Alligo AB (publ)

Q1 report 2025. The presenters, as always, will be Irene Winsterborn-Balander, our CFO, and myself. And as usually, we will focus on the highlights. It's a report busy today and yesterday, so we'll keep the speed up and focus on the relevant things. This time we will bring up, you know, we normally take up a couple of themes and this time will be one growth area, which is Recare, which is being launched right now. And then we'll touch upon the turnaround project in Finland. So this is Aligo, 9.4 billion SEC turnover, 2500 employees and 243 stores, the number of stores as increased quite a bit thanks to the acquisition of the battery lager that added 27 new stores to our group. As you know, Sweden heavy in turnover, even more Sweden heavy in results and own brands as it looks 18%. But as you know, the more companies we buy, which mathematically will have zero own brands when we acquire them, will mathematically reduce the share of own brands into our group. We increase sales of own brands, but that is a mathematical effect when we add companies to our group. So if we take the two different models we work with, we have the integrated business with a brand in Sweden, the tools brand in Norway and Finland, and that business, our group as such is 48% through stores. 39% of direct sales and 13% of the non-integrated companies. So we believe in this scalable platform with Nordic functions, shared functions. It could be purchasing, procurement, logistics, finance, and so forth. And that's a scalable platform. But when the market is shrinking, it's difficult also to reduce in a similar way as the volumes is going down. So it's a brilliant upside when business is going up, but it's also more challenging when business is going down. But we have this scalable platform, and now all the pieces are in place. So to touch upon the non-integrated companies a little bit, we have this group of product media businesses, 13 to the number, half a billion second turnover. We have the welding, as you know, another competence area, technical area, six. companies with 400 million in turnover. Battery, we sell battery in the integrated channel as well, but we also acquired Batterilagret, adding some 275 million to our turnover. And then we have other areas. Markus is the one standalone workwear business. These two in Finland, HTP and RTP, I'm not even trying to pronounce it in Finnish, added 175 million to our turnover. And then we have five other businesses which are a bit separate, some of which could be included into the integrated channel at the later stage. So last year, nine signed acquisitions, added 42 stores. We acquired a growth of 4.5%, 200 employees, 750 million in turnover. And we're especially happy that we could add some competent areas in battery and in welding. So we really took the grip of the welding business and also have a nice footprint now in battery. Highlights, still a bit annoyingly slow development in the market and things which is happening around us is not perhaps pushing the turn to come quicker. So we've still been facing Some weak demands in Sweden. Norway, still the same story as always. Oil and gas is progressing nicely. We see some improvements in Finland. And we see positive market signals. We see more and more things which are in favor for us. The upcoming rotavdraget in Sweden. Interest rates are coming down. The dollar coming down is positive for us. The trade tariff war. opens up opportunities for us. So there are many things which is pointing in the right direction. But as of now, we don't really see it in the figures. But we can also say that we continue to be very prudent in which project and which customers we do take. So we want to safeguard the gross margin and not starting to go for volumes and affecting our gross margin. So that is also offsetting a organic growth potentially to a certain extent. We think we are doing a pretty good job. Despite all in the management team, we are focusing a lot on sales. We have during the quarter identified, initiated and finalized a cost reduction program, which will add or reduce 100 million SEK to the cost base at the end of the year. We've been focusing on growth by acquisitions. We are heavily focusing on inventories, even if we are adding more of own brands which has a negative effect on the cash flow so generally we're focusing on our inventory situation and price adjustments trying to adjust this market situation we are in we have a good delivery capacity Sweden and Finland since before and Vestby has now been stabilized and in much better shape more to be done but it's absolutely good enough Well, the macroeconomic factors, you can read any magazine or anything on the web. It is what it is. But we have not been, we don't sell products from the US. We import a lot from China and we sell to the Nordics. So from our perspective, this is actually not negatively impacting us. If anything, it should positively affect us going forward. So first quarter in brief growth by 2.5%. As I said, oil and gas in Norway is still stable. Irritatingly enough, still negative organic growth. So the gross revenue growth we see is acquisition driven. Cash flow of minus 38 million, more or less on the same level it was 2022. Then we had 2023 and 2024. in between when we reduced stock levels at this time of the year, heading into slower markets. So that is also a little bit of effect there. We have an adjusted EBITDA of 74 to compare with 84 last year, one trading day less, which ends up in an EBITDA margin of 3.3. And the gross margin is in line with what it was last year. If we adjust for the acquisitions made, they have a good net margin, the acquisitions, but in most cases they have a lower gross margin. So when you add those volumes to us, we have a little bit of an effect on the group gross margin. So it's stable. Highlights, focused on sales. Haven't they said that for a long time at Aligo? Yes, of course we've had, but we also had things ahead of us we needed to fix first. Vespri in Norway, Jeeves in Norway, know all the other grips we have done throughout the years but from now on we do not have many other excuses it's brutal focus on on sales we launched recare i hope you've seen it in press and other places which will be interesting to follow and the 1832 is a it's a super powerful weapon to for those customers who are more price sensitive battery logger we mentioned we can skip that and the additional cost program we have launched of 100 million SEC is already closed and done so it's not just a wait for the cost run out. ERP implementation in Norway has gone well as you know but a little bit of a hiccup during the quarter when it comes to the actual invoicing to make sure that people do the right thing. The sales person should mark an order it's ready to be invoiced And the finance function should do their part. And that process had some hiccup. So we've had an unnecessarily effect on the cash flow based on that. And the TTA, as we call it, the turnaround project for Finland, it started up and ongoing. So a little bit on prioritized growth areas. I think we've shown this picture before. We say we focus on services, focus on our store sales. We have a special focus on one customer segment, which being construction industry. we focus on own brands. So if we take the services part with Recare, it's now, we mentioned it many times, but it's now launched and we have a team working with it visiting customers and we feel it's a super competitive offer at a lower price point for the customers We already signed some 5-10 contracts. We have a good pipeline of customers coming in. And now we need to fine tune it in Sweden and make it up and running. And then it will be launched in the second half of 2025 in Norway and Finland. Our Norwegian and Finnish colleagues are eagerly waiting to launch this. Of course, it's a little bit of a process to setting up with the laundry service, sewing and repair, reuse, and then the whole process around. It takes a little bit. We need to do it in a structured way. But it's now in the market and we are marketing it and selling it. Tools turnaround project, as you've seen, it's not a new thing. It's an old problem we've been fighting with. It's the tools part of the Finnish organization has. has a profitability level which will not assist in bringing us to the 10% EBITDA margin we've set for the group as our strategic target. So we need to address it. Nobody's been able to fix it in the past. We for sure have taken the challenge and said we will be the ones that fix it. We're closing shops. We are reducing cost. We are looking at the customer base. Are we over-servicing some customers? Do we have unprofitable customers? And could we find new customers that appreciate the offer we have? So Finland, in order to contribute to our group target, needs to be on 6%, 7%, 8% EBITDA level. That is not the tools business as such. It would be enough if it is a little bit above 5%. So it's not that we... we try to achieve something totally impossible. So if the tools business is about 5%, then we can make the finish part of our organization profitable enough to add to the big puzzle of the whole illegal group. A little bit lower, substantially lower, own brand part, 11%, and only 27% in store sales. So you know that we are focusing on increasing the share of own brand and increasing the number of small and medium-sized customers, i.e. store sales. Financials, Irene.

Yes, thank you. As Clay mentioned, the trend scene throughout 2024 continued into Q1, and we have further reduced the cost base while focusing on sales. Revenue increased by 2.9% in the quarter, driven by a 7.8% growth from acquisitions, but contracted by a negative organic growth of 2.5%, one trade a day less, and FX effect. The organic sales development was weakest in Sweden, while Norway continued to be favored by a strong oil and gas sector, and sales to Finland have recovered, although from low comparables last year. EBITDA reached 74 million, a decline from 84 million last year, And the result was weaker due to one trading day less, weaker demand for the integrated business in Sweden and Finland, and a decreased gross margin in Norway. Acquired results and cost savings have partially offset the declining gross profit as illustrated in the EBT bridge. And as you can see, the cost reductions have balanced the annual salary increases and the inflation effects. related to other expenses. And furthermore, as Cain mentioned, we have initiated an additional cost-saving program to reduce the cost base by approximately 100 million SEK with a gradual impact starting from mid-year. And you recognize this picture as well. And as you can see, Sweden has the highest shares of SMEs and own brands, followed by Norway, while Finland has the lowest. And this directly correlates with profitability in each market. The higher the shares, the greater the profitability. The integrated business in Sweden faced challenges in 2024, as the wheat market primarily impacted small and mid-sized customers. However, the decline related to SMEs is now less significant, partly due to low comparable, and the share of SMEs has increased from 65 to 70 percent in the quarter. In addition, the share of own brands in Sweden has increased from 26 to 28 percent of sales of our own brands since the main part derived from this channel. And the share of SMEs and own brands has improved slightly as you can see in Finland and Norway. The gross margin decreased slightly in the quarter, driven by negative country mix and the higher share of acquisitions with lower gross margin, and also a continued positive sales trend within oil and gas in Norway. However, this was somewhat offset by Sweden's increased share of SMEs, which positively impacted the gross margin in Q1. Moving on to some highlights of each market development in Q1. And the market remained weak in Sweden, with organic growth declining by approximately 7%. And the decrease is primarily related to larger industrial customers and the reduction in one-off orders within the public sector, implying a more favorable shifting customer mix and an improved gross margin. Cost savings and acquired results have a positive impact on the overall outcome, but they cannot fully offset the weak organic sales. The oil and gas market has remained strong in Norway, as said earlier, but the sales have also suffered from the EOT change in this quarter. And the result is behind last year due to a slight drop in gross margin. And there was a sales recovery in Finland. However, it was from weak comparables. While our recent acquisitions have contributed positively to the results, the old school's business is still struggling. And as Clayne mentioned, the project initiated in Q4 to reverse the negative profitability trend is progressing, but it will take some time. Operating cash flow was lower than last year because of reduced EPIC-DA and inventory build-up of our own brands and temporary challenges in the invoicing process related to the EOP change in Norway. The investing activities primarily relate to the completed acquisition of the largest acquisition to date. And the organic investments have been reprioritized in favor of acquisitions and are lower than last year. And the capex to depreciation ratio was 0.9, which aligns with our long-term target level. If we look into the financing activities that relates to the amortization of leasing liabilities, and the increased utilization of our credit facilities explained last year's positive cash flow from financing activities. The net theft at year end was 2 billion SEK, an increase from last year due to higher acquisition pace and decreased operating cash flow. And the ratio of net theft to EBITDA was a multiple of 2.9, while 2.7 was reported to Handelsbanken as we can consider the full year expected profit from the asset ratio. The ratio is higher than last year and year-round due to a combination of lower EBITDA and increased net debt. Our covenants relate to interest coverage and equity asset ratios, and they are fulfilled at the end of the period and there is still good headroom before reaching the threshold. And despite the increased leverage, we maintain a solid financial position. Leverage remains within the financial target range and will decrease gradually. Handing it over to you, Clem.

Thank you, Eliane. Summary and outlook. And then Q125 in summary, increasingly focused on sales and launching.

We care, as we've talked about, and 1832 and finding ways of meeting the customers in a better way. And the added cost reduction program of 100 million SEC was also started. So outlook for 2025, we have very clear strategic priorities, what we need to do. and we think we have good opportunities to win customers and increase sales even in a not super growing market. We continue to refine our offer, but all the data that is more and more being visible looks more and more positive after an incredibly long and terrible time of only burdening terrible statistics. It all sums up that it should slowly start to turn in the right direction. So handing it back to you, Raz.

Thank you, sir. As a reminder to ask a question, please press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Once again, please press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. If you wish to ask a question via the webcast, please type them in the question box and click Submit. Thank you. We are now going to proceed with our first question. And the questions come from the line of Emmanuel Janssen from Danske Bank. Please ask your question. Your line is opened.

Hey, good morning everyone. Good morning, Clayton and Eliane. Thank you for taking my questions here and thank you for a good presentation. I think it was very interesting that you displayed on how big part of the group, I don't know what to call it, the legacy business, Svedor and Tools business are at the moment. And I assume then that the acquired companies at the moment are also achieving quite a bit higher EBITDA margins as well than the legacy business. Just to be clear here, I'm talking about this group margin target of 10% EBITDA margin. Should we expect that the legacy business should also be able to reach 10% or is it the group as a whole?

It's the group as a whole. The legacy business should, especially in Sweden, should be well above 10% to make this equation.

We said 12%, I think, for the Swedish legacy business.

And as you know, the challenges in the legacy business have been the cost phase. In our type of business, if volume goes down, it's difficult to mitigate to 100% in cost reduction. In personnel, you can do to a certain extent. Other costs, you can only do down to zero. But then you are stuck with the rental cost. And if we have rental costs of, Approximately half a billion sec. So that is difficult to mitigate in a continuous volume drop. On the other hand, when the volume comes back, you get a good leverage on that when things turn up.

Yeah, totally agree then. But as I think you mentioned, tools business then in Finland, somewhere around 5% over time, right? And then Norway, I don't know, 5% to 7% or?

Finland and Norway needs to be on 6, 7, 8% and Sweden needs to be on 12%. That we have all the opportunities in the world, especially when we have helped, especially Finland with good acquisitions. So we just need to get the tools business to run on a decent profitability level and then add the good acquisitions we've done. Then Finland will add to the group financial targets.

Thank you. That's very clear. And just looking at the cost base, as you mentioned, it's quite difficult to mitigate the cost increase from store rental increase, etc. But going forward, do you think that it is reasonable to believe that the comparison base for the upcoming quarter will be, I don't know if this is the right wording, but easier to given the cost reductions you have made the last couple of years? In other words, should profit development become more stable if the market remains in the same manner as we have seen in this quarter?

The biggest effects of the program we launched this year will come just before and after summer. But we all froze on the cost base last year by approximately 100 million cents during the year. So month by month we see a lower cost base, but the last 100 million package could kick in after summer.

Could you maybe give us some more details on this cost reduction?

It's a lot of different things. We are closing shops. We're even closing two in Sweden, which I wasn't really thinking that we should do. But we're co-locating as we did in the merger. We co-located 30 shops. There's nothing new for us, but we're co-locating some shops. We've been closing two shops in Sweden, which are not performing in line with what we have said. And it's a hundred person plus after all these programs we've been running during the years. You know, we have the plan B, C, D, E, F, and whatever letters we were at at the end. And now we are making another program of 100 plus persons. At this time, we need to start doing things differently. It's not savings anymore. It's taking away resources and doing things differently and really increasing efficiency. So the personnel part is quite a significant part of the

And I assume that you're willing to add on extra sales personnel if the market allows it, right?

Absolutely. And that's an opportunity we get when you bring down the cost base. When we see positive signals in the market, it's a brilliant opportunity to actually add sales resources and take advantage of the upturn when that comes.

Well, great. And you're also mentioning, I think if you're focusing on Sweden, which still sees kind of heavy negative organic sales development, I assume that we, besides trading days, et cetera, and maybe some weather effect, that they should not have the same material impact now in Q2. But could you also maybe give us some sense on how the market has developed so far in Q2? I know for instance that you are having a lot of sales initiatives. For historical reasons you also have these Svedoldays and could maybe give us some flavors on how the reception has been so far from especially the small medium enterprises.

Exactly and as you said in the Q1 we didn't even bring it up because it's so boring to talk about the weather but it was the warmest January and February since the measurements started. The signals from the market are increasingly positive and the speed all day that you mentioned has been very, very good. And it's a way that doesn't solve everything, but it's a good signal that you can activate your customers. If you have events in our shops and you have campaigns and you... For us, it's normally a signal because we have it every spring and every autumn, and that's a little bit of a good signal. Are the customers still out there or how hurt are they? But I can say that much, that it has been a positive response to the low rates we've had in Sweden this spring. Now the tools they will follow in May in Norway and Finland, but hard, hard work from the sales force in Sweden. mailing, calling, and really making the customers come to our shop. And that has had a positive effect on the sales this year, which has been incredibly good to see.

Interesting. Very good to hear. And as you mentioned, I assume when the SMEs are maybe being, starts to grow again, the SME business, that they should also be very supportive for the margins going forward. But should we also be, how should we view the larger customers? It feels like you're also mentioning that maybe it's become a little bit more unstable during Q1. I don't know if you can give us some flavor over there.

One part is probably market-driven and such, but we, as you know, we're very cautious on which type of contracts we take on, we are very, very, very strict in what level we can accept from a contribution point of view. So that has not helped the top line, but hopefully it has helped the gross margin. And our experience is that the level of gross margin you accept in a slow market is a bit sticky. So when the market turns up again, you are stuck with a lower gross margin. That's why we've been so brutally tough on not winning contracts on too low levels. So when the market slows down, it's not only that it's less volume in the market, everybody starts to act differently. The competitors, of course, act differently. The suppliers act differently and also the customers act differently. So even if you have a contract with a customer, they send out purchases on tender to all the players in the market, making the sales process so much tougher. But we've been quite strict on that. That's why we kept the gross margin on the same level. But we have not at all doped the top line by getting unprofitable contracts. So it's a combination of market and us being very strict on gross margin.

And is your feeling that you're being much more strict on the gross margin versus competitors as well?

I probably only get informed with the worst cases, but there are some terrible examples out there with low single-digit gross margins. Luckily, our people step away when that's the level. There are examples like that out in the market. Then we don't do that. We think we need to take responsibility on keeping the market sane, not doing crazy things.

Sounds fair. Looking at the inventory levels now and the overall working capital in relation to sales, it's a bit higher now versus what it has been. Do you think that this is a more stable level that we should assume and we should interpret that the cash flow should improve just from earnings are recovering or should we also see some some cash release from lower working capital going forward.

We have more to do on the working capital side, that's for sure. And we are a reasonably new organism that's much more fine-tuning to do also there. Trade payables, trade receivables, inventory levels, all over the place. We are constantly looking over the as such. Do we need to have own brands on all different products today, or could we buy that externally? So we have a lot to do. We have a homework to do in the capital efficiency.

We're aiming to get back to 24% of total sales in working capital. That was levels that we had in 2022.

Now it's at 28%, right? Or something like that. Yeah, we have a homework. Okay, great. And maybe give us also, given that the Swedish crown has strengthened that much versus the US dollar, can you maybe give us some direction on when this should start to impact your margins?

Yeah, that's a good question, and that's... For once, there are things happening in the world that is positive for us. It felt like everything which is happening in the world is to our negative cycle. This is positive. Down to 10 SECs per dollar, we said, it's more or less in the channel that the SEC has been versus the dollar the last three years. But if it's over time staying at 9.5, 9.6, of course that is positive. So it will have a positive effect. around 600 million second dollars per year so everything else the same and you can do the math what that could be as a positive effect on the results but we have been also been quite successful in the hedging so I think that the most expensive hedging we've had is 10.3 Which is bad now, because if we would have been lousy, then the upside would have been bigger. But we've been able to mitigate the worst peaks of the SEC versus dollar. But the longer it stays on this level, the much more positive for us, of course. So, yeah, it will be positive.

Yeah, great. And maybe the last question from my side before I open up for other questions. You've done a lot of acquisitions recently, and I think everyone is quite excited of this Batteriefabriken. Now, when we'll be fully consolidated now in Q2, could you maybe give us some explanation or details on how the seasonality looks there? Because they have kind of promising profitability, at least, which contributes well to the group.

It's a super nice business and batteries, as you said. There are obvious months where the battery sales is a bit slower and there are obvious months where the battery sales is a little bit higher. Spring is typically one period when the battery sales picks up a little bit. It could be both and everything which is battery needs start batteries and especially at the autumn Just as for us, that is our experience since before when it's below minus eight and then all start batteries start to suffer. So then we normally have an uptick in sales in the integrated businesses and the same thing is for battery logger. So spring and autumn and late autumn are the typical high points of that business. So they are included in the family and it's good cooperation started already.

Excellent. It will be interesting to follow the development. Thank you very much, Kay and Andrea, for taking my questions. Thank you, Emmanuel.

Thank you. As a final reminder, to ask a question, please press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. If you wish to ask questions via the webcast, please type them in the question box and click Submit.

We are now going to proceed with our next question.

And the questions come from the line of Carl-Johan Bonnevier from D&B Markets. Please ask a question. Your line is opened.

Yes, good morning, Klein and Irian. A couple of more detailed things, digging into basically the same thing you've already been asked. If you look at Batterie Belag to start, any contribution already in Q1, or is that neutral?

Oh, actually, we normally complain, continuing the discussion with Emmanuel, it actually had a positive effect in q1 uh thanks to and uh hold on i'm saying something positive about the weather the early spring helped the battery log itself uh batteries actually so so march was i guess a little bit better than it normally is so for the first time for a long time you hear me now say that we have a positive weather effect in a part of our business and that's for sure i like the trend i like the trend

And when you look at the 100 million program that you are now initiating, the 90 million you charge in Q1, is that what you see the full cost for that implementation, or should we expect more to come in Q2?

A little bit more will come when it comes to lease contracts, rental contracts for our shops.

But the payback time is tremendous. Good. But they don't recommend this work. It was more or less a big mistake. related to a lot of battery related business uh

the customer losses in an awful.

Understand, understand. So what is coming in Q3 will be in addition to your restructuring reserve, basically. And what you have seen now is great cash costs going out. Come again. We will take more costs. Yeah, looking at the lease contract, I guess that's going to be a capitalization against your restructuring reserve, or is that, and I guess most of the costs in this quarter are more cash costs?

It will be. Exactly. It's more cost than cash, because it's exactly, now I understand you. Exactly. No, we're taking the cost up front for the shops we're closed now, but yeah.