For the first part of the conference call, the participants will be in listen only mode. During the questions and answer session, participants are able to ask questions by call speakers. CEO, Simon Gothberg, please go ahead.
Hello, everyone, and welcome to our presentation of Vestim's interim report for q two twenty twenty five. My name is Simon Gothberg, CEO of Vestim. I will today present the report myself as our CFO, Olaf Andersson, had to be with his wife as they're expecting their fourth child any day now. Okay. Let's have a look at some highlights from the quarter.
We have continued to invest in growth both organically and through m and a. Organic growth was plus 4%, while cash flow improved by some 50,000,000. Profitability was in line with last year as shown in the adjusted EBITA margin of 10.1. We've completed one acquisition in the quarter and also invested in increased capacity for several of our production companies. These investments have led to an increased leverage, which is now at 2.65 times reported EBITDA.
Moving on to the segments, starting with Flow Technology. Sales grew by 32%, mainly driven by acquisitions. We continue to see overall solid underlying demand across the segments with some different characteristics depending on geography. In The Nordics, we are generating both sales growth and improved profitability. In The UK, the market is currently preparing for the new five year investment plan AMP eight, which came into effect in April 2025.
The new plan includes over 100,000,000,000 of water infrastructure investments and will greatly benefit the segment in many years to come. That said, the the market is a bit cautious in the short term as clients are currently in resource planning and allocation mode, and and we're expecting to see positive effects of the new investment plan in the next few months. We are also planning to execute on additional UK based acquisitions to to the segment before year end, and this will strengthen our already very strong position in The UK. Moving on to the niche product segment. We continue to perform in line with last year, and it's good to see that we continue to improve profitability as shown with an uptick in EBITDA margin from 11.6% to 12.4%.
The margin expansion is mainly driven by our companies with infrastructure end markets. Going forward, we continue to focus on improving profitability while also allocating capital to growth in certain parts where the return on capital and demand remain high. Lastly, let's have a look at the solution segments. We have divested several companies during the year, including the largest and third largest company in the segment, meaning that sales in absolute terms decreased. Organic growth was positive, though, just like in q one.
Profitability dropped to 5%, mainly driven by our installation businesses with construction end markets. And these installation businesses represent roughly 60% of sales in the segment. And we we expect profitability for these companies to improve as investments in the Swedish construction market recover from the historical low levels that we currently experience. And the remaining 40 of sales in the segment consist of specialized infrastructure services businesses, and volumes and profitability for these companies were at decent levels in q two and continue to improve. Moving on to net sales and EBITDA development over the last few quarters.
Let's begin at the chart on the left, which shows net sales where we saw a decrease compared to the same period last year driven by the divestments, as I previously mentioned, in the solution segment. But the decrease was to some extent offset by acquisitions. And if we move on to the chart in the middle showing adjusted EBITDA development, we also see a decrease driven by the development in the solution segment, which again was mentioned on the previous slide. Finally, in the chart to the right, the adjusted EBITA margin was in line with last year, showing a slight decrease compared to the same period last year, again, driven primarily by the profitability in the solution segment, but to some extent offset by the positive development in the niche product segment. We move on to overall net sales development.
In total, net sales in q two decreased by 7% compared to last year. The divestments in the solutions segment put pressure on net sales in the quarter. But as mentioned previously, this was to some extent offset by acquisitions. And we saw a a total positive organic growth of plus 4% in the quarter, a sequential increase from 3% in the first quarter, which reinforces our view that the previous downward trend in sales development has reverted to growth. Now let's look at free cash flow.
We, we define free cash flow as cash flow from operating activities, including interest, taxes paid, and change in net working capital. And then we subtract CapEx spending, I. E, investments in fixed assets, and we also subtract leasing amortization. So free cash flow is really cash that can be used for dividends, acquisitions, and repayment of debt. The LTM free cash flow was at 120,000,000, an increase of more than 50,000,000 compared to q one, driven mainly by lower financing costs as a consequence of our improved capital structure.
Moving on to net debt and leverage development. The the net debt is represented by the pink bars and amounted to 1,600,000,000.0, an increase compared to the previous quarter driven by the acquisition of Nortic and also by the fact that we have invested in new facilities in several of our existing product companies. As a consequence of these investments, leverage increased to 2.65 times reported EBITDA per q two. Investments earn out debt was 32,000,000 at year end. And even when taken into account, earn out debt, the leverage multiple remains at 2.7 times reported EBITDA.
So in in summary, we we continue to generate positive organic growth and solid cash flows. The flow technology segment continues to do very well, and we're expecting this to continue as the market outlook looks looks highly promising. We are focused on investing in growth in the segments, and we'll continue to strengthen our positioning by making additional acquisitions, mainly in The UK as the market is preparing for high growth in coming years supported by structural investments in the market. And in the short term, however, the market is a bit cautious driven by the ramp up in AMP eight. But, again, all looks highly promising into 2026 and onward.
We're still facing challenging market conditions in certain parts of the solution segments as the installation businesses face higher than normal competition and, as a consequence, price pressure. We're expecting profitability to improve for these companies as construction investments in Sweden rise from the historically low levels that we currently see. We've created conditions for cash flow to remain at solid levels, not least driven by our improved capital structure along with a strengthened portfolio of companies in the group. And as with previous quarters, the short term market situation remains uncertain, but mid mark midterm market outlook is positive. And with that, we open up for questions.
Next question comes from Simon Johnson from ABG. Go ahead.
Hi, Simon and Olof. Thanks for taking my questions. So first on Solutions. I understand there is continued price pressure impacting the margins. But for the margins to improve, do you think it's going to be mainly a function of better construction activity, which reduces the price pressure?
Or do you think it's more going to be about you transitioning out of low margin contracts? Can you please explain a bit more how you think about those two factors?
Yeah. Sure. Hi, Simon. Thanks for your questions. Yeah.
So, I mean, definitely, it it's going to be a combination of those two of those two factors. So we're still we're still working on projects that that were taken, you know, three to six months ago, and and there was there was more sort of competition and price pressure at that point in time than than than a year ago before that. But looking at the pricing today, there isn't a big difference. Volumes are, or have, during the course of 2025, increased somewhat in comparison to last year. So organic growth has been positive for the two subsectors of solutions for the full for the first six months of 2025, and and 2026 is starting to to look a bit better than than it did maybe three months ago.
But, I mean, there is still price pressure. So the the projects that we take on today, are still at, you know, low low levels in comparison to to where we have been, which essentially means that we're expecting to see a similar drop in in profitability going into the second half of twenty twenty five as we have seen in the first half of twenty twenty five. And this is mainly for the 60% of the solution segment that is exposed to the installation market. And then, I mean, obviously, you can work with efficiency measures to improve margins going into a project. But there's still some price pressure in the market. Yeah.
Alright. Thank you. And just to make clear, you said that, you know, currently, the new contracts that are coming in on installation are still at below levels.
Yeah. Yeah. I mean, there there's there's some difference now in comparison to three months and six months ago, but we you know, the pricing in the market isn't what it was in 2022 and 2023. Competition and competition is still still much higher. So we really need to see a higher pace of construction investments across the Swedish market and obviously in the property market.
I see. Thank you. Then on Flow Technology, you highlighted the more cautious market in The UK due to the launch of AMP8. Was this effect present the whole quarter? Or was it just like a transition period when the plan came into effect in April and more normal towards the end of the quarter? Or how was the development through the quarter?
No. It's been basically the full quarter. So it's basically two factors impacting the full q two figures in The UK, and those have been the ramp up of of AMP eight and the absence of of extreme weather or absence of of rain, really. It's been it's been very, very dry in The UK, but it hasn't been any droughts, really, which could have a positive impact on our on our numbers. So we're we're we're looking at reference figures from q two in 2024 that had lots of rainfall in the first half of q two, and then, obviously, the the ramp up here.
And we're we're mainly exposed in in AMP eight to OPEC spending and not so much on CapEx spending, which means that we will start seeing the benefits of AMP eight already in the in the fall. Going back to AMP seven and AMP six, typically, what we see is that it takes somewhat six months after after the the start of the of the new AMP period to to show some positive effects of our of our company. So so we're expecting to see those in maybe end of q three, beginning of q four. And then going into next year, we will see the positive effects of the CapEx spending. But, again, we're more dependent on the OpEx stuff, which is a good thing.
I see. I see. In terms of that and when you usually see the ramp up, around six months or so. But now do you have you seen sort of big projects being initiated, or is it more like you expect that it will happen?
No. So so these these projects are well known to the market. Basically, everything that will happen infrastructure wise, you know, is is is quite well known. There's some visibility in the market. And and as I think I've said before, some of these are most of these customers that are looking to to to order these things from from the from the supply chain, most of it is already I mean, they they know who their suppliers will be.
And and given that we have pump supplies, PDAS, Nortek, and some of the other companies that we're now looking to acquire over the next six months or so. You know, these are very well positioned with these with these clients. So, you know, basically, the the things that will happen in the short term are known.
I see. Thank you. And then just one last one quick here on the cash flow and investments. You talked about that you are increasing investments sort of growth investments for the product companies. Do you think that will continue?
Was or was it more like one time investment here in the first half?
Sorry. Are you referring to to the investments in the expansion of capacity for some of the production companies? What was the question?
Yeah.
Yeah. Yeah. No. So so it's been in in in a few other companies.
We've we've expanded and and basically moved to to larger facilities. And that is not something that will occur every quarter. So so, you know, the the increase in in leasing according to IFRS 16, that that was something that we saw in q two. We're not expecting to see that in the second half of twenty twenty five.
I see. Thank you so much. That's all for me.
Thank you.
The next question comes from Jakob Markin from Danske Bank. Please go ahead.
Hello, guys. So just a quick question from my side, as many of my questions have been answered already. I'm just wondering, you said that you plan on making additional acquisitions here in H2. I'm just wondering which net debt level are you comfortable on reaching here during the year? And how much will you will you push it into to 2026, do you think?
Yeah. Thanks. Thanks, Jacob. Yeah. That's it's good to clear that one out.
Very good. So so, you know, historically, we we've been financing deals with, issuing equity, and that is not something that we're keen on doing, going forward. And, you know, when leverage is at 2.65 or 2.7 times as it is now, again, this is on reported figures. Right? It's not not pro form a.
But, obviously, that means that we need to be cautious and highly disciplined. And financing wise, we're looking to do this with free cash flow and existing credit facilities from from our banks. So, given that we have a sort of golden nugget acquisition, that is positioned, you know, in The UK, and where we can extract synergies with our existing companies and, basically, companies that we that we think can become the, you know, the the pump supplies two point o, then that is something that we are very, very keen on doing as we know the market so well. Right? But we would only do that if we are quite comfortable with projected underlying EBITDA in the business.
So limitations are, one, obviously, leverage and at as it is at that given point in time, and number two, our, thoughts on on, performance going forward. So if we feel quite comfortable in performance and if we see that we can do this golden nugget acquisition and that leverage still will be at reasonable level level, which could be, you know, slightly over three maybe, then that is something that we would go ahead and do. We would not opportunistically go ahead and make acquisitions and acquisitions pre across Northern Europe just to make, you know, acquisitions. It would have to be, again, a golden nugget, and I think we have some of those in our in in the pipeline.
Okay. I understand. Perfect. Thank you.
Sure. Thank you.
There are no more questions at this time. So I hand the conference back to the speakers for any written questions or closing comments.
Yes. Hello. Yeah. Again, Simon here. There's a written question.
I'll read that one now. Are you going to be a buyer or a seller in the installation segment going forward? Yeah. Sure. So, the installation segment or the subgroup is roughly, again, 60% of our solutions business.
And these companies, I would say, are at a all time low. It's been it's been one of the toughest markets for these installation companies in in basically thirty years. And many of the entrepreneurs that are still running our companies, they they've never experienced anything of the of the sort that that we're now that we're now seeing. So, you know, we're we're expecting you know, as construction investments continue to increase in Sweden, we're expecting a a recovery for these companies. So we're we're definitely not not a seller of these companies now.
And when it comes to buyer, I mean, we are looking to allocate capital going forward in the segments where we can achieve highest growth, highest margins, and highest return on capital. And this is right now in water infrastructure in The UK in these market leading product com product companies. So that is what we will do. Then going forward, if you fast forward a couple years, then, you know, we'll we'll we'll see where where things will take us. We have divested companies over the last two to three years, for two reasons, basically.
One, to refinance the balance sheet, and number two, to increase specialization for the group and get rid of basically low margin companies. All of our companies today can achieve, an EBITDA margin, which is in line with our financial target of 12%. So, as of now, no planned, divestitures. And fast forward, you know, we'll we'll see where where things will take us. But, again, focused on acquisitions in The UK in water infrastructure right now.
So that was the last written question. And with that, I thank everyone for listening in. Thanks so much, and have a great summer, everyone. Bye bye.