Alcadon Group AB (publ)

So, good afternoon and welcome to Alcadon Group's presentation of quarter 4, 2024. My name is Fredrik Valentin and I have been the new CEO and CEO of Alcadon Group since January, so I'm in my sixth working week. And next to me is Niklas Svensson, CFO in Alcadon since a few years ago. You who are listening today probably know more about Alcadon than I do about this team, so I'm going to start the meeting like this. I'm going to start by talking a little bit about myself and my background and experiences, go into a little bit about why Alcadon and why I think it's so exciting, and comment a little bit on what I take with me from my previous experiences in Alcadon. Then we will comment on the quarter and Niklas will support me. Then we will open up for questions. Use our chat forum and write the questions that you can think of along the way. We will summarize and look through them when we get there. We have set off for half an hour for this meeting. A short story about me. My name is Fredrik Valentin. I have just passed the 50th round and I want to take on new challenges in life. This is of course the first answer to why I chose Alcadon. It is incredibly exciting to have the opportunity to lead a business yourself. I come from a A role as division head at Bergman & Beving, the well-known serial contractor founded in 1906 and which has made a number of spin-offs in the world of serial contractors, both Adtech and Lagerkrantz are deductions from Bergman & Beving. So I look forward to getting the chance and the opportunity to, together with Niklas, grab the rod at Skutan and see where we can take this. As I said, I come from Bergman & Beving and have been there for almost eight years. I started there as the head of a company that is very similar to Alcadon, which is called Skydda. It's a grossist on personal protective equipment. It exists in a number of countries in Europe, has a collection of offers on products from world-leading suppliers and then a local customer base in a number of countries where you have acquired these sales companies. So it's very similar to how Alcadon is built. Before that, I lived in Poland for eight years and was the CEO of a subsidiary company at Stena Recycling. I know exactly how it is to be the CEO of a subsidiary company, which also fits well into Alcadon's decentralized model. Let's take a quick look at Bergman & Beving and the experiences that you can take from there. As the division head for one of the three divisions that exist within Bergman & Beving, I have been involved in building up the division that today is called Safety Technology, which we started by calling Workplace Safety, where protection was the foundation. And from that company, we have then made deductions and created our own units on the private label brands we had protected with gloves and technical protection. And then we have made an acquisition journey, which I have led in my division, where we have acquired similar companies that are engaged in some form of workplace security. Starting with personal protective equipment and buying companies in shoes, a manufacturing company in Kumla, one of Sweden's only existing shoe factories actually. And then further developed this business around personal protective equipment, working around high altitudes, looking at signs, emergency space, buying companies in fire arms, so broadening and diversifying the portfolio. And it is also an experience that I look forward to continuing to bring into Alcadon. As responsible for protecting the gross system, there are, as I said, very large similarities with how we at Alcadon can look at our supplier base and together get very good purchasing conditions and then offer our customers an adapted solution of exactly the products that fit their end goal. Let's move on to Alcadon. Why do you choose to step in here? Because our niche is so exciting. Alcadon has shown this picture a number of times before. What are we doing? We are establishing networks to transfer data. We have all the products needed to be able to connect a data network, both outside, what we call broadband, and it's the big fiber motorways that are built around the world, between cities, between buildings, between countries. And we have a complete range of products for data transfer in-house. It can be at offices, schools, it can be in homes. And now a new growing trend and segment is these data centers, large and medium-sized server halls that grow almost in rocket speed in a number of countries, not least up in the north. And then to have the opportunity to work in a niche with such strong underlying growth and the demand that we see will continue, especially in the north and in the markets we have established in Europe. It's really exciting. And combined with the third reason, it is the fine companies that Alcadon is today. Thanks to Niklas and my representative Sonny's work, Alcadon today consists of a number of units around Europe. where we started in Sweden and Norway, and those businesses are now at about 25%. The largest company is a company called Network Center in England. which is one of the best acquisitions we have made, in addition to what we did in Ireland a year ago, in boot communication. So there is a platform today and a critical mass in Alcadon for continued growth in the segments where we are active, both within data centers, which we see a strong growth in, Our main business, what we call structured cabling, which consists of all forms of communication solutions indoors and of course data centers. Everything from these hyperscale data centers run by Google and Facebook to a smaller company server hall in the basement. And in all of these segments we are active today and have products and services available. So there is a lot of nice things in Alcadon to build on. It is a conglomerate of acquisitions where we have somewhere over 200 world-leading manufacturers of data communication products that we offer to about 5,000 customers around the world with about as many products. Vi omsätter 1,6 miljarder och tjänar ungefär 100 miljoner och vi har idag nästan 200 anställda och ganska många av våra anställda är aktieägare. Några är det genom förvärv att vi har betalt med aktier, men vi har även en ganska god spridning av ägande hos våra anställda och det tycker jag är väldigt positivt. Det är något jag tar med mig från Bergman & Breving också, att se till att vi har skin in the game. Alla från mig och nedåt ska vara engagerade med samma mål. Let's take a look at the market outlook and see where this can take us. I'll quickly show you this picture, which we've shown earlier. On the left side, we have Fiber till Hemmen, or FDTH. It's a market where we in Sweden are quite well developed. We have the highest penetration in all of Europe. And if we look at the markets where we have established ourselves in recent years, not least in Germany and the UK, these markets are far behind. And that is why we have entered those countries. But we are currently a bit challenging. There is a resistance against investments that are primarily linked to the economic and interest rates. We hope and believe that this will turn around, but we cannot sit and wait for that, we will do a little This is a small improvement in the markets where we are not satisfied. On the right side of the screen, we see the fastest-growing segment, data centers, which we have also talked about earlier, where we see a very positive growth. To briefly comment on Alcadon's thoughts on what can be done more of, it is, of course, to continue to focus on the fine business we have within the data center. We will continue with fiber rolling, but we will look a little less at volume and a little more at profitability. That is one adjustment we will make in the future, not least in those countries where our capital allocation is a bit challenging. And then we will strengthen the focus on the term that is called R over RK in Bergman & Beving and Börjessonsvärlden. And this is a term that Alcadon has worked with before, i.e. EBITDA over moving capital. And here we will become even more clear about which companies that should be allowed to grow, and these are companies that are in The other half is over 50%, and the companies where we want to be more careful with growth are under 25%. We call this the focus model. What Niklas and I have been working on in recent weeks is to repeat how the focus model works for our subsidiaries. and given the recipe for how to attack your position. If you are in the red zone under 25, then there is a focus on profitability. There is a focus on moving margins by looking at the gross margin first, whether to increase the price outward and lower the purchase price inward, and then look at your costs. Whereas in the green zone, where the growth rate is over 50%, we think that growth is very attractive. Almost every growth crown is welcome, and there we see opportunities to grow through additional acquisitions. If we look forward without going too far, there is a greater focus on profitability and a little less on turnover and an increasingly increased focus on R over RK, where you get higher degrees of freedom in the green zone than what you have in the red zone. Let's take a look at the quarter. I'll give my first comment for those who have read the quarter report. We have three messages. We signal a low and waning turnover. England seems to be looking pretty bad. England is not as bad as it looks, and Niklas will come back to that. That's the message, while Germany is as bad as it looks. There we have a challenge. We have a counter wind in the market. And we have an investment will that has not yet been reversed. And we need to make our own decisions and see for ourselves- so that it fits after these circumstances. And in other countries we have a mixed compote. And the compote looks different in the different segments. And we thought we'd go a little deeper into that. I'll hand it over to Niklas.

Thank you very much, Erik. Yes, we released our quarterly report here this morning and as Fredrik said, it is a tough market. It differs a lot between our different geographical markets and also between our different business segments or customer segments that we operate within. Vi har fiber som har haft ett par tuffa år. Det är fortfarande tufft inom just fiber- eller bredbandssegmentet. Vi har dock sett en... an increased activity on a number of markets for a couple of quarters now, partly in the UK, which has decreased very strongly over a couple of years. There we have seen a certain return on the fiber market, even if it is from low levels. Vi har även sett detsamma i Danmark, där vi har en ganska stor exponering mot just fiber, där det andra halvåret är betydligt bättre än det första halvåret. Samtidigt har vi Tyskland, som Fredrik nämnde, som är en väldigt tuff marknad för oss. Det råder en hög konkurrenssituation och det är en stor prispress. Vi kan väl inte riktigt se att where there is lighting in the short term. So it will still be tough in the near future. Data centers are a strong driver in all of our markets where we have a focus on data centers, where the UK is one of the areas where where it is doing very well. The same in the north. If you look at the comparison figures, we had a very large project in Q4 2023, which raised the turnover a bit. men med lite lägre marginal. Därav att Fredrik nämnde här att England går faktiskt bra även om jämförelsetalen var betydligt högre sett i omsättning. Datacenter är en drivare. När man ser på den kommersiella fastighet och strukturerade kabelsystem så är det en relativt stabil marknad på huvuddelen av våra our geographical areas. So it's a pretty mixed picture that we see. And with this increased focus on profitability, it is at the same time exciting to see that we at least get an increased mobility margin here during the fourth quarter, and that is something that continues to be a focus together with our mobility capital and Under a couple of tough years, we have worked a lot with our moving capital. And even though the amount is over RK, which we can also see in the cash flow that is generated during the fourth quarter, which is strong and helps to lower our net debt. So we are within our target of 2 to 3 times EBITDA. We are today at 2.6 to 2.8, depending on whether you count with leasing costs or exclusive leasing costs. If you look at our geographical markets, as we have mentioned, as a network center, that's where it goes strong. The data center is a driver and it's a big focus area for us. The fiber market, där har vi börjat skönja en ljusare utveckling och det har faktiskt växt under ett par kvartal nu, från att ha minskat väldigt kraftigt under ett par år. Sverige We had a tougher fourth quarter, both in broadband and fiber, but also connected to housing networks, which we all know is tough in Sweden for the present. However, data centers are doing well also in the Swedish market. Fiber, as I mentioned before, even in Denmark, even if it is from low levels, has again grown a bit and the second half of the year has looked significantly better than what the first half of the year did, even if it is still from low levels. Also Germany, as we were talking about before, where we have a weak market, a high competitive situation and a price pressure.

Good. Let's take a look at the results. We've talked about revenue earlier, and I mentioned that we'll focus more on profitability. If we look at the adjusted EBITDA, we're at 25 million. i det fjärde kvartalet, vilket är ju en förbättring mot Q3 som inte var bra. Men vi är inte nöjda med 25 miljoner. Även om det är en välkommen, tillbakastöds, upp på okej nivåer i marginal så åtminstone för nu så är 25 miljoner inte tillfredsställande långsiktigt, men ett steg i taget här tänker vi. Då ska vi titta, Niklas, om vi har fått några frågor.

We have received a number of questions. We have one question here. DeepSeq has shaken up the data center industry. How exposed to AI is the data center construction?

We are exposed to data centers, and we data centers are exposed to AI, because when you do AI calculations, you need a lot of storage capacity, and that's what the data centers do. We believe that DeepSix may have an effect more on processor manufacturers, those who make microchips. that the storage space still needs to be there. So we see a positive development in our business, where we mainly keep cables, connections and patch cables for memory servers.

Vi har fått en fråga här om våra förvärv som vi har gjort de senaste 4-5 åren som delvis har finansierats genom nyemissioner. En del av de här emissionerna har gjorts på betydligt högre kurser än vad det är idag. Frågan är varför tror ni det har blivit så? Hur mycket dåliga förvärv och hur mycket dålig marknad?

Maybe you want to comment, Niklas, on some history?

I can answer that. We have had a strong acquisition focus, where we have gone from being a local player in Sweden and Norway to entering new markets in Europe. And that has also been a clear goal that we have had. We have had, in some geographical markets, such as Germany, Denmark, we have had a large exposure to fiber. The fiber market has been weak and decreased significantly in recent years, mainly due to the rise in interest rates and the fact that investors wanted to cut off the investments they had made in the form of rolling out of fiber. Then we have in Network Center, which was a very large acquisition that we did in 2022, in the fall of 2022, there we have another exposure or another width on our product offer or on our customer base, where fiber is a part, but we also have data centers and structured cable systems. which is what Alkadon once came from. So we can say that the fiber market is difficult. It has been at significantly higher levels than it is now. At the same time, we have very exciting not to mention data centers and commercial properties, which is an important part of Alcadon's history.

And to make a brief addition, there is still a large underlying market and a need to continue to roll out fiber in these markets. So I think it's too early to say that some acquisition would be bad. We have made really good acquisitions and we have also made acquisitions that have great potential to be very good when the fiber market takes off again. But that said, we still need to make some adjustments here and now to look at our own profitability, and we need to broaden our offer to those markets where we are a little well-niched towards one single offer.

We have a question here as well. First and foremost, welcome Fredrik. How many data center projects are you engaged in now and in which countries? Alcadon has made several acquisitions in recent years. How do you see new acquisitions? We have two questions in one.

We can answer exactly the number of projects, we will not comment on that, but there are many. And our real niche is closer to these medium-sized and smaller data centers. And that can be, as I said, everything from a server hall in a basement to a company that has 100 employees all the way up to Hyperscale. And we have a little contact with Hyperscale through, above all, our acquisition in Ireland. But our real sweet spot is on these medium-sized and many co-location data centers. We have many such projects going on at the same time, and there are many offers that we offer.

And the second question was about acquisitions. Exactly.

Alcadon has made several acquisitions in the past year, and are you looking at new acquisitions? Alcadon has the ambition to be an acquisition company, and we want to be serial contractors in our niche. What we may see more of in the future is additional acquisitions for units that are already doing very well. Read the ones that are in the green zone in our focus model. So there we are actively looking at additional acquisitions as a way to have growth.

Vi har fått en fråga här. Vad driver omställningen i Q4 i förhållande till Q3, där omställningen är från 35 till 25 miljoner? Kan ni bekräfta att organisationen och marknadspositionen är i takt?

Yes, we can start by confirming that it is intact. Woody is the company that has the highest flexibility when you are so exposed to these larger data center businesses. There it can be quite large orders that will be delivered quite quickly. So there is a higher degree of volatility in Wood. So the business in Wood is solid and intact and has interesting and exciting conditions in the future.

We also did a return of earn-out on Wood. The earn-out model for Woods is quite stretched. It also has a connection to the cash flow, among other things. We don't see any worries that they didn't reach this first earn-out. Woods is doing well and shows no concern with the Irish market or the organization in Wood. Let's see here. Out of your eight geographical markets or your eight countries, do you see any country that can increase the turnover in Q1 compared to Q1 2024? And I can say that we don't leave any guidance, but we have a tough market. And as we have said, we have a good development within the data center. We have seen a certain rise in fiber in certain markets, but more than that, we can't guide about it or say about it.

And to complement what I said earlier, our focus in the future will be more on profitability than volume. So it is fully possible that we look at low margin volumes that we do not consider profitable and treat them a little differently.

We've also received a question regarding a significant decrease in turnover in Germany, Denmark and Norway. How comfortable is it that we won't see the same decrease in the UK as a network center in the future? Can we expect the same risk exposure there?

The simple answer is no, because we are in the countries such as Germany, Denmark and even Norway, very fiber and broadband focused. And there we have the opposite in that segment. We are much more diversified in network centers.

Let's see. Ser ni ett alternativ att dra er ur den tyska marknaden? Och hur ser datacenteraffären ut i Tyskland?

Det finns absolut spännande affärer att göra i datacentersegmentet i Tyskland. Vi är inte där med vårt erbjudande i Tyskland idag. Vi vill gärna bli det. Och så får vi väl lämna svaret där ungefär.

Vi har fått en fråga angående förvärv. Vi har tidigare sagt att förvärven är en avkastning. I dag har vi tidigt stört om att banan är förtänkare. Det är fortfarande så. Det gör det absolut. Vi har haft en väldigt fin utveckling. Minskningen under fjärde kvartalet, som man kan se jämfört med motsvarande kvartal förra året, är till stora delar hänförlig till det här enskilda projektet inom datacenter. which then had lower margins. If you look at it quarter by quarter, we actually have an increase during the fourth quarter. So we are comfortable with Network Center and their development, and they have grown decently since we acquired them, both in terms of revenue, but even more importantly, in terms of profitability and also cash generation. We've got a question about data center focus. Is it more flexible between quarters, since it's a larger project?

I think we answered that question earlier. It depends on what type of data center it is. Our ambition is to have so many projects running that it shouldn't be flexible, and preferably many small and medium-sized ones. Then we have customers that are very large, and there can be flexibility, for example, as it was in the UK a year ago.

We have a personal question for you, Fredrik. You have started buying shares in Alcadon, which is fun. Is your ambition to continue buying shares to have real skin in the game? The shares are traded today at levels from the fall of 2020.

Thank you for the question. As I said earlier, I think that skin in the game is a prerequisite for all forms of business. Our subsidiaries have a lot of skin in the game in the companies where we have paid with shares. I said earlier that I come from Bergman Beving with a good experience of letting employees become shareholders in the company, and so here as well. So I look forward to increasing the share of our employees' shares in Alcalon, including my own.

Sen har vi fått här, kan nyemission igen vara ett alternativt för att stärka balansräkningen? Och jag kan väl säga att vi ser inte något behov av att stärka balansräkningen i dagsläget utan vi har en finansiering på plats som vi kan växa med och vi har ännu viktigare än en god kassagenerering. or cash flow generation. So we don't see that a new emission is in the chart to make some kind of strengthening of balance sheet. We have also received a question about the gross margin and what lies behind the increase of the gross margin.

The gross margin increase is mostly due to the product mix. When we sell a little less of our fiber and large broadband businesses, we sell more of more expensive products with a higher margin, and that's how we want it. So we look forward to working even more with the product mix in all our businesses.

And then we've got a question about recurring earnouts, how much of it is linked to the development of the results, or if it's more of a purchased purchase. Our earnouts are always linked to a result improvement, and in some cases also a cash flow generation. So the company must grow its profitability to be able to get earnouts. And then we have another question regarding Germany. Will it require more investments to open up the data center business in Germany?

We will see which way we choose to go with the data center business. The easiest way is to go organically and recruit skilled people who can bring their business in. And there are no major investments in that. But it also takes a little longer time. So we have to look at different alternatives.

And those were the questions we had received.

How nice! It was fun with so many questions. A big thank you to everyone who has listened and we look forward to meeting again in the future in this virtual way. Thank you so much! Thank you!