Volati Annual report 2019

2019This annual report has been prepared in Swedish and translated into English. In the event of any discrepancies between the Swedish original and the translation, the Swedish shall have precedence.Administration Report �� 50 Sustainability Report �� 54 Risks and uncertainties �� 61 Corporate Governance Report �� 64 Financial Statements – Group �� 84 Notes – Group �� 88 Financial Statements – Parent Company �� 144 Notes – Parent Company ��148 Audit Report �� 154 8 Volati’s business model and ﬁnancial targets 16 Comments from the Chairman 32 Volati’s business areas 44 Share information Volati’s model for long-term value creation 20 2 Volati in 2019 4 Comments from the CEO contents Annual Report 1 Volati in 2019 Volati is a Swedish industrial group that acquires and develops well-managed companies with a focus on long-term value creation. We primarily own Nordic companies, predominantly in Sweden. four business areas tradingconsumerindustry akademi- bokhandeln 2,100 16 countriesemployees 12 business units 2Key ﬁgures 20192018201720162015 Net sales, SEK million6,8336,0844,3563,2062,188 EBITDA, SEK million909552459385275 EBITA, SEK million513433377318227 Organic EBITA growth, %40–1828–20 EBIT, SEK million130366345301214 Net debt, SEK million907949619–264756 Adjusted EBITDA604573511421333 Net debt/adjusted EBITDA, x 1.51.71.2–0.62.3 Cash conversion, %83861128994 Earnings per ordinary share, SEK0.132.582.192.071.37 Equity per ordinary share, SEK 19.2921.6319.1117.785.51 Return on adjusted equity, %1513122543 Ordinary shares outstanding79,406,57180,406,57180,406,57180,406,57140,400,000 Preference shares outstanding1,603,7741,603,7741,603,7741,603,7741,603,774 Average number of employees2,1362,1571,7501,122908 Dividend per ordinary share, SEK– 1) 1.000.500.50– • Net sales increased by 12 percent to SEK 6,833 (6,084) million. • Operating proﬁt (EBITA) increased by 18 percent to SEK 513 (433) million. • Operating cash ﬂow amounted to SEK 523 (475) million. • Volati completed four acquisitions in 2019, all of which were value- adding add-on acquisitions to existing operations. • The Board of Directors proposes that no dividend be paid to ordinary shareholders, and that the preference share dividend be paid in accordance with the Company’s articles of association. EBITA by business area Net sales by business area Trading, SEK 2,138 m Consumer, SEK 895 m Trading, SEK 176 m Consumer, SEK 108 m The distribution by business area is not calculated proforma for the year’s acquisitions. Acquired companies are therefore only included in the above calculation from the acquisition closing date. The business areas’ shares are calculated excluding central costs. Divested operations are included in the relevant business area up to the divestment date. 1) Proposed by the Board of Directors Akademibokhandeln, SEK 1,793 m Industry, SEK 2,008 m Akademibokhandeln, SEK 71 m Industry, SEK 167 m 34% 21% 32% 13% 31% 13% 30% 26% 3 Volati in 2019In 2019, we continued to develop Volati, with growth in both sales and earnings as a result. A more decentralised acquisition process has brought a strong inﬂow of acquisition candidates from the business area organisation, which has resulted in several exciting add-on acquisitions with increasingly clear synergies. 4Continuing growth in 2019 Acquisition of good companies is one of the pillars of our business model and a prereq- uisite for maintaining a high growth rate for Volati. Our ambition has been to give the business areas and business units the right conditions to systematically identify poten- tial acquisition opportunities as part of the work towards achieving their strategic goals. We now see results of this in the form of a strong pipeline of potential acquisitions from our business area organisation. When making add-on acquisitions, Volati is even more of an industrial buyer. The acquisitions are conducted on the basis of a clear industrial logic. This contributes to lower risk in connection with the acquisi- tions, and synergies become a natural way of creating increased value in the businesses. Creating strong platforms Three of five add-on acquisitions in 2019 and early 2020 were in the Trading business area. The business area currently acts as a group of companies which have a clear industrial logic between them. This is reinforced by the business area’s strong platform for common systems, including logistics, IT and finance. This means, among other things, that we can identify synergies when making acquisitions in the business area. It also means that the Trading business area is perceived as a natural and competent owner of companies, notably in hardware and building products, which strengthens our position in the acquisition market. Development of the Trading business area is reflective of our ambition to create strong platforms within our business areas that can be expanded through continued add-on acquisitions. Another example of this is the S:t Eriks business unit in the Industry business area. We have made major changes within the business unit during the year to create a strong platform. This gives us good conditions to grow the business unit in the next few years and we have already made one add-on acquisition in 2019. Sales and earnings We continued to build a stronger Volati during 2019. Sales and earnings for 2019 increased as a result of both acquisitions and organic growth. Net sales increased by 12 percent to SEK 6,833 million. EBITA increased by 18 percent to SEK 513 million. Organic EBITA growth was 4 percent. Earnings per ordinary share increased to SEK 3.12 per share, adjusted for our Q3 write-down of intangible assets related to the Consumer business area. Business area development Development in the Trading business area continued to be very good. In view of the challenges the business area has faced throughout the year in terms of a weak 5 Comments from the CEOSwedish krona, I see the result as clear evidence of the strength of the operations. The Akademibokhandeln business area developed very positively during the first nine months of the year. It is pleasing that we were able to see such fine results from the hard work done throughout the organi- sation to improve both the customer offer- ing and profitability. One example is that the e-commerce channel Bokus increased its sales volume while improving margins during most of the year. It was therefore a real fly in the ointment when Bokus was hit by temporary delivery problems just before the Christmas trading period. During the year, the company changed its logistics management with its 3PL supplier to give customers even faster delivery times. However, the change did not go according to plan, which affected deliveries during the Christmas trading. The result was reduced sales volumes and increased costs related to customer service staffing, which had a significant impact on the Q4 and full year “Each year, Volati delivers a strong cash ﬂow, which enables us to continue to develop the Company through new acquisitions and to invest in our existing operations.” Comments from the CEO 6results. The business area has worked intensively to deal with the delivery problems, which will gradually subside. Apart from these temporary problems, we are satisfied with the development in the business area. Within the Consumer business area, the inspection business accounts for a signifi- cant part of the business area’s sales and earnings. Now that the market has adapted to the changed regulations, with extended inspection intervals, we see that our market position and profitability remain strong. During the year we also changed our owner- ship of me&i. It is Volati’s ambition to be a long-term owner of the companies we invest in. However, in some cases we do not see ourselves as the best owner for a company and we believe that me&i has better condi- tions for successful development in a different ownership configuration. We are also achieving good results in the Industry business area, although our expectations were at a higher level. Some operations in the business area are affected by fluctuations in demand due to project sales and by weather-related fluctuations. These fluctuations in demand have had a negative impact on earnings for the full year. As I mentioned earlier, it has been a year of major changes in S:t Eriks, which was acquired in 2018. We have implemented significant and successful efficiency meas- ures, mainly in production, and have appointed a new CEO and management team, thereby laying the foundation for a business with good development potential. Signiﬁcant acquisition scope Each year, Volati delivers a strong cash flow, which enables us to continue to develop the Company through new acquisitions and to invest in our existing operations. Operating cash flow during 2019 was SEK 523 million. The strong cash flow and earnings, which are seasonally highest during the fourth quarter, mean that we enter 2020 with a strong financial position. The net debt/ EBITDA ratio was 1.5x. In other words, we have significant acquisition scope when building Volati further. New ﬁnancial targets After the end of the year, the Board adopted new financial targets for Volati, which were communicated in connection with the year- end report for 2019. The overall objective is still to generate long-term value growth by building an industrial group of profitable companies with solid cash flows and capacity for continuous development. The new targets do not involve any strategic change of direction for Volati. However, they reflect the Board’s continued expectations of growth, both through acquisitions and organic growth, while maintaining a strong balance sheet and discipline in connection with acquisitions. Well placed to develop Volati With a strong financial position, an efficient business area organisation and an enhanced work process for add-on acquisitions, we are well placed to develop Volati in line with our ambition – to continue to grow the company at a high rate, with a strong focus on creating long-term value for our shareholders. mårten andersson , ceo volati Stockholm, March 2020 7 Comments from the CEONext >