Ladies and gentlemen, welcome to the presentation of Indutrade AB Q1 Report 2018. Today, I am pleased to present Mr. Bo Annvik, CEO, Patrik Johnson, CFO. For the first part of this call, all participants will be in listen-only mode, afterward, there will be a question and answer session. Speakers, please begin.
Good afternoon. This is Bo Annvik, welcome from my side as well. I will share the presentation today with Patrik Johnson, our new CFO, who started April 1st but is already into the financial situation and the company as well in a good way. We start with the first slide with some highlights from the first quarter. I would say that the demand situation overall is good and perhaps particularly in Sweden, in the U.K., and in the Benelux operations. We have, however, some Easter effects which is quite relevant for a company or many of our companies which are technical trading companies. We also have the cold winter impacting many of our Nordic companies and also some of our companies in the U.K. and Ireland.
As many of you know who follow us or have followed us for a longer time, we have a large company in the power generation sector, and this company had a fairly low invoicing for the quarter, impacting the overall situation a bit. We will come back to that. We took a rather extensive restructuring decision and program for a company called Sander Meson in the marine segment during the fall last year, and this restructuring plan is being implemented in accordance with plans. That's going well. We have formalized one acquisition in the first quarter, a company in Holland, Gimson-Zuijdvest, and I will talk a bit more about that later on as well. A very successful start with Indutrade.
Then we also successfully launched a new bond issue during the first quarter, and we will come back and share some further information on that later on as well. If we turn page down to the financial summary. In an overall perspective, I think the results are good. We had an order intake of +14%, and our net sales rose by 10%. A good situation above our target level or at our target level. This resulted in an EBITA which rose by 11% to SEK 451 million, and that's corresponding to an EBITA margin of 11.6%. Was 11.5% a year ago, so it's rather stable at the high level. I would say this year and last year's quarter one is, on a margin level basis, one of the best in a historic perspective. Good start of the year in that sense.
Our earnings per share rose 11% to SEK 2.42 and was previously SEK 2.18. Our return on operating capital was 19% versus 20% a year ago. I think Patrik will elaborate perhaps slightly on this, but I can already now say that the restructuring program we had or have ongoing is also impacting this negatively, of course. We turn page and look at the market conditions. This is not more scientific than our perspective on how Indutrade is experienced in the different geographic markets right now, basically. Sweden is a positive situation. Still growth in the Swedish market for many of the Indutrade companies. In Finland, we experienced good growth during 2017 from earlier sluggish situations, as you know. It's still a good situation at the high level in Finland, but perhaps not the same growth as we saw during last year.
Still, as I said, good activity level. I would say that the capacity situation in the machine building sector is perhaps hindering some further growth. Still a positive perspective on Finland in that sense. Norway is actually, I would say, a bit better, and mostly for us, driven by the activity level in the oil and gas sector. We see that some of the larger companies in that sector are benefiting from the higher oil price and are more profitable and hence invest more in new projects and maintenance projects and so on. Also benefiting a bit from the fish farming side in Norway. Denmark is good, but moving more sideways for us.
In the U.K., perhaps surprisingly, but going well for us and mostly driven by our export-oriented companies, who I think over some time have benefited a bit also from the currency in the U.K., but overall, a good and increasing business for us in that market. The Benelux equally to U.K., also very good activity level and growth in that market for a majority of our companies. Switzerland, again, a bit more sideways, I would say. There is a high cost level, strong currency, a bit lower investment activity. Fairly good, but more a sideways move, I would say. Germany, also a good market, still growing for a majority of our companies. North America is, for us, a bit more sideways.
Could probably be stronger for many other companies, but this is more company specific for us, and we are benefiting from a good situation, but not dramatic growth at this time. Asia, to end with, positive overall situation in Asia for us. That was a bit of an expose over the different geographical markets and as I said, more of a snapshot how we see the markets from an Indutrade perspective right now. If we then turn page and look at the order intake, at the beginning, I said that it was quite strong overall, plus 14%, and we came in at SEK 4,173,000,000, and 3% approximately organic growth in order intake. Not great, but not bad either. I will elaborate on this a bit more on the sales situation. Book-to-bill, 7% up. Good situation, demonstrating still that we are growing overall as a company.
As I have mentioned, and you probably will hear a bit over and over again here, we have impact from the Easter, which was impacting a lot of our technical trading companies primarily, and also the cold winter in the Nordic areas and in the U.K. Again, underlining that primarily strong, I would say, organic development from an order intake point of view in the Benelux area, in the U.K. area. Perhaps also worth to mention that there is high capacity utilization in many geographies, in many segments, and that's actually hampering the growth to some extent for some of our businesses as well. We turn page and look at the sales situation, where we came in overall at +10%, SEK 3,897,000,000, where the organic growth was basically stable or 0%.
That is, in a sense, not great, obviously, but again, I would say that the fewer working days is probably corresponding to approximately 2%. The cold winter, it's difficult to set a number on, but also obviously some effect could maybe be 1% or so, or 0.5% to 1%. We don't have a definite number there. The lower sales for the large company in the power generation sector is also probably impacting around 1% or so. With that perspective, it's not that bad and quite acceptable, I would say. We will benefit from this in the second quarter. We will probably see a good April and then overall a good quarter two based on this.
The strongest organic development was in the Measurement & Sensor Technology business area in the U.K. and also in Fluids & Mechanical Solutions. I think we move on from there into the EBITA development. As I said initially, EBITA rose with 11% to SEK 451,000,000, corresponding to a margin of 11.6%. A good level, stable level versus a year ago, and in a historic perspective, I would say high level. Again, impacting on the Easter effect and the cold weather. Some business areas developed in a very good way. I would say Finland had a good development and also the Industrial Components business area. Good positive improvements there. Overall, I would say good levels in most business areas. If we look at the acquisition, on the acquisition side, as I said, we acquired a company in Holland called Gimson-Zuijdvest.
A good size, around SEK 130 million, approximately, with 40 employees, making hydraulically controlled gripper tools for construction equipment machines. They have a nice good facility in the outskirts of Amsterdam, and a modular approach to their product range, and very good order intake situation, high capacity utilization already now. This will be a profitable growth company for Indutrade in a good way. I would say that the M&A market in general is on a high activity level right now. A lot of private equity companies are trying to divest now. We are at the high level in terms of a business cycle here, so it's probably not so surprising. Our pipeline is strong, good. There is a lot of activity level.
Maybe that price level has increased a little bit, that we turned down some proposal linked to price a bit more now than in a relative perspective. I would say that we are a very attractive potential buyer, and we get a lot of attention in all our markets where we are established right now. We are a cherry picker, so we only buy good companies, and eventually, I think later in the year, there will be further investments or acquisitions from our side. We've also made some, what we call add-on acquisitions, and they are basically managed from one of our portfolio companies, and they buy them based on synergies and growth potential. We made one in the U.K. and one in Sweden, and there are several more lined up, I would say, to be completed later on here.
We have also divested one company this time. Not very common from Indutrade. This should definitely not be seen as a new strategy. We basically still have a non-exit strategy, and we don't profit from buying and selling companies. When we buy a company, we have no intention whatsoever to divest it. This was a company with some difficult financials and profitability situations for quite some time, and we approached one of the suppliers here, and they saw some synergies in investing forward in Finland. They did so, and we agreed on a reasonable price level and so on and so forth. We have sold the Tecalemit companies with presence in Finland and some presence also in the Baltic countries.
Again, there might be some further divestments going forward, I want to underline that this is not a change of our business model or how we view our cornerstones buy and build for the long term. We can present a bit more details per business area. For you who have maybe not followed Indutrade over the years, we reorganized at the end of last year, and we went from six business areas to eight business areas, and we basically split the larger business area called Special Products into mostly a geographical structure of U.K., Benelux, and DACH. I start with the Benelux area, where we also include this larger company in the power generation sector. Overall, net sales increased with 5%. However, organically, it was minus 12%.
If we exclude this larger company in the power generation sector, we had a positive growth organically also in the Benelux area. Book-to-bill 110, good situation, and the EBITA came in at SEK 77 million and a margin at 16%, slightly lower than last year, still on a high level, I would say. There is a positive business climate and our outlook for quarter two in the Benelux, I would say, is good and optimistic. The lower margin can basically be explained by some mix changes. Nothing dramatic. As I said, good high level and a positive perspective on the coming quarters from the Benelux area. We go to the DACH region, which is short for Germany, Austria, Switzerland, we had a positive order intake, and net sales increased dramatically to +37%.
That's more linked to a new company, Inovatools, which is now included in that area. Organically, minus 5%. Book-to-bill 112, EBITDA at SEK 30 million. That's also a good increase, EBITDA margin at 10.1% versus 9.3% a year ago. I would say from a market perspective, good demand level in Germany, a bit weaker in Switzerland, and this is linked to one extent that we have some project-related businesses which fluctuate over quarters. Some of our business is linked to, I would say, facility investments and maintenance investments linked to the pharmaceutical and chemical segments in Switzerland, and there's been a bit lower activity level now in quarter one there. Equal to the Benelux area, I think the coming quarters will be improving and have a good development for us. We turn page and start to look at Finland.
Here we saw net sales just below SEK 400 million, and a decrease of 1%, but organically plus 1%. Book-to-bill at one. EBITDA level at SEK 38 million, and a good margin improvement from 8% to 9.6%. As I said, we see more of a sideways movement regarding the market here, but it's a good market at a high activity level now. Quite a lot of impact here from the cold winter. We have some companies in the construction area, and also perhaps more specifically in the water and wastewater area, where it's been very difficult to basically perform projects during the first quarter. Again, some positive impact from the divestment of the Tecalemit companies impacting the margin to some extent in Finland.
One of our larger business areas, Flow Technology, which is very much about different types of valves and pipe components, pipe cladding and so on. This is also one of the business areas where we see product commonality and technology commonality. Flow basically covers several geographies, different from some of the other market, more related business areas. Overall, plus 5% net sales increase, organically plus 1%, and book-to-bill 113. They came in at a fairly stable EBITDA margin at 9.6%. I would say that the outlook is also quite stable here. They also have quite a lot of technical sales company in their portfolio impacted by the quarter. In this business area, the Sander Meson Group is belonging here, and as I said, that restructuring is going according to plan. It's quite extensive.
We are shutting down some subsidiaries and reorganizing and downsizing, and the plan is that most of these activities will be finalized by the end of the second quarter. From the third quarter and onwards, there will be a different structure in that group. We turn page again and look at what we call Fluids & Mechanical Solutions, which is mostly companies in Scandinavia, a bit more with an industrial profile, but there are also some sales companies in that portfolio. Net sales increased with 4%, and this was organic growth. They haven't had any structure recently there. Book-to-bill was 5% plus, and the EBITDA margin increased with half a percent.
I think this is great performance because also here they have some Easter effect and definitely like in Finland, some impact of the cold weather and also products linked to water and wastewater and so on, underground type of segments. Very good profitability improvement despite difficult circumstances. We have discussed earlier that they have had an unprofitable e-commerce business, which is a subsidiary we have to one of the companies. This one we are trying to divest, and hopefully this will be finalized during the second quarter and history sort of from the first quarter and onwards or third quarter and onwards. That's also dragged down, I would say, profitability a bit during the second quarter. Industrial Components. This is a business area with quite a lot of companies, primarily technical trading companies in Scandinavia. Good growth, +18%, 4% organic.
They definitely have impact of Easter and cold weather. Good, I would say, momentum in the Industrial Components business area in general. We can also see a good EBITA margin development from 10.2 to 10.8. They are usually lower in terms of profitability in quarter one. They have a segment of MedTech companies in the portfolio, and when you sell to the basically state-owned hospital segments in the Nordic areas, there is usually quite a lot of invoicing in the fourth quarter. That's a seasonal effect within the business area. I'm very positive towards what's happening in Industrial Components. I also think we will see a good quarter two there. We turn page and discuss what we call Measurement & Sensor Technology.
A very interesting business area. This is the second business area we have with quite a lot of product and technology commonality and a portfolio of companies in diverse market geographies. Here we work with basically measuring different things. Could be weight or temperature or noise levels or humidity, but also leakage from pneumatic systems or hydraulic systems and things like that. This sort of business overall is having a very high capacity utilization, hampering, I would say, growth. They come in at +6% and organically +5%. Book-to-bill 105 and slightly lower EBITA margin, 15.6 versus 16.7 a year ago. This should be seen mostly that we have a bit of a problem in one or two companies rather than a problem for the whole business area as such. We are obviously dealing with those situations with high engagement.
Back to the high-capacity utilization, we see that at our supply structures we buy a lot of electronic components from Asia. Some price increases, but also very long delivery lead times. In this business area, but also in some other business areas, due to this, we have built some safety stocks which have driven up our working capital a bit. Last but not least, business area U.K., very positive situation. Overall growth 28%, organically +5%, book-to-bill 111, and a margin at a stable high level at 15%, slightly below last year. As I said initially, good growth from the different export-oriented businesses we have in the U.K. They are very diverse in different types of segments, but all basically have a good niche position they are benefiting from in a both profitability and growth perspective.
They also had some Easter effect, and also some cold winter effect in the U.K. Overall, I would say a good situation in the U.K. and a good portfolio of companies. With that sort of business overview, I turn over to Patrik to present the financials.
Thank you. Thank you, Bo. It's very nice to be here and to present for Indutrade the first time. Exciting to go directly into the quarterly report when you start. That's good. Earnings per share recovered strongly then from the quarter four levels when we took the restructuring charges. It rose then 11% year-over-year if you compare to last year to a level of SEK 2.42 compared to SEK 2.18 last year. If you look at the earnings per share on a 12-month rolling basis, it rose with 5% to SEK 8.79. The lesser increase here is of course due to the restructuring charges we took in quarter four mainly. Looking a little bit into the margins, here I think it's really encouraging to see that the gross margin is increasing to 34.6% versus the 33.9% last year.
I think there are, of course, several factors driving this, I think it's worth mentioning that I see and feel that there is a good price management in many of our companies. We've also seen then a favorable mix then during the first quarter. I think those are two main components driving the gross margin, which is encouraging then. EBITDA margin, we talked about that, 11.6% for the quarter, which is a step up from the quarter four again, and also a slight step up from last year's 11.5%. Rolling 12-month basis, we are on a slightly lower basis now than compared to a few quarters back because of the restructuring charges. If you exclude those, we are trending on a level of 11.8%, that's slightly better than what we saw then quarter one last year.
Key data summary, all KPIs here on a rolling 12-month calculation. EBITDA margin on 10.9%, 11.8% then excluding restructuring charges. Return on operating capital 19% versus 20% last year, the main reason for this one decreasing slightly is, of course, the restructuring charges mentioned earlier by Bo. We see also here then a slight operating capital buildup in many of our companies, maybe on the inventory side. Few explanations behind this. We are in our production units, production companies, we have a high capacity utilization, and also we see that among our suppliers. We have higher work in progress. We have also the need to put more things on the shelf to secure customer delivery service. Those things in combination then is pushing up the inventory slightly. That's also making the return slightly lower currently.
Debt situation and also the capital situation is of course also impacting the debt situation slightly. We are at slightly more than SEK 4 billion in net debt currently, slightly more than at year-end. Maybe here when we talk about the net debt, mention the bond issue we had done earlier this quarter. I think this is the first historical bond issue then for Indutrade, and we felt it was a really successful process. Totally done SEK 1 billion in bond issue and divided then on five-year bonds, and SEK 750 million then for variable interest rate and SEK 250 million for fixed at really competitive interest rates. We can move to the next now. Summarizing then the most important KPIs, we are basically in line with the communicated financial targets. Growth 10% versus the communicated target of 10%. EBITDA margin 11.6% versus the 10%.
Return on operating capital, of course here it's a slight miss, but then remember the restructuring charges, and excluding that one, we are basically in line. Net debt-to-equity ratio well in line. By that, I leave over to Bo for some concluding remarks.
Thank you, Patrik. We think quarter one was a good quarter, and when we look ahead now for quarter two and the rest of the year, I think we have a positive situation. We have a reorganization behind us now, and we have an engaged management team with mostly people who have been with Indutrade for a longer time, but also some new injections like Patrik on the CFO side. We are in full swing focusing on developing our portfolio companies and engaging in trying to find additional acquisition targets. We also have, I think, a good market situation, and hence we are optimistic for the remainder of the year here. By that, we say thank you from our side and open up for potential questions. Thank you so much.
Ladies and gentlemen, if you wish to ask a question, you can press zero and one on your telephone keypad. We have a question from Johan Dahl from SEB. Sir, please go ahead.
Yes. Hi there, Johan here at SEB. I didn't see the profit made on the divestment there in Finland. How much was that in the quarter?
We haven't disclosed that, so it's not surprising to me that you haven't seen that. It's like this, when we divest unprofitable companies, it's usually not that we are seeing a profit. It's more that we usually end up with a minor book loss. As I said, we don't disclose that information, Johan.
I appreciate that. It's just that you mentioned it when talking regarding margins in Finland, so I thought, if you say A, perhaps you say B on that issue.
Okay.
Never mind. Can you talk about the capacity constraints in the group? How you interpret that? It's fairly flat in terms of sales in the first quarter. Still you're stretched here in terms of capacity since. How do you see that impacting cash flow in the long term, mainly CapEx in your group?
Our portfolio, as you know, it's diverse but you can basically structure it in some different buckets. We have one bucket with good technical sales companies, which was acquired by Indutrade a longer time ago. High market shares in the local markets, but not perhaps geared towards dramatically high organic growth. They are really good profitable companies with good customer relations. That segment of companies, they are not growing organically very much because they have a very high market share, and they have a niche where they are strong, and they don't want to dilute the niche by spreading too broadly into other areas. We have some products or companies with own products and own manufacturing, which are much more geared towards organic growth and export business, globalization, and so on and so forth.
Here we try on a case-by-case basis, strategically assess if it makes sense to take a new capacity investment step in a new factory or a new machinery or whatever it might be. It's difficult to generalize there, but if we see that it's strategically sound, we obviously do it. If we feel that it's probably going to go down in the next couple of years, we are more hesitant and work much more with productivity improvements and efficiency gains and so on. We take it on a case-by-case basis, but there are absolutely businesses which are on a growth path for us. There is also a chunk which is not geared towards strong organic growth. I'm not sure if I answered your question, Johan.
Well, basically, looking at the whole system of companies, whether this is a big issue on the strategic agenda that you need to ramp up capacity in the group. I appreciate it's on a case-by-case basis.
Yeah. We run our companies with boards. Now we have a board meeting in the springtime, which is oriented towards the strategic perspective. There are definitely meetings where we take decisions on increasing capacity. When our management teams propose that's usually well-grounded, and we usually support them on their proposals, I would say.
Okay, just a final question from me. I was wondering, the elevated cost levels which you saw in Q4, how much of that is remaining in Q1 or is it all gone? Secondly, on group common cost, the SEK 25 million I think it was in the quarter, is that where it is currently or was that all that high?
Yeah. I don't know. I don't have exact details linked to the question on Q4, but I would say a fair share of the Q4 additional cost was more one-time cost, which we don't see in Q1. I don't know, maybe half of that, if I have a view. On your second question, I would think that we are on that level. We have had quite high, maybe recruitment costs and some other costs, building the new management team and so on and so forth, but yeah. Fairly similar, I think.
All right. Thanks.
The next question comes from Albert Redding from Carnegie. Sir, please go ahead.
My question on the valves business, the power generation valves. Your comment now has been for two quarters, I think that the order intake has been good. I think we also discussed that those really long projects, they're not so much available in the market anymore, but still organic sales growth was very negative in Q1 in that business. How do you see that look going forward? How long are these sort of order intake cycles? My first question.
Yeah. Usually, if I generalize, a common project from them have basically a six-month lead time from order intake to delivery. Six, seven, eight months, maybe. Somewhere around there, or five to eight months, maybe. Now in quarter 2, I think we will hopefully be on par with a year ago in terms of invoicing. We should sort of have most of that relative negative development behind us. Quarter 4 order intake was very strong, I would say. The order intake this quarter was perhaps more normal, versus the market situation we see right now, and more in parity with the sales situation. It fluctuates a little bit between the quarters, of course. I would say that the company as such have had their downturn and are now stabilizing and improving and slightly increasing.
We are not going to come up to those levels where we were a year or two ago. It is at a different level, a lower level, financially or in a profitability perspective, they are still at a good level, accretive level, absolutely.
Okay, thanks. On this Easter theme, I guess, should we sort of assume that on the sales loss related to Easter or fewer working days, that the gross margin would have been group average gross margin on that? I'm asking because also your gross margins in the quarter were quite good.
Yeah, I would think that's a good assumption.
All right. Yeah. A final question from me, just a detail on that divestment. When was that in the quarter?
It was quite early, in January.
All right. It was deconsolidated very early in the quarter.
Yeah.
Most of that is done in the quarter. Okay. Thanks. Those are my questions, thanks.
Thank you so much.
We have no other questions for the moment. Ladies and gentlemen, I would like to remind you that if you wish to ask a question, please press zero one on your telephone keypad. We have a question from Daniel Lindkvist from Handelsbanken. Sir, please go ahead.
Yeah. Hi, Daniel from Handelsbanken. Just a short question. We are in a time of bottlenecks with suppliers. Your supply chain, how does it look? Do you have any large suppliers? What's the part of the largest supplier? How much do they make up for?
We have a very diverse portfolio of companies and a very diverse portfolio of suppliers. No strategic threat or very difficult impacts from that point of view.
Okay. Well, that's perfect. It's an issue for many of our customers.
Yeah.
I just want to get it out of the way. Perfect.
Yeah.
Well, thanks.
We have no other questions for the moment. Ladies and gentlemen, I would like to remind you that if you wish to ask a question, please press zero and one on your telephone keypad. We have no other question.
Okay. We say thank you for your engagement and your questions, and we finish for today, and we will go and have our AGM now. Thank you so much. Bye-bye.
Thank you.
Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.