Volati (Stockholm:VOLO) Q3 2026 Earnings Call

0:00 Hello and welcome to today's webcast where Volati will present its financial results for the third quarter of 2026. Joining us today are CEO Andreas Stenbeck and CFO Charlotta Nyberg. At the end of the call we will have a Q&A, so you're welcome to submit questions using the form located to the right of the webcast. If you're calling in and want to ask a question, please press star 9 to raise your hand and star 6 to unmute your line when you've been handed the word. With that said, I will hand it over to you Andreas and Charlotta. Please go ahead.

0:30 Thank you very much and thank you everyone for listening in today. Let's get into today's presentation. Volati, we delivered continued growth and improved underlying earnings for the third quarter. Sales grew by 12% and that's driven by the three acquisitions that has been performed in 2026, adding a total of 575 million in annual sales. Reported EBITDA came in at 58, which is below last year. However, more importantly, underlying EBITDA grew 15% to set 87 million. I usually do not highlight EBITDA before items affecting comparability, but I think that is justified this quarter.

1:19 The reason is that we have quite significant items affecting comparability. They are all M&A related, and the larger part are related to synergy-related restructuring costs in etichetto, and I will get into these shortly. However, before doing that, on a platform level, we have a good performance in the growth-focused platforms, Etiquetto, Corroventa and Communication. We see in Etiquetto and Corroventa a significant growth, both in sales and EBITDA, and that is both by acquisitions that we've done to these two platforms, but also an organic growth profile. In Communication, we showed a stable organic growth in both sales and EBITDA.

2:05 St. Eriks and Turnum both declined in sales, but the focus that we've had on profitability is now slowly starting to show. We can see that we have slowed down the negative profit trend from previous quarters. Cash conversion remains strong and was strong in the quarter, and it's now amounting to 93% on a rolling 12-month basis. So then I promised a few words about the synergy related restructuring costs in Etiquetto. To start with, in Etiketto, we have industry-leading margins. And the margins of its add-ons acquisitions are then lower than the overall margins, which means that we get a dilution effect.

2:56 And we create value by improving the margins in the companies that we acquire. And we do that by synergies, operational improvements, and what we call the Etiketto way of working. So that means Etiketto's proven working methods. One way of creating synergies and improvement of operational efficiency is by co-locating existing production units. We have had two such examples this quarter. The first one is Nikkei Teketten. It's a Swedish company which we acquired in the beginning of this quarter, which has now been moved into our existing production units in Sweden.

3:43 Secondly, and that's a larger part of the restructuring costs, are in Germany where we got one additional production unit in the beginning of this year and that was through the acquisition of Intercat and that is now co-located with the already existing production unit that we have in Germany through the acquisition of Clever which was done last year. So these type of measures, of course, increases operational efficiency. They save cost and that's one way for us of improving the margins. In this case, we will start to see effects from this measure in the beginning of 2027. In addition, we have items affecting comparability for the third quarter related to transaction costs of 8 million SEK. So all in all, we have quite significant items affecting the comparability in this quarter.

4:42 But what is very important is that these are part of our, you know, in order for us to be able to make the acquisitions. And then even more importantly, the value creating process of integrating acquired companies. So with that, I leave the word to Charlotta.

4:59 Thank you, Andreas. And as we talk about the EBITDA development in the quarter, as we mentioned in Q2, we are of course not happy with this negative trend that we're seeing. But when we unpack the EBITDA in this quarter, the reported EBITDA was 58 million and EBITDA before items affecting comparatability, 87 million. And as Andrea said, that is a strengthened underlying EBITDA margin. And to dive into the debt platforms, we see that in Etiquetto, the EBITDA increased to 64 million. And as expected, and as very clear with Etiquette, we see that the margin decreased because that is a reflection of the lower margins in the Etiquette group.

5:48 Communications, the EBITDA increased with 6% and the margins are in line with last year's. In Coroventa, we see an increase with 68% in EBITDA and the margins are up about 3 percentage points. That is mainly supported by Tromex's higher profitability that we see in this quarter. For St. Eric's Group, we see that despite lower net sales, it maintains its EBITDA margin for the quarter as the same level as in the quarter of previous year. And EBITDA in turn decreased, but we see that the impact of the lower sales were counteracted by the cost efficiency and the operational improvement that has been done.

6:37 We also continue to see a strong cash flow in the quarter. The cash conversion remains strong, amounting to 93% over a rolling 12-month basis, and with a seasonally strong cash flow towards the end of the year, we expect leverage to decrease over the coming quarters. We're satisfied with the pace of acquisition, but we will of course continue to balance acquisition activity against our leverage. And following this year's acquisition, the net debt to adjusted EBITDA is now at a 3.1 ratio, and that is slightly above our target range. But it's important to remember that the consistent cash generation across all the platforms is what has allowed us to maintain our acquisition pace.

7:31 If we should sum up, how are we then delivering on our financial targets? Well, the growth in EBITDA per ordinary share is minus 31%. And as I said, we now see that the underlying growth in EBITDA is improving in the quarter. We have a ROE of 13% that is very closely tied to the EBITDA growth. And we see that when that changes. We will also see the improvement in the ROE. And as we said, the net debt to adjusted EBITDA is 3.1%. And this we see as okay and a deliberate result of our M&A strategy. It's important to note that our approach to capital allocation remains unchanged. Focus on discipline in the acquisition and securing strong cash flows.

8:21 Good. Andreas, over to you. Okay, so then we're going to talk a bit about the individual platforms and we will start with Etiketto. So, as we mentioned already, Etiketto Group reported a strong third quarter, increasing net sales by more than 50%. Growth was primarily driven by the completed acquisitions, but we also see a strong underlying organic growth. That was mainly driven in Sweden, where we see a strong demand. EBITDA increased to 64 million, and that's a growth of 22%. So it's a solid growth. However, as expected, margins are still seeing a dilution effect from the completed acquisitions.

9:12 As already commented on, we see a significant potential to gradually improve the margins by systematically realizing synergies and strengthening the operational efficiency through the etiquette way of doing business. And we expect to get that effect going forward. Then turning to communication. Communication continued to perform steadily and has done so for many quarters, delivering a good third quarter. Despite the continued growth that we see, we see a cautious and somewhat hesitant telecom market. We've had that for quite some time.

9:58 But we are compensating that with sales to other areas within what we call critical infrastructure. And that are areas such as surveillance, defense, electrification. The ABT margin was in line with last year, so very much in line with what we expected. We do see communication now being a platform well positioned for also acquisition driven growth. Then I believe we have, yes, Coraventa. Coroventa increased its sales by 44% and much of that of course is driven by the acquisition of Tromex that we completed in the beginning of the third quarter.

10:50 However, we do also see organic growth in Coroventa and that is mainly driven actually by Tromex, which has developed quite well since the acquisition. The EBITDA margin also improved compared to the same quarter last year with almost 3 percentage points and that is mainly because Tromex is strengthening the overall margin profile. I think one important aspect of the Tromics acquisition is that it reduces the weather dependency in this platform. So Coroventa will still experience a very dry dry weather. We haven't had any flooding effects in Coraventa.

11:43 That mainly explains the growth profile that we've seen in Q3 in Coraventa. But with adding Tramex, which is much less weather dependent, we still see an organic growth, which is very positive for us. We also have a new CEO now in place since the beginning of actually this week, Christian Engvall, which has joined that platform. Then we'll get over to St. Eric's. St. Eric's net sales amounted to 290 million and that's a decrease of 9% compared to the same period last year. The decline reflects the deliberate shift away from less profitable product segments, but it's also an effect of that we're acting in a weak part of the construction market.

12:44 And as I've said before, Scytherix is late cyclical when it comes to the construction market, so we're still seeing a weak market there. As also in previous quarter, we're seeing a stable development in the infrastructure segment, and that benefits from a stronger civil engineering market, while actually the water and wastewater segment in this quarter has been a bit weaker, and that's mainly because of the lack of major projects. Despite lower net sales, Sanctieris Group maintained the EBITDA margin for the quarter at the same level as last year. And that shows that the cost adjustments that we've done are now showing effect.

13:32 We took some restructuring costs in Q2, and we now see the effects of these, starting to see the effects of these. Also, it shows the effects of that we've now increased the production rates again in Sankt Eriks and they are now more in line with the existing demands. The last quarters we have released significant cash flows from Sankt Eriks through lower production rates which have dampened the earnings but created good cash flows. Now we're back on track with regards to balancing cash flow and earnings. Key priorities for 2026 are still on focusing on profitability, focusing on improving earnings, and that is done by continuing to do the structural changes within what we call the infrastructure by the construction segment, improve the production mix, and very much focusing on capturing the volumes that are out there on the market.

14:36 Tornum net sales decreased 17% compared to the same quarter previous year. That decline is mainly attributable to the Lantmannen project, which we have not been able to fully offset with new volumes. So we are now completely done with regards to invoicing or revenue recognition in Lantmannen. and we meet in quarters where we had quite much of that last year. The business continues to face challenging market conditions characterized by lower grain and pulp prices. We have high fertilizer and diesel prices, so that are dampening the willingness to invest and I would rather say that the investment need remains, but we see a delay and we see that delay also in terms in both short term.

15:37 The key priorities that we have right now is really to deliver on the order book that we have, but also to capture new volumes. So it's very much of a sales focus. And then it's to continue working with the execution and operational efficiency measures that we already initiated. So that was that about the platforms. Now I'm going to spend a few words on acquisitions. So as already mentioned, we've done three add-on acquisitions in 2026 and they are adding an annual sales of 575 millions.

16:24 And we've done two in Etiquetto and one in Corventa. That is an acquisition pace that I'm satisfied with. So that will help us drive growth in line with our financial target. We are focusing on add-on acquisitions, and as you can see on this slide, we've done add-on acquisitions now to all of our platforms, Coroventa being the last one, which actually done now an add-on acquisition this quarter. We're currently focusing on Etichetto Communication and Coroventa with regards to add-on, while St. Eriks and Turnum are more focused on profitability measures. We have a good pipeline. I'm happy with that.

17:10 And what we're now doing is that we're balancing that pipeline with the leverage and the net activity ratio that we've seen. We used to do that. We've done that now the last couple of years. And I think we have been able to show that we are successful in keeping the acquisition rate going. To summarize, net sales driven by Etichetto, Coroventa and communication and where we see a good organic growth and we also see that we have effects from the acquisitions that we've done to Etichetto and Coroventa.

17:56 EBITDA reported, we see a decline, but we have the items affecting comparability. And if you adjust for that, we have a 50% growth in the underlying earnings. We still see lower earnings in St. Eriksson Tunum, where we are focusing on improvement initiatives. And I would say that we are starting to see effects from these already in this quarter. As Charlotta mentioned, it's extremely important for us to have the operational cash flow. That is what enables us to continue making acquisitions and invest in that. And these are still on a good level. So 93% cash conversion the last 12 months.

18:44 So I think with that, we leave for any potential questions from the audience. Thank you for that presentation. We will now open up for our Q&A session. And as stated before, you're welcome to submit questions using the form located to the right of the webcast. And if you're calling in and want to ask a question, please press star 9 to raise your hand and star 6 to unmute your line when you've been handed the word. The first question. Reported EBITDA declined by 23% despite revenue growth of 12%. What were the main drivers behind the decline?

19:21 Yes, I think that's a valid question. And as we highlighted, the main reason for that is the items affecting comparability, which are all M&A related and value creation related. and which will also enable cost savings going forward. So if you adjust for those, we're actually strengthening the margins, the underlying margins in this quarter. So I think adjusting for those, the profile is that we're growing net sales with 12% and EBITDA with 15%, which means that we see a margin improvement. Thank you for that answer.

20:07 Moving on, both Tornum and Sanctiarix Group continue to face weak demand. Are you seeing any early signs of a market recovery heading into 2027?

20:19 I think we are not expecting the end markets to drastically shift with regards to neither of those two platforms. What we are acting upon right now is to make sure that we are profitable enough in the market that we're experiencing right now. Then, talking about the long-term outlook, we believe that the investment need is there both in sectarics and markets and in tunums and markets, but we're not expecting any dramatic short-term shifts with regards to the external circumstances. Yes, moving on. Net debt to adjusted EBITDA reached 3.1x, which is above your target range.

21:13 How does this affect your acquisition strategy going forward?

21:18 It's an extremely valid question that as well. So I think I've said, actually, it's probably now the last two years or so when we've been in the very upper range of where our financial goal, we should be between two and three times and we have been now in the upper range, close to three. I also said that we might end up in a situation where we're individual quarters actually exceed that financial targets slightly. What is important for us is that when we exceed that, it's because of that we've deliberately taken the decisions to act on acquisitions opportunities that we have. So I think, you know, I'm fully confident that, you know, we have the operational cash flow. That's where we want it to be. And then we've done two acquisitions in this quarter, both Tromex and Nikkei Teketten.

22:10 That brings us up to 3.1. Now we have a seasonally strong Q4 in front of us, which I... and confident will take the leverage down and that will create room for acquisitions again. But again, it's very similar to what we've been acting, you know, we've been having these kind of circumstances now for the last two years or so. Thank you. And finally, about Etiketto's EBITDA margin that declined from 18% to 14%. When do you expect acquisition synergies to have a meaningful impact on margins?

22:51 No, it's hard for us to predict. And actually, if you draw a longer line on that, we were up in excess of 20%, which is the margins that the core of Etiquette do actually operate under. And then we've had now three acquisitions. Two of them are quite significant, which have diluted over a margin. And we still have kind of one quarter, I would say, Q4, where we will see Intercat, the effect of Intercat rolling into the numbers. But then to meet that, we have the synergies and the operational efficiency measures that we're working with.

23:40 And I think I spent some time today to talk about the measures that we've taken in Germany as an example. From those measures, we will start seeing an effect in the beginning of 2027. So that's an example of where we will see effects which will improve the margins. We are taking these kind of actions all the time and the margin trend will turn once we see the effects of that. Yes, that was the final question for today, so we will now conclude today's conference call. I would like to extend my sincere thanks to Andreas and Charlotte for the presentation, as well as to everyone who submitted questions and joined today's webcast.

24:27 I wish you all a pleasant day.

24:30 Thank you very much.