Hello, good morning, welcome to today's webcast presentation with Volati. With us presenting today, we have the CEO, Andreas Stenbäck, and CFO, Martin Aronsson. We'll do a Q&A after the presentation. You can either type in your question in the form that is located to the right, or if you're calling in and would like to ask a question, please press star, then nine. With that said, I'll give the floor to you guys. Please go ahead.
Thank you. warm welcome, happy that you are listening in to our Q2 report. We'll dig directly into it. Volati is a fast-growing and acquisitive group of six well-managed platforms with strong earnings, growth, and cash flows. two of them are our natural and integrated business areas, Salix Group and Ettiketto, while four of the remaining platforms are within the Business Area Industry. With these continuous operations, these business areas, we have shown an average EBITDA growth of 37% the last five years, roughly half of which has been organic. All of these business areas are contributing strongly to this growth. Before digging into our most recent quarter, I would like to take a step back and look at the even longer trend. Volati's overriding goal is to generate a long-term value growth.
That means that we're not best evaluated on the most recent quarter or the individual quarter, but rather our ability to create value over time. I think this slide is a good example of that summarizes that in a very good way. We have grown our reported EBITDA on average, 23% over the last 10 years, and this has been done with our own cash flow. Let's, with that, let's look into our most recent quarter, Q2. We are showing a very strong and solid Q2, and I'm impressed by the work that all my colleagues are doing out in the business areas. We meet tough or we met tough comparables and numbers from last year, and our recently slightly slower M&A pace means that acquisitions have contributed less in this quarter.
With that in perspective, I'm very happy to show that we are growing EBITDA with 10%, and we're improving the margins in the group. All business areas are developing as expected, I'm very happy with our development. Starting with industry, which has been the growth drive in the quarter, growing top line with 15% and improving margins. Ettiketto is showing a stable development as expected, really showing that the model of making add-on acquisitions and realize synergies from these are successful. For us, that means that we can see a continuous improvement in margins, and in this quarter, we actually improved the margins by two percentage points in Ettiketto. Salix delivers yet another solid quarter in a challenging market. In Q2, we still meet the tough comparables in that business area.
Despite the lower sales, the margin strengthening measures that we initiated now quite some time ago are really showing effect, meaning that we came in on margins more or less in line with the same quarter last year in Salix, which I think is very well done by the team. Operational cash flow developing strong as we expected. We started focusing on lowering our working capital early in the cycle. We have worked with that with more than a year now, thus we have seen a positive effect now for a couple of quarters, and that positive effect is continuing also in Q2. We have a new credit facility in place.
We added SEB alongside Nordea early in the quarter, and we have also, in a swift manner, sustained the sustainability link, this credit facility. We have done one acquisition, Sweja, which I will give me more information about a bit later on. Looking into the more detailed numbers in the quarter, sales growth of 3%. As said earlier, industry is the driver. They grew 15% of sales. Etteplan delivering more or less in line with what's expected, as they don't have any acquisitions coming in, so they are more or less in line with last year. Salix are showing a negative growth. We see 10% growth in EBITDA, meaning that we are improving margins.
As you can also see, the strong operating cash flow is showing in our net debt-to-EBITDA number, which is in the lower range of where we want to be, total 2.1. Looking at the rolling 12 months figures, we are now showing a net sales in excess of SEK 8 billion. The sales has grown 11% on a rolling 12 months basis, and EBITDA has grown even higher, at 13%. Thus, we are also showing improved margins on the full year basis. As you can see, the cash flow is significantly better than 12 months ago, showing that those efforts that we initiated now for quite some quarters ago are really showing effect. With that, I leave the word to Martin.
Thank you, Andreas. Then let's look into our three financial targets. And let's start with the EBITA growth per ordinary share during the last 12 months. So, during the period, we performed at 13% versus our target, which is 15%. But what is also stated in our financial goal regarding this is that 15% is over business cycles, and given the current challenging macroeconomical environment, this summarizes a good quarter for Volati. Looking at the second financial target, return on adjusted equity, we are performing at 30%, which is significantly exceeding our financial target of 20%.
We have our third financial target, which is the capital structure, where the target is to have a net debt to adjusted EBITDA ratio between two to three times and never exceeding three and a half times. We are now at the, as Andreas mentioned, at the 2.1x, which is in the lower range of our financial targets, and that also gives us significant ammunition to grow through acquisitions going forward. Let's look at how our three business areas are performing. Let's start with Salix Group. Given the current difficult market situation that Salix is facing in the construction segment, Salix Group delivers a quarter that we are very proud of.
Despite the sales decline in the quarter, the margin remained on the same level as last year, with 10%. Looking at the demand, the demand is still relatively good in the professional segment. However, the demand in the consumer segment continues to be weak. The currency effects are working against us. However, lower freight costs and costs of some raw materials mitigate some of that negative effect. Given the market situation that Salix is facing, they have a success. Sorry. They have successfully focused on reducing costs in the organization, which is increasingly positively affecting the result.
As my Andreas mentioned, they have made one acquisition in the quarter of Sweja, and we believe that they are well positioned to grow further through acquisitions going forward. Let's move to Ettiketto Group, who delivers another strong quarter. They have stable revenues in the quarter and 12% sales growth during the past year. The demand is good, and the order intake is solid, especially in the later part of the quarter. Salix, sorry, and Ettiketto is expanding the production capacity to be able to meet this demand. We're also very happy to see that the trend of increasing EBITDA is continuing in the quarter, and we are now up 2%, percentage points in the quarter.
The strategy of that Ettiketto has of acquiring companies with lower margins and usually lower margins than Ettiketto has today. Focusing on extracting synergies and operational improvements is really paying off. That means also that the last 12 months margins now are one percentage point higher than one year back. Ettiketto is working its way towards the historical margins of up to 20%. Ettiketto is looking for further acquisitions, and they are looking both Nordics and the rest of Europe, and we see a significant potential to grow further in this business area. Lastly, we have Industry, which is a diversified business area with four businesses in different sectors.
What they have in common is that they are in sectors which are in general, less affected by the development of the general economy. Industry delivered a strong quarter, with 15% sales growth and 20% EBITDA growth, mainly through organic growth. This also means that the last 12 months margins are now up with 0.2 percentage points in the quarter. In general, we see a good demand in the business area, although Salix is experiencing some cautiousness in the retail and construction segments. However, the demand for Salix products in the infrastructure segment is very good on the other hand. Tornum Group continues to deliver another solid quarter, and they have successfully replaced the volumes lost due to Russia's war in Ukraine.
Corroventa is performing well, despite the lack of some storms, and Communications has provided another good quarter. However, when looking at the demand in Communications, it has been very high during the last 12 months, and we are now seeing a bit of softening in the demand in that in that platform. However, that is from very high levels. We also believe that the industry is well positioned to grow through acquisitions also going forward. With that, I leave the word to Andreas again.
Okay. Thank you, Martin. We're going to look into acquisitions, this slide shows the 20 acquisitions that we've done since 2020. As you can see, we've been active in all platforms except Corroventa. The acquisition pace in the last 12 months have, however, come down somewhat. We have finalized three acquisitions, whereof one in the last quarter, and that is Sweja. Sweja is a very typical, I would say, Volati and Salix acquisition. That's a good example of what we want to do. It's also a good example of that sometimes, in particular in this market, this discussions take a bit longer.
We have followed this company for quite some time, but as is often the case, as we are an ideal buyer for these type of companies, we reached a conclusion in May this year. Sweja then. Sweja was a family-owned business, a very nice, stable business with its strengths in the tape and stretch film segment. By doing that, they are complementing Salix's existing business, T-Emballage, already active in that segment. What this acquisition provides us with or gives us is that it's strengthening our product offering and position on the market within Salix. At the same time, we have cost synergies, which we typically have, which also add additional value creation.
Looking at the rolling 12 months acquisition pace, as can be seen and as mentioned earlier, we have had a slightly lower pace the last 12 months. Anyway, over time, we expect to do six to eight acquisitions on a rolling 12 month basis, adding SEK 700 million to SEK 1.2 billion of annual sales. I still see a good activity on market, or we still see a good activity on the market, which I also mentioned earlier. I'm also happy with the pipeline that we have in our platform. The activity level is on the right, is where it should be. Discipline for us is extremely important. I do not want us to get too stressed out about the short-term acquisition pace.
What is more important is that we do the right acquisitions with the right returns. Maintaining this discipline have been one of the core elements of Volati's success in the past. What I'm more focusing on is that we're doing the right things. We have the right activity levels, and we also have the financial position to increase acquisition pace when the right opportunities occur. Having the financial position in place can be seen on this slide. We already mentioned the operational cash flow a couple of times. We also mentioned that we have a new credit agreement in place, adding SEB alongside Nordea, and that leaves us with what I would consider a very strong financial position.
The net debt-to-EBITDA level is where it should be, in the lower range of our financial goal. We also have the liquidity in place, SEK 1.1 billion, to act on acquisitions when they occur. With that, just going to spend a minute or so summarizing. We are very happy and proud of the solid quarter for the second quarter of 2023, and in particular, the EBITDA growth, the margin improvements that we've seen, and that we still see that the cash flow profile is where it should. You know, we're focusing on long-term value creation, 37% EBITDA growth, on average over the last five years.
We have the return on equity where it should be at 30%. It's actually significantly higher than our financial goal. We have the platforms in place, six platforms that has long-term sustainable business models and good growth opportunities, not the least within M&A. We have the financial strength then to support that growth. With that, I'm leaving for, or we're opening up for any questions.
Thank you very much for that presentation. Like I said, I will jump into the Q&A section. If you would like to ask Andreas and Martin a question, you can either use the form that is located to the right, or if you're calling in, please press star nine to raise your hand. We'll begin with the first one calling in. Please, go ahead. You have the word.
Hi, good morning, Andreas and Martin. It's Victor Hansen from Nordea here. Can you hear me?
Yes, we hear you right. Hi, Victor.
Excellent. Hi. A couple of questions from my side, and the first one being here. The main growth driving the quarter seems to be industry and maybe communications in particular. I'm wondering if you could tell us more about what drove the strong improvement here, and also, if you could tell us about the synergies that you mentioned for the business area.
Yes. You're right, industry has been the main growth driver in terms of top line, communication has developed well, you also see a good development, for example, in Tornum. I would want to point out that it's not only communication that contributed to the growth. In terms of, in terms of margin or, and synergy, basically, I would just look at the acquisitions that we've done within that business area, the last 12 to 24 months. What typically happens, as we've had a pretty high acquisition pace in that industry, in that business area, that means that we are continuously over, you know, the last two years, realizing these synergies.
It's, for example, APISA and JP I-Industries OY in Tornum, which are, and also Terästorni. Actually, three, out of acquisitions in Tornum, where we see, a synergy realization. That's one example.
Okay, great. next question. Your working capital increased a bit here in the quarter due to receivables. I'm just wondering, are there any timing effects here, or how should we see it?
Yes, it is on the receivables. It is actually due to some of the platforms being very successful with sales in the later part of the quarter. It is not the change in.
... in the way that we get paid from customers. I would say that those receivables are increasing due to increased sales in those parts, especially in the later part of the quarter.
Yeah, got it. Then jumping over to Salix, I'm wondering if you could tell us more about the cost initiatives you've taken here, and if you would say that there's more to come?
With regards to that, so, as mentioned, I think we became cost cautious already more than a year ago, when we saw the growth pace slowing down. Firstly, there is just a general sense of cost cautiousness. Secondly, and that, of course, you know, was included in the budget process for 2023, and so forth. Then secondly, we have a couple of central initiatives within Salix, and that is when making Salix an integrated group. That means that we are centralizing some initiatives, for example, within logistics, it could be sourcing and so forth. That, those kind of initiatives, we also see effects from.
I expect, you know, these kind of initiatives takes time, so we will see, effects from that over time. We still expect, and as previously communicated, those effects to be seen, over the course of this year.
Continuing on Salix, I'm wondering if you could give us an updated end market exposure.
I think it's more or less what actually Martin said during the presentation. Consumer, you know, we firstly, we still come from extremely high levels of demand both in 2021, but also in parts of 2022. But we still see a softening demand in or softer demand in the consumer segment, where from Q3 and onwards, I would say that we're, you know, meeting better comparables, because we see that slowdown coming in during last summer. But in the industrial and professional segment, it's still holding up relatively well.
I would conclude that part of that is because we are mainly focusing towards the root renovation segment, rather than the new build segment.
Victor, if your question also was regarding the percentage points, then we have communicated before that roughly 20% is towards consumers, and the rest is towards professional, mainly, then, and also industry.
Okay, thank you for those answers. two more question here, if I may. For Ettiketto here, sales and earnings have been rather unchanged for the last three quarters. I'm wondering if you could tell us more about what development you are doing here under the surface within the platform, and maybe, yeah, what you're doing in terms of synergies, so we can get a better feeling for this and what's to come.
As I understood that, yeah, sales has been more or less flat, and the easy answer to that is that the last acquisition we did was more than 12 months ago, so we don't have any acquisition-driven growth coming in. That is, I would say, what typically drives top line in Ettiketto Group. Ettiketto is operating in a fairly stable market, and we're adding volumes mainly through acquisitions. Then on the margin side, as you have seen, we are improving margins, and that are the cost synergies that we are continuously realizing. And they have, you know, different characteristics.
We have typically short-term cost synergies, meaning that could be head count, or it could be closing down a production plant, whatever that might be. We also have long-term or longer-term margin improvement potential, and that is more implementing Ettiketto's way of working, which could typically take more than 12 months. As you can see, we've seen effects from both those type of synergies, I would say, in the last quarter.
Okay, great. My final question here, it's on the M&A market, and I'm wondering if you have any general comments on the M&A market. Maybe are sellers accepting a lower valuation, or is it still a bit hard to close deals? The reason why I'm asking, as you talked a little bit about it at the end of your presentation, but you only announced two acquisitions this year. I know the pace can be a bit lumpy, but still it's quite a bit below your pace last year. Any comment here would be very appreciated.
Yeah. No, it's a very good question, Victor. I think the market is better. I think I said that already last quarter, that we felt that the market, the M&A market opened up compared to last fall, where we felt it was tight. The general market environment, I would say, is better. Also, the activity level that I see in our platforms are better than it was, let's say nine months ago. For us, it's just a matter of, you know, completing these transactions and deals. What I tend to come back to, both internally and externally, when I talk about this, is the discipline. We want to do the right transactions, and we want to do them to the right return.
I'm comfortable that or that we will be able to do that. It also means that, you know, we will have quarters or even years now where we have a slightly lower pace than average. Hopefully we will also compensate by having slightly higher pace over other periods. We will have a natural fluctuation with regards to our M&A pace because of that discipline and that and transactions occur when they do. For us, it's more focusing on, you know, building up the processes, being active, making sure that we have a strong enough pipeline.
Yeah, that sounds good. Thank you for all the answers. That's all from me.
Okay, we're going to continue with some questions here that has come in from the forum. What is Volati's outlook for the remainder of the year based on its Q2 performance? Are there any specific goals, initiatives, or risks that investors should be aware of?
It's a good question. We typically don't give, forward-looking statements. Basically, you know, I think we're at a good pace, which we've said. We're continuously focusing on, cost, margins, and we're going to continue doing that. Hopefully, we'll get the acquisition speed up a bit, and show a couple of transactions. Those happens when they happen.
Okay, thank you. We'll take the next question here. Can you provide an update on Volati's debt structure and any significant changes in the company's capitalization during Q2? How does this impact Volati's overall financial stability?
Yes. As Andreas mentioned, we have renegotiated the credit agreement with SEB and Nordea, that is the main part of our capital structure. We also have the preference share as part of our capital structure. During the quarter, we, of course, have had the dividend, which has increased net debt during the period. Overall, there hasn't been any large changes in the capital structure during the quarter that the investors should know about. Looking forward, the first half year for Volati is typically the half year, which we have a little bit weaker cash generation.
During the second half year, we have more cash coming in. We believe that the net debt will also go down during the next quarters if we perform as we have done historically.
Okay, thank you. We've got another question from a person calling in. Please go ahead. You have the word. Hello?
Hi, Andreas and Martin. This is Niklas Sävås from Redeye.
Hi.
Hello.
Hi. I just have two questions. The first question is regarding the communication segment. You say that the demand is, or sales is flattening out from high levels. Can you give us the main drivers of this? Is this related to the 5G, the slow build-out of 5G, or-
Yes
What's the main drivers there?
Yeah, I would say, yeah. That's a short and easy answer. That one of the end segments for our products in that platform is the 5G rollout. There has been a slowdown also the last quarter or so within the 5G rollout, which eventually will affect us as well. I think it's also important to mention that we see that it's a temporary slowdown and that the volumes will come back. Actually, if you want to read about it, I would suggest looking into Ericsson's report last Friday, where they talked quite a lot about it.
Thanks for that. I mean, in general, I've been studying a few of your peers as well, and it seems like the demand within the industrial segment as a whole has been really, really strong the last year. Now it seems that everybody are meeting tough comparables and therefore quite low organic growth. Still, you had a really strong quarter within industrial. When you study, I mean, future acquisitions and so on, are there any subsegments that you see, I mean, that you are scared of, so to speak, that you think that the demand will be weak for the next years or so? Do you think in general that this is a, I mean, temporary slowdown?
Of course, it's hard to guess what will happen, but I just want to hear about your general view on the demand across segments.
No, it's a good question. Firstly, I think we have deliberately when looking at the platforms that we have right now, we have deliberately tried to acquire companies that are within segments that are less cyclical. We own Ettiketto, we own Tornum, we own Corroventa. Communication also have slightly other drivers and so forth. That's been it's not coincidence that we have that kind of portfolio. Having that said, when you put that in an M&A context, being an industrial buyer, which we are with add-ons, that also gives us the benefit of having an in-depth, long-term view of that industry. Meaning that we don't actually have to take that much the short-term development into account.
Of course, we don't want to overpay, we want the return. We can also have the courage of acquiring within an industry which is currently, you know, not performing as well, but we are active within it. As long as we don't, as long as we get our return. I think what you're kind of. That's one of our strengths as an industrial buyer, is to have the in-depth understanding of the industries that we're working within. That will also give us the confidence to acquire both in good times and in worse times.
Thanks a lot for that, for that color. I have 1 last question, and that's with regard to Ettiketto. In the comparable quarter last year, you had some impact of the strike in Finland, and that finished in the end of April. If not for that, what do you believe had been the organic growth in this quarter compared to last year? I mean, how negative would it have been? Is it low single digits, or?
I don't have a firm view of that, but yeah, it would definitely be the low single digit. We had some effects last quarter, but I would say they were not significant. So it's like in all, you know, it's timing. So I would say it's not a very big difference compared to the numbers that we show now, actually, officially. What I think what Martin also pointed out is that we actually have within the quarter of Ettiketto, towards the end of the quarter, we've actually seen a uptick in demand, which gives us some comfort.
Perfect. That was all from me. Have a great summer, both.
Thank you. Thank you for the questions.
Okay, we got one final question here before we end this presentation. As a shareholder, what should we expect from Volati in the coming years?
It's a good question. I think that's my slide, too. you know, it's we have been able to grow on average 23% the last 10 years, reported EBITDA. I think we're doing everything we can in order to maintain that strong development for our shareholders also going forward. We have the platforms in place. We have the financial stability and financial capacity to grow through acquisitions. We have I would say we have all in place to maintain that kind of profile also going forward.
Okay. Thank you very much, Andreas and Martin, for that presentation and answering all our questions. Also a big thanks to everyone who called in and asked questions during this presentation. Hope you have a great rest of the day and summer, and until next time, thank you and goodbye.
Bye, everyone.