Earnings call transcript: Volati Q4 2024 sees sales growth and acquisitions

Volati AB reported a robust fourth quarter for 2024, showcasing significant sales growth and strategic acquisitions despite facing industry challenges. The company’s earnings per share increased by 30%, and sales grew by 11%. According to InvestingPro data, Volati maintains a strong financial health score of 2.54 (GOOD), with a market capitalization of $818.46 million. The stock price saw a slight decline of 1.07% in pre-market trading following the announcement.

Key Takeaways

• Q4 2024 sales increased by 11%, with organic sales growth of 3%.
• Earnings per share rose by 30%, showcasing strong profitability.
• Volati completed 15 acquisitions over three years, adding 2.2 billion in annual revenue.
• The company continues to focus on closing its growth gap and achieving a 15% annual growth target.
• Strategic acquisitions in Denmark and Germany enhance Volati’s market position.

Company Performance

Volati demonstrated strong performance in Q4 2024, with an 11% increase in sales and a notable 30% rise in earnings per share. This marks the first instance of organic sales growth across all business areas since Q1 2022. The company’s strategic acquisitions and expansion efforts have been instrumental in maintaining its competitive edge, even as it navigates market challenges.

Financial Highlights

• Revenue: 11% increase in Q4 2024
• Earnings per share: Increased by 30%
• Organic sales growth: 3%
• Net debt to adjusted EBITDA: Reduced from 2.8 to 2.6
• Full year EBITDA growth: -11% (target is 15%)

Market Reaction

Despite the positive earnings report, Volati’s stock price experienced a decline of 1.07% in pre-market trading, reflecting a cautious investor sentiment. InvestingPro analysis indicates the stock is trading at premium multiples, with a P/E ratio of 44.27x and a Price/Book ratio of 4.13x. The company has shown strong momentum with a 14.58% year-to-date return. According to InvestingPro’s Fair Value assessment, the stock appears to be overvalued at current levels, suggesting investors might want to wait for a better entry point.

Outlook & Guidance

Looking ahead, Volati aims to close the growth gap created by recent market challenges, targeting a 15% annual growth rate. The company plans to continue its focus on acquisitions and operational improvements, expecting accelerated growth as market conditions normalize. Analyst consensus from InvestingPro shows strong confidence in the company’s prospects, with price targets ranging from $12.61 to $14.82, suggesting potential upside from current levels. Volati’s leadership is optimistic about capturing market growth opportunities, particularly in the construction and label industries.

Executive Commentary

CEO Andreas Stenbeck emphasized the company’s strong position for future growth, stating, "We are in a good position to show accelerated growth, once the market start returning towards normal levels." Stenbeck also highlighted the importance of acquisitions in achieving strategic goals: "We’ve had very strong cash flow, enabled us to continue doing acquisitions."

Risks and Challenges

• Market volatility: Uncertain economic conditions could impact growth.
• Supply chain disruptions: Potential risks in maintaining operational efficiency.
• Competitive pressures: Intense competition in core markets may affect margins.
• Regulatory changes: New policies could influence business operations.
• Investment hesitancy: Particularly in the agricultural segment, may slow growth.

Volati’s Q4 2024 performance underscores its resilience and strategic focus, positioning the company for potential growth as market conditions improve.

Full transcript - Volati (VOLO) Q4 2024:

Webcast Moderator, Volati: Good morning, everyone. Welcome to today’s webcast presentation with Volotti. With us presenting today, we have the CEO Andreas Stenbeck and CFO Martin Arnason. We’ll open up for a Q and A after the presentation. You can type in your question using the form that is located to the right or if you’re calling in and would like to ask a question, please press star nine to raise your hand and then star six to mute yourself when you get the word.

And with that said, please go ahead with your presentation.

Andreas Stenbeck, CEO, Volati: Thank you, and thank you everyone for listening in today. I thought we would start directly at page three, summarizing our q four result. Firstly, I’m very happy about our sales development in this quarter. I feel we really see some signs of recovery after many years of tough market conditions. So sales growth, we grew with 11%, and we also actually returned to organic sales growth of 3%.

And this is the first quarter since q1 twenty twenty two that we also see organic sales growth in all of our three business areas. I’m generally happy with the margins that we show across the platforms. That is much thanks for thanks to the structure measures that we’ve taken throughout these three last years. And meaning that we are now able to perform good margins overall. However, as described here in our q four report, we have one platform within business area industry, and that’s Tulum Group where we haven’t haven’t showed the results that we should.

It’s mainly because of two reasons. One is that we’re still facing a tough market in Tundum. And secondly, that we’ve had some low margins projects that we’ve had to handle in this last quarter. And that, you know, in a in a fairly small quarter for Volati as a group, that has a greater effect than it should, meaning that our EBITA came in line with last year. Positively, it’s also that our earnings per share increased 30% in the quarter.

And if we turn to the next slide, that the cash flow was very strong. And it’s actually, you know, the q four cash flow was strong in itself. It also summarizes very good cash flow for the full year of 2024. And it’s actually the second year now in a row when we have cash conversion in excess of 100%. And that has also enabled us to continue doing acquisitions.

We’ve done two very nice acquisitions this, since the end of last quarter. Solis Group acquired Timberman in in Denmark, and then we had a Teketto Group that acquired Klever at Teketten in Germany. So both of these two adding approximately 700,000,000 of yearly revenue. And, if I just, you know, allow myself to summarize a bit. So we’ve had now three years of challenging market conditions, which means that we also created ourselves a growth gap.

Our financial goal is to go grow at least 15% annually. That means that we should double every fifth year. We haven’t been able to do that the last three years and that’s been purely market driven, I would say. We’ve been facing some market headwinds in a number of our platforms. However, we have also taken the opportunity then to work with long term structure measures in this platform.

So so meaning that we have prepared ourselves for the market recovery, when it comes. We also, thanks to two things. Firstly, we went into this period with a fairly low net debt to EBITDA levels, but we’ve also been able to generate really good cash flow. So these two in combination have enabled us to continue making acquisitions. So we’ve done 15 acquisitions totaling 2,200,000,000.0 of yearly revenue throughout these three years.

So, of course, what does this mean? The long term structure measures that we’ve, that has placed our platform in a really good position in combination with the acquired growth that we’ve been able to achieve, the last couple of years puts us in a position that when we see when the market starts normalizing, I expect to see an accelerated growth, meaning that we will also be able to close that growth gap that we have created. Looking at some details on some numbers, I already said that. So net sales up 11% and even more better than the organic growth is back 3%. EBITDA in line with last year.

And as said, operating cash flow, really strong. And it’s also summarized a really good year in terms of cash flow, which also enabled us to reduce the net debt to adjusted EBITDA from 2.8 to 2.6, despite that we’re actually being done acquisitions also. Zooming out a bit, looking at the long term and development, I think these slides tells me two things. One thing is that we have been able to actually outperform our long term financial growth target or our financial growth target over if you look at it over a period of time, we have been able to achieve it. From 2018, the annual growth has been 17%.

But it also tells me that when you look at this, that from 2021 and the last three years, we haven’t achieved the 15% growth target. And that is the, the growth gap that I’ve been talking about earlier. So with that, I leave the word to Martin.

Martin Arnason, CFO, Volati: Thank you, Andreas. So let’s start with looking at our performance in relation to our three financial targets. And let’s start with the EBITDA growth for last twelve months for the ordinary per common share. As Andreas mentioned, we do at the moment have a bit of a headwind in the in a few of our platforms affecting the growth negatively. And despite that, we did see a small EBITDA growth in the in the quarter.

We are now at minus 11% EBITDA growth during full year 2024, and our target is 15%. But it’s worth noting, however, that our target is over business cycles, and our high year average growth is 19%. Our second financial target is our return on adjusted equity, which came in at 16% versus our financial target of 20%. So it is now below, our target driven by a lower EBITDA growth. However, during the past five years, we have delivered on average 32% return on adjusted equity.

And last, it’s our last financial target is our capital structure with the where our net debt to EBITDA ratio came came in at 2.6, which is an improvement from the 2.8 times that we had in q three and is now then also in the middle range of our financial target ratio of between two and three times. So as Andreas mentioned, this is a good development driven by strong cash flow and also considering that we acquired Timberman at an enterprise value of 3 and 10,000,000 during the quarter. And so with our current leverage, we feel that we have the financial capacity left back when the right acquisition target comes our way. So let’s move into our business areas and see how they are perform performing, and let’s start with the Solis Group, who saw a sales increase of 17% in the quarter, which was mainly acquisition driven. But we’re also very happy to see that they had an organic growth for the first time since quarter two twenty twenty two.

However, they’re continuing to see a challenging market, but they do see some early green sprouts, for example, within the building hardware store customers. If we allow ourselves to zoom out a bit to full year numbers, we saw a 5% sales growth in Salisk Group and then EBITDA in nominal terms increasing with 4,000,000. Margins for Salisk Group came in almost in line with last year, despite significantly lower organic volumes compared to one year back, which really shows that the hard work that they’ve done during the past two plus years, working with cost control and coordination benefits and working with synergies in in acquiring businesses is really paying off. Regarding the market, we’re look of course, as everybody else, looking at external sources, and they are predicting a construction market growth in in 2025. Although that is from quite low levels, but we feel that with actions that we’re taking in Solid Soup, we are well positioned to capture that growth.

And we’re also happy to see that in the quarter, the, Saltix Group acquired Timberman, which adds flooring products predominantly to the Danish market to the Saltix product portfolio. So let’s move over to Etiquette Group who continues to deliver another strong quarter. Organic sales increased with 16% in the quarter and 9% during the last twelve months. And this is driven by a good demand and a solid order intake, especially in the Swedish business, where the group is now expanding production capacity to to meet this demand, both through investing in new machines, but also through increasing the efficiency in the in the current sector. The EBITDA margin increased further in the quarter and is now at 21.4% during the last twelve months, which is three percentage points higher than last year.

And this now marks the ninth quarter in a row with the increasing in last twelve month margins for for business area, at the Capital Group. And to us, this shows that the strategy of requiring companies with a lower margin and then working with seniors and operation improvements is really working. And the EBITDA since they started the acquisition journey has quadrupled, increasing from 52,000,000 in in 02/2019 to about 200,000,000 in 02/2024. And now also during quarter one twenty twenty five, it’s got the group established a new platform in Central Europe through the acquisition of Clear Etiquette Catan. And Andreas will say a few more words about this acquisition in in a minute.

And let’s move over to our last business area, which is business area industry, and the quarter four marks another tough quarter for for industry. Although revenues increased with about 4%, were half organic. The EBITDA margin declined to 7% versus 10% in q quarter four last year. The performance of the platform varies in business area industry, but the drop in EBITDA in the quarter is explained by Toner Group, who is facing a low demand in the agriculture segment across Europe. At the moment, farmers are quite reluctant to new investments given that grain prices are favorable and and, but there are some delays in the contributions.

And also for Tuna Group, they had, in the quarter, they were also negatively affected by a few products with lower profitability in the Spanish part of the business. And moving over to St. Cyrix, they continue to face a challenging market situation in the construction segment while the demand in the infrastructure segment is stable. And communications, they had another good quarter performing well, increasing EBITDA, both due to improved demand, but also, to some extent due to soft comparables in the quarter. Lastly, Corvent is performing well in the quarter, both through strong performance in the core business, but also driven by floodings in Europe, which is driving the demand for Corventa’s products for water damage remediation.

However, all in all, this concludes another tough quarter for industry, with a few platforms performing below what we expect in the normalized market. But with actions that we’ve taken, we’re very confident that we are well positioned to take the growth when the market returns. With that, I’ll leave the word to you, Andreas. Thank you.

Andreas Stenbeck, CEO, Volati: So let’s talk a bit about acquisitions. So firstly, we can see on this slide that we’ve done 26 acquisitions since 2020, adding 4,000,000,000 annual sales. Looking at the last three years, the same figure is 15 acquisitions and the 2,200,000,000 in annual sales, meaning that we’ve been able to maintain our acquisition pace throughout these last couple of years. And the last twelve months then, we did we’ve done three acquisitions, the and the Kletter at Katten. And I will get into Kletter at Katten a bit later on.

As said, we’ve been able to maintain the acquisition pace the last couple of years. We had a drop in q2 and q3 twenty twenty three, but the pace has picked up again. And we are in a financial position and have the processes and in and the platforms in place to continue keeping keeping this pace. So before rolling up, I would like to spend a few words on our latest acquisitions. That was the acquisition of Collaborative Caffeine in Germany done by Etech Capital.

But before getting into that ex that, the talking about bit about Clever, I just want to stop at this side slide and see what Etiketto Group has achieved the last couple of years. So basically, in 2019, we had a Swedish, very successful label manufacturer with market leading margins that showed $250,000,000 Swedish krones of revenue, and roughly 50,000,000, 5 0 million of EBITDA. We did five acquisitions in quite a short time. And basically, when we acquire companies, they always show, more or less always show lower margins than we do, meaning that the margins get diluted and that is the trend that could be seen from 2019 to 2022. Basically, adding volumes, adding acquisitions, but then also diluting the margins.

’22 and up until 2024, we actually haven’t done any had an acquisitions of any size to to Etiquette Group. But we have worked on realizing these synergies that came throughout the, the acquisitions. So we’re now back and are actually exceeded the margins that we had before starting the acquisition journey. For us, proving that the model really works. And and what we’ve now done, we’ve we’ve sat now for a couple of quarters or, I believe, more than a year that we we are looking outside of the Nordics.

We want to acquire outside of The Nordics. We’ve looked at Central Europe. And, in February then, we did the acquisition of Clever at the Katan in, in in Germany. And this is a it’s a very good acquisition for us. It’s, around 300,000,000 of annual sales, meaning that it’s not it’s the size is is good for us.

Also taking into account that this is something that we consider being a platform, for a continuing expansion on the Central European market. And then keeping in mind that the Dekelte Group in 2019 was $250,000,000. This is slightly bigger, but it’s it’s a good platform for us to start growing with in Central Europe. Also, we still have the operational or the way of working within the group, which means that we could also also apply that to Clever, meaning that we expect the operation improvements and synergy realization also, even though this is kind of a new platform into new geographic market, we expect to increase the profitability of Clever along the way. So for us, this is a very important add on acquisition to our platform and business area at Getter Group.

Then some words about the cash flow. We touched upon it several times already, but the cash flow, that’s what we rely on to continue doing acquisitions and investing in our platforms. And it’s just to be said that the cash flows last two years has been very good. And we’ve also been able to then decrease the net debt to EBITDA over the quarter. Once the organic growth returns, that will also mean that we’ll have expanded acquisition and room for acquisitions, and we expect the net debt to to go down even more.

And then finally, to just sum it up, yes, we’re returning to organic sales growth in q four. And again, it’s the first time since q one twenty twenty two that we actually showed an organic growth in all three business areas. We’ve had very strong cash flow, enabled us to make, continue doing acquisitions, and we’ve done two very good acquisitions, both one for Solix and one for Etiklato, which I think are are are extremely, extremely nice acquisitions that we’ve added to to to those two platforms. And we are in a in a good position to show accelerated growth, once the market start returning towards normal levels. And we do see the first signs of that happening now.

But it’s from very low level, and it’s gonna take time. But but even though the I think the organic growth that we’ve shown shows that, the signs are are starting to come here. So with that, I leave the word for any questions.

Webcast Moderator, Volati: Thank you very much for that presentation. And now we’ll open up for a q and a. If you’re calling in, please press 9 to raise your hand and then 6 to mute yourself when you get the word. And we got a question from Alban Ulmak from Nordea. Please go ahead.

You have the word.

Alban Ulmak, Analyst, Nordea: Yes. Hello, Andreas and Martin. Thank you for taking my question. So start off with the with the land plan and project, that should be ongoing as for now, if I understand it correctly. Can you tell us something about the expected size and profitability for ’25 and ’26?

And also if you already have started to see this in your Q1 numbers? And then also for for TONAMI, if you expect further Spanish projects with low margin to impact Q1 as well or if it was specifically for Q4?

Andreas Stenbeck, CEO, Volati: I’ll try to answer as many of these questions as I can. So we haven’t given any information externally about the volumes or the margins in the land funded project. However, what we have said is that we started delivering already in 2024. But the main deliveries and most of the product delivery is during this current fiscal year, and that will happen then, yes, in q q one and and q two and and onwards. And then the whole project actually ends in 2026.

But it you know, as I said, it’s it’s, what we’ve seen in Tounam is, that on the agricultural side and on and and mainly farmers, they are a lot more hesitant today than they were a couple of years ago. So the volumes have really gone down there. The industrial side has kept up better, and I think the land management point is a really good good example of that. And then with regards to the the Spanish situation, no. We don’t expect to have that kind of effects going forward.

We have handled that in in q four with regards to the to the the profitability in in in in a number of of projects. So that will that’s been handled and addressed. So so, I I hope that answered or, I answered as much as I could.

Alban Ulmak, Analyst, Nordea: Yes. Thank you very much. And, if we look at the CapEx ahead, you mentioned at the order book that might need some more machinery, etcetera. And also, if you see any increased topics need for either for Ternum to deliver on land management or maybe the acquisition of, Klevator Catan or Timberman.

Carl, Analyst, Carnegie: Yeah.

Martin Arnason, CFO, Volati: Yes. So I’ll try to answer that question. So on on the Tykato side, they have actually already invested in in quite a few of these machines. So they they are, have or are coming online, in, during last quarter. And there are still some investments going forward.

But it’s not it will not be impacting the overall overall CapEx in in a in a way that that is significantly negative. So, and also, if you if you look at the demand increase that they that they have, they are filling up those machines extremely quickly, so the payoff on on that is also very, very quick. With regards to to London, and there there are no significant CapEx that are planned to deliver on that project.

Alban Ulmak, Analyst, Nordea: Alright. And then maybe one last, just to check if you can comment on the contribution for Timberman for the last twenty days of December. Did you get anything at all there?

Andreas Stenbeck, CEO, Volati: Do we have I don’t.

Martin Arnason, CFO, Volati: We don’t publish that. But but it was consolidated in December. So, of course, the the the numbers were were affecting us in in December.

Alban Ulmak, Analyst, Nordea: Alright. That’s all for me. Thank you.

Carl, Analyst, Carnegie: Yes. Hello, Andreas and Martin, it’s Carl here from Carnegie. Just a couple of questions from my side. Epicap, too, again, obviously, saw a very strong quarter. Could you perhaps elaborate a little bit more on sort of the underlying drivers driving this sixteen percent organic growth year over year?

Thank you.

Andreas Stenbeck, CEO, Volati: Firstly, good to have a Kenege calling in. So thank you for the question. Yes. Etceta has shown a strong development throughout the latter part of 2024. And I would say that’s mainly mainly two drivers.

One is a general kind of market recovery. I know we’ve said that, generally speaking, the label industry is not that sensitive to to the general, you know, overall market environment. However, the the market actually saw in 2023 that even volumes went down, and that also affected, you know, with the cattle partly and be as we as we described back then. So so part of it, I would consider now is is a market recovery. And and then, secondly, we do provide both label labeling machines and done labels to the white nicotine, white snuff industry, which is faster growing.

So that’s that’s an example of a specific segment within the EtherCata Group that is showing a strong growth, and that’s expected to continue for yet sometime.

Carl, Analyst, Carnegie: Yes, that’s very clear. And just if we look at the margins here in Atikatode, still obviously very strong, but down a bit here sequentially despite growth, yes, some sequential growth. Could you just help me bridge that or sort of, yes, why are not margins coming up first here when we see some growth sequentially? You

Martin Arnason, CFO, Volati: mentioned the ticket, right, because the margins are up sequentially in the ticket. So two percentage points in the quarter and three percentage points during last twelve months.

Carl, Analyst, Carnegie: Alright. Yeah. Maybe I have some wrong figures done.

Andreas Stenbeck, CEO, Volati: Basically, just double check and get back to us if you if you Yeah.

Carl, Analyst, Carnegie: Yeah. Yeah. We do. And if you looked at the industry business area here, you mentioned, of course, that Tonunum had a negative impact, but I was wondering if you could give some extra color on the year over year decline in industry margins here besides TONUM. Do I read your statement correctly that both Coravantos and Syntheorix should have a negative impact on year over year margins, but that communication should be up?

Andreas Stenbeck, CEO, Volati: Yes. That’s that’s right. So so just in summary, so communication up. Also, comparing to last year q four, communication had somewhat easier comparables, but but, communication is up. When it’s also Corventa, I I must say that they are doing very good, but they have also had very tough comparables.

But they are year over year, having a negative contribution, but it’s not of any significance, I would say. Then, I mentioned that we have taken the long term structural measures and within, you know, basically all of our platforms. So so still, is operating in a in a tough market. Their, you know, construction exposure is there. So so, it’s somewhat compensated by the infrastructure exposure as well, but but but they still they have the construction exposure, meaning that they are operating in tough market.

But I think with, you know, taking that in into account, they’re doing what’s expected. But year over year, in terms of yeah. You know, they are still having they are still operating in a negatively, you know, developing market. But then the main reason is, Tunnan Group. That’s where we’ve had an in, you know, any particular when it comes to these project related or margin related issues that we’ve had to address in this quarter.

That’s what has the main impact to the overall year over year development in industry.

Carl, Analyst, Carnegie: All right. Got it. And we’ve looked at the tool in here. So we will obviously see an impact here from the Lantmannen project during 2025. And I guess, we had some deliveries from that also here in Q4.

But if we look like the at the underlying like a market sentiment currency within European agriculture, would you say that it has changed anyhow compared to Q3 or is it fairly similar sentiment out there, would you say?

Andreas Stenbeck, CEO, Volati: I would say it’s fairly similar sentiment. Industry is generally going better than, you know, the farmers and the agriculture market. We have some regions going better, Spain as an example, than the Eastern European markets. But the sentiment is, I would say, is more or less in line with what we saw in 2024.

Carl, Analyst, Carnegie: Yes, all right. And just lastly from my side, if we look at Salix, obviously very nice to see them returning to some slight organic growth here in the quarter and also that you mentioned that the consumer side has started to pick up. But it would be interesting to hear your view or what you are seeing on the professional side of the market. Is that would you say the settlement there is unchanged from q three or are you observing any uptick on that side of the market?

Andreas Stenbeck, CEO, Volati: So we’re I think if you we we tend to talk about an index called big material index, which is publicly available, which we follow and we we believe is a good indication for for SolEx Group. So so that is available for everyone. And if I remember it correctly, that data shows that the consumer went into a tougher market before the professional side. So the consumer side came into that six to nine months before. And what we’ve seen now is that the consumer part is also has kind of improved more the last six to nine months than the industry.

So so you’re you’re right about us being about the industry because that’s now what’s kind of keeping the growth pace down. Looking at that specifically, that’s also, I think it’s kind of bottomed out, at least if you look at the when you look at the external sources that we turn to. So they are from still, I think, grown negatively in Q4, if I remember it correctly, but much lower negative numbers or yeah. They’re showing a profit positive trend, so to say. So we’re seeing signs of recovery there as well.

We do.

Carl, Analyst, Carnegie: Alright. Got you. And just, yeah, a follow-up there on my previous question because I’m looking quarter report now. So just if we look at Q4 here in Equatorial, EBITDA margins 20%, right? And in Q3, ’20 ’5 percent.

So that that that was my question on the sequential decline there

Martin Arnason, CFO, Volati: in the margin. I I I was going to mention that now also because now I understood what you meant. So there are, that is correct, but it’s difficult to compare different quarters to each other. So I think for they they do have some season variations, and and it’s mainly due to how much vacation you have. So so quarter four is is a smaller quarter for for them, and therefore, it’s it’s it’s more difficult to it’s it’s not comparable.

So when you compare to one year back in time, quarter two quarter four is two percentage points higher. And also then if you include the last twelve months in that comparison, then then we’re three percentage points higher. So so to us, they’re continuing to deliver on the, on the on the margin increase, also in this quarter.

Carl, Analyst, Carnegie: Alright. Thank you. Thank you so much. That was all my questions.

Andreas Stenbeck, CEO, Volati: Thank you.

Webcast Moderator, Volati: And that’s the end of the Q and A session here. Andreas, do you have any concluding remarks?

Andreas Stenbeck, CEO, Volati: I think my concluding remark is just that it’s good to see some signs of recovery. It’s good to see some organic growth. And I think we put ourselves in a position with the long term structural measures that we’ve done and with the acquisition pace that we’ve upheld and acquisitions that we’ve done. So really looking forward to the 2025 and and and start delivering some results.

Webcast Moderator, Volati: Thank you very much for that presentation. And thank you to everyone who followed this presentation with Volotti. Have a good day.

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