Addnode Group AB (publ)

Thank you all for listening to our Q1 presentation for 2021-2024. I'm the CEO, Johan Andersson, and with me I have our CFO, Kristina Elström-McIntosh. We will guide you through the interim report today and also a short introduction to Adena Group before we start. So with that, and we will of course end with a Q&A. And for those of you who are new to our group, if we did not mention it, reporting currency is Swedish crowns. So looking at Adler Group, what do we do? We are all about digitalization for a better society. This is why we exist and what we want to achieve in everything we do. We believe digitalization is the only way to provide decision basis for our future. We are confident in the capacity of humanity to do good and make sustainable decisions if the tools are right. Our digital solutions transform the private and the public sector to design, build and operate more sustainable products, buildings and societies. Our key markets enjoy a strong and continuous growth driven by global trends in urbanization, digitalization, automation, AI and sustainability. To clarify what we mean by digitalization for a better society, we have updated our brand identity, which is reflected in our new visual identity, logo, website, and the interim that we have published today, interim report. We are a decentralized group organized in three divisions, division design management with companies specialized in design, BIM, and facility management software, The offerings in the division is both own developed software, and we are one of the largest Autodesk partners in the world. Division product lifecycle management are experts in software and digital solutions for simulation, design, and virtual twins, led by the company Technia, a global partner to Dassault Systèmes. Division process management is a portfolio of companies specializing in case management and geographical information solutions for the public sector. Adder Group, we are an add-on growth accelerator for digital companies, providing for a sustainable future. We invest in companies within software, digital twin solutions, and lifecycle management solutions, all with the intention to increase efficiency, predictability, and increase knowledge to build a more sustainable society. While operations take place in our companies, we act as a catalyst to amplify their performance. We do that by providing resources, knowledge and support, and we speed up growth and expansion. At the core of our sustainability agenda lies the management of the operation of companies to deliver digital solutions to clients that will enable them to deliver sustainable products and service to their customers. Looking at, we will also take the opportunity to present a few sustainability cases, what we're doing for our customers. You will find more of them in the appendixes, and you will also find more on our website. So please take the opportunity to update yourself on what we're doing. We will not spend so much time on that in this presentation here, but I want to make sure that you know where you can find information. So looking at AdNord Group in numbers, We are a large cap company, 2,700 employees. This morning we had a market cap of 15 billion. We have a net sales trailing around 7.8 billion SEK. We are in the result about 0.7 billion SEK. We're active in 19 countries and you as a shareholder have received a return of investment by 247% for the last five year period ending this quarter up until today. So with that, as an introduction to Adnord Group, let's step into Q1. Q1 2024. We started 2024 with strong growth, earnings improvements, and a strong cash flow. Stronger market in the US, the acquisition of Team D3, and cost efficiency measures contributed to a 15% increase in earnings per share. Net sales increased by 22%. to say 2.4 billion, and the EBITDA margin improved to 10.5% compared to 10.2%. All divisions contributed to the increased EBITDA, with the big effect year on year coming from the acquisition of Team D3 and cost efficiency in both division design management and product lifecycle management. The first quarter is a strong quarter due to a high volume of Autodesk agreements up for renewal in Q1. We have a seasonal pattern with a strong Q1 and a stronger finish in Q4, but with a slower Q2 due to this seasonal pattern. And this has also been enforced with acquisition of TMD3. Cash flow from operating activities increased to 381 million. The first quarter is traditionally strongest in terms of cash flow, as a large share of our support and maintenance contracts are invoiced in advance. And with that, an introduction to Q1, I would like to hand over to our CFO, Christina McIntosh.

Thank you very much. And I'm going to go through this slide. We have three graphs that I'm going to take you through. And if we're starting from the left, you can see our trend in net sales over the past five years. And the last year is the rolling for the last 12 months in 2024. And you can also see that the ad node has had a substantial growth mainly in the last three years in net sales. And we ended the last 12 months about 7.9 billion SEK. You can also see that the EBITDA has increased from last year. We saw a slight drop between 2022 and 2023. Now the peak is going upwards. Moving then to the pie chart in the middle, we have a graph over the different categories of sales. And you can also see that the recurring revenue amounts now to 76% of net sales. and the recurring revenue consists of both third-party sales and also revenue from our own solutions services about 20 percent had an increase of 11 percent in the quarter and that also consists of services both related to our own software offerings and also customer specific solutions and the total growth for the Quarterly, mainly relating to acquisitions, as Johan just presented. And then going to the graph, pie graph, all the way to the right side, we can see a split on sales in geography. And you can also see that the US market now is 34% of total sales. And that is now the third quarter in a row where the United States market has been the largest one. Previously, Sweden was the largest market, and it's number two now of 25%. And by that, I would like to hand over to you. I'm going into more details about the divisions, individual divisions for the quarter.

Thank you, Kristina. So looking first at the design management. Net sales increased to SEK 1.6 billion. It's a growth of 34%, which was acquisition related. Organic growth and currency adjusted organic growth was minus 1%. EBITDA increased to SEK 168 million and the EBITDA margin was 10.3%. The acquisition of Team D3 completed in July, 2023 contributed positively to net sales and earnings for the quarter. And cost reductions implemented in the U.S. operations in 2023 contributed also to the division's improved earnings. The first quarter is a strong quarter, as I mentioned before, for Symmetry, due to a high volume of Autodesk agreements up for renewals. We can also see that we were able to increase the sales of three-year deals that also contributed to the net sales in this quarter. Looking at demand, demand for symmetries offered to the engineering industry remains stable in both Europe and USA. While we can see that demand from architects and technical consultants is on the rise in the US from a low volume, but we are seeing a slowdown in Europe from a high demand. Looking at ServiceWorks Global, which provides digital solutions for facility management, and Trivia, which provides collaborative solutions for the construction infrastructure sector, we can see continuous stable growth. So all in all, a good quarter for design, showing that we are able to grow and with acquisitions, hold the organic growth stable. Of course, minus 1%, but it's quite okay in this market. And we can see the positive effect of the cost reductions. I would like to take the opportunity to remind you that we are entering a phase with a new transaction model for the Autodesk business. This will mean if you look at the, this is a display of what we will see, an illustrative way of what is happening. It's not related to an actual number, but it shows you how the business model will change. In the column current, VAR model, you will see that what happened is that today when we sell on Autodesk, We get a cost of sales from Autodesk that gives us a gross profit. Going forward, we will get a commission on the sales of the Autodesk software that will also have the impact that we will have no cost of sales. This will also mean that our gross profit margin will go up on the business. We are expected to have a similar gross profit and similar earnings out of it. But our gross profit and our EBITDA margin will go up. This will happen in the U.S. market starting June, has been communicated both to customers and other markets. In Europe, it's expected to happen later. The exact date has not been communicated for that yet, so we'll have to come back. But what has been communicated is that this will happen latest 2025. So with that, let's move on to our PLM division. For PLM, net sales increased to CEC 454 million. It's a growth of 5 percent. Organic growth was 3 percent, and adjusted for currency, the organic growth was 2 percent. EBITDA increased by 58 percent to CEC 41 million, and the EBITDA margin increased to 9 percent. While market conditions remain stable, customers' decision-making processes related to larger PLM system projects are still slow. However, the division's positive and well-established customer relationships frequently present opportunities for upselling of design and simulation software and expanding current assignments. Customers are continuing to demand time-finished leasing licenses instead of licensed purchases with perpetual right of use. We're going more to a rental model in practice. The restructuring measures implemented in 2023 have had a planned impact. The cost level has been reduced and the delivery organization's utilization rate has improved. So all in all, we can see that we're able to increase profit as we expected due to the measures that we made in 2023. And the market is what we call stable, meaning that nothing has really changed in the market. still taking a little bit slower for bigger projects, but we're able to expand current offering. So looking at what we did at Adnord Group, we are a growth platform for entrepreneurs. We acquire and support entrepreneurial companies in the effort to become even better. We support our companies in the growth journey by providing not only capital for product development acquisition, but also valuable knowledge and an extensive international network of experienced leaders. 2024, we have completed three acquisitions, and we see good opportunities to carry out further acquisitions during the rest of the year. Our latest acquisition is Optimec that you can see on this slide. It's a good example of an add-on acquisition supporting Technia's growth strategy to be the best assortment partner in the world. Optimec adds simulation competence and customers within research and development and manufacturing in the automotive, aerospace, industrial equipment, and consumer packaged goods industries. Optimec are 20 employees and has a net sales of 640 million. So looking at process management, net sales increased to 342 million. It's a growth of 2%. and adjusted for currency, it's still 2%. Demand for case management and geographic information systems in the public sector remains stable, with some restraints continuing among municipalities and public authorities with respect to new investments in large projects. But the division's good and well-established relationships with the large public sector customer base frequently present opportunities for recurring sales and expansion of current assignments. Here we can see that Easter came early, so it means that we had a slightly few working days in this division compared to last year. But the EBITDA increased to $665 million, and the EBITDA margin was stable at 19 percent. So with that and the introduction to our divisions, I would like to hand over to our CFO again.

Thank you for that. I would like to take you through the cash flow for the quarter in comparison to last year. Looking at the cash flow from operation, you can see that it was a strong quarter. It amounted to 381 million SEK compared to 69 last year. The increase of 112 million SEK in the current quarter was attributable mainly to the operating profit increase and also positive change in working capital in the quarter. Looking at the investment activities further down, you can see that it's mainly had an impact of the quarter, the investment and acquisitions in the quarter. It ended up at 142 million. and that is also includes an earn up payment for previous acquisitions and also for add node it's important that we do invest in our own solutions and future products that is key for add notes continuation and we continue to do so and they invested approximately just over 40 million sec in the quarter in in capitalized development costs. From the cash flow from financing activities mainly relating to the lease and also in additional loan for one of the acquisitions in the quarter. I would also like to draw your attention to the proposal by the board of directors to the AGM. a dividend of one krona per share, and that is intended to be distributed to the shareholders in the middle of May 2024. So that was the cash flow, and then we're moving on to the financial position of the company. And here you can see a balance sheet, an operating balance sheet, and you can also see that we continue to have a resilient balance sheet. strong balance sheet which is important for the foundation of our continued growth both organically and through acquisitions. And also you can see that the changes in the balance sheet is mainly related relating to the acquisitions of the three companies that we just recently made and we also have a slightly change in the currency which also had an effect on the balance sheet. And going down, you can see that the net working capital is negative. We continue to do so, and our business model allows us to operate with a negative working capital. And moving down the line to provisions, taxes, and other debt, that's where we have our earn-out for the recent acquisitions and the past acquisitions. And after March 31st, 2024 the total earners and other liabilities to sellers were around 0.6 billion SEK and the majority of course is relating to the acquisitions in the United States. We had a net debt of 860 million SEK And you can also see that that is a decrease from year end, which was in December 2023, by 183 million SEK. And that was mainly due to the strong cash flow from operations. Finally, I would also like to mention that we have owned shares held in custody. It's 1,210,000 owned B shares. And the purpose of that is for the upcoming incentive programs that we have outstanding. And you can also further down see that the cash position was about 1 billion net increase from 300 million last year, the end of December. And we have total facilities of 2.6 billion, and we have unutilized about 1.1 billion of those that are available for future acquisitions and growth in the company. So that was the balance sheet, and I would hand back to Johan, who will discuss a little bit more about Adnode as an investment.

Thank you, Christina. Before we enter Q&A, I just want to take a few minutes to remind you about what you can expect from Admin as an investment, basically what is our strategy going forward. It's the same in short. We see that the demand for the digital solutions offered by companies extends beyond and across economic cycles, driven by customer needs for digitalization, automation, urbanization and sustainability. Our strategy is to, with a sound risk-taking, capitalize on these trends by continuously acquiring new businesses and actively supporting our subsidiaries to generate sustainable value growth and drive organic earning growth. We have a business model with a high portion of recurring revenue, usually prepaid, giving a solid cash generation. Looking at our customer base, The 10 largest customers represent 6% of net sales, and the 100 largest customers represent roughly 23% of net sales. It means that we have a good risk diversification there. As of now, the economic situation remains uncertain, but in demand in most of Adno Group's market is stable. We will continue to pursue daily improvements while also investing in new digital solutions and acquisitions. I believe that the strength and capability of our companies, our healthy financial position and our acquisition capacity provide a solid foundation for continued value creation. So with that as an introduction to our Q1, we would like to open up for questions.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Daniel Thorsen from ABG Sundal Collier. Please go ahead.

Yes, hi. Thank you very much. I start off with a question on design management and the new transaction model. You said that it's going to start off in the US in June here. How should we think about the facing of that transaction model? I mean, how much is going to affect your sales development in the coming quarters? In your illustration, you showed that sales are down some 55% and that's kind of end of 2025. How much do you think that will affect Q2, Q3, Q4? Is this something you can indicate?

Looking at Q2, we will not see that much effect because what will happen is that it will be one out of three months only in the US market. So it will not affect what we are doing in Europe with that. So roughly half of the business for one third in Q2 in design. And then we will have this sort of Q3 and Q4 you will have the effect in the US market because it will continue basically and Europe it's a little bit tougher because there is no date set so I can't really give you that date but I don't expect it to happen because looking at what happened first first it was it happened in Australia in Q4 and then it took a couple of months to do it in in the us now and then we'll probably take a couple of months before it is introduced in europe as well so that's probably the best reaction i can give you right now but what we have done in the meantime to help you sort of evaluate the business going forward as well is that if you look at the interim report we have a news there and that is that we are displaying gross profit by division so that means that going forward from q1 and this report you will be able to see gross profit for each division going forward And that is probably the best to follow any progress in the business going forward and sort of trying to take out the effect of the transaction model.

Yeah, no, that makes sense. Of course, that's helpful. And a follow up on that one, the seasonality in design management, you said that Q1 is strong because of Autodesk's fiscal year and so on. How should we think about sales and gross profit in Q2 versus Q1? I mean, is it going to be lower from that effect? Or how does it look with Microdesk and Team D3 now into the books?

Yes, it's going to be lower. And there's definitely a cyclicality. If Q1 is the strongest year for our Autodesk business, Q2 is the lowest. Yeah. And we have had that effect if you go back historically as well. And then we had probably 2022 was an abnormality in that sense. But if you look at the rest of the years, And in 2023, even though 2023 was disturbed by sort of a downturn in the market as well, you can still see that Q2 was the sort of where we have the less renewal of contracts. So don't be alarmed if Q2 is performing less than Q1, because that is according to plan.

Yeah, that's clear. Final question for me in process management. Do you foresee further pressure on organic growth during 2024 from constrained IT budgets for public customers, which we hear from lots of other companies here in the sector?

We don't expect any sort of high growth in that. We are right now traveling around 2% organic growth. There is possibilities to do that going forward as well, but we don't expect to do more than that. We have a lot of ongoing, like we mentioned, that even though we're not, the tenders are sort of less in right now, but we still have a solid customer base and we are, so there is opportunities to do business, but we don't expect any high growth there.

Yeah, that's clear. Thank you very much. Thank you, Adam.

The next question comes from Daniel Gerberg from Handelsbanken. Please go ahead.

Thank you, operator, and good morning. And congratulations, strong results, clearly impressive, good OPEX discipline, much better than some analyst was thinking about. Yeah, but the question then, starting off with design management, obviously I had more or less the same question as Daniel, but perhaps is it possible to do any lesson learned from Australia, i.e. when we talk about other risks and, you know, the top line, you know, losing face time with customers or if it's larger vendors in the channel that gets out better than smaller or any lesson learned really that you could help us with.

Thank you, Daniel, for your question. Still early. So I would say that we haven't really sort of any big conclusions, right? But I think it's important to understand that half of the gross profit from our operations within or what I would call our Autodesk business in Symmetry is from own add-on products to the portfolio services. And those will still be continued to be invoiced from us as well. So that will not change that. So customers will still get an invoice from us. I think we are in a good position with regards to that. What will change now going forward, and you know this, Danne, but for the rest of the call probably is that we will still be the one facing the customers, having a discussion with them, send them a quote, but the actual invoice will come from Autodesk. So that is sort of the big change with regards to the customer relationship. And with that, we haven't seen it, but we truly believe that there is a There's a good thing about being big in this because it means that you can invest and you can transform and you can make sure to do necessary things with administration and come out as a winner. We truly believe that. But it's too early to say that we can draw that conclusion from the changes being made in the Australian market because it's just a few months. But that's what we are expecting and still to be proven.

Yeah. And your best guess on Europe, should we expect it this year or is it a 2025 entry? It could happen this year.

If everything is going along with things in the US, it could happen this year. But we can't make any promises about that because we are not fully in control of that. Of course.

And if I may ask also on changes in working capital, it seems to be strong in the quarter, and if you can help to give some more details on the accounts receivables, if it's shorter DSOs or volume effects, invoicing later in the quarter or earlier in the quarter, or on the other side of the balance sheet that is helping you. Thanks.

Yes, it's mainly the improvement in the operating cash flow. It's mainly relating to design, also in design management division. And we can see that the cash flow from accounts receivable has improved somewhat. So that are the major reasons for the improvement.

Okay, thanks. No more questions from my side. Thank you and good luck in Q2. Thank you, Daniel.

As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. The next question comes from Mikael Leysin from Carnegie Investment Bank. Please go ahead.

Yes, good morning. Hi. I have three questions. First of all, You mentioned that an increase in three-year agreements has supported sales growth in the design management segment. Could you please elaborate on this impact and how we should consider this contract mix in our expectations for the coming quarters and how this could impact decisionality in going into Q2 from Q1?

Thank you, Mikael. What we said is that we could see that we Earlier we said we were expecting that sales of three-year contracts as of October would expect to be dropping. What we can see is that we are able to uphold that sales of customers contract. And I don't really expect it to change the seasonality because it was something that added to what we did this year. It was not sort of what explain the total growth, but it totally added to the growth. So that's, I just want to stress, it's not the main thing that's happened, but something that added in Q1. And then looking at Q2, as we are saying that we are able to uphold the sort of lever for years agreement, it could have a positive effect on Q2, but still we have a lower contract base in Q2 in total. So don't expect any sort of high editions of that, but it could still add to it in Q2. And what happened is that probably when things are happening in the market, some customers want stability. So basically what I'm saying with this change in the transaction model, there are some customers who feel comforted comfort in being able to secure their contracts for the coming period during the transition because you have to remember this is very sensitive to their businesses because this is their main tool that they are using to produce value for their customers and then they want to lock in what they're expecting to pay for it. So it could be some part of that driving the sort of the sales of three-year contracts as well.

Okay, so going into Q2 sequentially, you don't expect any major mix shifts in the contract length, but probably then, of course, year on year, it could be supportive.

It could be supportive year on year, but we are not expecting that it will sort of have, I don't know, sort of a one could argue that would it have a negative effect on Q2 because we're sold more now in Q1. No, we don't expect that. And the other way around, we don't expect any sort of big changes. So it's more that we can sort of continue to sell three-year contracts. If we earlier on believed that it was harder to sell them, now we can see that we're still able to do that. If that makes sense.

All right. Yeah, got it. That's right here. And could you also discuss the market activities in UK, Germany, and the Nordic region for the design management of product lifecycle segments?

more in detail please what's going on there so if we start with the design you can see that we still and then you have to look at different end customers if you look more at engineering discrete manufacturing for design for example but it's basically the same for PLM as well we can see that there is a stable market there and the customers are because they are using these tools for R&D for design of new products and it seems like they are and we have a broad customer base and they are still sort of using these softwares, a stable market, I would argue. And that goes both from Nordic and the UK and sort of the Northern Europe where we are active in. And then if you look at more of the AAC market, meaning architects, engineering and construction, we can see that we have had a sort of a very, not high, but a good growth in the UK and in the Nordic market. And we can see that it's slower now, still sort of good, but it's coming from a very, not strong, it's not right, but a solid demand. And now it's a little bit less, but still stable, I would argue. So it's going down, but still okay, if you look at the EC market.

Okay. But you still have growth year-on-year for the AC side? No, we don't.

No, not in Q1, no. But it reflects, if you look at, we had a minus 1% growth. So you can organic growth in the division, and that probably reflects where we are.

Okay, fair enough. And just curious here if we could also disclose gross and margins or gross results from the historical periods Q2 last year, for example, if you have any plus for that. I couldn't find it in the report.

You can find it in the, if you go to the report, I think it's page.

We have it in the, at the back in the key figures in the table.

have the page okay excellent yeah so you can have it because for the last two years you can find it for all divisions yeah for from page 20 and forward by division profit etc so you can find it there could i also ask another question final one if i may it's a follow-up on the previous question that you got um if you have any feedbacks or insights from

Discussing this transaction model change with your customers, what they think and how you prepare for this operationally. What are your plans and what is the feedback?

If we could start with the planning, this is something I've planned for a long time, both with how you talk with the customers, go to market, operations, administration, et cetera. So I think that's sort of on a good path. And with regards to the customers, it's quite new to them because even though we have sort of known it for a long time, they are getting the message now. It was explained to them externally in Q4. And then, to be honest, all of the customers, they are in the progress of sort of understanding it. So far we feel that we can handle it and they still believe that we are the one that they are doing business with so I don't think that has changed from the customer perspective so So I would always please ask me that question the next time we meet and then I probably have some more flavors of it and then we have seen the first implementation of the new transaction model and that's usually when you sort of get the proof of the funding so So I Please ask me that question next quarter, and then we'll have some more flavor to it. All right. Thank you so much.

The next question comes from Anton Hu from Redeye. Please go ahead.

Hi. Good morning. Two quick questions for me. The first one is on design management. I mean, Team G3 seems to have had a large contribution over Q1. compared to recent quarters? I mean, is that mainly due to seasonality and their market or the integration being fully completed?

Thank you for the question. Team D3, they started out in Q3 last year was the first quarter that they were part of Admiral Group. And that was sort of an integration quarter, meaning that they were not contributing profit-wise in that quarter. The third quarter last year, that was they performed as expected and as according to their business plan. Q1 here, definitely they contributed and argued, and they have the same seasonality than the rest of the Symmetry business. So yes, they performed well, but they also have a seasonality like the rest of the team as well, adding to it. So I think it's both a mix of that they are performing as expected, and on top of that, you have the seasonality as well.

And the integration is going the right way.

Yeah, definitely. Really good team. And we do like them. Good.

And the last one is on the Autodesk model. If you can remind us of the cash flow impact. I mean, now when Autodesk will invoice the customer, will it take longer time for you to get paid from that customer?

Yes, I can try to answer that. And As you know that we will now receive a commission income instead, so that volume will be lower. We are benefiting from the larger sales of the actual solutions, out of the solutions today. But we also must remember that we are repaying the supplier also in that sense. But in some instances in the three-year contract, we still can receive an upfront payment for the three years, even though the customers are allowed to pay sequentially year after year. So we still expect the cash flow coming in as a net profit or a net cash flow in the same way as it did before. But of course, the three-year contract could have an impact on the code.

But we are not expecting any big changes in the net cash flow with regards to timing, etc.

So we're still expecting to operate with a negative balance sheet going forward.

You don't have to wait for Autodesk to, let's say, get paid from the end customer, and then you have to wait 30 days for Autodesk to pay you.

No. What Autodesk is saying and what we are expecting is that the cash flow and operating profit is expected to be similar to what it is today. What will change is that we will receive a commission instead of the selling to the customer get a cost of sale. So that's different with regards to the earnings that we're expecting from it and the cash flow. It's sort of the same patterns going forward that we're expecting.

Good. Okay. Thank you.

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Thank you all for listening to