Welcome to the presentation of Investment AB Latour's interim report for the third quarter, 2023. The first part of the presentation will be in listen-only mode, and we then open up for questions. To be able to ask question, dial star five on your telephone keypad or use the chat window. I will now hand over to CEO Johan Hjertonsson and CFO, Anders Mörck.
Thank you. Johan Hjertonsson speaking. I'm here together with Anders Mörck. And once again, very welcome to our Q3 interim report for Investment AB Latour. If we start with the first slide here, I'd like to point out that our overall group structure is unchanged compared to the last quarters. Our industrial operations report a positive development during the quarter and a very strong result. Already here, I would like to comment on the order intake, that it's slightly weakening, but it's important to understand that this is not fully reflecting the actual underlying demand on the market. It is partly explained by the weaker demand, but also by a continued normalization of how customers plan and place their orders.
However, the major effects of this normalization have now passed, and the order intake, as we move forward, should better reflect the underlying demand in our markets. Saying that, we acknowledge, of course, that we are in a downturn. If we go to the next slide, I'd like to make a statement or a comment on the development in our listed portfolio. As you know, we have 10 listed companies, and I'd like to comment a little bit more on the underlying profit development. This picture illustrates all of these 10 holdings development going 10 years back, which clearly has been positive with one or two exceptions. Majority of our holdings has grown with double digits and maintained profitability during these years.
We do own quality companies who have the ability to grow and win market shares in both strong and weak markets. All of our listed holding has now reported the quarter and several with good profit development. The order intake has weakened for most of the companies, but the picture is mixed. The positive profit development is not reflected in the share price development of these companies. Hence, I think it's valuable to comment and highlight the actual, very strong positive journeys that these companies have made over the last years. And also to emphasize and point out that we, as active owners, put our focus on the long-term underlying demand, not the short-term ups and downs in the share price development.
And I think it's important to talk, to point out what's very obvious, that the underlying development of the companies is actually the most important. If we go to the next slide, that is then the total return for the listed portfolio. I'd like to point out also that there's no change within the listed portfolio. The stock market has been very weak during the third quarter, even though after the quarter closed last, end of last week, we had a rebound. And the weakness in the quarter is affected by the very unstable economic climate and the insecure future outlook, especially with the ongoing war in Europe, in Ukraine, and the very unsettling situation in the Middle East.
During the nine-month period, the investment portfolio's value has increased to SEK 64.8 billion, which is an increase of 1.3%. The SIXRX, during the same period, increased 4.6%. Until yesterday, November 6, the portfolio value was SEK 65.3 billion, which returns to a total return of 2.1% so far this year, and the SIXRX of 3.8%. Then if we go to the next slide, I'd like to comment on our wholly owned operations. Our wholly owned operations report a strong, good third quarter with strong results. As I said in the beginning of this presentation, the order intake has slowed down, but it's difficult to assess how much is explained by customers' normalized purchase behavior and how much is an actual downturn.
What we can say that it's both. So far, it's our operations that are targeting the residential segments at, i.e., private consumption, that has noticed a decline in demand. Also, Caljan's order intake has been on a low level since the third quarter last year as a normalization effect after a very, very strong order intake in 2021 and 2022. But also since customers are very slow when it comes to capital investments at the moment. Referring to the chart, it's easy to see that the order intake was boosted during 2021 and 2022, when lead times were very long during the pandemic and customers wanted to secure their deliveries. What we have seen the last quarter is that we have delivered on the high order book that was built during those years, with higher invoicing than order intake as a result.
And that's, if you are mathematical, it has to be like that when you deliver on a very high order book... Looking at the industrial operations as a whole, order intake increased by 5%, and net sales increased by 9%. Our businesses has good cost control and protects the profit in an effective manner. The quarter result is growing by 20% to SEK 942 million, with a margin of 15.4%. And lastly, I would like to mention our very strong cash flow, which amounts to more than 1 billion SEK during the quarter, and more than 3 billion SEK since the start of the year, which is a really strong development. So very strong top line, strong EBIT, and strong cash flow in our wholly owned operations, which we're very, very happy and proud about.
If we take the next slide and comment on the acquisitions in 2023, after a very intensive acquisition pace in 2022 and 2021, we have tempered the tempo. However, activities are still ongoing with a good pace assumption. We have a lot of ongoing dialogues and contacts out there, and lots of prospects and potential deals that we are looking into. We did acquire Dalair to Swegon, that we announced in the end of last year, but it was finalized and closed in January of this year. In July, Latour Future Solutions invested in Quandify and entered as minority owners. Quandify is a Swedish company that offers intelligent water measurement systems for commercial and private buildings, enabling cost-efficient analysis of water consumption, leakage detection, and remote shutoff capability. Very good.
Having started with those comments on an overall level, I'd like to hand over to Anders then to, among other things, comment each of our wholly owned holdings. So over to you, Anders.
Thank you so much, Johan. Very good. We start with the first business area, which would be Bemsiq. This was another strong quarter for Bemsiq. Order intake came in almost on the same level as net sales this quarter. The total growth in net sales was 22%, of which 3% were organic. The delivery capacity in Bemsiq has been good, and the profit development is impressive. All companies within Bemsiq contributing positively. So very well done, Mikael and the team, so the trend continues. We go to the next business area, which is Caljan, and we want you to put your eyes on the five-year chart. As you can see in the five-year chart, the business is now double the size than 2020, and this is more or less all organic growth.
But now, as you know, we have concluded for a time that order intake has been on a lower level. The development in the long term should be in hindsight. We know that customers have been more conservative when it comes to capital expenditures, and that is affecting Caljan very much. Market activities are gradually starting to increase, but it has not yet turned into orders. The lower volumes resulted in an operating result that is lower than last year, with an operating margin of 13.1%. Caljan has reduced the fixed cost accordingly, and thanks to Henrik and his team for handling this situation in a very professional manner. Let's go for Hultafors Group. Hultafors Group continued to develop positively, mainly driven by the business area, personal protection equipment in Europe.
The European market is still stable, and I would say in that market, Hultafors is doing very well under the tough market climate that we now are in. The Nordic countries are in a tougher market at the moment. The gross margin development is very positive and contributes to a very good profitability, together with also a very effective cost management. All in all, the profit increased by 51% to 266 million SEK, and a strong margin of 16.3%. Very well, Martin and team. We go to Latour Industries, and here we can see a mixed picture with regard to the order intake, but overall, on a very good level. Net sales grew by 12%, of which 1% was organic.
Earnings and profitability as a whole is developing well in the right direction, and operating profit grew by 28% to SEK 105 million, with an operating margin of 10%. Very good. As you can read in the heading of this picture, we are investing and building the basis for future business areas within Latour Industries. This means that the profitability has good prospects to grow even stronger going forward... The acquisition agenda continues both with add-ons and finding new platforms. So very well done, Björn, and your team. We go to Nord-Lock, and for Nord-Lock, we are very happy to conclude that order intake increased by 16% and organically by 11%. Order levels are on very high levels, which builds a good basis for future growth in net sales.
Net sales grew by 8%, of which 3% was organic, with the best growth, in this case, in Americas and in Asia Pacific. These volumes contributes to a strong operating profit of SEK 127 million, with an operating margin of strong 27.8%. And this is one of Nord-Lock's best quarters ever. So very well done, Fredrik and team, and hope that message is clear now, Fredrik, when you have decided to leave us. So we want to send our thanks to you for these years that we have had you with us. We still have a few months to go together, and now it feels like a separation with a family member. But anyway, we have very much appreciated working together with you. Let's turn the page to Swegon.
Order intake for Swegon continued in a somewhat weaker pace in the quarter, explained by this discussion, by a normalization of how customers plan and place their orders, and also, maybe internally on our side, that we are now quicker on deliveries when things are normal. All business units are reporting good organic net sales growth, apart from residential, who is much more affected by the declining demand. Also, the Nordic countries are negatively affected by this, while the rest of Europe and North America are developing quite positively. Even though we have seen a bit lower order intake, the quarter end we up with high net sales and a good gross margin development, that together altogether contributes to a very good operating profit of SEK 290 million, with a margin of 13.5%.
So very, very well done, Andreas, and your team. We go to the next page, which not a business area, but it's the net asset value for Latour, and it ended up at SEK 172 per share at the end of September. The share price at the same time was SEK 193, and that constitutes a premium of 12%. Yesterday, the net asset value was SEK 173 per share when we have calculated this changed value in the investment portfolio, and the share price yesterday was SEK 206, and that means we now have a premium about 19%. The net debt decreased during the quarter to SEK 11.7 billion.
It was SEK 12.7 last quarter, and as Johan said before, we had a very, very good cash flow explaining all of the difference. This amount corresponds to about 10% of the market value of our investments, still on a reasonably low level, and we have a good headroom for investments going forward. So Johan, now it's you again.
Okay, thank you very much, Anders. I'd like to comment on our performance compared to our financial targets. Just as a reminder, our financial targets is an annual growth of more than 10%, operating margin more than 15%, return on operating capital more than 15%. For those of you that recall, at the beginning of the year, we changed operating margin from more than 10% to more than 15%, so that was fairly recently we did that. During the last 12 months, if we take rolling 12 months going back, growth has been 18.8%, EBIT margin 15.2%, and return on operating capital 17%. So we think it's a very strong performance, and we are delivering on all of the three financial targets.
On behalf of all the team members within Latour, we're very proud of that result, and that gives us strength going forward. Going into the next slide, as you can see here, Latour is a long-term, sustainable investment company, as you know, and a responsible owner. We have profitable and strong companies in our group and a strong financial position, which enable us to continue investing in our factories, product development, sustainability, and the digitalization. This applies even if there is a downturn in the economy, important to point out. We have an ambition to grow, as you know, and we are truly, truly delivering on the growth target, but a large portion of the potential remains, as you can see on this map.
There is immense growth opportunities going forward, we would like to say. Having said that, that's all from Anders and me, and we open up for the Q&A session.
... If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Zino Engdalen Ricciuti from Handelsbanken. Please go ahead.
Yes, thanks for answering our questions. A couple from my side. So on the order intake, which has reduced organically, you commented it's a part of a normalization, but have you seen that the quality of the order intake has changed during the quarter?
Yeah, I can, I can start to comment, and then you can add also, Anders. No, I would say the quality of the order intake is the same. And if you, I guess you refer to quality as, you know, the profitability in the orders taken, I would say it's very much in line with the profitability that we also show in our results. So no, the straight answer to the question, no, the quality hasn't changed.
It's still good quality in the order intake, and we have a correlation of more or less one when it comes to order intake, and then the net sales later. We have very, very few lost orders once we have them recorded as order intake, I would say. And that remains the same. Anything to add there, Anders?
No, I think you answered very, very straight and correctly.
Yeah. Okay.
Okay, thanks. And a question on the M&A side. Last quarter, you commented that you expected the autumn to be more active. Have your M&A discussions progressed as you expected one quarter ago?
Yes, I would say. We have even though we have done fewer deals, the intensity and the number of conversations and potential, you know, discussions going on is always been high at the same time, so there's nothing changed in that, in that agenda, and we are leaning forward in the M&A activities again, going forward.
Okay. And just very quickly, you made a SEK 150 million write-down of goodwill in LMS in Latour Industries. Could you just share what happened there?
Anders, would you like to comment on that?
Yeah, it's one investment made, of many, many investments that we have made that has not so good prospects for the coming years. So we decided to make a write-off of that, so we don't see it's remarkable. It has partly to do, of course, with the increased interest rates, because we have a slightly higher average. Yeah, I don't find the word. Interest in the return. So the bar is higher for that specific company, but in this case, we see that we won't reach the levels that we thought when we made the acquisition, and it's for one smaller company in this case.
Okay, that was all for me. Thank you.
Thank you, Zino.
The next question comes from David Johansson from Nordea Markets. Please go ahead.
Hi, and good morning. Three questions from me. First, kind of breaking down your comments here on the order intake, which was obviously a bit on the weaker side. You said in your initial statement that the order intake going forward will be better aligned with the underlying demand. So could you comment a bit on what you're seeing here in terms of underlying demand across your business areas? And also a bit into our Q4 here, do you note any changes from Q3? That would be the first one. Thanks.
To comment overall, I mean, to comment on the economic activity overall, I mean, we are in a downturn, as we all know, but I think it's a pretty mixed picture. One is to look at it from a kind of product segment dimension, which we mentioned, and those areas that are, you know, that is targeting residential segments or private consumption is more affected. Fortunately, that's a very small part of our businesses. As you know, we're mainly into business to business. And if you look at it from a kind of geography point of view, you could say that I would say North America, U.S., is stronger.
Europe is slightly weaker, and North Europe, even Northern Europe is even weaker, and actually, Sweden, probably one, right now, one of the weaker markets in that sense. But a very large part of our sales is outside of Sweden, as you know. I think it is reported once again to remember that a large part of this order intake is that we're normalizing our order book and delivering on a very high, you know, order intake that we had in 2021 and 2022. So the comparisons in order intakes is very high, but I think to complete that analysis, I think you should look at the order book as well at the start of the year, and what's a normalized kind of order book.
And then if I comment a little bit on the start of the fourth quarter, we see no special change in demand, and obviously, you could see at the end of last year that the financial markets and many people obviously maybe think we're reaching the top of the interest rate hike curve. I support that view, and I think inflation is coming down fairly quickly. So my hope, but that's a hope, is that we will have a fairly soft landing going forward. But it's a quite fluid situation also with the macroeconomic and geopolitical situation, I would say, with Ukraine and now also the Middle East.
Thank you. I appreciate the clarity there. Then moving on to Swegon. Obviously, also a bit of a mixed picture here with the weaker residential segment, while other areas seem to be holding up. Trying to understand the margin situation here. Is this 13-14% kind of a new normal for Swegon, or is this more an effect of higher utilization from the order backlog? And also, if you could give us any indication on what the backlog situation currently looks like, and kind of what you expect in terms of growth here for the next rest of the year. Thank you.
Yeah. I think I'd like to add on the order intake situation. I think on your previous question, just to add one more thought around that. I think it's important, even though we are very exposed to the building segment. I think it's important also to look a little bit closer, and then you see we are exposed to very interesting segments within the building construction industry, i.e., segments which is about saving energy, indoor climate, and so on. And those are quite growing and nice subsegments within the building industry. That's very true. For instance, for Swegon and for Bemsiq, our two wholly owned areas, and also for some of the listed companies in that sense.
When it comes to Swegon, when it comes to the margin, I, I'd like to comment. I think Swegon has, over the last, year or two, done a very good job on working on their, on their price management and, and their product mix and the gross margin. So I would say you have—you're seeing, a more normal, slightly higher EBIT margin in, in Swegon, kind of a new platform, that, that they're establishing. And commenting on the development forward, that's, that's very difficult, so I'd like to maybe pass on that, unless Anders wants to, to do that, but, I think we should maybe pass on that, right?
Yeah, yeah. But it's of course quite fair. Should the volumes go down, of course, as any company, the profitability will also go down. So that's simple mathematics, nothing specific for Swegon.
Yeah.
Thank you. I appreciate that as well. Then lastly, on Caljan, you comment a bit on activity being somewhat better here in Q3, while investments from customers remain maybe more subdued. When do you see these activities potentially translating to orders? And also trying to understand the pipeline for Caljan, is this mainly service driven or more of investments coming back from customers? Thank you.
It's about 25-30% of Caljan's net sales is service. They have a very large installed base of telescopic conveyors that need service, so that's a very good downside protection, so to speak, within the Caljan business. Otherwise, I would say, you know, almost all of the sales in Caljan and the order intake in Caljan is exposed to capital goods budgets in very, very large corporations. I mean, it is the big freight and logistics companies of the world that are the clients of Caljan. And of course, they overinvested and invested a lot during the pandemic because the exceptionally high growth, and when you prepare for a downturn, you usually start by cutting capital investment.
So that therefore, the shifts are quite strong in Caljan, but we expect next year that those investments will come back, and they will absolutely come back. And you see, you see early signs of that in, in the Caljan order intake now. So hopefully, touch on wood, I think we've bottomed out there in the, in the Caljan order intake.
Okay. Thank you very much. That was all from me.
Thank you, David.
Thank you, David. Mm.
The next question comes from Joachim Gunell from DNB Markets. Please go ahead.
Good day, Johan and Anders. Two questions from my side. Starting off with just a brief one with regards to cash flows, which was obviously strong here in the quarter. We continued to see this working capital unwind. Would it be fair to assume that that is a trend we can expect to continue, given the fact that we tied so much in 2022 over the coming quarters?
... Yeah, I would say that this trend will continue. We're still in a phase of normalizing the cash flow after the pandemic. We have put a lot of efforts into that. As you may recall, we deliberately, during the pandemic, increased our inventories and so on to best serve and to have excellent customer focus during the pandemic. And it's, of course, tough to normalize that and to come back, but we are doing that, and we're progressing very well. And we're still. There is still more potential until we're fully normalized, when it comes to the kind of operating cash flow. So I think that will continue for a while, and I hope Anders agrees as well, but let's see.
Do you have any comment?
Yeah, well, it's perfectly true, but it's also a fact that there has been inflation, so the stock's value should be a bit higher than even when the normalizing has happened, so to say.
Mm.
So, um-
True.
The full increase in stock value will not be cash flow. But there is still a positive trend to expect.
Mm.
Very clear. Final one from me. If we take a quite broader perspective, you're obviously in it for the long run, as you highlighted in the opening remarks, Johan. You want to build businesses that are competitive also 10, 20 years from now. So there's been a lot of more like transformative or at least sizable acquisitions, where you've led the rights issues here, despite signs of weakening economy, if we take your listed holdings, ASSA, Alimak, Securitas, et cetera. So can you just talk a bit about your reasoning here, too, that you choose to do these types of transactions and drive them or lead them at least, despite one could argue that it's not that much in favor to do transformative M&A in this environment?
To what extent do you think that really defines the active owner model you highlighted? And do you think that you, as an owner, have both the financial muscle to support similar transactions across the listed portfolio at this pace? And also, perhaps just finally, if you have a preference with regards to preferred versus direct rights issues.
Okay. The last question I leave to Anders to think about while I answer the first to Joachim. And I think to your point, we look very, very long term. We kind of have an outlook that is forever infinite, and we just want to do what's right for the companies and what is right for them to grow, for them to be even more competitive, and for them to service their customers. So therefore, those potential transactions or those transactions, they happen kind of when they happen. And of course, they are more available when the market is on a high level.
And then, of course, you could say, you know, "Oh, yeah, you paid a fairly sizable amount for it," and so on. But that was also the reason why they were available in that type of macro environment there was at that time. But having said that, long term, we know these are very, very important and strategic, and to your point, transformative acquisitions that will be very, very beneficial for the companies and then, of course, also for the shareholders in these companies. And yes, in Securitas, they did a transformative acquisition with Stanley Security. There was the rights issue behind that. For us, it was 100% obviously clear that we wanted to support that acquisition, which is very important for Securitas positioning going forward.
In Alimak, we did also transformative acquisition with Tractel, which long term is very important for Alimak. You can already see strong signs of that in the Alimak numbers, that this is integrating very well. In ASSA ABLOY, of course, of Hardware and Home Improvement, HHI, which was a very important transition, acquisition for ASSA to even strengthen its position on the consumer market in North America. It was very strong there, that ASSA, of course, did it on its own balance sheet without any rights emission in that sense. Long term, that's absolutely the right acquisition for us and will be very beneficial for the shareholders long term.
So it's really, Joachim, that if you have a one-to-two-year perspective, of course, you can put questions around all acquisitions in that sense. But we have a very long-term and kind of industrial logic perspective, and what's important to grow and take a very nice and strong position in those respective industries, to mention some examples. And then your third questions on direct rights issues and so on, Anders, let's hear your view on that.
Joachim, can you repeat the question? Because I was putting notes down on your first question, so I actually didn't-
Yeah.
Fully get it. Yeah.
Yeah, sure. Sorry, sorry about that. No, but just the overall comment here. So in both Alimak, Securitas, CTEK as well, actually, there have been-
Yeah
... preferred rights issues as opposed to direct ones. So, what's-
Okay
... your overall view with them? What's your preferences here, basically?
Yeah. I think you cannot say that there are any preferences. You have to judge by the situation and the picture in the respective company. So I think we could be flexible for both solutions. And you have to judge by the need for the company and the situation that every situation brings with it. So there is nothing that says that the one way than the other will be best in all cases.
Understood. Perfect. That was all for me. Thank you.
Thank you, Joachim. Value your questions. Thanks a lot. Good. Is there any more questions, then?
I don't see anything on the chat-
No
... so.
No, no written questions. Okay. Thank you, everybody, for listening in, and I hope to talk to you again on the full year report in the next year. Thank you so much for listening, and thanks for great questions, as well. So having said that, from Anders and myself, over and out. Thank you.
Thank you.