Business Update

Sep 23, 2021

Thank you very much. My name is Ole Ringdahl. I'm the CEO of Lindblad Group, and we are sharing a presentation. And today, we have issued 2 press releases. I will start to comment on the first one that was sent out regarding the divestment of the Building Systems business area. And then later in the presentation, I will comment on the data's financial targets. So if we move to Slide 2. So today Lindab has signed an agreement to divest our Business Area Building Systems, which is our division for steel buildings and these are sold under the brand ASTRONG with headquarters in Luxembourg. The buyer is the French Construction Group. It's a company called Croupe Briand, owned by the Briaan family. I should mention that the divestment is subject to antitrust approval in Russia, and we expect that this will take 2 to 4 months to achieve this. In 2020, the Astrone, the company had sales of SEK 946,000,000 and that is around 10% of our total group sales. The adjusted margin that year was 5.9% in comparison to the group's 10%. As a consequence of this divestment, the Zindab Group is taking a onetime cost of approximately SEK 430,000,000 However, there is no cash flow effect since most of this is a goodwill. Moving to Slide 3. Now why are we divesting the AstraZen Group? Well, it has to do with our strategic focus that we are focusing on our main business, which is the ventilation systems business. This is the core business where we have the right knowledge to grow sales stability. And after this transaction, ventilation systems will account for 2 thirds of our revenue and our also very successful business area profile systems really comes for 1 third of revenue. Our business concept is to have mass production, mass distribution of high volume products. And this is quite different from the business model of Astrone, which is typically a project business with customer unique solutions. And as a consequence now of this transaction, we are also making an exit from Lindal Group from 3 countries, reducing our geographical footprint from 24 countries to 21. So the countries that will no longer have Lindner Group presence are Kazakhstan, Belarus and Luxembourg. Another advantage for Lindbergh Group of this transaction is that we reduce our exposure to Russia. Avstrom has quite substantial sales in Russia, and we will through this transaction become less exposed to the country risks and also the volatile Russian ruble. There are we have every intention to continue to move forward in an accelerated way with both Business Area Ventilation Systems and Profile Systems. We have seen a very good development in these areas and we have significant synergies in purchasing production and distribution. We move over to Slide 4, financial effects. So this is more technical than I have perhaps the best competence to comment on, but I'm comfortable that Madeline Jemberg is sitting next to me and she knows all of this. But as of now, our billing systems will be recognized as an asset held for sale and the discontinued operation in the financial statements. In terms of income statement, this implies that the total financial performance of the segment will be recognized as a net value. The classification, assets held for sale and discontinued operation will be kept until the divestment is finalized. As I mentioned, we will recognize a one time cost. This will be taken in the Q3, approximately SEK 430,000,000. And as I mentioned, the cost is primarily related to impairment of goodwill. The divestment transaction is not expected to have a material net cash flow impact for the group. We move to Slide 5. And I want to comment a little bit about the reduced volatility that the Lindab Group will experience going forward. There are 2 graphs here describing the sales growth numbers quarter on quarter in building systems on the darker line and the combination of ventilation systems and profile system, which is the remaining linweb in this slightly, lightly more colored line. And you can see that in terms of sales volatility and growth quarter on quarter. The Building Systems division has quite a volatile development. And you can also see on the graph to your right that in terms of operating margin that the volatility is quite stable on ventilation systems and profile systems, but it is also quite volatile on building systems. Now we move to Slide number 6. So what will the new Linde look like in terms of profit and loss in a simplified manner it is described here. And in the first column of numbers, you see the Lindal Group has sold today. That is a rolling 12 month values for July 2020 until June 2021. The next column describes the Astron sales, And the 3rd column describes Linde by excluding the Astrond numbers. And it's worth noticing that in terms of sales, we will we see a reduction for the group of about 9% in terms of EBIT, adjusted EBIT and earnings per share, we see a drop of 3%. We can also notice that the adjusted EBIT margin for the group moves from 11% to 11.7%. So we are strengthening the group operating margins by doing this. Okay. And then that is the end of the presentation of the transaction and the signing of the divestment of Astrone. Now we move over to the financial targets. On Slide number 7, we present the financial targets that we've had up until today. Annual growth of between 5% 8%, operating margin of 10% over a business cycle and the net debt to EBITDA ratio of less than 3. If we move to Slide number 8, we can see the new targets that the Board of Directors of Lindau Group has decided on today and that we have communicated in a press release this afternoon. So we are increasing the growth targets, and that should be seen in light of the divestment of Alstom Building Systems and an ambition to accelerate both our organic growth efforts for the remaining Lindab and an accelerated growth agenda in terms of acquisitions. We have also updated the operating margin target. We've said earlier that it should average 10% over the course of the business cycle. Now we are saying that the operating margin should exceed 10%. And one could wonder why we are not increasing even more because we are actually right now on a rolling 12 month basis above these targets. We are aiming for an accelerated growth agenda where we if we look at the past 3 years, we have prioritized profitability over volume. We have increased the EBIT margin from around 6% for the Lindner Group up to today's run rate of around 11%. We feel that we are now we now have the possibility to go a little bit more for growth in terms of organic efforts. And at the same time, we want to have possibility in our acquisition strategy to acquire companies that are also a little bit less profitable than in that group, even though our ambition is to acquire profitable and well ranked companies. So we'll probably have a little bit of a dilution effect short term from acquisitions, and then we will work to improve profitability of the acquired companies as well. This does not say that we should be happy with reaching just 10%, it says that we should exceed 10%. So it can, of course, be higher. The 3rd financial target of net debt to EBITDA is unchanged. And our dividend policy of paying out 40% of net profit to the shareholders is also unchanged, as can be seen in our press release from earlier today. And that was the end of this presentation. And we open up for questions for those who have dialed in to the call. I think on the web, it's not possible to ask questions, if I'm correctly informed. Thank And Currently, we have one question on the line. That's from the line of Karl Erik Mostam of Nordea. Please go ahead. Your line is open. Hi, it's Karel here from Nordea. A couple of questions from my side. And I mean, first of all, there's been a lot of discussions the past couple of years, quite a few to be exact. I mean regarding potential divestiture Chair of Building Systems. And I wonder why now because you we have had quite a few discussions, I think 2 years ago that you thought that the selling price was too low at that point. So could you comment if the price was lower back then? Or Why do you do it now? Yes, the prices the offers we received a couple of years ago, we're far lower than we got this time. And I think also the performance of the business area at that time back in 2017 was a lot worse. Now we have strengthened profitability. We have a good management team in place. And I would say that Ostrand is in a much better shape today than it was 3 years ago. However, then we went into the COVID 19 pandemic and for a project business like Astrone that hit them pretty hard on the top line even if they have continued to deliver solid results despite the volume decline. We were not under pressure to divest Astrand and we did not have an active process, but we were approached by Groupe Rian and we evaluated them and got to know them and I think they are really a very suitable buyer. We want to be a responsible company. We want to make sure that our colleagues in Ostrand get a good long term owner with the right competencies. So when they showed interest, we took it seriously and discussed with them. Their offer is fair and we are satisfied with the deal in all respects. And we are especially satisfied that it is this kind of buyer. And on the deal, just so I get you correctly, I mean, what do you actually get paid? We have agreed with the buyer not to disclose the actual amount. So we are not communicating that number. Could you say it's more than SEK100 1,000,000 or could you say anything so we could Or is it? I mean, it's probably If it's more than SEK 100,000,000. Yes, for instance, or if you could give any, I mean, indication or It is more than SEK 100,000,000. Okay. Perfect. So you cannot give any more flavor on the selling price than that or not even a range? No. Okay, brilliant. Could you reduce central cost due to the divestiture the Alstron Group has worked quite independently of the rest of Linde Group. So there will be small reduction of central cost, but not in any substantial way. They are in most parts self supporting. Okay, perfect. And Also, could you help us just remind us of the return on capital employed on Aston, just maybe a range there if you have it? Not at this point. We did not prepare that number, so we call. Okay. It's no problem. But it's below the group, I guess, right? We have not prepared that data for this meeting. So you have to explain it in the afternoon. No, it's no problem at all. So and on the sales growth side, you have updated the target to 10% annually. Could you just give some flavor on how much should be organic and how much that should be acquired? Roughly speaking, about onethree of that should be organic growth and twothree acquired growth, roughly speaking on an average basis over several years. And in the midterm, do you expect a different Split then, short to midterm or No, I'm not expecting a different split, but it can happen depending on a list of different factors. So when we set these targets, we call them long term financial targets, and that is what they have to be and they have to be average. Yes, I get it. And do you I mean, it's I guess it's very difficult To get an estimate, but do you expect any troubles with the Russian antitrust? Or have you any experience of that in I mean should it be an issue do you think or maybe it's We are not expecting any difficulties there. There are formal requirements in Russia to make this kind of test or how do you call it, application to ask the authorities. It's standard procedure, and we are not expecting any difficulties. Okay, perfect. And the final one is probably on the taxonomy side. I guess the taxonomy will increase. Is it fair to assume from 70% roughly up to 8 year? It's probably not as big a step as that, but it will be percentage points improvement in consumption value for Linde Group. But it's not a 10 percentage point step. Okay, perfect. Very helpful. That's all for me. Thank you. Thank you, Karl. Thank you. And we do have a further question coming through. That's from the line of Douglas Lindahl of Kepler Cheuvreux, please go ahead. Your line is open. Yes, thank you. I apologize if you already answered this question. I missed a bit. But what is your internal expectations in terms of finalizing this deal? Meaning, for how long will you have it as discontinued operations according to your own expectations. As we said, it's pending the this application in Russia. As soon as we get the approval from there, we intend to close the deal. Our best estimate today is that this procedure will take between 2 4 months. And that's the most exact so we can give. Okay. That's very useful. Thank you so much. That's it for me. Thank you. Okay. As there are no further questions coming through at this time, I'll hand back to our speakers for the closing comments. Thank you very much. So it's an important day for both Lindner Group and also our colleagues at Astrone and Groupe Yand, I think we have found a very good future owner for Astrone. For Lindab, this is a good day to focus on the core businesses where we add the most value. And we are now accelerating our efforts in terms of organic growth, acquisitions and investments in these areas as we try to signal also by the adjustment of the financial targets. So we are very pleased with this transaction and the development of the group. Thank you very much for listening.