Earnings Call: Q2 2021

Aug 23, 2021

Ladies and gentlemen, welcome to Investment A. B. Latour's Q2 Report for 2021. For the 1st part of the call, all participants will be in listen only mode and afterwards there will be a question and answer session. Today, I am pleased to present conference, Johan Hergesen, President and CEO and Anders Nork, CFO. Speakers, please begin. Thank you, Madam. This is Joanna Klason, and I'm here together with our Chief Financial Officer, Anders Smurk. And welcome, everybody. Our intention is to present the half year report this And answer eventually some questions at the end. I think we can go to the next slide. We're very happy. It's a very strong development from all aspects. It's a record quarter with very strong growth, this We're continuing the excellent performance in all of our operations, and I'm very happy on behalf of all NPEs this What we've done, it's strong order intake, strong sales growth and that's coupled with very strong this EBIT margins. Overall, I'd like to say the pandemic, of course, still lingers around. But I would also like to point out that we see less effects of the pandemics, but there are still effects. This Main focus right now overall in our operations is really the supply of goods. We have component shortages, disruptions in the supply chain and heavily increased raw material prices. This So it's been quite a lot of work to compensate for this and to work with this and make this this still happen from an operational point of view. We have implemented price increases to compensate especially for the raw material prices. Overall, our group's action is unchanged. We have 2 major business lines. We have the wholly owned operations with our 5 business areas, Kallian, Holteforskrupp, Norwoodloch, We are going to Latour Industries. We also have, since a year back, our newly founded Latour Future Solutions, this And we have some smaller part on holdings. And then we have the investment portfolio, which is unchanged With 9 listed holdings, then I think we can Saying that, it's a good leading to the next slide where we talk about the portfolio, the listed holdings. And there's no changes in the portfolio during the quarter. This The value development of the holdings was 22.2% during the year compared to the 6 Rx of 22.4 Overall, I would say the underlying development is satisfying. Most of them have reported and have this quarter, we reported good orders on sales and profits during the quarter, too. Quite high activity when it comes to acquisitions in many of our this year, we have a very strong balance sheet. This Until Friday of last week, the portfolio value had increased to SEK 88,300,000,000, this Therefore, a total return of 31.3 percent so far this year compared to the 6 Rx of 32 this That's counting for the listed portfolio only. And then we go to the next slide, and this, we should comment the wholly owned operations. Very high activity on many markets with excellent growth For several of our operations, actually for all of our operations, especially order intake, I would say, so we have a very, very high order stock the As I said, less direct effects from the pandemic and this Big focus in our wholly owned operations on the disruptions in supply chain, price inflation and raw material and component, as I said. This We're very happy with the positions our operations have in growing market segments, and therefore, that gives a very positive development. All over the line, I would like to point out. That makes me especially happy that it's a strong result in all of the five this wholly owned business area. Organic growth in order intake is a staggering 51% And net sales growth of 26%. Of course, this is compared to last year, which was heavily hampered by the pandemic. But even if you go back to another year to 2019, I would like to say that this is strong growth if we compare to a more normal quarter in Q2 of 'nineteen. And the operating profit had a total growth of close to 60% this And amounted to SEK753 1,000,000 with a very strong EBIT margin of almost 16%, 15.9%. This And this is primarily driven by good cost control and high volumes in Q2. So very good drop through effect on that increased sales in the quarter. We're continuing with high investment pace this To meet the growing demand as well as driving the sustainable growth to have a sustainable growth and strengthening our position further. As we usually say, we are investing heavily in product development, sales and marketing. But now I would also like to point out that we invest a lot in logistics and manufacturing in order to cater for the strong growth. This Sustainability and digitalization is 2 strong focus areas. We would like to push the development even further going forward. We are now implementing the TCFD. For those who don't know, it stands for Task this on climate related financial disclosures, and this is very important to analyze the risks and opportunities connected to the climate change. Not the least after this summer's extreme weather, which makes this question even more important this To work with and talk about, I think. And the TCFD work is quite important work, and that will be presented in the sustainability report for 2021. And then we Change slide again. We go into acquisitions. So far during the year, this year, 2021, We have a continued high acquisition activity also going forward. And at this point, I would also like to point out this That we have announced earlier that now Johan Mencken has joined Natur and the Natur Group and he's a member of the group this management team together with Anders Merkle and myself as Chief Investment Officer. Very welcome, Johan. I think this is the 2nd week starting today on a new job, and we have also in Q2 hired Friedeke Ijektmann and Niklas Nielund as New Investment Directors to the team. Very welcome, both Frederic and Niklas as well. We have made an acquisition of HK Instruments, a Finnish company, which was acquired by Prodrol, which is a company within Bemcic, Latour Industries, this With net sales of €8,000,000, they offer advanced measuring devices for building automation. This Future Solutions, investing in Aqua Robor Technologies in June, which is a Swedish company that offers solutions The water companies in order to digitize the water networks, for example, detecting water leaks in the water network. And after the reporting period, Swiega signed an agreement to acquire the majority of 720 Degrees, a Finnish digital software company that will accelerate Sverga's offering in digital services. And Arithco with the Indatore Industries signed an agreement to acquire the Swedish this, we have an annual excise of about SEK 200,000,000. So in total, so far this year, this, we're adding through M and A, we're adding about SEK 1,600,000,000 on our top line this in acquisitions. So having said that and commented on all of that, we are now You should be really going to listen to Anders Merck that will present a little bit more in detail the different business areas and So over to you, Anders. Thank you so much, Johan. So we start with the Kallian, our Danish business area. This And it has been a very strong momentum for Kallian also this quarter. Increased demand contributes to excellent growth. The order intake grew by 2 18%, which is more or less unbelievable During the quarter, and you might remember that also the Q1 was very, very strong on order intake. So the order book now is on record level. Sales have taken off From Q1, organic growth by 75% and is expected to increase even more than the coming quarters due to the higher order intake. The operating profit was €6,100,000 with a margin of 17%, Despite, you can say, adding a lot of staff, staff, not staff, this Staff and also doing other investments to support the growth. For example, we have Established a factory in the U. S, which is now completed to meet the demand from U. S. Customers. This? And as all other, you will hear me say that often now, there is a lot of work done now On sourcing due to the shortage of, for example, electrical components. Okay. We go to the next business area, which is Holkapost Group. This And we can see a continued excellent development for Holtefors Group also this quarter. But also Holtefors this from supply change, chain challenges and price increases and delivery disruptions, this mainly then from Asia. In total, the net sales grew by 76% in the quarter, of which 37% was organic, And that is also very impressive. And the good cost control combined with the high volumes contributes to a strong result of SEK266 1,000,000 with a margin of 18.1%. This The integration of the newly acquired FreeStep, Kansas and Leona is developing very well. This And we also can say that we have a new distribution center in Poland established and has been taken this into use during the Q2. We go to the next business area, which is Laturi Industries. This And also here, we see a very, very good order intake and growth in sales, well above last year for all units, Which is important, the organic growth was 41% during the quarter. And then also here we see and have concerns regarding price increases and this Lack of raw material and other components in the production. So this In the short term, this will affect the margins. But overall, good cost control in combination with a lot of good volumes this Leads to a very good operating result with an operating margin of 10.4%. And this should also be said that this quarter was hit by a one off cost of this SEK 20,000,000. So without that, it would have been even higher. This We have said it before, Latour Industries is the business area where we build and invest a lot in the future for smaller units to become future business areas and the companies within the business area have the capacity for even higher profitability. We turn to the next page where we find Nord Lock. And we can conclude that the market recovery continues for Nordler. It was strong growth during the quarter, 24%, and even higher growth on order intake. And now I feel like I'm parrot repeating myself, but you wouldn't be surprised by that. I increased raw material prices this And supply change challenges also for Nord Lock. So it's this A lot of hard work being done to be able to fulfill all orders coming in. But the operating profit anyway was increasing and amounted to SEK 98,000,000 with a margin of 26%. Of course, to meet these incoming increases in raw materials, We have made price increases that will be implemented quarter by quarter going on A lot of strategic initiatives that support further growth and profitability continues As always before. And finally, on Nord Lock, we should say that they won the silver in the Swedish this content awards in the category business to business with their fantastic video when safety really matters. So congratulations for that. Very well done. We go to the next page where we find this year, again, a quarter with a good development. Many markets now shows recovery where it has been weak before and order intake has been very strong, especially in Sweden and in the UK. The order intake grew by 28%, which is a very good figure and net sales by 8%. This We also see improved productivity, and that's resulted in a strong operating profit with a margin of 14.5% this business, which is the biggest when it comes to net sales. This And now we repeat ourselves once again. We have issues with raw material pricing this And we try to do price adjustment to cover Kvaes. And also we have disruptions in supply chains, this Which is a challenging production in many units. So We turn to Page 1 again, and there we find the net asset value for Wassa. It has increased by 25.4 percent so far this year to DKK188 per share. Our share price at the end of June was €2.81 and that corresponds to a premium to an asset value of this 49%. And as you remember, our valuation of unlisted assets is just An indication of a prudent view of the net asset value. So if we instead would compare our wholly owned operations With other well known listed companies with mixed industrial holdings and similar acquisition agenda, The EBIT multiple could be €29,000,000 instead of €17,000,000 that is our figure. This And we shall also say that this Friday, 20 August, the net asset value increased to this SEK197 per share and the share price at that time was SEK 306 this And then that gives the premium to the way we describe the net asset value of 55%. And finally, Natur. Natur's consolidated net debt increased during the quarter due to acquisitions From SEK 5,900,000,000 to SEK 6,700,000,000. This corresponds to about 5% of the market Thank you very much. And I'll leave back to Johan to conclude. Thank you, Anders. Great presentation, and we have the slide with our financial targets. And as you probably all know, by this time now, our financial target to have an annual growth of about 10% operating margin, above 10% and a return on operating capital in division Or in between 15% to 20%. And then if we look at these three targets with a rolling 12 months this? Mindset growth the last 12 months was 16%. The EBIT margin rolling 12 months there was 15 point 5% and the return on operating capital, I'm happy to report, was 15.5% for the rolling 12 months. So we're very happy with that performance, and I would like to thank all colleagues within Latour for this this really, really great performance. And I think that we are fulfilling all of our free financial targets this During a period rolling 12 months then looking back with full pandemic during that time, I think that this There is a comment of strong performance. So thanks, everybody, for contributing. This And then we have the last slide here, international growth with great potential. This As Pope Anderson and I have said now, all in all, a very strong first half year for Latour. And Latour is a long term Sustainable investment company, our long term ambition is not changing, is to continue to grow and to become more and more International, even though the pandemic has been very tough And there are some short term disruptions, we are still investing in the long term growth ambitions for the group and That's very important. And as you can see on the map here, 80% is in Europe, 7% in Asia and 13% in North America. So there is a lot of room for growth, I would say, everywhere, both in Asia and in the Americas, but also in Europe this Going forward. And our financial strength enables us to continue investing in our existing holdings, Add on acquisitions and new holdings. And we continue with all long term initiatives In our companies as before, and we act with the long term forward looking view going forward. This So thank you so much. That's the presentation from Anders this And myself, and I think if we go to the next slide, it's the Q and A slide. And there we open up for questions. Thank Our first question is from Thank you, and good day, Johan and Anders. So a couple of questions this We can perhaps start off with the financial targets that you alluded to, Johan, that you have this Clearly outperformed as of recently. I know these are over a cycle. But still, I mean, given that these were communicated already prior to, I mean, Talion being this part of the industrial operations and with that quality growth outlook and from a profitability side, would it be fair to Perhaps at least update the profitability target for the industrial operations going forward. Any comments on that? This Thank you, Joachim, for your question. And let's see if Anders wants to add to this, but we have no plans to update this Our financial targets at this time. And we're very happy, as I said, with that we have overshot them During this period, but we have no such intention to change the financial targets at this time. You want to add Anders to that? This? Yes. And I think we have communicated many times before that this is more or less qualification targets As minimum targets, it's not the target that we should deal with our EBIT. So we have so many different companies. And of course, we have a much higher target for those companies That have the ability to be much above, but this Some have the ability to do 25% to 30%, some 15% to 20% and some 20% to 25%. So It's not so easy. It's more this is actually more important for us when we do acquisitions. We shouldn't Acquire companies that cannot do more than 10. That's clear. And With regards to, I mean, nice order backlog here going into coming 2 quarters and then strong volumes here, this I mean, in which case are you perhaps slightly concerned that it will be hard to raise prices enough to offset, I mean, the input material, headwinds, raw mats, this In which business area will that do the process perhaps? I would as a general comment, I would like to say that it Believe it's a lot, but actually it's not so difficult to increase the prices because everybody knows that the raw materials are going through the roof. Also our customers know that. So it's in that sense, I'm not saying it's easy, but in that sense, it's this Is it the normal, I would actually argue, to increase the prices. And I think I don't want to point out One particular business area where this is more difficult than another. But we're quite happy with all the five business this, I guess, in how they have managed their price increases to offset components and raw material overall. Understood. And a final one for me. With regards to I mean, having strengthened or boost up To hear the TZMN investment organization, perhaps in particular, could we sense any, call it, nuance shift this On your investment priorities for the, say, coming years in terms of I mean, you have this very, I mean, systematic agenda For the industrial operations, but will these new hires in any way, call it, change the strategic direction of what investment opportunities you see? This We have no such intention to change our investment strategy. We're this As you can understand, we're very happy with the strategy we have. These criteria and thinking has been carved out During many, many years within Latour. And we're strengthening the team More from a point that we are growing. We are a larger group and we need more capacity. So that's the main reason for strengthening the team going forward. But no particular changes in our base thinking when it comes to our investment strategy. Okay. Just a follow-up on that, sorry. But can you say anything about the I mean, this If there's, call it, if you still see some attractive opportunities within the listed environment, I mean, as we saw perhaps this With Algon late last year or should we expect more tilt towards bolt on acquisitions within the industrial operations going forward? This We see opportunities across the board. I mean, we see opportunities wholly on the operations, lots of opportunities going forward, even though, of course, prices are coming up a bit on targets. We see opportunities when it comes to new portfolio investments. We monitor any of that all the time. And as I said, we see a lot of opportunities Within the existing portfolio of 9 holdings, where they can do a lot of add on acquisitions. So it's across the board in those three dimensions, I would say. So no change to that. Perfect. Thank you very much and have a good day. Thank you. You're welcome. Thank you. There will be a brief pause while any further questions are being registered. There are no further questions at this time. So I'll hand back over to our speakers. Okay. Thank you all then. On behalf of Anders and myself, thank you all for listening in, and I'm looking forward to talk to you again