Welcome to the VBG Q2 2024 report presentation. For the first part of the presentation, participants will be in listen-only mode. During the Q&A session, participants are able to ask questions by dialing *5 on their telephone keypad. Now I will hand the conference over to the speakers, CEO Anders Erkén and CFO Fredrik Jignéus. Please go ahead.
Välkomna. Then I also welcome you to the presentation of the Q2 report of VBG Group. If we go to the next slide, just a short recap of the three divisions, from left to right. We have the Truck and Trailer Equipment division acting in the truck and trailer industry, mainly in Europe. In the middle, we have the Mobile Thermal Solutions acting in the heating, ventilation, and air conditioning area for off-road vehicles and buses, with a main market in North America. And you will later see that this is the largest division, a little bit more than 55% of our revenues. Then to the right, we have Ringfeder Power Transmission acting in the fragmented mechanical power transmission industry, acting in a variety of industrial segments with components for mechanical power transmission and mechanical damping.
If we step into the Q2 report, Fredrik will later on give you a lot of details regarding the profit and loss and the balance sheet. But let me just comment on a few highlights in Q2. We have accomplished a lot of activities that have an impact on the profit and loss and the balance sheet in the quarter. We continue to grow sales, still in challenging market conditions in Europe, and reached the second-best quarter ever, with an increase of 3%. RPT, or Ringfeder Power Transmission, shows that the strategy to grow outside Europe and North America works. Almost 40% of its business is outside Europe and North America, with close to SEK 1 billion in sales rolling 12 months.
We continue, which to comment on the result, I think I'm really happy to see that we continue to improve our gross margin levels in all divisions through improved efficiency and some price increases. I think one good example is the bus operations in the U.S., where direct labor headcount has gone from 153 in the beginning of Q2 2023 to 81 in the end of Q2 2024, which is with similar volumes, which is a good example of the efficiency improvements we are doing internally. Truck and Trailer Equipment, as you probably know, works both in the truck and the trailer segment. We have seen in the last four or five quarters that the trailer segment in Europe has slowed down really much, but it has reached the bottom, and the forecast for 2024 is a reduction of 30%, going from 266,000-190,000 trailers. It's the market estimations.
When it comes to the result, we usually don't talk about adjustments, but we have had extraordinary costs of SEK 10 million in Q4 for restructuring, both in Ringfeder Power Transmission and Truck and Trailer Equipment. It's also revaluation of balance sheet items and fair values. The EBITA improved from SEK 212 million to SEK 217 million, and also the earnings per share improved by 21%. We have still a high historic demand, mainly driven by Mobile Thermal Solutions in North America. We can also see that the order intake growth has flattened out, but still really good demand, mainly in North America. I'm especially satisfied with the good activities when it comes to working capital management, which result in a strong cash flow. We have an operating cash flow in Q2 of SEK 205 million, and the return on operating capital reached 41% rolling 12 months.
Last but not least, our acquisition, Rathi Transpower in India, delivers according to high expectations, and we are in the process now of increasing sales in our global sales channels. So that was a few words when it comes to highlights in Q2 on a high level. Now, Fredrik, you can give the details.
Okay, thank you, Anders. Okay, summary of Q2: still high demand in North America and within MTS, even if they grow down during the end of Q2. We can see that the demand and order intake are flattening out on a high level, especially in the bus segment. At the same time, we are meeting a high and strong comparable growth for Q2 in 2023. The group's turnover increased by 3% in Q2, and it's the second-best quarter in VBG Group's history turnover-wise. Their organic growth adjusted for FX and acquisitions negative to approximately -6%. The rest has contributed in line with expectations. In North America, sales were a combination of volume in the off-road segment.
Fredrik, may I interrupt you? I think your line is. Can you move to a little bit better position, please?
Yes, this is better now?
Yes.
Thank you. EBITA result increased by 2.4% compared to Q2 2023 and reached SEK 270 million in Q2. We are glad to see that all our activities paid off in a stable, high EBITA margin. The EBITA margin was in line with Q2 2023. Factors that increased the EBITA margins are still high volume in North America and the MTS off-road segment, increased profitability in the bus segment due to, like Anders said, efficiency improvements in production and price increases made during the last two quarters in 2023. Truck and Trailer Equipment experienced still a sales decline in Q2, which is related to the trailer segment in Europe. The trailer segment experienced a steep slowdown compared to the high numbers in Q2 2023. Ringfeder Power Transmission is growing with a recent acquisition of Rathi Transpower, which is developing according to expectations, with a good contribution to the EBITA.
Some segments are slowing down but are compensated by good momentum in the segments of products for the mining, aerospace, and defense industry. Like Anders said, in the quarter, additional around SEK 5 million in cost was taken relating to closing down a distributor and also in restructuring cost for Carlyle Johnson and the consolidation. The EBITA margin amounted to 15.5%. Earnings per share has increased by almost 21% and amounted to 6.71 SEK per share. When we look at the year to date, the group's turnover increased by 6.3% after the first six months of 2024, driven by still good volumes in North America and Ringfeder Power Transmission. The organic growth amounted to 2.7%. EBITA increased to SEK 476 million from SEK 450 million in 2023, and the EBITA margin strengthened to 15.7% compared to 14.6% year to date in 2023.
Earnings per share increased by almost 30% and amounted to 14.54 SEK per share. We can still see, like Anders said, MTS growth that has been the last 18 months has increased their share of total turnover amounts to 56%. And now we can also see that the pace in Ringfeder Power Transmission and the steep slowdown in the trailer segment in truck and trailer has changed the relation a little bit, but still mobile thermal solutions stands for plus 50% of sales and EBITA. This is fairly unchanged since the Q1, but you can see that in line with our strategy to grow outside Europe and North America, we can see that we are having a small step up in the rest of the world, and that's because of Rathi Transpower and also the good growth that we see in Brazil.
We are glad to see that the favorable markets continued on a high level in Q2 2024, even if we can see that it's slightly flattening out in the end of the quarter and that our activities have been successful, which shows in our increased margins. In the first six months of 2024, we have not only increased the results, strengthened the margins, but we have also a good cash flow. The result is the main reason for that, also lower working capital tied up. After Q2, we have a net cash position, and if we adjust for liabilities and leasing commitments of SEK 237 million, even after the dividend payout of May, in May, of the record high SEK 175 million. VBG Group has a strong financial position that can be used to develop the group going forward. Now over to you, Anders.
Yes, just to have a look at the rolling 12 months, we see we are very close in meeting the SEK 6 billion in revenues. We continue to be close to SEK 1 billion when it comes to EBITA, and we can see compared to full year 2023 that our earnings per share increased by 15%. Can step to the next one. Oh, back one.
Well, can you back up one?
Yeah, as I said, we have continued to work very good with our capital management activities, which has resulted in an improved return on operating capital, which is important for our continued growth. Can you go to the next? We continue to deliver activities in the quarter in the sustainability area, and we have a good base of data now for our CO2 emissions for Scope 1 and 2.
Now we will step into Scope 3 with a focus on materials, transport, and waste. We spend also quite a lot of resources to work to comply with the EU regulations, CSRD, and that is following the plan. We can step into the next. As Fredrik shows, we have a strong financial position. We are ready for challenges in the uncertain macroeconomic and geopolitical environment. We have a strong balance sheet, and we want to utilize that to grow the company with sustainable profitability. We will continue to grow organically. This morning, we announced the acquisition of land where we will build a new production facility for our off-road product range in Toronto, Canada. There are 2 main reasons. This is to consolidate 3 facilities to 1 common one, which will give considerable efficiency gains and also increase capacity to meet future demands.
As mentioned in earlier quarterly reports, we will never be an acquisition machine, but we will continue to aim to make one to three acquisitions per year, ranging companies from SEK 150 million-SEK 500 million. This we will manage with our cash flow and bank agreements. By that, that was a recap of Q2, and we are open for questions now.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Gustav Berneblad from Nordea. Please go ahead.
Anders and Fredrik, it's Gustav here at Nordea. Just to start off here with the margin in truck and trailer, I mean, you have delivered a very strong margin in recent quarters, obviously. I think the last quarter we talked a little bit about the stronger demand in the coupler business sort of supporting the mix here. You do still comment on demand in the coupler business being rather decent, actually. I'm just wondering if you can give any more color on the year-over-year delta in the truck and trailer margin and then also a little bit how we should think forward.
Good morning, Gustav. To comment on the truck and trailer business, we see a flat revenue when it comes to the coupling business. It's a small volume decrease, but it's compensated by the customer mix that we have seen that it's a little bit slower by the OEMs, but it's compensated by the bodybuilder segment in Europe. The clear message is that the trailer industry is in a steep recession. Our view, based on clear international market data, is that the drop during 2024 will be roughly 30%. As I mentioned, it's historic low data. We have to go back to 2012 to see the low production volumes of trailers in Europe. Basically, the volume drives the margin. It's about 11% volume drop in Truck and Trailer Equipment, and the volume drives the margin down.
We also have had extraordinary costs within Truck and Trailer Equipment of roughly SEK 5-6 million, and it's all related to one-off costs moving into a new building in Oslo. We have had FX, and if we compare to Q2 last year, the FX effect on the revaluation of the balance sheet ends up in one-off cost with SEK 5 million. That is the comment to Truck and Trailer Equipment.
But would you say that given that demand within the semi-trailer business is likely to remain weak, and I guess it is more likely of a downside risk in sort of the coupler business rather than upside in the coming quarters, right? So is it more fair to assume that this margin you present here in Q2 is adjusting for the SEK 5 million-SEK 6 million, as you sort of alluded to? Is that a fair margin also going forward, or?
I think this is a fair margin going forward. I don't see that the trailer market will improve that much during 2024. It will take into 2025 before it will improve to normal levels. It will be low during the rest of the year, for sure. When we talk about our visibility, and we are talking about within the coupling business three to four months, and I see this is fair to say that we will maintain this level going forward as well.
Okay, that's perfect. And then maybe just, I mean, as you commented also there that you have a visibility of 3-4 months, but if we sort of compare to your interpretation regarding demand in the truck business in the Q1 report compared to now, would you say that it's about the same, or is it a little bit worse or positive, or?
We can see that if we compare Q1 to Q2 historically from a seasonal point of view, I think Q1 is definitely stronger when the distribution network refills its stock of spare and wear parts. And as you see also, the number of working days in Q1 is higher compared to Q2, especially in our main markets in Europe. So I would say the demand on the coupling side is fairly flat from an overall view, but I would say that our sales to the OEM business from a volume point of view is a little bit reduced, but it's compensated by the first installations at the bodybuilder level. So it's fairly flat. And when you look in detail about the geographic spread, I would say that we have strong export markets like in Australia and New Zealand still doing well at the moment.
Okay, that's great. And then maybe if we just move to MTS here, I mean, obviously a very strong quarter here again. And can you discuss a little bit more where you think we are in the investment cycle here in this business? And I mean, we have had the recovery within the bus segment, and you have had strong growth in off-road. I'm just curious, you say that it's stabilizing here on a relatively high level, but can you elaborate a little bit more?
Yes. First of all, from a geographic standpoint, we see that North America continues in a positive trend. I mean, roughly somewhere between 10%-15% of the business is outside North America, and we see stable to a little bit decreasing demand in Europe on the MTS side, but North America continues. If we divide it on our range off-road to bus side, we can see that growth continues on the off-road side in North America, and the bus business, I would say, is flattening out. The order increase or order growth rate slows down on the MTS business. I mean, if we have comparable figures where we were growing by 20%, 25%, 30% last year, it's normalizing the growth rate. But comparing the bus and the off-road side, the off-road side is much more positive.
If we go deeper into the bus business, we see still a good demand on the school bus side where the electrification and the subsidies are increasing on the school bus side. We see a flattening demand on the transit bus side, which is the collective traffic or commuting traffic investments. But off-road side, still very good, both on the excavator side and the compact side.
Oh, that's perfect. Thank you. And then just the last one here. I think if we look at the Ringfeder Power Transmission segment, you also here have an 11% drop in organic growth, and you also comment on a weaker mix, but I still think the margin is quite solid. So just wondering if you can.
I want to correct you. I want to correct you. We have an underlying growth of 11% in the quarter. We increased sales by 11% underlying, a total increase of 33% in the quarter for Ringfeder Power Transmission. So it's.
Oh, okay.
Yes, we are very, very happy with the performance of Ringfeder Power Transmission. And to dig into that, as I mentioned many times, it's a fragmented business. It's global. We see the continuous growth outside Europe and North America. We see that for sure segments in the machine building industry in the southern part of Germany and logistic warehouses is declining, but it's definitely compensated in segments like defense, aerospace, and mining.
And now we see I talked a little bit about the acquisition of Ringfeder—no, sorry, Rathi Transpower—and we are really happy with that. It really contributes. We have first half year, SEK 82 million in revenues with solid performance above group targets when it comes to profitability. And now we take the next step, and we see positive signs when it comes to bringing the complementary product range in our global sales channels. We are really happy with the performance of Rathi TransPower and also the division Ringfeder Power Transmission.
All right, perfect. Thank you very much. That's all for me.
Thank you.
The next question comes from Jonny Jin from SEB. Please go ahead.
Yes, good morning, Anders and Fredrik. I just have a clarification question on the MTS side. You grow 2% organically year-over-year, and given the strong growth on off-road you mentioned, is it fair to interpret that the buses are then down year-over-year? Is that fair to say? What do you say?
No, good morning, Jon. In the quarter, the bus is flat, and off-road is growing. It's more a geographic mix that Europe is slowing down compared to the other markets. That is the main, if I interpret your question correctly.
Okay, okay. And if you could comment on the off-road side, given what you see now, how would you say that the off-road side could sustain this growth throughout the year? Or can you comment on what is driving this off-road growth?
I would say that we see sustainable growth on the off-road side, and it's mainly two or three segments on the off-road side that we see is very positive driving the improvement. And that is number one, the compact side, the side by side, and it's more a question of penetration. And by penetration, I mean the number of sold units will have heating, ventilation, or air conditioning equipment installed in that. That is one thing. We see also that the excavator side is improving on the off-road side, and we see also our accounts on the fire truck side where we see order books of 36 months going forward. It's just a question of capacity in the fire truck business.
Okay, thank you. Just one final question. Could you give a comment on the order book entering Q3 here?
Yes. As I mentioned, we have an order intake that is flat compared to last year going into order intake and order book, which is flat compared to last year.
Okay, that's very clear. Thank you and wish you a great summer, Anders Erkén and Fredrik Jignéus.
Thank you, Jon.
There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
No, thank you very much for listening, and then we close the report on Q2 by the VBG Group. I wish you on the northern hemisphere a nice summer. Thank you very much.
Thank you.