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Edited Transcript of RATO B.ST earnings conference call or presentation 6-Feb-20 10:00am GMT

Q4 2019 Ratos AB Earnings Call

Stockholm Feb 13, 2020 (Thomson StreetEvents) -- Edited Transcript of Ratos AB earnings conference call or presentation Thursday, February 6, 2020 at 10:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Helene Gustafsson

Ratos AB (publ) - Head of IR & Press

* Jonas Wiström

Ratos AB (publ) - CEO, President & Director

* Jonas Ågrup;Acting CFO

* Peter Wallin

Ratos AB (publ) - CFO & Business Area President of Construction & Services

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Conference Call Participants

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* Derek Laliberte

ABG Sundal Collier Holding ASA, Research Division - Research Analyst

* Mikael Löfdahl

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 Ratos Interim Report January to December 2019. Today, I'm pleased to present CEO, Jonas Wiström; CFO, Pete Wallin; Head of IR and Press, Helene Gustafsson. (Operator Instructions)

Speakers, please begin.

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Helene Gustafsson, Ratos AB (publ) - Head of IR & Press [2]

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Good morning, everyone, and welcome to today's telephone conference where Ratos' CEO, Jonas Wiström; and Ratos' CFO, Peter Wallin, will present the report for the fourth quarter 2019. After the presentation, a Q&A session will follow.

With us today, we also have Ratos' acting CFO from Monday, Jonas Ågrup, which we announced today.

Now I leave the word over to you, Jonas, to present the results.

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Jonas Wiström, Ratos AB (publ) - CEO, President & Director [3]

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Thank you, Helene, and thank you, everyone, for listening -- coming in and listening to this call. I should say, participating. We're actually in a pretty good mood here in Ratos this morning. We are satisfied with the sales development, the cash flow development and also the digital development, given the costs we have taken during the quarter for better profitability onwards.

We also have lower gearing and, as a matter of fact, we have the best underlying EBT for the year since 2010. And add to that, that Aibel actually released a new letter of intent for another large order from Equinor gives a good start of the day.

So let's take a look into Slide 2 here, development for the fourth quarter 2019. We had an organic growth of 16% in the quarter negatively affected some 1 -- minus 1% of currency. The main drivers behind this is Aibel, HENT and Diab. But 10 out of 12 companies actually show organic growth during the quarter.

EBITA increased from a negative number last year. We do have improved profitability in almost all companies across the portfolio, but we have taken significant costs in TFS and in Plantasjen, summing up to minus SEK 106 million. Last year, as you might remember, in the same quarter, we had the same amount, more or less, and we took some big profitability improvement costs in Diab, as you might remember that quarter. And I will come back and comment on TFS and Plantasjen when we go through the business areas.

I'm also quite satisfied with the improved cash flow. Now we know we have this IFRS 16 effect. But this year, and it includes this quarter, we will compare excluding IFRS 16. And if you do that, the cash flow is up from SEK 300 million to some SEK 435 million (sic) [SEK 635 million]. And the earnings before tax was quite significantly distorted last year by the impairment write-down in Plantasjen by SEK 600 million, but even taking that into account the EBT increase significantly during the quarter.

It's also been a quite active quarter in the sense that 4 new CEOs started their roles in LEDiL, Speed Group, Plantasjen and TFS. And together with new CEOs, you quite often see costs and good opportunities for restructuring.

So let's move then over to the Slide #3, which shows the development of the full year 2019. We grow the net sales by 14% organic. All companies actually show growth, except LEDiL and Speed Group for the year. Our EBITA, including the one-off costs, et cetera, grew by 29% compared to last year, and again excluding IFRS, in both periods, 16.

Cash flow actually went up, again if we adjust for IFRS 16, with some SEK 700 million. And the Board proposes a dividend increase with 30%. I want to underline that we're not proposing to take dividend from our divestment, our headquarter property, that this comes from our business.

Then I have a natural bridge when we talk dividends to our CFO, Peter Wallin, who will take you through Slides 4 and 5 and 6, actually, Peter, describing financial situation and the business Construction & Services.

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Peter Wallin, Ratos AB (publ) - CFO & Business Area President of Construction & Services [4]

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Thank you, Jonas. I'm in a flow this morning, 3 pages in a row. So with that, turning from a more transaction-oriented company to a more buy-and-hold. Of course, the focus on cash flow, capital employed and capital efficiency increases in our companies. And as Jonas has alluded to, we are improving the cash flow sequentially as well as year-over-year by SEK 700 million for the full year. And this is, of course, underpinned by the improved earnings and the reduced level of working capital in our companies.

When you look into the companies, it's important that you keep in mind that when you have, over the course of the year, made capital contributions to the companies by SEK 536 million. And also, we are impacted by translation impact in the debt, which has increased by SEK 100 million because of that.

One very important thing to keep in mind for us as well as you in the market is the financial costs. So if you take a look on the financial net, excluding IFRS 16, it amounted to negative SEK 392 million, which is SEK 108 million improvement over 2018. However, due to the fact that we have taken costs for renegotiating bank loans as well as revaluated financial instruments, and these financial instruments, the mark-to-mark changes is an impact of the improved trading and performance in our companies. So it's actually a positive sign. But it reflects as a negative because our investments to the holders of these increment increases.

But if you take all of that away and focus on the pure interest expense net, it amounted to a SEK 265 million negative, which is a SEK 45 million increase over 2018. And of course, with increased focus on cash flow and capital efficiency, this number should continue to go down.

Turning to the next slide, 5. This depicts the financial positions in our companies. We have lowered gearing in the bulk of the companies. And this comes, of course, to both improved earnings, EBITDA, and as well as lower net. As we stated on our Capital Markets Day in the Fall, we are aiming for an investment-grade level in our companies, and that should equate to a gearing multiple of between 2x to 3x. Nine of our 12 companies is achieving this as we close 2019.

When you look at the table, you can see some really strong development amongst many companies, and some of the companies are at the very low gearing level compared both to where they have been and both to where they could be. But we have 2 specific companies that [all saw] attention to themselves, and those are the colors with amber. If I start with Oase Outwards, we have announced during the year, of course, the quality issues, which impacted earnings in the company. These are identified and addressed. And in Q4, we made a capital contribution of SEK 34 million [to raise]. So these numbers should correct themselves as we progress into 2020.

Plantasjen. We have reported the bank debt as loan. Again, we started to report the bank debt as short on the back of the second quarter last year. The new management that took the positions in the back end of 2019 is conducting a major overhaul program to reach long-term viability in earnings. That means both addressing earnings -- sorry, revenue, as well as improving the operational efficiency, reducing costs in other words.

Last, but not least, we announced a major restructuring program in TFS. This distorts the EBITDA numbers, of course, big time, but it addresses also the cost level in the company, big time. So this should correct itself in the earnings going forward. So this negative number should come into the range we are depicting.

So continuing with the Slide 6, and coming into the various business areas and starting with Construction & Services. The headline growth for the quarter was 28%, that is 26% organically. And the EBITDA was SEK 104 million, which is an improvement, you can say, over the 11 we posted in 2018. The number in 2018 was heavily impacted by the write-downs we did in HENT.

Taken company-by-company. Aibel is growing by a whopping 89% and earnings is going down. And then you might ask yourself, "What is wrong with this picture?" Well, Aibel has been able to secure many, many large projects over the course of the year. And they are [starting] production in those projects. And it's an early stage, whereby we are very cautious in the profit take, albeit, we are reporting the revenue according to percentage of completion method. If you take 2018, the comparable period, it was the other way around. We were completing a number of very large projects with high profit take. So overall, you can see that the full year number is well over 2018. And we announced yesterday another important step, as Jonas has alluded to with a letter of intent regarding a FPSO.

Going over to Denmark and airteam. We have struggled a little bit with the Swedish operations in the first 3 quarters, as we have alluded to. With a very stable performance in the Danish operations and an improved earnings in the Swedish operation, which is now starting to come into the black. The number for the quarter came in over and above 2018, despite a very strong close of 2018. Overall, the airteam business has a very good order backlog.

Going over to Norway. My new home turf, HENT, the numbers in the fourth quarter is somewhat weak. The weak number is due to the fact that we are producing a lot of the backlog. The backlog is in an early stage, again, meaning that we are not too bullish when it comes to profit take. And then in addition, we are still producing in the projects where we are reporting that revenue, i.e., where we have reported losses and write-downs earlier. A few of those number of projects have been handed over to the clients during the fourth quarter, and the remainder is going to be handed over during the spring of 2020. So we are nearing completion.

Last but not least, Speed Group, where we took some measures in the beginning -- sorry, in the second quarter, addressing the OpEx level and the increased efficiency. And we have also been improving the performance in some major contracts. So this is a real turnaround that we are seeing in the Speed Group, and I'm very happy to see the quick development there.

So with that, that completes the business area construction. And over to you again, Jonas.

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Jonas Wiström, Ratos AB (publ) - CEO, President & Director [5]

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Thank you, Peter. I'm sure there will be questions on your coming 6 months here and even deeper into the Construction & Services and HENT, to assist them to getting even more stable and improving profitability.

Yes. We move over to Slide 7, Consumer & Technology. And we saw a sales growth of 5% in the fourth quarter, but a decreased EBITA, primarily due to Plantasjen. For the full year '19, the business area grew 3% and EBITDA decreased by 40% due to Plantasjen and Outdoors.

If we start with Bisnode, they continue to deliver stable profit and cash flow. They have a strong performance in credit solutions. EBITA was improved in the fourth quarter and on the full year, due to lower costs and initiatives implemented in the operation to increase efficiency and scalability. Business transformation of its offering is continuing according to plan. And the rate of growth for new products are healthy, with sales of long-term subscription agreement increase in the quarter, which will increase the proportion of recurring income over time going forward.

Kvdbil, they reported an organic growth of 22% during the quarter, driven mainly by higher sales in private cars but also company cars are developing very well. EBITA improved as a result of higher sales, but also increased efficiency in all parts of the operation. The year as such was also very good when it comes to EBITA and sales improvement. So good work there from the KVD team.

Moving over to Oase Outdoors. As you know, they've had a really tough year. They launched a new series of their prestige tents, who went into production problems, making a big number of recalls to get the customer satisfaction level on a high level. These tents were actually awarded the Best Mainstream Tents from the Camping & Caravan Club, and it is a good product that had, again, production problems.

The fourth quarter for Oase is very small as such, the sales increased a little bit. But the important thing to report here is that they will now start 2020 with a production that works and with good quality tents. For the full year, we took some SEK 60 million in costs for these problems. There was a bad debt and some impairment of inventories in the fourth quarter, but it's no big numbers.

Big numbers that is, however, true for Plantasjen. Plantasjen, first of all, the costs here, we had, as you know, the divestment of Spira had a negative effect on minus 28 on Plantasjen EBITA for the fourth quarter. In total, EBITA was actually affected by costs on SEK 65 million in the fourth quarter, which is restructuring and other terms affecting comparability. However, I have to say that the trading was weak in Q4 and even without these extra costs, Plantasjen came in a bit lower on EBITA. Now we have in the quarter closed some stores. And we have launched a new ERP system that actually is working now and doing great. But we have a big program of increasing customer satisfaction and cost reductions all over Plantasjen, including rental costs, which today are too high for Plantasjen. So work is ongoing on this -- in this area.

Now let's move over to Slide 8 and come into the business area industry. The business area had a growth of 10% in the fourth quarter and 12% for the full year. And of course, very much better EBITA, both for the quarter and for the year. As you might remember, last year, Diab had restructuring costs of minus 78 in Q4, very well taken costs, and for the year, we actually, I think, took SEK 150 million, SEK 170 million in costs in Diab. Diab is starting with an extreme growing very well in the quarter. Organic revenue growth was 9% -- 19%, sorry, driven by a continued strong market, long-term sales agreement and the (inaudible), of course, a result of the action programs taken last year.

And if you look at the EBITA margin in the fourth quarter, it was a bit lower than earlier in the year. This is due to negative currency effects for capital -- help me out here, Peter, in this translation of the...

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Peter Wallin, Ratos AB (publ) - CFO & Business Area President of Construction & Services [6]

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(inaudible) of working capital.

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Jonas Wiström, Ratos AB (publ) - CEO, President & Director [7]

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Yes. But it's -- yes, but it's related to these...

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Peter Wallin, Ratos AB (publ) - CFO & Business Area President of Construction & Services [8]

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Yes.

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Jonas Wiström, Ratos AB (publ) - CEO, President & Director [9]

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It's in the balance sheet.

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Peter Wallin, Ratos AB (publ) - CFO & Business Area President of Construction & Services [10]

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Yes. I mean the annual working capital is in the balance sheet.

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Jonas Wiström, Ratos AB (publ) - CEO, President & Director [11]

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Yes. I know. But it was affecting for transactions between China and Italy, when we closed down the factory. The EBITA margin is also affected by the start-up of a new (inaudible) manufacturing facility in the U.S. This production is now doing fine. And the investment was made to help it get a larger share of the market and become more competitive in both wind and marine and transport. During next year, we will see more investments and more production coming into place in Diab. So good development in Diab.

Good development is also very true for HL Display, where it's another good year, stable growth in net sales, and they're actually continuing to capture market share. The company continues to increase its EBITA margin through enhanced efficiency in production, logistics, and have also come out with new products. So the product mix is also favorable for EBITA. Last year, we had actually a nonrecurring cost of SEK 8 million in Q4 '18. But overall, we're very impressed by the development over the year and what HL has done, increasing its EBITA, actually with some 45% full year.

LEDiL had a small growth of sales in Q4, but the EBITA is lower than last year. And the main reason is that OpEx has increased in the company. The products are continuing to have good gross margins, that sales over the year has been actually down or flat, and we will focus on sales for the coming year. As you know, we changed our CEO, in June. We had a temporary CEO in -- until December and now, it's -- the new CEO is in place since 2 months. So it's going to be interesting and great to see Petteri [Saarinen] announce measures coming forward in 2020.

TFS is a company that has had unacceptable low profitability during quite long time, although it has improved during the year. We had to take measures to get TFS on a track to the profitability that is -- that we can benchmark with a sector as such. Therefore, Bassem Saleh assumed the position (inaudible) December. Bassem joined the company from his role as Executive Vice President of CVS, TFS' largest business area, which has been doing very well actually during 2019 and also 2018. When Bassem joined the company, we, at the same time, started a cost reduction program that will improve EBITA approximately with some SEK 30 million during 2020, and we also had costs for the change of the CEO for severance pay. Underlying earnings was -- and the underlying earning trend was actually positive in TFS, excluding these costs, but it's going to be exciting to see TFS' development during 2020.

So to start to sum it up a little bit in Page 9. We see -- we try to write-down what we're doing. As we said in the beginning of the year, we will continue to focus on the existing portfolio, achieving stability, profitability and growth. And it's great to see that these 2 funds are coming both on growth and on profitability. When it comes to governance, we changed 4 CEOs, as I mentioned. We have also actually changed the Chairman in 8 Boards. And now, Ratos holds the Chair position in 7 of our 12 companies. We're working much closer together with the management in the company, with monthly business review, monthly follow-up on our value-creating activities. We're driving OpEx initiatives in those companies or all companies, I should say, and we have creating a lot of executive network. And this executive network is actually creating synergies as we speak, saving costs and also, sharing best practice over our company group.

Let's then move over to Slide 10. Now I just want to state that I don't know how many of you were visiting our Capital Market Day in November. But we have left the private equity area behind us. Ratos, is today, a business group that enables independent midsized companies to excel by being part of something larger. And being part of something larger is not just a larger group, but a group where we have a network, trading synergies, sharing best practices and so on. We will focus on midsized companies with headquarters in the Nordics who are or can become market leaders. And that is very important for us. And our business group will consist of a limited number of midsized companies rather than a large number of smaller companies, which we have other companies who trade on the NASDAQ Stock Exchange in Stockholm. We focus on simplicity, on speed, and we believe it's all about people.

So all in all, Slide 11, Summary 2019. I'm actually quite happy with the development during 2019. I think they have achieved more than we thought we would achieve in the start of the year, with the increased earnings, growth, cash flow, EBT, our financial position. As stated, they have improved significantly. The dividend is up 30%, and we have a positive momentum in the majority of our company. That doesn't say that we can rest now for the next year. We will continue to work extremely hard with the challenges we have in some companies, and we will strive for having the leading profit for each company in its market and business sector. So we are starting with benchmarking on a number of key KPIs to, over time, achieve this.

So with that, I just want to thank you for listening in, and maybe there is some questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question is from Derek Laliberte from ABG Sundal Collier.

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Derek Laliberte, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [2]

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I apologize if I miss something you mentioned here, but regarding the indebtedness of Plantasjen. I would think that this is pretty clearly a question for shareholders or potential shareholders. What will happen here because the debt is extremely high, and I wonder -- I thought you were coming back on sort of a -- after a review of what are you going to do with -- if you're going to do a capital injection or not, because I wonder what are the other options here, theoretically, apart from injecting more capital, finding a buyer of the business or do you think that just sort of carrying out this measures you mentioned, and then will have a dramatic turnaround effect in earnings. And also, I wonder how you -- how do you come up with justifying the SEK 600 million equity valuation of this holding?

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Jonas Wiström, Ratos AB (publ) - CEO, President & Director [3]

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Right. Thank you. I think this is a question for both Peter and myself. The overall most important thing is, as you say, to turn around this business profitability. And there is a very, very clear flow -- program for that, including reducing costs for rent. This is absolutely necessary. This will not take 6 months, it will not take 1 year. It will be -- until we're really happy with this company, I think, we will look rather on 2 to 3 years to get all these things done. We have a new CEO in place now since Q4. We believe he's doing the right program and we support him also with -- and him and his team with resources from Ratos. When it comes to the gearing and a book value, et cetera, maybe Peter, do you want to answer on that.

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Peter Wallin, Ratos AB (publ) - CFO & Business Area President of Construction & Services [4]

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Yes. Let me start with the comments regarding the valuation of SEK 600 million. It's a fair comment. And the comment sort of comes back to the point that the company needs to hit a different earnings level. And that is exactly why we reinforced the measures that the new management now is currently analyzing and coming forward. And then that work that the management is doing is also the foundation for how we would view events, so size on capital contributions in size and forms. And the valuation is, of course, underpinned for the company to perform in line with its historical performance. So it's not that we are throwing a pie in the sky, there is a lot of costs that we have alluded to, that it's taken at the back end of the year in order to improve stability for Plantasjen. But the major overhaul is ongoing as we speak. And then as a last and final question, we wouldn't comment upon the strategic [of optioneering] when it comes to our companies, until we have done them. So any discussions regarding sales or anything similar is something we would present from (inaudible) of the paper.

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Jonas Wiström, Ratos AB (publ) - CEO, President & Director [5]

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Thank you, Peter. And I think there is sort of a retail stand on Plantasjen as a company, but there is an underlying growth in this market. And I think it's important to say we have a strong brand. A lot of things were happening in the Q4 with new CEO and new ERP system. But we will continue to work to get the profitability up to the level where it should be.

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Derek Laliberte, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [6]

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Okay. Then the second one, just on these [several] negotiations of the bank loans, which of the companies did these refer to?

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Jonas Wiström, Ratos AB (publ) - CEO, President & Director [7]

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You mean the SEK 536 million?

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Peter Wallin, Ratos AB (publ) - CFO & Business Area President of Construction & Services [8]

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The SEK 536 million, it's actually depicted in the footnote in the report. The largest part was the injections into Plantasjen and Diab in the beginning of the year. And then we followed up under the fourth quarter with injection of capital in Oase, in TFS and LEDiL.

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Operator [9]

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(Operator Instructions) Our next question is from Mikael Löfdahl from Carnegie.

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Mikael Löfdahl, Carnegie Investment Bank AB, Research Division - Research Analyst [10]

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Yes, sir, I just wanted to sort out what -- what's actually adjusted EBITA was this year and the comparable figures for last year, because last year, you specified adjusted numbers, although you did not actually change HENT earnings for the impairments of projects in that category, I think. But in the last quarterly report last year on Page 12, you arrived at NOK 27 million in adjusted EBITA for the portfolio. And adding the NOK 150 million impairment then for HENT we arrive at, well, let's call it, NOK 180 million then last year. Is that comparable to SEK 163 million this year, if we add back the [106], the one-offs in TFS and Plantasjen?

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Peter Wallin, Ratos AB (publ) - CFO & Business Area President of Construction & Services [11]

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Mikael, can I be -- we've actually scrapped operative EBITA, just to keep things simple. It's going to be one earnings level, and that's EBITA, full stop. So just let me comment on a few on your remarks then in your calculations, adjusting. The HENT write-downs, it's not impairments the way you used the term. It's write-downs of an ordinary course of business when we value the construction project. So the write-downs we refer to is an expected increase of costs over what we have received in the books before that reporting date. So it's unfortunate, a normal part of construction business. But then again, we do write-ups also, which is an increase of value. So we don't adjust for that either. So the write-downs and write-ups in HENT and similar in Aibel, it's a normal course of business. So in total, in the fourth quarter, not included anything in HENT. We have items affecting comparability in the tune of [109]. So the majority of the bulk is the TFS and Plantasjen that Jonas has alluded to.

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Mikael Löfdahl, Carnegie Investment Bank AB, Research Division - Research Analyst [12]

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Yes. But you did, and you wrote specifically that project impairments last year, and you mentioned NOK 150 million.

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Peter Wallin, Ratos AB (publ) - CFO & Business Area President of Construction & Services [13]

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Well, in that case, if it's -- I'll have to blame the translator. I think that we were trying to fix that overall. But impairment is the wrong term. Impairment we did in 2018 was relating to machine room equipment and stock in Diab, and that is then SEK 7 to SEK 8 million amongst those that Jonas has alluded to. And then you have goodwill in Plantasjen. That was 600 as a headline number, has impacted...

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Mikael Löfdahl, Carnegie Investment Bank AB, Research Division - Research Analyst [14]

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You called it impairment in Q4 this year as well -- sorry, Q2 this year, when you did additional impairments of projects.

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Peter Wallin, Ratos AB (publ) - CFO & Business Area President of Construction & Services [15]

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Well, then -- well, I -- then I have to take responsibility for not checking the English translation, but there is no impairment in HENT, full stop. It is write-ups and write-downs of projects. And I think I've tried to adjust the impairment that this has snuck into the translation. But we are focusing on the Swedish report here, and that's why we -- if you check the Swedish report, it states write-downs. (inaudible)

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Jonas Wiström, Ratos AB (publ) - CEO, President & Director [16]

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But thank you for reminding us, it's a little bit embarrassing for us, of course. But thank you for bringing this up because it's very important that we don't mix these things together.

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Mikael Löfdahl, Carnegie Investment Bank AB, Research Division - Research Analyst [17]

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Okay. But regardless of the wording, I guess, it's non -- when you look at the comparables on a year-on-year basis, you could, of course, adjust for these numbers in those specific quarters, Q4 last year and also Q2 in 2019 year.

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Helene Gustafsson, Ratos AB (publ) - Head of IR & Press [18]

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But we don't adjust for the HENT.

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Jonas Wiström, Ratos AB (publ) - CEO, President & Director [19]

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No, no. I mean, as Peter said, I couldn't said it better. I mean we don't adjust for successful projects in Aibel where they're conservative in the beginning. I mean, it's -- this is business.

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Mikael Löfdahl, Carnegie Investment Bank AB, Research Division - Research Analyst [20]

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Yes. Sure. But if you wanted to compare 1 quarter with the other, and you are mentioning NOK 150 million in 1 quarter. I mean, that's a lot for HENT and it's a lot for you as -- or your portfolio. So I guess, when we want to compare on a year-on-year basis and try to take away noncomparables, we have to take away the NOK 150 million last year in -- or add back the NOK 150 million last year in Q4 to make a comparable number. Or...

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Jonas Wiström, Ratos AB (publ) - CEO, President & Director [21]

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No. No, I would -- I'm not an analyst, but I would definitely not do this. And I don't know if you saw our press release this morning that Peter will step in for a while in HENT. We have to make sure that we avoid these kind of things. I mean, it's -- the core of business is projects and we don't want to have these big effects. There will always be up rise and down rise in the Construction business, but we are now really focusing on processes and systems and culture and structure in HENT. And that is why Peter is going there. So this is business as sales crowns or revenue crowns or in Plantasjen. No difference.

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Peter Wallin, Ratos AB (publ) - CFO & Business Area President of Construction & Services [22]

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And that NOK 150 million related -- just to be clear, that's the second quarter when we took the write-downs, majority of the write-downs in HENT for 2019.

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Jonas Wiström, Ratos AB (publ) - CEO, President & Director [23]

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Yes.

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Mikael Löfdahl, Carnegie Investment Bank AB, Research Division - Research Analyst [24]

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Now the NOK 150 million in Q4 '18 was the NOK 150 million.

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Peter Wallin, Ratos AB (publ) - CFO & Business Area President of Construction & Services [25]

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(inaudible)

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Jonas Wiström, Ratos AB (publ) - CEO, President & Director [26]

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Yes, we have both in Q4 '18 and Q2.

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Peter Wallin, Ratos AB (publ) - CFO & Business Area President of Construction & Services [27]

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And Q2, and that's the background, absolutely. And the reason why we highlighted the write-downs, not the impairments, is to just state that that's an adjustment that you are making which have this tremendous impact of earnings. But the write-ups and write-downs, as I say, they come every quarter, actually, and as a normal part of the business. And to be able to do the right calculations, you should also then get into the projects. And you should also look into the revenue that those projects represent. So there's a lot of adjustment you need to do in order to look at underlying margin. The fact of the case is that, in HENT, they have been over and above 3.5% when they were operating in a good level. And that is clearly what we're aiming to get them back to.

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Mikael Löfdahl, Carnegie Investment Bank AB, Research Division - Research Analyst [28]

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Okay. So...

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Jonas Wiström, Ratos AB (publ) - CEO, President & Director [29]

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I -- okay. Sorry, go on.

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Mikael Löfdahl, Carnegie Investment Bank AB, Research Division - Research Analyst [30]

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What I'm trying to figure out here is what did you have last year in Q4 and what kind of earnings did you have this year in Q4? We can't only add the one-offs in this quarter not last year's quarter. So in my view, the NOK 150 million, I mean, I regard that as something that is noncomparable when you compare this year's quarter with last year's quarter. That's just...

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Jonas Wiström, Ratos AB (publ) - CEO, President & Director [31]

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Yes. But I can tell you that the sort of extraordinary costs in Q4 last year that we had some SEK 80 million in Diab, and in total we had SEK 107 million in those costs in Q4 '18, if that will help you.

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Peter Wallin, Ratos AB (publ) - CFO & Business Area President of Construction & Services [32]

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Excluding HENT. Excluding the write-downs and goodwill.

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Jonas Wiström, Ratos AB (publ) - CEO, President & Director [33]

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Yes, excluding the write-downs and goodwill. But again, HENT is the business that performed in Q4. So I hope that can help you.

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Peter Wallin, Ratos AB (publ) - CFO & Business Area President of Construction & Services [34]

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And Mikael, perhaps it's best to take this detailed discussion offline instead of having everybody else listening on the call because it gets quite confusing.

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Jonas Wiström, Ratos AB (publ) - CEO, President & Director [35]

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But also to look into our -- you can see all the companies in Page 13 in our year-end report, which I'm sure you have looked into. So no, the profit is -- the underlying profit, or what you thought it is, is much better this year than last year. That is the fact. I...

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Mikael Löfdahl, Carnegie Investment Bank AB, Research Division - Research Analyst [36]

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Could I just follow up on Plantasjen then to move on? What kind of covenants do you have now with the banks that you have renegotiated the loan terms?

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Peter Wallin, Ratos AB (publ) - CFO & Business Area President of Construction & Services [37]

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We have the regular type of covenants that you normally have with bank loans. They are regarding the indebtedness measured on an EBITDA level as well as on an interest coverage level.

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Mikael Löfdahl, Carnegie Investment Bank AB, Research Division - Research Analyst [38]

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And is it possible to mention what they are?

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Peter Wallin, Ratos AB (publ) - CFO & Business Area President of Construction & Services [39]

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It's possible, but I will not do it. It's something between us and the banks, of course. We will tell you if we meet them, we will tell you if we don't meet them. So that's the [fact there].

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Mikael Löfdahl, Carnegie Investment Bank AB, Research Division - Research Analyst [40]

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But I mean, given where the debt level is and given where your EBITDA is right now, one can argue that you are probably not below the covenants, you are probably above.

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Peter Wallin, Ratos AB (publ) - CFO & Business Area President of Construction & Services [41]

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But it depends on the negotiations and the deal we had struck with the bank, doesn't it?

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Mikael Löfdahl, Carnegie Investment Bank AB, Research Division - Research Analyst [42]

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Yes, exactly.

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Peter Wallin, Ratos AB (publ) - CFO & Business Area President of Construction & Services [43]

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So that's why we have reported the loans as long.

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Mikael Löfdahl, Carnegie Investment Bank AB, Research Division - Research Analyst [44]

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Yes. But should we -- I mean, is there more capital needed to inject in Plantasjen? Is that part of the deal with the banks that you will inject more cash?

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Peter Wallin, Ratos AB (publ) - CFO & Business Area President of Construction & Services [45]

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I will not comment that at this point in time. We need to improve the EBITDA and we need to reduce indebtedness, in that combination, in order to hit a pro forma number that makes sense, exactly as you alluded to, Mikael.

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Jonas Wiström, Ratos AB (publ) - CEO, President & Director [46]

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Thanks. Is it okay -- I realize that there was one thing I didn't mention during my walk through in the Industry business area. I mean, I stated that in the -- in my CEO comment in the report that we are also, in Ratos, of course, affected by the coronavirus. We see that it's mainly Diab, and to some extent, HL Display and LEDiL who is affected on that. Actually, production units were closed down, and now we have been able to open parts of Diab's production. But it's very hard to sort of predict when this becomes stable, as you know. But that these are the only effects we have in Ratos Group as we see it right now.

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Operator [47]

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(Operator Instructions) And as are no further questions, I will hand the word back to the speakers.

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Jonas Wiström, Ratos AB (publ) - CEO, President & Director [48]

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Well, I just want to thank you for listening into this call. And don't hesitate to contact Helene or Peter or myself if you have further questions as this quarter and year goes along.

And maybe, Jonas, would you like to say anything about yourself? Jonas, you're stepping in here and will be responsible for the Q1 and Q2 report in 2018 -- 2020, sorry.

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Jonas Ågrup;Acting CFO, [49]

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Yes. I will be the interim CFO for 6 months and -- now when Peter steps into the HENT company. And my background is I've been working for Munters in 8 years, have a background from Atlas Copco and from ÅF. So that's, in short, my background.

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Jonas Wiström, Ratos AB (publ) - CEO, President & Director [50]

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Welcome. And you start on Tuesday -- Monday, Monday.

Thank you very much, everyone, for listening in. Thank you.