Relais Group Oyj (RELAIS) Earnings Call Transcript

Good morning, everyone, and very welcome to Relais Group's Second Quarter 2026 take Financial Presentation. We are live from our studio here in Helsinki, this summer morning with the lovely sunny weather in Helsinki. Today, we have myself, Christian Gebauer, the Group CEO; and with me, the interim CFO, Sebastian Seppanen.

Good morning.

Before jumping into the quarter 2, I would like to make a short recap of what we presented in the Capital Markets Day back in May this year. So we are a group of specialized leading niche companies working across the vehicle aftermarket. Our business is to identify, attract and develop these specialized leading niche businesses. As you have seen in July, we acquired Tershine. Tershine is a perfect example where we are able to attract one of the most exciting brands in the vehicle aftermarket and in vehicle care in Sweden. Tobias has choose to join us because we think we have the best possibilities to support him in his ongoing journey and development of his company and that we are proud of. We work in a decentralized environment, meaning we let the management teams of the companies run their business, continue to develop their business, grow the EBITA, work on a capital-efficient way. We are there to support them. Our aim is to create the best surrounding, the best possibilities for them to continue growing and developing their business. Our focus is clear. We focus on long-term EBITDA growth, and we are very focused on making sure that we use the cash that we have in the most efficient way. We are operating today in 8 countries. The majority of the business is in the Nordics and we also have establishments in the Benelux. We operate across the three different business areas since the beginning of this year. We have the Commercial Vehicle Services, where we do service and maintenance of commercial vehicles across Sweden, Finland and Norway. We have Products and Solutions, the leading brands within the vehicle aftermarket in the Nordics and as well in Benelux. Then we have Technical Wholesale, the distribution and availability of spare parts and tools for the vehicle aftermarket customers. As we laid out in the Capital Markets Day, we are working on kind of three different steps towards 2028. We are, first of all, building the foundation very much an ongoing work during the first half of 2026, and this will continue for the rest of the year. We have also started on improving the quality of growth, focusing on organic EBITDA growth and capital efficiency. Then we're coming into the scale model, then we are ready for the next acceleration and the increased growth journey. Our financial targets are double-digit EBITDA growth over a business cycle, return on capital employed above 13%. And then when it comes to dividend, it's 30% of fully diluted earnings per share. So let's dig into the second quarter. We had a strong cash generation, and we are continuing to focus on improving our returns. What went well in the quarter, we had a 33% net sales growth, and we are happy to post a 4% organic growth, continuing the organic growth journey in the group from also the Q1 to Q2. We had a strong cash flow in the quarter, EUR 6.8 million cash flow from operations Actually, in the first half of the year, we had a record cash flow from operations in the group. We never had such high cash flow from operations in the group before. And this quarter, we posted almost 100% cash conversion. As you've seen in the report, we had especially three items that impacted the profitability significantly in this quarter. First of all, we had a EUR 1.2 million swing year-over-year, related to the expected credit loss provisions. This is primarily hitting to the technical wholesale business area and you will get a more detailed explanation about the dynamics behind that in Sebastian's section of the presentation. Then we are also doing investments for the future. We are investing in growth opportunities in the Technical Wholesale business area -- or in three of our companies, we have established new locations. We have a better reach for our customers. We provide a better service for our customers. Of course, these establishments comes initially with 100% of the cost with personnel and the facilities and the logistics and everything that comes around it. And then the volume is week after week increasing as the customers get to know our new facilities and change the habit to do the purchase from our facilities. So this is initially harming the margin, but in the long term, going to be a big contributor. And then we had the relocation of the workshop in -- outside of Helsinki and Raskone. This is one of Europe's largest workshops for commercial vehicles. It has been very well received by the customers. We have been able to increase the throughput and efficiency in the workshop. But of course, it came with some downtime, and that is also putting a weight on the margin and the profitability in the quarter. Coming to the outlook, it's very clear for us what are our priorities for the rest of this year. We are continuing to focus on converting the growth that we have on top line to profitability and a stronger return for our shareholders. Looking into the net sales, we had 33% net sales growth in the quarter. And out of that, 4% was organic growth. We had organic growth in two out of the three business areas in Production Solutions. We had a good organic growth driven especially by Strands there is continuing to perform very well. We also had organic growth in the Technical Wholesale business area to a large extent driven by the establishment of the new facilities. In Commercial Vehicle Services, we had a slight decline of the organic growth related to the Raskone relocation and one of the workshops in Sweden that posted a lower sales in the quarter. But overall, we see a good demand for our products across the business areas. Then coming into the profitability and we had, despite the headwinds, the 6% growth of EBITDA in the quarter in absolute figures. It comes from, of course, acquisitions that we have done, but also in Products and Solutions, we have a strong profitability and growth of adjusted EBITDA in Strands. And in Commercial Vehicle Services, we are happy to conclude that the focus that we have had and the actions in the Swedish operations is starting to pay off, and we see that the profitability is increasing in that entity as well. Then the negative drivers, I already talked about them briefly, but we have the swing of the expected credit losses that put a burden on this quarter by EUR 600,000 and was putting a positive effect last year in the quarter of EUR 600,000 in total, EUR 1.2 million swing effect that disturbs the comparability. We had a gross investments in Technical Wholesale and Raskone relocation. We introduced in the beginning of this year, the new segment. This has served us well. We appreciate that you at the market get a better transparency on what's going on in our businesses. We have a better and clear structure in terms of accountability, who is running what and how are we structuring and following up the group. And finally, when it comes to capital allocation, we can do more precise capital allocation when we have this segment split. Coming into the business areas then. Starting off with Commercial Vehicle Services, we saw strong growth in the quarter 46%. This is -- it's driven by the acquisitions that we did last year, Team Verkstad, Wetteri workshops, TD Food and Service and Landstroms Bygg & Plat in Sweden. We conclude that the demand across the three markets, Sweden, Norway and Finland where we're operating in this business area is stable. We saw a slight net sales decline organically that we talked about in the previous slide. So we are showing a 14% increase in the EBITA in the quarter. A positive effect is the improvement in Sweden, where we can see now that the margin is improving. Still, we are on a journey and we have more potential in Sweden, but it's encouraging to see that we are on the right track. Then we had the negative effect of the relocation of Raskone. But also the consolidated Team Verkstad Norway last year only from June, meaning only June came into the quarter last year. Unit is actually the best-performing months in the second quarter. This year, we took in the whole quarter, obviously, and April and May is kind of taking down the margin for the quarter as a total, and that is impacting the comparability between this year and last year. Products and Solutions continues to perform well. You can see 112% top line growth, driven by the acquisitions of Matro and QPax but also Strands Group that is performing very well in a still challenging market. EBITDA is also following the top line growth with 103% improvement driven by the acquisitions, obviously, but also by the strengthening profitability in Strands Group. We got in Matro and QPax in this quarter and as you know, from the acquisitions, those are coming in with a margin below -- slightly below 20%, and we are working on the product mixes and with these companies to bring them above 20%. But as a total, they put at least initially a downward pressure on the margin for the business area. Finally, Technical Wholesale, you see good growth of 18%. A big part of that is organic growth, driven by the organic investments that we have done. Coming to the adjusted EBITDA, of course, it's a disappointment to see minus 17%. But when you read that figure, you need to be aware about the expected credit loss provisions that is significantly impacting the comparability between this quarter and the last year's second quarter for the business area. We had the growth investments that are investments for the future. And Also, I would like to mention that towards the end of the quarter, we saw early signs of increased price competition in the Finnish market. Tershine, I would say that this is the proof point that our model is working. Tobias has been -- Tobias' team, they have been developing a star within vehicle care in the Swedish market, very strong brand loyalty, very, very loyal and supportive customers. In this process, Tobias had many buyers to choose from, he selected us. He selected us because he thinks that we are the ones partnering up with him can help him take the company to the next level, do the international growth that we have done in other businesses and that Tobias would like to learn from. So we are really proud of welcoming such excellent business into our group and especially into the Products and Solutions business area. The acquisition pace that was very high last year has continued to be on a, I would say, rather high pace in the first half of 2026 with these acquisitions done in the last 12 months. And with that, I would like to hand over to Sebastian for the financial slides.

Thank you, Christian. Good. Let's start with some details on the adjusted EBITDA margin in the quarter-on-quarter bridge. So last year in Q2, we had an adjusted EBITDA margin of 9.1%. And this year, 7.3%. So actually what Christian was talking about, this change in expected credit loss provisions, this had a noncash impact in the margin of 1.3 percentage points. So that's actually the biggest explanation in this margin gap. Then we had a minus 0.3 percentage points from -- as a result of acquisitions, and that's mainly due to the business mix of the acquired companies. We have a further minus 0.3 percentage points from a couple of factors. So positively impacted by organic growth in several group companies. And then we have a negative impact from the organic growth investments that Christian was talking about. Then below adjusted EBITA, we had approximately EUR 1.9 million of items affecting comparability, meaning that the adjusted EBITA from EUR 8.0 million and the reported EBITDA, EUR 6.2 million with a gap of EUR 1.9 million. These items affecting comparability were primarily two items. So you had -- we had a discontinuation of two central IT development projects. that are not no longer fitting our decentralized operating model. And this had a noncash impact of EUR 0.9 million. Then there are other items that together some up to EUR 1 million, and most of that is relating to onetime cost relating to this establishment of a new long-term incentive plan. And then there are acquisition-related costs on top of that. Cash flow and cash conversion. So Christian was already talking about this. We had a really strong operating cash flow in the quarter. And last year, operating cash flow was minus EUR 0.2 million; and this year, plus EUR 6.8 million. And there is both an operating element here. So cash flow before change in net working capital was EUR 13.9 million against EUR 11.9 million last year. And this reflects the healthy underlying operational performance in the group. Then we have a change in net working capital impact that last year was minus EUR 2.3 million in the cash flow and this year, plus EUR 1.7 million in the cash flow, meaning that there is a EUR 4 million plus cash flow impact from net working capital efficiency measures that we have seen in the group. Then there is a small -- a slightly smaller net financial items in the quarter than compared to last year. When looking at the net working capital. So there is an increase in net working capital, which is mainly driven by the acquired companies. Excluding these acquisitions, the net working capital actually decreased in absolute terms. And especially, what is noticeable is that the net working capital in relation to sales declined significantly, and this is also a result of the capital efficiency focus that we have had across the group. Inventory turnover declined to [ 4.3 ] and net working capital turnover increased to [ 4. ]5. Inventory and networking capital turnover were both impacted positively by the efficiency measures and the decrease in -- they both have a decreasing impact from the acquisitions as the net sales component in the formula does not include the full year sales of the acquired companies. So cash flow, in summary, plus EUR 6.8 million this year in operating cash flow, then we had cash flow from investing activities of minus EUR 1 million, which mainly consisted of investments in intangible and tangible assets. Last year was minus EUR 20.7 million, and that is, of course, relating to the acquisitions we did last year. Cash flow from financing activities was minus EUR 11.9 million. And in the review period, that consisted of repayment lease liabilities of EUR 5.10 million, loan amortization of EUR 2.9 million, and a paid dividend of EUR 2.8 million. So just normal operating stuff. Last year, it was plus EUR 11.3 million. And that was impacted also by the acquisitions that I mentioned last year. So this is the kind of acquisition financing part of that. So looking at the net debt, we had -- this year in Q2, we had -- end of Q2, we had EUR 226 million in net debt. Last year, it was EUR 226.9 million. So net debt decreased. We had an increase from lease liabilities and acquisition-related liabilities. And then we have a decreasing effect from repayment of the bridge loan with the hybrid bond proceeds and then more cash on hand. After the -- you can see here that the undrawn uncommitted facility was EUR 5.9 million at the end of the period. And after the end of the review period, this uncommitted facility has been fully drawn. Looking at the net financials. So we had minus EUR 4.6 million net financial expenses compared to minus EUR 4.4 million last year. Interest expense on loans net of the change in fair value of floating to fixed interest rate swaps were minus EUR 1.8 million compared to EUR 1.4 million last year. Interest expense on lease liabilities were minus EUR 1.5 million compared to minus EUR 0.8 million last year. And the increases in interest on lease liabilities was attributable to significantly increased lease liabilities as a result of the acquisitions. Exchange rate differences included in the net financial items were minus EUR 1.4 million, of which minus EUR 0.8 million was -- were unrealized. Relating to these net financial items, so historically, ForEx differences have caused quarter-to-quarter fluctuations on net financial items. We have now implemented measures in the loan portfolio to reduce the fluctuations going forward. Good. Coming down to EPS, earnings per share for Q2. So basic earnings per share was minus EUR 0.09 per share this year. And last year, it was plus EUR 0.08 per share. The decrease is mainly in addition to the other factors discussed today, the decrease is due to increased amortization of acquisition-related intangible assets. So as we acquire, we also get those intangible assets on the balance sheet that we amortized. Then we had a decrease due to the hybrid bond interest this year. Adjusted EPS, excluding this acquisition amortization was EUR 0.12 per share, and last year, it was EUR 0.15 per share. And this decrease is -- in addition to the other factors we have talked today, it's mainly due to the hybrid bond interest. Looking at the returns for Q2. So return on net working capital and return on capital employed were impacted by acquisitions. So return component only include partial year profit while the capital employed and net working capital includes more of the acquired assets. Return on net working capital was 42.8% and return on capital employed was 10.8%. Return on net was 7.1%. So events after the review period, highlights of the -- in July was, of course, the acquisition of Tershine, that Christian mentioned. And then we had shares subscribed with options, 2023 options. And we had a share issue relating to the Tershine acquisition. Thank you.

Thank you, Sebastian. So the focus for 2026, as we have said now in several of the quarterly presentations and in Capital Markets Day, we are focusing on converting our top line growth to profitability and returns. We do that through operational discipline in our operating units. We do that through working capital discipline. And this will convert into profitable growth and healthy cash generation for the years to come. So coming into the outlook for the year. As you know, we don't give numeric guidance for the full year. You see that the market conditions across our portfolio was broadly stable. As always in our diversified portfolio across different geographies and market segments. The demand continues to vary between the different operating units. Looking ahead, our priority is clear, focusing on EBITA growth, focusing on making sure that we only have the cash that we really need in each of the operating units so that we can release it and invest it into interesting growth opportunities. With that, I would like to sum up the quarter, strong cash generation. We are proud with the 4% organic sales growth in the quarter above the market growth. Cash conversion of 100% in the quarter. The profitability in this quarter had some factors that needs to be considered when you read the report, the ECL provisions, the organic growth investments for the future and Europe -- one of Europe's biggest workshops was established in Raskone. The priorities for the year is unchanged. We are focusing converting the growth into profitability and returns. And with that, we would like to say thank you and open up for questions.

Yes. Let's start going through. We have five questions at the moment. First three comes from Joni Sandvall from Nordea. Is there a further seasonal variation in H2 that we should be aware of?

Due to the increased share of Commercial Vehicle Services, the second quarter is more seasonally impacted than before in the group. But we have historically had stronger second half of the year, and we expect the second half of this year also to be a bigger part of the group's earnings than the first half.

Good. Then Joni continues. Our higher credit loss allowance is due to increased risks related to expansion in technical wholesale? Or have you seen changes in your client base?

I mean, of course, when the group is growing, we have more receivables and as the technical effect, we need to have a higher provision, everything else equal. We don't see an increased credit risk across the group. The increase of the provision that we saw this year is based on the way we calculate it and on the management adjustment or assessment of what is the healthy level going forward. And that is all we're going to say about the reason for that.

Good. Then the last one. Based on history of organic investments, how long ramp-up period are you expecting in Technical Wholesale? And have you seen any deviations from your plans on these investments?

Yes. Thank you, brilliant question. So I don't think you can say that it's the same in every investment in every new location. Naturally, it takes a few a few quarters, I would say, for the customers to change their habits and get to know our offering and we get the full potential of a new location. So it can take 6 to 12 months to reach to the full volume on new location. You see a couple of occasions where the demand is not following expected gross at sorry. And there, we are very closely monitoring the development and -- of course, we are ready to take actions should we need to, if we don't see that the growth is coming the way we expect it to come.