Volati Interim Report January-September 2022.

Quarter July–September 2022

Comments from Volati’s CEO
Volati reported an EBITA in line with the previous year’s strong Q3. Sales increased by 17 percent compared with the previous year, with all business areas contributing positively to the growth. The Ettiketto Group and Industry business areas showed stable margin development, while Salix Group faced a weaker market, particularly in the consumer-oriented parts of the business.

Ettiketto Group new business area
Ettiketto Group has expanded to such an extent that it was established as a Volati business area during the quarter. This is in line with our strategy to build strong platforms for acquisition-driven growth, which over time can become natural business areas with a clear industrial logic. This is a model that reduces complexity and frees up resources for us as a Group, creating the conditions for continuing growth. It also increases the transparency of reporting and makes visible the values in Ettiketto Group.

Ettiketto Group has developed well since the acquisition in 2011 and is an example of how we develop platforms together with management. Ettiketto Group has very high operational efficiency and good profitability. Over the years, the company has prepared for expansion, including the establishment of governance and systems to facilitate the integration of add-on acquisitions. Since 2020, the company has made five add-on acquisitions. As operational efficiency improves in the acquired companies, margins in the Group strengthen. Acquired growth, together with good organic growth, has resulted in annual sales increasing from approximately SEK 250 million at the beginning of 2020 to approximately SEK 830 million for Q3 2022 (rolling 12 months).

In its first quarter as a business area, Ettiketto Group increased its sales by 25 percent and its earnings by 20 percent. The market has been strong, partly due to pent-up customer demand as a result of a strike in Finland earlier in the year. We expect the market to normalise in the coming quarters as this pent-up demand is worked off. As expected, the margin trend has been slightly negative in the quarter compared with the previous year, which is due to the fact that Ettiketto Group has acquired companies with a lower margin than the Group as a whole. Over time, the company’s margins are expected to strengthen as the acquisitions are integrated and synergies are realised.

Industry increased its sales by 28 percent and earnings by 16 percent. The improvement is despite high comparative figures from the previous year, when Corroventa had an exceptionally strong Q3 due to extensive flooding in Europe. Lower demand at Corroventa is mainly compensated by strong growth in the new platform consisting of Scanmast and Mafi. The margin was in line with expectations, as we successfully met the high margin sales of the previous year in Corroventa with good results in other businesses.

Salix Group
Salix Group increased its sales by 5 percent during the quarter. The majority of Salix’s business targets the professional and industrial segments, which continue to show good demand. The consumer-oriented parts are seeing a clear slowdown in demand. Margins have been negatively affected by the decline in demand and factors such as high freight costs, high material prices and a weak krona.Salix continues to actively address these challenges through disciplined work on customer communication, pricing, cost control and a focus on growth.

Balance sheet and cash flows
During the quarter, we continued to work on freeing up working capital. Our capital commitment is higher than desirable but we are starting to see positive effects of our measures, which are expected to contribute to improved cash flows in the coming quarters. Volati has a strong balance sheet with a net debt/adjusted EBITDA ratio of 2.2 times at the end of the quarter.

During the last twelve months, we have completed seven acquisitions, adding approximately SEK 1 billion in annual sales with good profitability and significant synergies. We continue to see good acquisition opportunities, in particular value-creating add-on acquisitions for our platforms. Our model is based on primarily reinvesting our own cash flows in acquisitions and not relying on new external equity. As a long-term and industrial owner, we want to continue to grow through acquisitions, although in these times we are keeping an extra eye on cash flow and debt.

Well prepared going forward
Our decentralised governance model and well diversified operations enable us to respond to changing market conditions. We are well prepared to face different market scenarios and we grow primarily through our own efforts with strong cash flows. We therefore feel confident that our business model can create long-term value even in a weaker economy.

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