Alligo AB (publ)

Okay everybody, welcome to Aligo Q2 Report 2024. As always, our presenters today are Irene Risenborg Melander, our CFO, and myself, Klein. And we many times say that it feels that time flies so quickly that we do not do much more than having these quarterly presentations. It's starting to feel that we would like time to fly even faster into a time when market is picking up quicker than we can see today. So sometimes you like the time to fly a little bit faster. We made jokes earlier that we could present any of the old quarterly reports because the situation is very much the same. The market is still slow. We are taking actions on whatever we can take actions. We are running cost reduction programs. We reduced some hundred million SEC so far. We are running capital reduction programs. We are maintaining our margins. We are running all different types of sales initiatives. So we could have taken more or less any of the last two, three, four quarterly reports and the story would have been the same more or less. We have one big challenge that is that we have a mixed effect, which is quite severe where industry segment customers are growing. And other larger customers are growing and our beloved small and medium sized customers are struggling. So that we are focusing on and it will come back. It's not there yet. But there is one change compared to the old reports is that we have now hit the throttle concerning acquisitions. So as you can see, we have made seven acquisitions during the quarter. to compare with the sixth acquisition for the whole of 2023. So we see good opportunities to do good acquisitions at the reasonable price point for well-run businesses. The agenda for today, you can see, and we are going to do the same thing as we always do, bringing up some highlights. We're not going to go through the report in its entirety. There are many companies reporting today and tomorrow, so we will keep this speed up. We always have a theme, and we have logistics, assortment, sustainability, acquisitions, customer strategy, and so forth. Today, it will be one theme, which is two slides on purchasing. But Aligo, only one slide, you know it. We have been struggling to get about 10 billion SECs. As I said, the market has not been helping us much. I would have hoped that we by now would have been above 10 billion, but not yet. 2443 employees and 210 stores and looking at the stores is also a little illustrates something when we we said that we were surprised how well we could mitigate a slower market in 2023 by reducing costs and of course that it would then be easier if we had 240 or 2443 employees at the same place and continue to reduce. But we are spread out in different central warehouses and in 210 stores. So it's not as easy now when we look at Plan F in cost reductions. We have done B, C, D, E. It's difficult to continue to cut costs, at least employee-related costs, in direct proportion. And we don't want to ruin anything. We want to be prepared for the market upturn. So just as a little comment. And the main brands we have, as you know, is Sudol in Sweden, Tools in Norway and in Finland. We can go into business conditions during the quarter. Continued weak market, especially for the construction sector, especially for the small and medium sized customers. There's a stable demand in oil and gas in Norway. I think we as a management team do whatever is possible to do, running different sales initiatives. We do acquisitions. We run cost reduction initiatives. We try to fine-tune, as you know, we have talked about that earlier, to find the right price point for different assortments to continue to be relevant for the small and medium-sized customers. We don't want them to move to other suppliers because of price. So we have actually lowered the price in certain areas and tried to compensate by increasing price in other product areas. And we constantly reduce our inventories. And we will continue to do that. We have a good delivery capacity. We've had some disturbances in the quarter, starting up the Vespi central warehouse. You know, we've merged the two warehouses we had to one location outside Oslo in Vespi. there's some extra cost related to that and some delivery disturbances as many times when you do those type of things and the macroeconomic factors i don't need to mention i think you know them better than i do so in in brief not stealing your thunder iran but the revenue some 1.8 percent up but organically it's 3.2 down And the 1.8% up is more or less that extra day we had in this quarter. Remember, we had a negative easter effect in Q1 and with less trading days. And now we have one day back in this quarter. So if you adjust for that, it's flat. It's probably zero in growth. Operating cash flow a little shy of last year, fully explained by the lower EBITDA. and adjust the limit on margin down from 8.4 to 6.8. But we continue to navigate. We think nicely in the customer segments and keeping the margins up because that is something we can affect and we try to do that and I think we've done okay so far. So highlights, as I said, seven acquisitions. totaling some 300 million in annual turnover. What is specifically found is that two of them were welding companies. We have taken a grip of consolidating the welding market in Sweden and in the Nordics, but especially in Sweden. So those five welding companies total some 250 million in sales, and by that they are Approximately doubling the welding sales that we had in the old Aligo before these acquisitions The warehouse emerged in Norway that talked about and had some some startup costs and We are looking forward to the to the east to the autumn where we're going to launch the slot where a clothing brand with a low little lower price point a little a less features on it compared to our stronger brands that we have. And that's 1832, sorry. And smart wear is the laundry and the sewing concept that we've rolled out. We will also be launching other brands, ProWell, for example, for hand tools at a little bit lower price point. to be more relevant for the small and medium-sized customers. So it's not the sales of the product as such that is going to change the world. It's the perception of all the tools having a product in a certain price range. That will be the big thing. So two slides on purchasing, as we said. And you know how we run this. We are very centralistic. We set the assortment. We select The supplies we'd like to work with, they do tendering and we get, we think, pretty decent conditions. So by doing that, we can ensure that we have the right offering and we meet whatever the customer's needs could be. And working closely with the supplies is also a way for us to arrive at a decent stock level going forward. Yeah, we have a better control over the flow, we get better negotiation powers, and we can take better responsibility throughout the whole sourcing chain. So since this journey with the merger, we are half as many suppliers and we are some 65% less articles. So looking at the old tools, all those articles, that has been cut dramatically. And we will continue down that line. So responsible sourcing, I think I mentioned it before, but it's fun. I was in China a couple of months ago, and I'm so super impressed with what our colleagues have been doing for 10 years and see the partnership we have with the factories there. So we have together developed Ten years ago, one of our colleagues went to Tangshan, for example, to one plant. We didn't produce anything there and the journey started. We started with simple products like trousers and now they are on the more advanced products like winter jackets and overalls. We represent 70% of their turnover and they are running a very professional business with high sustainability targets and to see how they contribute to the local communities is super impressive. So it's interesting to see. I visited, as one example, the 1832 plant in Wuhan. And it's also nice to see where actually our products are being produced. So super impressive what our colleagues have been doing for a decade in different countries, China, Laos, Bangladesh, Pakistan, and so forth. And we have just started that journey. So, Irene, some financials.

Yes, thank you. As Clay mentioned, the slowdown in the market demand continued as expected and mainly affected small and mid-sized businesses. Revenue increased by 1.8% in the quarter, and this was mainly due to positive calendar effects from E3-Q1, particularly in Norway. Equifixion had a positive impact of 3.1%, but couldn't compensate for negative organic growth of 3.2% related to Sweden and Finland. The negative organic growth has been consistent at around 5% in Sweden since Q3 last year, and about 12% in Finland since Q4 last year. 166 million compared to 201 million last year. And the results were weaker in all markets, but primarily in Sweden, which has the largest share of SMEs. The EBITDA margin reached 6.8% and the decreased profitability resulted from weak demand and pressure on margins driven by negative customer segments and size mix, partly mitigated by tough testing measures. The cost savings amount to around 100 million SEK annually and are primarily related to personal expenses. On this slide, you can see how different parameters affect the trading gross margin. And we continue increasing the share of sales related to our standard assortment in each market, and that positively affects margin. However, due to the significant unfavorable customer segment and size mix, there is a contribution margin pressure in Sweden and Norway. However, we uphold our margins on Sweden's relatively more profitable small and mid-sized customers. And if we look into the customer segment, the most significant drop in sales in Sweden is within the construction customer segment. And in Norway, the oil and gas segment continues to develop well, and both of these effects hurt our margins. On the other hand, we have a favorable customer segment mix in Finland, where the most significant drop in sales is related to manufacturing. Sales in Sweden were in line with last year. Organic growth was negative at around minus 6%, contracted by one additional trading day and exhibition. The weak organic growth primarily affected the SMEs, while some larger customers, such as those in the distance and energy industry, had a positive sales trend. EBITDA ended at 129 million, which is behind Q2 last year, and the weaker result is due to weak volumes and margin pressure following the negative customer segment and size mix, while cost savings somewhat mitigate the effect. When it comes to Norway, sales increased by 12.4%, and there was a rebound following the Easter holiday in 2021. Organic growth reached 80%, driven by a continued strong market in the oil and gas customer segment. EBITDA decreased from 29 to 26 million, and the weaker results related to margin pressure due to an increased share of sales within oil and gas. with relatively lower profitability, in addition to startup costs in the logistics center in Vestby. When it comes to Finland, sales decreased by 7.4%, including acquisitions, and the clear slowdown in the manufacturing industry in 2004 continued, and organic growth was negative at 12%. When it comes to operating cash flow, it counted to $270 million in Q4, which is slightly behind Q2 last year due to lower EBITDA and increased trade receivables. Increased trade receivables is due to higher share of larger industrial customers with longer payment terms. And the inventory levels actually decreased in Q2. The first six months investing activities related to M&A activities of 185 million, completing six completed acquisitions, and also investment in non-current assets of 61 million. The capex to depreciation ratio among the two multiples of 0.9, which aligns with our long-term target levels. And finally, the financing activities are related to increased borrowing, amortization, releasing liabilities, and dividend pay. Net theft at the end of the period was 1.7 billion, an increase from last year due to server-completed acquisitions, increased dividend payments, and decreased operating cash flow. Ratio of net theft to EBITDA was multiple of 2.0, which is higher than last year, but well within the financial target range. Unutilized credit facilities, including cash, amounted to $1.2 billion. And as you know, our covenants are relating interest coverage and equity asset ratios, and there's good headroom before reaching those thresholds. So in summary, we have a solid financial position, and we will continue to invest in organic growth and think advantage of good M&A options in the market. Sending it over to you.

Thank you. Didn't we conclude yesterday at the board meeting that the debt ratio would have been 1.9 if we had just for the increased dividend?