Ratos AB (publ) (RATOB) Earnings Call Transcript & Summary

Good morning, and welcome to this presentation covering the fourth quarter and the full year in Ratos. I am joined by Jonas Wistrom, our President and CEO; and Jonas Agrup, our CFO, here in the studio, and they will guide us through the results shortly. In the end of the presentation, you will be able to raise questions in our Q&A session and this webcast is also being recorded. So you can find it at ratos.com afterwards. Without further ado, I'll hand over to Jonas Wistrom.

Thank you, Josefine, and thank you, everyone, for joining us this morning. Let's start off with the first slide showing the year for 2022. We grew our EBITA with 9% and it's encouraging that the Platforms we acquired in 2021 actually showed strong growth -- organic growth during 2022, some 35%. The organic growth was up 8% during the year, and we had a record high order intake, and we have record high order books, which I will come back to. On the negative side, we have weaker markets for wind power and Consumer, and I will come back to that as well. When we look back at 2022, we can see that also this year, we have continued to invest in the infrastructure and the Industrial services area and that is something that will continue to be the focus going forward. If we take a look into the fourth quarter, our EBITA was up 41%. For those who have had time to read the report, we actually had cost reduction actions during the quarter. And we don't adjust for smaller numbers, but -- so these SEK 43 million, they're actually included in the adjusted EBITA. If we adjust it for them, actually, the EBITA would be up 60% in the quarter. In general, we still have a good demand in the market. And also in the Q4, the order intake was very high. Of course, we have to mention the fact that Semcon, which was a big acquisition, was acquired and is in the numbers in November and December for the fourth quarter. The wind power market, as you have seen, has been very low. You see the big OEMs showing negative numbers and coming back to that. And the consumer market has, of course, deteriorated based on the inflation we have in the society. If we take a look at the business areas in alphabetic order and start up with Construction & Services, yet another very strong quarter in all respects. As I mentioned, we have a record-breaking order backlog and order intake. We don't disclose these numbers, but I can say that both order intake and order backlog is far above the yearly sales. And it's also -- why is that? I mean it's -- the construction market for us is very much into infrastructure and public projects. And maybe you noticed also that in January, we sent out a press release for another big order on SEK 700 million for schools in the Gothenburg area. Sales was up 51%, organic growth was as strong as 22% and EBITA up 53%, even more if you consider the cost reductions we actually had in SSEA Group. And the EBITA margin is up close to 8%. So a really strong quarter for Construction Services again. Consumer is another story. We had lower sales. And the main contributor here is Plantasjen. If you look over the year, Plantasjen has been hit. If we look at the other consumer companies, it looks much better. So the numbers are sharply down. We have also too high stock levels in Plantasjen, affecting our cash flow. We have performed cost reduction actions in both Plantasjen and in KVD, which will save up to SEK 100 millions. These problems we have in Plantasjen, we will continue and we will find a solution on this is our plan for the year 2023. If we go to industry. Strong EBITA growth, of course, due to the acquisition of Knightec and also Semcon that has been with us for 2 months. Strong development for these companies, but also a strong -- a good development for all the industry companies during the quarter. We have -- Diab is thanks to the restructuring program, making a better results in Q4 this year than Q4 last year. But the wind market, as I said, actually continue to deteriorate, and we are also addressing that problem. I got the question in an interview with oil gas Industry this morning, will there be no new large OpEx savings by reducing staff, et cetera. No, we won't see a program as big as that when it comes to OpEx and people. But we need to take some actions to make sure that Diab can be at a profitability level they should be. EBITA all in all, is 3x up versus last quarter 2021. So with that, I will just say a few words about our acquisitions. If we look at the Platforms, in 2021, we acquired Vestia in Sweden and Presis Infra in Norway. During this year, we have made 3 platforms: NVBS in Construction Services, Knightec and Semcon in Industry. If we take a look at the performance during 2022, organic for Vestia and Presis Infra, they together are up 35%. In Swedish currency, Presis Infra is up even more than on the slide. We have also performed 6 add-on acquisitions, and these add-on acquisitions will be more and more important. The more our group is the homogeneous group we are striving for. We have acquired these companies for a multiple between [ 5 and 6 ]. But upon that, we gained synergies from these acquisitions, and we'll continue to work this way. And I think this is something that separates us from the popular word compounder or in Swedish [ Seri for Werber ]. We work in an industrial way, when it comes to acquisitions, 2 in Industry and 4 in Construction & Services. Sustainability becomes more and more important. And we work hard with that and Josefine will take us through some success stories in the year and quarter. Thank you, Josefine.

Well, as Jonas mentioned, over the year, there were several high-profile contracts secured in Ratos family that will accelerate the transition towards a more sustainable future. Well -- and to mention a few words on the full year before we move into the quarter. We are extremely proud that Aibel has become a key supplier to the world's largest facility for offshore wind in the North Sea. And we are also very proud that HENT is building Norway's first battery factory, the FREYR batterys Giga Arctic , actually the start of a whole new green industry in Norway. If we look at the quarter, you can see a few highlights on the slide. There are both recognitions and sustainable business to be proud of. Excitingly enough, Knightec, if we start at the end, is part of the development team at Oceanbird. And Oceanbird is a joint venture between Alfa Laval and Wallenius. Knightec's part is to develop new technology for wind power vessels -- wind power vessel propulsion, sorry. And if you look at the maritime transport, they emits around 940 million tonnes of CO2 annually, and that is 3% of the global greenhouse gas emissions, actually more than airplanes. So the little part, Knightec is providing here is going to make a huge difference in the future. And if we look at the first 2 examples, it's SSEA Group and Speed Group, and we are very proud that they are recognized for their sustainability efforts, both of them receiving distinguished awards during the quarter, and we are absolutely sure that this will make them more attractive as business partners going forward. So, that was a few words on sustainability from Ratos, a sustainable business to be proud of. Now, I will hand over to our CFO, Jonas Agrup, for some financials.

Thank you, Sorry. So let's move into the financials. I will start showing you the EPS development for the year. And we were down 41% down to SEK 1.68 . And this is very much explained by very large positive onetime effect in Q4 last year, and we had some minor negative onetime effects actually in the fourth quarter this year. One of the biggest effects was the revaluation of the Dun & Bradstreet shares that we had in Q4 last year. So this is a bridge explaining what has happened between -- you can see it's earning after tax in Q4. And also you can see to the right, we have earnings after tax in Q4 2022 and '21 to the left. So we have an uplift in operating EBIT of SEK 138 million. And the bars that are orange marks here is actually onetime effects that we have if you compare quarter-to-quarter. And if you add up these orange bars, it's in total SEK 370 million. So if in the fourth quarter last year, we had a revaluation of the Dun & Bradstreet shares that was SEK 164 million. We had restructuring costs, as Jonas has talked about in 3 of our companies in the fourth quarter this year. That's SEK 43 million in total. We also had a onetime positive effect in consumer in the fourth quarter last year, and that was actually an effect of -- or a result of an early termination of a lease contract in Plantasjen. We also had a negative effect in the finance net in the fourth quarter this year. And in the fourth quarter last year, we booked a deferred tax asset of SEK 66 million in total. And this was the first quarter when Ratos was taxed as an ordinary company and not as an investment company anymore. So that's why we booked this full amount of SEK 66 million in the quarter. And then we had also in Diab, a reversal of a deferred tax asset of SEK 29 million in the fourth quarter this year. So that is sort of the bridge between the SEK 383 million and the SEK 45 million in total, minus SEK 370 million. If we look at the leverage. You can see that we are at 2.5x. Our financial target is to be between 1.5x and 2.5x. And we can be as high as 3.5x in leverage. So this increase is very much driven by the financing of the Semcon acquisition that was made in the end of October. And we also saw some working capital buildup in -- mainly in the consumer business area during the year. And if you look at the total net debt in the end of the year, it was SEK 4.8 billion compared to SEK 342 million in the end of last year. If we then look at the bridges, we moved to the net sales bridge. We were up 42%. A lot of this growth was coming from a strong organic growth, 12%. We also had large growth in acquired growth in net sales, mainly coming from Construction & Services. That's the acquisitions of Presis Infra and NVBS but also from industry with the acquisitions of Knightec and Semcon. We had a positive FX effect as a result of the weaker Swedish crown. And then we had a negative effect of SEK 15 million in the quarter, and this is due to that we have ceased our operations in Russia and Belarus. And this is mainly businesses that we had in the industry business area. If you look at the EBITA bridge, we were up 41% in the quarter. Large part is coming from acquisitions, as I mentioned earlier, both from Construction & Services, but also from Industry. And if you look at the organic growth, you can see that we are minus SEK 6 million in the quarter. And this is a mixed picture because if we look at Construction & Services and Industry, we are actually growing the businesses organically in EBITA, but we have this quite large negative effect in Consumer. And that's -- if you add those up, we end up at minus SEK 6 million. Then we have other minus SEK 70 million. This is the restructuring program that we initiated in Q4, but it's also the onetime effect of the Plantasjen onetime effect that we had in Q4 last year with the termination of the lease contract. And then we had a negative FX effect of minus SEK 10 million. If we then look at ROCE, we were down to 10.2% this year. And this is also affected by the working capital buildup in -- mainly in Consumer. And cash flow and working capital is an area where we need to improve. We will focus a lot on these areas during this year and going forward. And by that, I leave back over to Jonas Wistrom.

Thank you, Jonas. A lot of negative things there. I'm glad it's not cash flow. Summing up, a good year and an even better fourth quarter in a challenging world and a challenging environment. EBITA is up 9% for the year, 41% for the quarter. The acquisitions we made 2021 has developed very well. We have record order books, record order intake. And -- but the challenges in wind and consumer market are still here, and will be with us during the year to come, I'm sure. So as Jonas said, we will take measures to minimize the effects for the Ratos Group. We continue to invest in infrastructure and industrial services and so will the future be and we have taken some steps to the homogeneous group we will have in Ratos. So with that, we can open up for questions, Josefine.

Yes. Let's start our Q&A session. And I know we have some people on the line. So let's start to see if we have Henric Hintze from ABG on the line.

Also writing that you we'll be looking into divestments going forward. And I'm just wondering, you say that you postponed the IPO due to market sentiment. So I'm just wondering if you're seeing a difference between market sentiment for IPOs and for M&A or if we have to wait for divestments until the market gets a bit more positive as well.

Very good question, if I should answer it. Well, I don't think I need to comment the IPO market. We see it every day. And I just want to add that Aibel just have had another phenomenal year, both when it comes to profits, sales but also cash flow. They have a very strong balance sheet. So the timing for an IPO feels very bad. The M&A market, yes, it has changed. What we see is that private equity financial buyers, they are very much lower activity than just a year ago. When it comes to industrials, I think the market is fairly good. Of course, it has been affected, but it's not like the IPO market. So we are in good hope that the plan we have as it comes to the divestments will come through. And as you understand, I can't comment more than that. But the M&A market is not closed, not at all, but private equity is much more restrictive. They are there, but much in a smaller scale than it used to be.

All right. I have another 1 if that's...

Yes, Henric. Go ahead.

The Construction & Services segment is obviously continuing to outperform. And I'm just wondering if there are any particular companies within the segment that are really driving this outperformance? Or if most companies are contributing fairly equally?

Yes. I mean, all companies are developing well. I mentioned Vestia and Presis, you saw the numbers for them. Vestia being a little bit of a smaller company stands out when it comes to percential growth. But now, it's strong all over the line, including the results we get from Aibel.

Are you happy with that, Henric?

Well, I'm happy to ask another question if we have time.

We have time. So, please. You can have a third question.

I'll be so bold as to ask a third question. So in Diab, you say that you're seeing improvement now compared to last year, and that's, of course, have been news. I'm just wondering if you could elaborate a bit on how the situation in Diab compares now before the troubles began as well?

Yes. Well, what has happened is that we have a lower OpEx number, and it's mainly restructuring in our factories and especially in Italy. I want to underline, though, and you've seen that from the other -- well, from our clients in the wind power area, the OEMs. They're making losses, they predict losses also for this year, for 2023. And if we look behind 2023, it's not a great story for 2024, either. Everyone waits for sort of what will happen with wind power at sea. But the truth is that it's a very tough market now and tougher than we expected 1 year ago. At the same time, and I mentioned this before, more -- Diab was founded for solutions for marine industry and later aerospace. And they have had a very strong development since the start, except for the Lehman Brothers year 2009. Revenue is increasing. The profitability for this business area is some 20%. So there are 2 sides of Diab. And the wind power side is still losing money, basically, even if we lose less money than we did 1 year ago. And we do believe that we have a good solution on that, which I can't further develop here and now.

It should have been 9% structured growth in Construction & Services, but you achieved 25%, which is quite a bit better. And you told us here which companies were strong, but could you also tell us if we should expect it to continue?

Yes. Again, I wasn't really sure maybe what about the companies here. I mean all companies are performing well. And the order books are very strong, and the order intake has until now been very strong.

And when it comes to the future, Victor, I mean, we don't give sort of forecasts and so on, but it looks good, as Jonas said, when it comes to the order books for the companies within the Construction & Services business area.

Okay. Okay. And then it was a similar story here in the Industry. The structural growth was stronger, quite a bit stronger than I anticipated. So -- and I'm wondering what's driving this stronger performance in the acquired units.

Well, Well, the acquired -- I mean if we take the platforms, I think it's too early to say that I mean the -- you have seen on the market, I think that Industrial Services, they have good times. But in Ratos case, they have not been with us during the year -- during the whole year, except for TFS. And we shouldn't discuss companies, but I hope it's okay. Jonas says that even TFS has developed extremely well during the year. And when it comes to product manufacturing, it has also been good, except then again for Diab, which you can say is better, but not good. But it's a good development in all companies, except for Diab. And I think it's hard operational work and the synergies from the add-ons we have done have shown in numbers. And one have to remember that both -- I mean, the industrial companies has been affected by Russia and Belarus, as you mentioned, especially HL Display, if we start to talk about companies again. But in spite of that, even so, they had a great year. The...

Okay. Great. A final question here.

Yes, please.

Yes. So the SEK 100 million in savings in Consumer, when will this come into your numbers?

Those savings will start to come already in Q1 this year.

And it's the same for the entire program.

Yes, it is.

Yes. So we performed that in December.

But it's important to know that some of these savings, especially in Plantasjen will sort of counteract the cost increases that we see in the energy costs and so on, for example.

I think we stated that in the report.

Yes. Yes. Perfect. Thank you very much, Victor Hansen at Nordea. Let's move on to Rasmus Engberg.