Addtech AB (publ.) (ADDTB) Earnings Call Transcript & Summary

Welcome to the Addtech Q1 2026 Report Presentation. [Operator Instructions] Now I will hand the conference over to CEO, Niklas Stenberg; and CFO, Malin Enarson. Please go ahead.

Thank you, operator, and most welcome to everyone to Addtech's first quarter report presentation. Today's setup is that we will use approximately 15 minutes to summarize and give our comments on the results and then open up for questions. As usual, just a brief summary for any newcomers, a quick run-through of the key fundamentals of Addtech. We are a group of 150-plus independent and strictly decentralized companies operating in 20 countries with a clear business-to-business offering. We operate in 6 business areas, all with clear strategies and a value proposition centered around niche products and solutions, primarily to manufacturing and infrastructure sectors. We have our successful dual growth engine approach, focused to develop and grow the business organically together with our local entrepreneurs and then complement and strengthen our strategy strategic niches with acquiring leading niche companies with a strong offering and fund our acquisitions primarily by own cash flow. That's how the model works. Size-wise, we have now a turnover rolling 12 of around SEK 23 billion and run the operations with an EBITDA margin at around 16% and employ slightly less than 5,000 employees throughout the organization and a small and efficient central team. There, you have Addtech in a brief summary. With that said, let's head on to the quarterly highlights. All in all, we can summarize a good start of the new fiscal year despite the geopolitical uncertainties, the market situation improved for the group with high customer activity and a very solid order intake, broad-based, I would say. Total net sales increased by 6% during the quarter, organically in line with last year and no effect from FX this quarter. Our EBITA increased with 11%, and we improved our margin compared to last year to a high level of 16.6%. We strengthened our cash flow and closed 2 acquisitions during the quarter. A bit more on net sales. The overall business situation was good, as I said. We grew top line 6%, which means it was from acquisition, but solid contributions primarily from business areas, Automation, Electrification and Safety. Segment-wise, if we summarize all business areas, the main drivers in the quarter were electronics with products and solutions for electrifying equipment. Special vehicles had a good quarter, primarily towards mining and defense markets. Solid contributions also from medical and also transport sector where railway and marine were the main contributors. Also, the Niche segment, traffic safety also this quarter contributed in a good way with a continued positive development. All in all, high customer activity. As I said, the broad-based order intake, positive book-to-bill. During the quarter, in part of the business, we see a tendency for customers to place some framework orders to hedge against uncertainty and feared price increases and delays going forward due to the uncertainties that we have around us. I will come back with more details about market development in each business area very shortly. EBITA then increased with 11%. Also here, solid contributions from Automation, Electrification and Safety. We continue to improve our gross margins across the board. So all business areas increased gross margins, it's very satisfying. And we report an improved EBITA-margin, as I said, 16.6%. The positive development is primarily due to continued improvements in the product mix and solid contributions from acquisitions, but also positive effect from active pricing initiatives and of course, also earlier communicated restructuring measures in a handful of companies, primarily in Automation and Safety, where we now see good effects. We strengthened our cash flow and profit of working capital remained at high level. A few words on each business area then. From the top, starting with Automation, as you can see in the slide, the business situation clearly improved in the first quarter, a broad-based increase in sales and a good leverage on both earnings and margins. And the market situation strengthened. We have now had 5 quarters in a row with a sequential improvement in order intake, and that is a strong indication for us. The underlying demand for product solutions for defense industry remained very strong. Also order intake in mechanical industry, medical and process had a positive development. Within medical, it's primarily OEMs supplying diagnostic and analytical equipment. And within segment Process, it's the food processing OEMs that are the main drivers. So a solid recovery in Automation that we've been waiting for and clear positive effects on earnings and margins. Moving on to Electrification. Also a very strong quarter where market situation was strong, a very good order intake here. Net sales increased with 27%, driven by solid business momentum in basically all main segments. Mechanical industry and defense, the only exceptions, the latter defense industry must due to very tough comps. Here, we have projects that are not linear. It will -- can come one or another quarter. It's also great to see that our battery group continues to develop positively with good contributions to many of our customer segments. Strong contributions from acquisitions, primarily RAMME in Germany, which are focusing on the Marine segment. In summary, a very strong quarter for Electrification, broad-based growth, solid contributions from the acquired company, as I said, an EBITA growth of 43% with a high margin of 16.2%. And in the margin, I would say that it's partly boosted by very strong performance from acquisitions with a slight positive seasonal effect in this quarter. Energy experienced a very positive market development in the first quarter. The electrical transmission business recovered in a very good way with high order intake after a period with fewer project rollouts and a lower order intake earlier quarters. High demand also in distribution and transport, while power generation was stable. Sales were down in the quarter as expected due to very tough comps, but with an improved product mix, our margins increased to 19.5%. Forward-looking, we have a very strong backlog and good business momentum, indicating a strong year, but tilted towards the second half of the financial year, as we indicated already in the Q4 report. But again, the projects are now coming in just as we had expected. The overall market situation within Industry was good in the quarter, but with variations. Solid demand in mechanical industry, electronics, subsea and waste management, but companies exposed to forestry and sawmill industry order intake remained weak. We have been repeating this now for a number of quarters. Customer activity is there and a couple of orders were won during the quarter, but we don't see any general trend shift here. Also, special vehicles met a somewhat weaker market situation where demand being negatively affected by geopolitical uncertainty and higher oil price that we had during the quarter. Total net sales decreased with 3%. Again, this is primarily due to the sawmill volumes. And these effects will, of course, remain until this market situation improves. Moving on to business area Process, where the overarching market situation was, I would say, stable in the quarter. Demand was good in Marine segment, solid order intake related to regulatory demands and shift to more green fuels. Also, energy and special vehicles had a positive development, stable in mechanical industry, weak in medical technology towards tough comps and also forestry and process industry was on the weaker side. And here, we again see that activities are good. There are a lot of discussions on projects, but customers are still holding off on investment decisions and projects are also continuing to being a bit postponed. All in all, a rather challenging start for Process with 2% increase in sales, but this is entirely driven by contributions from acquisitions. Earnings and margins were down to the lower business volumes, but adjusted for revaluations of consideration, we actually saw a slight improvement on the margins also for Process in this quarter. Last but not least, Safety, which had a very positive development in the quarter, a good business development and solid order intake. The market remained strong within traffic safety and the energy, electronics and engineering manufacturing industry experienced a positive trend in the quarter. Regarding data centers, we saw a bit flattening out on high levels within Safety during the quarter. And here, we see a little shift towards more local product procurement in data centers. And this will seemingly give potential for several companies in the group moving forward. No clear signs, however, I would say, in the construction sector, it's an important sector for Safety. So the companies exposed to building installation continue to meet overall weak demand. But overall, sales increased by 10%, approximately half coming from acquisitions. Positive effect on earnings and margins, also fueled by both product mix that was improved and the previously implemented cost measures in a couple of companies that we've been talking about earlier last year. Well, to sum up this picture, I would say, a very solid quarter, positive market situation, high customer activity on group level. Variations still between different segments, customers and geographies. And it is clear that the geopolitical uncertainty still adds to the kind of hesitant approach in investing among customers in a number of segments. With that said, I give the word to you, Malin, for a few more details.

Thank you, Niklas. You have mentioned a lot of important matters already. I will dig down in some of them. As you heard, our EBITA grew and the profit margin improved compared to last year. The EBITA-margin increased by 1 percentage points adjusted for revaluations of earn-outs, and we had yet another quarter with a record high margin. We had good contributions from acquisitions, but the development was also attributable to an improved product mix, good pricing power and the fact that restructuring measures taken in businesses with persistently lower market conditions are starting to have a clear impact now. We can see that the trend line of total cost in relation to sales still has a good development. Regarding other operating incomes and expenses, revaluations of earn-outs were more or less in line with last year, while currency effect from revaluation of balance sheet items had substantially less negative effect on other income and expenses than last year. Our cash flow from operating activities strengthened compared to the same quarter last year by stronger margins and efficient working capital. Cash conversion was stable at a satisfactory level. Inventory levels increased somewhat during the quarter due to acquisitions and the usual summer buffering, but also due to price increases and supply chain disruptions. All in all, inventory levels are still at healthy levels in relation to sales and order backlog and profitable working capital remained at 81% sequentially. Our financial position remained very strong during the quarter, and our gearing and leverage decreased compared to last year, even though our net debt has increased. We have a very satisfactory headroom in our financing structure, which strengthened further during the quarter through the raising of new debt. While we do not have any specific debt targets, we believe our strong balance sheet provides significant capacity to fund future acquisitions and organic growth investments. And with that said, I hand over back to you, Niklas, for more information about acquisitions, I believe.

Yes. Thank you, Malin. And as you can see in the picture, we have had a strong first 6 months of this calendar year. So a lot of very good companies coming into the group. We completed 2 more acquisitions during the quarter, 2 Dutch companies, 1 Staka Holding, supplying customized outdoor enclosures and Nious Engineering, selling patented system solutions for road and rail construction machinery. So we are proud to welcome them both to the group. Together, they add about SEK 250 million in turnover with accretive margins. Given our increased footprint internationally, as you can see in the picture, it's a lot of acquisitions outside of the Nordics. We can really see that we have a growing awareness of Addtech in a lot of new markets, and we continue to fill our pipeline with high-performing companies that are well spread across both niches and geographies and business areas. So this, combined with the strong balance sheet, as Malin just went through, this gives us a lot of firepower, and I really expect to keep a high acquisition pace going forward. So the acquisition market looks very promising, I would say. And to wrap up this, a very good start to the fiscal year, high customer activities quite across the board. And we can see that despite, again, the geopolitical uncertainty and the very tough comps in Energy & Industry, we grew top line and we especially grew earnings with 11% and even better on earnings per share and strengthened the cash flow and balance sheet remains very strong. So given our agility and strong positions in attractive niches, we have a positive view of the continuance of this financial year, tilted towards the second half, as we have been indicating before. So with that said, over to Q&A.

[Operator Instructions] The next question comes from Opeyemi Otaniyi from Goldman Sachs.

Two questions from my end. Maybe just one on margin and then one on Industry. I suppose margins have been quite strong for a few years and quarters now, but particularly strong in the last few quarters. So could you just give us some thoughts on how you see this level in coming quarters and any sort of thoughts on what's driving margins higher?

Yes. It's like you said, we have had a good -- really good development on margins. Of course, they can vary a bit quarter-over-quarter. If we look at the group as such, I mean, we see that the kind of rolling 12 margin is relevant with a continuous ambition to gradually increase the margin. Then it can vary a bit, of course, between the different business areas. Automation is coming from a lower level. And as we've been indicating in early quarters, we have foreseen that Automation should come back on the level they are now. While on the other hand, we can see that, for instance, Industry, having the kind of tough comps on sawmill industry will most likely as it looks right now, rather maybe decrease a little bit. But it's -- all in all, we think it's the rolling 12 margin is relevant going forward. Again, with, as always, an ambition to increase the margins. And then as I also indicated, in Electrification, a very strong margin this quarter, which is partly boosted not very significantly, but a little bit due to a very strong performance from acquisitions this quarter and especially RAMME in Germany has a little seasonality effect with a strong Q1 and a bit weaker Q2 due to that they closed down production and so forth for a couple of weeks. But all in all, we think, yes, we are satisfied with the margin levels.

Great. And just one more on Industry. I think you've sort of telegraphed that sort of headwind in forestry has existed for a few quarters now. Is there anything new in terms of special vehicles or other end markets there?

Sorry, on special vehicles?

Yes, within Industry, just the other end markets may be driving sort of weaker organic growth near term? Is it just forestry or sort of special workers and other stuff as well within Industry?

No. I mean, in general, I would say we see a positive development on most niche segments in Industry. The sawmill headwind is, of course, the big issue for Industry. This quarter, we saw a little bit weaker order intake from some segments in special vehicles, and that is due to disruptions in supply chain and also higher oil price that has given a little bit of a hesitation. But we still see special vehicles having a good market situation. So I would say also electronic production, mechanical industry, we have a good development there. So I would say it really runs down to the sawmill market.

The next question comes from Max Bacco from SEB.

The first question also relating to the Industry segment, basically a follow-up. As you mentioned yourself, the margin down 1.3 percentage points here in the quarter or 1.4% adjusting for earn-outs revaluations. Is that fair magnitude to assume also going ahead, all else equal? Or is it anything else to it?

Yes. So there might be -- again, it's always very difficult to guide here because it depends on many different variables. But we said going into this year that as long as the sawmill market is hampered, this will have an effect on the margins. I think there is probably, as of now, rather maybe some additional slight negative potential on the margin in the coming quarters. I would not expect any dramatic change. But from this level, it's maybe a little bit more there.

Okay. Understood. And then on the same topic, which also addressed during the presentation, Automation and Safety segments both saw very nice profitability improvements here in the quarter, which was something we discussed last quarter as well and still quite stable on a sequential basis, the margin then compared with Q4. Would you say that these levels are reasonable to expect going ahead? Or is there any seasonality in these 2 segments that should be considered?

No, I would not say any specific seasonality. As you can see from early years, we see some effect, of course, from the summer period. But apart from that, on the margin side, I would say that Automation is on the right track, meaning that Automation should have a slight better margin than rolling 12. While in Safety, I would say rolling 12 is probably a relevant number also going ahead.

Okay. Very clear. And then the final one, just to clarify it. I mean you highlight here in the quarter a well-filled order book, positive book-to-bill and also that the market situation has strengthened during the quarter. And then, of course, we have the specific dynamics in each respective segment. But to me, it sounds like that you at least expect organic sales growth to gradually improve in the coming quarters versus the basically 0% that we have seen during the last 2 quarters. Is that a correct interpretation?

Yes. I mean only looking at our order intake in the quarter and the order book, again, considering tilted towards the second half, but we -- and of course, the -- all uncertainties that might have different effects. But our expectation is that organic growth should gradually improve, but again, tilted towards the second half.

The next question comes from Karl Bokvist from ABG Sundal Collier.

First, on Automation here, we've talked about it. But just when thinking about the margins now and you've been talking about the cost savings initiatives, et cetera. From this step, if we think about the 14% level, is there more that can be realized from your own initiatives? Or is it now from this level more about getting a bit of organic growth back and that you get leverage on volumes and so on to which in turn could drive profitability?

Yes. Yes, I would say that as of now, it's more relating to top line growth and that, that will generate incremental margins -- potential incremental margin improvements. So the cost initiatives, again, as of now, I would say, are already in the numbers.

All right. And then just on Industry here as even when we take the earn-out revaluations into account, it's at 20%. And despite the fact that sawmill volumes are low, and I acknowledge your commentary earlier about that it could have a slight negative impact. But just the other parts here, do you think that kind of there is more to come in other areas of Industry that could support or raise margins? Or is it more about -- to your point earlier about kind of rolling 12 with a slight negative impact from sawmills, that's how we should think about it?

Yes. I mean it's always in a group like Addtech and also in the Industry, there are a number of companies that should have -- that should increase their margins. But if you look at Industry as a whole, I would say that my comment before is it's not that I really see at this point that we have any other segments or markets that would kind of balance up that effect from sawmill. So rather a slight decrease until sawmill market comes back.

Final question is on just looking into your second quarter now ahead and primarily on Energy & Industry. And correct me if I'm wrong here. But when just looking at the organic growth that these businesses saw last year, it seems like both had quite good quarters. So would it be just fair to assume or take that into account when assessing the year-over-year development for those 2 divisions now for your current second quarter?