Momentum Group AB (publ) (MMGRB) Earnings Call Transcript & Summary

Welcome to the presentation of Momentum Group's Q1 Report for 2025. I'm here with my colleague, Niklas Enmark, Vice President and CFO, and we will guide you through our report. Our overall performance remained stable in a challenging market with subdued demand. Despite the prevailing tariffs and trade turmoil, we have experienced no direct impact on our operations. We have seen improved earnings and continued strong cash flow, driven by significant contribution from our recent acquisitions. Our acquisition pace remains high and we are confident in our healthy financial flexibility moving forward. Despite global uncertainties and cautious markets, we delivered a stable first quarter with improved earnings and strong cash flow. Acquired companies boosted revenue and our decentralized structure position as well for changes and opportunities. Recent months have brought tense trade relations, geopolitical challenges and tariff uncertainties, which have further affected the cautious market. Although announced tariffs have not directly impacted us, indirectly effects may arise if customers become more cautious with major investment or decision-making processes become prolonged. The Nordic regions business climate remained stable during the quarter, while some customers focus on cost and cautiousness, demand has yet to be clearly impacted by recent tariff turbulence. The weaker demand from the automotive industry stabilized at normal levels, while Finland's industrial demand remained sluggish due to strikes. Denmark's market performed well in pharmaceuticals and green technology. Purchasing prices and costs increased moderately. Our company showed strong delivery capacity, completing the relocation Momentum Industrial's center warehouse without affecting deliveries. The global environment remains challenging, dominated by uncertain international security, subdued industrial activity and currency volatility related to ongoing tariff discussions. However, with limited exports outside Europe and minimal imports, the group is mainly affected indirectly by customer behavior. Given this context, customers are expected to continue acting cautiously. The group's decentralized structure with decision made close to the customers and supplier has proven effective in adapting to market conditions. Despite these challenges, we increased revenue by 11% year-on-year, primarily due to acquired operations and EBITA improved by 1%. In Power Transmission, sales experienced a slight increase in EBITA margins improved. This improvement was mainly due to stable gross margins, favorable operational cost control and somewhat lower logistic costs following the relocation of Momentum Industrial's central warehouse. The relocation was completed during the quarter without affecting business operation and resulted in expenses affecting comparability of totaling SEK 3 million during the quarter. And in total, SEK 8 million, including the fourth quarter of 2024. In Specialist, sales for comparable units declined, primarily due to major system sales in the previous year's period that influenced the comparative figures, especially for parts of the Swedish operations. Sales in Denmark increased, driven by the demand from the pharmaceutical sector and investments in green technology. Acquired operations contributed revenue of SEK 4 million during the quarter. Revenue for comparable units measured in local currency and adjusted for the number of trading days decreased by 2% compared to the previous year. But our EBITA increased by 7%, corresponding to an EBITA margin of 14.4%. The business area profitability measured as return on working capital amounted to 69%, the same as last year. In Flow Technology, sales of comparable units increased during the quarter, driven by favorable product sales. However, the proportion of product and service sales was somewhat low, primarily due to seasonal variations that affected the beginning of the quarter and negatively impacted the EBITA margin. Acquired businesses contributed with SEK 34 million in revenue during the quarter with positive influence in the earnings as well. Technical Solutions experienced a decline in sales and lower earnings for comparable units during the quarter. Capacity utilization in several workshops was adversely affected by increased restraint and caution among customers. Nonetheless, the measurement technology business exhibited stronger performance with heightened marketing activities. Acquired operations contributed by SEK 40 million in revenue and during the quarter, accompanied by healthy EBITA margin. Revenue rose by 36% compared to the same quarter last year, and revenue for comparable units measured in local currency and adjusted for the number of trading days increased by 3%. EBITA decreased by 4%, corresponding to an EBITA margin of 7.6%. The business area profitability measured as return on working capital amounted to 57% compared to 55% last year. We acquired 4 companies during the quarter, adding combined annual revenue approximately SEK 140 million. The acquisition of Hörlings Ventilteknik strengthened our service offering and geographic presence in Northern Sweden, while the acquisition of Heinolan in Finland improves our position in hydraulics and allows us to offer even better service to our industrial customers in Finland. With the acquisition of Sulmu, we broadened our offering in industrial maintenance for the plastic industry, while the acquisition of Avoma adds advanced expertise in industrial service on rotating equipment, turbines and welding technology areas that are important for our continued growth. Two of the acquisitions were made by subsidiaries in the group and demonstrate the strength of our model with good own profitability also comes the opportunity to broaden [ Europe ] operations via acquisitions. After the end of the quarter, we also acquired our first subsidiary in Norway, Håland Instrumentering. The company's cutting-edge expertise in valves and instrumentation will strengthen our position in the energy and process industry. Now I will hand over to Niklas, who will guide you through the financial overview.

Thank you, Ulf. My name is Niklas Enmark. I'm CFO with Momentum Group, and I will do a financial overview going through the earnings and profitability performance in this first quarter of the new year. EBITA during the first quarter increased somewhat to SEK 76 million compared to last year. The EBITA margin reached 10.3% compared to 11.3% a year ago. During the period, we maintained overall stable gross margins for comparable companies in the group. But due to the lower level of sales for comparable companies, our cost of sales increased and had a negative effect on our EBITA margin. Per business area, the industry business area increased both EBITA and margins whereas the business area Infrastructure saw the opposite. This in turn was affected by that the share of project and service sales was somewhat lower, primarily as a result of seasonal variations and also a lower level of capacity utilization in our workshops due to more cautious customers. Positive to note is that acquisitions had a positive contribution to EBITA in the Infrastructure business area. Operating profit decreased to SEK 61 million compares -- corresponding to an operating margin of 8.3% compared to 9.8% year ago. The decrease is partly explained by items affecting comparability of SEK 3 million that relates to relocation costs of Momentum Industrial's central warehouse. All in all, SEK 8 million has been charged for the relocation that is now completed, and we are already starting to see the positive effect on logistics costs and the flexibility. Also, our depreciation and amortization increased with some SEK 5 million compared to the previous year related to acquisitions and the acquired businesses. Profit after financial items totaled SEK 56 million compared to SEK 55 million a year ago and was positively impacted by lower financial expenses than last year, in turn then impacted by positive currency effects and lower interest rates. Earnings per share was unchanged at SEK 0.85 per share for the quarter. During the quarter, our strong focus on cash flow and working capital management showed good results, where our cash flow from operating activities increased to SEK 92 million compared to SEK 61 million a year ago, including a decrease of working capital of SEK 23 million during the quarter. Our return on working capital stood at 58%, which is well above the financial target of at least 45%. Our return on equity was 26%. Cash flow from investing activities for the reporting period amounted to SEK 137 million. This cash flow includes acquisitions of in total SEK 121 million, including settlements and net investments in noncurrent assets of SEK 6 million. The level of net investments was unusually high and was attributed to that number of investments coincided during the quarter. Our financial position continues to be strong. The group's operational net loan liability amounted to SEK 314 million compared to SEK 252 million at the beginning of the period. Our net debt-to-EBITA ratio was around 1.0 at the end of the period. Total cash and cash equivalents, including unutilized approved credit facilities amounted to some SEK 787 million at the end of the quarter. And finally, some comments on our rolling 12-month numbers. For the rolling 12-month period until the last of March 2025, our revenue is now a bit shy of SEK 3 billion. The level is more or less exactly twice the revenue we started with when we were listed in 2022, and an increase by 20% from a year ago. At the same time, our EBITA has increased from SEK 171 million to SEK 323 million, which means that we have surpassed our financial target of at least 15% of annual growth. Our EBITA rolling 12 months is now also 15% higher than a year ago. And now I will hand back to Ulf who will comment on our way forward.

Thank you, Niklas, and I will give you some input about the development over time. All in all, our companies navigate the challenging market situation well with the continued high delivery capacity and adapted cost levels in some operations. Our companies work closer with the customers to be able to adapt quickly to changes in demand patterns and are restrictive when it comes to costs. Our stated ambition is to grow with financial stability, focus on leverage ratio and acquisition-related costs in order to create good growth in earnings per share for our shareholders over time. Our strong financial position enables continued acquisition expansion and our organization and structural capital combined with stable companies and efficient cash flow generation and a clear capital allocation strategy gives us excellent conditions to maintain a good acquisition rate in 2025. The prevailing global and economic situation is difficult to assess, and there is considerable uncertainty regarding tariffs, inflation, currencies, interest rates and future economic trends. Nevertheless, I'm optimistic about the future. The market situation also presents opportunities for operations, and we're confident in our decentralized organization's ability to rapidly adapt its offering and costs. Our broad exposure to industry and primarily to aftermarket customers provide stability and favorable growth opportunities. Should an economic slowdown hit us harder in the future, we're well prepared. We have a customized action plans in place for each company. Momentum Group is an active owner that focuses on developing and acquiring companies within the product and service verticals we have knowledge, competence and experience. We have a clear growth strategy with the ambition to grow through both acquisition and development of existing businesses. Our strategic aim is to offer sustainable products and services that help a customer in their everyday operation. Sustainable for us is to offer quality products with a long lifetime, low energy consumption. Our value-added services is combining our product offering with service maintenance repairs and replacement of products as well as training a specialist expertise in order to be sustainable in the circular economy. Our 3 fundamental requirements for long-term profitable growth are earnings growth, profitability and development. Our earnings growth target is to have an EBITA growth of at least 15%. And to do so, we, of course, have to increase our sales. If we can grow 15% 5 years in a row, we will double our earnings. So the aim is to have an EBITA of SEK 340 million at the end of fiscal year 2026. In order to do so, we have to finance the expansion. We, therefore, have our super efficiency target of EBITA through working capital to be larger than 45%. This is a simplified measure of cash flow and the aim is to pay dividend 1/3. We also have to pay tax, which is around 1/3, and then we have 1/3 left to invest to grow and develop our business. And for us, there are 2 ways to develop a business, to develop the offer as well as business idea and associated offer that support the business idea and to the employees. As I mentioned, our goal is to grow the EBITA by at least 15% each year over a business cycle. That should correspond to have an EBITA of SEK 340 million at the end of fiscal year 2026. As you can see in the table, we are now on the pace of SEK 323 million in EBITA rolling 12 after 3 year and a quarter, and I'm confident that we'll keep up the pace in order to reach our goal in time. A very important factor in being able to reach this goal is to keep up high acquisition pace and that is why it's important for us to generate good cash flow from operations. Our financial target for profitability and working capital, as I mentioned, is a simple measure of cash flow, meaning that if we can derive good after tax profits from our business and be stringent in our working capital measurement, which should generate a good cash flow. Looking at these last 3 years, we have generated more than SEK 600 million in cash flow from operations, and it has also been increasing incrementally year-by-year. So to develop the business is to develop the offer as well as business associated offers that support the businesses to develop the employees. We understand the importance of share knowledge and successful strategies to promote growth and strengthen our common working community. Sharing & Caring is a hub for providing tools, templates and best practices that our companies can use in the daily work. At this Internet page, our companies will not only find a variety of useful templates and tools, but also collection of best practices that have been tested and proven within the group. By sharing these resources, we started to facilitate and accelerate our work process while creating a platform for a change of ideas. This is a helpful site to drive development of each business and organic growth. So as you can see, we have a business school. We have also implemented a sales school to be able to sell on value. And with that also the industrial improvements that we can prove that we can be a sustainable partner for our customers. We also have a set of pieces how to offer -- how to develop an offer. We also in each company have a way forward, a value creation plan. And for example, we also have template how to run the Board work. And as I usually say, it's not what happens on the Board meetings that is important. It's what happens between the Board meetings. That is the most important thing. And we tend to be very activity based that is on the Board meetings that the activities that is making their results. So here, you can see that we have made 28 acquisitions in total. This year, we have made 5, and I'm very proud of the work we do in our acquisition and the templates we have. And of course, it's not that we started to do acquisitions when we were listed. We had done acquisitions for a long, long time, and we have many, many skilled people working in this area. Yes, we have a proven model for identifying, implementing and successful onboarding our companies that we acquire. But we also have, as I mentioned, the focus model and the capital allocation model that says that acquisition at the subsidiary level is okay if you have a profitability of 45% EBITA to working capital. So as I mentioned before, we have made 2 add-on acquisitions during the quarter. Then we also do acquisitions on business area level in all 4 divisions. And then we also have the acquisition at the group level. So we tend to this have -- this is a common topic on all the Board meetings and all the meetings we have in the group that we discuss potential targets to acquire. Thank you for your time and interest in our Q1 presentation. The full report is available on our website. Should you have any questions or specific request, please do not hesitate to contact us via our Investor Relations e-mail or by phone. Thank you, and have a nice day.

Hi, and welcome to this Q&A session on Momentum Group's Q1 report. With me, I have our CEO, Ulf Lilius; and our CFO, Niklas Enmark, and they are here to answer the questions that we have received this morning. So the first question. You said in the report that the direct effects from the announced tariffs are limited. Can you elaborate on the indirect impact? And also which customer segments are showing the most caution? Ulf?

Yes, the direct impact is limited since most of our business is Nordic and not heavily dependent on global trade flows. We have very limited exports and imports from the U.S. Which customer segments? I'm now only making some assumption, but it will probably be those customers with a relatively high CapEx over time that is more likely to postpone or cancel the investments in uncertain times. Sectors impacted could be pulp and paper in the automotive industry, for instance. However, for us, with the large part of aftermarket sales, this does not have to be negative as customers we try to maintain and service their existing machinery to a larger extent.

And here, we have a question about the stabilization in the automotive segment. It sounds like the volumes increased quarter-on-quarter. Is it fair to say that the margin recovery is due to improved volumes in that segment? Or is there an element of focus on other segments?

It was generally a more stable market environment within automotive as well as focus on other segments that benefited the margin increase in business area industry this quarter.

The Swedish krona has strengthened recently. Has this been positive or negative for Momentum Group? Niklas?

Thank you. As we are net purchasing in euros for approximately SEK 200 million, and U.S. dollars for around SEK 20 million, and appreciated SEK means that we will benefit from a stronger Swedish krona, everything else equal, but to a relatively mild degree, as can be seen from also the scenario analysis in the annual report. When we price to our customers, we normally do it in local currency, for instance, in Swedish krona or use the same currency as we purchase in or use different types of currency clauses. We, of course, try to consider the currency in our daily operations in our pricing. As regards to translation effects, as we mentioned in the report, the effect in the operating profit from this were 0. But in the quarter, we actually saw a positive contribution in our finance net due to our loans being to some extent in euros and the Danish kroner.

Organic growth was slightly negative in Q1 and margins are down more than the earnings. What's behind this? Niklas?

To answer the question, we can take a look at the different business areas where we saw that the EBITA margins were increasing in our business area Industry, but decrease in business area Infrastructure. This, in turn, was affected by that the share of project and service sales were somewhat lower, primarily as a result of seasonal variations and also a lower level of capacity utilization in our workshops due to more cautious customers. All in all, our level of service revenue in Infrastructure was around 20% of revenues in Q1 compared to 25% last year, as we also mentioned in the report.

And now a question about seasonal variations. You mentioned seasonal variation in project and service sales within Flow Technology. Could you give more color on how Q1 is typically affected and whether this was specific to this year and last year?

Yes, Q1 is usually a bit softer for service heavy parts of the business. This is related to the fact that some of our customers in infrastructure is electricity and heat production-related customers, and they want to keep up their production during the cooler part of the year. We have not seen the cancellation of service business and or deals or offers, but we also state that the customers are a bit more cautious.

You mentioned lower workshop utilization in Technical Solutions, something you also mentioned in Q4. Is this a stable trend? Or are you seeing signs of improvement? Niklas?

We see a more cautious approach from some customers here, as we mentioned in the report. As we mentioned also that we are continue addressing the business situation and also have taken cost-saving action due to the demand.

Business area Industry showed strong performance. The new central warehouse for Momentum Industrial is now operational. Can you elaborate on the expected benefits? Ulf, please?

Absolutely. The warehouse went live without disruptions, which we're very pleased with. Going forward, we expect a better logistic efficiency with a more flexible cost model. It is also a modern automated solution that strengthened our platform for continued growth.

And now the final question. Given the market uncertainty, our sellers becoming more hesitant. And a similar question, does the global uncertainty you mentioned change your approach to acquisitions?

We have not seen signs on this yet, and we still see a strong flow of opportunities. Our discussions are active, and we try to focus on discussion with the sellers on the long-term situation. That said, we have chosen to pause or halt some discussions where we feel a bit uncertain of the effect from the current turmoil in the market.

Thank you for listening in to this Q&A session. If you have any questions, you can always contact us at [email protected]. Thank you.