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

Good morning, and a warm welcome to Ratos and welcome to the presentation of the third quarter of 2025. Today with me in the studio, I have our CEO, Jonas Wistrom; and our CFO, Anna Vilogorac. Same procedures every quarter. We start out with the presentation and then we open up for questions. So with that, let's get started. Please go ahead, Jonas.

Thank you, Katarina, and thank you, everyone, for joining us, joining Ratos this morning. We're quite happy having increased earnings in the market that still is subdued. Again, we have -- we live in uncertain markets. We have the trade policies. We have geopolitical uncertainty and so on. But I want to say actually that we see some signs of improvements coming back to that in some markets, defense is, of course, still strong and will be even stronger. Happy that we have improved EBITA and EBITA margins, and this is thanks very much to a lot of implementation initiatives to enhance efficiency -- deliver efficiency and that really delivers results. For those of you who have been with us for a while, you know we have a very strong business system, and that really showed what it can do this quarter. Also, I would like to highlight the fact that we had very strong performance in Product Solutions coming back to that as well. We used to show the EBITA growth numbers from 2018. We now take the last 4 years and then EBITA continues to grow quarter-by-quarter, year-by-year, and the average now is 6%. If we look at the EBITA, it's up 31%. But as we have noted in the report, we have contribution from the minority holding in Sentia that we didn't have last Q3. And if we adjust for that, we still have a strong EBITA growth with some 10%. EBITA margin, up, and happy to say that we have improved EBITA margin in all segments, except Industrial Services, which I will come back to. Looking at the sales. Well, sales is down 9%, but you know that we have had quite significant structural changes in Plantasjen also in -- with the reconstruction closed stores, but also in Expin. And if sales are down SEK 400 million, this is like SEK 250 million. We also have FX effect on SEK 100 million. So I don't think the sales number is so interesting. We do have a negative organic growth of 3%, and that is related to Construction & Services. As you might remember, Presis Infra had a very, very strong Q2 and the prioritization of change orders coming in were very few in Q3. So that also took sales down together with the fact that the Finnish market for rail electrification has been even worse. So Expin is also contributing to lower sales. However, it's important to underline that we still have a solid order backlog. Industry, flat on sales. We had organic growth in Product Solutions, coming back to that, and we were down in Industrial Services. Consumer, actually in Plantasjen, we had like-for-like sales. In KVD, we were down very much because of that we deliberately had lower our inventory levels to not have so much capital buying in the balance sheet. But also prices are coming down in the used car market. So let's just go into industry. Again, Product Solutions, we grew 3%. EBITA grew with 17%. The main drivers are HL Display and Diab, strong demand, and also in Diab, we were able to focus our production and write down some assets in markets that we don't believe in coming forward. I could also mention Oase Outdoors, who had a very strong order intake which -- for 2026. So I think we can look forward in very good performance there also coming forward. Industrial Services, there we have an organic decline in sales, but even more in EBITA. Speed is in transformation for -- to grow quite significantly. We do have automation projects that will take OpEx from us for a couple of quarter more. So that has impacted profitability negatively. Also, we continue -- I've said this before, the biotech market is weak and that hurts TFS. We're taking down OpEx now in TFS, and we hope to see that we have reached the bottom quite soon. Market point, I think, is that Knightec Group, the integration between Knightec and Semcon is now finalized. And we could see some synergies already in this quarter is the first one. And then we will see synergies increase going forward until when we have the corresponding numbers being with the benefit from synergies, the last quarter of that will be Q4. And then we have got all the synergies for the integration. I have mentioned a number of SEK 50 million here. Now it looks actually a little bit more than SEK 70 million. So that is a good thing going forward. The market, though, has been quite weak in, as you know, a very small quarter with the holiday period. But we had the same number of working days in Q3 as last year. Adjusted EBITA remained on par, you see. So we have the same EBITA actually and the EBITA margin is also in level with last year. Going over to Construction Services. I mentioned the fact that we had a very strong quarter in Q2 for Presis Infra, a weaker quarter for Q3. So it was a prioritization effect. So I want to say that the underlying sentiment for Infrastructure is overall unchanged. We see positive growth in Aibel, although we don't take in their sales in our report. But one thing with this infrastructure market is we have talked about a bad market for rail electrification in Finland. It is actually worsening in this quarter. Order backlog, as I mentioned, up, and adjusted EBITA, again, then we have the Sentia contribution. So excluding that, we're actually down minus 16%. Adjusted EBITA margin, again, it's Sentia there, but we should look at the 3.0% EBITA margin. So a bit lower than last year of the reasons I just gone through. Consumer. I think I mentioned already that we had like-for-like sales in Plantasjen and the fact that KVD had lower inventory to sell from and also lower prices. Plantasjen increased its result with SEK 67 million. And we will see also in Q4, of course, that the reconstruction really works. Deliberately inventory levels, I've mentioned that already, adjusted EBITA is up SEK 65 million, and we have a small, small positive EBITA margin. With that, I am happy to leave over to you, Anna, take us through the financials.

Thank you, Jonas. So let us dig a little bit deeper in both top line and bottom line development, which we noted in this quarter. So starting with the organic growth. As we mentioned, it was minus 3% for the quarter on an organic basis. And just in order to break them down a little bit further is that I would like to show this picture. So here we have our different business segments and business areas and in some instances, companies. As you can see, we noted good growth for Product Solutions, I would say, even higher in some of our companies, such as HL Display and Diab. Industrial Services, I would say, a bit worse trend due to the automotive demand. KVD, to Jonas' point, impacted by deliberately low inventory levels and also some market decline, prices mostly. And Plantasjen like-for-like, they were actually on par with last year. Summarizing all of those, as you can see, it is flattish, slightly negative, but it's not a huge change. What is hurting us in this quarter is actually the Construction & Services with quite a significant decline, minus 12%. And if we were to break that down even further, I would say it has to do mainly with Presis Infra, and this is timing of this change orders. I don't know if you remember, we grew quite significantly in Construction & Services in quarter 2. It was up by 16% organically, now it's down by 12%. It is a timing between Q and 3E, in which we, for the last previous year, so quite a significant number of these change orders coming through in quarter 3. If we look at the year-to-date development, it is flat for Presis Infra and also that is comparing it to a strong -- very strong year in 2024 for Presis Infra. And also worth mentioning that we exit the quarter with 7% higher backlog for Presis Infra. So then going back to the same picture. As you can see, the contribution out of this minus 3% on top line was quite significant on the bottom line. And I just want to give some color in regards what is going on in that as well. So of course, these change orders, unfortunately, they come with a quite high gross margin. So the impact of that is also quite seen in our profitability. Another thing is the automation projects, which we are working hard within our Speed Group. They have entailed, of course, that the cost, direct and indirect costs, have increased. And of course, up until these projects are finalized, then of course, we will see an improvement of that. And then last but not least, we saw that the central costs were a bit higher than previous year, this is only a periodization impact. So year-to-date central costs are really flat. So this is a quarter-over-quarter impact. Then stepping into the M&A box. I would say we are happy with the acquisition made. There are some acquisitions and some smaller disposals in here. As you can see, really margin accretive. Looking at the margin of that M&A box, it's 20%, I would say, you shouldn't expect that going forward. Normally, when we acquire companies, there are from the get-go margin diluting. And then when we extract the synergies, they will be on par or better with Ratos Group. But this is specifically great to see that we get good contribution. But looking on the right-hand side then, we see that big impact on the top line, stemming from closed stores in Plantasjen, but also exiting some legal entities in Expin Group, quite a significant impact. It's minus 5% on top line. But as you can see, it's hugely supporting on our profitability. So plus SEK 57 million or accretive by over 100 basis points in margin. So we have done the right thing of exiting these loss-making businesses. Then as we saw in previous quarters, we are struggling a little bit, having some headwind from strengthening of Swedish krona, particularly in our case versus the Norwegian krone. But good to see that the impact on bottom line is negligible. And then another major piece to the puzzle is the minorities. We have Sentia minority ownership in Sentia, contributing really nicely to that, also margin accretive. And you need to bear in mind that this was not a part of the numbers in the same period last year. So overall, an EBITA improvement of above 30%, but excluding that Sentia contribution, just making it like-for-like, it is plus 10%. And then stepping into net working capital development. As you can assume, a lot, of course, has changed due to structural changes of listing Sentia exiting airteam. What you can see in the graph is that we have adjusted for this. So we are looking at current structure going back to Q3 last year and even a quarter before that. It is quite stable. We will no longer have negative net working capital, which, of course, was much due to Sentia's prepayments -- customer prepayments. And of course, we are looking into much more predictability in our net working capital, as you clearly can see from the bars in quarter 3. We saw a slight decline versus the same period last year. On the other hand, we saw a slight uptick versus the previous quarter. Nothing strange about that one, I would say, it's mainly due to timing in accounts payable. And then summarizing that and how that flows through to our operating cash flow. On the left-hand side, again, a picture that is impacted by structural changes but also in Q3 now, us getting that Diab settlement, so legal settlement which actually brought in quite enough cash. Hence, I would say that we can look at the right-hand graph, where we have adjusted for these kind of effects. So we're looking more like-for-like. And there, we can see that our cash flow has actually tripled. Compared with the same period last year, it's very nice to see the Consumer, again, here having a fantastic contribution versus the previous year. We see a decline in the Industry, and I would say it's Industrial services mainly, a little bit of a lower result, but also some timing issues in net working capital. So all in all, more than triple of the cash flow for the quarter? And then ending off at us looking at how leverage has developed. I would say, you can clearly see that uptick in Q1 2025. It is driven mainly by composition dividend made in Plantasjen, if you remember that, and also minority dividends, which were paid out. Another step upwards, and I'm talking now about the adjusted leverage, so the orange line. It stepped up a little bit more as we listed Sentia. And that is much due to them having these customer prepayments. So it impacted our net debt negatively. And then the slight decline now moving into Q3 has to do with, I would say, Diab settlement, of course, impacting our cash flow positively in a good way. And one last reminder is that if we were to sell our 40% remaining shares in Sentia, that would add SEK 2.5 billion, which essentially would mean that our adjusted gearing would go from 1.6x down to 0.5x, pointing out that we are very financially stable, and we do have good firing power for structural activity going forward. And with that, I leave over to you, Jonas, to summarize the quarter.

Thank you, Anna. As always, a very good presentation. So let's round off. We have an even more profitable and resilient Ratos. We talked about the markets, EBITA increases, EBITA margin increases, and we heard about the cash flow. And -- but we will continue to focus on even more operational efficiency going forward. So with that, Katarina, I leave over to you.

Thank you very much. Thank you, Jonas. Thank you, Anna. And with that, we open up for questions. And as we are using Teams, can I please ask you to use the functionality of raising your hand? And then it's easier to understand who has questions. And we do have a question from ABG. Henric, please.

Yes. I want to just first ask a bit more about the Knightec integration. You mentioned a figure of SEK 70 million, somewhere in the presentation there. Could you just explain a bit about the timing of when we'll see these cost savings and compared to what level that SEK 70 million figure was?

Thank you, Henric. Good to hear from you. I think, Anna, can you talk about that?

Sure. Thanks for the question, Henric. And to Jonas' point, we did take some one-off cost additional now in quarter 3, and that's because we saw additional savings, additional synergy savings. So taking us up to annualized savings of just above SEK 70 million. And I would say, looking for quarter 2, I would say that amount is roughly SEK 20 million. And we do expect the majority of these savings to kind of come through as of Q1, Q2 2026, and then there will be a small tail at the end of 2026.

All right. I'll have one more question, if I can. On Expin, you wrote that the Finnish market is seeing some weakness, but there have also been a lot of changes in this company during the year. So I was just wondering if you could give us a bit of an update on the status currently here, given these changes?

We go for Anna again. You're quite deep into Expin.

I would say it's a story of 2 tails, so to speak. So we have the Swedish side, which is doing great. We have still a very, very strong backlog that we have prominent major projects running currently. So I would say not so much worry on that side. I would say what has been known and perhaps deteriorated somewhat additionally now in quarter 3 is the Finnish market. We see fewer orders coming on. We see higher competition in those kind of orders. We see higher price pressure. So the Finnish market is really difficult. So we are addressing it the best way we can. Of course, that is cost out temporary and permanent layoffs. That's one of the things that we, of course, are addressing. And I don't know if you read the press, but our big competitors have also done some personnel layoffs. So it's known weakness in that market. So we're working hard on that to get grip of the situation.

And roughly how big are the Swedish and Finnish parts, respectively, for Expin?

I would say you have ES-Infra, that's the largest part. I would say Ratatek, which then consists of a Swedish and Finnish side. The Finnish side is actually much smaller. The Swedish side is actually much smaller. But on the Expin Group side, I would say Sweden is the majority of what we do.

Okay. Thank you, Henric. Johan Sjöberg, Kepler Cheuvreux, please go ahead.

Starting off with the Construction & Services businesses. Could you talk a little bit upon how we should think about Q4 here given your comments on Presis Infra, a little bit messy quarter, third quarter from the outside here. But maybe you could talk a little bit about how we should think about Q4. And my second question, Jonas, I don't know if I totally missed this, but you mentioned that you saw signs of improvement. And I would sort of like to hear your -- where do you see that and in which business areas?

Yes. Should I start with that? And well, we have to say that we believe that the customer -- the consumer confidence has increased a bit maybe because of interest rates, et cetera, but we can see that. We have also -- we have had -- or we still have a quite weak market in secondary optics, say LEDiL. And we have taken in market specialists, et cetera, et cetera. And they feel that we now are on the bottom. We hope they're right. We see some signs, and we will also launch some new products from LEDiL. Defense is just getting stronger and stronger. So that is my answer. The second was -- question.

The Presis Infra in the fourth quarter...

Yes, it's very much -- you said year-to-date, we are as last year. So it's a prioritization thing. But maybe you want to...

Of course, Johan. And I would say, again, we don't see any deterioration in underlying market sentiment even though it was a messy quarter with this timing of orders this year versus last year. So I fully understand that difficulty. But then going into Q4, I would say Presis Infra no forecast at all, but I would just say it's a business that's highly dependent on what kind of product you close off and it's also weather-dependent. So I wouldn't dare and again, to Jonas' point, we don't give any forecast, but I would say it is difficult for us to say apart from saying what we have seen now, there is no change in the underlying markets. And then it's very much about which projects we deliver when and the weather to some extent. So difficult to -- even if I would look to guide, it would be very difficult.

And just a final question, if I may. Looking at the Automotive segment in the Consultancy business. I mean, it's obviously a big exposure for you. How would you say the mood are in terms of Automotive, your Automotive clients bringing back consultants? Are we there? Are we still sort of phasing out consultants rather going into Q4 or let's say, by the end of the Q3, so you don't have to talk about Q4?

No. No. And I don't -- I even AB Volvo, Volvo Trucks showed signs of weaker sales and so on. Yes, one layoff people in Volvo Cars, of course, and also consultants, the unions want to get the consultants out first. It's been the same during all my time in this business. The recipe on this is to deliver projects, defined projects. And we have very strong niches that our Automotive segment needs in digital applications. So -- and I think -- well, I shouldn't give any forecast either, but I think, and I hope it will stabilize in the beginning of next year.

And -- but you expect sort of the impact on margins, should that be sort of offset by ongoing cost cutting synergies, et cetera. So I understand the impact on top line here, but in terms of margins, how -- and if I may ask for sort of thinking about '26 margins in this?

Well, we have said that in the end of last year, we should have SEK 70 million lower OpEx like-for-like and that should show in the results, of course.

Okay. Thank you, Johan. Do we have any more questions? Georg Attling from Pareto, please go ahead.

Just 2 on the quarter, if we can discuss the profitability of Expin year-to-date. So obviously, quite a big loss last year. How is that looking this year? And when do you expect this to become profitable again because I assume it's not.

Of course, I would say, Georg, it is much less loss-making now. So it is a significant improvement versus the same quarter last year. So we are doing the right things. On the other hand, now with the market deteriorating, we probably need to do more in order to kind of land a breakeven number. So even though Ratatek business is a small part of total Expin Group, I would still say considering a very weak market conditions that we need to do more.

All right. And looking at Speed and TFS, seems like the ones performing the worst maybe in Industrial Services. Could you talk about your expectations for how long this will persist? I mean, are these structural challenges? Or do you expect that to roll off here in the coming quarters?

Well, we start with TFS. I don't have that binoculars or I really -- I mean, it's about financing of these biotech companies, and I don't think I know more about that than you do, to be honest. What we can do is, again, to streamline our business, to get OpEx down and to focus on sales. We have a new CEO there that has done a lot of that. It will continue in this quarter to reduce OpEx further. We have also decentralized the organization. We have very clear P&L areas in the company. So it's much easier to follow up and get control over this. The positive thing I might could say is that they have actually the last few months delivered better than their forecast. So that's a good sign. I already forgot the second question.

Speed.

Speed Group, yes. Yes. I think that -- and I think I said that, that I think we need a couple of quarters more to get full efficiency in this expansion. Speed is a big logistic company, but they're also doing assembly for customers like Ericsson and others. It's very appreciated. So we believe it's talking 2027 now, but we think 2027 have a really good potential to grow EBITA and sales, of course. But we're most interested in EBITA. And that looks very good. But we are in a tough OpEx period right now. Will you like to...

No, no, I agree with you, Jonas. And of course, we are working as fast as we can with these automation projects to kind of fast track that in order to have a better balance between the hit on the P&L currently. So they're doing everything they can. And it is an expansion phase, which, of course, comes with these periods of lower profitability temporarily. And again, how long it takes, we will, of course, try to fast track that. But that's what's going on. Quite a lot of larger projects.

Understood. Just a final one for me on the sort of future, both where we stand in terms of finding a replacement for you, Jonas. And then also maybe on the structural changes here in the group. We've seen a transaction market heating up a little bit now after summer. If you can update us on where you stand both in terms of finding a replacement for you and on transactions that you might look to do and how close we are to finalizing any deals?

Well, I don't have more information about my -- the recruitment process that you have. And when I left my former job, it was the same. So I really have no information about that. So you'll find -- you have to find other sources. So -- and you can tell me then after that. But -- and the second -- what was that?

The second question is the market is heating up in regards to the trade sales IPO, looking better.

Yes. Well, we think the M&A market is not gone at all. But again, we have learned not to forecast or give you -- I can say that we are involved in several M&A processes as we speak. And again, we're looking for a very synergetic acquisitions at low multiples. So we will keep that tradition. Do you want to...

Just following up -- sorry, Jonas -- on the -- you being involved in M&A discussions, is that both as a seller and a buyer or are you specifically referring to M&A as a buyer here?

Yes. We want to both buy and sell. But I can say one thing, I think. And that is we're not into in M&A to acquire a new platform. We are an add-on acquisitions on our companies that really have the profitability and stability. And HL is, of course, one example you heard a lot about, but there are other companies who have reached that level. So that is exciting. You want to fill in?

No.

Georg, was that your final question?

Yes, it was.

Okay. Thank you so much. Do we have any more questions? No. Okay. If not, Jonas, any last words, comments to our shareholders?

No. I just -- again, thank you for listening and being engaged, and we read your reports, and we learn from them. So hope to see you soon. Thank you so much.