Alcadon Group AB (publ)

Welcome to the quarterly presentation for Alcadon Group for the first quarter of 2025. My name is Fredrik Valentin and I am the CEO of Alcadon Group.

My name is Niklas Svensson and I am CFO of Alcadon Group.

We are pleased to take you through the outcome of our first quarter of this fiscal year. But before we go into some quarterly figures, we will repeat what Alcadon Group is for a company and what we are doing. We are active in the industry of enabling data communication between different actors and players in society. We do this in three segments. Outdoor connectivity, which is primarily fiber and broadband. Often underground, it can also be in the air. Between buildings, cities, industries and even telemarketers. Then we work with indoor connectivity, where both segments are placed. Structured cable systems. Primarily industries, schools, offices and insurance companies. Everyone who needs a strong and reliable network and infrastructure for data transfer. And of course, all the server halls that you normally have in the sources, but which are now also starting to grow up in the form of data centers, clean, large buildings that only contain data servers. We have chosen to show and present data centers a little separately because the business model there is a little different. There are more project-driven businesses in structured cabling. it is much more installers driven. So data center businesses have certain similarities with our fiber businesses, where there are large transactions. Where our customers are either tele operators who build out their tele network or fiber network for broadband at home, or operators who run large data centers. And there we are perhaps most niche towards medium-sized data centers. There are such hyperscales that are run by Google and Meta, where we are in and out of some such businesses, but primarily we focused on medium-sized and so-called co-locations of data centers. But it's almost the same products we sell in data centers as it is structured cabling. It's cable systems, fiber cables and network cables. But it's also a whole lot of pure power supply products. If we look at Alcadon Group, we have not changed structurally during the quarter. We are still a company that accounts for about 1.6 billion, with a result of about 100 million rolling 12. Of course, we have ambitions to do more than that over time, and we are working slowly but surely in that direction. We consist of about 190 employees today. We are active in eight countries, but we have prepared seven markets. With England or the UK being our largest market, where we have previously been quite Sweden and Norway focused, we have grown rapidly in Europe in recent years. And we have done that by hiring nice, well-managed companies in a number of countries. The latest was Wood Communications in Ireland, which is now celebrating its one-year anniversary with Alcadon Group here, which we bought in April 2024, which is a very nice company, very focused on data centers and with nice key numbers, if not a little volatile. But we will come back to a short overview of each company in our group. Alcadon Group has about 200 suppliers. We are a grossist and an intermediary in these businesses where we offer a little over 5,000 different products so that our customers and our customers' customers, i.e. the customers of the installers, will be able to have the best offer for their business. The joy of being a grossist is that we can help an installer find just the right supplier for the task he or she has received. Let's take a look at the market outlook from here. As I said, we operate in several segments and fiber, i.e. broadband, has been a major business for Alcadona and is still one. Today, however, 25-30% of the turnover. But we are quite involved in fiber businesses in a number of markets, and these are the markets we have entered a few years ago, primarily in Germany and Belgium, but also Denmark, where we have a large part of our business focused on broadband. And then you can ask yourself, do we believe in broadband as a business in the future? Don't all of us already have broadband? Isn't the whole world already connected? And the answer to that question is yes. These two graphs are from 2023 from the European Association for Broadband Producers. And here you see two graphs. The left one shows how many homes passed, that is, homes that are assumed to be able to get a broadband connection in relation to the number of households in the country. We have red-marked the countries that the alcohol group is active in, where Sweden stands out as the highest. And then it's a falling scale downwards. This image shows why we chose to step into Belgium and Germany, because there is still a great need to roll out broadband and fiber. Then the rollout has been slowed down in recent years, primarily due to an income need among operators who have invested enormous money in building a broadband network. And then you turn to the right graph, where you look at how many households in each country actually have broadband connection and a subscription to it. Where we in Sweden have 70% and in Norway 64% of the population has a broadband subscription. Again, two years old numbers, so these have of course increased since then. But there you see that only 10% of the German population actually subscribed to some form of broadband at home, in the form of fiber. And this is where both the potential and the challenge lie right now. For the operators, who are then our customers, you need to get revenue, that is, you need to connect a number of households to the investments and networks you have already built. And that's what's happening right now. That's why we've put in a break-in of Fiber to the Home. We think that in the future, there will be more step-by-step roll-out. Of course, the countries far below the graph on the left will need to get rid of the rest of Europe in the EU to develop digitally. We think that is exciting, and that is why we are in these countries and will continue to work in these countries. But we believe that there will be more step-by-step roll-out of fiber. At the same time, you connect a number of new customers and actually get subscribers, and then you continue to roll this out step by step. So from there, the summary is the highest. We determine that this is still a business that has both short-term and long-term potential to develop even more. If we then look at our other two segments, which are basically almost the same thing, because we sell about the same products, but different business models, we have not prevented any data centers from growing and being driven by AI's progress. where we, as I said, work mostly towards medium-sized co-locations and smaller data centers, and what was previously called server halls, which is illustrated on the right image, i.e. a company, an industry, a school or a company, everyone runs their own data hall today. And more and more, I think, we will be looking at doing this in our own direction. We have put a lot of effort into Molnät. We may not know exactly which country the server is in today. Given the current situation, we assume that there will be a wave of development where you want to ensure that you have control of your own data in your own building. So these two segments, data centers, which are a little more similar to FIBE when it comes to larger transactions, we are very active in a number of countries and there we see a good growth. And we see that it will continue to develop within what we call enterprise data centers, but also structured cable systems in buildings where you then renovate or rebuild or build new. With that said, we're going to take a look at our first quarter of 2025. I've already commented a little on how the three different segments work. We see that we do a lot of business in data centers in the markets where we are active in that segment. It is of course a segment we want to grow in, both in the countries where we already have it, but also to open up that type of business in countries where we are not yet active in data centers. So it is a positive growth that we believe will continue. Within structured cable systems, we see a nice but careful growth. It's not a big number, but it's growing steadily and there are businesses, and this is perhaps where a large part of Alcadon's bread and butter business has historically been. You have a lot of good relationships with installers who use Alcadon's competence base when it comes to knowing which solution to build for a customer. So we see a potential for development, but not as fast as it is in the data center segment. Then we have, as I mentioned, some challenges in broadband and fiber, and not because it is long-term potential, but perhaps because we see a short-term break in primarily in Germany and in some parts of Belgium, where it is more linked to a purchase that happened by one of our important customers. We estimate that these businesses will start and come back, but we will also need to make some adjustments and continue to make adjustments of our own ability and performance, like our capital binding on these markets. So the first quarter of this year, we have delivered a certain growth. However, this includes a acquisition we did in 2024. If we look at it organically and count Wood, we have a negative growth. Despite that, we have strengthened our gross margin, and we have actually strengthened it a little more than that, since we have made some adjustments to our storage levels in order to free movement capital. And that has cost a little margin, and it has flowed all the way down to EBITDA. So EBITDA adjusted, so our performance dropped from 27 to 22 million, partly affected by the fact that we have made a number of adjustments to storage in a number of markets.

Precisely Fredrik, thank you. I would like to mention that after the presentation we will gladly take questions, so please write them in during the time and we will try to answer them at the end of the presentation and during this time. Moreover, the adjusted EBITDA has gone down from 27 to 22 in the quarter. And if you look at the unadjusted EBITDA, it has increased to 31 million. The difference in between that we adjust for is the revaluation of earnout, where it is converted to Swedish kronor. And then we have also made a return on earnout that has been linked to the acquisition of Wood. All of our earnouts have a clear connection to a result improvement after the acquisition time and partly also connected to the cash flow generation. So that's where we put earnouts during the quarter for Wood. We will come back to how the respective markets have gone. I will mention a little more about HODO as well. If you look at the cash flow, we are delivering a positive cash flow in line with last year. We have a certain seasonal fluctuation in the cash flow, mainly linked to moving capital. And an important measure for us that we follow is R over RK, i.e. results measured as EBITDA over our moving capital, customer feedings, stocks and minus supplier debt. And there we see that the stock has gone down by 30 million since last quarter. Here we have a lot of freeing of deposits, especially in our fiber-heavy markets with a focus on Germany, which contributes to cash flow generation. Our debt, we have a debt goal that is between 2 and 3 times EBITDA. There we are at 2.8 to 2.9, exclusive and inclusive leasing. which is within our goals. Again, connected to cash flow generation, we feel comfortable with that level, but in the long run we want to be able to reduce our debt in the future. If you look at respective markets and performance from country to country. So if we start in England or the United Kingdom, which is our largest market, we have a very good market and a very good performance, where we grow 8% compared to the previous year and 6% if we look at the previous quarter. Vi har en stark tillväxt inom framförallt datacenter, samtidigt som vi har en tuffare marknad inom just bredband, men även kommersiella fastigheter. Men som helhet så går England väldigt bra. and perform well. If we look at Sweden, which is a historically very important market for Alcadon, we reduced sales by 5% compared to last year, while we increased by 3% compared to the previous quarter. Vi har en utmanande marknad inom fiber men det sker samtidigt projekt som är intressanta och det gör satsningar inte minst inom statsnät där vi har en fin exponering. Även i Sverige, och det är egentligen genomgripande på alla marknader som Fredrik har varit inne på, så har vi en väldigt fin utveckling inom datacenter. Och där är vi ju inriktade på egentligen de här medelstora datacenterna. And we also have a very nice business in structured cable systems that is on the move. It is rarely a powerful growth or a powerful decline, but it is on the move and is an important cash flow component in the business. Norway, which has had a few tough quarters or tough years behind them, decreased by 9% compared to last year. At the same time, we see a 10% rise compared to last quarter. It is a tough market in Norway, especially in terms of structured cable systems, but also in the broadband market. At the same time, we see that in data centers, there are a lot of opportunities in Norway in the future, and there will be large investments in data centers. During the quarter, we have launched network centers in Norway, just to be able to focus specifically on data centers and reach new customer groups that we have not reached through our Alkadon brand. Vi breddar helt enkelt vår produktbas. Om man tittar på Irland som är vårt senaste förvärv i form av Wood Communications så återlade vi earn out här under de två senaste kvartalen. Vi har en väldigt stark koppling till resultattillväxt i våra earn out modeller. But if you look at Ireland in performance, they decreased from last year by 14%, but they are rising at the same time by 17% from last quarter. The Irish market, or our exposure to the Irish market, is very much linked to data centers, which have a fluctuation that is more project-driven than, for example, structured cable systems. Det är en väldigt fin affär och de presterar väldigt bra. Även om det inte når upp till våra högställda krav på earn-out-nivåerna så är det en väldigt stabil och fin verksamhet som genererar goda kassaflöden. Det är, om man tittar isolerat, också den verksamheten som har absolut högst marginaler. If you look at our fiber-heavy markets, we see a significantly tougher development. Partly, we have Benelux. They decreased by 30% compared to last year, while they are up 10% compared to the previous quarter. We also have an exposure to data centers. So we see big challenges in the fiber market. Fiber is not really rolled out as we would have liked, while data centers are doing quite well, even if it can hit in the quarter. The same is true in Denmark. We have a large exposure to the fiber market in Denmark, where we are down 10% compared to last year and 19% compared to the previous quarter. In the last quarter, we have seen a certain rise in the fiber market, but that does not follow into Q1 2025. Hard to say about the near future, it is a tough market, especially in terms of fiber. If you look at Germany, where we only have an exposure to the fiber market, we have a decrease of 37% compared to last year. But if you look at Q4 instead, we are up 38%. Again, we have a very sluggish development and the German market is problematic. This also means that we are adjusting our storage levels based on a shrinking or decreased market for us. And we also see this in the form of an increased cash flow. Det kommer fortsätta vara viktigt för oss framöver att effektivisera vårt rörelsekapital och anpassa nivåerna vi har egentligen inom alla våra regioner till marknadsutsikterna och styra hårdare mot det här målet som vi pratar mycket om, R&RK, alltså ebita över rörelsekapital. If you look at the next slide, we have presented our development quarter by quarter. This is our adjusted EBITDA per quarter. As you can see, it goes up and down and is difficult to interpret over time. To sum this up, we have a fiber market that has gone down a lot and is weighing our development. At the same time, we have the turnaround when it comes to data centers. that actually has a strong growth in all areas where we have an exposure to data centers. And we also see that as the key in the future is to actually be with all our customer segments in all our regions to get a more stable development and more predictable result development. And on the right side, you can see that our moving capital, which we have successfully reduced as we have had a weaker market, will continue to progress with a focus on storage. That we should have optimized storage levels while we can deliver to our customers, we should have optimized storage levels in all our countries.

Good. Thank you, Niklas. Vi tänkte börja stanna vår dragning där och öppna upp för lite frågor. Medan Niklas kollar i chatten om vi har fått in några bra frågor, så tänkte jag egentligen ta 10 sekunders versionen av mina första 100 dagar här. Väldigt enkelt sammanfattat så ser jag Alkadon Group som en verksamhet med stor potential. Vi verkar i en marknad som växer. Det kommer att flöda fler och större datamängder i samhället. Vi har ett arbete kvar att göra, att bredda vårt erbjudande i ett antal marknader för att klara av volatilitet som vi kommer att behöva leva med. Det finns flera produktområden, det finns flera erbjudanden vi kan ta till marknaden. And I assess that it is up to us to develop ourselves from me and all the way down to all our skilled sellers in the markets. To dare to try new things, to try to get into business without being thrown over by volume, because we will keep profitability ahead of volume when we move forward in order to continue to generate nice cash flows and, over time, be able to acquire more companies in the group. So I look forward to the future. It will be a very nice and exciting journey, even if we have a little challenging situation here and now, which we think will continue for a while.

Thank you. We have received a number of questions, and the first one is related to our measure EBITDA over moving capital. And if it is an official goal in the future, and in that case, what level we are investing in. And I can answer that. It is a measure we have worked with before as well, and we have not had it as an official measure externally for the Alcadon Group. However, we have worked a lot with it internally and had internal goals connected to the result of turnover. Our internal goal for EBITDA over working capital is 50%. This is both at the company level and also connected to businesses, where we look very much at what EBITDA over working capital we can have when we offer individual projects. So it is a clear goal within the company that we work very hard with. The next question is, where could a larger shift be initiated for the FDTH market and for Alcadon this year?

There were probably two questions in one there. We can comment on the FDTH market, and I assume that you mean in Europe here. It will probably not be like before, where there are large, almost gigantic fiber rollouts in a number of countries and markets, where you needed to build an infrastructure quickly. I believe, and we believe, that it will rather be a continued FDTH rollout. and that it will continue for a number of years to come, but more step by step, where respective countries, down to the region, down to the city, will develop their own city networks and connect customers, one after the other. I think that the major motorways are being built. They will build a number of smaller and medium-sized roads for that. At the same time, we see even more fiber installations. With the rise of AI, fiber needs to be drawn, new fiber, between existing data centers and cities. So that infrastructure will probably grow as well, but perhaps not financed by the state in the way it has been before. For Alcadon, it's more about being very close. We are close to many of our installers when it comes to mid-sized and smaller fiber rolls and the large fiber projects that then become more and smaller, so it is important to continue to be close and be very close to both operators and our installation customers. But it will take a while. It is a bit tough on the markets where we work. We have a situation with our largest customer in Belgium that has been bought up, which affects us. And we have an actor in Germany who has a challenge. So it can probably take a little longer in our markets than in the rest of Europe.

En fråga kopplad till bruttomarginalen som har stigit gentemot förra året samtidigt som fiber minskar och där vi haft pressad marginal. I can comment a little on the gross margin, which, as I said, has increased compared to last year. And here we partly have a product mix. Fiber generally has lower gross margin than what we have in structured cable systems and also in data centers. And that means that when the fiber decreases, the gross margin also increases. At the same time we have an effect, as Fredrik mentioned before, where we have sold out or sell out a lot of stocks and frees cash flows that get an impact on our margins and directly on our gross margin. So, we will continue to see a differentiated gross margin in the various customer segments, which can then have a direct effect, of course, on Alcadon Group's gross margin. And we can also get an impact in the future on the adjustment of our trade capital and our law levels, quite simply.

And that is of course the purpose, that we want to continue to deliver strong cash flows. It is and has been our signum and will continue to be to be a cash flow machine.

We have another question here. Is 10% EBITDA margin still a realistic goal? And if so, how dependent is it that fiber comes back?

10% is a realistic, if not stretched, goal over time. To have such a marginal goal in terms of results. We believe that we will be able to reach our internal goal of R over RK faster, and we think that goal is more important, because it is a cash flow goal and shows how good we are at using the capital we bind. But 10% as a gross profit is an ambitious goal, and that goal remains. But it will probably take us a while to get there. And we are working step by step, and that is of course on both sides, lifting the income, but also working backwards towards suppliers and ensuring that we have the best price when we start to get some critical mass in the body here.

And you can add there also, the question was also extended, how dependent is it that fiber comes back? And I would say that it is not directly linked to the fact that fiber comes back, but rather linked to what Fredrik was talking about before, that fiber needs to be found in all our customer segments in all our markets. It is an important component to be able to reach an EBITDA margin of 10%. where we see that the markets where we actually have more than one leg to stand on have easier to get movement margins. We got a question here, how much of the gross profit that fiber stands for? Vi presenterar inte på det sättet, utan detta är kundsegment som vi pratar om här. Fredrik förklarade tidigare att datacenter och kommersiella fastigheter är delvis samma produkter vi säljer. Bruttoresultatet är viktigt i sig, men för oss är det väsentligt viktigare att titta på rörelsemarginalerna, alltså EBITDA.

That's right, and it can be low gross marginals in some fiber businesses, but nice EBITDA marginals if you don't even need to store them and don't have so much handling. So we are more EBITDA marginally focused in our businesses and of course also R over RK. That's good. Niklas, have we got any more questions? No, that was them. That's nice. Then we have also taken exactly 30 minutes. We thank you for your attention and wish you all a nice afternoon.