Earnings Call: Q1 2021

Apr 29, 2021

Ladies and gentlemen, welcome to Investment AB Latour's Q1 Report for 2021. For the first part of this call, all participants are in listen only mode and afterwards, there will be a question and answer session. Today, I am pleased to present Johan Hjertensson, President and CEO and Anders Bjork, CFO, please begin your meeting. Thank you, madam. Johan Hafslsson here, and I'm Report? I will also, at the end, mention a little bit on the full year Yes, we don't have a full normal annual general meeting presentation this year, but I'll come back to that at the end of the Presentation. But it's the main focus is to present the Q1 report. So as you can see on the The first slide, our group structure is unchanged, so no changes there. When it comes to the quarter, as a summary, it was a very strong quarter. The pandemic is, as you all know, still ongoing. But our holdings and operations are very well positioned and handles the challenges very well. We're very proud of the achievements I'm very thankful to all of our team members throughout all our companies and holdings. So as an introductory note, Then we can change the slide. So there's no changes in the listed portfolio during the quarter, and here we talk about highlights in the investment portfolio. Value development, So far, at the end of the quarter, 8.6% during the year compared to the 6 Rx of 14.3 The underlying development, I would like to point out, is very satisfying. And the majority has reported So far, we reported good order sales and profit of our 9 listed holdings. Until yesterday, the portfolio net value increased to SEK 78,600,000,000 with a total return of 15.8 percent so far this year Compared to the Zixar X of EUR 19,400,000. I would also like to mention that the nomination committee work to To nominate our boards, that work is concluded for this year. And overall, we're very satisfied with the results. And We're very happy to report that we have very diverse boards with a good gender equality That we have managed to recruit many competent board members to the boards in our 9 listed Holdings. We have also done the mid larger work than normal when it comes to remuneration for Board work, that is something we think is very important in L'Atour. And we have, in many cases, increased the board to more than normal. And that is important because we need to attract talent. All our holdings are very international, And the demands are also increasing going forward. That is so that's a theme that we've been driving with this year's The combination committee works, I would like to point out. So with the same slide then, and I'd like to comment on our wholly owned operations. And The year started with a very good momentum and increased even further at the end of the quarter. March was a very, very strong month for us. The pandemic still affects our operations and will do so for some time to come. There is a big Picture, although depending on geography and segments. There are some negative effects. Have some logistics challenges, higher transportation costs and difficulties with services to customers, the active customer side sales And some project deliveries are sometimes a challenge. But I would like to point out those are minor Issues in the overall view. We have very well positioned operations on growing market segments. So therefore, an overall positive development. We reported a very strong quarter Total growth of net sales of 8% in the quarter with an operating profit that grew 27% SEK 569,000,000 and with a stellar EBIT margin of 14.5 Percent, which is very strong considering the Q1. If you look into the decisional effect, Normally, our quarter 1 is a really strong quarter. And we continue to invest in our holdings. We invest a lot in product development, sales and marketing. And we have increased our drive for sustainable growth And then the environmental industry questions, which we're continuing to strengthen our position going forward. And also digitalization is a very important aspect as we push that development further. I'm happy to report That Latour has signed the United Nations Global Compact and that's a way for us To emphasize and to the more underlying our commitment on sustainability going forward. However, we see some examples of Quite increased bureaucracy going forward when it comes to control and drive the sustainability approach from Politicians. The one example is taxonomy that is coming up. And the definitions are extremely narrow, And that contributes to unfair exclusion. And I also think that it will hinder innovation going forward. So that's a statement that we've done here in the quarter. And if we continue then into the next The slide, we can talk about acquisitions, M and A. And We have hired I'm happy to report that in the quarter, we have added SEK 1,500,000,000 of net sales Screw acquisition in run rate during the quarter, and we had a high acquisition activity. We have a very good momentum and Good speed and RPM in our M and A machine. Our M and A engine is running very well. And what I would like to point out that we, Dentsik within Latour Industries, acquired VM Compensator in January With an annual net sales of DKK 23,000,000 and they're a designer and manufacturer of compensators And expansion joints used in the 13 industrial applications. Latori Industries also completed This is a VEIGA with an annual net sales of SEK 200,000,000. VEIGA is an Italian designer manufactured passenger Lift interface systems and electronic systems for elevator platform. And then we completed the acquisition of LC So the annual net sales of SEK 60,000,000 and they're a manufacturer and seller of the LoRaWAN sensors Applications in smart buildings and cities, which is a very interesting and growing segment going forward. And the Hulte Porte Group completed the acquisitions of Friesdas, Kalsas and Leljanas with an annual net sales of SEK 1,200,000,000. They're all 3 brands, our leading brands in the professional workwear industry for a variety of end user segments. Having said that, it was a little bit alluding and overview of Our portfolio companies and our wholly owned operations and so on. And by saying that, I would, with a warm hand, like to hand over to Our esteemed CFO, Mr. Anders Merck. Over to you, Anders. Thank you so much, Johan. Yes. We'll go to the first business area then, which is Kallian. And the e Commerce market developed very strongly during the quarter and that's an increased demand for Calyen. So order intake Actually, it grew by more than EUR 100,000,000 during the quarter, and the order book now is on a record level. But on the net sales, as you can see, that was in line with last year. But as you can understand then, if see the order intake. This is how it is in a project related business. Some quarters, the deliveries are a little bit lower. Capacity utilization has been on a high level during the quarter as well. So we know that it will Come later on this year. The operating profit amounts to €1,900,000 which is A little bit lower than last year, but also here then. This is not a surprise. We'll be substantially better from second quarter and going forward Based on the extraordinary order situation that we have had. And as you know, also we have had a lot of investments in Kalyan since we acquired it. Last year, we have finished the factory in Latvia. And right now, we Working with the establishment of a factory in the U. S. And we turn to the next This area, which is Solstados. And Holcatos had a continued excellent development in the Q1 For more or less all markets and all product areas. We made the acquisition of Freestats Kansas and Liana, that was completed on the 1st March. So very much welcome to Latour, all of you. In total, net sales grew by 32% in the quarter, of which 22% is organic. I don't know what more to say, but it's really, really impressive. Just a few years SEK 1,100,000 in net sales was a good figure for a full year for Holtefos. Now we have that figure for 1 quarter. Good cost control combined with this finance sale contributes to a very, very strong operating Result and then operating margin of 16.5%. There is, of course, a lot of focus on Sustainability and digitization in the organization going forward. And as a final comment then on Hultafoss, now you're really up to compete with Swiagon being the largest Business area. So we really look forward to this competition going forward. Andreas and Marcien. Thank you. Next page, please. So we go to Lator Industries. And you can say for Latour Industries, there is a recovery for most of the business units and there is The organic growth in both order intake and sales. There are some concerns regarding price increases It's a raw material and difficulties within the service on customers. But that's not much different from our competitors. We still think the business is out there. Good cost control in combination with the recovery Top line contributes to a very good operating result and the margin of 12.6%. And we have said it before, there is a potential for substantially higher margins of profit in this Sorry, and part of that has now been realized. Many thanks to all of those involved in contributing to this. And as you know, Latour Industries is the business area where we build new business areas Again, LaFleur. And this journey just continues. This quarter, we acquired Beka and Eelsys and BN conference author as Johan said So welcome, also to you. Okay. Let's go to next page on Nord Lock. Nordlak cover. From the low level last year, a strong start to the year. Market recovery, We can see and there is a high activity across all regions. Sales increased organically by 7% And order intake grew by 9%. There are a lot of strategic initiatives to support further growth and profitability. And the extension continued. Last year, we worked on both Production sites in Otdwilabay and Bitzbaj and Matmar. And Otdwilabay was It's now open during the Q1. The operating profit for Nord Lock amounts to SEK Yes, €99,000,000 with a margin of 27.8%. And that's quite impressive. Since the volumes Rather low still, it's good that we can keep the margins on these levels and also at the same time invest for the future. And it should also be noted that Nordlak is the most international area that we have, and that means that they are the most Start by the currency development. With the strength in Swedish krona and weaker dollars and euro that we have had for the latest time. Let's go to Sveragon as well then, which then I shall begin with is still our biggest business area. Sverigant had a strong start of the year, but especially if you compare with the end of 2020. But as the international company that Wiegand is, there are they are still affected by COVID-nineteen. But the picture between the markets and geographies are, of course, different. Sweden and the Residential business area, Sweden as a market and the residential as a business area are developing very positively. COVID-nineteen issues mainly relates to Southern Europe and the UK. The net sales decreased organically by 1% compared to last year, but that is a comparison with a very, very strong first For the last year. Svegon works with several internal efficiency projects and the low general In overall, that contributes to the strong operating profit with an operating margin of 11.5%. So actually, there was better operating margin on lower volumes this year, which is a good sign. We go to the next page, and we speak about the net asset value of Latour. And the net asset value increased by 8% during the quarter to DKK166 per share. As you have said before, ZixRx developed by SEK 14.3. And our share price at the end of March was DKK226 and that would mean that we have a premium to our net asset value as we describe it of 30 6%. And yesterday, April 28, the net asset value increased Further to DKK 173, but at the same time, the share price increased even more to DKK 257. And that should imply a premium of 49%. But as a remark, our valuation is Just an indication of a prudent view of our value. If we would and this we also write in the report for the first time, if would compare our wholly owned industrial operation and treat it as one group And use industry multiples for similar companies, we will have multiples around 29. And that would be one way of viewing on Latour's net asset value and that would put Substance to the premium that we have today to some extent or to a large extent. It's a difficult word Today around valuation with the stock market going up and quality companies in general are valued at a very high level. That said about that, let's go to the net debt of Latour, which increased From SEK 4,600,000,000 to SEK 5,900,000,000 And this increase, of course, is explained by the acquisition we made During the quarter, the net debt still corresponds to only about 5% of the market value of our investments. And that gives a good headroom to make plenty of new investments. So, long speak from me, Johan. Back to you. Thank you, Anders. Very well. Thanks a lot. Next page is some comments around our financial targets, You know, where we say we should have annual growth of about 10%, operating margin above 10% and return on capital somewhere 15% to 20%. And so how have we done the last 12 months running? Well, growth Last 12 months was 7.6 percent, and the EBIT margin was 14.8 percent, and the return It was 16.3%. So EBIT margin well above the target and return on capital within the range And growth below the target. But I would like to point out that growing with 7.6% During a period with full pandemic effect, we're actually now more than 12 months into the COVID-nineteen pandemic We showed strong growth during that period. I think it's really good. And especially, we are proud of that we And then increase the margin during the full 12 months with full pandemic at 14.8%. So and then on next slide, we talk about our continued international growth. And as you can see in about 5, 6 years ago in Tifsudin, we had about half of our sales outside the Nordic area. And today, we have 2 thirds of our sales outside the Nordic area. So we actually we're continuing with good pace Our internationalization going forward. And we have we're financially very strong, and this enables us So this enables us to continue investing in our existing holdings, add on acquisitions and also new holdings. And we have, during the pandemic, I would like down the line, always continue to invest In our companies as before, with a long, long term forward looking view, that has played out very well. And then we go to the next slide. And as I said in the beginning of the presentation, we will not Post the normal annual general meeting this year. And this call will also serve That's a very short summary presentation for the full year. I would like to share a couple of slides on the full year. And if we then change slide again. And now I'm talking about the full year last year, so not the quarter. And the year was clearly marked as the pandemic, as you all know, mixed picture depending on geography and segment. As I said before, We always put employer safety first with different measures to mitigate the effects of COVID-nineteen. And I think the combination of dedicated management teams with committed employees Plus overall cost awareness has protected our profits very well during 2020. So we're very happy and proud of the outcome. The total order growth were 9% last year, and net sales growth of the same 9%. And the operating profit grew last year by 16% to a little bit north of SEK 2,100,000,000 SEK EBIT with a margin of 14.3%. That's a summary on the financials last year. And if we go to next slide on the M and A side, we acquired and closed Acquisitions which added SEK 700,000,000 or SEK 700,000,000 on our top line. And Wilsaport Group acquired Emma Footwear last year, La Tour Industries, S plus S and Batik, and Swiergorn acquired Waterloo and The SL2. And in addition, we signed agreements for 3 more acquisitions, which was closed in January, February, as we have just That's under Sarai. During the Q1, we closed those wells. And all of the acquisitions have had a strong international focus Going forward. And then the slide next slide will summarize what we did in In our public portfolio, in our listed portfolio, there were some changes in the portfolio last year. We in Q2 of last year, we divested some shares in Thomra, and our shareholding is now 21.1% of the outstanding Number of shares in Comra. We're still the main owner, and we still take the main owner responsibility in Comra. We still have a very positive and long term view From brand, we also increased our investment in Hagerholt, which today holds 47.8% of the outstanding shares in the ag world, and we slightly increased Our holding in Arlema is 29.6%. And the value development in the listed portfolio was 9 point 1% during last year compared to the fixed AARELIX of $40,800,000 And we think that's satisfying given the very harsh Circumstances on last year. And once again, the underlying development is good. Some are struggling with net sales and have an organic decline. But in general, the profits are well protected In our 9 fiscal holdings. And then I think we are at the last slide, if you can slide again. This was a very short summary of the full year 2020. Much more could be said. So therefore, I can highly recommend that you read our annual report for 2020 to get more insights about our group structure and how we develop the group, Our operations, our sustainability work, the net asset value and the Latour share and much, much more. Annual report, you can find on our website. That's a PDF file. But you can also Order a printed version from our website and you go to latour.sc to do All of that. And that concludes the presentation. Thank you very much for listening in. That's the presentation part from me and Anders. And having said that, we open up for questions and hopefully some answers. Thank you. There will now be a brief pause while questions are being registered. The first question comes from the line of Eurakim Gunnell from DNB Markets. Please go ahead. Your line is open. Thank you for that. Good morning, Johan and Andes. So two questions for me, and hopefully, you'll be able to answer them. You are keen with her. We hear you, and You're a little bit faint on the line, so if you could speak up a bit. Absolutely. Can you hear me better now? Yes, that's better. Thank you. Perfect. Thank you. So perhaps you can comment a bit on I mean with the Very strong growth in organic orders, especially in Kallian, obviously. But can you comment a bit on given that Marsh Was so strong. Business momentum sequentially in what you have seen so far in April across the various segments? Yes. We can do that on a very high level if I start and add this on this if you want. I mean, Actually, the Q1 started quite well. It just ended even stronger. And we have no reason to in the short term, if You look some months ahead to believe that there will be a major shift or change In that view, however, as I pointed out, there are some challenges as well. I mean, steel prices All right. Strongly globally, they are exploding in the U. S. There are some component shortages. There are some logistics bottlenecks and So I mean the overall macro picture of the global economy is quite strong actually, I would I have to say, and interest rates are quite all very low. I think that's what I would Stretch me to comment on that question. Do you want to add Anders or that's behind us? No, I think you put it in a nice Maybe you can say Calian is, of course, as Joakim yourself mentioned, something extraordinary. And there, The visibility is longer than in the other companies, of course, because orders are project related and we know we have Really high order intake, and that puts a good faith in both Q2 and Q3, so to say. In the other company, it's a little bit shorter. And in a company like Holtefors actually, the visibility is one day. Those orders It's more or less the same as net sales. But that's clear. Thank you both. And since you provided for the first time this, call it, hypothetical reasoning regarding the market's implicit Evaluation of your unlisted assets. Perhaps you can also, coming from a, call it, Hypothetical point of view, elaborate a bit on basically if you would be willing to take further steps To provide an updated framework from the current very prudent view that you provide yourself In some times? Or is that out of the picture? No. At the time, we have no Such plans. But Anders and I felt that the premium value compared to the way we value our business is It's 100 points. It's approaching 50%. And we thought we needed to add Shed some more light around that and provide possible explanations to that Premium value, that's why we did that comment. So, 100 something to add there? No. About When we started 12 years ago to do this valuation or guiding valuation of our wholly owned businesses, I would say the difference was Not even close. It was rather a discount on the share price of Latour, and that helped To guide the stock market. But as I pointed out before, the stock market climate is very Difficult now to interpret. So you need to give more comments around why we do the valuation And also that you could have different views because you can see companies today valued At 40, 45, 50 times EBIT, at least if you look on his last year's EBIT. And that we that was not the case 2008 or 2015. And it's difficult when you have a peer group of 1 company in the peer group gives The value of EUR 13,000,000 and another company gives the value of EUR 45,000,000 as an The implied EBIT multiple. And this is only that we felt it was in place So to comment, and it's a difficult Stock market out there, and we are actually glad that it is the stock market that puts the value on Lator and not ourselves. We work with the profits And the growth of the company? That's I think that's very comprehensive. And Just a follow-up on that. I mean, would it make sense in any way because we have seen some of the, call it, To our colleagues, I mean, issuing shares at premium in order to, I mean, really accelerate their investment pipeline. And I mean, obviously, you have a large financial muscle already in Latour. But perhaps just a comment on what you're seeing, I mean what's happening with investment companies more generally speaking, issuing shares at the premium and perhaps also Your view on whether this, I mean, emerging structure in specs, If that is something that would fit the I mean, Latour as a principal shareholder somewhere down the line. Yes. Hi, Joakim. Thanks for your question. I think it's a bit of a bit important before answering your question to go back to, I mean, what are we yes, we are an investment company, but we're also an industrial company. And I think issuing shares or putting up a fuss or other things to do capital is To your point, Joakim, we have a very strong balance sheet. We focus more on Developing good businesses and finding good businesses. And then we work with the financing. We prefer to do it that We have a more industrial look. We develop companies. We find good companies. We acquire good companies. And then financial We prefer not to put the bag in before the war and start working with the financing and then For the companies, and we have no real need for that. So we as Latour is, we stay the course, And we focus on building good industrial companies. And the financing is not a major issue In those areas, I think, yes. Do you agree on this? Or do you want to add some around that? I think you put it in a nice way. And it's also difficult to do this as you imply new share issues Because what we discussed before is actually no one knows what the correct net asset value is. Dan, you don't know what the correct OEM is either. That makes sense. Keep focusing on NAV growth. Thank you very much. That's all for me. Thank you, Yaron. Thank you. Please press 1 on your telephone keypad. There are no further questions, so I will pass back for any closing comments. Okay. I think that's it. So on behalf of Anders and myself, I would like to thank you all dearly for taking the time to listen to us and for your showing interest in Lator's. And in this format, we will miss again when we publish the Q2 report in about the quarter's time. So Thank you and talk to you later. Thanks a lot. Thank you for attending. You may now disconnect your lines.