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Alcadon Group AB (publ)
4/28/2025
Welcome to the presentation of the quarter 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 CEO of Alcadon Group.
We are now happy to take you through the outcome of our first quarter of the fiscal year. Before we go into some quarter figures, we will repeat what Alcadon Group is for companies and what we are doing. We are committed to making data communication possible between different actors and players in society. We do this in three segments. Outdoor connectivity, which is primarily fiber and broadband, often downgrade can also be in the air. We are working on the inter-building, cleaning, industry and even telemasters. Then we are working on indoor connectivity, where both segments are placed. Structured cable system, primarily industries, schools, offices and banking insurance companies. Everyone who needs a strong and reliable network and infrastructure for data transfer. Of course, all the server halls that we normally have in the sources, but which are now also growing up in the form of data centers, clean large buildings that only contain data servers. We have chosen to show and prove that data centers are a little separate, since the business model there is a little different. There is more project-driven business, while in structured cabling it is much more installation driven. Data center business has some similarities with our fiber business, where there are large transactions. Our customers are either telemasters who build their tele network or fiber network for broadband at home, or operators who run large data centers. There we are most focused on medium-sized data centers. There are hyper-scales run by Google and Meta, where we are focused on some of these businesses, but primarily we are focused on medium-sized and so-called co-locations of data centers. But it is almost the same products we sell in data centers as in structured cabling. It is cable systems, fiber cables and network cables, but also a lot of power supply products. If we look at Alkadon Group, we have not changed structurally during the quarter. We are still a business that has a turnover of about 1.6 billion, with a result of about 100 million in 2012. 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, divided into eight countries, since we have already shown seven markets here. With England or the UK being our largest market, where we have previously been quite Sweden and Norway-focused, we have grown powerfully out of Europe in recent years. We have done this by acquiring nice, well-off companies in a number of countries. The latest was Wood Communications in Ireland, which now celebrates one year's anniversary in Alkadon Group, which we bought in April 2024, which is a very nice company, very focused on data centers, with nice key numbers, if only a little volatile. But we will come back to a short passage per company in our group. Alkadon Group has about 200 suppliers. We are a grocery store, a middleman in these stores, where we offer about 5,000 different products, so that our customers and our customers' customers, i.e. the installers' customers, can have the best offer for their business. The good news with Wagros is that we can help an installer find the right supplier for the order she has received. Let's look a little bit at the market outlook. We seem to be in several segments, and fiber, i.e. broadband, down-growing, has been a big deal for Alkadon. It is still a big deal, today, however, -30% of the turnover. We are quite involved in fiber business in a number of markets, and that is the markets we have entered a few years ago, primarily in Germany, Belgium, but also Denmark, where we have a large part of our business focused on broadband. Then you can ask yourself, do we believe in broadband as a business forward? Do not all broadband already have, not the whole world already connected? The answer to that question is yes. These two graphs are from 2023 from the European Association for Broadband Outrullare. Here you see two graphs. The left shows how many homes passed, i.e. homes that could possibly get a broadband connection in relation to the number of households in the country. We have red marked the countries where Alkadon Group is active, where Sweden is at the highest, and then we are at a falling scale downwards. This picture shows why we chose to enter Belgium and Germany, because there is still a great need to roll out broadband and fiber. Then the outrulling has been slowed down here in the last year, primarily due to an income need among operators who have invested enormous money in building a broadband network. Then you turn to the higher graph, where you look at how many households in each country actually have a broadband connection and a subscription to it. Where we in Sweden at 70% and in Norway at 64% of the population have a broadband subscription. Again, two years old numbers, so these have of course increased since then. But there you see that it was only 10% of the German population who actually subscribed to some form of broadband at home in the form of fiber. This is where both the potential and the challenge right now lies. For operators, who are then our customers, you need to get income, that is, you need to connect a number of households to the investments and networks you have already built. And that is what is happening right now. Therefore, we have seen a slowdown of fiber or FTTH or fiber to the home. And we are assuming that in the future there will be more stepwise outrulling. Naturally, the countries that are far down on the left graph will need to come to the fore for the rest of Europe, where in the EU, to develop digitally. And we find that naturally exciting, and that is why we are in these countries and will continue to work in these countries. But we believe, as I said, that it will be a more stepwise outrulling of fiber. At the same time, if you connect a number of new customers and actually get a subscription going, then you continue to roll out this stepwise. So, thereof the summary is the highest. We believe that this is still an business that has both short-term and intermediate potential in developing even more. Then we look at our other two segments, which are actually, as I said, almost the same thing, because we sell about the same products, but different business models. So, no one has avoided that data centers are growing and that AI growth is driving it even harder. Where we, as I said, work mostly between large co-locations and a little smaller data centers, and what was previously called server halls, which is illustrated in the upper image, a company, an industry, a school or an insurance company, everyone drives their own data hall today. And more and more we will look at doing this in our own region. They have put out a lot in the clouds, you may not know exactly which country a server is in, and given the surrounding situation, we believe that there will probably 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 and data centers, which are a little more similar in terms of larger operations, we are very active in a number of countries and there we see nice growth. And we see that it will continue to develop within what we call enterprise data centers, but also structured cable systems within buildings where you then renovate or rebuild or rebuild. With that said, we thought we would slide over a little bit on our first quarter of 2025. I have already commented a little how the three different segments work. We see that we do a lot of business within data centers in the markets where we are active in that segment. It is naturally a segment we want to grow in both in the countries where we already have it, but also open up that kind of business in countries where we are not yet active within data centers. So, it is a positive growth that we believe will continue. Within structured cable systems we see a nice but careful growth. There are not many big numbers, but it is growing steadily and there are businesses, and it is perhaps here that a large part of Alcadon's bread and butter business has been historically, that you have very good relations with installers who use Alcadon's competence base when it comes to knowing which solution to build for a customer. So here we see a continued potential for development, but not as fast growing as it is within the segment data centers. Then we have, as I mentioned, some challenges in broadband and fiber, and not because of the long-term potential, but perhaps because we see a certain break-in on Germany and Belgium primarily, where it is more connected to an purchase that happened by one of our important customers. We judge that these businesses will come into operation and will 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 connection on these markets. So the first quarter of this year we have delivered a certain growth, but it is also included a purchase we made in 2024, so if we look organically and calculate away the growth, we have a negative growth. We have, despite that, strengthened our brettomarginal, and we have actually strengthened it a little more than that, given that we have made some adjustments to our storage levels to free up movement capital, and that has cost a little margin, and it has cost all the way down to EBITDA. So EBITDA is adjusted, so our performance drops from 27 to 22 million, partly due to the fact that we have made a number of adjustments to our storage in a number of markets.
Exactly, Fredrik, thank you. I can make a point of mentioning again that after the presentation we are happy to answer questions, so please write in questions during the time, so we will try to answer them at the end of the presentation and the time here. As I said, the adjusted EBITDA has dropped from 27 to 22 during the quarter, and if you look at the unadjusted EBITDA, it has increased to 31 million. The difference between that and the one we are adjusting is the revaluation of the EURNOUT, where it is counted as Swedish kronor, and then we have also made a re-adjustment of EURNOUT, which has been linked to the purchase of Wood. All of our EURNOUT has a clear link to a result improvement after the purchase time, and partly also linked to the generation of cash flows. So there we have re-adjusted EURNOUT during the quarter for Wood. It returns to how the respective markets have been, I will mention a little more about Wood then. 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 linked to the movement of capital, and an important measure for us is R over RK, which is the result of EBITDA over our movement capital, the supply of customers and the minus-sale of suppliers. We can see that the stock has dropped by 30 million since the last quarter. Here we have a lot of free-making of stocks in our fiber-heavy markets, with a focus on Germany, which contributes to the generation of cash flows. Our debt setting, we have a debt setting 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 goal. Reconnected to the cash flow generation, we feel comfortable with that level, but want to be able to lower our debt setting in the future. If you look at the respective market and performance from country to country, as we start in England or United Kingdom, which is the largest market, we have a very good market and very good performance, where we grow 8% compared to the previous year and 6% compared to the previous quarter. We have a strong growth in data centers, while we have a tougher market in broadband and commercial properties. But overall, England is doing very well and performing at a good margin. If we look at Sweden, which is historically a very important market for Alcadon, we are reducing sales by 5% compared to last year, while we are increasing by 3% compared to the previous quarter. We have a challenging market in fiber, but at the same time, there is an interesting project that makes investments, not least through the state network, where we have a nice exposure. Also in Sweden, which is a breakthrough for all markets that Fredrik has been involved in, we have a very nice development in data centers. We are focused on these medium-sized data centers. We also have a very nice business in structured cable systems that are on the rise. It is rarely a powerful increase or a powerful decrease, but it is an important cash flow component in the business. Norway, which has had a number of tough years behind it, is decreasing by 9% compared to last year. At the same time, we see a 10% increase compared to the previous quarter. There is a tough market in Norway, especially in structured cable systems, but also in the broadband market. At the same time, we see that there are a lot of opportunities in the data center in Norway, and it will make big investments in data centers. During the quarter, we have started up network centers in Norway, specifically to be able to focus on data centers and get new customer groups that we have not reached through our Alcadon brand. We are simply expanding our product base. If you look at Ireland, which is our latest asset in the form of Wood Communications, we are re-earning our earnings here in the last two quarters. We have a very strong connection to growth, to growth in our earnings models. If you look at Ireland in performance, which decreased by 14% last year, but at the same time increased by 17% from the previous quarter. Our exposure to the Irish market is very connected to data centers that have a fluctuation that is more project driven than, for example, structured cable systems. It is a very nice business and they perform very well, even if you do not reach our high-level requirements at the earn-out levels. It is a very stable and nice business that generates good cash flows. And if you look at the isolated, the business that has absolutely high margins. If you look at our fiber-heavy markets, we see a much tougher development. Partly we have Benelux, which decreased by 30% last year, while they were up 10% last quarter. We also have an exposure to data centers. So the fiber market, there we see big challenges. It does not roll out fiber as we had hoped, while data centers are doing pretty well, even if it can break between the quarters. Likewise, it is Denmark. We have a large exposure to the fiber market in Denmark, and there we are down 10% last year and 19% to the previous quarter. In the last quarter we have seen a certain rise in the fiber market, but that does not follow up more in the Q1 2025. And it is difficult to say about the near future, it is a tough market, especially in the fiber. If you look at Germany, where we have only an exposure to the fiber market, we have a reduction of 37% last year. But if you look at Q4, we are up 38%. Again, we have a very sluggish development, and the German market is problematic. It also makes us adapt our layer levels, from a shrinking or a reduced market for us, and we also see that in the form of an increased cash flow. It will continue to be important for us to make our movement capital effective, and adjust the levels we have within all our regions to the market expectations, and to steer harder towards the goal we talk a lot about, the honor of the world, that is, to change over movement capital. If you look at the next slide, we have presented our development quarter by quarter, and this is our adjusted EBITDA per quarter. As you can see, it goes very up and down, and is difficult to interpret over time. To summarize this, we have a fiber market that has gone down a lot, and is weighing our development. At the same time, we have the environment when it comes to data centers, which actually has a strong growth in all areas where we have an exposure to data centers. And we also see that as the key forward, that is to actually be with all our customer segments in all our regions, to get a more stable development and more predictable results. On the right side, you can see that our movement capital, which we have consistently reduced in the course of having a weaker market, and that will continue to be the case with a focus on the layers, that we should have optimized layer levels, at the same time as we should be able to deliver to our customers, we should have optimized layer levels in all our countries.
Good, thank you, Niklas. We were going to stop our presentation there and open up for some questions. While Niklas was checking the chat if we have received any good questions, I thought I would take a 10-second version of my first 100 days here. And very simply summarized, I see Alkadon Group as a business with great potential. We work in a growing market, it will flow more and more data in society. We have a job to do to expand our offer to a number of markets to manage volatility that we will have to live with. There are several product areas, there are several offers we can take to the market, and I think it is up to us to develop ourselves from me and all the way down to all our good sellers out in the markets, to dare to try new things, to dare to get involved in business without being thrown over the top, because we will keep profitability above volume when we move forward, in order to continue to generate nice cash flows and in the meantime 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 though we have a challenging situation here and now, which we think will continue for a while.
Thank you, we have received all the questions, and the first one is related to our goal to exchange overmoney. If it is an official goal in the future, and in that case what level we are focusing on. I can answer that, it is a measure we have worked with earlier as well, and we have not had it as an official measure outside of the Alcadon group. However, we have worked very much with it internally, and have had internal goals linked to the result of the exchange capital, and our internal goal for exchange over working capital is 50%, both at the company level, but also linked to business, where we look very much at which exchange over working capital we can have when we offer on individual projects. So it is a clear goal within the company that we work very hard with. Next question here is, what could initiate a greater turn for the FTTH market and for Alcadon this year?
There were two questions in one, we can comment on the FTTH market, and then I assume that you mean in Europe here. It will probably not be like before, where there are large, almost gigantic, fiber-outfalls in a number of countries and markets where you needed to build an infrastructure quickly. I think, and we think, that it will rather be a continued FTTH outfall, and that it will go on for a number of years in the future, but more stepwise, where the respective country, down to the region, down to the city, will develop its own city networks, and you will connect two customers, everything after that. I think the big motorways are built, you will build a number of smaller and medium-sized roads to that. At the same time, we see, of course, even more fiber installations, precisely with AI's growth, that new fiber is needed, simply between existing data centers and cities. So that infrastructure will probably grow, but perhaps not financed by the state, as it has been before. For Alkadon, it is probably more about being very close. We are close to many of our installations when it comes to medium-sized and smaller fiber-outfalls, and the large fiber projects, which then become more and less, 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 of a challenge, precisely in the markets where we operate. We have a situation with our biggest customer in Belgium, who has been bought up, which affects us, and we have an actor in Germany who has a challenge. So, precisely in our markets, it can probably take a little longer than in the rest of Europe.
A question related to the margin of decline, which has increased compared to last year, and at the same time as fiber decreases and where we have had a pressed margin. I can comment a little on the gross margin, which, as I said, has increased compared to last year. Here we have partly a product mix. Fiber has generally lower gross margins 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. It is also an effect, at the same time as we have an effect, as Fredrik was in before, where we have sold out or sell out a lot of layers and release cash flows, which has an effect on our marginals and then directly on our gross margin. So we will continue to see a differentiated gross margin within the different customer segments, which can then get a direct effect on Alcadon Groups gross margin. And we can get an impact in the future on the adaptation of our gross capital and our layer levels.
And that is all for the purpose of continuing to deliver strong cash flows. It has been and will continue to be our signature to be a cash flow machine.
We have not been able to answer a question here. Is 10% of the gross margin still a realistic goal? And if so, how dependent is it that fiber will return?
Yes, but 10% is a realistic, if only stretched goal over time. To have such a margin goal on the result. We believe that we will be able to reach our internal goal of R over RK faster. And we think that goal is the more important thing, because it is a cash flow goal and shows how good we are at using the capital we bind. But 10% as a gross margin is an ambitious goal, and that goal remains. But it will probably take us a while to get there. And we work a little bit step by step, and it is of course in both ends to raise the recognition, but also to work backwards towards suppliers and make sure that we have the best price when we start to get some critical mass in the body. And
you can add there also, the question also extended, how dependent is it that fiber will return? And I would say that it is not directly linked to that fiber will return, but rather linked to what Fredrik was talking about before, that fiber needs to be in all our customer segments in all our markets. That is an important component to be able to reach an eternal margin of 10%. Where we see that the markets where we actually have more than one leg to stand on have easier to get to the margin of return. We got a question here, how much of the gross result that fiber stands for? And we do not present in that way, but this is a customer segment that we are talking about here, and Fredrik explained earlier that data centers and commercial properties are partly the same products we sell. So the gross result is important in itself, but for us it is of course more important to look at the movement margins, that is,
to exchange. That's right, and it can be low gross margin in some fiber stores, but it is also possible to exchange with nice eternal margins if you do not even have to lay down and do not have so much handling. So we are more eternal marginally focused in our business and of course also R over RK. That's good. Niklas, have we got any more questions? No, it 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.