Ratos AB (publ) ($RATOB)

Welcome to Rato's Q1 Earnings Call 2026. [Operator Instructions] Now I will hand the conference over to CEO, Gustaf Salford; and CFO and IR, Anna Vilogorac. Please go ahead.

Good morning, everyone, and thank you for joining us today. I will begin with a brief overview of the quarter, and then Anna will go through the financials in more detail. Overall, we delivered solid growth in what continues to be a mixed market environment. Net sales increased by 3.4% and adjusted EBITA came in at SEK 460 million (sic) [ SEK 417 million, ] corresponding to a margin of 9.3% and EBITA growth of 21%. Adjusted earnings per share was SEK 0.67, an increase of 81% compared to last year. We had a strong start of the year in our industrial product companies. Diab and HL Display both posted healthy growth. On the industrial services side, the quarter was more challenging. Both Knightec Group and Aleido faced softer demand and tougher market conditions. Our results for the quarter was negatively impacted by 2 main factors: First, lower volumes and gross margins among our technical consulting businesses. And secondly, at Speed, we continue to invest in automation to increase capacity and efficiency over time, which temporarily affected profitability as we absorb these investments. During the quarter, we also launched our strategy, Ratos 2030. The strategy reflects a clear direction. Ratos is returning to its roots as a focused long-term investment company, owning both majority and minority stakes in Nordic companies. For the '26, '28 period, we have 3 strategic objectives, and I'll walk through each one and highlight what we delivered in the first quarter to support them. Firstly, we're building a more focused Ratos. In Q1, we launched a new strategy, provided greater clarity on the portfolio, as you also can see in our Q1 report, and also exited Expin Group, steps that reinforce our focus and where we allocate our time and capital. Secondly, we are driving profitable and capital-efficient growth through organic initiatives and add-on acquisitions. And in the first quarter, we saw significant orders for Aibel, TFS and Presis Infra. We delivered organic growth, and we generated a robust earnings contribution. We also completed HL Display's add-on acquisition of Deinzer, which supports both growth and value creation in that business. Thirdly, we'll further develop our ways of working as a company. And during Q1, we increased our external presence on portfolio company Boards, including the appointment of Daniel Kjørberg Siraj as Chair of the Board for Presis Infra. We have clarified how we categorize our portfolio and where we'll focus going forward. The purpose is to create a clear and more transparent structure for how we manage the companies and how we track progress against our financial targets. At a high level, we now distinguish between core and noncore companies. Our core portfolio is where we will concentrate ownership attention and capital to drive profitable capital-efficient growth over time. And if we now turn to our companies and especially the companies in the industrial products, we saw that performance developed well this quarter, especially for Diab and HL Display, and all companies delivered organic growth. Diab delivered a strong 16% organic growth in the quarter, supported by increased demand from defense customers and profitability improved on the back of the higher volumes combined with lower depreciation. We also saw a strong development in return on capital employed. HL Display reported 4% organic growth, and we saw positive sales development in North America. And as mentioned earlier, the acquisition of Deinzer was completed during the quarter, strengthening our offering and supporting further growth going forward. LEDiL delivered 1% organic growth, driven by the indoor business, while outdoor business continue to face a more subdued market environment. Turning to our industrial services companies, the quarter was more challenging, reflecting a cautious market environment and low utilization in parts of our consulting businesses. Aleido reported a negative minus 4% organic growth and the market remained cautious and utilization was lower, which affected performance. At the same time, we continue to strengthen our offering, and we were awarded a contract to deliver a new AI-based platform solution, which is an encouraging step as we build capabilities for the future. Knightec delivered a negative minus 2% organic growth. We saw utilization challenging, driven by uncertain market conditions where customers continue to be cautious with new project starts. Speed grew 12% organically, supported by continued momentum in our logistics solutions and new customers. And profitability was impacted during the quarter as we progressed automation projects that are investments we believe, are important to improve capacity and efficiency over time and prepare for growth and margin improvements. TFS delivered 18% organic growth, primarily driven by an increased share of pass-through revenues, while service revenues were down. Importantly, we received a major order of approximately SEK 350 million, supporting a stronger development of the business going forward. Moving to our infrastructure companies. Presis Infra delivered 2% organic growth in the quarter and profitability was somewhat lower, mainly driven by product mix and timing effects but we continue to see a robust order backlog, which supports good visibility for the coming quarters. And now moving on to our minority holdings. Starting with Aibel, the company was awarded a major framework agreement with Equinor. The agreement has a fixed duration of 5 years with options for extension. The total value is estimated at around NOK 20 billion over the fixed period, an important win that supports long-term developments. For Sentia, the share price has increased by more than 40% since the listing in June 2025. We also expect to receive a dividend from Sentia in Q2 of approximately NOK 220 million, corresponding to Ratos share. And lastly, a brief update on our noncore consumer companies. KVD delivered minus 3% organic growth impacted by lower used car volumes. At the same time, Forsbergs Fritidscenter performed well with a strong order backlog and solid sales and results. Oase Outdoors reported 12% organic growth, and the business unit built inventory ahead of the peak season in the second quarter, which is consistent with normal seasonal preparations. And Plantasjen delivered 4% organic growth, with growth in both the Swedish and the Norwegian markets, and the profitability was impacted a bit by product mix and higher energy costs during the quarter. And with that, I would like to hand it over to Anna for the financials.

Thank you, Gustaf. And without further ado, let us dig into some more details. So really on the positive side, this quarter, again, a second quarter in a row now, we displayed positive organic growth, just above 3%. But also if we look at the 12 months rolling trend, this also now is in a positive trajectory. Also another quite positive item in this quarter is that our EBITA improved by 21%. This is from a meaningful impact of the Sentia contribution, and we will come into more details for that. But just as a reminder that Sentia was not a part of this. The Sentia holding was not part of our Q1 2025 numbers. So here, we will break down the net sales and adjusted EBITA in different components, starting with the organic one. As mentioned, 3% organic growth Unfortunately, it was a negative contribution on our EBIT. And this stems predominantly from 2 components. One is being Speed, for which we do see this automation investments, which we are taking through the P&L. And the other one is Knightec Group, which actually had organic decline. And here, we see a high drop through straight to our bottom line. Moving into M&A component, which actually was margin accretive. We do see Deinzer effect, even though it was small, it was just 1 out of 3 months. Whilst the other 2 were actually some disposals and acquisitions within Presis Infra, out of which that disposal actually was loss-making. Hence, a really strong contribution from the M&A side, which we do not expect to see in the coming quarters. Moving into FX. As seen in the previous couple of quarters, we still do see negative impact on the top line stemming from both U.S. and euro, SEK strengthening towards these currencies. On the EBITA side, on the other hand, it was quite neutral. Even though we should remember that our global companies, Diab and HL Display actually did see quite a negative impact on their EBIT from FX predominantly strengthening towards U.S. dollar and euro. And here, we can clearly see that meaningful Sentia contribution, which is 150 basis points accretive to our margin. Also, what surprised us positively was Aibel. We are moving towards a year for which we based on the projects that we have, do expect Aibel to come in lower in revenues in 2026 versus 2025. On the other hand, we did see good project execution in Q1 and hence, a bit more in revenue recognition for the quarter, supporting us positively in the bridge. And here, we have now increased our transparency. So we are reporting company by company in our interim report. So bear with me, it's a lot of moving parts here. And I would just make a couple of comments. I would say, again, industrial products is doing really well, both HL Display and Diab. And again, remembering that we do have a currency headwind in both of these companies, which is quite significant and still a very good contribution to the EBITA. We also see this highly negative impact in Knightec Group and Speed. For TFS, just one comment worth making here. We see a healthy top line growth, plus 31% in net sales bridge. However, a negative contribution to EBITA. And as Gustaf mentioned, we see good growth in so-called pass-through revenues. What that is, is us providing third-party services to our customers for which we are not getting any EBITA contribution for. Our service business is actually down and hence then lower profitability stemming from that. When it comes to consumer companies, KVD, Plantasjen, Oase Outdoors, as you can see, not a lot of movements in there, quite neutral for the full quarter. And again, our peak season is in Q2. So that's something to look forward to. And one last comment is that we saw a positive effect coming from the corporate line, has -- it's a twofold explanation. One is that we have dismantled the business area level. Hence, we are running at the lower cost rate currently. And the other part is actually coming from lower transaction costs this time around versus previous year. Looking at net working capital, I would say stability is name of this game. If we look at both absolute and relative terms compared with last year, we are quite flat. When it comes to sequential development, we do see inventories as a preparation for the peak season in Q2 for many of our companies. Inventories are up quite significantly on a sequential basis, but they were offset by other receivables and payables. Hence, the net working capital in absolute terms was quite close from the level we saw in Q4, and that effect in other receivables, payables has to do with us preparing for our dividend payment. Looking at the cash, I would say that this is probably the thing that we are least happy about in this quarter for Q1, it has to do with a couple of differences. And we do have the comparison difficulties versus the same period last year as Q1 in 2025 did, of course, include Sentia, and also, there were some reconstruction effects from Plantasjen in that number. But quarter isolated, I would say, some normal behavior when it comes to net working capital buildup for some companies. We also had some timing issues when it comes to our industrial services companies. And on top of that, we did get a negative effect from our currency loan hedges. And that had to do predominantly by Norwegian krona strengthening in the quarter versus SEK. Looking at the LTM trend. However, as you can see, it is a quite healthy cash conversion. Net debt, quite similar from previous quarters when it comes to leverage, 1.6x. We see, again, normal seasonal pattern for which the Q1 is a step-up, not least due to the cash situation I just described, versus previous year, it's a slight decline in overall net debt. And again, we are at the lower end of our targeted range of 1.5 to 2.5x. And just as a reminder, we do not include our shareholding in Sentia in these numbers. If we would just theoretically and mathematically include those, our leverage would be 0.3x, hence, indicating a very stable and solid financial position, which gives us a lot of maneuverability going forward. Looking at return on capital employed, which is one of our external financial targets. If we first turn to the golden line, we see definitely an impact of us disposing or listing Sentia. As you might remember, Sentia, as a construction company, it's more volatile when it comes to cash flow and net working capital. Hence, we have become much more stable when it comes to those metrics. On the other hand, we did have quite nice return on capital employed, and that's the effect you can see from Q1 and onwards that it's declining. But I would rather us comparing like-for-like, which is then the bottom line. And as you can see, the trajectory is positive. We are, of course, still not happy, and our ambition is to do even more. But this time around, it is nice to see that it's actually moving in the right direction. And last, but what it all boils down to is, of course, the EPS. I think also, it's nice to see that we have EPS accretion throughout the P&L. And if we first turn to the left-hand side graph, this is based on group total. That is how we historically looked. And we see a very healthy EPS growth from Q1 last year to Q1 this year, more than 80% growth. But also if we look at the LTM line, that's also a 16% improvement, which is great to see. And then if we look at the table on the right-hand side, here, we've tried to do it like-for-like just so you understand where this improvement is coming from. So this is based on continuing operations. And again, adjusted EBIT, a double-digit improvement. Net financial items, we also see a double-digit improvement as we have lower financing costs. And looking at taxes, another item actually highly supported this quarter around. Even though I just want to warn you, you shouldn't see this tax rate of 10% as a normalized tax rate. I would say our effective tax rate is estimated to be somewhere between 17% and 19%. So unusually low tax rate for the quarter, has to do with not least Diab growing and having good profits in countries where we have a large tax losses carry forward. So all in all, it's a substantial EPS improvement, and this is a testament of value creation this year versus past year. And with that, I would like to hand over to Gustaf to take us through a summary.

Thank you so much, Anna. And if I try to summarize this quarter, it's really about that we launched our new strategy, Ratos 2030. And we also had updated financial targets released for the period 2026 to 2028. It's all aimed at supported increased shareholder value through clear focused and a disciplined capital allocation. Operationally, we delivered organic growth and improved results supported by strong performance in our industrial product companies, where momentum in business like Diab and HL Display helped offset the more mixed market environment elsewhere in the portfolio. And looking ahead, our focus is really to keep driving improvements, execute on the strategy and support the portfolio with the right initiatives so we can sustain profitable, capital efficient growth through Q2 and onwards. And with that, I would like to say thank you, and we are happy to take any questions.

[Operator Instructions] The next question comes from Henric Hintze from ABG Sundal Collier.

This is Henric Hintze with ABG. So first of all, I would like to ask on Speed, the automation projects you have ongoing there. When exactly do you expect these to reverse from contributing negatively to contributing positively? And what sort of EBITA recovery should we expect there?

Henric, I'll start with that question. So the Speed automation is ongoing. It's an impressive project where we are driving a lot of automation in the warehouses. So we will work with that during the spring here. And then during the autumn, it is expected to go live, so to say, and have the positive impact on margins and the productivity for some of our key clients going forward. And then exact financial impact, you will see that in the coming year and onwards, I would say. So that is the operational and financial plan for the Speed automation.

Okay. And also on Knightec. So clearly, automotive is one of the main drivers of the weakness we see there. How are you sort of approaching this? Is there any reason to believe that there will be a recovery in the near term? Or are you to trying to reduce the number of consultants? Or is it somehow possible to divert them to other sectors? So how are you thinking about that?

Yes. I think if you look at the Knightec, and maybe if you include Aleido as well, of course, there is an impact on cars and trucks. That has been a bit more difficult market in terms of project starts, and what Knightec do is really product development and R&D initiatives and so on. So it's very important with new projects. However, we are very well positioned when it comes back, the demand for those products and projects. And as well, we have the defense customers, we see very strong demand at the moment. So I think we have the competence, we have the expertise to be well positioned when the demand comes back. And of course, short term, we are mitigating the current impact from the weaker markets by looking at utilization and looking at the efficiency of the teams and the cost levels and so on to manage this business cycle. But it's also important to say that it's very important that we keep the right expertise to drive growth going forward. And we have a kind of positive outlook for technical consulting companies. But at the moment, it's more a challenging market condition.

Okay, very good. And maybe finally, could you just specify exactly what the restructuring charges you had in the quarter were for?

Of course, I would say you have -- the biggest one is actually HL Display. They normally consolidate their footprint as they do a lot of M&A. That is a one large one. And then we had a small total overall impact from Expin Group, but that was a smaller one, minus SEK 4 million. The other one is minus SEK 21 million.

The next question comes from Björn Olsson from SEB.

First, just a follow-up on Henric's question on Knightec. So I interpret this that you'll keep your sort of being overstaffed, waiting for demand to return. How long -- I mean given the uncertain outlook in general, for how many quarters do you think that plan could hold before you actually start to take actions? I mean your margin is down 300 bps year-on-year. So sort of for how long should we expect that to continue until you take action?

Yes. Thank you, Björn. I mean on that question, I think it's important to say that we come from a year last year of lower cost and efficiencies. So that is something we have been driving for the last year. And we continue to do so because for the company, it's important to mitigate the effect of the lower demand. And then it's impossible to say exactly how many quarters, of course, this situation will continue on the demand side. But we are mitigating the effects. We are looking at efficiencies. I wouldn't say we're overstaffed, but it is important to keep the right experts and expertise in order when the demand comes back. So I cannot say exactly what quarter we expect it to come back. But we are mitigating the effect of the lower demand in Knightec.

Okay. On Plantasjen, it seems that the momentum was somewhat picking up in Q1, although with a sort of margin negative product mix. Could you give any flavor of how Q2 seems to be developed this far?

Yes. If we look at the first quarter for Plantasjen, I think all of us experienced a quite cold February and there was higher energy costs and so on that impacted the margins. But it's very positive to see that the top line were growing, then the product mix was a bit impacted in the quarter. That was a product mix of a bit lower products also linked to the colder February. However, looking at this quarter, that is, of course, very important, it's spring. And that's when you primarily go to Plantasjen. And I think we have a -- we are optimistic about the Q2 numbers. And I see good activity when I go around and visiting different Plantasjen stores here in Sweden. And I think it's important to say that it was both in Norway and Sweden that we saw growth in Q1.

And just reminding, Björn, that April last year was actually a very good month for Plantasjen. So perhaps from that reason as well, quite difficult for us to judge from April. So it's going to kind of come down to May and June, unfortunately. But again, it's our biggest quarter. This is where everything kind of ties in for Plantasjen. So very important quarter ahead.

Makes sense. So I guess, me and my colleagues will do some secret shopping for the months to come.

Please do.

Absolutely. Highly recommended.

And finally, just on your balance sheet. I mean as you report, you are in the lower end of your net debt target and since you don't plan to do any major platform acquisitions either in the near term, have you had any like second thoughts on buybacks?

Of course, again, it's a discussion that is being had at the Board level, of course. So we are constantly evaluating how to allocate capital in the best way possible. We also hope that we'll get additional M&A throughout the year. Again, companies such as Diab, such as HL Display, such as Presis Infra. There is a lot to be done there. So nothing on the table are decided yet, but of course, all of these initiatives or capital allocation possibilities are on the table and being discussed.

The next question comes from Georg Attling from Pareto Securities.

Gustaf and Anna, just a few questions from me. One on a more high level. I'm wondering what effects you've seen from, let's call it, the geopolitical unrest both here in Q1 and also if you've seen anything during the start of Q2?

Yes. Thank you, Georg. So Ratos, we are primarily exposed to, I would say, Sweden and Norway when it comes to our revenues. But of course, many of our companies have international operations as well. I kind of -- we haven't been impacted in Q1 really. And you can almost say for the Norwegian stock exchange and also for Aibel, they are, in a way, supported by this geopolitical unrest. And for the rest of our companies, we haven't seen any real impact on supply chains or anything like that because most of our goods were already delivered or in warehouses during Q1. Q2, I don't expect it to impact us significantly. Again, we have the goods we need in order to deliver on the spring season in our companies and as well that only if you take the technical consulting side, it's primarily more on project starts for larger industrial companies that's impacting those volumes. So I would say a very, very limited impact on Ratos both in Q1 and Q2.

And maybe just to add, Georg. Of course, for HL Display and Diab being this international companies, we do hear transport surcharges or raw material inflation. We have initiated, of course, our processes in order to push those kind of price increases towards our customers. So, so far in Q1, no financial impact. And then, of course, going forward, we will try to handle it as best as we can by pushing it to our customers. That's the plan. And I think both companies acted quite early in this. So we don't expect any substantial negative impact on our results.

That's clear. And just a follow-up on that with regards to technical consultants. If you could describe Q1, did you see that demand was higher at the start of the quarter and then declined in conjunction with this geopolitical tension rising? Or has it been sort of subdued throughout the entire quarter?

I don't think we have experienced any difference in the demand between the month. I haven't picked that up, no.

Okay. Just a final question on -- also on Plantasjen. Obviously, no margin expansion year-over-year here this quarter, partly attributed to mix, as you described. But when we look ahead on this sort of top line level, have you done what's possible or sort of picked the low-hanging fruit in terms of margins? Or is it more that can be done even without higher volumes?

I think you have a great leverage in the Plantasjen business model, if you get the volumes now during the spring. So that's key. And going into the second quarter now with 2 quarters of growth in the business, that's a great momentum to have. And we don't expect this high energy prices that we had in the beginning of the year, especially February, to impact Q2 in any meaningful way. So we're set up to get leverage from the volume we now see in the spring and the Q2 season.

And maybe just one comment, Georg. So for 2025, I would say we believe that we could do 6% to 7% EBITA margin. And then, of course, we had that very cold May. So Q2 was not as good as anticipated. So we landed just below 5%. I would say, cost-wise, we're on the similar level. And the question is whether we can get a bit more top line. Otherwise, you should probably see it as 2025 numbers. That's where we are if we don't get that additional volume now in Q2.

That's clear. Just a follow-up on that also. I mean we've seen the NOK really rallying here in the past few months. How will that affect Plantasjen's profitability? Do you have a similar amount of costs in NOK as well? Or will that be positive for the margin?

I would say so that we do have quite an extensive or large business also in Norway. So I would say we don't perceive any large impact from NOK strengthening versus SEK. We saw a slight positive now in this quarter, both on the top line and a little bit of bottom line, if that gives you an idea.

[Operator Instructions] The next question comes from Emil Nystedt from Kepler Cheuvreux.

It's Emil from Kepler Cheuvreux. I have a couple of questions. First, I was wondering about TFS, where you had quite high pass-through revenue in the quarter. Should we view Q1 as an isolated data point here? Or can we expect continued high pass-through revenues moving forward? And then also, if you could please give us some color on the SEK 350 million order intake and how the underlying business is doing.

Yes. Thank you, Emil. If we start with past-through items, this is kind of industry standard that you have significant past-through items for the clinical trials. So that's not something strange. In the quarter, it was a higher proportion compared to the average ratio. And then you see this impact on the margins directly. The service revenue, as we call it, what TFS is getting the margins from, declined in the quarter. So therefore, it's so important to see that we now get this very significant order of SEK 350 million that will be part of driving growth for TFS going forward. And as you know, the CRO business is a high margin, low capital employed type of business. So getting growth into that business is key for value creation for Ratos and of course, also for TFS. And I look positively on the industry that the biotech funding is more coming back, and there will be more clinical trials in the areas where TFS is operating. And with that, the ratio of pass-through items should then also go down on average compared to what you saw in this quarter. On the significant deal, we cannot disclose the customer name. But I can say, it's a great customer. It's a very good deal that will be supporting TFS' growth going forward.

So just to give a bit color. So pass-through revenues in the same period last year was 1/3, and it's almost 50% in Q1 2026. So it's a huge increase. And that is because of the phases that these different studies are in. So in certain years, it can be quite high. And in other years, it is more insignificant.

And then secondly, on Diab, plus 16% organic growth here in the quarter. How much order backlog visibility do you have in Diab today? And is the current demand level and margin sustainable through the rest of 2026, do you think?

A couple of different points. The visibility that we have is 2 to 3 months, so not that high, unfortunately. So that is what we see. Normally, I would say it is difficult to estimate how sustainable, let's call it, defense volumes are. They can come and go in different periods. And then also you need to remember in this EBITA and margin increase that we do have an impact from lower depreciations as we did write-off fixed assets associated with wind in July last year. So of course, this kind of steep incremental improvement, we do not expect that to continue onwards. So that's something to bear in mind for the rest of the year. On the other hand, we do still see solid markets across the board. Maybe marine segment is not the best one. But apart from that, we stand on several different segments and see a healthy development. But this kind of very exponential improvement should not be penciled in into the future. Let's put it like that.

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Thank you, and thank you for your questions. So if we look at Q1, it was really a robust quarter for Ratos with a new strategy launched and improved operational performance with organic growth and margin improvement. So we are really looking forward to continuing to deliver during our important second quarter and fiscal year 2026 and beyond. And with that, I would like to thank you for listening, and have a great day. Thank you.