Indutrade AB

STO:INDT

The Indutrade Q1 presentation for 2025. [Operator Instructions] Now I will hand the conference over to CEO, Bo Annvik; and CFO, Patrik Johnson. Please go ahead.

Welcome, and good morning on our behalf as well. As usual, let's start with the overall highlights.



In terms of order intake, we had a total growth of 5% organically, an increase of 1% despite the uncertain market situation. Good demand from customers within pharmaceutical production, the Process Industry more broadly, and also the Energy Sector. And the majority of companies had organic order intake growth.



Net sales increased 4% in total. Organically, it was unchanged. The EBITA margin came in at 13.6%, excluding some one-offs, 13.3%, and continued improvement in working capital efficiency and record Q1 operational cash flow of SEK 644 million and 3 acquisitions completed so far in 2025 and the pipeline remains good.



If we then turn to order intake and sales. As mentioned on the previous slide, demand was good with -- organic order intake growth despite the increased market uncertainty. We had a positive book-to-bill with orders being 5% higher than sales. There was continued variation between companies, segments, and countries with the strongest growth in MedTech and pharmaceuticals, the Process Industry, and the Energy sector. Demand within Infrastructure & Construction was stable, while the general engineering customer segment continue in general to be somewhat weaker.



In terms of sales, we grew 4% during the quarter, all related to acquisitions. Organically, it was flat on the back of the lower-order backlog coming into the quarter. During Q1 last year, we were negatively affected by the Easter holiday. Also this year, we had no help in terms of number of working days.



If we then look at sales from a geographic perspective, the development within the Nordics was on an aggregated level flat from last year. Finland continued to be a bit weaker, while sales to Norway were strong. In Norway, we had good development within valves and other flow-related components as well as filters to mention some product areas.



Benelux and U.K./Ireland were stable and Germany was a bit weaker. For Switzerland and Austria, the sales growth was high, driven by good development within the Process Industry and the pharma-related single-use area. In North America, sales was down, a difficult reference linked to last year with some larger projects during that time period was the sort of key reason. And sales in Asia were higher than last year, driven, for instance, by good development for products within the Marine segment.



I also want to briefly address the tariff situation, which so far have only had a marginal impact on demand. Our direct exposure to the U.S. is limited with total sales to North America in 2024, corresponding to less than 6% of the Group net sales. As most of you know, we are mostly a Western European business group with many companies being strong local players. However, this situation is creating increased uncertainty and the effect on the global economy and thus, the indirect effect is hard to predict. Our companies are proactively implementing appropriate measures, for example, review on trade flows, supply chains, and commercial agreements.



If we then turn to our profits, our EBITDA increased 6% in total to SEK 1.1 billion, and the EBITA margin came in at 13.6%, however, supported by some one-off items. The underlying EBITDA margin was 13.3%, same level as last year. Our ambition and objective is to be at a higher margin level, but this was not a complete surprise or unexpected.



At the end of last year and also the first part of Q1, we expected a gradually better demand situation during the year. And a large part of our companies were therefore geared up in terms of initiatives for organic growth to increase. This somewhat higher expense level and the flat top line explains the EBITDA margin.



The market risk and volatility have now obviously increased and many companies are now actively working to align costs to the situation prevailing in their respective markets. On a positive note, our gross margin was a record high for Q1, and acquisitions divestment margin accretive.



Then we turn to the Business Areas and start with sales. As mentioned, we had no help from more working days during the quarter despite Easter taking place in April instead of March. On an aggregated level, half of the company organic sales growth in the quarter. Business Area Life Science was the only BA with organic sales growth, mainly driven by sales of equipment for pharmaceutical production, including single-use equipment.



Infrastructure & Construction was flat from last year, while the other 3 BAs showed declining organic sales, mainly due to the generally weaker business climate and the lower order book coming into the quarter. Business Area Technology and System Solutions is standing out negatively. They are the most global Business Area and are slightly more dependent on investments and CapEx decisions on the customer side, which is making their current demand situation more challenging than the other Business Areas.



And then EBITA profit in terms of business areas. The EBITA margin improved in business areas, Infrastructure & Construction and also Life Science. Infrastructure & Construction is on a positive EBITA margin trend, mainly due to effects from acquisitions and divestments. However, many company-specific initiatives and other organic BA actions during last year also contributes.



The main driver for the margin increase in Life Science was a strong organic sales growth. And the other 3 BAs had a lower EBITA margin than last year with the largest decline in Process, Energy & Water due to the organic sales decline and higher expense levels, mainly linked to a higher activity level and inflation.



Regarding acquisitions, we have made 3 acquisitions so far this year with an annual turnover of SEK 390 million. The first company is ECOROLL in Germany, which is a manufacturing company offering highly technical tools for mechanical surface treatment to a wide range of industrial segments and geographies globally. We also signed an agreement to acquire IPP on Ireland, which has an extensive machine product offering targeting the electronics and Life Science sectors. And finally, we also welcomed the Swedish technical trading company, Ideus, who specialize in customer-specific metal components.



Following the high acquisition pace in 2024, the pace has now been slightly slower. However, nothing dramatic. This can fluctuate over quarters. Despite ongoing market uncertainty, we feel that the acquisition climate in 2025 remains positive. We have a good activity in our acquisition processes and a strong financial position. So we are looking forward to welcoming more companies during the year.



It's always relevant to repeat that the number of acquisitions should be followed over a longer period of time. As mentioned, high pace in 2024 and good contributions in Q1. Looking at the bridge effects from acquisitions over the last 12 months, we have added SEK 55 million to the Group's EBITDA in the quarter. Furthermore, we can also see that the acquisitions are margin accretive with an accumulated EBITDA margin of 15.9% for the quarter and over 17% rolling 12 months.



Now I leave the word over to Patrik to comment more on the financials.

Yes. Thank you, Bo. Yes, and total growth for orders and sales was 5% and 4%, respectively, in the quarter. Book-to-bill was positive, orders 5% higher than sales and above 1 in 4 out of 5 business areas. And as Bo previously mentioned, our gross margin was strong, record high actually for Q1, 35.4%.



EBITA increased with 6% in the quarter, driven by effects from acquisitions and currency, but negatively affected by the dampened organic sales development and slightly higher expenses. The EBITA margin improved to 13.6% in the quarter. But again, then as Bo mentioned, we had some one-offs during the quarter, primarily connected to earn-out revaluations, which had a net positive effect of SEK 27 million. So if you exclude these, the margin was 13.3%, in line with last year. We, of course, then aim to be on a higher margin than this, but the important note is that Q1 is historically a seasonally low margin quarter for us. And additionally, the backlog coming into the year was slightly lower than last year.



Moving further down in the P&L, the finance net increased with 3%. And if you look at the interest net included in the finance net, it was lower than last year, but this was offset by other financial items, primarily financial currency effects. Tax cost increased by 5% for the quarter, corresponding to a tax rate of 23%, which is 23%, which is in line with last year. Earnings per share increased with 6% in the quarter, and we will look at the separate slide on that later. Return on capital employed amounted to 19%. That's slightly lower than our target.

And in terms of cash flow, Q1 is seasonally the weakest quarter, but we had a good development during the quarter, up as much as 32%.



Lastly, the net debt-to-EBITDA ratio was at historically low level of 1.3 by the end of Q1. So move on and look to look on the cash flow more in detail. It is, as I said, a record high for the Q1 amounting to SEK 644 million in the quarter. And the improvement versus last year relates to both the slightly higher result and in combination with more favourable working capital movements during the quarter.



Diving into the capital side slightly more, the organic inventory levels are basically unchanged since year-end, but we've had an underlying decreasing trend on the inventory side since beginning or mid-'23. So the level at the end of Q1 this year is around 5% lower than the same period last year.



As we mentioned before, our companies are relatively capital light, and there is a continuously strong underlying operational cash flow coming into the Group, and that's reflected in a good cash conversion, as you can see from the slide right now, trending on a rolling 4-quarter basis at 137% compared to net profit less CapEx. And in terms of working capital efficiency, that also improved compared to the same period last year.



So earnings per share. The EPS development has, as you can see from the slide, flattened out the last 2 years due to the weaker organic development, but also then increased interest costs. But this quarter, we managed to increase earnings per share in line with the EBITA improvement. That's an increase of 6% from SEK 1.61 to SEK 1.71 per share. And looking at -- zooming out and looking at the long-term perspective, the growth in the 3 and 5 year rolling 4 quarter EPS, we were 7% up on the --3 year trend and 13% on the 5-year trend.



Then lastly, looking at the financial position, the debt development. The interest-bearing net debt decreased since same period last year, but also sequentially despite Q1 being a seasonally low cash flow quarter. The improvement in cash flow is, of course, the main driver for this reduction, but also then a slightly lower acquisition pace in the beginning of the year.

So looking at debt ratios, historically low, I would say, net debt-equity ratio at 47% compared to 55% last year. And net debt-EBITDA 1.3 versus 1.5 last year. And if you exclude earn-out liabilities, which we, of course, include in the measurement, then it would have been 1.2 versus 1.4 last year.



To summarize, debt ratios are low. Debt maturity profile is well balanced, and we have a strong financial position going forward.



So by that, I move -- we move over to Bo again.

Thank you. Then time to conclude in terms of the takeaway message here. Organic order intake growth despite increased market uncertainty with possibility in several large customer segments. We had stable sales and stable profit levels, really good operational cash flow and a strong financial position. Slightly lower order backlog in combination with higher market volatility post April 2, leads now to that many companies are actively working to align cost to the situation prevailing in their respective markets. Three acquisitions completed this year and a good pipeline, positive outlook. All in all, a strong platform for long-term sustainable profitable growth going forward.



And by that, we end the formal presentation and open up for questions.

[Operator Instructions] Question comes from Carl Ragnerstam from Nordea.

It's Carl here from Nordea. A couple of questions. Firstly, I think we could jump into the gross margin and the cost side again. You gave some comments on it, of course. But the gross margin again looks quite healthy, I think, up a bit year-over-year. I guess you're pretty satisfied on that side. However, I still struggle a bit on the cost side, which is still an issue as I look upon it I mean. And if we take a step back looking into Q1 last year, right, then we said that you had a cost overrun, right? Then it started to come down during the year, and now we seem to be back at it again.



So historically, given Indutrade's high decentralization, you managed so well with the sort of balance between growth and sort of taking out costs quite quickly. So what is the difference this time around? Is it a more difficult market environment, which I, of course, acknowledge? Or yes, how would you explain it? And also finally, on that side, I know it's a long question, but how do you look at the sort of cost growth balance for the rest of the year? And when do you think that you are sort of on par again?

Yes, obviously, very relevant comments, questions. Agree that we are happy with the gross margin. As we said, it was a record high for quarter 1. And I think maybe the best ever or the best second best ever for Indutrade. So the companies are doing a really good job in terms of managing direct material, direct labor, pricing. So that's good, which is very comforting in a situation like this. It would be worse if it was the other way around with low cost and -- or a low gross margin, I would say.



And then commenting on the cost situation, this time around, we -- as you said, last year, we were not at all satisfied with our overhead cost expense levels in Q1. And then the companies worked on that in Q2, Q3 sequentially. And at that time in Q1, we had a very recessionary outlook in terms of the market demand.



Right now, or I would say, towards the end of last year and also in the beginning of this year, we had a more positive outlook in terms of the market demand. We expected and the companies expected more sequential growth during the year. And I think felt that they could take some activity costs and potentially refrain from a downsizing effort because there was sort of light at the end of the tunnel. So that's one aspect.



The other aspect, as you bring up in a more historical perspective, I think can be commented with that we have actually worked more with organic growth as a key strategic initiative in the last couple of years within Indutrade. And it's usually so in general that you need to invest before you harvest. So there has been some, I would say, organic growth initiatives in product innovation, in product range extensions in different types of business development initiatives in some companies where there have been good reasons for that and strategically good plans linked to this.



So that's probably also, to some extent, an explanation that we have the situation we have. So part of this is deliberate. And -- but I would also say that there is a bucket of companies where perhaps they should have been a bit more cost conscious also Q4, Q1 here now and maybe been a little bit too interested in organic growth versus managing their cost situation.



Long answer here now. But all in all, I would say that the culture of the value system is extremely cost conscious in the group. So we talk about expense overhead cost now. The sort of the direct labor is under control. And in our companies and especially the trading companies, it's basically office people, if I express myself that way. And they are not very headcount heavy, as you know. So to reduce with 1 or 2 headcounts for a smaller company is a quite big decision. So if they then see light at the end of the tunnel, as I said, they might refrain from that if that's soon to happen. Yes. So...

No, I totally agree with you. I clearly see your point there. But when I look at line items, obviously, they're not always correct. I can see that it's admin costs increasing, which is, I guess, one way to -- I guess, grow organically, but maybe you're, of course, better than me in it, but I'm not sure if that is -- it would be probably selling expenses that should grow more, right? And we have seen admin costs in Indutrade come up from 5% to now 7.2%. Is it the right line item that is actually growing right now, you think? Or how should we see that?

I don't know, Patrik, if you want to comment.

Yes. On sort of from the accounting side, it's difficult sort of to judge from the sort of the Group P&L on that sort of high level impacting not only organic things, but it's a lot of other things, acquisitions as well. And so the concrete initiatives that we talk about and the additions that we have done, they have, for sure, mostly been on the, call it, the business side, salespeople, marketing activities, products. So for sure, it is -- even though there are, of course, other increases as well. But the majority is for sure, on the business side. And that's where the companies are adding -- if they are adding, I would say.

But they are accounted under admin costs then?

Again, it's difficult sort of to judge from the Group P&L. So I don't sort of have that bridge for you exactly what sort of that increase rate. So I mean, you have other things as well, not only organic things. It's -- you have effects of acquisitions over time, depending on their categorization of cost, et cetera. So it's really difficult sort of to look at the Group P&L and draw those type of conclusions. I don't have a better answer now, unfortunately.

Okay. Perfect. Just to clarify, you wrote that you had negative impact from divestments of SEK 33 million. Is it write-down? Or is it transaction costs included? What is this SEK 33 million?

It is related to -- I mean, we did the divestment then in the beginning of the year, which I think we already mentioned in the Q4 report, but it's in the infrastructure and construction business area, and it's -- we have a sort of booked loss on that divestment.

Okay. Yes. Okay, very good. And finally, I mean, we've seen a few divestitures in Construction An&d infra. How many more -- I mean, I just looked at the one you wrote about this time. It's been loss-making since at least 2019 when I looked at it. How many more companies do you think that you have up for potential divestitures still in the segment?

Very few, I would say. It's not 0, but it's not 10, it's not 5 even. So it's very few. So I think we have made...

And are they loss-making as well?

We have still some loss-making companies in that segment, unfortunately.

Question comes from Zino Engdalen Ricciuti from Handelsbanken.

Just a bit of a follow-up today on the margin and that you were in kind of a similar position in Q1 last year where you managed to improve quite quickly. Do you think that the cost measures your companies are taking will have a similar speed in terms of margin recovery as we saw last year?

Yes, definitely, Q2 will be better than Q1. And -- but this time, as I said, it's a little bit different from a market situation perspective. Last year, we felt was a little bit more clearly a recessionary market situation or at least sort of a very flattish outlook. And now this -- if we exclude the tariffs, which we can't do in a sense, but if we still do that we were on a trajectory to actually improve in several segments and sectors and geographies. Some of that, I think, will continue. So hopefully, top line will be okay. The reference sales-wise in Q2 is going to be more difficult than what we had in Q1. But all in all, we expect a step change between Q1 and Q2 in terms of profit margin.



And then it's difficult to predict things now with the volatility from the tariffs and maybe not so much the direct situation, but the indirect situation and perhaps mostly in our segment or a business area, Technology and System Solutions, which is more global and they have situations potentially with a Swedish company selling to a U.K. company, selling to an American company and the American company being afraid of tariffs, avoiding importing from Europe and potentially buying from a U.S. source instead and so on. But it's predominantly in that business area, less so in the others, but not completely free from that sort of second type of impact.

And when you're speaking on the tough references in the next quarter, are you mainly referring to -- or is it both sales and margin or either/or?

I think we had 14.8% EBITA margin last year, which is a high level for us. So that's obviously a difficult reference in the sense, but also sales-wise, we had rather good sales, as I remember in quarter 2 of last year.

And then it's from your comments, it sounds or is it fair to interpret that the quarter started out quite well and finished in, so to say, worse from a relative perspective?

No. Actually, in a clear majority of the business areas, it was the other way around that January, February was weak and March improved -- in 1 business area, it was the other way around that actually March became even weaker. But 80% of Indutrade or so had the other trajectory that January, February weaker and a pretty good March.

And my last question's on Life Science. I think you mentioned that single-use saw a bit better, say, demand. Was that correct? And can you elaborate on the single-use?

That's -- there was huge prebuys linked to COVID. And as we have discussed several quarters, that stock is now normalized, and we also still see an underlying demand for single-use production equipment, not obviously only linked to COVID, but a lot of other can be cancer treatment areas or more sort of smaller, if I say so, in size pharma-related areas and also more biopharma-related treatment areas where the batches are produced in these more silicon-based production systems rather than the big stainless steel systems. So I would say the industry is predicting underlying growth, and we also see step-by-step signs of this now.

" Question comes from Mats from Kepler Cheuvreux.

A couple of questions. I mean, orders looks pretty good from my point of view anyway. But do you see any sort of customers being sort of a bit concerned about the potential tariff impact and so on? I mean, do you see prebuys on components and so on to stock up ahead of potential supply chain issues going forward?

We have seen extremely little of that in our companies. We have more read about, for example, a lot of export from Irish pharmaceutical companies to the U.S. in March and so on. But we haven't really seen it too much. Maybe it's also a lot semiconductors, electronic components from China, Asia being shipped to the U.S. again, February, March. But sort of in a normal Indutrade company, it's been not very significant at all.

And then, I mean, you've seen quite good performance by the Swedish currency. Just if you can update me on the sort of operational impact there, maybe something on procurement and also on the gearing side.

Yes. If I take that question then in general, I think a stronger -- I mean, if you look at the margin impact -- an EBITA margin impact of a stronger SEK, it's not big, I would say. In general, I would say that top line moves as much as bottom line for us. So it's -- we don't move margin that much when currency changes. So that's the first statement.



The other one that we have a lot of trading companies, as you know, and a strong krona in general means better purchasing power for these trading companies. And there are some buying in dollars, but definitely even more so in euros. So they have a bit of a sort of good momentum now, I would say. Part of that needs to be transferred to the customers, but the part of that will also help us. So there is a slight positive effect embedded in that. That's my hope and belief.



On the gearing side, I would say we aim to have sort of an even -- we have, of course, an exposure on other currencies on the debt side, which means that the debt is actually going down slightly now, but we try to match it with the EBITDA exposure. So it shouldn't have an impact on net EBITDA measure. But looking at the absolute debt value, it is going down, thanks to the Swedish krona being stronger.

Question comes from Karl Bokvist from ABG Sundal Collier.

I apologize, I was a bit late on the call, but could you clarify the comments you made in the start regarding larger orders in the U.S., I believe.

It's not super significant for Indutrade. We have 1 company in the U.S., and we have, I think, 8, 9 companies having sales companies in the U.S. and then we have some companies obviously exporting to the U.S. And some of them have can be CapEx-driven projects where someone in the U.S. is building a large energy facility or something like that. And some of our companies receive a big order to that. So we have some of those situations a year ago and less so this year.

I think we had a couple of, for instance, projects in the Energy Sector and also, I think, in the engineering sector last year, which was delivered Q1 last year. So a bit of tough reference. I think it was mainly Technology and System Solutions and also in Process Energy and Water. I think they had a strong references in the U.S. last year.

All right. Understood. And then most questions have been asked here, but -- and I understand the comment you made earlier regarding how this year is a bit of a different situation to last year. But nevertheless, just when looking at it, is there any kind of calendar effect involved here, i.e., that some of your businesses are perhaps ramping up costs at the start of a new year and then the volumes might not have improved as they had hoped. I'm just thinking about this comment here in, for example, PEW and TSS or into low organic volumes overall and you say higher expense levels, which led to margin pressure.

I'm not sure if I fully understand what you're after here. But -- we don't -- I think more generally, it is so that companies expected a better market demand situation. And they refrain from pure cost reductions, which would have meant, I think, laying off people because this is overhead expenses as the problem relates to some extent. And they were in some aspects, having product development. Obviously, that didn't start this quarter, but maybe in quarter 4, they geared up in terms of product development, business development initiatives and things like that to be ready for a better 2025. I think that's the simpler, more general explanation.



Cost is obviously something we control and we can decide to do something about it. So I feel that we are in a much better situation now with really good gross margins. And then some of the companies will align costs now and some will probably continue to see a better organic growth situation based on their investments and also based on the somewhat better segment. There are different niches, which definitely will continue to grow.

Understood. And then I apologize if this has been asked, but now you did say a bit of -- for many companies, March was better than the earlier start of Q1, but is there anything you can say on how April has?

Yes, not surprisingly bad, if I say so. Nothing which is significantly negative, more an okay start, I would say.

[Operator Instructions] No more questions at this time. So I hand the conference back to the speakers for any closing comments.

Yes. Then we say thank you for listening in and for good engaged questions, and we talk -- we talk to you going forward. So thank you for us.