Alligo AB (publ)

Welcome to Aligo Q3 report 2024. The presenters today will be our CFO, Irene Wittenborn-Melander, and myself, Klein Ullenvik. Those pictures are only two weeks old. I didn't think I could reach a new level of pale and gray, but I did, obviously. But our CFO looks alive and well. It's a report busy day, and as always, we'll focus on the highlights. And as per your request, the theme of today is welding. So Aligo, we've had, as you know, sometimes many slides describing the Aligo group, and they have become fewer and fewer. And this time we only show one slide. So unfortunately, still a bit shy of 10 billion SEC turnover, 2,400 employees, 215 stores, I think actually it is now. And what is good is that we now have one concept brand per country by many other smaller companies within our group. But main concept brands are tools in Norway and Finland and Svedal in Sweden. So highlights, the market is still weak and we are still suffering a lot from our beloved small and medium sized customers that we love a lot. They are suffering. we together with many others had hoped to see some signals in the sales figures by now that that market is recovering that is yet to be seen but we still hear positive signals we as a management we reflect every day have we done whatever possible to drive the group forward and I think we can conclude that to the greatest extent we think we've done that we try to find areas where it's stability or even growth. We continue to focus on acquisitions. We were very early on identifying the potential downturn in the market. So we've been working with cost structure and efficiencies the last year and a half or even more. Fine-tuning our inventory levels and working with price adjustments, partly in the high inflation environment and now heading into a very low inflation of our environment, possibly that's often perhaps even in a deflation environment. So not pricing ourselves out of any important customer segments. So the delivery capacity, the group is stable in most aspects. We are still working with fine tuning the new warehouse outside Oslo, Norway. And we have some things still to be done, but it's moving on in the right direction. And macro factors, I don't even need to communicate it. It's obvious for everybody, I think. Q3 in brief, slight growth driven by acquisitions mainly. Operating cash flow quite a lot above last year but on the other hand EBITDA quite a lot down. Irene will come back to this in a while so I don't need to dig into too many details. But the adjusted EBITDA margin down from nine to six point four percent and the gross margin It's reflected in the mix of our customer segments, but we'll come back to that as said. Highlights, we have linked the already existing loans we had to sustainability targets. We think that it's a signal that we are doing the right things and we're taking sustainability in the greatest respect and have a great focus on that. We continue to do acquisitions. Completed four of them during the quarter, 220 million in the turnover. And two of them in the welding segment, come back to that shortly. And two other acquisitions have also been in Finland, which is fun. At least one of them very much focused on the defense industry in Finland, which is to say somehow, unfortunately, predicted to have a good future sales-wise. And we are investing in sales. We have appointed two Nordic sales segment managers, one for construction, one for industry. And we are actually investing in people in positions to drive the right type of sales. So to go into investments, just when we say investments, what do we mean? So if we look at this slide and from the down left, We have, since a while, been working with own products in price-sensitive areas where we can strengthen our competitiveness. One being Inno in fasteners, we've talked about that before. One being 1832, which is a professional, high-quality workwear brand, our own, but at a little lower price point for the very price-sensitive customer segment. So as a step-in brand, for parts of the assortment, 1832 will play a very important role. Then they have ProWell, sounds like a shampoo, but it's actually hand tools also to take that position of a little lower price position, but a very good product and then award in the more technical product, workwear, lighting and so forth. Then one step up, we are focusing on services, smart services you heard us talk about before. That we are focusing even more on, but we are now launching smart wear, where we can have sewing services, laundry services and so forth, which is a big market and we have not been active there yet. And it's good for many different reasons. First of all, being that you first sell the workwear and then you can have a recurring business when you actually do the laundry and the adjustments on the workwear going forward for many years. And as I said earlier, reinforced sales organization, the two segment managers whose main responsibility is to put together an offer, which is perfect for construction customers and manufacturing customers, making sure that we have the right assortment, that we have the right service segments within the bigger segments that actually shows growth, for example, in construction. If housing construction doesn't pick up, there seems to be a sound issue But hopefully I'm back on track. I'm not quite sure where we got lost, but just to finalize where the investment areas, we have the services, smart service and smart where we invested a lot in. We try to focus on the growth areas available in construction and in manufacturing. In construction, it is in the infrastructure side, it's predicted to have a growth and then the service sector and in manufacturing, we try to sell Historically, we have delivered a lot within the tools and supplies area. And we have an undershare of work towards the manufacturing industries. So there we invest and we have hired people to assist our key account managers. I hope you didn't lose too much of that slide. So if we then move into welding, as per your request, and looking at the map, it starts to feel good. We've made six acquisitions since June last year. we have more than doubled our welding sales. We had pretty big sales towards welding before, but now we have more than doubled it. And it includes the welding machines, consumables, service repair, training, and even rental. But looking at the map, as you can see, two good ones in Finland, plenty of them in Sweden, and we already had a pretty big existing welding business in Norway. So why is that a good fit for us in Aligo? First of all, it's technical sales, and we'd like to move the group more and more into technical sales to actually add expertise to our customers. We also want to be closer to the customer's process, and the welding companies are really involved. And by that, you also get a long-lasting relationship. Many of these companies have decades-long relationships with their customers. And healthy margins. So we have a customer base within Aligo within the tools that's for all brand with customers that needs a better welding offer which we now can offer with these companies. The relationships are mentioned and there is good synergies to extract first of all with the welding companies within them to focus on the right assortment but also to sell more of product available from the Aligo group to these customer categories. So welding is getting into more technical sales, closer to the customer process, to their own processes, and to gate tunities. So they will be kept as specialist entities, not being integrated and lose their identity. And it's already started, this coordination, which is so nice to see, where, take Westerås, for example, where we acquired Brantiti, They are, as we speak, sitting down, looking at the customer list, which customers did the Svedal district have, which needs more welding, which customers did Brandt & Stig have that needs more tools and workwear. So that work has already started and it's good findings coming out of that. And we have done a lot, but there is more to be done within the welding side. We see great potential to continue to grow organically and through acquisitions. Yeah, so eight acquisitions during 2024, adding a little shy of half a billion SEC to the sales when it's a full year effect, so to say. So financials, Irene.

Yes, thank you. As Clay mentioned, the same trend that has been seen throughout 2024 continued into Q3. The wheat market has primarily impacted small and mid-sized businesses, and negative customer mix effects have hurt our contribution margin. Revenue increased by 1% in the quarter. The negative organic growth in Finland and Sweden continued, ending at minus 3%, but it was offset by a position-driven growth of 4.8%. EBITDA reached 137 million SEK compared to 191 million last year. And the result was weaker in all markets, but primarily in Sweden, which has the largest share of SMEs. The everyday margin declined to 6.4%, and the drop in profitability was driven by weaker demand and margin pressure caused by unfavorable customer segment and size mix effects, as well as disruptions at the logistics center in Zestbygd. This slide, you can see the parameters affecting the trading gross margin. And as you can see, we continue to increase sales related to our standard assortments. However, the share of sales of our own brands has decreased due to recent acquisitions and the customer mix with a larger share of industrial customers find fixed assortments of external brands. The wheat market has primarily impacted small and mid-sized customers, and the decline in the share of more profitable SME customers in Sweden negatively impacts the group's contribution margin by 0.6%. However, we continue to uphold the margin within the SME segment in Sweden. In Norway, the oil and gas segment continues, to develop well and represent the higher share of total sales. This development has negatively impacted the group's contribution margin by 0.3%. In summary, the negative customer segments and seismics in Sweden and Norway are the main explanations for the 1.1 percentage point drop in contribution margin in Q3 compared to last year. Looking into each market, we can say that sales in Sweden increased by 1.5%. Organic groups was negative at around minus 5%, contracted by six completed acquisitions, four of which were in the welding sector. And the weak organic groups primarily impacted SMEs, while some larger customers such as those in the defense and energy industry had a positive sales trend. EBITDA ended at 97 million, and the EBITDA margin reached 8.3%, which is behind Q3 last year. And the decrease is due to weak volumes and margin pressure caused by unfavorable customer segments and size mix, while cost savings somewhat mitigate such effects. Places in Norway were in line with last year, including through acquisitions. Organic growth reached 2%. driven by a continued strong market in the oil and gas customer segment. And when it comes to Finland, sales were in line with last year, including two acquisitions, and the clear slowdown in the manufacturing industry in Q4 last year continued, and organic growth was negative at minus 8%. and when it comes to cash flow uh the third quarter is definitely the weakest quarter from a cash flow perspective operating cash flow improved from last year and amounted to 160 million sec and weaker sales and work with decreasing inventory levels have had a positive impact while lower mbca and the customer mix with larger share of larger industrial customers with longer payment terms The first nine months investing activities are mainly related to M&A of 290 million, from 1510 completed acquisition, but also investment in non-current assets of 80 million. CapEx2 depreciation ratio amounted to 0.8, which aligns with our long-term target level. finally the financing activities are related to increased borrowings amortization of leasing liabilities of 288 million and dividends paid as you can see methods at the end of the period was 1.8 billion and increased from year end due to the completed acquisition and the increased dividend payments but still in line with september last year The ratio of net debt to EBITDA was a multiple of 2.2, which is higher than last year due to lower rolling 12-month EBITDA, but still well within the financial target range. Leverage is expected to improve year-round, following that Q4 is the seasonally strongest quarter. And as Clint mentioned, our existing term and revolving facility were sustainability linked in Q3, and this will impact the interest rate slightly from Q1 next year, up or down, but at maximum 2.5 basis points, depending on whether we perform on the sustainability target. Unutilized credit facilities, including cash, amount to 1 billion SEK. And our covenants relate to interest coverage on the equity asset ratios. And these are fulfilled at the end of the period, and there is good headroom before reaching the threshold. Handing it over to you, Clem, for summary analysis.

Very good.