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

Good morning, everyone, and welcome to Ratos and the presentation for the First Quarter 2025. The day will look like this or the hour will look like this. We have -- with us in the studio, we have Jonas Wistrom, our CEO; and our Finance Director, Mattias Junde, who is stepping in for our CFO, Jonas Agrup, who can unfortunately not be with us today. First, we will do the presentation, and then we open up for questions. And I should also like to add that the webcast will be available on our website after the presentation. So I think with that, we should get started. Please, Jonas.

Thank you, Katarina, and thank you all for joining this morning, where we will present a record quarter for Ratos. We had a strong start of the year. Adjusted EBITA is up 32%. All business areas actually increased their EBITA. ROCE is continuing to go up. We have divested airteam. I think we'll close it in mid-May. And we have completed the reconstruction of Plantasjen in February, and we're showing strong results already in the Q1 for that. Also, we have had strong order intake in Construction & Services, and we have a limited direct exposure to U.S. I will get back to that as well. Also gratifying is that our EBITA margin continues to grow. If we first take a look at our EBITA development, we actually have an EBITA CAGR of 28%. And if we would continue like this, it's over 30%. Reported EBITA was even higher, but we had onetime positive effects mainly due to the fact that we paid the composition gains for reconstruction in Q1. That also affected our cash flow and the cash flow, if you take that into consideration, was stronger also, that was stronger than Q1 last year. Q1 is a weak cash flow quarter for the Ratos Group. Looking at net sales, the majority of the 4% is due to discontinued operations in Plantasjen with all the closed stores and also discontinued operations in Expin Group. We were also affected by a negative calendar effect for Industrial Services. We did during 20 -- 1 year ago, [ the ones ], we have SEK 150 million plus in sales because of add-on acquisition. Very gratifying also that net sales for Product Solutions are increasing with 9% despite a market that is not at full speed right now. I think for newcomers, maybe we could show the segment companies. I think you have seen them all are Aleido, Knightec Group, Speed, TFS, and in Industrial Services and so on. So let's go to next slide here. Here's a summary of both the business area and segments. And starting with Industrial Services, there is a negative calendar effect, which affected EBITA with SEK 8 million because of one lost working day. We have challenging -- continue to have challenging markets in clinical trials in TFS. Knightec Group are really creating significant synergies. I'm sure these will be over SEK 50 million actually in cost synergies. Things are going very well there right now. Product Solutions, over 13% in EBITA margin. EBITA is growing, sales is growing. And actually, all companies increased their -- both the revenue and EBITA. And we also had increased order intake for Diab, HL Display and LEDiL. Those 3 companies, by the way, are those who have exposure to the U.S. market, and I'm coming back to that. In Construction & Services, we continue to show -- Construction, I should say, we continue to have good EBITA margins, continue to have very strong order intake. It's plus 186%. And the order books are record high. We have very strong order books in Sentia, but we also have strong order books in Aibel. Last but not least, we divested or we signed a contract of divesting airteam. We will close that, I think, in mid-May this year. So the airteam numbers are in the Q1. If we go to Critical Infrastructure, again, very strong order intake, and it was up 20%, continued strong results in Presis Infra and Aibel. And Expin Group continues to improve their EBITA, but we are still showing negative numbers, but much smaller than last year. And we will, during this year, make sure that we can have a positive results there as well. Consumer reconstruction, I already mentioned it, shows very positive results, some SEK 60 million in this small quarter. We have saved OpEx of SEK 400 million plus. Our debt, our financial debts are down SEK 1.5 billion. Also worth to mention is that KVD continues also this quarter to improve their EBITA, like it was a good year for them also last year, but even better this year. Well, I think I mentioned it all here, actually, reduction of stores went down to 89 in Norway and Sweden, and we discontinued the operations in Finland, 11 stores were closed there as well. Cost reductions I mentioned. We had, of course, a revenue decline in the quarter due to closed stores, EBITA up SEK 60 million and decreased lease liabilities, SEK 1.5 billion. And don't miss out that Plantasjen remains to be the largest and best garden center in the Nordics. Visit them next time. Well, just a few words about the [ EIIA ] onetime effects we have in Ratos. It's totally positive because of Plantasjen. In Speed Group, we have taken costs to reduce the staff in the staffing business. There are new EU rules around that. So unfortunately, we need to reduce the staffing business in Speed Group. Knightec Group, all is related to the merger of Knightec and Semcon into the Knightec Group, and these SEK 6 million are directly affecting the cost synergies. And TFS has still a weak market. We have changed CEO during the quarter, and we have taken SEK 6 million for cost and efficiency matters. And I mentioned the positive onetime effects we had. We gained a lot of EBITA as a onetime effect for the debts taken down from tax and suppliers. It's also gratifying to see -- or should you take the cash flows maybe, Mattias? I just mentioned that it's over 100%. So...

Exactly. Thank you, Jonas. Yes. As you can see, the cash flow from operating activities was down with about SEK 150 million in the quarter, and this is mainly due to changes in net working capital. And the net working capital was affected by the composition dividend that was paid out during the quarter of about SEK 200 million. So adjusting for that, it was actually better than last year and the quarterly cash flow. As Jonas mentioned, Q1 is normally our weakest cash flow quarter due to increased inventory buildup in Consumer business and so forth. For the last 12 months, we have a cash flow to -- amounted to SEK 3.3 billion and with a cash conversion of 135%. So still looking very good. If you go over to the bridges, Jonas has mentioned a little bit about it. But in total, the net sales were down 4%. We had an acquired growth of 1.9%, and this is related to add-on acquisitions in the business area, Industry. We have negative organic sales growth in the quarter of 2.4% and all business areas had negative organic sales growth. FX effects is primarily due to NOK/SEK in the quarter and amounted to negative 1.2%. And the Other column there is due to discontinued operations in Expin and Plantasjen. If we go over to EBITA, we have an adjusted EBITA, which was up 32%. Acquired EBITA growth was 5%. And as I mentioned, we post in the business area, Industry. Organic increase was SEK 13 million, and that's mainly due to EBITA improvements in Consumer and also a larger share of associate company in the quarter. FX effects is negative in the quarter, 3.9%, and it's mainly due to a stronger SEK. And Other is the discontinued operations in Expin and Plantasjen. If we go over to our financial targets, you can see that the EBITA is the goal to have SEK 3 billion during 2025. And the last 12 months, we were up in SEK 2.4 billion. Leverage should be between 1.5 to 2.5x, and we was at 1.5x in the quarter. Since year-end, it has increased with 0.1x. And from last year -- sorry, from last year, it has increased with 1.1x. Net debt increased during the quarter with about SEK 800 million, and that is mainly due to a negative cash flow in Q1. Compared to last year, the net debt has increased with SEK 300 million. And the dividend payout should be between 30% to 50%. And the Annual General Meeting approved the Board proposal for dividend of SEK 1.35, and the payment was done by April 2 and amounted to SEK 442 million in total. And with that, I think I leave over to you again, Jonas, for final comments.

Thank you. I think we have said it all already. A record quarter actually. And again, and EBITA increased in all business areas, divested the airteam, completed restructuring in Plantasjen and strong order intake, both in Construction and Infrastructure actually. And also, we don't display these, Mattias, but the order intake in Product Solutions has also been good actually during the quarter. I forget to mention that. I think Product Solutions, we talked too little about them, a really strong quarter, I would say. And again, Industrial Services had 1 day week shorter, so it affects sales and EBITA negatively. I think that was all, Katarina. Yes. No, it wasn't. Ratos going forward. Well, our focus is a group with fewer platforms with higher operating margins, higher return on capital employed and stable cash flow growth in what we see as attractive markets. We will continue to have focus on value-creating add-on acquisitions. It's fantastic to see for HL Display and others are now also starting with the value they have been creating through synergistic add-on acquisitions. And new financial targets will be released during the second half of 2025. 2025 is just 8 months left of that or so. So it's about time that we've released new financial targets in the autumn. Thank you so much.

Thank you, Jonas. Thank you, Mattias. And with that, we open up for questions, and we will do it like this. A number of the institutions have reported ahead of the meeting that they will be present or you will be present. So I will be -- try to be fair here and call you in alphabetical order. So with that, I start with ABG.

This is Henric Hintze here at ABG. First, just some questions on the one-off costs. Could you explain in a bit more detail what the situation in Speed Group was and what were you to take these costs there?

Well, it's -- unfortunately, is that we need to reduce the staff. In Speed, it's not only third-party logistics. We are also helping clients through a manpower business, and the manpower business, so it doesn't affect our core business. The manpower business will be reduced and it costs money, as you understand, for severance pay and so on. So that's the whole thing about Speed. Speed otherwise developed well actually, but we have to reduce the cost in the manpower business.

Yes. All right. And TFS, the market there is a bit weak at the moment. What are you seeing there? Do you think it will get worse before it gets better? Or has it sort of stabilized at a lower level?

Well, it's -- TFS is to quite a substantial part of the market is biotech companies. And there are the problems. Financing for biotech companies are still tough, even though interest rates are coming down. We have also a new CEO in place since 2 months, I think. And as a new CEO, you -- at least it's my experience is that you try to take away extra costs also when you have gone through the business. What about to forecast the market? Well, it's an uncertain world now. But in general, this is something that will come back. If it happens next quarter or next year, I'm sorry, I can't say that. But we are adjusting the costs now to make sure that we have a good profitability also in TFS in tough times.

Yes. Okay. Very good. And then finally from me, then I'll let the others go ahead. But you've taken quite a few one-off costs now in this quarter and in previous quarters now in Plantasjen, Speed Group, TFS and Knightec. Do you expect this will continue in the coming quarters? Or are you mostly done with this now?

Well, yes, and the onetime costs in Plantasjen was positive. We have adjusted -- our reported EBITA is better than the adjusted EBITA. When it comes to what we can see, I think I wrote that, that the merger of Semcon and Knightec Group, there, we are taking segment by segment. I think we will see some more costs in the Q2 to finalize the merger to really create hard cost synergies. Apart from that, I don't think we can see anything in the horizon for that. But it could be a small amount there in Q2, I believe, I hope.

So did we have more questions from ABG? If not, we move over to Danske Bank. And if not, we go to Handelsbanken. And then we have Nordea.

Yes. Albin here from Nordea. Just 2 questions from me. Just first, if you can comment on Plantasjen, the start now in April and yes, maybe the beginning of May, but mainly yes, post Q1, how has the start been?

I'm not so sure I am allowed to do that. Actually, we -- I mean, it's not whole of Ratos, but I think Plantasjen is an important company and to disclose that in the industry, I'm feel nervous about that. What do you say, Katarina?

Yes. I think...

I advise you to go down to Plantasjen and see, you can both find out that and very good products. We are quite positive to Plantasjen's development going forward.

Yes. I guess, Q2 is an important quarter. So that's why I asked. But we can move on. So just another one. I guess you have had this question before, but given you have 1.5x now net debt to EBITDA ex leasing and also airteam coming in here in middle of May probably and also your own stock is trading at 6x EBITDA. So it's like if you believe in just your current portfolio is worth more than that, it's quite hard to not see buybacks as a good way to allocate capital here. So any comments on that one?

You're not the only one, and this is something we're, of course, discussing. We have actually done quite serious analysis. We have talked to experts, et cetera. Swedish Match was certainly a very good buyback program. We haven't seen anyone else. But you can -- we can have a talk about that. But our analyst says that it's not a good idea, especially for us. I mean, we think that the value creation we have seen in HL Display and start to see in other companies with synergistic add-on acquisitions are very value creating. The average, including arbitrage on the multiple, HL Display have an average EBITDA multiple of 5.4, I think, for all the acquisitions that they've done. And they include -- or they exclude real synergies. This is just without synergies, it's 5.4. So we have had an enormous value creating there.

No further questions from Nordea. If not, so we move on to SEB. And those were the ones who had reported presence, but I'm wondering if Pareto might have joined us.

Yes. Georg here from Pareto. I have a couple of questions. Firstly, on the Critical Infrastructure segment, it's down 15%, but with some effects from discontinued operations. So what I'm wondering here is just what's the growth excluding those discontinued operations? And also in Expin, what's left here after discontinuing part of that business? Is it only what was previously Ratatek or anything else also still in the group?

If I answer your second question, maybe you can check the first question. No, Expin is today, as you say, Ratatek, but also ES Infra and TKBM. ES Infra is a profitable business. And I think we did a flash on the tunnels we're building in Stockholm, correct? I think you were there, Katarina. But these are the 3 companies to answer your questions.

And if you look on the net sales growth, we had a negative growth of Expin of 7%, minus 7%, but also Presis Infra was lower in the quarter. So it's just not just Expin Group on sales.

No.

Yes.

Okay. And then I'm wondering about the order backlog here. So very strong intake in this quarter, quite tilted to Construction. So will these orders be delivered in a lot of them in this year? Or is this more '26 and after that?

Yes. Some of the orders go certainly into '26 and maybe '27. But we are not uncertain about 2025 that we have orders enough. So...

Construction & Services is about SEK 13 billion is within 12 months. So at least I don't know for 9 months, but for 12 months, it's about SEK 13 billion. That's excluding airteam.

Yes, exactly. So it's basically...

So both Construction and Critical have a large part in the coming 12 months.

Yes, that's very clear. Just a final question again on Plantasjen. I know you can't comment on the start, but can you say anything about the weather here in April because it's been quite cold. So I guess that's not ideal for Plantasjen.

The honest answer, I don't know. And it was cold yesterday for sure, and windy, but I can't report that. I -- the -- and I don't have the numbers for the weekend either. But one thing is for sure, Plantasjen is very much stronger now than they were 1 year ago.

Okay. With that, I don't think we have any more questions. So Jonas, to you, do you have any final comment before we say goodbye to everyone and wish everyone a great day?

No. Thank you for joining. It was a good start of the year in many aspects, I would say, in all aspects. So looking forward to see you soon again. Thank you so much.