Ladies and gentlemen, welcome to the presentation of Indutrade AB for the Quarter One Report 2020. Today, I am pleased to present Mr. Bo Annvik, CEO, and Mr. Patrik Johnson, CFO. For the first part of this call, all participants will be in listen only mode, and afterwards there will be a question - and - answer session. I will now hand you over to Bo Annvik. Please begin.
Good afternoon, welcome on our behalf as well. We will start, as usual, with some highlights from the first quarter, and are obviously quite happy with the overall outcome. Starting with strong organic order intake and also a positive book-to-bill, and we will elaborate on that quite a lot further on. We see quite large variations between company segments and markets and have done that for quite some time. We are actually having a record high Q1 EBITA margin at 12.4%. We actually had a record also last quarter one in 2019 at 12.3%. It was good to beat that, even if it was slightly. We are also improving the cash flow in the quarter, quite dramatically in a positive sense. We have also strengthened our financial position, which we will talk a bit about. Also have started the year with a very high acquisition activity.
We have acquired six good companies during the quarter. Last but perhaps not least, the effect of the COVID-19 during the quarter in total is quite limited or has been quite limited. More sort of dynamics, movements below the surface, but we will obviously talk a lot about that as well. If we start with the order intake, as I said, on an aggregated level, very strong for the quarter. Again, quite a lot of variation between companies and segments and also the business areas. The book-to-bill was good and strong at 109%. We came in at +17% in total, very good numbers. Perhaps even better organically, we grew by 7%. Acquisitions was +9%, the currency had impact of 2%, and then divestments -1%. All in all, very positive numbers.
We should all remember that Q1 last year was also strong in terms of organic growth. I think orders were up 5% and sales 6%, so strong reference also. It's probably relatively interesting to start by commenting a bit on the corona or COVID-19 situation and the impact on the demand side. We have actually had positive impact from certain companies in the medtech and pharma segments. Just to give you a few examples of what type of companies, products we are dealing with here. We have one company providing equipment for medical gas to hospitals, super relevant in these days, and they have had a very strong order intake growth and have been actually very important to manage the situation. They have even had support from the U.K. military in order to get their equipment out to different hospitals in time.
We also have complete products for anesthesia and ventilation sort of applications. We are also making components to anesthesia and ventilation products at a certain company. We make packaging and bottles for pharmaceuticals. We have chromatographic columns or tubes, which are essential for vaccine development. As you hear, a number of different type of products, very interesting businesses, and they are all doing good. We have also had a quite unique company in terms of the brand name or the company name in Nynäshamn, Sweden. There we have Corona Control. That company is, however, not linked to the COVID-19 situation. They are providing valves to the process industry, and they have had that company name for about three decades, so not linked to this situation, but a little bit interesting.
The MD of that company has both been on radio and in several newspapers, so he's happy at least. We have also had some issues in terms of companies providing products to the general manufacturing industry, automotive industry, aerospace industry, and so on. We have a cluster of tooling companies, for example, with quite negative order intake. In quite a lot of the countries we are operating, the construction segment have been low, not least in the U.K., where it's more or less been a standstill since late March, you can say. All in all, I would say a limited effect from COVID-19 on order intake, and it will most likely be more negative in quarter two. I will elaborate more on that down the line in the presentation here. That was on order intake.
If we turn the page and look at the net sales situation, also very positive versus Q1 last year. Total growth of 14% and gladly a + 3% in terms of organic growth. Similarly to the organic order intake situation, acquisitions grew by 9% and the currency had an impact of 2%. If we try to look at sales in a more geographic perspective, we can say that we have actually had some positive development in parts of Scandinavia, primarily Sweden and Norway. I would say Denmark and Finland has been more flattish for us in quarter one, and we have seen more declines in the Netherlands and in Germany. Switzerland, I would say slightly positive. U.K. all in all is also flattish.
If you look at our business area U.K., they are down, but we actually have some U.K. businesses in Flow Technology and also Measurement & Sensor Technology. All in all, I would say U.K. is also flat. We see a lot of flat, positive in Sweden, Norway, and negative in the Netherlands and primarily in Germany. If we look at segments, obviously the MedTech and Pharmaceutical segments are positive. I would say Water, Wastewater, parts of Infrastructure has been positive. Power Generation has been positive. It is more general manufacturing, automotive, aerospace, and most geographies in terms of construction. However, in Sweden, construction has been okay-ish, I would say. That is some comments on the sales situation. If we turn to EBITA, it is also, as I have said before, been very positive, and we had an increase of 15%, resulting in a margin of 12.4%.
Again, record level, very good. It's a slight increase from quarter one last year, so 2% organic, 10% from acquisitions, divestments adding 1%, and currency 2%. The organic development was held back by the COVID-19 outbreak, and I'll try to explain a little bit an underlying perspective on the situation. If we take the organic part there, + 2%, we have actually released an earn-out of approximately SEK 15 million into that number, and that's been accounted for in Business Area Measurement & Sensor Technology. It's a positive one-off there. We have also had actually quite a lot of negative one-offs. For example, in Measurement & Sensor Technology, we have a number of sites in Asia. We have a very large double site in Sri Lanka. We have a site in Malaysia.
We actually have one in Wuhan, China, the epicenter of the COVID-19 outbreak, and also in South Africa. All in all, these sites were initially, at the time of the outbreak, closed by authorities. We didn't have permission to run manufacturing in those sites, and that involved a bit more than 700 persons who were on our payroll, and we didn't get any subsidies from authorities linked to this. That's obviously costing quite a lot of money. We have also had a high acquisition activity, as I said, with six acquisitions in the quarter. We have, I would say, one-off acquisition related costs in the quarter here. Also, we have some companies in the Measurement & Sensor Technology area where there has been customer shutdowns. They haven't been able, basically, to receive orders or invoice.
That's offsetting the positive earn-out release to a quite large extent. Apart from that, I would say that those business areas where we are a bit more heavy in terms of own manufacturing is now having a bit of a negative mix impact because sales have gone down, and we have had certain costs in these areas, primarily the area we call Fluids & Mechanical Solutions, very much a Nordic-based business area, but actually having some export businesses and also the U.K., quite manufacturing-heavy, and to some extent, DACH and Benelux. We report organically + 2%, and yes, there is an earn-out release, but also quite a lot of one-off or extra costs. Underlying, they are perhaps not fully even, but more or less taking out each other. I would say slight negative impact. That was my comments on EBITA.
We can answer any questions linked to this later on in the call. If we turn the page and talk about each business area and the organic sales situation, you can see on this chart here that four out of eight business areas had a positive development. Again, that's linked to a difficult benchmark from last year. I would say the strong growth in Benelux Flow and Industrial Components are all supported by companies, as we have said, in the medtech or pharma sectors. In Benelux, the large valve company we have there, linked to power generation, has also been a strong contributor. DACH is a little bit special. We have actually had good project business from the Swiss process industry but also been negatively affected by Germany in that area.
All in all, DACH anyway had a positive growth, which was very good to experience. Then we had decline in Fluids & Mechanical Solutions, Measurement & Sensor Technology in U.K., and I spoke a bit about that already. That's mostly then linked to general manufacturing, automotive, aerospace, some construction-related segments. Fairly understandable. In Finland, we have more or less a flat situation, slightly negative. We actually have some companies who had a bit of a negative effect linked to some of the strikes which we experienced during quarter one in Finland. We have service people who couldn't visit the sites, and we couldn't invoice that type of work during that time. A bit of declining sales linked to that. That's sales-related comments per business area.
If we talk about the EBITA margin per business area, again, four out of eight are increasing the margin in the quarter. Flow, DACH, Industrial Components, again, they're mainly driven by positive organic sales, again, linked to healthcare or medtech and pharma-related segments primarily, I would say. In Finland, we have very good cost control, cost-conscious MDs of the companies, also had some benefits from new acquisitions there. The weak organic sales development was the main driver, I would say, for lower EBITA in Fluids & Mechanical Solutions and MST and U.K. I'm repeating myself here, but again, linked to businesses selling into the general manufacturing, automotive, aerospace, and construction in the U.K. These three business areas are primarily having companies with own manufacturing and have had lower capacity utilization and hence some extra costs here.
I would say several companies have introduced short-term or temporary layoff programs during March and also continued in April. I would think that we have a bit more than 1,000 persons now involved in programs like that, and it might increase a little bit going forward. In addition to that number, we also have those who were a bit locked out, as I said, in Sri Lanka, Malaysia, China, South Africa, approximately 700 persons there. That's also been affecting the EBITA margins in those, primarily in MST. As we have, I would say, stated several times, our MDs are really cost-conscious. They are taking fast decisions, and I think they are managing the situation in a really positive and good way. Those were my comments on order intake, sales, and EBITA, both on group level and business area level. Some brief comments on the acquisitions.
You have obviously seen these acquisitions as we have released them one by one when they happened. All in all, six really good acquisitions in quarter one, adding about SEK 400 million on an annualized basis. We have also actually done some add-ons, which we haven't press released, so also some activity like that. We have also divested the only remaining business we had in Russia, [Non-English content] which we also had an extraordinary general assembly shareholder meeting about in February. That project is now also finalized, which is feeling good, and management bought that company and are now running that. I think I stop there, and we can come back to this later on, and then I leave the word to Patrik to comment on the financials more in detail.
Thanks, Bo. Hello, everyone. Let's dive into the numbers a little bit more and look at the key data summary first. As Bo said then, we had a strong order and sales development the first quarter, with orders up +17% and invoicing or sales up 14%. Book-to-bill was good, +9%. Gross margin was very stable during the quarter, pretty much in line with last year, I would say. Here it's important to remember that we have a lot of trading companies, and they have a headwind, the Swedish and the Norwegian companies, as the krona, both the Norwegian and Swedish, are really low. They are working in a headwind, but still we managed to keep the gross margin stable. I think that's good. EBITA margin increased then to 12.4% versus 12.3% last year.
We saw an increase in the finance net of 19%, that's slightly higher than the profit increase then. The main reason for this is the high acquisition pace the last year and also beginning of this. Also interest rates are slightly higher, that's also impacting slightly. Tax cost up 17%. The underlying tax rate is, however, I would say, in line with last year, we have some more non-deductible expenses in this quarter compared to last. Earnings per share up 11%. On the return side, return on capital employed is 18% compared to the 21% last year, that's slightly lower. Actually, IFRS 16 impacts around one percentage point. You might feel that is strange then, we always calculate these on a rolling 12-month basis, which means that we don't have full impact in last year's Q1 number.
The only comparable to this year's numbers is quarter four last year then. There's one percentage point of the increase related to IFRS 16. The other main reason, I would say, is also here then the increased acquisition pace. Also we have somewhat higher working capital also then on a rolling 12 months basis compared to before. Cash flow, really strong for the quarter, SEK 421, that's up 151% versus last year, that I will elaborate a little bit more on the next slide. Net debt EBITDA is 2.2x versus 2.0x last year, that's slightly higher, I would say that it's still relatively in line with what we have had then as an historical average. Let's move on and look at the cash flow then.
As I said, strong, SEK 421. Q1 is normally a seasonally weak quarter, which I hope you can see then from this slide. That's because we normally have stock buildups during this part of the year. Also of course then customer payments are slightly lower from the invoicing around Christmas, New Year, et cetera. The main driver for the increase, it's a better development of the working capital than what we had Q1 last year, and also the better result, of course, impacts as well. Still, we are not at the level where we should be on the working capital. We're still slightly high. We are working with our companies on that. That's still an improvement potential long term, I would say.
On the other hand, I would say that it is now actually a slight protection shield also when we note some disruptions in global supply chain. That's actually something good that comes out of these slightly high stocks. Move on and look at the earnings per share. The quarterly earnings per share grew 11% to SEK 3.22, which is a good development then, but it's slightly lower than the improvement in EBITA. The reason for that is that you have a slight offset then by increased amortization of intangibles and the financing cost. Those come from, as I talked about before, come a lot from the higher acquisition pace that we've had the last year. Three and five year increase in the quarterly EPS. Strong numbers + 14% and 19% then per year on average. Finally, the debt side.
The interest bearing debt end of Q1 increased to SEK 6.5 billion approximately. The increase also here comes from the higher acquisition pace the last year and also beginning of this. The ratio net debt equity ratio is 85% versus 76% last year, slightly higher than the two last years, but if you go back further two years, it's basically in line with what we have seen. If you talk more broadly about the financial position, I would say that we already, when we moved into this year, had a strong financial position. Given the uncertain situation, we've worked even more with the situation here and tried to strengthen it further. In the beginning of April, we prolonged all our short term loans. We also actually put the new SEK 750 million credit facility in place.
If you take all these actions in consideration, then our remaining short term funding is roughly SEK 1.4 billion, and our long term unused credit facilities is SEK 3.3 billion. It's relatively big headroom in that. By that, I think I end and leave over to Bo again. Thanks.
Thank you, Patrik. We have a slide trying to comment on the overall impact COVID-19 had in quarter one, and we have already spoken a bit about this. Starting out with minor disruptions in the supply chains. We have obviously some companies who buy product components, raw materials from Italy, and there's been some problems there in getting product and having delayed products. They need to find second sources if they didn't have that before. Also, some disturbances from Spain, France, and also China. Apart from suppliers being basically restricted from working there, we have also had some issues with transportation costs, not least air transportation has been extremely expensive, and also transportation times have been an issue. Containers have been in the wrong harbors geographically and so on and so forth. Some disruptions from this will continue to some extent into quarter two here.
We have also had production disturbances. I spoke about our sites in Sri Lanka, Malaysia, China, South Africa, where basically the governments have locked us out without financial support. If we take our more normal operations in Europe, there is obviously from time to time been higher sick leaves situations. Also, in order to manage this situation, a lot of the companies have introduced new distancing rules among employees. For example, perhaps they are usually running a normal day shift. They have now introduced two shifts in order to have fewer persons per square meter in the assembly area or similar. On the positive side, we have spoken about the med tech related companies, pharma related companies.
They have obviously had a really good order intake impact, and in general, we have seen some customers building safety stocks linked to the strains in the supply chains. Very difficult to assess how much that is, but rather limited, I think, overall. Country and customer lockdowns. Some of our companies have had and still have customers in lockdown. The automotive industry is starting up now, which is great because they have huge impact on the overall, I would say, business situation in Europe. It's at very low levels to start with the first weeks here, so very minor impact yet. Aerospace is another area where it's been basically complete lockdowns. We have companies who have experienced that and are experiencing some of that.
As I said, we are using temporary layoffs when necessary, and it's basically up to each individual MD to take those decisions and follow the regulations in each country linked to this in a good way. Now we have a bit more than, I think, 1,000 persons involved in those types of programs. Perhaps ending then stating that the business model we have, the culture we have, the agility Indutrade has is managing this in the best way ever, I would say. Also, then commenting a bit about our segment portfolio structure. On this slide here, you see our four largest segments. We categorize that in general engineering, 19%, construction and infrastructure, 17%. That's much more infrastructure than construction for Indutrade. Healthcare in total, 13%, and that's medical equipment or pharmaceutical or biopharma related businesses.
The energy segment, where we obviously have our larger valves company linked to power generation, but actually quite a lot of businesses linked to wind power and other types of energy generation as well. These four are accounting for about 60%, and then we have another eight, 10 segments building up our total business. As usual, some of them are having more of a challenge, but quite a few also a positive situation. This broad portfolio is building a natural business cycle hedging, which gives good stability in a situation like this. We had a board meeting in Indutrade this morning, and one of the agenda items was linked to the dividend and the general assembly meeting, and there is now a decision from the board that we will have the general assembly meeting June the 2nd this year at 3:00 P.M. in Stockholm.
There are obviously risks linked to larger meetings, so we will try to have not more than needed involved in that meeting from our side, and hopefully not too many shareholders either, since we will provide opportunities for voting by post and so on and so forth. All of that will be informed about rather shortly here. The board is also proposing to the general assembly that there should be no dividend at all linked to 2019 and paid out this year. Okay, trying to summarize and underline some of the key takeaways from the presentation here. Really strong and good growth, both organically and structurally in the quarter, and record high EBITA margin, but also variation in demand. Limited, I would say, total COVID-19 effects in quarter one, but a bit more dynamic movements under the surface.
There is very large uncertainty ahead, and it's obviously extremely difficult to give any type of guidance going forward based on this uncertainty. We have discussed what we potentially can elaborate on to help you guys in your situations. We can say we are obviously tracking our sales situation on a weekly basis now to be on top of things here. Month -to -date in April, our sales is about -10% to -20%. There is still some time, obviously, left in April, and then you have May, and then you have June. Very much uncertainty, and we don't know exactly where we will end up, obviously, in quarter two or at the end of the year, but that's the guidance we can give, and that number is an organic perspective, not the total sales involving structural effects.
Again, underlining that we are a diversified business group, agility is something we really have in our DNA, I would say. Our MDs are working very closely with customers and taking business decisions very rapidly when they see need for that. In terms of acquisitions going forward, I would say that we are in a number of good and interesting discussions. Obviously, we don't want to finalize a lot of acquisitions when the uncertainty is large. We are trying to basically pedal the bike as slowly as we can without falling to the ground. We will see. We are on top of those situations. We don't want to miss any opportunity, but we also want to manage risk in a responsible way.
The whole acquisition situation feels actually very good in that perspective. By that, we end the formal presentation and say thank you for listening. We open up for any potential questions you have.
Thank you. Ladies and gentlemen, if you do wish to ask a question, please press zero one on your telephone keypad now. If you wish to withdraw a question, you may do so by pressing zero two to cancel. Our first question comes from the line of Johan Dahl from Danske Bank. Please go ahead. Your line is now open.
Yes. Thank you. Did I understand that correctly, Bo? You talked -10% to -20% for April in organic sales. Was that right?
Yeah. Month -to -date. Basically involving up to last week's sales in April organically.
All right. These 1,000 people you had on some sort of temporary furlough, do you have any sort of visibility for how long that will be?
It's up to every individual MD, basically, to manage that. No, I can't really give you any certain guidance on that, unfortunately. Not longer than necessary.
All right. It seems there are some segments, like med tech, that's really growing substantially in the quarter and others being sort of really weak. How is that impacting profitability in your view, in the first quarter in terms of mix, et cetera?
Good question. Slightly negative, I would say on profitability basis linked to that we are having some underutilized assets and quite a lot of people who we pay for, we cannot use productively. It's not optimal to run any actual company on a super high order intake or sales level. You have to take extra costs for shift structures or transportation and things like that. Slightly negative, I would say. I don't know, Patrik, if you have any other view than I have.
No, I think we have, of course, good margins in our med tech business. I think also as Bo Annvik described, we have a decline then in a lot of companies relating to general manufacturing. These type of companies, maybe as an average, have slightly more fixed costs than others. The decline in those makes us drop a little bit more than otherwise, I would say.
All right. Just final question. There were some one-offs you talked about in DACH, what was left in the quarter, and also looking at how you account for your acquisitions here in the first quarter of 2020. If you do the math, looking at what you paid for those companies and just annualizing the contribution to earnings in Q1, it seems as if the multiples have gone up to some 10 from traditionally six to seven. Is that correct or not correct?
Talk about one-offs first and the DACH, they are not super big. If you exclude those, DACH would still have improved their margins. That's not the big contributor for DACH. If you zoom out even more and look at one-offs in general, I think the biggest positive one-off was the earn-out that Bo talked about. We had a number of smaller negative one-offs as well then related to the Asian units we talked about and acquisition-related one-offs as well then. If you put all that together, I would say it's maybe only slightly positive on the group total, I would say maximum one-tenth of a percentage point. That means that we underlying basically are in line with last year. On the acquisition multiples, I would say it's basically in line with what we have paid before.
Maybe it's difficult to do the math just looking at the numbers available in the report then. If you deduct sort of the earn-out amounts because those we don't pay out until the companies perform and grow and perform. You deduct those, I would say that we are not paying more on sort of the companies, more than we used to. The multiple of 6x, 7x are sort of still valid for the ones that we closed this year.
Great. Thank you.
Just as a reminder, if you would like to ask a question, please press zero one on your telephone keypad now. Our next question comes from the line of Oskar Vikström from ABG Sundal Collier. Please go ahead. Your line is now open.
Okay, thank you so much. All right. Just have a few questions to add to that. Firstly, I know you mentioned this inventory buildup that it's hard maybe to magnify just how much of the growth was driven by it. Could you just elaborate a bit on what segments you're seeing this in more detail?
It's not segment specific, I would say. It's a bit spread and customers don't basically say that this order is for safety stocks or so on and so forth. It's impossible for us to give you. It's more a sense and feeling and not very significant on the overall basis.
Okay. You wouldn't say that it's a big part of the growth we saw this quarter?
No.
Okay. This month -to -date, - 10% to -20% organic growth. Should we assume that this is, let's say, is it the same sort of segments that are suffering as they did in Q1, or is it a different sort of mix than what we saw this quarter?
I would say it's more similar than anything else. It's extremely uncertain, and for example, you can see that U.K. have had a tougher situation now. If restrictions step by step open up in the U.K., maybe the business environment will improve. They will start construction sites again and need material and so on. That can obviously improve. It might be very slow or it might be a little bit quicker. We don't really know. It's very difficult to give the guidance, unfortunately.
Yeah. Just one final thing on acquisitions. You mentioned that multiples are still at the historical levels.
Yeah.
Just out of curiosity, when you find yourself in sort of a slowdown or economic downturn, historically, how has the pricing of acquisitions developed in these times? Is it harder to come to an agreement with sellers? How is that dynamic?
Yeah, it's I think mostly so that it's been less projects finalized during those times. Those sellers who have a choice, they usually defer the decision to divest at exactly this time then and wait half year or a year. They know what the company is basically worth in normal times. Perhaps there are a few who really need to sell because of generation shifts or whatever it might be, then they're buying. It's more sort of less activity rather than lower pricing, I would say. I would also say that we are very fortunate in terms of our pipeline, when we feel that the business environment is stable, there might be a bit of a catch-up effect on acquisitions in short term or in short time.
Maybe at least hypothetically, we don't do very much in Q1 or Q2 and perhaps not Q3, who knows, and then quite a lot in Q4 because we keep in dialogue, we keep in contact, we are doing due diligence work and so on and so forth. We don't want to take unnecessary risks before we know that that particular company is having a stable sort of next couple of quarters and also that our financial situation is stable and secure.
All right. Thank you. That was all I had. Thanks.
Thanks.
Thank you. As there are no further questions registered at the moment, I will hand the word back to our speakers for any final comments. Please go ahead.
We thank you for attention and listening and say thank you for today, and we keep in touch. Bye-bye.
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