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

Welcome to the Indutrade Q2 presentation for 2026. Now I will hand the conference over to CEO, Bo Anbic; and CFO, Patrick Johnson. Please go ahead.

Welcome, and good morning on our behalf as well. We are glad to present a strong quarter, and let's start with the overall highlights. We had a good development in many areas in the quarter, starting with the top line development. Demand continued to improve and total order growth was 14%, of which 8% organically with the majority of our companies growing. continued positive book-to-bill of 105% -- and the strongest demand was with companies having customers within the medtech and pharma area and also the energy sector. Second pharma area and also the energy sector. Net sales increased 11% in total to a record high SEK 9 billion, with strong organic growth of 5%. EBITA was also on a record high level, and the EBITDA margin improved to 14.7% with good operational leverage on the organic sales and margin accretive acquisitions. Cash flow from operating activities increased and inventories were flat from last year organically. We continued being successful in terms of acquisitions. Nine companies acquired in 2026 so far and slightly larger companies, on average, our pipeline remains strong. As mentioned, top line development was strong and demand improved. However, still varies across companies, geographies and segments. Companies with customers within med tech and pharma and the energy sector experienced the strongest demand, but all major customer segments improved compared to last year. Despite the strong net sales, order intake was even higher, resulting in a positive book-to-bill in the quarter. The order backlog is now 8% higher than the same period last year. In terms of sales, acquisitions contributed positively with 6%, a sequential improvement from the 5% we had in Q1 '26 and currency movements had no impact in the quarter. The organic development was good, plus 5%, benefiting from the increased order backlog development the last few quarters. All in all, a very good top line situation strong sales, but even stronger order intake -- if we move into sales per market, sales improved in the Nordic countries with a broad positive development in many companies and segments, except in Denmark, which were down due to lower deliveries to Novo Nordisk. In the rest of Europe, the situation was mixed with slightly negative development in the Benelux region, mainly due to lower construction activity and some tough comparisons in a few companies. Sales was flat in the U.K., Ireland and Switzerland and Austria and up in Germany. Development in Germany was mainly driven by the engineering sector and companies within med tech and pharma Sales in North America and Asia is more volatile. This quarter, it was flat in North America and up in Asia and development in Asia was mainly driven by valves for power generation. Total EBITDA increased 19%, corresponding to an EBITDA margin of 14.7% and compared to 13.7% last year. One of our companies in the final earnout stage has performed better than expected. Their earn-out became larger. -- than the provision we had. So the additional amount we had to pay to them impacted our profit negatively. Excluding this revaluation, the EBIT margin was 14.9%. EBITDA margin was positively affected by the organic sales development, continued strong gross margin and margin accretive acquisitions. Regarding the gross margin, there have been price increases in many areas during the quarter, especially connected to freight, certain raw materials, semiconductors and some electronic components. But our companies have done a really good job in passing price increases to the customers and protecting their gross margins. Looking at the sales development per business area, 4 out of 5 business areas had organic growth in the quarter. Lifestyle stands out with really strong development and it's mainly connected to broad positive development for many companies within medical technology distribution. We have, for example, deliberately invested in the Polish life science market since some time back, and see some really good progress there recently. Process Energy & Water and Industrial & Engineering had good development from many companies and segments. Process Energy and Water benefiting from the large order book built up the last quarter. And within that sector, it was predominantly the Energy segment, broadly increasing -- and for example, investments in gas-powered power plants, but also cooling applications for data centers, and we see some emerging defense orders coming into this business area as well. In terms of industrial and engineering, it was rather broad in terms of sales improvement to mention some areas. We had good progress in terms of hard metal tools, specialty chemicals and the automotive aftermarket. Infrastructure & Construction was down 3%, still impacted by the weaker general demand and thus lower order book values coming into the quarter. But I would say that the outlook for the second half of the year is cautiously optimistic. Technology & Systems Solutions had a positive development with 2% organic growth. However, from somewhat lower levels, but nonetheless, good progress. And also, I would say that many companies are delivering in a good way and step-wise increasing. And I would say that also there, we have a cautiously optimistic perspective on the second half of the year. Four out of 5 business areas improved the EBITDA margin in the quarter. Industrial & Engineering and Life Science were positively impacted by the organic sales growth gross margin improvements and also margin accretive acquisitions. Infrastructure and construction has for a longer time, work with cost reduction measures and some divestments to improve in margins and margin accretive acquisitions contributed positively in Process Energy & Water. Technology & Systems Solutions had a lower EBITDA margin compared to last year, impacted by weak performance in a few project-oriented companies, mainly in the U.K., as we have talked about earlier. Acquisition pace was good in the second quarter, and we have so far this year, welcome 9 companies to Indutrade with a total annual turnover of SEK 1.5 billion. continuing the successful trend we have had since the second half of 2025. Looking at the rolling 12 months, we have formally closed 16 companies with a total annual turnover of SEK 2.2 billion. During the quarter, we announced the acquisitions of Acton in Sweden, Facotec in Germany, Valco in the Netherlands, Createch in Germany and Ortec in Norway. And after the end of the period, we announced 2 add-ons, Dorte Egeland, in Denmark and Alba in Finland. All business areas, except Infrastructure and construction have done acquisitions. Infrastructure & Construction continues to prioritize organic operational improvements. This year, so far, the average company size has been on a slightly higher level they should not, however, be seen as a strategic shift. We are opportunity oriented and act on the opportunities we believe to be accretive and successful. Consequently, there will be times when we have periods of larger acquisitions and also periods with smaller acquisitions being made. The acquired EBITDA was on a high level in Q2, as can be seen on the graph to the right, at SEK 85 million. Also looking at the EBITDA margin of the acquired companies, it was on a margin accretive level of 17.6% for the quarter and 17.5% rolling 12. Good to note that this includes transaction costs, so the underlying margin is even higher. Our business areas are proactive in the acquisition work and building pipeline. Our business segment leaders are spending more time on acquisitions now compared to a year ago and the current acquisition pipeline is on a high level. By that, I leave the word over to Patrik to comment more on the financials.

Thank you, Bo, and Bo has already talked about many of the KPIs. But -- good to highlight is also the year-to-date numbers with order intake and net sales up 8% and 6%, respectively. Gross margin strengthened in the quarter and also year-to-date. And as Bo described, our companies they are successful in transferring price increases, price increases to the customers. So that's really good at them. EBITDA and EBITDA margin was strong in the quarter, and even if and even higher actually, if you exclude the negative effects Bo described regarding revaluations of earnouts, and they are connected to 1 company performing better than expected, which, of course, clearly is a good thing. And if you exclude this revaluation, the EBITDA margin would have been then 14.9% in the quarter. Year-to-date, we are on 14%, in line with our financial target. Finance net decreased 4% in the quarter and 11% year-to-date due mainly due to lower interest rates. Tax cost increased 22% in the quarter and 14% year-to-date as a result of the higher profitability mainly. Strong growth in earnings per share of 23% in the quarter and 10% year-to-date, and I will talk about that a little bit more on the coming slides. Return on capital employed, same level as we had in Q1 on 18%. Operating cash flow improved on the back of the higher result and was up 20% in the quarter and is up 10% year-to-date. And finally, net debt to EBITDA was on a controlled level of 1.7%. So let's look in more detail on the cash flow. Cash flow from operating activities improved 20%, as I said, mainly due to the higher results. Inventories were in line with last year, but working capital in total is up slightly, primarily due to increased receivables coming from the higher invoicing pace. Cash conversion continues to be very strong at 137% in the quarter, and working capital efficiency took another improvement step. And looking at the EPS, following a soft development for some time, EPS improved significantly in the quarter, up 23%, actually on an all-time high level. And of course, taking historical share splits into consideration. Main reason is obviously the higher operating profit, but also the lower finance net that I talked about helped as well. And looking at the more long-term perspective, the 3-year CAGR, it was minus 2% coming from a strong level than 2023, and plus 7% looking at the 5-year CAGR. And lastly, looking at the financial position and the net debt, that is seasonally high in quarter 2 and due to the dividend payout, of course. It increased versus last year because of the increased acquisition pace. However, our net debt ratios are stable and on a controlled level. Net debt equity on 55% compared to 52% last year, and net slightly higher than last year and it came in at 1.7 billion. And if you execute earnouts, it is on 1.6 million compared to 1.4 million last year. And the financial net debt, which is then the part of the debt that relates to borrowing that needs to be refinanced, is also low at 1.2 million. In conclusion, our financial position is strong, creating good room for continued value-accretive acquisitions and also organic growth initiatives. I think this is also confirmed by S&P, who actually upgraded their outlook for us from BBB- with stable outlook to BBB with a positive outlook. So by that, I leave over back to you, Bo.

Thank you. We recently announced some changes in the group management where we have recruited 2 experienced and well-qualified persons. First, we have Anna Vilogorac, who will be the new CFO of Indutrade. She will assume the role no later than January 14, 2027. Ana has a broad experience from senior finance positions in global listed companies combined with deep expertise in capital allocation, business control and strategy. She is currently the CFO of Ratos abi having previously served as CFO of the Newland Group. In addition, she has had many roles within Sun week, working with group strategy and M&A before taking on senior finance positions, including Head of Group Business Control and CFO of the ROC Processing Solutions business area. Then we have Hakan Svensson, who will be the new Head of Business Area Infrastructure & Construction from August 1, and Koala, the current head will continue as a business segment leader within Indutrade in another business area. Hakan is not new to Indutrade. He was actually the Managing Director of our company banks on Marine back in the year 2000. Since then, he has continued to successfully manage companies in different situations and geographies, including being the CEO of the Darian Group and EVP of Sidra and various positions within Dow Corning. I'm very glad to welcome Ana and Hawken to Indutrade. I'm confident they will be highly valuable as we continue our journey of sustainable profitable growth. Lastly, some key takeaways before opening up for questions. Strong top line growth in the quarter, despite the strong net sales, order intake was even higher, resulting in a positive book to bill in the quarter. Also, EPS growth was strong. All-time high EBITDA and EBITDA margin improvement with good operational leverage and strong gross margins. Looking ahead, we have a larger order backlog and good acquisition momentum, but the general market uncertainty remains on a high level. Nine acquisitions so far in 2026 and the continued strong pipeline providing good conditions for a continuously strong acquisition pace. We delivered on many of our financial targets in the quarter and are fully focused to keep the momentum going. Thank you.

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

Patrick and Martin. Three from my end, just on order book margin and M&A. So firstly, in order book. I appreciate you've talked about grid few quarters now. But could you give an update on lead times just in the context of the large order book in this quarter? And secondly, could you just give a bit more detail on what drove the performance in Life Sciences just a large customer? Or is it sort of broad-based across the Life Sciences group?

Yes. We have had part of the order book with longer lead times partly in the life science area and partly in the Energy segment. But quite a lot of the deliveries linked to this order book will happen in quarter 3 and quarter 4 now, I would say. So yes, that should be a strong platform for a good sales situations in those segments in the second half of the year here. And Life Science was broadly, I would say, strong in medical technology companies. In the previous years, I would say, Life Science has been mostly driven by sales to production-related sales to the pharmaceutical companies. And now it has switched a bit to our medtech companies selling products, which are used in hospitals and laboratories and research institutions. We had some sort of locomotives in that area, but it was -- the sales growth was not -- or the order intake growth was not purely driven from that. But the Polish market is interesting and strong I would say it's a bit underinvested versus other Western European markets, countries. So there are -- there is a strong investment phase, which has started and will continue for some time. We bought a company in the Polish market 2016. And since then, we have done some other activities, and we have a continued strong acquisition focus on the Polish life science sector. So I think that's the answer to your order intake question.

And just 2 quick ones on margin and M&A sort of on margin. Could you just break out how much of that was operating leverage versus versus margin accretion from M&A, but also maybe just give a comment on price cost, given the pricing headwind you faced in the quarter also by some pricing on your side as well.

Well, if we start with the gross margin, it was slightly better than a year ago. I think we had $35.6 million this quarter and EUR 35.3 million the last one. So a slight improvement in terms of gross margin. And I don't know if you can, Patrick, better than me answer the balance between operational leverage organically and acquisitions? Yes. I can try. I mean, we have the good leverage on both the organic side and the acquisition side. I think the biggest driver, I would say, this quarter for the margin improvement is the organic one. With organic sales increase of 5% and organic profit increased with 11%. So there, you have your biggest driver, but acquisitions also contributed.

Okay. And do you have an outlook for sort of price cost going into H2 or sort of similar dynamics in Q2 and until?

I would think it's fairly similar going forward in the second half.

Okay. And -- and just lastly on M&A. Any change in terms of pacing of deals? I know sort of you paused them slightly at some point last year. Is it kind of more linear in terms of when they happen for the foreseeable -- for the coming quarters?

Yes. But now we are -- we have a strong pipeline. And right now, less hesitation in terms of finalizing projects. So the expectation is that we would continue in a good pace also in the second half of the year.

The next question comes from Max Back from Seb.

Thank you, operator, and good morning, Boltryk. Perhaps starting with the Infrastructure & Construction segment. As you mentioned, you are cautiously optimistic here for the second half. And I suppose that has to do with the book-to-bill actually being slightly above 1 in -- so 2 questions on that segment. First, are there any specific subsegments or sub-end markets that are perhaps trending in the right direction? And then also with -- as you said, Hakan coming in as new Vice President for that segment, do you see any changes that will be made? Or will it be business as usual?

I think it's broadly a better better momentum in several countries in terms of infrastructure and construction coming up now. There has been quite a lot of delays in projects -- in the first quarter, it was quite a lot of weather-related issues, installation companies had to delay that. And now obviously, there is prime time to dig in the ground and work with outside installations. And then just that the macros are step-by-step trending in the right way. So yes, we see a better and better momentum broadly. And there are some I would say, water, wastewater is a segment where we have very strong positions and where we expect good growth and there are other areas as well where there has been a bit subdued situations. So no, it's step by step, just a better broad improvement, I would say. But it's not going to happen overnight. It's step by step and I think sometimes smaller steps as well. Hakan and you are both good leaders. They have slightly different leadership styles as we all have. And to use a bit of a sports analogy. Sometimes it's beneficial with the new voice in the locker room. And has managed the business area through a phase of a lot of cost reductions and some divestments. And now it needs to be faced with revenue growth, business development, strong focus on sales. And I think this shift will be beneficial in that perspective.

Okay. Sounds good. And then turning to the Technology & Systems Solutions segment. You said the thing there. I believe that you're cautiously optimistic here for the second half and I think we have seen now 3 quarters in a row with a book-to-bill above 1 and quite a bit above 1 here in the last 2 quarters. if you could just touch upon the lead times and everything all else equal, how soon should this potentially then translate to a bit more positive organic earnings growth for the segment? If you have any thoughts on that?

Yes. As you remember, we had an unfortunate situation in quarter 4 in that business area with 2 U.K. companies which had some mismanagement in them. And that is impacting the business area quite significantly. And there is transformation of those 2 companies ongoing, and it takes a while to go from 1 sort of niche orientation, which they had to going back to more of their original business platform. So I really hope that towards at least quarter 4, we will see first signs of financial benefit from this transformation. So if you exclude some of these problematic companies in that business area, the earnings quality is actually good. So it's more specific a small number of specific companies holding them back right now, and there is intense work going on to rectify that situation. And as all of you know, it's -- it takes some time to transform companies. There are new MDs in these companies since some months back now, we have had really strong support from also outside help to kick-start focused agendas on these companies now. So I'm optimistic that we will see improvements, but maybe more towards the later part of the year than in the beginning of the second half year.

Okay. Perfect. And then focusing a bit more on this specific quarter, Q2. I mean you have mentioned it and we see it in the numbers, it was very broad-based the improvement. But is there anything extraordinary in the quarter that supported the outcome in terms of project completions or something similar that could be relevant to be aware of?

No. I -- not on Indutrade group sort of not significant on a group level. There were some drivers in specific business areas. So for Process Energy & Water, you -- we see strong sales into the Energy segment and gas power plants, but that will continue also in the second half, even stronger in the second half, I would say. And in the life science area. I spoke a bit about this Polish market, and that's been strong and equal to process Energy & Water, I think that will also continue in the second half of the year.

Okay. Perfect. And then the final question, a bit broader, perhaps. But as you stated during the presentation, very healthy M&A activity here during the first half of 2026. And it seems like you're quite upbeat here on the second half as well. And this, of course, would market quite clear acceleration versus the previous 2 years that -- as also mentioned previously, we were perhaps burdened by the organizational changes that were made and then also perhaps a more hesitant stance due to the geopolitical turbulence and so on and so forth. So the question being is basically you feel that the organization is fit for FY to now maintain acquisition pace more in line with the historical average train the trade.

Yes, I would say, even stronger than the historical average. Well, we have a very strong platform now and the focus is also clearly there and the understanding of the importance of a strong pipeline and -- we have step-by-step, I would say, build capabilities on generating leads and deals ourselves rather than relying on external brokers to the same extent as before. So I think the platform is stronger than ever now.

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

Mark took almost all of my questions. So I'll see if I find something else here. But what I was wondering was on Infrastructure & Construction. You've done a lot on the cost side -- and I'm just curious to understand here if we still get, let's say, kind of limited organic sales growth, do you still have more benefits to come that would support a margin increase? .

A relevant, interesting question. We start to to be a bit limited in terms of driving performance with cost reductions. Maybe 1 additional smaller step, but it really needs to come more and more from the top line now, I would say -- if that answers your question.