Investment AB Latour (publ) (LATOB) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Investment AB Latour's Year-end Report 2020. [Operator Instructions] Today, I'm pleased to present President and CEO, Johan Hjertonsson; and CFO, Anders Mörck. Speakers, please go ahead.

Thank you. Welcome to Latour's call presenting the year-end results and the fourth quarter results. I'm joined here by Anders Mörck. We had a very strong quarter in our wholly owned operations, and we're right in the middle of the pandemic, and we're absolutely not over it yet, and we're still prepared to take further action if needed as a general statement. Our group structure is a little bit changed since last time. We still have 2 major business lines with the wholly owned operations and the investment portfolio. And as you can see, we have added now 2 future solutions to the wholly owned operations. So I'll come back to that a little bit later in the presentation. I think we can go through the next slide. So if we talk about the investment portfolio, there's no major changes in the portfolio during the quarter. Earlier in the year, we divested 20% of our holding in Tomra, which gives us a shareholder of 21.1% in Tomra. We're still a solid main owner in Tomra, supporting from a [ probable ] success going forward. And we have increased our investments in Fagerhult to 47.8%, which brings it back up to the level we have prior to the [ ELSYS ] acquisition. And Alimak, we have increased slightly to 29.6%. The value development during the year was 9.1% compared to the SIXRX of 14.8%. I think that's a quite satisfying results, however, given the pandemic and the circumstances. The underlying development is good. Some of our businesses are struggling with net sales with an organic decline, but generally, the profits are protected very well. Until yesterday, portfolio value increased to SEK 68.4 billion. And the total amount so far this year is 0.5%, where 6 RFS has increased 5.9%. Let's go to the next slide, where we have some comments on our wholly owned operations. I would say it's a year really marked by the pandemic with mixed pictures depending on geography and segments. We have put the employer safety first, which is absolutely the most important. And I think we managed it quite well in that regard. And we've also managed in continuing to build our businesses and protect the profit in our businesses. It's a very strong result. And I think it's due to dedicated management teams and committed employees and our overall very strong cost awareness, and that has given a strong profit development. As you can see, we report a very strong quarter and a very strong full year in our wholly owned operations. In the quarter, total growth of net sales was 11%. Operating could grow actually 37% to SEK 593 million and the EBIT margin almost reached 15% to say to 14.8%. On the full year, total growth of orders was 9%, net sales also 9% and operating profit grew 16% to well above SEK 2,117 million, and that very strong EBIT margin of 14.3%. We're very happy, and we're very proud of these figures, especially considering that we're right in the middle of the pandemic. We're very well positioned for future growth. Even though we have had high cost awareness, we have still continued our investments in product development, sales, and marketing. To drive a sustainable growth, again, going forward. Sustainability and digitalization are very important aspects, and we have continued to increase the focus on these 2 areas. We have set sustainability KPIs in all of our wholly owned businesses. It's always on the board's agenda. And the same goes with digitalization. It's something we're highlighting and driving to a quite high extent. Furthermore, as I said in the beginning, we have launched the 2 future solutions, which is a new investment initiative where we will do minority investments in younger and smaller companies to help them drive and make the world greener, so to speak, and to help them grow, both domestically and internationally. And we provide, of course, capital -- risk capital for these companies. But as importantly also that we will provide our expertise and our network to support these companies going forward. And I'm happy to announce that Pelle Mattisson is recruited as the new CEO of the future solutions and he is on board and in full swing. If we go to the next slide. I talked about the acquisitions we did during the last year. We had a high acquisition activity in the fourth quarter. As you know, we slowed down the activity at the onset of the pandemic in March of last year, but I'm happy -- I'm very happy to say that we catched up quite strongly in the fourth quarter. So in the fourth quarter, we acquired SLT Schanze Lufttechnik in Swegon with an annual net sales of about SEK 100 million. They supply diffusers, mainly in the German market. We signed an agreement to acquire Vega to Latour industries, Italian company. It was finalized and closed in January of this year with an annual net sales of about SEK 200 million. As I said, it's an Italian design and manufacturer of passenger interface systems and electronic systems for elevator and platform mix. We also signed an agreement for Elsys through Bemsiq, and that was closed now in January with an annual net rate of about SEK 50 million. They are manufacturer and seller of LoRaWAN sensors for applications for smart buildings and cities. We also signed an agreement for Fristads Kansas Leijona for Hultafors Group. And is expected to be finalized 1st of March or beginning of March, with an annual net sales of SEK 1.2 billion. And Fristads and Kansas Leijona are a leading professional workwear brands for a variety of end-user segments. So in total, we did 8 acquisitions during the year, adding an annual net base of almost SEK 2.2 billion to Latour. And Latour Future Solutions, we made an investment in Gaia Biomaterials during the quarter. They develop and manufactures biodegradable biomaterials from renewable sources to replace fossil-based plastics. And now in January, after the end of the quarter, we acquired VM Kompensator to Latour Industries. They're a Danish designer and manufacturer of compensator and expansion joints used in industrial applications. So I'll come back a little bit later in the presentation. And now I'm very glad to hand over to our esteemed CFO, Anders Mörck. So over to you, Anders.

So thank you so much, Johan, and we go to the first business area for a few comments, which then is Caljan. There was a very good momentum for the e-commerce sector last year and the demand increased, and that is also a very good sign for 2021. Caljan had a very strong net sales and also excellent profit in the fourth quarter like they had in the third. So there was a very strong second half of the year. We had an excellent profit margin in the fourth quarter of 21.8%. We have continued during the year to invest in Caljan expansion. We have a new factory in Latvia and also established a factory in the U.S. that will be completed during 2021. So looking back at the first year, together with Caljan, we are really happy what they made last year. And we can summarize a year with EUR 112 million in turnover and EBIT of around EUR 20 million, which is very good and overall expectation. So thank you so much to our colleagues at Caljan for this delivery, so to say. We go to the next page, which then is Hultafors Group. And Hultafors continued its excellent development in the fourth quarter, where we had a good development for more or less all product areas and also all markets. In total, net sales grew by 20% in the quarter, of which 16% is organic growth. And that is really impressive, and we can wonder do they even feel there is a pandemic going on in this business area? We also had very good cost control in the company. And combined with the high net sales, that contributes to a strong operating result and an operating margin of 74% in last quarter. We have high focus on development of the sales organization and on marketing as well as product development and digitalization. So that said, we welcome our new CEO, Martin Knobloch to Hultafors Group, and that puts the agenda for next year I think when we have had this strong year in 2020. So very welcome and good luck, Martin coming here. Finally, as you answered before, Hultafors closed or signed a deal with Fristads Kansas Leijona recently, and we hope to close the deal in the coming weeks going forward. So we go to the next page, which is for industry. We saw a continued recovery for most of the business units during fourth quarter. And in total, we had flat growth in net sales. We can say that [ Bentek ] had an outstanding development of the business units with really good development, both in net sales and profit. Good cost control contributes to a very good operating result with an operating margin of 12.3%. And I think we can say that this is really impressive as well because you should remember that Latour Industries was the business area that was the most hit by the pandemic, not least by their presence in Southern Europe, in Spain, and Italy, and so on. So thank you very much, everyone, in Latour Industries for this cost contribution. And we will continue to build the basis for future business areas and use Latour Industries such an instrument. We also know that we are doing a lot of efforts in these smaller companies, which will lead to higher profitability going forward, as we have said before. And then the trend is important, and the trend is positive. We have also made acquisition of Vega, Elsys, and VM Kompensator, as said by Johan before. So we go to the next page and the next business area, which would be Nord-Lock. 2020 was a really challenging year for Nord-Lock. Both markets were down before the pandemic, then we had the pandemic happening. And then also, we have to fight with the currency because Nord is probably the most international company. We have in the group with high dependency on income in dollars and euros. It's very impressive to see that Asia Pacific during this year has continued to grow and showed a really good fourth quarter, and that has mitigated the effect from other markets somewhat. We have a few one-off costs during the quarter. And together with the currency effects, we can -- even though we have decreased in net sales, say that the underlying results for Nord-Lock in the fourth quarter actually was in the same level. Adjusting then, of course, as last year, which is really impressive. So this is not a company in crisis, but we had a little tougher situation last year. So we can still start strong going forward and we see a lot of opportunities with Nord-Lock. Then we go to Swegon. That also was very much affected on top line by COVID-19. But as before, there has been a mixed picture because we are represented in so many different geographies. Swegon developed very positively and also the business area, residential. But in total, net sales decreased by 6% in the quarter. And considering that, I think we can say that the operating margin during the decreased organic sales is really impressive, coming in at 11.6% compared to 9.9% last year. We can also say here on Swegon, they acquired Schanze Lufttechnik in the beginning of the fourth quarter. And we look forward to Swegon also going forward and now say a big thank you to all business areas for what they contributed to what was total profit this year. We go to the next page, and we have the net asset value. And as you can see, the net asset value increased by 13.7% during the year to SEK 153, and that can be compared to 14.8% that was the development of SIXRX. But when you look at this valuation, you should bear in mind that our valuation is just an indication of a prudent view of our value in a very difficult stock market where quality companies are rewarded with very, very high multiple. But we have not reflected in our indicative valuation. And I think we can say, and we can also see what have been achieved during the year that we really think that our companies are quality companies. So you could have many different views and spread between normal valuation, if you want to use that word, and quality companies on the stock market have been so wide. So it's really difficult to decide which multiple that should be the right one for our company. Our share price at the end of December was SEK 200 per share, and that corresponds to a premium to a net asset value of 31%. Yesterday on February 11th, the net asset value was unchanged, SEK 153 per share. And with the same comparison, the share price was SEK 196, and the premium then was 28%. On the debt side, you can say that we had a very, very good cash flow at the end of the year, bringing down our net debt to SEK 4.6 billion from SEK 6 billion last quarter. In this context, we would also like to bring forward that we had received an official rating during the fourth quarter from Fitch, which put us on the level A, flat. And for that, those who are -- know about rating, that's a very, very good rating. So we are very, very happy about that. And the total net debt now corresponds to about 4% of the total market value of our investment, which is 2% lower than last reporting date. And this brings us to the conclusion that we have a very, very good capacity to do new acquisitions and invest further in the growth of Latour going forward. Johan, thank you very much. So I'll leave back for the next picture and you, once again.

Thank you, Anders. Very good. Our financial targets, if we summarize where we are, we should have an annual growth of about 10% is our target operating margin above 10% and return on operating capital somewhere in the area of 15% to 20% of our targets. And growth last year was 9.4%, so slightly under the target. I have to say that we grow 9.4% during a year with almost 10 months of full pandemic. I have to say that we're very happy about that. And the EBIT margin is well above 14.3%, and the return on operating capital is just below of 46%. And that has to do with a lot of acquisition activities that we did in '19 and '20. That plays in there. And I think we can go to the next slide then. So given the good development and the very strong financial position that Anders disclosed and talked about, our board of directors proposes an increased dividend to SEK 3 per share. And last year, the proposal was revised to SEK 1.25 due to the COVID-19 and the original proposal was 275. So this year's proposal is fully in line with our dividend policy. And lastly, next slide, and I will go there. Latour is a sustainable, long-term investment company. Our long-term ambition is not changing due to the ongoing pandemic. We're still investing in growth. We have a strong financial position, and that helps us to expand our existing holdings. And invest in those operationally, so to speak, and also do add-on acquisitions to support further growth. So we will come out of this crisis even stronger. That's my clear view. And therefore, we continue with all the strategic long-term initiatives in our company as before. And I, like very many people, I hope that we will soon be out of the pandemic, and we can go back to more business as future. But as you can see, so far, Latour has managed the pandemic very well. And we have protected our entities, and we have protected our companies, and we have continued to invest in our holdings for the long term to come out of all of this even stronger. So that concludes the presentation from Anders and myself, and then we hand over to the Q&A session.

[Operator Instructions] Our first question comes from the line of Joachim Gunell from DNB Market.

So first of all, congratulations to the appointment of the financial profile of the year in Western Sweden. I'd like to kick off with a few questions, and I'll get back in line. But Hultafors has, I mean, really scaled up here with recent acquisitions. You seem to really have an industry-leading sales force at Hultafors, but can you talk a bit about what opportunities and challenges you see with the newly acquired Fristads brands? I mean they seem to have somewhat of a challenging last few years operationally, and perhaps you can comment a bit more on the profitability of the acquired brands and synergy potential.

Thank you, Joachim. I can allude to that and Anders, if you wish. Now we're very happy that we have acquired 3 subs and those brands. They are very strong brands, especially Fristads in the Swedish market, Kansas in the Danish market, and Leijona, well-positioned brand in the Finnish market. It's correct. If you go back some years, they have been struggling a little bit with profitability. That has, however, picked up. It's not from Hultafors average margins yet, I should say. But we think this complements the Hultafors business very well. If you take the sneaker's workwear brand, that is our brand, they have actually a comparably weaker position in the Swedish market, where Fristads is very, very strong. So that actually makes a lot of sense in complementing that way. But it's the brands that we have acquired, and we intend to keep the brands and develop these brands. And obviously, long term, there are synergies, especially on the sourcing and the logistics side of that business. So we're quite confident that over time that we should bring the Fristads Kansas and Leijona colleagues up to the profitability levels of Latour.

Very interesting. And looking into now 2021, where will your attention be as a management team, say, for the unlisted businesses or the industrial operation in terms of trade-off versus focusing on building more future solutions versus strengthening your current platforms? And then also just to -- is it possible to quantify? Would you say that your financial muscle is still somewhere in the range of SEK 5 billion?