Investment AB Latour

STO:LATO B

Earnings Call Transcript 2021-Q3

[Operator]

Ladies and gentlemen, welcome to the Investment AB Latour's Q3 report for 2021. [Operator Instructions] Today, I am pleased to present Johan Hjertonsson, President and CEO; and Anders Morck, CFO. Speakers, please begin. .

[Johan Hjertonsson, President, CEO & Director]

Thank you so much. Thank you, everybody, and welcome to our Q3 webcast where we'll present the Q3 report with our comments. And then at the end, we open up for questions. So very welcome. And by my side, I have Anders Morck, our eminent CFO, to help me take us through the presentation. So if we start with the first slide, as you know, we have 2 main business lines: our investment portfolio and our wholly owned operations. And I'm happy to report that we continue the good development overall. However, with the increase in supply chain disruptions and cost increases and a lot of things that we need to do to offset these temporary issues, I should say. However, most markets are very strong with an underlying strong demand, I would say, overall, except Asia Pacific and China. And as you can see, there is a very strong order intake. However, sales is lagging slightly behind order intake due to the supply chain disruptions will come back to that later on in the presentation. So as I said, the 2 main business lines, the wholly owned operations, the investment portfolio still intact. We have 2 additions this quarter, they are very happy to report. And we have Bemsiq as a new business area in the wholly owned operations. And we have CTEK as our tenth listed holding in the investment portfolio, and we'll come back to both of them further on in the presentation. Then I think we can change slide, please. And as you can see here, CTEK was added in September. And Lauren as the largest shareholder. We hold 31% of the shares in CTEK. And CTEK is a global leading supplier of battery chargers and also chargers for electrical vehicles. CTEK has a great potential for growth and it's an exciting add-on to our listed investment portfolio. So we're very happy and very welcome to the CTEK team into the Latour family. When it comes to the investment portfolio value development, 21.5% during the year, 24% at the end of the quarter. As I said, the underlying development is satisfying in general, increasing good order intake increasing and sales is slipping behind slightly. But this results in a record level of order backlogs. And the Asian market overall, I would say, is slightly slower than the rest of the world, actually. And very high activity with acquisitions in many of our portfolio companies, especially would like to highlight ASSA ABLOY, ASSA ABLOY that has done its largest acquisition so far with the U.S.-based HHI. And until yesterday, the portfolio value had increased to SEK 91.8 billion, resulting in a total return of 34.5% so far this year with a SIXRX return of 33.9%. Having said that, we can go into the next slide, I will talk a bit about the wholly owned operations. As I said, continued good development. We see a strong market demand with a good growth in order intake and an organic growth of, I would say, stellar 20%. So very strong organic growth in the order intake. And as you can see, is the feel of the conference here, it's sales is not developing in the same pace. It's a 9% organic growth, whereas the order intake was 20%. So we have a very, very high order backlog. And we are very certain that the order backlog will transform into sales going forward. We have almost 1:1 ratio on order backlog and sales, but it's just delayed. And the main reasons for this is the supply chain disruptions, increased raw material prices and that is affecting to various degrees in our companies, but it affects more or less all companies. However, we are happy to report that our customers are not the factor affected to a greater extent, but it affects the margins in the short term. We have prioritized to keep the customer service level on a high level, albeit to a higher cost. And I think it's also important to communicate that we are confident that we have pricing power in order to pass on cost increases going forward. Operating profit grow with 3% to SEK 680 million compared to SEK 602 million last year, EBIT margin at 14.2%. And the high investment pace continues. We think that's the best way to maintain competitiveness and continue to gain market share. So we invest a lot in product development in our brands and into our sales and marketing operations. And as said, I'm very happy with an benefit as our 6 business area within Latour. And then we have a whole slide on that business here if we go forward. Bemsiq was created within Latour Industries, Latour Industries on debt is really to create new business areas within Latour. So congratulations to Latour Industries that you have created Bemsiq that is now, as of now, standing alone, so to speak, as a separate business area within at Latour. Bemsiq Group was established in 2016 with a net sales of about SEK 300 million. Bemsiq has grown organically and through acquisitions. Bemsiq today comprises of 7 companies with a total net sales of about SEK 1.1 billion with a good profitability and an operating margin of approximately 20%, very nice operating margin in Bemsiq. Bemsiq is a leading global provider of technology and product for sensing control and connecting in commercial buildings. And this will help to accelerate the journey towards smart and green building and Bemsiq really operates in that whole space. It's a very, very interesting investment area going forward. The companies operate in injury within Bemsiq, Bemsiq function is as the shared platform for growth, realizing the synergies across the companies. where they are possible and logical. And as before, [indiscernible], is now the business area manager of Bemsiq, so congratulations to you, Michael. And we look forward to continued strong growth. You see the graph there mind it's just the same -- the same tangent on the graph that we expect going forward, so. Having said that, we go into the next slide, which -- where we'll comment a bit on our acquisitions. And as you can see, we have had a very high pace when it comes to acquisitions within Latour. We have done 4 acquisitions during the quarter. Swegon acquired a majority of 720°, Finish digital software company that will accelerate Swegon's offering and digital services. Risk grow within Latour Industries, acquired Swedish multi easter with an annual net sales of about SEK 200 million. Motala is a well-established and leading manufacturer platform lifts sales through distributors across a large part of Europe. And Bemsiq acquired Canadian Greystone Energy Systems with an annual net sales of CAD 22 million. And this will further strengthen Bemsiq's geographical reach with a strong base in North America for continued growth over there. And then Bemsiq within Latour Industries, acquired DC-based in dispensing, we have less sales of about EUR 8 million. This will strengthen Bemsiq's offering with an advanced sealing technology. And also after the quarter had ended Hultafors acquired Danish Scangrip with an annual net sales of DKK 220 million. And I should say, Scangrip has a very strong profitability actually above the average of the Hultafors Group. And Scangrip is a leading manufacturer of industrial work lives, with innovative LED technology. And also after the end of the quarter, that our future solutions invested in Swedish hydro solutions and Swedish hydro solutions offer sustainable solutions for water treatment, users nature's own biochemistry instead of aggressive chemicals to purify large amounts of water. So very welcome to all of the 6 companies into the Latour family. So very happy to have you on board. Having said that, I'm very pleased to hand over to Mr. Anders Morck, who will take us through the development of the business areas and some more fees on top of that. So over to you, Anders.

[Anders Morck, CFO & Secretary]

Thank you so much, Johan. What the beginning of this presentation. We start with the first business area, Caljan. And the Caljan has had a very strong underlying demand for a while now supported by the e-commerce mega trend. Order intake in the quarter was EUR 50 million. Organic growth in order intake was 197%. The accumulated order intake is SEK 190 million and the order book, as you understand then is on a new record level. The net sales is also developing very positively, but well above last year, but not in the same pace as the order intake. So maybe that's something about what comes in the future. Surprised then we have supply chain challenges, increased prices on raw material area, shortage of electrical components and logistics challenges. And you might hear that word from me a few more times, but it's just repeating what Johan said before. On that note, it's very impressive that the operating profit amounts to EUR 7.6 million during the quarter with a margin of 19.2%. And we shall also say that we do continued investment in Caljan's expansion we have started the establishment of a new factory in Germany after -- as we have said before, the Latvian expansion and the U.S. expansion in Italian. Okay. We change to the next page and go to Hultafors Group. And Hultafors has had continued good sales development for all product areas. The net sales growth was 43% during the quarter, and the organic growth was 13%. And surprise, again, Hultafors Group has also had supply chain challenges, price increases and delivery disruptions mainly from Asia. And that has, of course, negatively affected the profit in the quarter. So the profit amounts to SEK 170 million with a margin of 13%. And we have put a high focus on actually meeting customer demand and keeping the customer service at a very high level. But at this quarter then to a certain cost which means that the profit margin was reduced to 13%. Our recently acquired company in borrowers and Denmark and Finland, free-start cancer lean is developing very well and according to plan. And as Johan said before, we acquired Scangrip in October. So all in all, in a very positive development for Hultafors but with challenges in the supply chain. We turn to the next page. And that is Latour Industries then, and we shall start to say that the figures on still during the first quarter include Bemsiq just to be clear about that. Very positive development of order intake and the sales for actually all units. And also here, we are experiencing a lot of supply chain challenges in the same dimensions as for the other areas, very good cost control and a positive profit development with an operating margin of 12.6%. And as we have said before, this is the place where we build new business areas, meaning that a lot of the companies have a high investment to do better off in the future, meaning that once they are through these investments and have grown the capacity to earn even more is significant. And as Johan said before, we have made a lot of acquisitions adding to the group. Now it's been Motala Hissar, Greystone and DEPAC during the quarter. All in all, in a very positive development for the business area and very well managed then by the management team, on and Magnus Jungla and their teams in the company. Thank you so much from that. We go to the next page, Nord-Lock growth. Also Nord-Lock has had a quite strong organic growth, mainly driven by Europe and Americas. The organic growth was 20% in sales and 17% in order intake. However, then, as Johan said before, Asia Pacific is slower due to the slowdown mainly in China and that affects both top line and profitability negative. And of course, supply chain challenges need to be repeated also here. And we have had a very high focus on customer service and the availability of products. So we think and we know that we have gained market share this quarter. Operating result of SEK 98 million with an operating margin of 27%, which is quite good. We turn to the next page and go to Swegon. Swegon has had high activity once again with an order intake growth, organic of 16%. But the net sales once again then not in the same level. Supply chain challenges in combination with delayed building products lower than net sales and this have, of course, a negative effect on net sales growth. Profits also negatively affected due to both investments in long-term growth. The supply chain issues that reduces the productivity. The operating result of SEK 158 million means that we have a profit margin this quarter of 11.5%. And as Johan said, Swegon made the acquisition of 720° in July. And let's turn to the next page, going over to the net asset value then. And we have a net asset value that has increased by 25% during the year to SEK 188 per share. And at the same time, SIXRX developed by 24%. The share price at the end of September was SEK 272 million, which then means that it's a premium to our net asset value of 45%. But that's then with our cautious valuation with our wholly owned operations. We have noted that before, you can have very different views on this. And our figure is just guiding of a prudent view of the value and we would have a significantly higher value if we would make a valuation of the entire group and compare it with other well-known listed companies with a mixed industrial holdings portfolio and similar acquisition agenda. Yesterday then, the net asset value had increased to SEK 200 per share. The share price was 334 and the premium then was 67% compared to our prudent net asset value. And the consolidated net debt increased during the quarter from SEK 6.7 billion to SEK 8.5 billion due to acquisition. And that means that the net debt now corresponds to 7% of the market value of our investments. So back to Johan and next picture.

[Johan Hjertonsson, President, CEO & Director]

Thank you, Anders. Great presentations with your comments. And commenting on the financial targets here are a long-term prospective financial targets. As you can see, our targets are to have a growth more than 10%, operating margin more than 10% and a return on operating capital is somewhere 15% to 20%. During the last 12 months, running 12 months, rolling 12 months, we had a growth of 18.3% and an EBIT margin of 14.9% and return on operating capital of 16.5%. So I'm very happy to report that we're well above the thresholds of all of our 3 financial targets. Having said that, when commenting on the operating margin of 10%, I'd like to point that that's really a minimal target for a Latour company. It should always be well above 10%. So all in all, a very strong performance and a lot to thank all coworkers and members on the team for this great financial results. And then going into, I believe, the last slide in the presentation where we comment on the international growth. And as we said, overall, a strong third quarter to say, hopefully for the last time, supply chain is the main challenge overall and it affects all our holdings. It affects the profitability in the short term. This in combination with last year's very strong margin developing, we're also facing increasingly tougher comparison figures going forward. And as I said, in the onset of the presentation that we are confident that we will pass on the cost increases going forward that we have what's called pricing power in the market. And Latour is a long-term owner and our ambition is not changing due to the short-term disruptions. We still have a long-term ambition for growth, very strong growth. And I think we've shown that in this quarter 3 numbers that we have a very strong focus on growth, and we delivered a lot of growth as well. And we're truly delivering on the growth target as said, but a large portion of potential remains. So look at the map, we have 80% in Europe, 13% of sales in North America and only 7% in Asia Pacific. So there is a fantastic opportunity going forward to increase this growth long, long term. So we continue with all our long-term initiatives in our companies as before, and we act with a positive forward-looking view. And that concludes the presentation from Anders and myself, and then we open up for Q&A. So thank you.

[Operator]

[Operator Instructions] Our first question is from Joachim Gunell of DNB Markets.

[Joachim Gunell, Junior Analyst]

So first, to start off with just a question on the Q3 momentum here. So with regards to this, I mean, order intake in Caljan, can you just help us understand here the dynamics of -- I mean, if we were to look beyond the short-term supply chain constraints, I mean, how does that work? Over what time frame do they tend to deliver their orders?

[Johan Hjertonsson, President, CEO & Director]

We say orders that Caljan take today is for delivery is for delivery within the next 6 to 9 months. So they have a very full production in Caljan. So what you see in the Caljan order stock is almost a year of production in that order stock, it's quite long delivery times. It's quite large projects in there.

[Joachim Gunell, Junior Analyst]

Understood. No, that's helpful. And with regards to, I mean, Bemsiq becoming its own business area, can you talk about actually the -- I mean, obviously, there's some scalability pyramid or scale parameters going into that. But with regards to that, okay, other potential business areas are also, I mean, approaching similar size. So can you talk a bit about the timing and what this enables for Bemsiq to become its own subsidiary?

[Johan Hjertonsson, President, CEO & Director]

First of all, I think it has the size now. It's above SEK 1 billion that you're alluding to Joaquin. It has a very strong profitability. It has shown growth and stable profitability over a long time, which is important to create a business area. But then there are also other variables that are important. We have a good leadership team established in Bemsiq and they are ready to be a separate business area. And as you know, we -- our business areas, we try and run them as stand-alone as possible. So from all of those aspects, we think it's time for Bemsiq to be its own business area and to show the full potential going forward. Do you want to add to that, Anders, or?

[Anders Morck, CFO & Secretary]

No, I think you said it all actually. You have to be stable in both growth and profitability and management, and you're happy to have that in place. Otherwise, it wouldn't be possible.

[Joachim Gunell, Junior Analyst]

Understood. Well, it appears that the market already seems to assume that you will be able to replicate the track record here as some early, call it, the public shareholder as you were in trucks and HMS, et cetera, also in food tech. So with regards to that, do you continue to see perhaps attractive anchor investor opportunities in the listed environment, I mean, beyond CTEK and also some comments on the CTEK here, where do you see yourself best suited to add value in that holding over time?

[Johan Hjertonsson, President, CEO & Director]

Yes. Thank you, Joachim. I think as you can see, last time that we did an anchor investment, the 4 CTEK was true-ups many, many years ago. So we are quite picky when we choose to be an anchor investor when we do that. So that's nothing we do every day. And I think there's lots of companies being listed, as you know, today on various stock markets and prices are quite elevated. But CTEK, however is a company that we have followed for many years. And we knew that in some shape or form, it would become out on the market, so to speak. And now we saw the opportunity. And we really like the company because it has a global position in a well-proven technology, which is 12-volt battery charging systems. But it has also a very interesting upside were charging to electrical -- fully electrical vehicles going forward. And we are extremely long term, and it's an indefinite horizon on our investments in CTEK. And I think CTEK has a lot of Latour qualities. It's really an industrial company. It has an international outlook. And I think we can add a lot of value in the board going forward and also in the company by giving them access to our network and other colleagues and give them a good industrial home for long-term growth within Latour.

[Operator]

[Operator Instructions] We have a follow-up question from Joachim Gunell.

[Joachim Gunell, Junior Analyst]

Yes. Okay. So just 2 quick ones. So first of all, I mean, as I understand it, there are some tax changes on capital gains in the U.S. for selling business. Is this something that in any way with regards to your, I mean, ambition to build a North American presence for some of your subsidiaries, does this facilitate those plans in any way?

[Johan Hjertonsson, President, CEO & Director]

Anders?

[Anders Morck, CFO & Secretary]

It looks like Johan don't want to answer this question, but I would say that I'm actually not aware of the details the road that to say. But I cannot say that it should have any impact on us because we are not selling companies if it was capital gains when you sell companies. So.

[Joachim Gunell, Junior Analyst]

No, absolutely. I was just wondering whether is that -- I mean, call it, multiply the number of potential businesses that's out there for sale, basically.

[Anders Morck, CFO & Secretary]

Okay. I have actually no clue on that question. I'm sorry, I hope you can live with that answer for now.

[Joachim Gunell, Junior Analyst]

Absolutely. Well it was a curve ball. But just a final 1 then, I mean, this is also a one. But I mean going into the next year, some we will talk more and more about us economy and alignment as such. And I mean, for I mean, investment company like you, I guess, that it's very hard to get an aggregate view of your, call it, alignment for the portfolio as a whole. But I mean now that, okay, Bemsiq, we will get more light on our holding like Bemsiq, which would obviously screen quite well out of that. And with regards to an CTEK for that matter as well. And I mean, there are already a number of holdings that are very I mean from a thematic point of view, at least should have been very well with the economy. I mean help us a bit with what -- I mean, what are your thoughts with regards to Latour's taxonomy alignment as a whole?

[Johan Hjertonsson, President, CEO & Director]

Yes. I can start maybe ask it a little bit in general and then Anders you could comment on how we're addressing the taxonomy challenge if I put it that way. But no, I think you work to your point, I think we're very happy that we have already in any companies which are clearly put EST positioned, but I also think we're strongly showing over the last year that we're taking this very, very seriously, and we're actually walking the talk. I mean we have done -- we have set up Latour's future solutions where we help take minority investments in smaller companies that are really accelerating the agenda. And that's up and running, and we've done several investments there. So we're really delivered on that, and I'm very happy about that. But then also on a larger scale, we show that we put our money where the noise we've done a little bit more than SEK 1 billion investment into CTEK that has also clearly and EST positioning. And that's on top of all of the very nice position companies as we have like Tomra, Fabio, CFO, Bemsiq to mention a few of them. And then when it comes to how we do the accounting and the taxonomy, Anders I know we're talking a lot about that and working with that. But do you want to comment on that, Anders?

[Anders Morck, CFO & Secretary]

Yes. I can give a comment. Well, as Johan said, we are doing a lot of things as a good citizen or a good company, and we are investing in sustainable companies. For example, Tomra that is truly a company that fulfills most of the things in the taxonomy, I would say. But that is actually nothing that we can when it comes to our reporting of taxonomy alignment. We shall look then on our wholly owned operations. We shall look on what the rate of our net sales that is aligned with the taxonomy in the future. And the preliminary view is that we do not have many businesses that do significant harm. But that does not by default means that they are aligned with the taxonomy. So we would get most part of Swegon and most part of Bemsiq would probably fall on the alignment in the future. But well -- for the other companies will have to dig deep to find true aligned net sales. But it will still be -- I think the word is eligible or something like that. That I will place the rest of our group, pretty preliminary. And my colleague will kill me if I say wrong now. But Catarina is listening into this call as well.

[Joachim Gunell, Junior Analyst]

Okay. Let's hope she doesn't do that. But I would assume that some of which lease acts as indirect enablers for your -- for their respective customers to reach their thresholds. But yes, no, that was helpful. Thank you.

[Operator]

There are no further questions at this time. So I'll hand back over to our speakers.

[Johan Hjertonsson, President, CEO & Director]

Thank you. I just want to state the fact. I know there's a lot of people on the call and a very frank for you work in asking questions. But I think I encourage more of you to ask your questions, so we get even more dynamics in the call on our next quarterly presentation. But it's actually quite many of you on the call. Having said that, thank you, you working for asking some questions. And that concludes the presentation from the Latour team. So from Anders and myself, thank you all for calling in, and thank you for listening. And looking forward to speak to you again -- to speak to you again with the full year's results in quarter 4 next year. So thanks a lot.