Earnings Call: Q4 2019

Feb 14, 2020

Ladies and gentlemen, welcome to Investment AB Latour's Year End Report 2019. Today, I am pleased to present Johan Jertonsson, President and CEO and Anders Mork, CFO. I will now hand you over to Johan Jertonsson. Please begin. Thank you very much. Welcome to this conference call presenting the Q3 2019 for investment of Elator. Our group structure is well known to most of you, but this time it looks slightly different from last quarter's. We still have 2 major business lines, a wholly owned industrial operation and a long term investment portfolio consisting of 9 listed holdings, where we are the main shareholder or in some cases, the main shareholder together with a partner. After the acquisition of the Danish company, Kallian, which was finalized at the end of November, the wholly owned operations now consist of 5 business areas. Kallian is an exciting addition to the group. It is by far the largest acquisition we have made to the wholly owned operations and the first one to immediately form a new business area. We will get back to the wholly owned operations later on in the presentation. In the listed investments portfolio, we also continue to increase our investment in AB Far Girls with another SEK 221,000,000, The stock The stock market development was strong during the Q4, which also reflected on our portfolio. The total value increased to SEK 65,600,000,000 at the end of December. During 2019, the investment portfolio had a total return of 40%, which can be compared to the benchmark index 6RX, which increased by 35%. Some of the companies in our investment portfolio have now reported. And given the uncertainty in the overall business climate, we can conclude that we have solid and high quality companies in our portfolio, who in a long term perspective, deliver healthy and stable growth. The acquisition activities have been a bit slower in the second half of the year for the listed companies after quite busy first half. Until yesterday, the portfolio value had increased to almost SEK 67,000,000,000, which means that the total return amounts to 2 percent so far this year compared to the 6 Rx development of 6%. And we continue on the next slide. 2019 has been a good has been a very good and busy year for our wholly owned operations. Net sales during the year reached a record SEK 13,500,000,000, which corresponds to a 17% increase compared to last year. The 4th quarter was affected by a market slowdown. We had 70% growth in orders in the quarter, of which 4% was organic. Net sales grew by 12% in total, but unchanged for comparable units. It is a mixed picture. Some of our operations had negative organic growth. The companies who are indirectly dependent on the automotive sector is mostly affected by the downturn, while the holdings who were exposed to the construction industry in general came out better. Our companies are well managed, and we are well positioned in the markets that we operate in. This will be helpful if the business climate reaches a broader downturn going forward. The operating result increased in the quarter by 8% to SEK 434,000,000, corresponded to an EBIT margin of 12.1%. In 2019, the operating results reached SEK 1,800,000,000, which is a record profit in absolute terms, and that operating margin corresponded to 13.4%. We are very proud over the achievements in 2019. The message going forward is the same as before. We will invest with undiminished strength in product development, sales and marketing in our business areas to drive sustainable growth and further strengthen the positions of our operations. Let me change the slide again. As I mentioned before, it has been a busy year for our wholly owned operations, especially in the second half of the year, where we made the major part of this year's acquisitions. In October, we acquired Kallian, a global supplier of automation technology for parcel handling in the logistics and e commerce sectors with headquarters just like Aarhus just outside Aarhus in Denmark. The acquisition was finalized on November 29 and is now a 5th business area within Inlatour's wholly owned operations, as I said. We'll return to Kallian on the next slide. We signed an agreement to acquire the German company S plus S Regel Technik on October 22, which was finalized this year on January 22. This was an addition to Produral within our BemCic operations. Espersense is a leading pan European sensor technology company. The company has net sales of about EUR 60,000,000 and an excellent profitability. In early December, Aritco Group with Indatura Industries acquired the UK companies Invalift and ABILITY Lifts. The company's distributors, stall and service platform lifts in the UK and has an annual turnover of about GBP 5,000,000 with 18 employees. All in all, we acquired 6 companies in 2019 that together contributes almost SEK 1,900,000,000 in annual turnover with the profitability in line with our financial targets. S plus S is not included in the figures 2019, however, due to the fact that the closing was made in January of this year. After the year end, we have made another 2 acquisitions besides the completion of S plus S. Multeforce Group acquired 80% of the shares in EMA Safety Footwear in the Netherlands. EMA is an industry leading European safety footwear company with a strong presence in Central Europe and Benelux in particular. Net sales amounted to EUR 23,000,000 in 2019, and the company employs around 140 employees. Also, MS Group, former Riak, within Latour Industries, acquired the Spanish company, Battec Mobility, located in Barcelona, a leading manufacturer of power assisted devices for manual wheelchairs. Battec Mobility has an annual turnover of EUR 4,800,000 and has 41 employees. And having said that, I will come back at the end of the presentation. But now I hand over to our CFO, Mr. Anders Grok. Thank you so much, Johan. And we go to the next picture and start with the new business area, Kallian. We bought Kalyan in the Q4 and it will be consolidated in our group figures from the 1st December. But the figures that you see on this slide are rather the full year pro form a figures for 2019. And the net sales for the full year amounted to €92,000,000 with an operating margin of 14 0.2%. Over the past years, the growth rate for Kallian has been above 20% per annum. But in 2019, it was a little bit more modest, 6%. And this was due to some larger orders that were delayed and that now will be delivered in 2020. And having said that, we see a great potential for Kallian going forward. And we also feel we hope that you in Kallian also feel that, that you have landed very well in our group and in our network of companies. The culture in Kalyan is very similar to the rest of Latour. In 2020, we will do a lot of support to Kallian in multiple investing activities, amongst them a major production capacity capacity investment in Latvia. So welcome to that tour. We go to the next page, Hultafosspro. The growth for Holtefos continued this quarter with another 20 1%, mainly driven by acquisitions. Organic growth was quite flat during the quarter. Well managed cost control combined with the growth gives us strong profit development for the company and the operating results increased to SEK 138,000,000, an increase with 16% compared with last year and with an operating margin of 15.9%. For the full year, operating profit amounts to a record high SEK 412,000,000 with an operating margin of 14.2%. And the overall development of the business area still looks very promising, and the acquisition of CLC in the U. S. Had a good start during its 1st 4 months with us. After the year end, Perksafoss made yet another acquisition, MS 80 Footwear in the Netherlands, which will be a great addition to the personal protection equipment area. And to support further growth, the management continued to put a lot of focus on development of the sales organization and marketing, on product development and on digitization as well as further integration of the new companies that we now have in the group. As you all know, if you go back 2018 2019, we have made 4 quite large acquisitions to Hultas. Let's go for the next page, which will be Lattour Industries. And also here, the top line continues to grow. Not in the same fast pace as in the earlier quarters, the net sales grew by 8% and the organic growth was slightly negative. For the full year, the business area grew by 13% and the organic growth was 4%. The profitability continues in the right direction, fully in line with our expectation, but a little bit slower, we must say, this quarter. The operating result increased in the 4th quarter by 9% to SEK 60,000,000 corresponding to an EBIT margin of 7.4%. And for the full year, the result increased by 35% to sorry, SEK 257,000,000 corresponding to an operating margin of 8.3%. And as a reminder, we have communicated it before, we expect the profitability to improve significantly going forward in this business area. Latour Industries made 2 acquisitions during the quarter. It was test process Regal Technik and that was an addition to Codoval and also additions to Aritzko, the companies, Invalift and AbilitiLifts in U. K. After the year end, Lazzura Industries also made the acquisition of the Spanish company Bartek Mobility, which will support the further growth of this business area going forward. We go for the next page. Then we come to Nordlakt that was affected in the quarter by the overall business decline in around us due to the fact that they are relatively early in the business cycle. And they are therefore hit also when the customers are reducing inventory levels. Order intake grew by 2% in total, but that was helped by the currency effect. So the organic growth was slightly negative. Net sales compared to a very strong last year amounted to SEK 330,000,000. The operating result decreased to SEK 71 1,000,000 with an operating margin of 21.6 percent. From a full year point of view, Nordlk grew by 11%, of which 4% was organic. And the operating results for the full year increased to SEK 411 1,000,000, which is a record level with an operating margin of 28.4%. As you know, we own and develop our companies very long term regardless of the short term market conditions. This means in the short term that it's natural that the profit margins will be hit temporarily. We go to the next page, where we find Svergon, which has had a very strong year with impressive top line growth and even more impressive profit development. However, as for the other business areas, it slowed down in the end of the quarter, mainly affected by a weaker Nordic market. The quarter's total growth in order intake amounted to 4%, but organic growth was slightly negative. Net sales grew by 11% to almost SEK 1,500,000,000 of which 5% was organic growth. Sorry, high productivity and successful product launches contributed to a very good profitability and the operating margin resulted to the operating result amounted to SEK 145,000,000 and then operating margin of 9.9%. I'll start losing my voice, so I have to drink some water. Sorry for that. Full year for Svegon, the business area grew by 17% of which 8% was organic. Operating results grew stronger by 39% and then amounted for the full year to SEK 717,000,000 with an operating margin of 12%. Very well done. So we go to the next page, and we see if the voice will keep on going for this picture, but it's about the net asset value. And as said before then, the stock markets had a strong development and that is also reflected in the net asset value for Latour. And it has grown by 39% during the year to NOK 136 per share, which can be compared then to the 6 Rx that grew by 35%. Our share price at the end of December was SEK 153, which then means that we have a premium to the net asset value of 13%. But when we come to yesterday, the net asset value grew to SEK137 per share and the share price had grown to SEK 100 and 65.8, which then gives a premium to our way of describing the net asset value of almost 22%. That's a big figure. Latour's consolidated net debt increased during the quarter from SEK 5,300,000,000 to SEK 7,500,000,000 mainly due to the acquisition of Salian. This means that we now have a net debt that corresponds to about 8% of the market value of our total investments. Yes, we turn to the next stage, which summarizes our financial targets, and you all recognize them. And we have all met all three criteria during the quarter and also now for a long string of consecutive quarters. The growth was 16.7 percent, the EBIT margin 13.4% and the return on operating 17.8%. And Johan, finally, I leave the word back to you. Thank you, Anders. So next slide is about dividend. In light of the strong development in the wholly owned industrial operations as well as in our investment portfolio, we are very happy to announce that the Board proposes an increased dividend by 10% to DKK 2.75 per share. And I think this shows a really strong track record of increased dividend for many years now now in Latour. And then I think we're on the last page. And one of the most important parts of our strategy is that the companies that we own shall have the potential for international growth with sustainable products. Our wholly owned operations work systematically to increase the international presence, both through acquisitions and to gain market share in existing markets. All acquired companies during the year boost the industrial operations international exposure, but considerable potential remains going forward. During the year, sales generated outside the Nordic region rose from 61% to 65%. We are slowly and steadily growing in the U. S. And in Asia. And at the end of the year, 81% of our total sales was in Europe and 19% in Asia and the Americas. To end, I would like to say that I've had very busy, but very enjoyable months since I started in September. I'm now even I'm now more than ever convinced that we have a portfolio of great companies, which are very well managed by their management teams and filled with motivated colleagues worldwide. And I'm looking forward to see what we can achieve during this year. Thank you very much. I think that concludes the presentation from Anders and myself, and we open up for Q and A. Thank And our first question comes from the line of Joakim Goel from DNB Markets. Please go ahead. Your line is now open. Thank you. Good day, Anders and Johan. Hopefully, your voice can handle this question, Anders. But I mean, the M and A machine continues to fire on all cylinders here. And with, I think, 7% gearing now and having utilized the SEK 6,000,000,000 MTN program or the framework for that, can you perhaps elaborate a bit on your financial muscle to continue to pursue such an active M and A agenda going into 2020? And also just an update on what types of additions you're looking at pipeline, etcetera? I think that's a classic question for our CFO, Anders. Okay. Thank you, Johan. I'm afraid my voice cannot allow me to answer the question. But I will do a try anyway. And of course, we have made a lot of acquisitions now from September until now. And almost SEK 5,000,000,000 actually. So that's not said. We will have a lot of companies to take care of. And I think that is more of a constraint than the possibility. We can still add more acquisitions if you think from the debt side of the company. So we don't see any restrictions going forward. But I think and I think also Johan agrees to me that some of our business areas might have a time of consolidation and ahead of them and try to find the synergies and to welcome the new companies in the group and so on. And we have a lot to do inside the companies to continue and to continue the organic growth, Jeremy, so to say. That's correct. Thank you. And yes, I'm sorry. No, I would just want to add that we just to be very clear, I mean, we have the we have by far the financial capacity to continue to support all our 5 business areas for add on investments should such matters arise that are interesting. But to Anders' point, we also need to consolidate what we have now. That's clear. Any indication perhaps on whether the 7% growth in 2019 for Kalyan is representable for its organic growth profile going forward? No, I would not say so, actually. As we said in the presentation, some large orders were postponed into this year. And I think if you when you follow us and when you follow particularly Kallian, I think it's important to remember Kalyan is a very project dependent business on very large projects. So you will see fairly large swings in Kallian's order intake, net sales and therefore profitability from quarter to quarter going forward. But if you look back in the history some years back, I would say the average growth rate has been close to 20% going forward, and we have high expectations going forward as well. That's clear. Then maybe on Nord Lock. I mean it has achieved excellent profitability. We have seen throughout the 2 last quarters that the operating margin is down by roughly 5 percentage points year over year. So should we expect Nord Lock's I mean, should they be able to perhaps maintain these types of margin levels going ahead? Or any comments on that? Yes. I would say it's more of a it's a natural consequence. We say that we do investments in our company in product development. We are, of course, saving costs where we need to save costs. But in sales and marketing, for example, we still think it's important for us, even if the business climate is a little bit lower, to continue to take steps forward and put our position better than the competitors. So then it's more anyone can do the math, and that will mean in the short term lower margins. But long term, we don't see that profitability for Nord Lock has come down. Thank you. That's all for me. Have a good day. Thank you. And as there are no further questions at this point, I will hand the word back to the speakers for any final comments. Please go ahead. No, I think that's fine. And Anders and I would like to thank you all for participating, and thanks for your time. Thanks for listening, and hope to talk to you all in about a quarter's time. Thanks. Thanks. This now concludes today's webcast. Thank you all for attending. You may now disconnect your lines.