in Sweden, Norway, and Finland continued to display a stable performance during the fourth quarter. We had a favorable growth in Norway, enhanced by the upturn in the oil and gas sector and in Momentum Industrial, and our actions taken in the Momentum Group have had a positive impact on the result as well as the cash flow. In total for the quarter, we could see an organic growth by 3% and the operating profit grows by 30%. In the quarter, we also acquired TOOLS Norway in Norway and Lindström Group's personal protection equipment business in Finland.
Next slide, please. As I mentioned before, the overall business situation has been stable, and we have increased both revenue and the operating profit in the quarter. The earnings growth and our improved operating margin are based on efficiency work we have carried out in several of the group companies in conjunction with increased sales, mainly to the industrial sector. I'm pleased to see the positive earnings trend in TOOLS Norway, created by the improvements due to the new ERP system, as well as the increased demand in the oil and gas sector. The integration of Brammer's Swedish MRO business has helped Momentum Industrial to increase their sales and as well, their earnings in the quarter. In addition, the acquisitions we have carried out in Workwear have contributed as expected. During the quarter, we also acquired TOOLS Norway.
The acquisition strengthened TOOLS' position as the leading supplier to the Norwegian industry further, and Lindström Group's personal protection equipment business in Finland to strengthen our value offer. Our adjusted operating margin increased to 5.1%, and the adjusted operating profit increased by 30%. In EBITA figures, the increase was 21%, and the corresponding EBITA margin was 5.3%. Page six, please. For the business area, TOOLS and Consumables, the sales increased by 1% organically during the quarter, mainly due to the growth in TOOLS Norway and our Workwear companies. The revenue for TOOLS Sweden decreased by 6% during the quarter compared with the preceding year, mainly due to the business increased focus on selected customer groups and product areas.
The improvement activities intended to increase profitability are continuing and include, for example, increased cost efficiency, improved sales promotion, and changes in purchasing. The number of sales units was unchanged during the quarter compared with the preceding year. Revenue for TOOLS Norway increased by 11% organically during the quarter, with the favorable trend primarily to the industrial and oil and gas sector. Along with the measures taken to improve efficiency, the increase in sales continued to have a positive impact on the earnings trend. The industrial reseller TOOLS Norway, which generates annual revenue of around 95 million NOK, was acquired in January and will add additional to the expansion. Revenue in Tools Finland declined by 1% organically during the quarter compared with 2 strong comparative months in the preceding year.
Combined with sound cost control, a continued focus on customer cultivation had a positive impact on the earnings trend during the quarter. In March, TOOLS Finland also acquired Lindström Group's personal protection business, which generates annual revenue of approximately EUR 6 million. The group companies specializing in workwear and promotional products displayed a continued positive sales and earnings trend during the quarter. The companies acquired, TriffiQ and Reklamproffsen, continued to perform well and made a positive contribution to earnings during the quarter. The improvement activities initiated in the operations to increase profitability are continuing, combined with sound cost control, resulted in a better earnings performance for the operation during the quarter compared to last year. Operating profit grows by 62%, corresponding to an operating margin of 3.4%.
All in all, for the reporting period, we increased our operating profit by 19% and the turnover by 5%, and with an operating margin of 3.6%. Slide seven, please. Sales in the components and services business area increased by 5% during the fourth quarter of the financial year. The largest unit, Momentum Industrial, note the favorable revenue growth around 12%, with a high activity level among many existing customers, added by the acquisition of Brammer sales units. For the quarter, Momentum Industrial's operating margin was 11%.
As I have mentioned before, Gigant was the company in the former B&B TOOLS , which was most affected by the split of the company and has gradually changed its focus, and we are now changing the way of doing business in terms of the tools chain in order to gain a higher profitability next fiscal year, both for Tools and Gigant. We will, by these actions, get clearer sales channels to the market, as well as decrease the internal cost to serve. For the business area, sales increased by 10% in the financial year, and the operating profit rose by 15. Increased coordination and cooperation with Tools enhance us to adjust the business area structure in the group. As of April 1, 2019, Gigant has become part of the Tools and Consumable business area.
Focus for the business area components and services this year will be profitable growth, both organic and acquired. According to that, Momentum Industrial acquired 70% of the shares in ETAB in early May. ETAB is one of the leading industrial automation companies in Sweden, and provides products and services in hydraulics, linear technology, and pneumatics to industrial companies in Sweden. The acquisition further strengthens Momentum Industrial's position as a leading supplier of products and services in industrial components to Swedish industry. We go to the next page. So a little bit about the financial year on slide nine, please. The aim for us within Momentum Group is to create increased share of the value over time by giving each business better opportunities to develop based on its own conditions. For us, within Momentum Group, the financial year has been eventful and our development has been positive.
Since the spin-off, we have continued to take an important step in the improvement journey for long-term sustainable profitability, and earnings performance has been positive every quarter. For Momentum Group as a whole, adjusted operating profit has increased by 20%, and the operating margin was 5%. At the same time, we have improved our operating cash flow through the activities implemented to optimize the group's funds tied up in working capital. But of course, we have more to prove in the future, and that is what we will continue to work for. So we turn to slide 10. Niklas will give you some about the cash flow statement.
Okay, thank you, Ulf. As Ulf mentioned, we've had a strong focus on cash flow during the year, and especially our working capital.
Thus enabling the cash flow generation in our existing businesses to support our continued growth through acquisitions, but also to fund our development-oriented investment. Positive to note, our cash flow from operations increased to SEK 68 million in the last quarter, with a positive release of working capital, despite the fact that our accounts receivables were quite high, due to the loss in March occurring on a weekend. For the full year, our cash flow from operations stood at SEK 230 million, up from SEK 92 million the year before. I'm especially pleased to see that we continue to grow, but with only a limited increase in inventory, adjusting for acquisitions made for the financial year. Also, that the build-up of accounts receivables are matched by a similar increase in accounts payables.
If you turn to slide 11, please, you see some selected key ratios. And as Ulf already mentioned, our profit expansion, measured on EBIT, was 20% for the financial year compared to our financial goal of 15%. Our other external financial objective for return on equity of 20% was close to being reached with a level of 19% in the reporting period. Our internal profitability ratio, profit over working capital, reached 25% for the financial year. This ratio is based on two components, basically, the EBIT margin and our working capital turnover, both of which was at the level of 5.0 for the financial year. As you can see, we have also now added the EBITDA levels. That also we've commented on earlier, and also the EBITDA margins in the table.
This is because as we continue to grow the acquisitions, the EBIT level will be increasingly affected by our amortization on acquisition-related intangible assets. Our financial position is strong, with a low net debt of SEK 266 million, corresponding to a net debt to EBITDA level of 0.8. Thus, our efforts to grow the group through acquisitions will continue. As a note also, I can just comment that the report also includes the restated numbers for business area, for the new business area structure as of the first of April, as Ulf also mentioned, as well as the preliminary effects from the application of IFRS 16, that will be implemented after this financial year. You can also find these reports at the end of this presentation. Going to slide 12, I would like to hand it back to you again, please.
Thanks, Niklas. If we also then take the next slide 13, I would talk a little bit about the focus in the short to medium term. This has not changed since we was listed, and we continue with work with these three things to get better. As you know, as market conditions may vary, we must adapt and adjust our operations accordingly. This is facilitated through close cooperation with the customer. The digitalization of all parts of the group's daily operations continue, of which our new e-commerce initiative, brighter, is a good example. With brighter, we are aiming to reach customer groups that we do not cultivate through our existing market channels.
These customers do not require the value we create through local presence and competence, for example, smaller businesses and do-it-yourself. We try to do service for them as cost-effectively as possible. Our overriding focus is still then concentrated on the these three main areas you can see at the slide. Number one is change and improvement initiatives in TOOLS. Our second focus is continued development and establishment of niche offerings in existing business. The third is acquisition-driven growth strategy, with focus on niche acquisition. If we talk a little bit about the first one, change and improvement in TOOLS, we're focusing on changing and improving TOOLS by streamlining, streamlining sales by focus on occupational health and safety products and services, and of course, updated e-commerce platforms, as well as the increased number of customer visits.
In our offering, we're moving against the core assortment as well as we purchase direct from producers and internal with [inaudible], we're now changing the way of doing business. In logistics, we have established a central warehouse in Sweden and in Finland, and we are now implementing a regional hub in Oslo that mainly will serve 50% of the sales unit in Norway at the first level. The fourth initiative is to continuously adapt our local presence. We will continue to optimize our local presence for tools in the Nordic, and to change and streamline local sales outlets, focus on industrial customers. Our customer focus is primarily against industry, civil engineering, and construction, and the public sector.
This means that we will adapt the sorting for these customer segments and our logistics setup, and this will enable us clearer and cost-effective logistic offering and purchasing, as well as sales effectiveness. If you look at continued development of central niche offerings, our second focus is this, and we focus in tools with occupational health and safety, and increased operational safety of industrial customers in Momentum Industrial, as well as workwear and product media, and Mercus, TriffiQ, and Reklamproffsen. We will also continue to invest in digital solution for our target customers. Our total e-commerce in the group represents around 25% of the total transactions today. If I hand over, you talk about the third initiative, Niklas, on slide 14, please.
Yep. As the third strategic focus is the ambition to grow the group through acquisition, that from the start, as a separate company, our efforts have been dedicated towards the selective M&A strategy, with the purpose to support the transition to broadening of our offering within the existing business, and to add new, interesting, and profitable companies to the group. Over the course of these last two years, we have concluded 10 acquisitions with some SEK 570 million in annualized revenue. Supporting the first strategic focus, change and improvements in tools, we have made acquisitions of TOOLS Knut Sehlins in TOOLS Sweden, and TOOLS Løvold in Norway, both being former TOOLS partners.
In line with our second strategic focus, continued development and establishment on niche offerings, we have made acquisitions of ELCIA, which is a specialty production and product company within the area of occupational health and safety. We have acquired MFD Components in Finland, a company working within niche transmission products. Lindström's Personal Protective Equipment business in Finland was recently acquired, providing confidence coupled with a range of own brands manufactured via partners in Asia. Brammer, a former competitor within power transmission in Sweden, and now, just recently, Etab, a market-leading player within industrial hydraulics for Sweden.
We have also started building a new group of companies working in the field of workwear and promotional products through initial acquisitions of TriffiQ Företagsprofilering and Reklamproffsen which together with our company, Mercus, is now nearing SEK 300 million in revenue with good profitability. We will continue with our initiatives within M&A. As we have mentioned before, we look for profitable companies with a strong local market position that can be further developed. We target companies that have a clear end customer focus in the Nordic. Handing back to you Ulf.
Thank you. If we take next slide 15. History proves that focus provides better opportunities for increased profitability. This was also the background when Bergman & Beving, in 2001, made the spin-off of Addtech and Lagercrantz to the shareholders.
Stock value of the group at that time was SEK 3 billion, and today, the total stock value is more than SEK 35 billion. So the spin-off of Momentum Group was aimed at just this, to create opportunities for us to improve both in the short term and long- term by focusing on the unique possibilities in our company. We have an average improved operating profit by 25% per annum, and an improved return on equity from 4% to 19%. And business area tools and consumables have had an average of 51% per annum in profit growth, and the business area, components and services, had a profit growth with a high operating margin. Some final words before we open up for Q&A.
Finally, Momentum Group's operating margin has improved since the spin-off, and the group's cash flow and financial position are stronger than they have been for a long time. We thus have a solid foundation to carry out further corporate acquisitions and boost profitability of both our operating segments through the improvement efforts we are implementing within the group. Therefore, we will continue to take actions in each company based on their unique situation and opportunities, and our aim for the end of the financial year is for all of the operations to continue improving their profitability even next year. Decentralized responsibility and customer proximity remain a high priority in our daily work. Thanks. Open up for Q&A, please.
Thank you. Ladies and gentlemen, if you have a question, could you please press zero and then one on your phone keypad now in order to enter the queue, and then after I announce you, just ask that question. And if you find that question has been answered before it's your turn to speak, just press zero and then two to cancel. So once again, if you have a question, please press zero and then one on your phone keypad now. And there'll be a pause while any questions are being registered. We go to the line of Karl-Johan Bonnevier at DNB Markets. Please go ahead. Your line is now open.
Yes, good morning. First of all, congratulations to a good finish to the year. Excellent result in Q4. No question about it. When I read your, your, say, statement for the outlook for the coming year, Ulf, it sounds like it's a lot of more of the same, but you are not really alluding to what you think about the market outlook now when we stand here in early May for the year. How do you feel the markets are out there for the moment? Is it supportive? It's, it's, you can say stabilizing or it's slowing?
First of all, if we go back to the last year, it's seen and feel that it's picked up a little bit in the Q3, but then it speed up in Q4 again. And starting the year, I can see they still good sales figures for us. But of course, it's mixed signals, the currency, Germany, the car industry, and so forth. But what we can see right now is still a good sales figures each day. So hopefully, it will stay the same. But of course, we all know that we're on a high level, and I hope we can stay there for a couple more years.
And then when I look at the statement, it sounds like there is much more to do for you. You internally looking at the own efficiency, both looking at profit margin and because you also alluded to the working capital progress you have done.
Yeah.
You see more of that coming in, in the next year?
Yes. Yes. Our focus is the profit margin, of course, and the R/WC turnover to increase our internal goal of working through profit, profit through working capital. And, of course, having now somewhat two stable years behind us, and gotten the ERP system in place, and then now we are kind of doing more of the same, doing it better, getting the gross margin up, both through sales to the end customer, but also backwards, and also between logistics. And also now that we are having some of the digital solution, that we can also sell off some of our inventory to different customers that we can reach than before, due to Brighter, so.
Yes, thanks. Looking at TOOLS Sweden, I guess, as you also allude to in your short midterm focus, there is a streamlining going on, and obviously you are taking out volumes in that operation we look at. Are we coming close to the end of that process, or do you see that there's still going to be a drag in this year on basically heeling off volumes that you not feel are there for the long- term?
No. Now we are speeding up to gain volume in TOOLS Sweden, and we have also made a slimmer organization, decentralized, so we are taking away one management layer. So now it's more and more focused, even more focused on sales and sales visits and cross-margin, so.
When you look at profitability in the different tools operation, it seems like all of them now are at least up to decent profitability again, or how do you see it?
I can see that, of course, Finland is stable, and Norway has picked up, and Sweden has, due to the volume decrease and also with the currency, they have some with the gross margin, they have been sideways. But I can see now we have reached the bottom of our own performance, and I think we can elevate that now this year.
It also looks like you have managed to turn around the Gigant operation, but it's a lot of moving numbers there. So how do you feel that operation is now performing when you are heading that into the tools and consumables area instead?
We have taken out costs around 1 million SEK that we will not have this year in our running performance. And due to the change of the internal sales, that has kind of diminished the volume this last quarter in Gigant. But I can say that Gigant was loss-making the first half year, and now we are picking up and almost reaching our target, so and then next year, we will elevate that. So it's not on the bottom, but it's better than it has been since the spin-off. So I think we have a solid base to grow that business now.
Gigant focus on selling, their initial frame to resellers, and then they also have an internal, cost to serve to TOOLS, which buys with them as well. So I feel comfortable with that change.
Excellent. Looking at the release from the restructuring reserve, how much helped you in the Q4?
Yeah, so the reserve is at SEK 23,000,031. So we released SEK 5 million approximately in this last quarter.
Niklas, if I understand it right, the IFRS 16 implementation will add around SEK 500 million to your balance sheet and, with a EBITA impact of SEK 10 million. How do you see that bottom line in the, on net profit? Is it neutral?
Okay, I understand. We are looking at the numbers, and these are the preliminary numbers that we present here to everyone. So what's gonna happen in our first quarter here, we're gonna release the full statement, of course. So these are the numbers that I have as of currently.
Excellent. We look forward to that then. Thank you.
Okay. Just to remind everyone, if anyone's got any final questions at this stage, please do press zero and then one on your phone keypad now, and there'll be a further pause for any final questions. Okay, we have a follow-up question from Karl-Johan Bonnevier at DNB Markets. Please go ahead. Your line is now open.
Well, I'll take a chance on, on another one. If you look at the movement in your key ratio R/WC during the year, obviously, it wasn't, it was a big movement on group level. Could you allude, learn a little bit more on what happened underlying in the different business units? Were there any big movements in the key ratio for you?
No, actually... We have all of the businesses is above 45, except for TOOLS in three countries and Gigant, and we have now made a foundation this last quarter to pick them up to above 25 next—this year. But of course, it's challenging for most of those businesses. But the help with the logistic, and also see if we can sell some of our stock value through different channels, as I said before, and that could help them to pick it up, of course, with the profit expansion as well.
And just finally, from me, looking at the most recent acquisition, maybe you could highlight how that fits into the industrial operation?
Yeah. ETAB is a special niche in hydraulics and pneumatics, and they do services and mounting out by the customer, and has also actually been a supplier to Momentum Industrial. So if you look at Momentum Industrial, in those two air product areas and services, they're not that strong in Sweden. So this will add perfectly with competence running as their own company, and then it could be a partner to Momentum Industrial local branches, wherever needed. So it's an interesting niche product that we can expand, that we already sell in Momentum, but not at that specialist way that they can do. So it's an interesting niche, and we're also looking into more niche product offering that Momentum has, but are not strong in, to do grow expansion.
When you look at components and services in the other Nordic countries, you have earlier alluded to that you would like to build a similar footprint there. Do you see any acquisition opportunities that could create that kind of footprint, or are those units basically tied in bigger companies where you can't get hold of it?
There are some niche players. Of course, we bought MFD Components in Finland, which is in power transmission. We have established our own sales office in Oslo with Momentum Industrial, and now we're also looking into... We have some geographies that we would like to start sales offices or buy. So we are making three different way of growing Momentum business. Of course, it's organic, it's geographical locations, and it's acquisitions. So we will try to be more in Norway, and then, of course, we are now also having dialogues with TOOLS Finland, how can we grow in Finland?
Norway is the first on the list, and we also have some geographical points in Sweden, Momentum Industrial, that we look into either, again, if we start a new sales unit or buy some.
Excellent. Niklas, I think a year ago, I asked you a question about how you saw the M&A pipeline, and you, you thought it was still a little early, you were still working on it, so to say. Do you see that that is now, having worked on it for a year, that you, you have a firmer pipeline going into this year and, say, a good number of processes cooking out there?
Yes. Yeah. I mean, we have worked quite selectively within the M&A area, as I mentioned. And of course, our priority has been to establish a firm pipeline within these areas. And we have concluded a number of acquisitions, as I also mentioned, but we are also looking now broader in scope, in order to add additional companies to the pipe. So of course, we are working. I would say that there are ample opportunities out there when it comes to M&A. So we are. I think we have a good pipe, and we are working with a number of processes at the current time, of course, in order to make additional acquisitions.
Excellent. Sounds promising. Good luck out there.
Thank you.
Okay. As there are no further questions in the queue, gentlemen, could I just pass it back to you for any closing comments at this stage?
Okay. Thank you for listening, and hope to see or hear you again after our first quarter this year. So thank you very much for listening.
Thank you.
This now concludes today's session. Thank you all very much for attending. You can now disconnect.