Indutrade AB (publ) (INDT) Earnings Call Transcript & Summary

Welcome to the Indutrade's Q3 presentation for 2025. [Operator Instructions] Now I will hand the conference over to CEO, Bo Annvik and CFO, Patrik Johnson. Please go ahead.

Welcome, and good morning on our behalf as well. As usual, let's start with the overall highlights of the report. In terms of the demand situation, the order intake improved versus last year. Four out of five business areas and more than half of the companies grew organically. Demand from customers within medical technology and pharmaceuticals was strong, and we also saw improvements in several of the larger customer segments. Net sales decreased 2% in total, organically minus 1%. The EBITA margin came in strong at 14.6%. Our companies were also successful in terms of working capital efficiency and the inventory reductions continued during the quarter. We had a very successful quarter in terms of acquisitions, welcoming six companies during the quarter. Ten acquisitions completed so far in 2025 and the pipeline is still good. Looking more specifically at the order intake and sales trends. Demand was stronger than last year with improvements in many companies, customer segments and geographies. Despite the high order intake, book-to-bill was slightly negative, partly because of seasonal variations. There were still continued variations between companies and segments with the strongest growth within medical technology and pharmaceuticals. The demand within the energy sector was at a high level but aggregated slightly lower than last year. Notably is also that order intake for companies with customers in Infrastructure & Construction and Engineering improved compared to last year. Plus 3% organic order intake is the best level since quarter 4, 2023. In terms of sales, it declined minus 2% during the quarter, as an effect of currency headwinds, divestments and a minus 1% organic decline, while acquisitions contributed positively. No impact from number of working days during the quarter. The organic sales development is primarily explained by the strong references within business area Life Science. The strong reference is linked to sales to Novo Nordisk, which had an organic sales impact of 2% on the group in the quarter. Excluding sales to Novo Nordisk, the organic growth would have been plus 1% on group level. Aggregated more than half of the companies grew organically during the quarter. Moving into sales per geographical market. Sales to Sweden was up compared to last year with improvements in most of the larger customer segments. Sales in Denmark was down mainly due to strong sales to Novo Nordics the same period last year. Finland and Norway was aggregated flat year-over-year. For the rest of Europe, sales growth was strong in the Benelux within the Process, Energy & Water sectors. U.K., Ireland also improved with slightly better demand within general engineering and good development within flow technology products. Sales development was flat in Germany, Switzerland and Austria. In North America and Asia, sales is slightly volatile and the development can fluctuate with single projects. In North America, we had a challenging reference due to larger deliveries of valves for power generation in the same period last year. And some of the companies in BA Technology & Systems Solutions continue to have a weaker development on the back of hesitation from U.S. customers due to the tariff situation. Sales in Asia improved versus last year due to strong sales of valves for power generation and also within the Marine segment. The total EBITA decreased minus 3% in total to SEK 1.1 billion, corresponding to an EBITA margin of 14.6%, slightly lower than 14.8% last year, but still a high level and a clear step-up sequentially from 13.7% in Q2. We had a record high Q3 gross margin of 35.5%. Margin accretive acquisitions and divestments reported as well, but the EBITA margin was dampened by the lower organic sales and somewhat higher organic expenses. In terms of the organic expenses, around a percentage point year-over-year increase in absolute numbers. I would say that the expense situation overall is in control. There is still a cluster of companies which can improve somewhat. However, a majority of the companies are growing, and it's likely to see some expense increase linked to this. Looking at the net sales per business area. As mentioned, the same number of working days in the quarter but a slightly lower order book coming into the quarter and strong references resulted in a slightly negative organic sales development for the group as a whole. Organic sales was up 3% in business area Process, Energy & Water. For instance, many of the Swedish companies had a good development and the development within the finished process industry also improved. In Technology & Systems Solutions, sales was unchanged. Infrastructure & Construction and Industrial & Engineering continued to be impacted by the weak general business climate. Business area Life Science had a 5% organic sales drop due to the strong sales to Novo Nordisk the same period last year. Excluding this, Life Science would have had a positive organic sales growth of 6%. The business area had a continued good development with single use -- within the single-use area and also the medical technology distribution during the quarter. The EBITA margin improved in two of the five business areas with the most significant improvement in Infrastructure & Construction, mainly due to acquisitions and divestments. Life Science managed to improve the margin despite the lower organic sales. They had a strong gross margin development due to a favorable product mix, some currency tailwind, but also good work on pricing in many companies. In the other three business areas, the EBITA margin was basically in line with last year. Since the beginning of the year, we have added 10 new companies to the group with total annual sales of approximately SEK 1.1 billion. After a somewhat slower start of the year, the acquisition pace improved in the third quarter with six acquisitions completed. In quarter 4, we have so far welcomed one company. We are working with several projects in different stages. So we look forward to welcome a few more companies in the remainder of the year. Our new organization with business segment leaders are also generating more internal leads than before. Looking at the longer trend, more importantly, we are stepwise increasing the number of acquisitions per year, as can be seen in the yellow line to the left, although number of acquisitions per year can be a bit volatile. Looking at the bridge effects from acquisitions over the last 12 months, we have added SEK 140 million to the group's EBITA in 2025. Furthermore, we can also see that the acquisitions are margin accretive with an accumulated EBITA margin of 16.4% for the quarter and over 17% rolling 12 months. By that, I leave the word over to Patrik to comment more on the financials.

Yes. Thank you, Bo. Yes, total growth for orders and sales in the quarter was plus 3% and minus 2%, respectively. Year-to-date orders have also increased by 3% and sales is slightly down, minus 1%. Book-to-bill close to 1%, slightly below, but as Bo said, impacted by seasonal variations during the quarter. Year-to-date, it is above 1%. In quarter 3, we further improved the gross margins reaching 35.5% versus 34%. So a really good improvement. However, last year's figure was impacted by inventory write-downs in a few companies. So the underlying improvement was not as high as shown in these numbers, but still a clear improvement. On a year-to-date basis, our gross margin remains ahead of last year's level. EBITA decreased with 3% in the quarter and also 3% down year-to-date. If we look at the margin, the EBITA margin for the quarter, that was 14.6% compared to 14.8% last year. Good improvement, really good improvement then from quarter 1 and quarter 2. We had some nonoperational one-off items during the quarter connected to earn-outs and goodwill write-down as we have from time to time, but the net effect during the quarter was close to 0. As a side note, as maybe a few of you have noted, group items appear as unusually high this quarter. I would say this is, however, a wrong conclusion. It's a bit unfortunate, but that it actually relates mostly to our routine concerning management fee, which before -- for tax reasons push out to the business areas. This was last year done in quarter 3, which lowered group items last year. So that's the main reason for the increase. Yes, continuing further down in the P&L. Finance net decreased 31% in the quarter and 16% year-to-date because of both lower interest rates and also a lower debt level. Tax costs increased 17% in the quarter and 3% year-to-date. The higher tax costs is due to an unusually low tax level last year that came from the one-off situation, operational one-off situation we had last year. Earnings per share decreased with 4% in the quarter and also year-to-date, and I will show a graphical trend on the following slides. Return on capital employed is at 19%, and that's unchanged from last year, but slightly below our targets. Operational cash flow was unchanged at a good high level, and I will also elaborate on that one on the coming slides. Net debt to EBITDA end of the quarter is at 1.4 versus 1.6 last year, so an improvement in that area as well. So moving on to the cash flow. Cash flow, as I said, was unchanged from the same period last year and at a good level. Total organic working capital was down in the quarter versus last year. And despite more normalized inventory levels, our companies actually managed to reduce it further sequentially and also compared to last year. Cash conversion is continued on a high level, right now trending on a rolling 4-quarter basis at a level of 133% compared to net profit less CapEx, that's a good and strong level. We're closely monitoring the working capital efficiency and despite the lower organic sales, the ratio in relation to sales improved again during the quarter compared to last year. Continuing to the earnings per share amounted to SEK 1.85 compared to SEK 1.92 last year. The decline is, of course, mainly related to the lower operational result. Lower interest costs continued to compensate, but was offset by the higher tax costs I talked about earlier. Zooming out, looking at the longer perspective, the average growth in the 3- and 5-year rolling 4 quarter perspectives was plus 2% and 10%. And lastly, the financial position, which we think remains strong and solid. The interest-bearing net debt decreased versus last year from SEK 8.8 billion to SEK 8.1 billion, mainly due to the strong operational cash flow, combined with slightly lower acquisition pace during the year. And our net debt ratios are stable and low from a historical perspective. Net debt to equity ratio was at 48% compared to 56% last year. And net debt to EBITDA was 1.4 versus 1.6. And if you exclude earnouts, it is then 1.3 end of quarter 3 this year and 1.4 last year. To summarize, our financial position is strong, and that is, of course, a good fundament for continued value-accretive acquisition and also organic growth initiatives. Then I leave back over to you, Bo.

Thank you. We have also included a slide elaborating a bit on, you can say, the broader cost situation and linked to headcount. So as we have talked about for some quarters, demand and sales in some of our companies have been challenging and expenses, headcount and productivity have increased in focus. All of these companies are running cost reduction activities, including headcount reductions. However, more than half of our companies are still growing. And for these companies, it is sound to continue with growth plans and to selectively add headcount and cost. This slide shows the organic change in FTEs among companies growing, respectively, declining order intake. By the end of Q3 headcount is reduced with 6% compared to the last year in the companies. With a declining order intake, further reductions are planned for Q4. In the companies with a positive order development, we have increased headcount with 2%. In a decentralized organization like Indutrade, there is not a one size fits all approach, rather individual actions are being implemented continuously. Overall, our companies and MDs are managing the challenging market situation in a good way. However, there is also a strong principle embedded in our culture to continuously improve. By that, we sum up the key takeaways of the presentation. The positive demand development continues. Order intake up 3% organically, slightly lower organic sales mainly due to challenging references, strong EBITA margin of 14.6%. Companies continue to work actively with adapting costs to their respective market situations. Market uncertainty remains for the upcoming quarter, slightly larger order book and higher acquisition pace provides some comfort about the financial performance trend. Ten companies acquired so far in 2025 and still a good pipeline. All in all, a strong platform for long-term sustainable profitable growth. By that, we say thank you and open up for potential questions.

[Operator Instructions] The next question comes from Carl Ragnerstam from Nordea.

It's Carl from Nordea. A couple of questions from my side. Firstly, thank you for sharing Slide 14, quite interesting. Can you talk a little bit about your plans ahead on this slide as well? I mean we can see minus 6% as the companies with declining order intake. It sounds like you would like to continue to take down it even further. And also on the companies growing by 2% I mean, with positive order intake growth, would you try to keep it at around 2%? Or will it -- yes, what is the plan there? Obviously, you want to achieve operating leverage. I guess you will try to keep it as low as possible, right?

Good questions and relevant question. It's -- the answer I mean, broadly, Indutrade is a big aggregation of 200-and-plus companies, as you know. And it's sometimes difficult to have a clear elaborate view to convey to you linked to this. But as you say yourself, we will continue to reduce cost expenses in some companies with a challenging market situation. There have been steps taken already up until now, but there are actually situations where actions were taken perhaps already in Q3 now and the effects of those actions will be seen more in Q4. And yes -- so there is a cluster of companies where cost reductions will continue. And for the majority of the companies, there is small clusters of clear growth cases, and they grow, yes, quite significantly. We have a handful of companies which have added full shifts in their perspective, quite a lot of new colleagues, but the broader majority is, as you say, call, that we will probably grow with inflation, more or less, I would say, in that cluster, where there is or more normalized sort of organic growth development.

Okay. That is very clear. And on order intake, it's good to see that orders are picking up in pace. I guess two questions on that is, of course, firstly, if you see the quite healthy momentum continuing so far also -- I mean, both during the latter part of the quarter, but also now so far in October? And secondly, we saw quite strong order intake in Life Science. If you can try to help us divide it by subsegments there?

Yes, we are all eagerly waiting on the market pickup more broadly and really look for signs to hold on to and build on. And as you know, the broad Indutrade organization is -- the glass is half full, so they are more -- definitely more optimistic than the other way around. I would say that it's slight, slight, slight sort of anyway positive views, attitudes towards the market broadly. But there are still more of a flattish broad trend also. Few segments decreased now, I think. So it's more a sideways movement, but still some optimistic points here and there. And I think you already know most of them, apart from Life Science, which I will comment on more separately, as you asked for, I would say, for us, there are pockets in the energy sector, which is clearly positive. There are pockets in water, wastewater, which are clearly positive, defense-related areas, aerospace-related areas. And now I would say that inventory levels broadly in a lot of segments have gone down. So even if projects have been moved forward, a lot of companies within complicated process industries and so on, they need to move on with some definitely maintenance projects, but also improvement projects in order to run their operations efficiently. So there are maybe not greenfields, but definitely brownfield improvements, which needs to take place here and there. We see that a little bit more and more, I would say. So yes, I don't want to say that the market has turned broadly, it's more a sideways movement, but still a little bit more optimism, I would say, when we talk to our companies. In terms of Life Science, it's clearly the single-use segments where also the inventory levels have decreased, and they are ordering -- and there is a -- there are a number of sort of more complicated diseases, which needs lower volumes both developed and produced in the single-use systems in the life science area. So I think there is a good underlying growth for several years to come in that area. But then they're also in the medical technology area, we see also good momentum, I would say, but that's difficult to express in segments because we have -- it's more a collection of individual companies rather than clear segments we have there. So it's a little bit more broadly medtech related, I would say.

That's very clear. And the final one, if I may, is on Life Science again here. Strong margin development despite the tough orders comps clearly. Of course, you touched upon single use as one effect. Could you help us give any insights into how much it grew organically in the quarter, single use, either on orders or top line, but also what effect it gave on margins?

We -- I can't give you sort of numbers on that specifically, but it's not only single use which is contributing to this, it's also clearly the med tech area. So it's a combination, I would say. And I should also comment on Novo Nordisk. So we have -- it's absolutely less than five companies relating to Novo Nordisk in a big, significant way. And our companies are still -- even if volume has gone down significantly to that customer, those companies are still on an above Indutrade average EBITA margin. So they are still managing the situation in a good way margin-wise. And in terms of Novo Nordisk, what we are picking up is that the large factory capacity building projects they have in Kalundborg where some of our companies are involved will continue. So there will also going forward be some significant order intake at some point linked to further capacity expansion projects, actually. So it's not all -- some day-to-day business with Novo Nordisk is significantly down because they have reduced, what is it, 5,000 headcount in Denmark. Our companies don't have the same relationships. It's a little bit wait-and-see mode for some of those projects. But some of the key big capacity-building projects will move on as we understand it.

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

My first question is on, I would say, both PEW and TSS. It seems like especially in TSS order intake has been good both in Q2 and Q3. And I was just curious to hear about the comments I believe you made early in the year right after Liberation Day in terms of customer decision inertia, if we call it that, and if this has then improved.

It's a relevant question for that business area. It's our most international business area and the business area with most sort of customers into the North American market, U.S. market, and they still feel that there are some difficulties to close projects linked to the tariff situation. Most of that business is indirect for us, I would say. So it's more that maybe we have Western European customers who sell into the U.S. than direct sales. But there is also some direct and there is little bit wait-and-see type of mode on -- in that market still, I would say. So I think as a business area, they are picking up, but also from slightly lower references, I think. So they are moving in the right direction. But a lot of those customers TSS are tending to is industrial and engineering-related companies. So it's still not going to be a super significant pickup, I don't think, but somewhat improving market situation, hopefully, as the tariff situation are stabilizing and at least companies can plan for certain investments with more reliability around it.

Understood. And my second question is just regarding M&A and the acquisition landscape. Any particular regions you find particularly active and/or interesting at this point in time?

I would say that it's Western Europe broadly. Nordics still very interesting. Germany, we see a growing effect from Indutrade becoming more and more known step by step. And we have also full-time resource in Germany now since a while back, our segment leaders are more and more in Germany. And also Northern Italy, we have also a full-time resource there since some time back, and he is providing more and more leads every quarter, I would say. We are maybe a little bit more geographically hesitant to the U.K. But otherwise, I would say Western Europe is -- there are pockets of opportunities everywhere there.

The next question comes from Zino Engdalen Ricciuti from Handelsbanken.

Yes, I've also got a couple on M&A. Just following up why you're hesitant a bit to the U.K., if it's -- so say, related to their underlying market?

Yes, I think there are less and less winning -- industries, winning larger engineering industrial companies in the U.K. in a regional global perspective. So I think you need to be in a context where the broader environment makes money, is successful. It's growing. And unfortunately, I think it's a little bit less of that in the U.K. than other Western European countries. So it is more linked to that, I would say. But there are obviously -- we can still find really jewels in the U.K. as well. So it's not that we have completely shut down in terms of looking for companies in the U.K., but bit more broadly business environment, which is a little bit more challenging, I think.

Understood. And also on the M&A side, when we look at the acquisition pace, which has been quite good in Q3, especially compared with the first half of the year. If we relate this to the last time you passed the acquisition machines, let's say, at the end of '23, we saw a bit of a catch-up effect in the beginning of 2024 or would you say that what we're seeing now is part of a catch-up?

Yes. I think it's partly been a catch-up, which we have also communicated earlier that we expected that in quarter 3. But we also, as I very briefly I think commented on in my presentation that the new organization with a new platform of defined segments and appointed segment leaders since a bit more than 1.5 year back now, they get more and more sort of warm in their clothes, to use a Swedish expression, and have had more time to build pipelines, create relationships and so on and so forth. So I feel maybe comfort is the wrong word, but I'm optimistic in terms of what this investment in resource organization is potentially generating now going forward. So it's two things. It's a catch-up and it's, to some extent, also an effect going forward now of a stronger acquisition resource machinery.

Very clear. And regarding the new organization, would you say that in recent times that your expectation on when they are, so say, fully up to speed has changed? Or is it a couple of years until that is fully operational?

Yes. It's people. They're all individual, some pick up extremely fast, have a little bit more experience since before and some are a little bit more new into the situation. So yes, it's probably difficult to say a time on it. But we are not -- definitely not at full sort of speed linked to this right now. That's still to come.

And also, if I can comment, internal lead generation is sort of a really long-term work, not all companies you contact are, of course, for sale and you need to build up the pipeline and over time, it generates more and more acquisitions then. So it's sort of even if they are working in the really right way with good pace, it takes time for it to end up in closed transactions.

That's correct.

The next question comes from Johan Dahl from Danske Bank.

Just two quick questions. First, on the gross margin. You talked about, Bo, your pricing actions in Life Science, but looking at the other parts of the group, is that also, so do you see a positive trend? Or is it flat or perhaps even more challenging in those parts? Secondly, I was just wondering on the portfolio. I saw you made some divestiture here in the quarter. Is there more sort of portfolio pruning actions going on in Indutrade right now?

I think our companies, in general, are extremely good at transferring costs to the customers and defending gross margin. So I think we -- I expect us to be at a good gross margin level also going forward. So nothing dramatic to plan for in terms of all of a sudden, a decline again or something like that. So I think we are at a good level, and we will hopefully defend and stay at a good level. In terms of pruning, divestments, I think we have probably done most of that short term. So you can never say never, but most have been done short term and not the same sort of number or effects going forward.

Johan, if I elaborate on the gross margin a little bit. I think we saw a positive development in the majority of companies in most business areas. So maybe Life Science stand out a little bit, but for sure, not the only contributor. And then pricing is, of course, one important thing, and then mix. And I think we've seen a positive mix with stronger gross margin company sectors have been improving slightly more than others. That's an important piece in the parcel. And then also currency, actually then since we have a lot of trading companies in Sweden with a stronger currency positions now importing goods products in dollars and euros, improving the margin slightly. So that's also a contributor.

The next question comes from Robert Redin from DNB Carnegie.

Patrik, I just wanted to come back to that parent group or overhead cost in the EBIT table, SEK 82 million. You said last year, it was low due to some internal, yes, cost development, so -- but it is still a high number. Is this a number we should be expecting going forward on the slide?

Yes. It's -- I would say that it is more relevant sort of ongoing quarter level. I would say maybe slightly high. Maybe it is around SEK 70 million or so would be sort of a quarterly level that's sustainable, I would say.

All right. Perfect. And then generally, on SG&A costs, you had that slide showing the [FTE] reductions. But in Q3, did you have much of an impact from those reductions? I mean that was the reduction from a year ago. When did that take effect? And in terms of year-over-year cost development, did it have full effect or half effect or not so much in Q3 this year?

I'm not sure if I fully understood your question. But if you look at total cost -- total overhead cost and SG&A, but also then more sort of operational or manufacturing-related overhead, which we included when we spoke about the development of overhead costs, they increased somewhat during the quarter compared to quarter 3 last year, like 1% or something like that. So yes, ideally, we want this to go down slightly further, but I think we have it under good control, and I think you should expect it to be going sideways going forward.

All right. Yes, because my question was if you bunched together all of the SG&A cost items between gross margin and EBIT, they were growing quite a lot year-over-year. So I was thinking this 6% FTE reduction you had in the businesses with weaker demand that, that maybe didn't have so much of a cost effect in Q3, but because of the timing.

I think the reduction of the people that's end of quarter 3 compared to end of quarter 3 last year. So that's sort of the timeframe on that slide, that number. But I mean, even -- and we have also more things on the headcount side that we have initiated and that will be sort of implemented or executed during quarter 4 and these things will, of course, also have a cost effect, yes, during the quarter. So I think from that perspective, we will have lower cost. But then there are also other things on companies that are growing. They are also doing slightly more things, et cetera. And the net of all this, I don't want you to sort of expect big reduction during quarter 4. So I think it's more fair realistic to estimate sort of a sideways movement of costs.

[Operator Instructions] The next question comes from Mats Liss from Kepler Cheuvreux.

Yes. Three short ones from my side. You mentioned different things that affected your orders and stated price/mix, currencies. Could you be a bit more specific about price and volume?

I think it's difficult for us to be more specific there, Mats.

But in general, we can say I think our companies are still increasing prices, but it's not the levels that we saw during -- if you go back a couple of years, it's more sort of -- I think that sort of price -- pricing routine is more normalized now. So it's more of the normal 1% to 3% increase per year. That's embedded in the numbers, but we don't have an exact sort of quarterly number, no.

And then -- well, just for support, going forward, and what's your feeling about comps going forward in the fourth quarter, year-over-year comps there? How do you feel about that?

The quarter, if you look at top line, I think the references are normal to slightly lower, no sort of significant change, but slightly lower, I would say.

Great. And finally, I mean, you mentioned the opportunities there and the list of acquisitions you have and you mentioned geographical opportunities. But could you say something about opportunities in the different business areas, where are you? I understand not so specifically.

Yes, but we obviously see opportunities, work with opportunities in all business areas and sometimes they play out differently over time a bit. I would expect Life Science to -- I mean, they have a good momentum, good pipeline. All of them have a better pipeline, but yes, Life Science is strong. I think Process, Energy & Water is strong. Industrial & Engineering is also strong. Maybe somewhat -- there are good pipelines in all five areas, but maybe those three stand out a little bit.

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Then we thank you for listening in and asking good questions, and wish you a good day. Bye-bye.