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Edited Transcript of INDT.ST earnings conference call or presentation 18-Jul-19 8:30am GMT

Q2 2019 Indutrade AB Earnings Call

Kista Jul 23, 2019 (Thomson StreetEvents) -- Edited Transcript of Indutrade AB earnings conference call or presentation Thursday, July 18, 2019 at 8:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Bo Annvik

Indutrade AB (publ) - CEO, President & Director

* Patrik Johnson

Indutrade AB (publ) - CFO

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Conference Call Participants

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* Daniel Lindkvist

Handelsbanken Capital Markets AB, Research Division - Research Analyst

* Johan Dahl

Danske Bank Markets Equity Research - Analyst

* Robert Redin

Carnegie Investment Bank AB, Research Division - Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to the presentation of Indutrade AB Q2 Report 2019. Today, I'm pleased to present Mr. Bo Annvik, CEO; and Patrik Johnson, CFO. (Operator Instructions) Speakers, please begin.

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Bo Annvik, Indutrade AB (publ) - CEO, President & Director [2]

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Good morning, and welcome on my behalf as well. It's Bo Annvik here. We start by looking at some highlights on Slide 2 from the quarter, and we can summarize and say that we had, had good and stable demand with a positive book-to-bill in the quarter. We, however, see some increasing variation in terms of demand between company segments and markets, and I'll expand on that later on here.

We have had a very good acquisition pace. We have acquired 10 good companies so far this year, and I would say that the pipeline is still positive.

EBITA margin is improving slightly, and it's actually the second-best quarter 2 since we became a public company in 2005.

And we are also improving cash flow. However, working capital is still on a high level.

If one should rate the quarter on a very sort of overall basis, I would say that order intake and sales is okay-ish, profitability is good and the acquisition development is very good. But let's expand on all these points during the presentation.

I am sure all of you are keen to hear more about our order intake so we look at Slide 3 here. And as I said, I still think the market is good and we basically have a stable situation. But there is more and increasing variation between business areas and companies and segments, as I said. It's good to see that we have a positive book-to-bill. It's -- order intake is 1% higher than our net sales. The total growth of 6% in terms of order intake is a bit below where we would like to be, and primarily it's the organic growth which came in at minus 0.6%, which is the weaker point, I would say. Acquisitions is providing 7%. We have minus 2% linked to divestments, which are obviously the right things we have down there, and then currency is impacting by 2%.

In the quarter, there is a slight negative impact from working days, I assume you have heard that from other companies reporting as well. For us, we estimate that up to approximately minus 1.5%. So if we account for that and if we also potentially account a little bit negative impact from the larger company we have in the power generation segment, there is perhaps another 0.5% there. So underlying, we have an organically positive order intake also, I would say.

We have all standardized the order intake in a daily rate perspective, year-over-year and also sequentially from this quarter. And those trends on a monthly basis look stable and do not indicate decline.

We had, as you know, an organic development of plus 5% in quarter 1 so going from plus 5% to minus 1% or minus 0.6% is obviously a big step. But I will expand on this a little bit.

If we start by dividing our business in, I would say, normal day-to-day activities and project activities, the normal day-to-day business is in general still strong, good; we don't see any declines there. And Indutrade, at large, I would say, provides Industrial Components to production systems, and these supplies are still ongoing at a good rate.

We, however, see less object sales. It's absolutely not a complete stop, but it's impacting here and there more and more. And it's to some extent large capital-intensive projects in different segments but also a little bit in general, I would say less project, less expansion investments from certain customer segments.

If we look specifically at segments. I would say that the passenger car segment and also the building and construction segments are clearly weaker. And as you know, we don't provide direct material to passenger cars but we provide, I would say, products, components, systems to their production systems and toolings and things like that. So some of our companies have seen a decline linked to that. And we have also some companies linked to the building sector.

Infrastructure projects are still quite strong, good water, wastewater good, but the buildings in metro areas in the Nordics is weakening in impact to some extent.

Geographically, it's primarily Finland which is a weaker geography, and there we link ourselves to 3 main segments. We have the machine builders in the (inaudible) and all of them have had, I would say, high-capacity utilization for quite some time, and there is no growth provided into that segment in our business since a while.

Then we have launched our end users usually process industries you can say like (inaudible) and so on in there, we see a decline in the large projects, as I spoke about earlier. And the third dimension linked to Finland would be the construction area where we see less activity mainly linked to the healthy Gibraltar area.

What we then think going forward from an order intake perspective. Yes, we don't think the macro perspective will improve dramatically in the second half of the year. So probably a rather flattish macro development. And that also impacts our organic growth capability in a flattish sort of perspective, I would say. Some companies probably have an ability and will improve market shares. And hopefully, we will see some of that. But I would say it's safer to say that it's going to be more of a flattish development organically.

However, acquisitions will impact more. In quarter 2, we post 7% as you saw since we have made quite a lot of acquisitions during the quarter and late in the quarter, we will see better impact from that going forward. And overall, we definitely worked towards our broader financial objective of growing 10% per year. That's also obviously the ambition for 2019.

If we then look at our sales situation. We came in on an overall level at plus 4%. And organically, it's similar to the order intake side, minus 0.7%. And acquisition is also fairly similar, plus 6%. And also here we have the same impact on the calendar effect and also the power generation-related company. So if we account for that, I would say the underlying organic sales would be around plus 3% for the quarter.

And going forward, it's basically the similar perspective as on the order intake side, more of a flattish organic development but with a strong acquisition growth, which gradually will increase in quarter 3 and hopefully also quarter 4.

If we then turn page and look at our profitability. As I said, it was a good and a stable margin level, came in at 12.5%. Organically, it was slightly negative and that is primarily then linked to that we had a slightly negative organic sales. But acquisitions are accretive and contributing with plus 8%. So that's a positive effect. And the divestment part -- effect is fairly significant minus 3%, and that's mainly due to a nonrecurring divestment loss which we can expand on a little bit later as well. Also here we had impact from the weaker power generation business, and that is probably impacting on 0.5% basis, I would say.

I'm still optimistic that we will have a good profitability for the full year. We had a good gross margin development, as you have seen, where we actually improved to 34.4%, earlier 33.6%. So good pricing activity from a majority of the companies. So I think we will see a positive good development in terms of profitability also going forward.

If we look at the next slide, and we have the different business areas and the organic sales information here, you can see there is quite some variation, as we have said, also on business area level. Very positive to see that the U.K. is expanding and growing and developing greatly, I would say, even though we would say that Brexit is impacting a bit more than in quarter 1, primarily in an order intake perspective. It's, on an overall basis in the U.K., still marginal and hopefully it will stay that way. And in situations where we have exporting companies in the U.K., where some of the customers have perhaps dual sourcing and for safety reasons in a supply perspective they might favor the source which is not on a U.K. [then]. There have also been some pre-buy effects, but as we have said earlier, it's still marginal.

We have, I would say, really well-positioned, great companies in the U.K. and those niche positions are developing well, and the business area is doing good overall.

Also Flow had a very positive development and it's basically organically driven. It's a good -- overall business climate is okay. And MDs in the companies are eager to improve and have agendas to improve organically and working hard on that. They still see a little bit lower project opportunities but, yes, good development in organic growth for also Flow.

Business area of DACH was basically supported by mostly, I would say, Swiss or -- yes, the Swiss process industry. They had some new installations of facilities, production lines, and we were able to support those expansions, changes in a positive way organically.

If we take FMS, that's a bit of a mixed picture. They had a good growth in terms of filters and hydraulics, but they also have a cluster of companies linked to the general industry and there they actually saw a decline. They also have a business linked to the infrastructure segment and water and wastewater, which is stable and good. So overall, quite stable for them.

Measurement & Sensor Technology, more of a growth opportunity area for us. Had a, I would say, setback linked to the biggest company in that area have a fairly large North American business, and that business was weak, soft this quarter. We haven't lost market share. It's the customer base there which is not growing right now. It's probably not going to improve dramatically short-term. It might take a couple of quarters. So we will see a lower effect also going forward to some extent there. But also a lot of positive growth in several companies in that area, with several companies having all-time high situations and so on and so forth. So this is more a single effect on them than a broad business area issue.

Benelux looks very, I would say, weak on the slide here, minus 14%. But that's basically all linked to this power generation situation. So if we exclude for that, there was a positive organic development in Benelux.

Finland, we have spoken about, basically fewer investment-related projects. And actually also that's the situation for Industrial Components. Industrial Components had a very good quarter 2 last year, and that was based on some good order intake linked to larger projects which didn't come through this quarter. So that's basically the explanation, I would say, in that business area.

If we then turn slide and look at the EBITA margin perspective for the business areas. You can see that 5 out of 8 are actually improving. And the strongest development, we see in the U.K. and the Flow Technology area. And that's linked to better sales, favorable mix and also good cost control, I would say. So they stand out very positively.

It's actually also very positive to see that Finland, despite lower sales, is actually improving their margin. And that's linked to some divestments we have done but also that they are very, very good cost control and actually decreasing expenses in certain companies. So very well managed in Finland.

And the Benelux decline is mainly, again, then due to the power generation segment. Otherwise, most of the companies there are stable, good in terms of profitability.

Measurement & Sensor Technology maintained a good level but then again decreased slightly linked to the situation, primarily in North America, in one of the companies there.

Fluids & Mechanical Solutions and DACH are both improving slightly mainly related to acquisitions and divestments. So structural activities, the main drivers there.

And in terms of Industrial Components, basically the same explanation as in terms of sales. Strong reference in Q2. I think they were at 12.8% then and now 12.2%, which is still a rather good level for Industrial Components. So missing some of these larger projects which they benefited from a quarter ago.

But again, overall, 12.5%, good level and positive in terms of keeping a good level for the remainder of the year.

If we then turn slide to look at the acquisition situation. We're obviously very, very happy with that development. We have now made 10 acquisitions up until now this year and adding around SEK 1.2 billion in yearly sales effect and having around a 7% impact on overall net sales.

And yes, we are very -- we are positioned very favorably. Our reputation in the market is very good, very positive. So when we reach a situation and meet potential sellers, we have a very high closing rate based on what Indutrade has done over the past many years. So that's benefiting in a very good perspective.

The pipeline is still good. We are right now still in a number of projects in different phases. And I would say we would be surprised if we wouldn't close another couple of acquisitions this year still. So very favorable and good outlook in terms of acquisitions.

The positive development is not linked to that we have changed our perspectives in terms of price levels or valuations. We are keeping that the same level as we have been for the last couple of years. So I would say important to mention that if anyone had worried about that.

Then I leave the word over to you, Patrik, to expand a bit on the financials.

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Patrik Johnson, Indutrade AB (publ) - CFO [3]

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Thank you, Bo, and hello, everyone. Yes, let's go through a little bit more in detail in the financials, and we start with the key data summary table. Maybe repeating a little bit what Bo said, but anyhow, total growth for orders and sales was plus 6% and 4%, respectively. Year-to-date, both are at plus 8%. Continued positive book-to-bill, important to mention, and it's actually even slightly stronger than last year. Gross margin, an important KPI measurement for us, and it improved then from 33.6 last year to 34.4 for the quarter. And the main improvement is organic. That's very well done from our companies then, working in a slightly tough environment with a weak Swedish krona. That's well done, I would say, working with price management in a good way.

EBITA margin improved slightly then to 12 -- 12.5%. Year-to-date, we are at 12.4%.

There is an increase in the finance net, as you can see, and roughly half of that relate to the IFRS 16 implementation, and half of it is due to our increased debt level that we'll talk about a little bit later.

Tax increased also found then up 18%, and that's partly due to some nontax deductible items we had in the quarter related to the divestment loss that Bo talked about earlier. And also, last year, we had some positive one-off on the tax side related to the reduction of the Swedish tax rate which you might remember as well. So those are impacting tax -- the tax bridge then versus last year.

Earnings per share, basically flat versus last year in the quarter, but up plus 9% year-to-date.

Return on capital employed, 20% compared to the 19% last year. And the improvement mainly comes from the fact that last year's calculation included the restructuring of the Sander Meson Group as the return on capital employed measurement is always on a rolling 12 -- 12-month basis.

Cash flow improved really good in the quarter. And partly, it's due to relatively low reference, low level last year. But I would say that the level this quarter is actually good also. So it's not only the reference that makes the improvement, definitely good level this year, and I will come back to that as well.

Looking at the debt situation. Net debt EBITDA is at 12 -- 2.5, which is an increase versus last year's 2.2. And here, as you know, then IFRS 16 plays impacts. So if you exclude that, it would be at 2.1, which is then lower than last year.

And when you look at the debt situation and the debt KPIs, you need to remember that quarter 2 is a seasonally high quarter with the dividend then. So all in all, it's a normal level that we see on these KPIs.

If we move to the next slide. And here you have some details about the IFRS 16 effects then, and the numbers are year-to-date numbers or closing -- or the first one is the opening balance, the net debt impact of the IFRS 16 opening balance. Closing balance is actually around SEK 880 million, that's higher.

Then impact on the P&L. Finance net, minus SEK 10 million year-to-date. Depreciation increased with SEK 140 million, which means that then that you get then EBITA impact of plus SEK 10 million and an EBITDA impact of plus SEK 150 million.

If you then calculate some KPIs and look at the net debt equity, the IFRS 16 has an impact then of course, and it actually increases that measurement with 14 percentage points then end of quarter 2.

And when you calculate then the impact on the -- on other measurements, you need to remember then as I talked about earlier that return on capital employed is always calculated on a rolling 12-month basis, which means that the IFRS 16 effect will come gradually during the year, and the full impact will not be seen until year-end. It's important to remember.

So leaving IFRS 16, looking at cash flow. And as I said, cash flow increased. And I think also -- and you can see that clearly from the chart. It's also strong level then for the quarter. And the main driver is, of course, the underlying good high operational result, and we only had small working capital increases during the quarter. That gives the good level we have then.

And the low level last year was mainly quarter 1, but also quarter 2 was slightly low last year. It was explained by the increase in working capital that we had to do then last year to safeguard delivery service and manage the high-capacity utilization that we still have. The working capital is still on a slightly high level and due to these circumstances. And we are working on that, but short-term, it will be tough. As long as we have longer lead times from suppliers and high-capacity utilization, we will struggle doing big reductions in the working capital, I would say.

So shifting slide again and looking at the earnings per share, and that is basically flat in the quarter, but for year-to-date, it's up 9%. And the quarterly development then that mainly relates, of course, then to the slightly lower increase in the operational result compared to what we have seen then in the recent quarters, and in combination with the increases in finance net I mentioned and also the tax rate change that makes the EPS development in the quarter relatively flat.

Then zooming out and looking at the long-term trend. We are still having really strong development 3- and 5-year EPS development. They are 12% and 16% up per year. That is, of course, strong development that we are proud of.

Moving on to the debt side. And that has increased then from very low levels, end of last year and also in the beginning of this. And the increase has 3 components. First one, we talked about IFRS 16 that adds close then to SEK 900 million to the debt level. It is a rather significant impact. Then the increased acquisition pace, it's the second driver. And also logical, of course, the high acquisition pace we have increased the level. And then the dividend, which is seasonal in quarter 2.

So zooming out, then the net debt ratio is then 99%. But if you exclude IFRS 16, it's 85%, which is basically in line with last year and maybe even lower than the quarter 2 numbers we've seen earlier in this time chart. So I would say then all in all, debt levels and ratios are normal for the quarter 2 and the balance sheet is still strong.

Important to mention I think also is that we managed to strengthen our long-term financing further in the quarter with a new 5-year rolling credit facility that we managed to put in place together with the banks. And then we also issued a new 5.25-year bond. So all that together makes our long-term financing secured, I would say, in a very good way.

So I think I end there, and I leave the word over to Bo again. Thank you.

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Bo Annvik, Indutrade AB (publ) - CEO, President & Director [4]

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Thank you, Patrik. Then we can take a look at our business in a segment -- market segment perspective. Just perhaps to reiterate a little bit on that we have a multi-segment base as a company and very little dependency into single segments.

On the slide, you see our 4 larger segments. General engineering, 19% of sales; construction infrastructure, 17%, and we are heavier on the infrastructure side; and energy segment, 12%; health care, 11%. And then we have a number of other segments. And this is, to some extent, a bit of a business cycle hedging, when one segment goes down, maybe there's more stability or even growth in another one. We've seen that in the past related to Indutrade, and I think it's still too also going forward.

If we change slide and look at our strategic initiatives, just want to underline that all of them are developing well and good. Indutrade is very people-oriented, very values-driven, strong culture in a positive sense, and we have started a number of talent management initiatives which are very welcomed, I would say, by our company's MDs and key people. So that area is a good development for the group and such.

As an owner, we are increasing our activity in terms of sustainability. And in quarter 1 now, we have had a very elaborate training program for all our MDs of our subsidiaries, a mandatory program. And now they have been obliged to start to work on their materiality analysis for their specific companies. And as that is done, they will define KPIs and start to measure progress in this area. So we are taking this seriously, and we have a professional approach and, I would say, it is developing well.

And knowledge sharing dimension is also gaining traction. So we see more and more dialogue between MDs, between companies where they benchmark and learn from each other discussing markets, technologies, products and things like that. And we recently had a large MD conference. We have that once per year, and it was super atmosphere and a lot of inspiration, I think, for attendees here.

Also, the toolbox is making more and more progress. And here we basically have general sort of improvement areas where companies can get competence in terms of pricing or purchasing or working capital management and things like that, which is necessary for any company to improve on from time to time. So good progress in terms of this and appreciated by the MDs and a little sort of top-down push, rather pull, from below on sustainability. We have a clear ownership or I would say, demand.

That concludes sort of the presentation. And if we go to the summarizing slide and talk about the key takeaways, we then repeat that there is still a good and stable demand, but we see increasing variation. And perhaps adding then that the organic growth dimension is weakening, and that's not improving for the remainder of the year in any dramatic way. However, profitability was solid in the quarter and we are -- remain positive in terms of that also for the remainder of the year. Really high acquisition pace and good opportunities also going forward with a positive pipeline. We are a diversified group. Our companies are agile, flexible, and they can take their own business decisions. So rather than wait for any instruction from the head office, they go ahead and work on improvements immediately while it's needed, I would say. And we have a very stable platform in place now. All management positions are in place with great people and very positive about that.

So with that, we end the formal presentation and we open up for potential questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from the line of Johan Dahl from Danske Bank.

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Johan Dahl, Danske Bank Markets Equity Research - Analyst [2]

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Bo and Patrik, I was just wondering, can you -- this shift you're seeing in your project business, how would you expect that impact Indutrade looking forward? Or alternatively sort of talk a little bit about the mix here, the size of these 2 various activities and the earnings mix in those areas.

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Bo Annvik, Indutrade AB (publ) - CEO, President & Director [3]

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It's a bit actually difficult to be specific, because it's very different for different companies, I would say. But what you have seen in this quarter, I think is -- if I generalize slightly, to be fairly similar for the next couple of quarters. Not a dramatic decline from this level. And in terms of profitability, I would say the project business is usually a little bit lower profitability because, yes, it's perhaps some sort of competitive tendering, if I say so. So again generalizing slightly, slightly lower profitability on the project business and the normal business.

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Johan Dahl, Danske Bank Markets Equity Research - Analyst [4]

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How much do you estimate that is the total Indutrade portfolio?

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Bo Annvik, Indutrade AB (publ) - CEO, President & Director [5]

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It would be wrong of me -- we haven't calculated that, Johan. I -- it's absolutely, definitely less than 50%, but ...

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Johan Dahl, Danske Bank Markets Equity Research - Analyst [6]

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Less than what percent?

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Bo Annvik, Indutrade AB (publ) - CEO, President & Director [7]

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Less than half, absolutely. Yes.

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Johan Dahl, Danske Bank Markets Equity Research - Analyst [8]

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All right. Just a second question. I mean on -- if you look on inventories and just look on how that has progressed in the last -- looking just Q2 in the last couple of years, I mean it's since very elevated. How are you actually addressing this? And we heard Patrik said, you see a continued strained supply chain and you keep inventories high. On the other hand, you have a weakening of demand on the project business. Is this something that you will sort of address more intensively to take down inventories? And will it impact profitability?

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Bo Annvik, Indutrade AB (publ) - CEO, President & Director [9]

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That's a good question. And we have actually addressed it quite intensively internally, but we haven't seen the results fully of it yet. So we have had everything from a broad competent development sessions all over the group in terms of capital efficiency, capital management. And in answer to that, we have also defined formal targets for each business area in terms of what we want to see in terms of reductions. And they in turn have identified what companies in their business areas turn out the most and giving them formal targets. So since some time back, there is a process ongoing where we follow up updates on a monthly basis and where the companies have a demand on them to improve. But it's -- you run a little bit uphill in some companies -- in some of the larger companies where the sale situation is weakening a bit and still they should reduce inventories so -- and the supply chains are perhaps, involving Asia, long lead times and so on. So it's usually taking a while, but we have been on the ball for some time, and we hope to see progress during the year here, I would say.

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Johan Dahl, Danske Bank Markets Equity Research - Analyst [10]

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But do you see sort of a cost absorption issue in the second half?

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Bo Annvik, Indutrade AB (publ) - CEO, President & Director [11]

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Not any significant. No.

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Johan Dahl, Danske Bank Markets Equity Research - Analyst [12]

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All right. Finally, just on HP Valves. Could you just sort of elaborate what's your outlook there for this coming half year?

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Bo Annvik, Indutrade AB (publ) - CEO, President & Director [13]

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Yes. They will have a fairly good or stable order intake, I should say, with what we have seen during the first half year. And invoicing will -- should be better than the first half year in the second half year. Then the mix is difficult to say. The market is for them moving from I would say larger customers like GE, Siemens to Chinese customers, some other Asian players and pushing gross margins down a little bit. At the same time, they're strategically working step-by-step on building an aftermarket business and also moving more and more into certain removable -- or renewable applications. But that's more of a medium-longer-term impact, I would say, in a positive sense. So better invoicing, perhaps some strain on gross margin. But second half shouldn't be -- should be better, I would say, than first half.

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Operator [14]

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The next question comes from the line of Robert Redin from Carnegie.

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Robert Redin, Carnegie Investment Bank AB, Research Division - Research Analyst [15]

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Yes, could I just ask a detailed question on the acquisitions and divestments? So those 2 divestments, when were they made in the quarter? What profitability are you sort of losing there, if any? And you also said something about a cost charge related to the divestment (inaudible)

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Bo Annvik, Indutrade AB (publ) - CEO, President & Director [16]

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Yes. Let's see here. Yes, the one called (inaudible) was fairly, fairly early in the quarter. The other one was very late, very recently. And I don't know if -- did you want to comment anything, Patrik, on ...

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Patrik Johnson, Indutrade AB (publ) - CFO [17]

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Well, I can elaborate a little bit then. (inaudible) basically no divestment impact. And the sale divestment of [Essman] we had a loss of around SEK 14 million, SEK 15 million, which we then took in the quarter. That's seen in then -- disclosed in the divestment component in the report.

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Bo Annvik, Indutrade AB (publ) - CEO, President & Director [18]

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But perhaps, Robert, you meant also the margin impact going forward from those divestments, sorry.

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Robert Redin, Carnegie Investment Bank AB, Research Division - Research Analyst [19]

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Exactly. Have they been profitable or not?

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Bo Annvik, Indutrade AB (publ) - CEO, President & Director [20]

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I would say, in combination, not.

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Operator [21]

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(Operator Instructions) The next question comes from the line of [John Huebner] from [Interfund].

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Unidentified Analyst, [22]

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Can you hear me?

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Bo Annvik, Indutrade AB (publ) - CEO, President & Director [23]

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Yes.

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Unidentified Analyst, [24]

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Okay. Great. I just want to come back to the last question on the divestment. So 3% negative impact on your EBITA. And then you had a loss of, you said, SEK 14 million, SEK 15 million. Was that a transaction loss? Or what was that?

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Patrik Johnson, Indutrade AB (publ) - CFO [25]

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Yes, that was a transaction loss. Yes.

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Unidentified Analyst, [26]

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So fees for advice or so or what?

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Patrik Johnson, Indutrade AB (publ) - CFO [27]

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It's loss on the book value on the company, basically.

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Unidentified Analyst, [28]

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Okay, okay, okay. Got it. So that's more or less -- it all an impact on EBITA.

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Patrik Johnson, Indutrade AB (publ) - CFO [29]

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Sorry?

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Unidentified Analyst, [30]

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That was more or less all the impact on the EBITA in the quarter from divestment then?

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Patrik Johnson, Indutrade AB (publ) - CFO [31]

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Yes. Yes.

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Operator [32]

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The next question comes from the line of Johan Dahl from Danske Bank.

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Johan Dahl, Danske Bank Markets Equity Research - Analyst [33]

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Yes. Just to follow up on these divestments. Which business areas are they? Or have I missed something here?

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Bo Annvik, Indutrade AB (publ) - CEO, President & Director [34]

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No, I think that is actually a mistake here. So (inaudible) was in the Flow Technology. And [Essman] in Industrial Components.

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Patrik Johnson, Indutrade AB (publ) - CFO [35]

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And important to mention that the sort of transaction loss, the loss on book value in [Essman] we took on group level is not seen in Industrial Components. But the underlying improvement will, in the end, come in Industrial Components.

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Johan Dahl, Danske Bank Markets Equity Research - Analyst [36]

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I guess that loss offsets the revaluation of earnouts (inaudible)?

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Bo Annvik, Indutrade AB (publ) - CEO, President & Director [37]

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Yes.

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Patrik Johnson, Indutrade AB (publ) - CFO [38]

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Exactly, yes.

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Operator [39]

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The next question comes from the line of Daniel Lundqvist from Handelsbanken.

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Daniel Lindkvist, Handelsbanken Capital Markets AB, Research Division - Research Analyst [40]

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Just a quick question. If we look at the incremental margins in the business areas, would it be fair to say that the ones performing the weakest this quarter that I'm thinking about Fluids & Mechanical Solutions, Industrial Components and Measurement & Sensor Technology, are among those with the highest incremental margins on organic sales?

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Bo Annvik, Indutrade AB (publ) - CEO, President & Director [41]

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Let's take that once more, Daniel.

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Daniel Lindkvist, Handelsbanken Capital Markets AB, Research Division - Research Analyst [42]

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Yes. If you just look at the -- I mean you have quite some incremental margins in many areas on organic sales growth. And then just looking at this quarter, you have weaker organic growth than at least I expected in some of the areas. I'm just trying to understand the deviations versus my expectations. If you look at, for example, Fluids & Mechanical Solutions, Industrial Components and Measurement & Sensor Technology, are these all areas with high incremental margins?

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Bo Annvik, Indutrade AB (publ) - CEO, President & Director [43]

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I mean MST definitely has that. FMS also on the, perhaps, higher side. Industrial Components, not one of the higher in the business area perspective.

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Operator [44]

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(Operator Instructions) There are currently no further questions registered. I'll hand the conference back to you.

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Bo Annvik, Indutrade AB (publ) - CEO, President & Director [45]

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Okay then. Then we say thank you for listening in and have a nice summer, and we keep in touch. Bye-bye.