Earnings Call: Q4 2020

Feb 12, 2021

Ladies and gentlemen, welcome to the Investment AB Latour's Year End Report 2020. For the first part of this call, all participants will be in listen only mode. And afterwards, there will be a question and answer session. Today, I'm pleased to present President and CEO, Johan Jartensen and CFO, Anders Morig. Vikas, please go ahead. Thank you. Welcome to Latour's call presenting the year end results and the 4th quarter results. I'm joined here by Anders Moll. We had a very strong quarter in our wholly owned Operations, we're right in the middle of the pandemic. And we're absolutely not over it yet. And we're still prepared to take further actions if needed at the general statement. Our group structure is Did a bit changed since last time. We still have 2 major business lines with the wholly owned operations and the investment portfolio. And as you can see, we have added not to future solutions to the wholly owned operations. And I'll come back to that A little bit later in the presentation. I think we can go to the next slide then. So If we talk about the investment portfolio, there's no major changes in the portfolio during the quarter. Earlier in the year, we divested 20% of our holding in Tomra, which gives us a shareholding of 21.1 percent in TOMRA. And we're still a solid main owner in TOMRA That's supporting progress success going forward. And we have increased our investments in Fagel Rood to 47.8%, which brings us back up to the level we had prior to the Ibucida acquisition. And all in all, we have increased slightly to 29.6%. The value development during the year was 9.1% compared to The Zix Rx of 14.8%. I think that's a quite satisfying result, however, given the pandemic and the circumstances. The underlying development is good. Some of our businesses are struggling with net sales with an organic decline, But generally, the profits are protected very well. Until yesterday, portfolio value increased to SEK 68,400,000,000 And the total amount so far this year is 0.5%, where SIX OurEx has increased 5.9%. We'll go to the next slide then, where we have some comments on our wholly owned operations. I would say that the year really marked by the pandemic with mixed pictures depending on geography and segments. We had put We have put the employer safety first, which is absolutely the most important, and I think we managed quite well in that regard. And we've also managed in continuing to build our businesses and protect the profits in our businesses. It's a very strong result, and I think it's due to dedicated management teams and committed employees And our overall very strong cost awareness, and that has given a strong profit development. As you can see, we reported a very strong quarter and a very strong full year in our wholly owned operations. In the quarter, total growth Onetha, it was 11%. Operating profit grew actually 37% to SEK 593,000,000 Tech and the EBIT margin almost reached 15% and came to 14.8%. On the full year, total growth of orders was 9%, net sales also 9% and operating profit Grow 16% to well above SEK 2,117,000,000 and that's Very strong EBIT margin of 14.3%. We're very happy and we're very proud of These figures, especially considering that we're right in the middle of the pandemic. We're very well positioned for future growth. Even though we have had high cost awareness, we have still continued our investments in product development, Sales and marketing to drive a sustainable growth agenda going forward. So the sustainability and digitalization are very important aspects, and we have continued to increase the focus on these two areas. We have set sustainability KPIs in all of our wholly owned businesses. It's always on the board agenda. And the same goes with digitalization. It's something we're highlighting and driving to a quite high extent. Furthermore, as I said in the beginning, we have launched Latour Future Solutions, which is a new investment initiative where we will do minority investments in younger and smaller companies to help them drive And make the world greener, so to speak, and to help them grow both domestically and internationally. We provide, of course, capital, risk capital for these companies, but As important is also that we will provide our expertise and our network to support these companies going forward. And I'm happy to announce that Telemaat Isol is recruited as the new CEO of Natura Future Solutions, And we are on board and in full swing. If we go to the next slide, We'll talk about the acquisitions we did during the last year. We had a high acquisition activity in the Q4. As you know, we slowed down the activity at the onset of the pandemic in March of last year, But I'm happy I'm very happy to say that we cashed up quite strongly in the Q4. So in the Q4, we acquired to Sverigold with an annual excise of about SEK 100,000,000 as they supply the fusils mainly in the German market. We signed an agreement to acquire ViaGA to Latour Industries, an Italian company. It was finalized It closed in January of this year with an annual net sales of about €200,000,000 As I said, it's an Italian We also signed an agreement for ELSIS To Bemcit, that was closed now in January, with an annual net sales of about 50,000,000 sets. They're a manufacturer We also signed an agreement for Fitas Council Lejona The Hulta Post Group is expected to be finalized 1st March or beginning of March With an annual net sales of SEK 1,200,000,000 and the Pristat and Sensa and Leiden are leading professional workwear brands for a variety of end user segments. So in total, we did 8 acquisitions during the year, adding And annual net sales of almost $2,200,000,000 to Tula Tor. And Tula Tor Future Solutions, we made In Gaia BG Materials, during the quarter, they developed and manufactured biodegradable BG Materials from renewable sources to replace fossil based plastics. And now in January, after the end of the quarter, We acquired VM Compensator to Latour Industries. They're a Danish designer and manufacturer compensator and expansion joints used in industrial applications. So I'll come back a little bit later in the presentation. And now I'm very glad to hand over to our esteemed CFO, Anders, over to you, Anders. So thank you so much, Johan, and we go to the first business area For a few comments, which then is Kallian. There was a very good momentum for the e commerce sector Last year, the demand increased, and that is also a very good sign for 2021. Kallian had a very strong net sales and also excellent profit in the Q4 like they had in the 3rd. So there was a very strong second half of the year. We had an excellent profit margin in the Q4 of 21 0.8%. We have continued during the year to invest in Kalyan's expansion. We have a new factory in Latvia and also established a factory in the U. S. That will be completed during 2021. So looking back at the 1st year, together with Kallian, we are really happy What they made last year, and we can summarize the year with €112,000,000 in turnover and EBIT of around €20,000,000 Which is very good and over expectation. So thank you so much to all colleagues at Calyant for this Delivery, so to say. We go to the next page, which then is Holtefors Group. And Holtefors continued its excellent development in the 4th quarter, where we had good development for more or less all product areas and also all markets. In total, net sales grew by 20% in the quarter, of which 16% is organic growth. And that is really impressive. And we can wonder, do they even feel there is a pandemic going on in this business area? We also had very good cost control in the company and combined with the high net sales That contributes to a strong operating result and an operating margin of 17.4% in the last quarter. We have high focus on development of the sales organization and on marketing as well as product Development and digitalization. So that said, we welcome our new CEO, Martin Schnoebelash To Holtefors Group, and that puts the agenda for next year, I think, when we have had this strong year in 2020. So Very welcome and good luck Martin coming here. Finally, as Johan said before, Holtefos closed Or signed the deal with Priestess Gansa of Leona recently, and we hope to close the deal in the coming weeks going forward. We go to the next page, which is Laffour Industry. We saw a continued recovery for most of the business units during the Q4. And in total, we had Flat growth in net sales. We can say that BMC had an outstanding development of the business units We have really good development, both in net sales and profits. Good cost control contributes So a very good operating result with an operating margin of 12.3%. And I think we can say that this Really impressive as well because you should remember that Latour Industries was the business area that was the most hit by the pandemic, not least by their presence in Southern Europe, in Spain and Italy and so on. So thank you very much, everyone, in Latour Industries for this contribution. And we will continue to build the basis for future business areas and use Flatur Industries as such an instrument. We also know that we are doing a lot of efforts in these smaller companies, which will lead to higher profitability going forward, as we have said before. And then the trend is important and the trend is positive. We have also made acquisition of Vega, Eltis and VM Compensator As said by you, Amrita. So we go to the next page and the next business area, which would be Nord Lock. 2020 was a really challenging year for Nord Lock. Both markets were down before the pandemic, and then we had the Pandemic happening and then also we have to fight with the currency because Nord Lock is probably the most International company, we have in the group with high dependency on Income in dollars and euros. It's very impressive to see that Asia Pacific During this year, it has continued to grow and showed a really good Q4. And that have mitigated the effect from other markets somewhat. We have a few one off costs During the quarter and together with the currency effects, we can, even though we have decreased in net sales, Say that the underlying result for Nord Lock in the 4th quarter actually was in the same level, adjusted then of course As last year, which is really impressive. So this is not a company in crisis, but we had a little Tougher situation last year. So we stand still and stand strong going forward and we see A lot of opportunities with Nord Lock. And then we go to Sweden. That also was very much affected on top line by COVID-nineteen. But as before, there has been a mixed picture Because they are represented in so many different geographies. Sweden developed very Certainly. And also the business area residential. But in total, net sales decreased by 6% in the quarter. And considering that, I think we can say that the operating margin during the decreased organic Sales is really impressive coming in at 11.6% compared to 9.9% last year. We can also say here on SvyOne, they acquired the Schanfelu technique in the beginning of Q4, and we look forward to Sbergon also going forward. And I must say a big thank you to all business areas for what they contributed to Latvos' total profit this year. We go to the next page, and we have the net asset value. And as you can see, the net asset value increased by 13.7% during the year to SEK 153, And that can be compared to 14.8% that was the development of ZixRx. But when you look at this valuation, you should bear in mind that our valuation is just an indication of a prudent view of our value In a very difficult stock market where quality companies are rewarded with very, very high multiples But we have not reflected in our indicative valuation. And I think we can say and we can also see what have been achieved during the year that we really think that our companies are quality companies. So you could have many different views on the spread between normal valuation, if you want to use that word, and Quality companies on the stock market have been so wide, so it's really difficult to decide which multiple That should be the right one for our companies. Our share price at the end of December was DKK 200 per share and that corresponds then to a premium to our net asset value of DKK 31 Yesterday, on February 11, the net vessel value was unchanged, DKK 153 per share. And with the same comparison, the share price was 196% and the premium then was 28%. On the debt side, you can say that we had a very, very good cash flow at the end of the year, bringing down our net debt To SEK 4,600,000,000 from SEK 6,000,000,000 last quarter. In this context, we would also like to bring it forward that we had received an official rating during the Q4 from Fitch, which puts us on the level A flat. And for that, those who are No about rating. That's a very, very good rating. So we are very, very happy about that. And the total net debt now corresponds to about 4% of the total market value of our investment, which is 2% lower than last reporting date. And this brings As to the conclusion that we have a very, very good capacity to do new acquisitions and Invest further in the growth of Latour going forward. Johan, thank you very much. So I'll leave it back for the next picture, Andrew, once again. Thank you, Anders. Very good. Our financial targets, if we summarize where we are, we should have an annual growth of about 10%. Our target operating margin above 10% and return on operating capital somewhere in the area of 15% to 20% are our targets. And growth last year was 9.4%, so slightly under the target. I have to say that we grow 9 point 4% during a year with almost 10 months of full pandemic. I have to say that we're very happy about that. And the EBIT margin is well above 14.3 percent And the return on operating capital is just below 14.6%. And that has to do With a lot of acquisition activities that we did in 2019 2020 that plays in there. And I think we can go to the next slide then. So given the good development and the very strong financial position that Anders Disclosed and talked about, our Board of Directors proposes an increased dividend of SEK 3 per share. And last year, the proposal was revised to 125 due to the COVID-nineteen and the original proposal was €275,000,000 So this year's proposal is fully in line with our dividend policy. And lastly, next slide, if we go there. Gatoom is a sustainable long term investment company. Our long term ambition is not changing Due to the ongoing pandemic, we're still investing in growth. We have a strong financial position, And that helps us to expand our existing holdings and invest in those operationally, so to speak, and also do add on acquisitions to support further growth. So we will come out of this crisis even stronger. That's my clear view. And therefore, we continue with all the strategic long term initiatives in our company as before. And I like very much very many people, I hope that we will soon be out of the pandemic and we can go back to more business at the future. But as you can see, So far, Natura has managed the pandemic very well, and we have protected our entities, and we have protected our companies. And we have continued to invest in our holdings for the long term to come out of all of this even stronger. So that concludes the presentation from Anders and myself. And then we hand over to the Q and A session. Thank Our first question comes from the line of Joakim Gunnell from BNP Markets. Please go ahead. Your line is open. Thank you very much. Good morning, Johan and Anders. So first of all, congratulations to the I'd like to kick off with a few questions, and I'll get back in line. But Hulte Forsch has, I mean really scaled up here with recent acquisitions. You seem to really have an industry leading sales force at Hulte Foch, but can you talk a bit about what opportunities and Challenges you see with the newly acquired Freestyle brands. I mean, they seem to have somewhat of a challenging last few years operationally. And perhaps you can comment a bit more on the profitability of the acquired brands and synergy potential. Thank you, Joakim. I can allude to that, if you feel in others, if you wish. Now we're very happy We have acquired Tristad and those brands. They are very strong brands, especially Tristad in the Swedish market, Kalafo is in the Danish market and Lejoen are a niche well positioned brand in the Finnish market. It's correct. If you go back some years, they have been struggling a little bit with profitability. That has, however, picked up. It's not on the Hulta Foch average margins yet, I should say. But we think this complements the Holte Pos business very well. If you take the sneakers workwear brand, that is our brand, They have actually comparably weaker position in the Swedish market where freezers is very, very strong. So that actually makes a lot of sense in complementing that way. But it's the brands that we have acquired. We intend to keep the brands Develop these brands. And obviously, long term, there are synergies, especially on the sourcing and the logistics side of that business. So we're quite confident that over time that we should bring The Fristad, Kaunas and Leila and our colleagues up to the profitability levels of Multiphore. Very interesting. And looking into now 2021, where will your attention be as a Management team, say, for the unlisted businesses or the industrial operation in terms of trade off versus Focusing on building the LaFour future solutions versus strengthening your current platforms. And then also just to Is it possible to quantify? Would you say that your financial muscle is still somewhere in the range of SEK 5,000,000,000? Yes. I would say our production master or muscle or firepower or however you want to phrase that, It's a little bit above SEK 5,000,000,000 going forward as it stands of today. And an absolute lion's share of that is to be invested in our wholly owned operations or new platform investments in That sounds so it's very much business as usual going forward. All right. And turning to your investment portfolio from a principal owner perspective, can you provide your thoughts on the recent board changes in Securitas? In Securitas, I think it's absolutely natural From one time to another that we can do changes, I think Carl Douglas has shown an extremely strong commitment in the It's been 28 years on the board. Last time I checked, that was not a lifetime engagement. So I think it's natural that we change. I'm happy that we have a new Chairman in Securitas, Jon Svensson, coming up, my predecessor, who obviously It's quite connected to Latour. And we also have Johan Maintiel that we announced earlier, who will So the Chief Investment Officer in Nathalie this summer that will join the Securitas Board. So we are still very committed And well represented on the board, and we deliver a lot of insecurities going forward as well. Understood. And in the light of the recent Algon transaction, can you provide your thoughts So on the competitive landscape, say, from private equity and other investment vehicles, and how does that Impact your ability to continue to source and execute on your proven M and A machine in this rather concentrated region? Yes, good question Joakim. I think, yes, valuations are quite sometimes a bit challenging or Regt, if I say so. In the Alvong case, we made a business case And we thought made a lot of sense on actually the price that we proposed. And We could stand by our proposal, but we thought the increased prices there were a little bit too high. But that's nothing new. We see that in many transactions where we back out, where we see that the valuations are Very high. So I see no slowdown because of that. That's always been like that and will continue as before. And We have a good pipeline that we work with and M and A is part of our base strategy and we could They were going forward, we're strengthening our team, and we expect to have at least the same pace or even more going forward. Thank you for that. I will get back in queue. Thank you, We have no more questions from the line. I will hand it back to our speakers for their closing comments. Thank you. I think that concludes everything from our side. And So on behalf of Anders and myself, thank you so much for your time and thank you for listening in and Hope to speak to many of you again in about a quarter's time. So thanks a lot.