All right, it's 4:30 P.M. Good afternoon, everyone, and welcome to Troax Group interim report for the second quarter. My name is Martin Nyström, and I'm, since first of June, President and CEO of the group. Together here with me today is Anders Eklöf, who's the CFO, who will help me to present the numbers for the second quarter. We will make a short presentation of the quarter, and we'll start with the short presentation, and afterwards, we will end up with an opportunity to ask questions in a Q&A towards the end of the call. Without further ado, we will get into the quarter for us. If I summarize or if we summarize the second quarter, during the year, our order intake grew by 6%.
We grew despite some continued market headwinds. The order intake grew in total by 6%, and that was supported by acquisitions of 9. The revenues grew by 5% in total, where acquisitions was 8%. We experienced a mixed demand picture in the quarter, with the different regions developing in different directions, and I'll come back to giving some more light and shedding some more color to that, in the next page. But notably, we had a positive development in the U.K. as well as in APAC, even though that was from low levels.
I think despite the market headwinds, and also some higher SG&A costs during the quarter, mainly a one-off nature, I think we showed that we have a resilient EBITA margin despite the lower volumes, and the EBITA margin ended up at 16.8% in the quarter. Also, I think, which is positive, is that we had a solid, operational cash flow, which gives us continued strength, and our balance sheet continues to enable both acquisitions as well as organic investments. And we were now at a net debt to EBITDA ratio 1.1.
Also, notably in the second quarter, which I think we are happy about, is that we, after the second quarter, we have now signed and closed the acquisition of our Czech Republic distributor, which enables us to grow further in Czech Republic and continued growth in Eastern Europe. If we then take a look at the market, and this is year on year, so quarter two organically, and this picture shows the different segments that we're in, the main ones. So we have automotive, warehousing, construction, process industries, food, pharma, and in fact, we do serve a lot of industries, and that's what you'd find in the other other column. If we then look at the different developments, so we've sorted the development into areas where we see growth, areas where we see...
where we're somewhere hovering around zero, either a single-digit decline or a single-digit increase. And the orange arrows represent areas where we see a steeper decline. And equally, on the positive side, the green arrows represent a positive development. So if we go a bit into the different market regions, so in Continental Europe being our largest geographical segment, we had a positive and good development in automotive. Our warehousing continued to be flat and stable, although at a lower level, comparing to the peak years we experienced before, mainly 2021, 2022. We see the construction segment developing and declining, and we have a process is stable, and we see a general weaker demand from other industries. So all in all, in Continental Europe, we experienced -4%.
For North America, also, also, with the negative growth of 5%, also here, we see we had good development in automotive, while the other segments were pretty flat. The Nordics, we, as we similarly to quarter one, we also had a decline, and we see when we compare year-on-year, that the construction industry, and this is mainly new production, property, is, it was a bit weaker in the quarter, as well as general demand in the other industries. So Nordics has an order intake year-on-year, -12%. UK, as mentioned on the previous page, had a 15% increase, and we saw good development in the warehousing segment, but also in the process as well as other segments.
So all in all, a very good and promising development during the quarter in UK. And last but not least, we had a good 9% order intake growth in new markets, where APAC was the main driver for that. So all in all, this then takes us to a -3 organically in the quarter. If we then look to our order intake, we went from EUR 65.4 million to EUR 69.6 million, +6%. And if we look to how that's distributed, we had -3% organic growth and 9% on structure. I think overall in the quarter, given the market conditions and the circumstances, I think we should be pleased with the -3% organically. And of course, it's also good to see our latest acquisition, Garantell, contributing well to structure and top-line growth.
If we move to revenues and revenue development, we got from EUR 68.5 to EUR 71.9, so that's a 5% increase, minus 4% from organic growth, and acquisitions stood for close to 9% growth year-on-year. Also here, I think we should be, given the circumstances, reasonably pleased with the quarter. Moving over to the EBITA development, where we reported 16.8, that represented -7% development. Here I'd like to say that we have a dilution from structures, our latest acquisition, Garantell, which impacts the like for like comparable with -0.7% in the quarter. We're also impacted by lower organic volumes, which leads to under absorption in some of our production units.
Also, we had higher sales and admin costs, and here I'd like to point out that the lion's share of this is of a one-off nature related to specific customers and warranties. So it's not something that we would see being repetitive in that sense. Also, I think it's good to see in this environment that we're having a sequential improvement from the first quarter. So, after hitting the key points on the P&L, I'd like to hand over to Anders to take us through some of the key financial developments.
Thank you very much, Martin. On the right-hand side on this slide, you can basically see what Martin has already mentioned, so I will not spend some time on that. But in total, you can see that our order intake is up year-on-year 6%, and revenues is up 5% year-on-year, including acquisitions. If we look on the left-hand side of the presentation, net debt versus EBITA is up versus Q2 of last year, from 0.7 to 1.1, and that is driven by the acquisition of Garantell that we made in December of last year. And also, the adjusted earnings per share is down a little bit from prior year.
It was EUR 0.16 in Q2 of 2023, and it's now, in this quarter, EUR 0.14. Next, please. Working capital development is something that is new to you, but it's showing we are measuring ourselves when it comes to, you know, the controllable working capital, meaning accounts receivables, accounts payables, and inventory. And you can see the comparison to Q2 of last year, where we had, you know, EUR 57.6 million in working capital. We are slightly up in Q2 of this year, 2%, so very stable, I would say.
We also make a comparison towards the sales, and here you can see that we have decreased a little bit in comparison to the sales number, from 21.1% of sales in last year to 20.5% in this year. So overall, I would say a very stable and a solid working capital structure. Next, please. Net debt development, I already mentioned that it's up. Usually, you have been around for quite some time now, you see that net debt tends to go up in Q2 due to the dividend that is made in early Q2 of every year.
So, still, 1.1 is very, I would say, on the low end, so we have a robust balance sheet for future expansion. Next, please. And last but not least, operating cash flow. Cash flow for operations is a little bit down, compared to Q2 of last year, but sequentially it's significantly up. And I can say the driver behind the decline compared to Q2 of last year is that in Q2 of 2023 we had a decrease in working capital, and in Q2 of 2024 we had a slight increase. So that's basically the change between the quarters year over year. But again, it's a good sign to sequentially increase the operating cash flow. And then I think I hand over to Martin again.
Thank you, Anders. Then, to conclude the presentation part, again, coming back to the summary, we see the order intake growth, despite some headwinds organically, and which has then been compensated by structure. That goes for both top-line roles. We see different segments and different markets developing slightly differently. Some more positive than others. Generally, I think we experienced a pretty stable but lower activity and demand level during the second quarter, similar to what we saw in the first quarter.
We had resilient EBITA margin despite the volumes, and we continue to deliver a solid operational cash flow. With that, I'd like to remind you why we exist and our purpose, which is caring for everybody's peace of mind and everyday safety, and that's what we're committed to delivering to our customers every day through our product offering in machine guarding, warehousing, property protection, as well as active safety. With that, I'd like to get to the Q&A session, and if you have a question, please raise your hand. It's the symbol up to the right, and then I'll unmute you one by one. So we will start with Gustav Berneblad.
Yes.
Hi, Gustav. Hi, Gustav. We'll make a new try.
Hello. Can you hear me now?
Absolutely. Loud and clear.
All right.
Hi.
Perfect. Hi. Maybe just to start off here, very clear with all the arrows and so forth, but with the automotive investments, both pointing green in the U.S. and Europe, I mean, looking at this development and also looking ahead and what you see in the pipeline, is this a demand trend that you expect to continue also going forward, or how do you view it?
I think in general, we have we were a bit fortunate with our customer base in the second quarter. I, I'm not sure there is too much conclusions to draw from automotive more in general. I think when we look at our customers' activity and plans and projects also going forward, I think we have a robust pipeline and demand, regardless whether it's for combustion engine cars and passenger, or if it's EV. So I think from that point of view, we're we continue to see good good demand from that segment and those customers.
Yeah, okay, perfect. And then maybe if we jump to housing and construction in the Nordic. I mean, if we sort of assume that it's bottoming out now or so, how many quarters would you say that we still should expect this negative trend for you, given your sort of late cyclicality?
Yeah, I think a good way to look at that is you can probably look at apartments started up, and then the build cycle would be 18-24 months until we get into the chain. So, if you look a little bit to just to start building of apartments, it's... So that means if you translate that into slower start of apartments, mainly in Sweden, you'd probably see we won't see an improvement in, or a material improvement from that point of view, during 2025, at least. So, and probably also 2026 will be impacted.
That being said, Gustav, I think there is also the renovation piece, which then follows a little bit of a different, you could say it has a different dynamics and is more stable, and that's also a significant part of our property protection business, especially in the Nordics and Sweden in particular.
Yeah, okay, that's clear. And then maybe just the final one here for the automated warehouse. I mean, you have predicted, or at least Thomas has previously, of a recovery late this year, early next year. Is there something that has changed there, or?
Yeah, not really. I think we're pretty much on the same, very much on the same page with Thomas on that one. I do think, though, that the market activity as such is starting to be recently. So the market is starting to become recently active in particular countries. We saw that in Q2, that there are pockets where it improves a little. That being said, I think we're still very far away from the boom years 2021 and 2022, where we had a lot of the customers making significant investments. So it's the recovery this time is a lot more cautious than what we saw back in a few years back.
So, I think overall, I share the picture presented previously.
Okay, that's perfect. Thank you very much.
Thanks, Gustav. And then I will try to say the next question would then be from SZZZZno. Try to unmute you as well.
Can you hear me?
Wonderful. Loud and clear. Hi, Zino.
Perfect. Hello, Zino from Handelsbanken here. So, thanks, Martin and Anders for the presentation. I would just start off with a follow-up. You have, or at least, your predecessor has talked about some large orders from the automotive in North America, and we would see some of those orders probably coming back sometimes after summer. Would you say that that has changed in any sense?
No, it has not changed in any sense. If we look at it from the perspective of first half of the year, so H1 versus H2, I think we will see we will most likely stick with our view and guidance on that, particularly so in North America.
Okay. And, in the last conference calls, there were also some, some talk that request for quotes had come up, particularly towards the end of the quarter, and you say now that it is some more activity. Would you say that it's more towards then, so to say, larger projects, or does it's more wide across your customer base in those pockets, or is it singular customers?
I'd probably say it's. I think it's a mix of somewhat larger projects as well as a volume of projects as well, even though they might be smaller. I would say that it's more specific customers in specific regions where we see a bit more activity, rather than something that is across the board, so to speak.
Okay. On a similar topic, where you highlight that customers are cautious due to macro factors, and one of them have, of course, been interest rates connected to inflation. We've seen that coming down now, but on the other hand, a risk for an economic recession has increased. How would you think about the combination of those two playing out regarding customer projects?
I think, first of all, it's a super good question. I think we see that, after we take some of the political risks, I think we see that there would be signs of decision-making starting to take place. Of course, we have a main election coming up in the U.S., which might be impacting how our customers think and place orders and how eager they are to move forward fast. At the same time, I think, if we look at the main customers and the main projects in there, I think there's also a need to invest.
And some of those investments might either be driven from demand and that there needs to be new capacity. If we take automated or warehousing is a good example of that. But there might also be investments that are in that sense unavoidable. So even if the customers are experiencing higher interest rates and a slightly lower activity level at their end, might even be positive from our point of view, in terms of that it's a good time to make some of those investments. So it plays out a little bit differently in the different segments, I would say, and also varies a lot by customer.
Hopefully, if we see the interest rate stabilizing a little bit, we might get into something that, that is generally a little bit more positive going forward. But, based on Q2, I can't say that we, we have experienced that, so that's more of a hope from my end than anything else.
Okay. Very good. And just lastly from me, can you give some more context to that EUR 1 million one-off in the SG&A? Regarding-
Yeah
... was it, how did you see it amongst how many customers was this geography based on geography, as such?
Yeah. No, it's this is mainly related to some how would I put it? Old sins, mainly in the US. So it's sorting some warranty claims, not many, but material. And to that, there is also some cautiousness on bad debt, which might be recoverable, in fact, but it is now in Q2.
Okay, I understand. That's all for me. Thank you.
Thanks, Zino. We'll move over to Anna Widström. Soon you'll also be, have an open mic, Anna. Anna?
Hi, Martin and others. Hi, Kevin.
Hey, Anna. Hi.
Hi, good.
Wonderful.
Okay, so a few questions from my side as well. The first question is regarding pricing. I'm thinking, given the lower, lower volumes that you have, how is your pricing currently? Are there any increases or decreases?
I'd say in the second quarter, sequentially versus the first quarter, I would say the price level is very stable. More than anything else.
Okay, great. Looking on the market mix, does that affect profitability for Troax? For example, is there a negative effect on profitability as the Nordics and Continental Europe are slightly weaker, while we see North America, for example, being a bit stronger?
I'd probably say, I wouldn't say that's at this point material, given the changes.
Mm-hmm.
Anders, would you like to chip in on this one a bit?
I wouldn't. I agree with you, Martin. There are no material changes in profitability with this shift in markets, in geographical markets.
Okay, great. Could you tell us a bit on how Garantell is developing, what the focus is for this business, short to midterm?
Yeah, no short term, absolutely. Short term, first of all, I think the development in Garantell has been, I would, in my opinion, very, very solid given the difficult market, the market development, which is at the low point. So I think given the circumstances, Garantell is continuing to develop well. When it comes to mid longer term, we're in the process of making them a Troax Group citizen, i.e., how we collaborate inside the group, how we get the offering all together in a smart way, sharing and learning best experiences, and of course, also getting relevant processes and ways of working a bit closer together.
But that's a journey that we have embarked on since we closed the deal in December, which would hopefully be both beneficial for collaboration, but also for eventually some financial results and profitable growth.
Okay, great. Looking into other new territories, such as Active Safety and data centers, and so on, what is happening in these areas, and how is the activity level?
Yeah. Active Safety, there's a lot of interest in that. I think we've built a solid, good pipeline, a lot of relationships. That sales cycle is a little bit longer than what we're used to when it comes to our traditional offerings. So I think we're starting to, we've done a lot of good things and have a lot of activities, and my hope is that we will start to see some more, some more and more material conversion going forward, without being able to be more specific on exactly how much and by when. But generally, I think it's developing solidly overall or even good.
If we move to data centers, also a lot of activity and I think some good progress made in terms of our readiness to take part in that market, and that's also something I'm very optimistic about. If we take it for the midterm, you could say. I think an area where I think we can in which we should be and also help growing the Troax Group.
Great. And my last question is on M&A, because you mentioned a good appetite for acquisitions. Could you maybe remind us of your focus, and if there is additional risk for continued dilution on operational profitability in new acquisitions, or are there possible targets with similar profitability level as Troax had ahead of Garantell?
Yeah, I think on the acquisition agenda, it ties very much back to our strategy, which then continues to be making core stronger, and help consolidation where it makes sense in our different regions. I think we're also looking to expand the product portfolio and offering a little bit in a few different areas. To that, I do think that there might be more to do on the acquisition front on Active Safety as well. So I'd say those three areas are still of interest. Margin-wise, I do think that we're aiming to be selective when it comes to acquisitions.
I think from a margin point of view and dilution point of view, we would most likely aim at least at the level where Garantell is and preferably a little bit better, if possible. It depends a little bit which targets and companies we acquire and where they are on their respective journey at the time when we might strike a deal.
Great. Thank you. I'll get back in line.
Yep. Wonderful. Thank you, Anna. Then it's time to try to let Simon Jonsson in. The line should be open, Simon?
... Can you hear me now?
Wonderful, Simon. Hi.
Excellent. Hello, Martin. Yeah, just to follow up on the one-offs, how confident are you that there will be no similar costs in H2? Or is there any other types of costs you could flag?
When it comes to the customer-related one-offs that we have now in Q2, I think we are, at this point, not aware of any skeletons in the wardrobe, so to speak. So from that point of view, I think we feel confident and comfortable that we won't have a repetitive, this is a repetitive thing. I think it's isolated. So that would be that would probably be my view on that. Then I guess it's difficult to promise what the future holds, but I think we're good from one-offs when it comes to this type of one-offs.
All right.
You shouldn't, you shouldn't be expecting these type of one-offs as a recurring item in our, in our result.
Mm-hmm. Thank you. And next, also to follow up on Garantell. How is Garantell really performing? I think Thomas talked about around EUR 30 million in sales, and if H2 would be similar to H1, I think it adds up to EUR 25-26 million.
Mm.
Suggesting a decline of around 15% organically. So maybe you could talk about that organic underlying performance a little.
I think Garantell is. If you look at Garantell, it's very much exposed to warehousing, and to some extent, also property protection, and to some extent, machine guarding, in our language. I think Garantell is performing equally as the group overall when it comes to these market segments, and I think it's very much in line with the market. So, I'm not sure I've fully followed your math, but Garantell is, from a year-on-year comparison in the single digit decline, ordering taken sales-wise, if we compare to 2023.
Okay, and then finally, so I'm struggling a little bit how to read your comments on the market. I think in one way you're talking about sort of how pleased you are with only declining 3% organically, which suggests that the market is very challenging, and at the same time, you talk about some good activity in key areas. So perhaps you could elaborate a bit on what you expect here in the coming quarters.
I think we're... I think you're right in saying that our marketing has been challenging overall in many places. Obviously, we single out the property in the Nordics being specifically weak. I think, though, that in different segments and in different regions and with different customers, we see very different appetite to run projects and also place orders and take our deliveries. So I think the main message is that it's overall, it's still a very challenging market. Hopefully, we'll get to a point where that turns a little bit and helps us instead of where it works against us. Then, I think we so overall, challenging demand situation and a few good bits and pieces here and there.
I think we have had a good activity on the automotive side, which we had in the quarter, which we believe will continue, at least for the near term. And then obviously, we have the construction segment in the Nordics, which will continue to be challenging, for quite more quarters to come.
Perfect. Thank you. That's all from my end.
Wonderful. Thank you, Simon. Then it is Daniel Lindkvist. Now, put your mic off, or on, I should say.
Perfect. Can you hear me?
Wonderful, Daniel. Hi.
Hi. So I can't really let you guys go on the Garantell just yet. So if we just make a really easy exercise, if you just for the seasonality part in the business, in a normal year, which would be the biggest quarter going down to the smallest quarter, everything else equal, not talking about 2024?
Anders, would you mind?
Sorry, can you please repeat the question? Sorry.
Yes, so the question is basically, if we go for the normal size of the quarters, which is normally the biggest quarter in just an ordinary year for the Garantell? Is Q4 the biggest quarter, followed by Q1, followed by Q2, followed by Q3, or is it what type of order would you put them in, in a normal year, just so we get the seasonality? Because I was under the impression that Q2 was a rather fair quarter for the operation, and-
Yeah. I don't have so much history in regards to Garantell, but if I look at the different businesses within, within you know, the legacy of Troax Group, I don't see big seasonal differences. I agree that Q2 is normally a rather strong quarter. Q1 is a rather, perhaps it's usually a slow start of Q1, which means that Q1 is a little bit weaker than the other quarters. But I agree with you that Q2 is, from a Troax Group, as a total perspective, normally a good quarter, and I don't see why Garantell... I don't have the history, but if you ask me right now, I don't see why Garantell would be any different from the rest, so.
Okay. Because normally, I mean, you have slow start to Q1, you have a slow ending to Q4, you have the summer...
Yeah
... season in Q3.
That's correct.
So normally, Q2 would be maybe one of the best quarters, maybe apart from Q4, then, in a normal year. So just to get-
Yeah
... a grasp on it. So, but, so then just looking at the order book conversion, then, I mean, we're used to converting order books in Troax. And with the Garantell, I was under the impression that the order book was even shorter than what it normally is in Troax. And then you had a 7.2 order book going into the quarter. You get some orders normally during the quarter as well. Was the order book longer than normal when you entered the quarter, so we have some that has been pushed into Q3 out of those orders? Or how should we view things, just to get a grasp on it and get some perspective on the Q2 number?
First of all, I can say I'm not aware of any, any, you know, long orders. I mean, so that would shift the order to shipment ratio, so to speak, for Garantell. So, I'm not aware of any, any, any specific changes there.
Normally you would expect the EUR 7.2 to be delivered during Q2, and then some that entered in the quarter, on the normal circumstances?
Yes.
Conceptually speaking, yes.
Yes. Okay, okay. So it was a bit slower with converting the orders for some reason in this Q then, Q2 then?
Mm-hmm.
Okay.
Yes.
Cool. I guess we'll all learn the Garantell business with time, but since everything else was spot on in the report, and Garantell was a bit of the outlier here, we're still learning. So just-
Exactly
... trying to get as much as, as I could from you guys. Perfect.
Yeah.
Then, uh-
I think perhaps, Daniel, to add a bit to Garantell, I think what makes, if we speak about Garantell in isolation, what makes Garantell a bit more perhaps volatile is that the customer base structure and mix, so the mix between larger projects, larger order for a couple of specific customers, that proportion of the Garantell business is a little higher, so that specific customers can have, on the margin, a bit bigger impact than it has on the total group.
Okay. But should we just, as an end to this, should we expect that some of the orders has not been... You haven't lost the orders, so they've rather been pushed ahead, then will be delivered at a later point, then, or what's the best guess?
Yeah.
Mm-hmm.
Yeah. No, that, I think that's, your understanding is good.
Okay, perfect. Thank you so much, and thanks for your time.
Thanks a lot, Daniel.
Thanks.
Thanks. And that was the last question during this Q&A. So with that, I suggest that we end the call. Thanks so much for calling in and showing interest in our quarter report, and see you in a quarter's time again. Thank you, and bye-bye.