Vestum’s Interim Report January-June 2023: Solid demand and improved operating cash flow

Highlights of the period April – June 2023
·        Net sales amounted to SEK 1,707 (1,632) million
·        Adjusted EBITA amounted to SEK 160 (198) million, corresponding to an adjusted EBITA margin of 9.4% (12.1%)
·        EBITA amounted to SEK 154 (190) million, corresponding to an EBITA margin of 9.0% (11.7%)
·        EBITA per share before and after dilution amounted to SEK 0.41 (0.52)
·        Operating profit (EBIT) amounted to SEK 72 (111) million
·        Cash flow from operating activities amounted to SEK 63 (62) million
·        Operating cash flow amounted to SEK 162 (123) million, corresponding to a cash conversion of 74% (50%)
 
Summarising comments by CEO Conny Ryk
Vestum generated stable net sales and improved operating cash flow during the second quarter. Operating cash flow for the quarter increased by SEK 39 million compared to the same period in the previous year, which means that Vestum´s rolling 12-month cash conversion increased sequentially between the first and second quarter from 70% to 77%. Net sales for the quarter amounted to SEK 1,707 million and EBITA amounted to SEK 154 million, corresponding to a margin of 9.0%. The quarter showed organic growth of 1%.
 
We have experienced solid demand for our services and products in general, although it has varied between the segments. Within the Infrastructure segment, volumes have been stable but with a lower margin than the previous year, driven by the fact that parts of the segment carried out individual projects with lower result. Within the Services segment, demand has generally been solid, with the exception of certain businesses with exposure to tenant-owners and indirect exposure to consumers. The segment has also been negatively impacted by provisions for doubtful accounts receivable. Within the Water segment, both demand and profitability have been solid, which was partially driven by extreme weather conditions. Whitin the Services segment, the EBITA margin amounted to 8.6% and 8.3% within the Infrastructure segment. Within the Water segment, which is relatively insensitive to the economic cycle, the EBITA margin amounted to 22.2% while the EBITA growth amounted to a strong 22%.
 
Operating cash flow amounted to SEK 162 million, which corresponds to a cash conversion rate of 74%. Efforts to optimise our working capital are continuing and we are pleased to have improved our levels of tied-up capital compared to the same period in the previous year, but there is still much work to be done. Net financial debt in relation to EBITDA increased from 2.7x to 2.9x, which is above our financial target of 2.5x, primarily driven by paid contingent considerations. We are reviewing a number of options to lower our leverage with the aim of reaching our financial target in the medium term.
 
We see increased uncertainty around the economy but we also note that the third quarter has started in roughly the same way as in the previous year. We have businesses that operate in different parts of the cycle and one of our strengths is that we have a well-diversified customer base which spreads the risk between different infrastructure segments in several markets. Our focus going forward continues to be on improving working capital efficiency and sequentially improving the EBITA margin, which for some businesses means undertaking efficiency measures.
 
The long-term need for our services and products within civic infrastructure is continually strong and we feel confident in our ability to generate stable profitable growth over time. This is my last quarterly report as CEO and I look forward to developing Vestum´s strategy further in the capacity of chairman of the board after the change of CEO on 1 November 2023, and to continue the Group´s growth journey together with the rest of the Board and Vestum´s management.
 
The Interim Report is available on Vestum’s website: https://www.vestum.se/en/ir/financial-reports/