Earnings call transcript: Vestum AB’s Q2 2025 sees organic growth amid sales dip

Vestum AB reported a mixed performance in its Q2 2025 earnings call, highlighting a 7% decline in net sales year-over-year despite a 4% organic growth. The company’s strategic focus on acquisitions and capacity investments in the UK water infrastructure sector was underscored, amid a cautious outlook for the near term. With a market capitalization of 339.7M USD, Vestum’s stock price saw a slight decline of 0.81% to 8.68 SEK, reflecting investor caution. According to InvestingPro analysis, the stock currently appears undervalued based on its Fair Value estimate.

Key Takeaways

• Vestum’s Q2 2025 net sales fell by 7%, but organic growth improved to 4%.
• Adjusted EBITDA margin stood at 10.1%, with free cash flow rising by over SEK 50 million from Q1.
• Vestum is expanding in the UK water infrastructure market, eyeing strategic acquisitions.
• The company remains cautious about short-term market conditions but optimistic about mid-term prospects.
• Leverage increased to 2.65x EBITDA, with potential to exceed 3x for strategic acquisitions.

Company Performance

Vestum AB’s Q2 2025 results reflect a challenging environment, with net sales declining by 7% compared to the previous year. However, the company achieved a 4% organic growth, an improvement from 3% in Q1. This growth was driven by strategic acquisitions and investments in production capacity, particularly within the UK water infrastructure sector, which is poised for significant investment under the AMP8 plan.

Financial Highlights

• Revenue: Declined by 7% year-over-year
• Organic growth: Increased to 4% from 3% in Q1
• Adjusted EBITDA margin: 10.1%
• Free cash flow: SEK 120 million, up by over SEK 50 million from Q1
• Net debt: SEK 1.6 billion
• Leverage: Increased to 2.65x EBITDA

Outlook & Guidance

Vestum maintains a cautious outlook for the short term, with expectations of improved profitability as construction investments recover in Sweden. The company remains focused on strategic acquisitions in the UK water infrastructure sector, which is expected to benefit from the AMP8 investment plan. Mid-term market conditions are viewed positively, although leverage could exceed 3x for strategic acquisitions. Analysts maintain a Strong Buy consensus with a 33% upside potential, according to InvestingPro data, which also indicates expected net income growth this year.

Executive Commentary

CEO Simon Göthberg emphasized the company’s commitment to generating positive organic growth and maintaining solid cash flows. He noted, "We’re expecting profitability to improve for these companies as construction investments in Sweden rise from the historically low levels." Göthberg also highlighted the strategic approach to acquisitions, stating, "We would not opportunistically go ahead and make acquisitions across northern Europe just to make acquisitions."

Risks and Challenges

• Market conditions: Short-term caution due to current economic uncertainties.
• Leverage: Potential increase beyond 3x EBITDA for strategic acquisitions.
• Sector-specific risks: Challenges in the Solutions Segment and installation businesses.
• Competitive pressures: Maintaining a strong position in the competitive UK water infrastructure market.
• Macroeconomic factors: Potential impacts from broader economic trends and currency fluctuations.

Q&A

During the Q&A session, analysts focused on the challenges within the Solutions Segment and the cautious approach to the UK market amid the AMP8 ramp-up. The company clarified its acquisition strategy and leverage management, addressing potential divestitures in the installation segment.

Full transcript - Vestum AB (publ) (VESTUM) Q2 2025:

Conference Operator: For the first part of the conference call, the participants will be in listen only mode. During the questions and answers session, participants are able to ask questions by dialing KEY5 on their telephone keypad. Now I will hand the conference over to the speakers, CEO Simon Göthberg. Please go ahead.

Simon Göthberg, CEO, Vestum AB: Hello everyone and welcome to our presentation of Vestum AB’s interim report for Q2 2025. My name is Simon Göthberg, CEO of Vestum AB. I will today present the report myself as our CFO Olof Andersson had to be with his wife as they’re expecting their fourth child any day now. Okay, let’s have a look at some highlights from the quarter. We have continued to invest in growth both organically and through M&A. Organic growth was +4% while cash flow improved by some SEK 50 million. Profitability was in line with last year as shown in the adjusted EBITDA margin of 10.1%. We’ve completed one acquisition in the quarter and also invested in increased capacity for several of our production companies. These investments have led to an increased leverage which is now at 2.65 times reported EBITDA.

Moving on to the segments, starting with Flow Technology, sales grew by 32% mainly driven by acquisitions. We continue to see overall solid underlying demand across the segment with some different characteristics depending on geography. In the Nordics, we are generating both sales growth and improved profitability. In the UK, the market is currently preparing for the new five-year investment plan AMP8 which came into effect in April 2025. The new plan includes over £100 billion of water infrastructure investments and will greatly benefit the segment in many years to come. That said, the market is a bit cautious in the short term as clients are currently in resource planning and allocation mode and we’re expecting to see positive effects of the new investment plan in the next few months.

We are also planning to execute on additional UK-based acquisitions to the segment before year end and this will strengthen our already very strong position in the UK. Moving on to the Niche Products segment, we continue to perform in line with last year and it’s good to see that we continue to improve profitability as shown with an uptick in EBITDA margin from 11.6% to 12.4%. The margin expansion is mainly driven by our companies with infrastructure end markets. Going forward, we continue to focus on improving profitability while also allocating capital to growth in certain parts where the return on capital and demand remain high. Lastly, let’s have a look at the Solutions Segment. We have divested several companies during the year including the largest and the third largest company in the segment, meaning that sales in absolute terms decreased.

Organic growth was positive though, just like in Q1. Profitability dropped to 5.0%, mainly driven by our installation businesses with construction end markets. These installation businesses represent roughly 60% of sales in the segment, and we expect profitability for these companies to improve as investments in the Swedish construction market recover from the historical low levels that we currently experience. The remaining 40% of sales in the segment consists of specialized infrastructure, services, businesses, and volumes, and profitability for these companies were at decent levels in Q2 and continue to improve. Moving on to net sales and EBITDA development of the last few quarters, let’s begin at the chart on the left, which shows net sales where we saw a decrease compared to the same period last year, driven by the divestments as I previously mentioned in the Solutions Segment. The decrease was to some extent offset by acquisitions.

If we move on to the chart in the middle showing adjusted EBITDA development, we also see a decrease driven by the development in the Solutions Segment, which again was mentioned on the previous slide. Finally, in the chart to the right, the adjusted EBITDA margin was in line with last year, showing a slight decrease compared to the same period last year, again driven primarily by the profitability in the Solutions Segment, but to some extent offset by the positive development in the Niche Products segment. We move on to overall net sales development. In total, net sales in Q2 decreased by 7% compared to last year.

Last year, the divestments in the Solutions Segment put pressure on net sales in the quarter, but as mentioned previously, this was to some extent offset by acquisitions, and we saw a total positive organic growth of +4% in the quarter, a sequential increase from 3% in the first quarter, which reinforces our view that the previous downward trend in sales development has reverted to growth. Now let’s look at free cash flow. We define free cash flow as cash flow from operating activities, including interest, taxes paid, and change in net working capital. Then we subtract CapEx spending, that is, investments in fixed assets, and we also subtract leasing amortization. Free cash flow is really cash that can be used for dividends, acquisitions, and repayment of debt.

The LTM free cash flow was SEK 120 million, an increase of more than SEK 50 million compared to Q1, driven mainly by lower financing costs as a consequence of our improved capital structure. Moving on to net debt and leverage development, the net debt is represented by the pink bars and amounted to SEK 1.6 billion, an increase compared to the previous quarter, driven by the acquisition of Nortech and also by the fact that we have invested in new facilities in several of our existing product companies. As a consequence of these investments, leverage increased to 2.65 times reported EBITDA per Q2. Investim’s earn-out debt was SEK 32 million at year end and even when taking into account earn-out debt, the leverage multiple remains at 2.7 times reported EBITDA. In summary, we continue to generate positive organic growth and solid cash flows.

The Flow Technology segment continues to do very well and we are expecting this to continue as the market outlook looks highly promising. We are focused on investing in growth in the segment and will continue to strengthen our positioning by making additional acquisitions, mainly in the UK as the market is preparing for high growth in coming years, supported by structural investments in the market. In the short term, however, the market is a bit cautious, driven by the ramp up in AMP8, but again all looks highly promising into 2026 and onward. We’re still facing challenging market conditions in certain parts of the Solutions Segment as the installation businesses face higher than normal competition and as a consequence, price pressure. We’re expecting profitability to improve for these companies as construction investments in Sweden rise from the historically low levels that we currently see.

We’ve created conditions for cash flow to remain at solid levels, not least driven by our improved capital structure along with a strengthened portfolio of companies in the group. As with previous quarters, the short-term market situation remains uncertain. The mid-term market outlook is positive and with that we open up for questions.

Conference Operator: If you wish to ask a question, please dial on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial 6 on your telephone keypad. Next question comes from Simon Johnson from ABG. Please go ahead.

Hi Simon, Olof, and thanks for taking my questions. First, on Solutions, I understand there is continued price pressure impacting the margins, but for the margins to improve, do you think it’s going to be mainly a function of better construction activity which reduces the price pressure, or do you think it’s more going to be about you transitioning out of low margin contracts? Can you please explain a bit more how you think about those two factors?

Simon Göthberg, CEO, Vestum AB: Yeah, sure. Hi Simon, thanks for your questions. Yeah, I mean definitely it’s going to be a combination of those two factors. We’re still working on projects that were taken three to six months ago and there was more competition and price pressure at that point in time than a year ago before that. Looking at the pricing today, there isn’t a big difference. Volumes have during the course of 2025 increased somewhat in comparison to last year. Organic growth has been positive for the two sub sectors of Solutions for the first six months of 2025 and 2026 is starting to look a bit better than it did maybe three months ago. I mean there is still price pressure.

The projects that we take on today are still at low levels in comparison to where we have been, which essentially means that we’re expecting to see a similar drop in profitability going into the second half of 2025 as we have seen in the first half of 2025. This is mainly for the 60% of the Solutions Segment that is exposed to the installation market. I mean obviously you can work with efficiency measures to improve margins going into a project, but there is still some price pressure in the market. Yeah.

All right, thank you. Just to make clear, you said that currently the new contracts that are coming in on installation are still at the low levels.

Yeah, I mean there’s some difference now in comparison to three months and six months ago, but the pricing in the market isn’t what it was in 2022 and 2023. Competition is still much higher. We really need to see a higher pace of construction investments across the Swedish market and obviously in the property market.

I see, thank you. On Flow Technology, you highlight the more cautious market in the UK due to the launch of AMP8. Was this effect present the whole quarter? Was it just like a transition period when the plan came into effect in April and more normal towards the end of the quarter, or how was the development through the quarter?

No, it’s been basically the full quarter. It’s been basically 2 factors impacting the full Q2 figures in the UK and also been the ramp up of AMP8 and the absence of extreme weather or absence of rain. Really, it’s been very, very dry in the UK, but it hasn’t been any droughts really, which could have a positive impact on our numbers. We’re looking at reference figures from Q2 in 2024 that had lots of rainfall in the first half of Q2 and then obviously the ramp up period. We’re mainly exposed in AMP8 to OpEx spending and not so much on CapEx spending, which means that we will start seeing the benefits of AMP8 already in the fall.

Going back to AMP7 and AMP6, typically what we see is that it takes somewhat six months after the start of the new AMP period to show some positive effects of our company. We’re expecting to see those maybe end of Q3, beginning of Q4, and then going into next year we will see the positive effects of the CapEx spending. Again, we’re more dependent on the OpEx stuff, which is a good thing.

I see. In terms of that and when you usually see the ramp up around six months or so, have you seen sort of big projects being initiated or is it more like you expect that it will happen?

These projects are well known to the market. Basically, everything that will happen infrastructure wise is quite well known. There’s some visibility in the market. As I think I’ve said before, most of these customers that are looking to order these things from the supply chain already know who their suppliers will be. Given that we have pump supplies, PDAS, Nortech, and some of the other companies that we’re now looking to acquire over the next six months or so, these are very well positioned with these clients. Basically, the things that will happen in the short term are known.

I see, thank you. Just one last one quick here on the cash flow and investments. You talked about that you are increasing investment, sort of growth investments for the product companies. Do you think that will continue or was it more like one time investment here in the first half?

Are you referring to the investments in the expansion of capacity for some of the production companies? Yeah, yeah, yeah, yeah, yeah. No, it’s been in a few other companies we’ve expanded and basically moved to larger facilities, and that is not something that will occur every quarter. You know, the increase in leasing according to IFRS 16 was something that we saw in Q2. We’re not expecting to see that in the second half of 2025.

I see. Thank you so much. That’s all for me.

Thank you.

Conference Operator: As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. The next question comes from Jakob Markin from Danske Bank. Please go ahead.

Hello guys. Just a quick question from my side. As many of my questions have been answered already, I’m just wondering, you said that you plan on making additional acquisitions here in H2. I’m just wondering which net debt level are you comfortable on reaching here during the year, and how much will you push it into 2026, do you think?

Simon Göthberg, CEO, Vestum AB: Yeah, thanks. Thanks Jakob. Yeah, it’s good to clear that one out. Very good. You know, historically we’ve been financing deals with issuing equity and that is not something that we’re keen on doing going forward. When leverage is at 2.65 or 2.7 times as it is now, again, this is unreported figures, right. It’s not pro forma. Obviously that means that we need to be cautious and highly disciplined. Financing wise we’re looking to do this with free cash flow and existing credit facilities from our banks.

Given that we have a sort of golden nugget acquisition that is positioned in the UK and where we can extract synergies with our existing companies and basically companies that we do, we think can become the, you know, the pump supply is 2.0, then that is something that we are very, very keen on doing as we know the market so well. We would only do that if we are quite comfortable with projected underlying EBITDA in the business. Limitations are one, obviously leverage as it is at that given point in time. Number two are thoughts on performance going forward. If we feel quite comfortable in performance and if we see that we can do this golden nugget acquisition and that leverage still will be at reasonable level, level which could be slightly over 3 maybe, then that is something that we would go ahead and do.

We would not opportunistically go ahead and make acquisitions and acquisitions across northern Europe just to make acquisitions. It would have to be again a golden nugget. I think we have some of those in our, in the pipeline. Okay, I understand.

Perfect. Thank you.

Sure, thank you.

Conference Operator: There are no more questions at this time. I hand the conference back to the speakers for any written questions or closing comments.

Simon Göthberg, CEO, Vestum AB: Yes, hello. Yeah, again Simon here. There is a written question. I’ll read that one now. Are you going to be a buyer or a seller in the installation segment going forward? Yeah, sure. The installation segment or the subgroup is roughly again 60% of our Solutions Segment. These companies, I would say, are at an all-time low. It’s been one of the toughest markets for these installation companies in basically 30 years. Many of the entrepreneurs that are still running our companies, they’ve never experienced anything of the sort that we’re now seeing. We’re expecting, as construction investments continue to increase in Sweden, a recovery for these companies. We’re definitely not a seller of these companies now. When it comes to buyer, we are looking to allocate capital going forward in the segments where we can achieve highest growth, highest margins, and highest return on capital.

This is right now in water infrastructure in the UK in these market leading product companies. That is what we will do going forward. If you fast forward a couple of years, then we’ll see where things will take us. We have divested companies over the last two to three years for two reasons. Basically, one, to refinance the balance sheet and, number two, to increase specialization for the group and get rid of basically low margin companies. All of our companies today can achieve an EBITDA margin which is in line with our financial target of 12%. As of now, no planned divestitures and fast forward, you know, we’ll see where things will take us. Again, focused on acquisitions in the UK in water infrastructure right now. That was the last written question and with that I thank everyone for listening in.

Thanks so much and have a great summer everyone.

Bye bye.

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