Release Date: August 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Storskogen Group AB (FRA:0VK, Financial) reported positive organic sales growth of 2% in the second quarter, indicating a recovery in business performance.
- The company successfully refinanced part of its bonds maturing in 2025 at significantly better terms, improving its financial position.
- Strategic divestment of nine business units has enhanced profitability and allowed the company to focus on areas with higher growth potential.
- Operational efficiency measures are yielding positive effects, with improved margins and strong order intake in the Industry business area.
- The company maintains a strong cash flow, with a cash conversion rate above 100% for the past four consecutive quarters, indicating effective cash management.
Negative Points
- Net sales decreased by 2% to SEK9.2 billion, impacted by divestments and a challenging market environment.
- The services business area experienced a 7% decrease in net sales, primarily due to divestments, affecting overall performance.
- Demand remained muted for companies with exposure to construction and end consumers, impacting the Trade business area.
- The effective tax rate was relatively high at 28.5%, which could affect net profitability.
- Interest-bearing leverage ratio increased to 2.7 times, indicating a higher level of debt relative to earnings compared to a year ago.
Q & A Highlights
Q: It's great to see that you returned to positive organic sales growth. Could you give any flavor whether you saw any variations of this during the month or the quarter and also perhaps if you could say something about the trend continuing so far in July and August?
A: Hi, Carl, as I said, it was still a tough quarter; but we see broadly improvement in the quarter in the business areas. And July, it's too early to say, but we continue to be cautiously optimistic on the trend going forward. But we have seen it's broad where we have a better situation in all our business areas.
Q: In general in Q3, you see quite a few business areas is seasonally slow, as you said, due to the summer break. But do you see that the customers might take longer holidays this year owing to a somewhat muted market or is your feeling that it's more or less same to last year?
A: It's hard to comment on that. But as you said, some of our companies -- I mean small companies almost closed their businesses in July. We have services companies that are really, really slow in the summer. But if it's more or less than last year, I don't know that. It's hard to answer.
Q: You mentioned that you saw a solid order intake in Industry and in another, you saw a strong order intake in industry. Is it possible to give any numbers on the order intake, whether it's solid or even strong in the quarter?
A: It is strong in the quarter, but we don't give any -- but it is a strong order intake in Q2 for Industry and it has been for some while. So they are really doing well.
Q: In terms of trade, you guided that you saw quite a broad-based improving in markets here. To what extent would you see it driven by better underlying sentiment in the market and to what extent do you think it is distributors after long period of time reducing inventory starting to refill inventories again?
A: I think it's multiple things there. Of course there are some distributors effectively that buy -- what you were talking about inventory buildup from the customer side. But I also say that still consumers are getting more confident, but still there are -- it's not a strong sentiment from consumers yet. Hopefully, we see if we get interest rates cuts in Sweden in particular for the trade, hopefully that will help the consumer to come back and have confidence again. But of course there are some things regarding the inventory things that is improving.
Q: You said that you saw enhanced collaboration between the companies and you're seeing effects from this. So I'm a bit curious to hear more about how you accomplish this. Is it driven centrally or is it locally for some reason that the company started to collaborate?
A: This is of course locally. It's driven by we have a decentralized business group and they are collaborating on their own. Of course we can help on doing that together with the company, but it must be driven by the companies and the will to want to collaborate. But we see that in several areas where companies do take a wider in orders, taking a better grip on orders together.
Q: On this minority options, I was wondering if you could possibly update with some sort of payment schedule there if you have that for the current year and possibly next. What the cash outflow is then for there?
A: We do have total liability of SEK2.1 billion in the balance sheet, of which SEK530 million something is short term so the next 12 months. And over those, we believe that around SEK150 million might be called upon during the coming two quarters so Q3 and Q4 this year. And of course this is touched with a lot of uncertainty because it might also be that minority shareholders do not want to sell at this point.
Q: I was just curious to know when you adjust for all these divested units, is there any sort of material difference in the volatility of the LTM EBITDA?
A: The companies that we have divested have contributed with higher earnings volatility and then unfortunately, primarily negative in the past years. The portfolio that we just divested yesterday has contributed with quite significant earnings volatility and earnings decline during the past years. All the activities and transactions that we do when it comes to both divestments and acquisitions are done with the idea of reducing volatility in earnings for the longer period going forward.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
