Volati AB (publ) (VOLO) Earnings Call Transcript & Summary

Good morning, and welcome to today's presentation with Volati. With us presenting today, we have the CEO, Andreas Stenbäck; and CFO, Charlotta Nyberg. We'll open up for Q&A after the presentation. [Operator Instructions] And with that said, please go ahead with your presentation.

Thank you very much, and thank you, everyone, for listening in this nice summer day in Stockholm and Sweden. I'm also very happy to have Charlotta today at my side. It's -- she's now finalized her first quarter as a CFO for Volati. But let's get into the presentation. We start by looking at some highlights from the quarter. It's a mixed, but, I would say, overall, a disappointing quarter when it comes to the EBITDA development. We have some highlights. We have Ettiketto performing more or less in line with expectations. Communication, I would say, performing very well with a strong EBITDA growth and Corroventa also performing in line in, for them, a very small quarter. However, as you all can see, we have lower earnings in S:t Eriks Group and Tornum Group. And we will get into some more details about all the platforms later on. On the positive side, I would like to highlight the very strong cash flow that we have. And that has enabled us to maintain our acquisition pace and do 2 more acquisitions just the last couple of weeks. And that summarizes 3 acquisitions in total for the last 12 months and actually 3 acquisitions in 2026. We have also finalized the separate listing of Salix Group. And just before digging into our Q2 numbers, I would like to just summarize that the separate listing very shortly. I think we, through this, have demonstrated that we can really create value through our platform development model. We acquired a company called Lomond Industrier for just over SEK 500 million in 2015, so now 11 years ago. And we have developed that to now a listed platform, a standalone platform, the cousin on the Stockholm Stock Exchange with a market cap in excess of SEK 5.5 billion. And this model, we continue using and developing our 5 existing platforms that we still hold on to. So let's then get into the quarter in more detail. As one can see, we have showed a sales growth of approximately 11%. And in that, we have an organic sales growth of around 2%. The EBITDA development has been weaker than last year, and the reason for that is Tornum and S:t Eriks, which I already highlighted. We've had a strong cash flow, I would say, really strong cash flow given where we are. And that has put us in a position where the net debt to adjusted EBITDA is at 2.9, and that is slightly lower than the same period last year. Looking at the LTM numbers, on this Slide 6. Of course, we're not happy with the negative trend since 2023 when we had our last EBITDA peak. The development since then is mainly driven by tough end markets, and that's the main -- it's a construction market for S:t Eriks and it's a grain or agri market in Europe for Tornum and also that we've had a very dry last 18 months for Corroventa. I still believe that 2023 is a representative year for what we should achieve in an average market. So that's definitely something that we should be able to achieve in a normal market. Looking at our financial targets. Of course, as you can see, we are underperforming in terms of our growth target. We have now underperformed for quite some time, which means that in order to reach that goal, which is to have at least 15% growth over a business cycle, we have to overachieve our 15% growth target for some time. The ROE, the return on equity, is now at 18%. We do then adjust for the capital gains that we got from the separate listing of Salix Group. If you take that into account, the return on equity is actually 368%, but we do adjust for that. That return on adjusted equity and the return on equity will increase once we get the EBITDA growth going. And the capital structure is -- I think it's where we deliberately wanted to be. We are at the upper end of our range, but we are deliberately there because we continue doing acquisitions. So with that, I thought I would go into our now 5 business areas one at a time, and we start with Ettiketto Group. So strong net sales development as expected, mainly acquisition driven, but we also had some organic growth despite that we saw some material shortages in the quarter. We have also seen some material cost increases in the quarter because of the situation in the Middle East, which we have met with price increases. The margin development are as expected, lower than last year, and that is driven by the acquisitions that we've done and that the companies that we acquire show lower margins that we do -- than we do overall in the group. But the operational efficiency, the synergies that we are able to achieve will over time increase those margins. We have finalized one add-on acquisition to Ettiketto Sweden, NicEtikett. It's acquisition on the smaller side, SEK 35 million of revenue, but it's precisely the type of smaller add-ons that we want to do. They are very value creating for us. And we are now able to do these kind of acquisitions in not only Sweden, we're also able to do them in Norway, Germany, U.K. and the Netherlands because of the geographical footprint that we've been able to achieve the last 2 years or 2 or 3 years. So that was that about Ettiketto. If we then go over to Communication, I would say that Communication is performing very well in the quarter. It should be seen in the light of a slightly weaker quarter last year, but still we are performing very well. Demand in key markets was somewhat subdued, but we were able to compensate that with strong project deliveries in other markets, for example, in Asia. And we have a global footprint or a very large geographical footprint in this platform, which enables us to capture these kind of growth opportunities when they occur. And I would also want to highlight that Communication now after 3 or 4 years being owned by us at Volati are really well positioned to do acquisition and continue to drive growth by acquisitions. Next platform or business area is then Corroventa. Corroventa developing very much in line with our expectations. It's just another dry quarter, but it's also the by far smallest quarter of the year. So development very much in line with the last year. And I will later on in the presentation, get into the acquisition that we finalized, which is now the first add-on acquisition to Corroventa, which is really nice to see that we're able to complete that. S:t Eriks then, S:t Eriks saw an okay sales development in the quarter, more or less in line with last year. The construction and civil works are markets are still challenging, while infrastructure, and I will, for example, want to highlight electricity is developing stable or even strong. However, we see some signs of delays in the water and wastewater segment, which is important for S:t Eriks. EBITDA development, significantly lower than last year. And the main driver to that is lower production rates and the under-absorption that has as a consequence. And during 2026, we have deliberately lowered the production pace below what is needed to meet the current market demand, and that we have done in order to reduce the inventory levels. And we can see that works because of the very good cash flows that we've had in S:t Eriks, both actually in Q1 and now in Q2. During the second half of the year, we will gradually increase the production rates again to normalize them to the market demand that we see right now. We've also, early this year, initiated a cost reduction program that we did based on 2 reasons. One was to meet the shift that we're doing from volume segment to the more high margin and lower capital need product segments. And the other reason is that -- is to meet a lower demand in the market. So this cost reduction program is now finalized. That has led to some nonrecurring costs in the quarter, and we will gradually see the effects of that throughout the H2 or the second half of this year. So, and then we have Tornum Group. Tornum, we had a very tough Q1. Q2 has developed slightly better actually than Q1, but we still saw a decrease of 8% on top line. And we are operating in a very challenging market. It's characterized by low grain and pulp prices, which affects our overall demand. We're also seeing that the war in the Middle East continues to weigh on order intake. We also see some delays in projects and in order intake. But the underlying investment needs are -- remains, but it's being deferred. The order backlog, is on a positive side, slightly stronger than last year. So we have that with us for the rest of the year. EBITDA declined as the main reason for that is the lower net sales, the sales development, but we also see some continued pricing pressure on the market. We are meeting the pricing pressure with the margin improvement initiatives. And as we already highlighted in Q1 -- the Q1 report, we're also meeting the lower demand with cost adjustments. That has now been implemented, and we expect to gradually see the effects of that during the course of this year. On the next slide, this is more of a summary, I would say. So we do spend a lot of focus and priorities on improving profitability in Tornum and S:t Eriks. And this slide is a way of kind of summarizing and highlighting that. Again, the emphasis on activities and key priorities to drive the profitability in these 2 platforms. And if we look at Tornum Group, we need to deliver on the order book that we have that again is stronger than last year, but we also need to capture new volumes in a market that is low and is very competitive. We need to meet the price competition, the price pressure with selecting projects very selectively and also working with margin improvements. And as a group, slightly larger group than many of our competitors that we meet, we are able to do that in a good way. And we need to strengthen execution and operational efficiency. And we have previously highlighted or I have previously highlighted that we have some challenges with acquisitions -- one of the acquisitions that we've done in Spain, for example. And some of these measures relates to that. When it comes to S:t Eriks Group, what are the key priorities there? We need to restore the profitability in Division Infrastructure. That's where we see an unsatisfactory profitability. That's where we have the more volume-dependent segments. We need to improve the -- that also when it comes to the profitability in Division Infrastructure, we will get some help of now increasing the production pace again during the second half of this year. We also need to improve the product mix. We have a structure shift away from the volume -- some of the volume-related segment and towards high-margin products. We need to continue that. And we also need to work on production efficiency. And then we've done a very, very good job, I would say, during the first half of this year with reducing the working capital and then mainly the inventory levels, but we still have some work left with that. So again, this summarizes some of the measures and key priorities for Tornum Group and S:t Eriks Group. Then looking at -- so this slide is now highlighting our 5 platforms, our 5 business areas. And it's a proof of that kind of the add-on acquisition model that we have, acquiring companies to our existing platforms works. So we've done 3 acquisitions during 2026, highlighted on this slide, 2 in Ettiketto and very nice to see the first one in Corroventa. So now we've done add-on acquisitions in all of our platforms. Just a few words on the acquisition of Tramex then. Tramex, very nice family-owned company based out of Ireland. We've known that company for, I would say, many years. and they were now willing to initiate the dialogue with us about the potential sale. It's a premium provider of moisture measurement solutions. You can see one of the picture here on this slide. And basically, these moisture measurement, you use that when you enter a site where you have some flooding, where you have a problem with the moisture, you enter first to identify where the moisture is. And then you use these kind of devices, Tramex devices. Once that has been done, you leave the site with Corroventa machine to take the moisture out. So this is a very complementary product to our offering. Our customers are using both Tramex and Corroventa products. The company showed sales of SEK 90 million and EBITDA margin of around 20%. So as you can understand, it's a very nice profitable company, very similar to the characteristics of Corroventa. So this again -- this marks the first acquisition for Corroventa, and it complements us both in terms of products, but also geographically. Tramex are present on some of the markets that Corroventa isn't and the other way around. The acquisition pace then, what one could see is that from, I would say, from 2023, 2024 and 2025, we had a slightly lower acquisition pace in what is now the remaining Volati. We prioritized growing with acquisition in Salix Group. I would say that the last 12 months, now we're back at remaining Volati, roughly SEK 600 million of acquired turnover is okay. But of course, now when we don't have Salix Group anymore, we need to make sure that we maintain the acquisition pace in the remaining platforms that we have, and we are very well positioned to do so. One important factor to do so is that we have the cash flows and that we have the net debt to adjusted EBITDA. And I already highlighted that we had a very good cash flow in Q2. The last 12 months, the cash flow has been -- or cash generation has been 86%. So that's okay, but it was very strong in Q2. And the net debt, of course, have decreased significantly, and that is mainly -- or that is more or less solely because of Salix Group repaying the internal debt to us. So now we have a net debt-to-EBITDA ratio of 2.9 and the ones that could listening to Salix's presentation yesterday saw that they also had a net debt-to-EBITDA ratio of 2.9. So that was something that we wanted to achieve with the separate listing of these 2 entities. So a few words summarizing. Strong performance in Communication. They've done a very good job, while Ettiketto and Corroventa is also performing well in line with expectations. We have the weaker earnings in S:t Eriks Group and Tornum Group. We are meeting them with continued profitability improvement initiatives. The operational cash flow is there, which means that we can continue doing acquisitions. And we have finalized the separate listing of Salix Group this quarter, which I think shows the type of long-term shareholder value that we can achieve with our platform development. So with that, I open up for questions.

Thank you very much for that presentation. Yes, let's open up the Q&A. [Operator Instructions] And we'll start with a written question here: Could you provide more color on the company's growth outlook for the second half of the year?

I think we -- it's always hard to describe our outlooks without getting into the individual platforms. But to put it very shortly, we have Ettiketto, which should be able to or will be able to achieve acquisition-driven growth because they still have acquisitions rolling in, and they are operating in a stable market. In terms of communication, I think the telecommunication market is somewhat there. So I don't expect any big shifts there in relation to the longer-term trend that we've had now for 1.5 years or so. We have Corroventa, again, dependent on floodings. But with the addition of Tramex, that brings some additional stability. They are not as dependent on floodings as the remaining -- the rest of the Corroventa. And then the big question marks are to S:t Eriks and Tornum, where we are in both those entities working in -- under tough market conditions. We do not expect any big shifts there either, meaning that we will still face tough markets. S:t Eriks has been fairly stable now for the last year or so. So the main challenge there is to increase the profitability. And when it comes to Tornum Group, again, we have a strong order book, but it's also about delivering on these orders and not getting them delayed. So -- but I would say it's good to have that order book in place.

Now we'll -- the next person to have a question with the phone number ending with 2991. Please go ahead, you have the word.

Seems to be on mute still. Yes, now.

Andreas, [indiscernible] from Nordea. Starting off in the -- in S:t Eriks, obviously, a quite challenging quarter and still some costs to be taken out here. But you alluded to a sort of gradual improvement here in H2. But can you give a bit more flavor on that and sort of the building blocks towards 2027 as well here?

Okay. Thank you. So firstly, very much with the profitability in Tornum -- sorry, in S:t Eriks, that relates to the production rate. That's why we've been talking about that. And now what we did in H1 is that we have produced lower than the current market demand to release inventory. We will shift that during the course of this fall or H2. So again, increase the production pace, which means that the under-absorption that we've seen will at least be much, much lower. So that will -- I would say that, that will be the main building block of increasing profitability in S:t Eriks. I think the second building block is the cost measure that we did last in Q1, we took most of that and also in Q2. But all of those cost measures have now been executed, and we will see the effects of that during the second half of this year gradually as well. Also, when looking at S:t Eriks, I would say that we're meeting somewhat easier comparables, especially in Q4, but also somewhat in Q3. So that will also kind of support the profitability trend in S:t Eriks. Going into 2027, it's -- I think the measures and the structural measures and the things that we are doing now, that, of course, puts us in a lot better position into 2027. But we first have the remaining 2026 to deliver on.

Perfect. That's very clear. And in Ettiketto, you mentioned some constraints in the supply chain and some price pressure here. Would you say that sort of those problems have picked up during Q2 compared to Q1?