Earnings Call: Q1 2021

Apr 30, 2021

Thank you very much. And thank you, everyone, for joining today in spite the fact that it is a CME holiday here in Sweden at least. On my side here, I have my dear CEO, Jonas Sorgrok. And we will take you through the results for the Q1 2021 for Othos. So let's move over to Slide 2, where you have an overview over our group and what's happened. Draught of today is a business group of 11 companies in the Q1. After the acquisition of SBIA, we are actually 12 companies in Q2, but today we'll focus on the first quarter. All our companies is headquartered in Sweden, but they are present in more than 30 countries, more than 10,000 employees and a total revenue of SEK 34,000,000,000. Our last 12 months results, our EBITDA has increased with 61 percent, in spite of the fact that we divested Bisnode, who employed or who had the biggest risk actually of all our previous companies in the portfolio. And this node, which was a large company in terms of EBITDA, was not part of Q1 this year. So let's move over to Slide number 3, where we have the highlights of Q1. Starting with net sales, it was down 16%, mainly due to the fact that Bisnode was divested. If we look at the organic growth, it was also negative 2% and the main factor for that is our pandemic, the COVID-nineteen pandemic. EBITDA for this quarter increased more than 60% in spite of the fact that this note, last year in Q1 represented more than half of the EBITDA. So we're actually in a very good mood here in of today and proud over how well the companies has performed in this quarter. All companies, except for Dieab, has increased their profitability. And all companies except for DIAB and HEMT has increased their EBITDA. Cash flow was down in a quarter that always has a low cash flow level due to mainly Plantation and OEIS. But Jonas Sorgrup, my CFO, will explain this in the next slide. And let's then move to Slide 4. Please, Jonas. Okay. Thank you, Jonas. So let's look at the leverage level. And over the last couple of years, we have focused a lot on reducing debt. That has been a focus area for us here at Ratatos. We have also had a lot of focus on reducing working capital, and we have improved profit levels as you have seen. And this has resulted in improved cash flow and lower leverage levels. After the divestment of this note, net cash position increased in the group by roughly SEK 3,000,000,000 And we also invested SEK 1,000,000,000 of the proceeds of the sale in Dannenbrecht's shares. So if we look at the net debt, you can see it's minus 0.6 times. So we have a net cash position. Last year, it was 2.7 times. EBITDA in the quarter increased 5% sorry, EBITDA increased 5% in the quarter. Net debt decreased by SEK 1,400,000,000 of which this note accounted for SEK 1,200,000,000. And we had a negative cash flow in the quarter minus SEK 524,000,000 as Jonas explained. This is mainly related to we have a seasonal effect. Clantasen is building inventory for the season. The same goes for OASE outdoors. And they are also building inventory. And we had a negative cash flow in our company, Hent, the building construction company. And they had a very good cash flow in the Q1 last year. We have a net cash position, as I said, and cash and cash equivalents in Ratas AB, the parent company is SEK 2,300,000,000. And we have a strong balance sheet in Ratatos. And as I said, we have a net cash position. And Ratliff is well positioned for future profitable growth. So if we then move to the next slide, Slide number 4. 4, sorry, 5. I would like to talk a little bit about centralized financing of our Ratus Companies. Ratus is a business group, as we have said many, many times. And we are long term in our investments. And a natural next step for us is to have the financing of the companies in the business group centrally. So going forward, parts of Ratus Business Group will be financed centrally from Ratus AB to begin with. We have a net cash position. We have the SEK 2,300,000,000 in cash in Rados AB. So we will initially fund and borrow funds to lend funds to the companies from the parent company. And as a next step, as the requirements will increase, Ratas will be the Ratus will be financed with funds from banks. And we are actually presently negotiating with banks in order to set up of a new financing facility. As a result of the centralized financing, we will achieve lower interest costs for the Raffles Group. And so far, we have financed 3 companies in the group. It's HL Display, it's DIAB and LED. And the total financing amount is roughly SEK 1,300,000,000. So back to you, Jonas. Thank you. Let's move to Slide 6. As you know, during the last 3 years, we have been in a turnaround phase for our companies, focusing on getting the right management, focusing on a different board work than we have had before and focus on stability and profitability rather than growth, especially not acquisitional growth. We've done structural changes where the most important was the divestment of business, Wissnote, which contained a big risk through their dependence of Dun and Bradstreet. Now we feel that we have stabilized the group. We have starting to get decent profitability level. We have, as Yonah stated, a good balance sheet. So now we are ready to start off the acquisition of growth path. To reach our financial target for 2025, which I will come back to. But I would like to underline that organic growth and margin expansion will continue to play an important part of our work going forward to meet our financial targets. So let's move over to Slide 7, which gives a picture of some M and A activities taking place in the Q1. So we have exited Bisnode, also formally, I think it was 9th January. Bisnode Belgium was never acquired by Dun and of Brexit. So this small part belonged to Ratatos until March 31. So then even Business Belgium was divested. So everything is now completed. We had a capital gain around SEK 1,800,000,000. On the acquiring side, we have in HL Display acquired Concept Group, 4th March. And we also signed a contract for acquiring Kool presentation, 1st April. So now they are with us, but not in the Q1. These two acquisitions strengthening our market positions in UK and the Netherlands. And HLSI PLAY will continue to consolidate this interesting market as a market leader. We also signed an agreement to acquire Vestia Construction Group. It was closed the 9th April. It's an important acquisition because it's complementary to Hemmed. They run with a different business model, which we think belong to the future in construction. So if we now start to look at our companies and our business areas, we're starting off with Construction Services and Able. Abel had an EBITDA growth of 57% despite flat sales or even a little bit negative organic sales. Those of you who have followed us and able have now learned that the relation between revenue and EBITDA varies depending on which phase the large projects are in. Important to say is that EIBEL had a good order intake in the quarter and the order book is now NOK 12,600,000,000, whereof and this is important, 50% of the order book is now green. Couple of years ago, EBL was all about fossil fuel. So for each quarter so far, the green share is increasing. And it's mainly wind farms and electrification that stands for that. I'm also happy to talk about Airti, who had a very strong quarter with 30% organic growth and an EBITA increase of more than 100%. We see a good order intake in the quarter and a record high order book, which promise well for the future. HEMT had a decrease in revenue and EBITA, mainly due to COVID-nineteen, causing problems at the construction sites in Norway, especially for foreign labor that it's almost impossible to get over the borders these days due to the COVID pandemic and the tough control the Norwegian authorities have of the pandemic. However, the profitability level was a little higher than Q1 2020. Speedgroup had a really good quarter where they almost tripled their EBITDA and organic growth was up 28%. In this quarterly meetings, I tend to choose a company to focus on each for each business area. So let's move over to the next slide, which describes Speed Group a little bit more. Well, Speed is acting on a strong underlying market, and they have created a lot of trust among their main customers and more customers knocking on the door. And this has been driving the revenue increase in 2021. We believe Speedgroup today is at least the number 5 player on the Swedish 3PL market. And we've during the turnaround phase, we have had this focus also on speed, who performed quite badly a couple of years ago. And the EBITA margin has grown from almost 0 up to over 10%, which I think is a very good profitability level for this sector. They are now in a position also to drive validation in the Nordic logistics market. And you can see a beautiful picture here of the largest solar roof in Sweden, enabling speed to move towards CO2 neutrality by 2025. And we hope that the sun will continue to shine on the West Coast like in the picture. With that, we move over to Industry sorry, to Consumer, starting up with KBD. Bismuth is no longer with us. KVD actually had a slow start of the quarter with low inflow of cars, but ended up very strong, resulting in an organic growth of 10% and an EBITDA that was up 71%. Jumping over OEIS for a moment, I will instead continue with Plantarsen that had an organic growth of 21% in the quarter. That was in spite of the fact that 38 stores in Norway due to the pandemic was closed down for the second half of March. Of this, we believe, took out approximately 20% of the revenue for the quarter. The Q1 for Plantarsen has always been loss making. But this quarter, the loss was actually reduced with more than 40% due to better sales, better gross margins and more efficient logistics. So all in all, another strong quarter for Plantarsen. Now coming back to A outdoors. They increased their EBITDA with 84%, and sales in local currency was up 10%, organic minus 2%. Delays and increased costs from transports, especially from Asia, affected EBITA to grow even more. But the order book was record high when coming into this year, and it's even stronger going into the next quarter. So let's take a little deeper look on Slide 7 on ways. The addressable European market, we believe, is over EUR 1,000,000,000. And it has grown and is expected to continue to grow through the green and recreational trends being boosted, of course, of the pandemic. They have a leading product portfolio. They have a good strong international sales channel. And the most important markets are UK and Germany, accounting for some 40% of the total market. The EBITA for the quarter, but also for the last 12 months has increased quite a lot, thanks to better product mix, lower cost base, resulting in these higher gross margins. And we also have a very dedicated and strong management team also in Waste Outdoors. So then we move slide again and coming into Industry. Another good quarter for industry. Starting up with DEA that actually showed substantially lower EBITDA in Q1 than last year's Q1. Sales was affected from subsidies ended in China and U. S. By the end of 2020. Everyone was rushing in China to get the power plants up before New Year. And there was kind of small wake up, did you say that in English? I hope so. And this has had an effect on the wind sales. And I think it will have some effect also in Q2, and we will see market coming back during the second half of the year. However, the lower sales volumes in wind was partly compensated by increased demand in the Marine and Industry segment. The EBITA hit was mainly affected by upstart of a lot of new production facilities and the fact that our U. S. Production in Texas was stopped for half a month during the extreme weather in March, resulting we were out of electricity and had other problems. And also, currency affected onethree of the reduced EBITDA. Jumping over HL for a few minutes and move to Lidl instead that performed very solid and strong quarter. Organic growth 12%, EBITDA up 39%, EBITDA driven by, of course, higher sales, but also product mix, lower OpEx, high operational efficiency and the order intake was actually record high in the quarter. And we hope and do believe that the deal now is back on track, even though there is a few dark clouds left in the sky of the pandemic. In TFS. Sales dropped by 15% solely due to the pandemic, making it very difficult to perform clinical trials in hospitals. Release of provisions in successfully performed projects made the EBITDA level flat compared to last year. Now returning to HLS Display. They had a very strong quarter, an organic growth of 6%, EBITA growth of 63%. The EBITA growth was 42%, also good number if we exclude the one off effect for the divestment of a vacant facility in France. Looking at the numbers, one should bear in mind that Q1 last year was free from the pandemic for the 1st 2 months, and the pandemic has hit the sales in HL quite hard. EBITDA growth is continues to be driven by more and more favorable product mix and further efficiency improvements. So let's take a look on HL display on Page 13. I think many of us think that everything that this market is challenged by the online business, and it is. For Grocer, Ritley, the supermarkets out in Europe selling everything from milk to TV sets, etcetera. The bulk goods our thoughts certainly coming more and more through online. But the other part of the market, smaller farmers that has increasing importance with fresh food and fresh stores. They are actually growing. And HL make these stores more efficient. They save labor costs. They can create differentiation and they reduce waste, making the stores more sustainable and provide smarter solutions for store management. EBITHL was one of the turnaround examples during the last 3 years improved their margins from 3% to 12% during the last years. And we are now in HL ready to start to grow this. And we see this already in the Q1 with the organic growth, but we will also see acquisitional growth. HGL is the undisputed market leader for store solutions, and we the acquisition journey will further consolidate this interesting market. So with that, let's move to Slide 14. So all in all, we're very pleased with the quarter. This is the 7th quarter in a row with a substantial EBITA increase. Every company out except 1 increased the profitability. Every company except to increase their EBITA in spite of the pandemic. Revenue growth, of course, impacted by COVID. We have started our M and A activity. We have a very strong and further improved financial position. So we feel very well positioned for profitable growth forward. And my last slide, if we move over to Slide 15, repeats our financial targets, where we're aiming to reach SEK 3,000,000,000 for the ROTHES Group. To be able to do this. Again, a margin expansion, operational excellence, organic growth will not be enough. We need also to make acquisitions. The acquisition market is tough. It's very high valuations. It is difficult to perform the important management meetings, etcetera, etcetera. But we are going to make this, but it will not be as in the slide that we will grow in acquisitions with a certain percentage each year. This is an opportunistic game where some years, we will have very fast growth and some years flat growth. And that is my experience also from previous previously in my career with Lotto Acquisational Growth. So with that, I would like to open up for any questions. Thank you. And our first question comes from the line of Matthias Lundberg from SEB. Please go ahead. Your line is open. Thank you very much, and good morning. Congratulations on a good quarter. If I may, I have a couple of questions related to operations and then a few technical ones. First off, I'm a bit curious about the state of the stores in Norway of Plantarsen. Are these things closed? Or what's the outlook on that? Yes. We still have stores closed in Norway. I think it's a lower number than it was in so the situation has improved, but we still have, I think, 6 stores entirely closed, but also reduced area. So we can't exceed, I think it's 200 to 250 square meters in the stores. My forecast about this is as good as yours. It's as you know, the Norwegian authorities take the pandemic seriously. And it's up to them and their judgments on when these stores are going to open up fully. Okay. But would it then be reasonable to expect that there would See a bit of an impact on sales then, I guess. But Yes. Yes. I mean, we don't have everything open as we speak. Great. Thanks for clearing that. And I wonder if there's any update on the forward looking business mix effect from the different segments in TLAP, if there's any change to expect how that business unit will go moving forward? Well, we're not in a situation where sort of wind power has gone out of fashion. It's the opposite. And if you watch the Q4 report from Vesta, you could see that their sales was actually shrinking in this Q3, but they have an outlook which is quite positive for 2021. There is a generation shift, the turbines are getting larger and larger. So the wind market is here to stay and will continue to grow. That's for sure. But it's also important for Diea to explore new applications for lightweight constructions, which will be very important for electric cars, for instance. The aerospace industry, which also have been down, but will come back if not to future for the debuts we have. It will continue to grow. One market which is important for Dieab that is growing a lot is Marine, the Marine segment and also part of the industry segment is growing. So we are not at all worried for Diab's future journey. That Q1, many things come together and EBITDA was down. Roger, thank you. And just the Cosmetelli question, the acquisition of Yes. Will that be reported separately or in the health system? It will be reported separately. So you will be able to follow that in our Q2 report. Great. And last one. Could you perhaps walk us through a bit around the cash balance, how cash has moved during the quarters. So I thought, Candid, is it good because I thought that net cash position would be a little bit higher now in Q1 and what it was. Yes. I will leave this to Jurgen, but in the net cash position, the roughly SEK 1,000,000,000 for the shares in Dun and Bradstreet is not in that. But I leave over to you, Jonas. Yes. Well, we have in the parent company, we have in cash now SEK 2,300,000,000 as we said earlier. And then we have starting to lend from centrally SEK 1,300,000,000 roughly to these companies I mentioned earlier. So without sort of the lending activities, we would have actually a cash position in ROTHOS AB around maybe SEK 3,600,000,000. So that's has a big effect on the cash for Atos AB. To the Ratus Group leverage, which we in the future will talk more about rather than sort of the cash position in RAPOS AB. That will be quite irrelevant over time. Our financial the targets, Matija, please, to have a net debt for the sorry, a leverage for the group on SEK 1,500,000,000 to SEK 2,500,000,000 so we will move in that direction. And to be honest, the sooner we can come there, the better that is. So we don't want to it's not a good return on the cash if it's not working. And then, of course, we have the investment in Dun and Bradstreet shares, and that amounts to roughly SEK 900,000,000 today. And so that is it's not in cash, but it's in these shares, of course. Great. Makes sense. Thanks. That was all for me. Okay. Thank you, Matthias. Thank you. And there are no further questions at this time. Please go ahead, speakers. Yes, we've got a question online here in Swedish. The question is, if Ratatos going forward will finance the companies where Atos is not owing more than 90% of the shares. Let's see here. If I start with that part of the question. Yes, and Ledyl is a company where we don't own more than 90%. So the answer on that is yes. We want finance companies that we are the minority shareholder in which basically is only able today where we represent 49% of the votes and 32% of the capital. And the second but we will look on each company individually, and we will do this over time. And the second part of the question is, what is the advantage for Ratus in relation to instead increase the equity. And the answer is that we want our capital to work as there is no good interest rate on having a cash in the company. So instead of paying interest rates to banks, getting 0 for our cash, we think we should let the capital work. And then we have no further questions. Then again, I want to thank you all for attending this in spite of the fact that it's almost a holiday here in Sweden. And I take the opportunity to wish you a great weekend and looking forward to talk to you again during Q2 and our Q2 report. Thank you very much. Thank you. Bye bye.