Earnings Call: Q3 2020

Oct 22, 2020

Good morning, everyone, and welcome to today's telephone conference where Raffles' CEO, Jonas Lindstrom and CFO, Jonas August, will present Rathes' report for the Q3 in 2020. After the presentation, a Q and A session will follow. A recorded version of the telephone conference will be published on our website after the call. With that said, I'd leave the word over to Jonas Vester. Thank you, Helen, and good morning, everyone, and thank you for joining this call. Well, it's raining outside here in Stockholm, but actually in Rathes, the sun is shining. I think we have the best quarter so far in Rathes during my time and as far back as I can look. During the quarter, the EBITA grew with 28 percent, rolling 12 months 60%. Our cash flow is much stronger. Our leverage is down significantly from 3 to 1.4. I think all companies, except L'Adiel, is in a positive trend. Corona effects has been diminishing in the quarter. And the company who had the strongest tailwind from Corona Plantation is growing 11%, which is a growth good growth number. But compared to 25% in Q2, it's, of course, lower growth. But Plantarsen, I think, is the company I'm most proud of in this quarter because their sales is up EUR 77,000,000 and their EBITDA is at EUR 89,000,000. And I'm coming back to the reasons why Plantation has been so much more profitable for sales later on in the presentation. So now let us move over to next slide, where we comment the quarter. The net sales is up just 1%, I say. The reason for that that the growth pace is down is basically Able and Hent. I'm coming back to the reasons for that, but Able is in an earlier phase in their project portfolio compared to last year. The net sales is affected negatively from the currency and so is the EBITDA, both with 6%. The cash flow, again, is much stronger, of course, better earnings, but also to a great extent increased focus on working capital. The improvement was foremost driven by DIAB, HENT, HL Display and again, Plantation. This makes our financial position much stronger. I could claim that we have a total leverage today, which puts us in a good position for next step in our growth journey. It's down to 1.4, as I commented in my introduction. And today, I believe that the extraordinary general meeting will decide to reinstate the dividend of SEK 0.65. Rados will repay the governmental grants that has been received in Sweden related to the COVID-nineteen situation. Let's move to next slide, where we are looking at the Ratatos Group, including our Headquarter and Transactions in the mother company. Well, the operating profit is lower than last year because last year, we divested our property here. If we adjust for that and the fact that we have had some costs for the Bismode transaction and some changes in staff, the result operating profit for the group is actually up 25%. The adjusted number is 4.31% compared 4.31% this year compared to 3.45% last year. So it's also very good result in the Ratatos Group. And if we look at the earnings per share, it's actually up from EUR 0.18 to EUR 0.64. So good, good very good growth in earnings per share, again, excluding the divestment of the real estate. And if we look at the profit after tax, we also have some EUR 100,000,000 in costs for the divestments in Bisnode due to revaluation of financial instruments in the Bisnode group. We got a much better price for the divestment than we thought. So good news also for the Ratatos Group. So now let's move over to the COVID pandemic, which we unfortunately continue to talk about all over the world. First of all, the impact in the 3rd quarter was minor. I would estimate it to a negative effect of some SEK 15,000,000. It's hard, of course, to have an exact number on this. Government support amounted to approximately EUR 24,000,000, which we would pay back. Negative impact from COVID, mainly in Able and Lidil. Lidil is the company in the group that has had the hardest hit from corona. Biznode, the HAND, HL display and TFS are all affected also by COVID, where but the negative impact in Air Team and KVD and speed is very small. And we have a positive impact in OAIS and Plantation, although it's smaller than it was in Q2. Again, we focus on health, safety and liquidity and EBITDA in that order. I must say, I'm continue to be impressed by the way the management teams in our companies has handled the pandemic so far. So with that, I would like to hand over to my dear CFO, Jonas, to talk about the leverage. Thank you very much. So we move to Slide number 5, and we look at the leverage. And if we look at leverage level in Q3, it continued to decrease in the quarter, and we ended up at 1.4x. That was down 53% compared to the same quarter last year. And if we look at some of the portfolio companies, we saw good leverage levels in, for example, Diap at 2.5x in the quarter. HL Display was at 1.1x. And Plantation, where we have seen very high levels in the past, we were down at 3.7x in the Q3 this year. If we look at the leverage and also include the effect of IFRS 16, we were at 2.5x in the Q3 this year. We saw flow operating good operating cash flow in most of the portfolio companies in the quarter. And coming back to Plantation, where we have seen a very good performance, we saw lower leverage, as I said, and we saw improved EBITDA in the quarter, improved cash flow, which we've compared to the same quarter last year, and we also have a solid cash position in the company. If we look at Ratos AB, we have net cash position roughly SEK 1,200,000,000. And we also have, in addition to that, a loan facility of SEK 1,000,000,000, which was unutilized in the end of the quarter. So I move back to you then, Jonas. Thank you. Thank you, Jonas. Then let's take a look into our company group and starting with Construction and Services. Able. Able is down 6% in sales and even more in EBITDA. COVID is affecting Able, but the real the main reason, I should say, for lower numbers is that the large projects in the project portfolio is in an earlier phase than last year. We've seen the results successively gradually been better for each quarter, and I expect this trend to continue. The backlog of orders at the end of the 3rd quarter is roughly SEK 13,000,000,000 and 40% is related to wind and electrification of offshore platforms. So able, positive trend there. Air team, great improvement in sales and in EBITDA. I'm very happy with the development of this company. Denmark has always been strong. It's even stronger now, but it's also satisfying to see that Swedish operations is improving, both from profit level and profitability level. Hence, activity at the construction sales sites are continued to be constrained through COVID-nineteen. Sales is more or less flat. EBITDA for this period was impacted positively by a release of provisions for bad debt. I think it was roughly SEK 9,000,000 affecting the result positively. Cash flow was positive during the period, and the management continued to focus on liquidity for Helm, which is very strong. Impressed by Speedgroup, great improvement of operating profit. We used to talk about the turnaround program we had in Q2 2019, well, that is no longer in the numbers. So the profit increase that has been done here is actually efficiency measures implemented after this program. Upon this positive increase of both profit and profitability, a new a very important contract, long term contract was signed with an existing client during the quarter. So operations feels very stable in Speed Group. Let's move over to Consumer and Technology. I'm not going to talk so much about biz node other than to say sales was affected by COVID-nineteen as the marketing solution especially was negatively affected by COVID-nineteen. Creds and Risk is doing well. And they also secured a number of good contracts in Credit and Risk during the quarter. KVD, sales increased 4%. We saw a positive trend in the second half of the quarter with a higher inflow of cars. So continued good development in KVD. OAIS Outdoors, again, a company that has been actually in the third quarter and also during the second half of the second quarter positively affected by COVID-nineteen. There is an increasing interest in camping and outdoor life. And this is the reason the main reason they also introduced a new platform last year, a new generation of TENS. But this, together with the increased interest in OUTRO Live, has boosted the sales 34% up, profit up also significantly. And coming back to Plantation, growing 11%, But Plantation has been a much more efficient company than it was just a quarter ago or 2 quarters ago. We divested, as you remember, Spia, but we have also lower costs for logistics. We have lower staff expenses and other costs, and we have increased gross margins. So EBITDA is actually growing in 1,000,000 faster than sales is, and that's a very good performance of the management team and all the employees in Slandarsha. With that, coming over to Business Area Industry, starting up with Dieab, continue to grow very strong. Diab has increased production capacity, especially in the material PET. We have a good demand in wind, especially in China. And with the new production of pet, we're gaining market share in this segment. We have earlier said that the Marine segment and the Aerospace segment is very weak. Well, in this quarter, the Marine segment noted signs of recovery actually during the quarter, where Aerospace still is slow. I think we're down 90% or so in Aerospace. HHL display, a company that also is negatively affected by COVID, net sales decreased. Organic sales decreased with 2%. But despite the lower net sales, both EBITA and EBITA margin were strengthened, not the least to good efficiency and flexibility in the production and continued good cost control and a good product mix. I'm happy to repeat how impressed I am about the different production facility when it comes to cost efficiency and flexibility during these difficult times. L'Adeil net sales declined by 22% during the quarter. This is the company that is affected the most from COVID-nineteen. It's impressive that they still, with this decrease, can do a profit margin around 20% in the company. We see signs of recovery in the order intake during the Q3. Last but not least, TFS. We implemented a real cutting cost cutting program in the last quarter last year, Q1 this year. This has had a great effect on the EBITDA, but the Q3 result is also boosted by release of provisions in projects that now are finalized. GFS has had a hard time with corona with difficult to get access to clinical trials in hospitals, but this looks a little bit better now in Q3. So all in all, we're very happy with the Q3 results. 9 of 12 companies showing EBITDA improvement. But as I said initially, I think it's only the deal that are really suffering now and is still in the negative earnings trend this year. We have increased cash flow in most of our companies, and our financial position is much stronger. We're reinstating the dividend. And last but not least, after the end of the period, we signed an agreement to divest our holding in this node. And this is a very, very important step for Ratus Group coming forward. First, we have reduced a lot of risk divesting Bismog. We were strongly dependent on Dun and Bradstreet's goodwill to keep on having us as a reseller. Secondly, it gives us cash to start our growth journey and our 5 year plan that we will come back to when we will do add on acquisitions, creating synergies, maybe also acquire new companies that have a relation to our present group of companies. So we feel happy. We have a strong financial position, and we have a company group that is more stable than ever. Thank you very much. Thank you. And operator, now we would like to open up for potential questions, please. Thank Our first question comes from Derek Low Liberte from ABG. Please go ahead with your question. Yes, good morning. I was wondering if you could provide a bit more color on the outlook here given that you have taken quite a few measures with regards to costs and efficiency improvements boosting the margin here. I think how much do you think sales can grow next year? And how much further potential do you see in the group EBITDA margin? And also, how are you thinking about your preparedness if this second wave of the virus turns out to be quite severe? Thank you. Good morning, Derek. That was a number of questions. We've decided not to give outlooks, but I can say that we I think we benchmark our companies versus their peers. And for us, a good profitability is if you have a better profitability than your peers. We are not there yet. We are there with 2 companies, but we will continue to improve gross margins sorry, EBITDA margins, and we will continue to drive organic growth. The new thing is that we will also start to focus on acquisitions for those companies who have a good platform for that, a good platform in terms of stability and profitability. It's very important to have this platform when you're bringing in new companies. And we have a number of companies who has reached that position even though they're not yet profit leading in their peer group. When it comes to COVID-nineteen, yes, there are worries for a second wave. And we are still in COVID-nineteen mode in Ratatos AB, where we do liquidity forecasts every 2nd week, where they do the same in all group companies. And I'm I've been very impressed by the measures taken in the COVID pandemic. So I think we're very well prepared for a possible second wave. Thank you. That's very clear. And just to follow-up on the focus going forward here, given the strong financial position, especially after the completion of the Bisnode transaction. You already mentioned this, that it's you're going to focus more on acquisitions. But when it comes to any potential new acquisitions, are you focusing on any specific sectors here? I know that you have some sectors for your existing holdings already, but they are quite broad. So is there any specific focus here? Thanks. No, not really. But of course, we want if we do potential new companies coming into the group, We I'm almost certain that they will have a relation to our other companies in the group. But again, the add on acquisitions is the main focus. That's very clear. And then my question on the dividend here. It's mainly, I guess, a technical question and maybe it doesn't really matter. But you came out with the reinstated dividend for 2019. I was just sort of wondering how that is possible given that sort of the I'm not sure about the English term, but the funds are balanced as of 30th June. So I would think that that dividend should be placed on 2020 rather than 2019. I'm not an accounting expert, but wondering if you have any comments on that. Thank you. No, I have to admit that I'm not an accounting expert either in that case. Now this is the dividend for 2019, and we communicated in the spring that we would come back with a decision if we should release the dividend or not. So that was communicated in April or May, I can't remember. And we did come back, as we said. And since we have this strong development of the Ratatos Group, the board decided to recommend that and especially as we paid back the support for furloughs that we have received in Sweden. All right. And just finally on Lydil, you mentioned that you are seeing signs of recovery with an improved order book. Also seem to notice with Le Della, the market growth seems to have come down rather quickly. Do you know or why is this what's going on in this market for secondary optics? Thank you. A good question there again, Derek. I don't think it's only market down for secondary optics, but also for luminars and the whole lighting industry has been affected by COVID-nineteen. And that is mainly in the indoor lighting projects. They don't want to perform that in the COVID-nineteen times. Exterior lighting, like street lighting, etcetera, has not weakened so much, but the indoor part has been down, not only for secondary lighting, but really also for the clients of the deal. That's clear. Thank you. And that's all from me. Thank you, Derek. Thank you. Our next question comes from Mikhail Lovidel from Carnegie. Please go ahead with your question. Yes, thanks. Hi. Just one sort of broader level question here. Given what you have experienced now during the pandemic, but also before that, maybe that some of the holdings have had a bit too much leverage. How now that you will eventually put the Biznode money in play, how will you reason when it comes to leverage in new acquisitions? Hi, Mikael. It's a very good question. I don't really want to say that our step 1 is over because we will sort of continue to work with the profitability, as I mentioned. But we are shifting step now into step 2, where we will focus on acquisitions. It's a tough thing because you need to make good acquisitions. And it's very hard to plan that in March, we should do we get the money probably in January next year. So we are discussing a financial target in the Board of Directors about what kind of leverage should the Ratatos Group have. And there is no we will release those number later this year. But I think I can say that we want to be a net debt group. So and we think or I think, I should say, that a leverage with EUR 1,400,000,000 excluding the leases is a 2 leverage. So maybe around between EUR 1,500,000,000, 2.5, something like that, but we will communicate that later. And that is, of course, an over time target. I mean, we will be have a lower leverage for sometimes and a higher leverage maybe after an acquisitions, but that's the kind of guiding I can give you right now. Okay. Then on the Bisnode transaction, maybe I have missed some information somewhere. But could you say something about what could I mean, obviously, the deal will probably not be closed until Q1, and there's competition authorities that have its saying and so on. But can the financial pieces of the transaction change in any way depending on how Dun and Bradstreet performs, how that share price performs, for instance, or the business operational performance? And also touching on that regarding Dun and Bradstreet, the 25% of the payment you would receive in the shares, how is that a fixed number of shares? Or can that change? Well, the last question, is it a fixed number of shares? Yes, it is. And the number of shares were decided, was it 14 days before signing the SBA? I'm not sure of the number of days here, Mikael, but it's a fixed number. It was decided on the share price the nearest time before the SPA was signed. Your first question, well, the SPA is signed. And if the competition authorities approves this, which we very much believe, that's the only thing that this deal is about. We are happy, and we look forward to cooperate now even closer with Dun and Bradstreet. I will take part in their advisory board for Europe. We believe there are massive synergies, both on the revenue side, but also on the cost side with this deal. So we think this is a good investment, and we like what Down and Bradstreet are doing. I've gained a lot of confidence for the management team and the Board of Dun and Bradstreet. They have a very good track record, and they've done great things with Dun and Bradstreet since they took over the company some time ago. Is it possible to get that number of shares? Yes, it is. I'm getting some assistance here, Michael. It's 4,358,002 57, so 4358257. Okay. Thanks. And then lastly, on Bismow, the Belgian operations, how is that process going? Was that or has that the divestment process just begun? Or how do you see that going? This operations will probably not be divested before the closing of the deal in if it's in January or December, I don't know. But we are now digging in deeper to the Belgium operations than we have done before. So actually, we it's not only business people there now, it's also Ralfos people down in Belgium right now. Okay. Okay, thanks. That's all for me. Thanks. Thank you, Michael. Just as a final reminder, if you do wish to ask an Okay. There appears to be no further questions. So I'll hand back to our speakers for any other remarks. Okay. Thank you so much for attending this call and for all the good questions, and looking forward to talk to you all again. Thank you very much.