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

Good morning, and welcome to this presentation covering the second quarter and the first half of 2023 in Ratos. Our President and CEO, Jonas Wistrom; and our CFO, Jonas Agrup, will guide us through the results. In the end of the presentation, of course, you will be able to raise questions in our Q&A session. This webcast also is recorded, and you will find it afterwards at ratos.com. Now without further ado, I'll hand over to Jonas Wistrom.

Thank you, Josefine, and thank you, everyone, attending this conference with Ratos. I know we are not the only company reporting today in this sunny day in Stockholm. So we're happy you are here. If we look at the second quarter, I think it's a sunny quarter also for Ratos. Our EBITDA increased with 12%, organically 9%. Cash flow was up 92%, I think, and almost SEK 1 billion up, and our leverage continue to decrease. If we look in closer, we can -- we used to mention Plantasjen separately. It was actually the strongest quarter for Plantasjen ever with the exceptions for the 2 pandemic years. In local currency, the EBITDA -- sorry, in SEK, the EBITDA was a little bit lower due to the weak Norwegian krone, which I think is the only currency I know that has developed even worse than the Swedish kronor. Also, a strong quarter in sales, up 19% and organic sales up 7%. And the order intake continued to be good and we have very strong order books, again, strong cash flow, SEK 2 billion versus SEK 1 billion. And leverage continued to decrease. So let's take a look into our business areas. No, we should take a look at the trends here. And we are growing our net sales the last 2 years by 15%, which is a good growth. And also this quarter, again, was very even stronger. And our adjusted EBITDA also continues to increase with 12% in this quarter. Looking into the business areas, starting up with Construction & Services. We're at 20% sales growth in Construction & Services. And I'm very satisfied with that as well. The organic is 19%, so it's almost all organic growth. And we have continued strong earnings development in the construction companies, as you know, with very limited exposure, if any, to real estate and housing constructions. EBITDA, up 17%; EBITDA margin, 6.4%, down a little bit. And the reason for that is that the construction business has grown even more than the infrastructure business in this quarter. And I want to say that our margins in the construction companies are higher than peers in general due to the fact that we work so much with partnering projects rather than fixed price projects with the risks that also is connected with those projects. Coming back to Plantasjen and Consumer. Before I talk about Plantasjen I want to mention KVD, and I'm sure that you can calculate KVD's results since we disclosed the business area and also the Plantasjen number. And there, you can see that KVD has developed very strong when it comes to EBITDA in the quarter. Sales is down in KVD, but that is only because the fact that we have less -- we used to buy cars for a period of time to get quicker sales. But now we are again back to more brokering. So that's why sales numbers goes down even though sold cars goes up. Plantasjen, again, we must check the number here. It's -- Plantasjen is having an EBITDA of SEK 543 million versus SEK 565 million last year. But in Norwegian kroners, in their local currency in Norway and Sweden, it would be a better EBITDA result. And the EBITDA margin for the quarter was growing from 21.7% to 22.1%. Then we're coming into Industry, strong EBITDA growth. Industry have got 2 new siblings in the quarter and forward, and that is Speed, who is working with industry companies, that's their customer group. They're also doing more than just storing things in their warehouse. They are assembling things for their customers as well. So we think they fit in much better there. And Oase is a company that designs, develop outdoor equipment. They have outsourced their production to mainly Asia, but it is an industrial company. So with these 2 new siblings, we have some effects in this quarter. And it comes to the organic growth, which was down 8%, and that's solely dependent on Oase, who had a strong first quarter and Speed who had lower volumes, which we explained in the report. It's one key customer that has gone down, what we believe temporarily, quite a lot. Again, if we look at the numbers, sales increased 46%. Of course, Semcon and Knightec is a big contributor. Adjusted EBITDA is up 43%, and that's not only Knightec and Semcon, but also the other companies. And the strongest EBITDA development was in Diab. And then I'm looking forward to hand over this to you and go through the details in the financial, Jonas.

Thank you, Jonas. So let's move into the financials. On this first slide, you see the trends for net sales and adjusted EBITDA. And you can see that we have good positive trends here. And I just wanted to highlight that LTM sales is above SEK 33 billion. And if we look at the adjusted EBITDA, we are a little bit above SEK 2.1 billion in adjusted EBITDA for the LTM numbers. So good trends on net sales and adjusted EBITDA. If we look at cash flow, I'm really satisfied with the cash flow in the quarter. As Jonas mentioned, we had the cash flow in the quarter, SEK 2 billion in the second quarter this year. The cash flow in the second quarter last year was SEK 1 billion. And if we look at the LTM numbers, we have posted a cash flow in the second quarter LTM at SEK 3.3 billion. And I'm also glad to say -- be able to say that all the business areas had positive cash flow in the quarter. This corresponds then to a cash conversion of 153% if we look at the LTM numbers. I move over to net working capital. This is an area we will focus a lot on going forward to reduce the working capital. You can see that we have a slight increase in the quarter. This is only driven by acquisitions and mainly the acquisitions that we made during the second half last year. If we look at trade receivables, you can see that it's up to roughly SEK 4 billion, and this is solely driven by the acquisitions. If I look at the DSO, the days sales outstanding, in the group, we have a very positive, nice trend, that the DSOs are actually going down. And if we look at the percentage, we are around 9% in net working capital to net sales LTM. I move then over to the net sales bridge and the adjusted EBITDA bridge. We saw a growth in net sales of 19% in the quarter. Acquired growth was 13%. This is related to Industry and also Construction & Services. If we then move to organic sales growth, it was 7% in the quarter. We saw good sales growth in Construction & Services, while we had a negative organic growth in Industry and in Consumer. We have been affected negatively by the Norwegian krone. So it's SEK 50 million negative on net sales, as you can see here. And we have still a slight negative effect of the ceased operations in Russia, and this is related to HL that closed down their business in Russia. And also LEDiL had some sales also into the region. So -- and then move down to the adjusted EBITDA bridge, up 12% in the quarter; acquisitions, 6%; the organic growth, up to 9%. And this is strong, I think, and good growth for Construction & Services and Industry. And again, as Jonas said, we saw very good improvement in the result for Diab in the quarter. Again, a negative effect of the Norwegian kroner, minus SEK 18 million, and then the other effects here is actually restructuring costs that we have had in the quarter. And this is partly related to HL and the newly made acquisitions in Germany. I then move over to next slide. This is the EPS. And you can see that if you look at the LTM numbers for EPS, we are increasing 3%. In the quarter, we posted SEK 1.79, which was down a little bit. And this is driven by the finance net, which is negative because we have increased debt, but we have also higher interest rates, which has a negative effect. If we look at leverage, I'm really glad to see this development. We were at a high level in the upper part of our span. The leverage spanned 2.5x in the end of last year, and now we are down at 1.6. And we saw, as you saw before, very strong cash flow development in the quarter, but also increased LTM EBITDA numbers. And the net debt was at SEK 3.75 billion in the end of the quarter. And we paid back debt roughly SEK 1.2 billion in the end of the quarter, reducing our outstanding debt in total. Return on capital employed, a slight decrease in the quarter, down to 10.3%. And here, we have, again, the negative effect of the acquisitions, where capital employed has an immediate effect in the balance sheet and while the EBITDA gradually improves LTM. And then our financial target. I guess you recognize these. We shall have an EBITDA at least SEK 3 billion by 2025. The leverage should be in the range of 1.5 to 2.5x. And then on the dividend, we have a target of paying out 30% to 50% of profit after tax. So by that, I leave over to you, Jonas.

Thank you, Jonas. Now I will try to sum this quarter up. I think it was a very strong quarter for Ratos. Again, the organic EBITDA growth is what I like the most, actually, and our strong sales growth, including, of course, the organic sales growth. And the fact that we still have a good order intake and record-high order books, especially since we're all sort of concerned about the market, Jonas, and we have -- at least I have been worried even 9 months ago. But so far, very good. And I don't know how many times we have repeated cash flow here. So but I want to say to you, Jonas and to everyone, we know that cash flow is not the financial issue only. It's about getting the invoices out, to have contacts with the clients, not the finance department, but the one who bought from us, et cetera. The cash flow we have -- the focus on the cash flow we had from when we decided that and put it into Ratos business system has really made changes in actually in all companies. Last but not least, we are focusing on technology and infrastructure solutions. But we want to be even more focused on that. And we're working hard to come there. And we have done a lot actually if you look at the acquisitions we have done. But we want to do more and we just wait and hope for a better M&A market so we can accelerate this process. Thank you so much for attending. Maybe there is 1 or 2 questions, Josefine?

Yes. Let's have a look if we have any questions. It's time for our Q&A session. And I'm going to start to open up the line for Nordea, Victor Hansen and/or Anders Ekblom. Please, shoot. Do we have Anders or Victor on the line? [Technical Difficulty] Yes. So please, we are sorry for this sound issue, but let's move on with the questions posted in text instead. So Anders, if you would like to type your question in the Teams functions chat, we will repeat it. We can see that you're writing, Anders, very good. And the rest of you which are online, could you also please prepare to type your questions instead. And again, sorry for this convenience.

So we can't hear anyone.

No, I will have to repeat the questions. We'll see. Maybe it will be fixed along the way. But the first question I will have to.

You said in the report that Plantasjen's earnings were up year-on-year in local currency. How big was the currency effect there?

Okay. So I will repeat it. You said in the report that the Plantasjen result was up. Could the control room help me? Was up...

How big was the currency effect, I guess. Was it the question, yes?

How big and EBITDA.

Yes. How big was the currency effect? Yes, please, Jonas.

On EBITDA, Plantasjen posted a positive EBITDA in Norwegian kroners, but -- and then the effect was roughly SEK 20 million, SEK 21 million negative in the quarter.

And sales?

Sales, I don't know, actually.

Oh, but it's more, yes.

Yes.

Sales is more, very good indeed. Do you have any more questions, Anders Ekblom? Please post them in the chat function.

Aibel had a strong quarter. Will it still be a back-end loaded year? Or did you see some contribution in Q2 that we previously expected in H2?

Okay. A question about Aibel and maybe you, Jonas Agrup, could repeat it so we hear it all.

We have communicated that Aibel should have a back-end heavy year this year. And the question is, is this still the case? And have you also increased the -- have they sort of increased their profits a little bit in Q2?

Well, we believe still it's a back-end heavy year. But we can't give any forecasts, as you know, but they are in early phase in quite a number of projects. So we are in that phase of Aibel's project phasing. And then comes a period when they're in the end and then sales go down and EBITDA go up.

Okay. Let's move on to the next question. It's Henric Hintze from ABG asking. You mentioned significantly improved earnings in Diab. Could you expand a bit on this?

Yes, we did -- in early Q1 last year, we did a restructuring program to handle the wind market that went down against all odds. And of course, we see effects of that. We also see a growing aerospace industry and marine industry during the first half year. Also, the defense industry is very interested in Diab's solutions for lightweight constructions. So -- but we -- it is much better. And -- but I can, at the same time, say that wind, which is a -- I'm not going to give you the percentage, but it's a small minority of their sales today that is wind. So that market is still very low.

Okay. I think there was one more question from Henric Hintze. The control room just can scroll up. Sorry, again, for the inconvenience with the sound. Hopefully, you get the answers.