ITAB Group AB (publ) (ITAB) Earnings Call Transcript

Welcome to ITAB Group Q2 Report 2026 Presentation. [Operator Instructions] Now I will hand the conference over to the speakers, President and CEO, Bjorn Borgman; and CFO, Andreas Helmersson. Please go ahead.

Good morning, everyone. Thank you for joining, and welcome to this Q2 call. We will color a little bit outside of the lines today since this is my first quarter. We will start with a short introduction and then my take on Q2. I will then leave for our CFO, Andreas, to give more context. This will clearly be the meaty part of the presentation. And then we're going to wrap up with a short summary of the first impressions and priority going forward after being with the business for the first 2 months. But let's get this show on the road. Introduction. Why did I get the Board's confidence to lead the ITAB Group? This is at least my take. I'm coming from a similar role with HL Display. I've been with that business for 11 years, the last 6 as CEO. The HL business is very similar to ITAB when it comes to its customer base, the geographies and also the business model running. So a lot of things for me are very similar in ITAB as they were in HL. The track record in HL was strong. We delivered the last 8 years was consecutive years with profit growth. And then we've had a successful acquisition journey as well, of 12 add-on acquisitions. So I think that mirrors quite well what ITAB was looking for. Before this, I spent 12 years with a company called Reckitt within the FMCG business. So delivering things to grocery retailers primarily in Europe and North America. So in total, 23 years of grocery retail experience, which is a core business for ITAB. So I think this gives a little bit of background to why I'm here talking to you today. But let's focus on what we have in front of us. Q2, quarter of stability. probably a small step forward versus both last year and Q1. Looking at the earnings, in line with last year, some strong development in Nordics. France, good from a low base last year and also U.S. good from a low base in general, but a few shining stars, more challenging business in Italy, U.K. and of course, Middle East from a macro perspective. When it comes to EBITA profitability, slight steps forward versus last year, both on EBITDA and profitability. Synergy realization from the HMY acquisition is generally on track, and I'm quite confident that we will deliver on the synergies we set out to deliver. That is partly offset though by a little bit of volume decline and price adjustment delay. So clearly, we had input price increases in the first half of the year and the delay between getting the price adjustment from our suppliers and reflecting to our customers, we see now both in Q2, and we're going to see it partly in Q3 as well. But both from a top line perspective and a profitability perspective, this breaks a little bit the negative rolling 12 trend we have. So we are cautiously happy with that. Looking at the cash flow, this looks to be challenging, but this is really driven by the change in sales volume between Q1 and Q2 this year. On top of that, we had a fairly back-heavy Q2, which reflects exactly this cash flow difference. So looking at working capital, it's in line where we were last year. So not so much drama as it might look like on that aspect. So that's really the fly into the quarter. I'm going to leave for our CFO, Andreas, to try to put some more meat on the bones here. Andreas, take it away.

Thanks, Bjorn. Good morning, everyone. And finally, I have to say, HMY acquisition is now fully annualized, and we are only using [pro forma] numbers when going back to Q1 2025 or earlier in our historic comparisons. Zooming in on Q2, we do see stable sales and profit development, as mentioned. Adjusted EBITDA in Q2 at SEK 180 million relative to SEK 175 million in Q2 last year. Despite sales being down versus last year, and we experienced some cost inflation on the market, we have managed to sustain margins due to synergy execution. Net profit is significantly up from SEK 21 million last year to SEK 61 million this year, driven by lower restructuring costs, lower financial expenses and more optimized tax rate. Net debt has been lowered by SEK 553 million since last year, but is up since Q1, driven by higher sales impacting accounts receivables and working capital negatively, as mentioned by Bjorn. Looking at the quarterly development over time, sales in Q2 was stable and sales has been stable with Q1 as the exception impacting our rolling 12 figures. Although a majority of this effect and the decline in rolling 12 is related to currency and especially Euro impact versus SEK. Gross margin has improved slightly in Q2 and also EBITA margin despite the recent cost increases and lower volume into our factories. Net sales by customer group in Q2 adjusted for currency shows strength in our core segments, grocery and Home Improvement. And this is a trend that is also confirmed when looking at market and retail statistics. Grocery is normally more stable and holding up better in times of market uncertainty. And we do see the U.S.-Iran conflict still causing some uncertainty in the market on cost inflation, but also from an economic outlook perspective, causing project commitments to be delayed. At the same time, efficiency in loss prevention solutions are driving growth in pockets for us, and we see strong interest into our offerings in both [guides] and gates and self-checkouts, where we see that our pipeline of opportunities in cross-selling these solutions to legacy HMY is also growing. We continue to see a mixed development in sales across our key markets. Northern Europe with especially Nordics, sustained its strong performance from Q1. Southern Europe is now also up in Q2, which is great to see. Very strong developments from key markets such as Spain and France, despite Italy remaining negative across most customer groups, although we did see some positive signals end of Q2. The French market is more due to local dynamics in the grocery market, where we've been able to capitalize on this due to local production capacity and customer relations, while Spain is more driven by recent wins in specialty retail, but also that key customers in the grocery segment are investing. U.K., which is down, is a market where we're exposed to project fluctuations a bit more than other regions and some of our key projects on this market has been pushed into Q3 and Q4. Looking at our EBITDA bridge quarter-on-quarter, we see that sales volume is impacting slightly negative that procurement synergies are mitigating recent cost increases on freight, energy and select categories such as powder and SG&A synergies are pushing back labor inflation and having a positive impact on profit. Next wave of SG&A synergies are planned for execution during Q3 and Q4 later this year. We expect to see a larger impact from margin mix onwards as some of the input cost inflation we have seen has not been possible to handle internally through rerouting or efficiencies and will result in price increases starting to have effect in Q3. Our operating cash flow for Q2 came in at minus SEK 112 million, while rolling 12 is positive at SEK 914 million. This is impacted negatively in the quarter by working capital development and especially accounts receivable due to a sales increase of SEK 272 million between Q1 and Q2. No growth in overdues. It's more similar to the seasonal pattern we normally see in this business. Although we expect working capital to be higher in Q2 and Q3 due to the seasonal pattern, we see that the strength of our new group will help us to maintain a higher capital efficiency over time through procurement power, financial market attractiveness and consolidation of inventory and supply chains. Net debt now at SEK 2.4 billion, down SEK 553 million since last year, but up from last quarter driven by working capital increase of [SEK 340] million, as just mentioned. In Q2, we estimate that we are circa 50% into the execution of our synergy program. The total synergy potential remains where we have communicated EUR 30 million per year on an annualized basis with full effect in 2027. Synergies come EUR 20 million from cost efficiency and EUR 10 million from commercial synergies. We have planned for the next wave of our SG&A and cost savings initiative to take effect during Q3 and Q4, further lowering our cost base in front of 2027. And the commercial pipeline for cross-selling has also gained traction, where we see that order levels are growing in line with expectation for Q3 and Q4. And with that, I hand over to Bjorn.

Thank you, Andreas. And I think the last thing you elaborated on that the order book for cross-selling synergies looks really strong for the back end of the year. And I think that's reassuring on the sales synergy side. If we step into a little bit of reflection on my first 2 months with the business, a few things. Clearly, stepping into these kind of roles is always intense. It's been a very intense onboarding, visiting all the major sites in Europe, meeting employees, customers and visiting more than 200 stores together with our teams and together with customers. So really good base to understand the business. What is reassuring with what I find here, really engaged experienced team across the group, an impressive local customer focus, and I think this is one of the key strengths of the group. Long customer relationships and great reviews from our key customers when I meet them. So this we should be reassured about. Also, the strong and future-proof strategic position, I think, is really -- gives me a lot of confidence. There are 2 pillars here of our strategic position, I would like to stress. First one, and this is building on the legacy ITAB strength: leading shop fitter with position of strength in retail tech to support stable grocery market. And there are a few things here that are important. Leading shop fitter from a size perspective, we are the biggest shop fitter in this space. From a position of strength, having a position of strength in retail tech and loss prevention is really important because in the future, grocery stores will contain more tech and loss prevention will continue to be -- or will increase as an investment area for grocery retailers. And then the grocery market to conclude, this is a stable market, growing in line with GDP. So to have this position is really, really good from a business perspective. Secondly, coming in to a large extent through the HMY acquisition, we have a unique market coverage and design capabilities to support what I call here branded specialty retailers. Examples like Ralph Lauren, Pandora, Victoria's Secret, retailers with few stores per market running global execution. So clearly, these customers want to have international concept and design support and then local project management and installation delivery. And here, the new ITAB Group can offer this like no one else in the market. Competition here is usually local or fragmented. So this is a strategic pillar that we, thanks to the HMY acquisition, will continue to build into the future. So I think here, we should be really happy. Looking at opportunities, there are significant opportunities to be better together as a group. We have local suboptimization in this business. Many of our markets are run to a large extent in isolation. And clearly, this leads then to higher cost, but also low utilization given the project nature of the business we have. So big opportunities to bring this together by lowering our cost base and creating a more flexible cost structure to be able to support this fluctuating business much better. And then what I see when I've been out in the market that there is a potential to increase our focus on profitability and capital efficiency. We have quite a lot of volume focus locally to fill our local factories. And if we can decouple this, you can also make much better decisions and have much better focus on profitability and capital efficiency. So that's a little bit of the learnings I have for the first 2 months. Where does this leave us in the midterm and going into the second half of the year? Clearly, from a group perspective, we will have focus on profitability ahead of growth. This is across both the commercial operation, our supply chain and also on a group level. There are selective things we need to do in all these pieces to address profitability in a stronger way. And then I think linked to that, we need to lower the cost structure to mitigate this project fluctuation I spoke about, which will also give us the opportunity to challenge low profitability business we have in pockets in the group. If we do this at the same time as we leverage the mix effect in line with our position of strength and strategy to develop retail tech loss credentials and service offer, which we need to drive hard. This will also strengthen our profitability. And lastly, to continue to have laser focus on delivering the EUR 30 million of synergies from the acquisition. This should get us in the midterm close to our targeted 7% to 9% EBIT margin. So that's the focus from a midterm perspective. Clearly, as we do this, we need to continue with balanced investments to further strengthen our leading positions in retail tech and the global specialty retailers. So that's a little bit of an overview of the focus we have when we go into the fall and start to plan for 2027. But I'm going to wrap up here. Thank you for your attention. And I think from here, we go to questions.

[Operator Instructions] The next question comes from Erik Sandstedt from Kepler Cheuvreux.

Hi, I'm Erik Sandstedt with Kepler. Thanks for a very good and informative presentation. A few questions from my side. First, Bjorn, you mentioned that you're emphasizing profitable customer projects in your prepared remarks here. And I know you elaborated on it, but where do you see perhaps the biggest sort of upside over the coming 1 to 2 years? Is it -- should we think about it as a further penetration of retail technology? Or is it a stronger service offering, a more selective approach to bidding for projects or anything else? I'm just a bit interesting to hear more about that.

No. But I think we have a lot of capacity -- production capacity across the group. We are working hard to fill this capacity. And by doing that, we get into small fragmented projects that is not very profitable and adds a lot of complexity into our business. If we can manage our cost structure in a different way, this would allow us either to win some of these projects at better profitability or choose to run other projects and, exactly as you say, grow within retail tech and loss prevention, which is our strategic focus.

Great. And then you mentioned in the report that you see potential for more synergies rather than fewer relating to the HMY acquisition. Where would that come from?

Yes, I think we spoke a little bit about the commercial synergies today that we see that the outlook for half 2 when it comes to cross-selling looks promising. But then I think it's also natural when you make an acquisition like this that you put synergy targets upfront. But then now we are almost 1.5 years into this, we learned a lot of things. And clearly, there is -- there will, over time, be more synergies identified as well, but we are not at that stage yet.

Understood. And a follow-up on that, and this is subject to me understanding your comments correctly here. But you mentioned that the order book for cross-selling opportunities in the second half looks quite promising. At the same time, you talk about customers remaining in a bit of a wait-and-see mode given the geopolitical backdrop. -- How should I reconcile those 2 comments? Is the cross-selling opportunity and specifically relating to the HMY acquisition rather than a broad-based outlook in terms of the order book?

That is correct. We wouldn't make this comment if it was -- if it had a broad impact on the business. This is connected to synergies and it's clearly the sales synergies. And what we see is that our HMY part of the business are more successful in selling the ITAB part of the assortment, we look at for them to cross-sell than we had hoped for and especially looking into the second half of the year.

Great. And then just a couple of final questions more relating to the quarter here. Also just wanted to confirm that I got it correctly. But you -- are you talking about the timing lag here between higher input costs and pricing adjustments? And if so that Q2 took more of a hit here, but you look at it more favorably for the second half of the year, i.e., the timing between pricing and inflation.

Yes. And I think we don't like this, but this is the world we live in. The timing between when we get cost increases into our business and when we're able to reflect it with our customers, there is a lag here that somewhere between 3 and 6 months. So clearly, Q2 is hit by this. We will see some effect of this also in Q3 when we come to the end of Q3, we should have reflected this across our customer base.

Perfect. And then just finally, a bit specific perhaps. But in terms of the tax rate, it remains quite high. I know we've spoken about this on earlier calls, but could you just help us how to think about the path to a normalization here?

Andreas?

Sorry, I missed your question. Was it the tax rate?

Yes. The tax rate remains quite high, and we've spoken about the path to normalization in earlier calls. Just wanted to get a recap of that.

Yes. I think, I mean, historically, we have been around 30%. And I think we are closer to that, although we know that quarter-on-quarter, we are positively impacted by some of the profits we have in countries where we've been loss-making historically and have and have tax assets. I think you should look at this optimization on tax over a sort of a 2-year period where we need to optimize our debt structure and that takes a while. You shouldn't do that too quickly and so we've taken step by step. And we're taking a big step in '26 relating to -- versus '25, which is visible in the numbers. So this is in line with our expectation and with some further improvement, which will remain for the coming sort of 18 months.

The next question comes from Karl-Johan Bonnevier from DNB Carnegie.

A couple of questions from me as well, please. Continue to do very well in the grocery segment. Is there any particular things going on there that is driving it? Or is it just a more natural, as you describe it, ongoing business with that kind of customer?

No, I think it's a strategic position of strength for the group. We have a really strong product in retail tech and loss prevention that is primarily for grocery or near grocery customers. It's -- we expect to see growth in this space ahead of growth for the group going forward as well.

I noticed in the presentation pack, you talked about the grocery retailers increasing their scope of sales post EuroShop. Maybe give us an update on what you really felt that you got out of EuroShop and how your position has maybe changed or strengthened after.

I think EuroShop was a big investment and was fantastic. I hadn't joined the business, but to see how the new ITAB Group came together and showed the leading position in the market, I think, was really impressive. When it comes to results out of EuroShop, the sales process for these things is quite long. It can be 6 months to a couple of years. So clearly, the short-term result is going to be limited. What you do is you kick off projects, then you do pilots, then you do small store testing and then you get into rollouts where you really start to see the effect. But looking at where we are, we have a little bit more than 300 active opportunities coming out of EuroShop that we are tracking currently. This is when we assess them today, this is about EUR 50 million of additional business. So clearly, there's a strong focus from the group and a hard work to convert this over the next 6 to 36 months, I would say, which is the realistic timing it takes to really get this into scale -- real scale rollouts.

Very encouraging. And when you look at those opportunities, is it what you described in the grocery segment that maybe the customers are making use of your -- looking to make use of your more and more segments rather than maybe just 1 or 2 verticals? Or is it new customers that you see behind this?

It's a little bit of both. But clearly, we have contact and business with almost every grocery customer in Europe. So it's not new business, but it's new areas in the store and especially, I think, in the checkout area where there's a lot of labor costs sitting and where a lot of the loss prevention work is done where we see significant interest. And this is clearly in line with our strategic focus as a group as well.

Excellent. I see you talk about measures for long-term profitability enhancement in U.K., Italy and Turkey in the report. So I guess, Turkey, you have talked about before, to some extent, U.K. and Italy are new to this framework. What are you targeting? And is there something we should be worried about here?

No, not at all. I think this is part of ongoing business. But clearly, as we are bringing HMY into the business and as we made acquisitions in the past, how we consolidate businesses and how we address different markets. This is ongoing work always. Right now, we have low sales performance and impacting profitability in these 2 markets, but it's not primarily linked to short, midterm actions.