Addnode Group AB (publ)

welcome to the adnode group q4 presentation during the questions and answer session participants are able to ask questions by dialing pound key 5 on their telephone keypad now i will hand the conference over to the ceo johan anderson and cfo christina mcintosh please go ahead

Hello everyone and welcome to this presentation of Adner Group's year-end report for 2024. I'm the CEO of Adner Group, Johan Andersson, and with me today I have our CFO, Christina Elster-McIntosh. We will spend the presentation on Adner Group, our Q4 full year, talk about the specifics about the divisions, our balance sheets, and with our investment case, and then we will open up for a Q&A. And for those of you who are new to AdnoGroup, I would like to remind you that our reporting currency is Swedish crowns. So AdnoGroup, we're all about utilization for a better society. For innovation and continuous development in close collaboration with our customers, we create digital solutions for specific needs. The software and digital solutions that we provide, design buildings, infrastructure and cities, and also the products that we all use every day, like cars and all the way through to life science products that we use. When things have been designed and built, it needs to be maintained with a lifecycle perspective. And the public sector also has a responsibility for rules and regulations. Adno Group, digitalization for a better society. So 2024, it was a transformative year for Adno Group. I'm proud of our employees' efforts over the year, a year in which Admiral Group continued to invest in product development, launched new digital solutions, attracted new customers, and carried out acquisitions, resulting in increased earnings. Over a year ago, we informed about changes to the coming business model for our Autodesk business. During 2024, we have successfully navigated the transition from a reseller to an agent model. It has clarified and demonstrated the value of our proprietary products and services to our customers. Christina will later describe that we actually have delivered what we said a year ago. Yes, net sales will go down, but gross profit, EBITDA and cash will not be affected, resulting in higher margins. 2024 was Adno Group's best financial year ever, and all divisions delivered their best earnings to date. The strong operating result was supported by strong cash flow and return on capital employed. Ten years ago, EBITDA was $768 million, and 2024 we delivered $863 million. We are delivering on our growth strategy, combining organic growth, providing digital solutions for a better society with a value-creating acquisition strategy. So with that, I would like to hand over. Before I do that, let's talk about business conditions this quarter. Our customers' drive to increase their sales and operate more efficiently using digital solutions remains strong. However, the economic and geopolitical situation remains uncertain. The economic situation still has a hampering effect on decision-making processes concerning new and larger system projects. Demand for design and PLM solutions to manufacturing industries were stable in both US and Europe in Q4. However, Germany, which accounted for 10% of the group's net sales in 2024, has been a challenging market and expected to remain a challenging market in 2025. We are seeing indications that the architect markets in both the US and Europe is bottoming out as layoffs among architects have slowed. The demand for case management and geographic information systems from the public sector remains stable. While the number of tenders from the public sector has decreased, our assessment is that we are gaining market shares in terms of the number of tenders won. Annual groups diversified operations with strong positions in segments with structural underlying growth provide a solid foundation for continued sustainable value creation. And with that, I would like to hand over to our CFO, Kristina.

Thank you, Johan. And I would like to start to presenting the Q4 results. But first, I would like to highlight some of the effects that we can see in Q4 on net sales. And as Johan also said, we have informed about 12 months ago that Autodesk has introduced the new transaction model with the transition from a reseller model to an agent model. And we have previously communicated that both net sales and cost of goods sold would decrease, but gross profit and EBITDA as well as cash flow would remain unchanged. And this is what we can see now also happening. And the EBITDA margin as the base is lower would increase. And these effects are now visible both in Q4 and Q for the full year of 2024. During the end of this process with the transition to the new model, we have also reviewed other third-party agreements that we have in the group. Where we have identified that Adnode could be considered as an agent, we have also reclassified NetSales for these agreements in line with an agent model. We have informed in the report that NetSales has been reduced by this reclassification of about 396 millions for the quarter. And that together with a change in the Autodesk new model has a negative impact on growth in net sales. And for your information also, we have included a pro forma table and graphs. We have estimated the previous quarters, how they would have looked like if you use the same principles as we're using in Q4. And this table is included in the presentation material, and we also posted it on our website. And I'm going to go through that in a little bit more in detail later on in the presentation. But looking at the Q4, our reported net sales after the reclassification amounted to almost 1.5 billion SEK compared to 2.1 billion SEK last year. But if we have used the same principles in Q4 this year, like for Autodesk and before reclassification, we have calculated that net sales would have amounted to about 2.3 million SEK instead. And that represents an FX adjusted organic growth of 11% compared to the reported currency adjusted organic growth of minus 30%. Net sales solid both in US and in Europe, with the exception of Germany. And we can see also that the positive earning trends continue in the fourth quarter, and EBITDA increased by 27% to 248 million SEK. And the margin improved to 16.7%. And the substantial improvement in EBITDA was attributable to design division. You can also see that cash flow from operations improved, and now amounted to 275 million SEK compared to 228 million last year. And I will go through in more details in the cash flow later on in the presentation. A good improvement in EPS by 23%, 2.98 SEK per share. And we can also see that we have made acquisitions that we continue to do. And so we did in Q4, where we acquired CTC software from Minnesota in USA. And subsequent to the end of the period, we acquired a Swedish company, Congeria, And Johan will talk more about the newly acquired companies a little bit later. And looking into the full year 2024, net sales reported amounted to 7.8 billion SEK compared to 7.4 billion last year. And that was a growth of 5%. And the currency adjusted growth was minus 5%. And also here we have recalculated if we have used the same principles as in 2023, the net sales would have been 8.8. And that instead would have represented a positive organic growth, FX adjusted, of 9%. Instead of the reported FX adjusted organic growth of minus 5%. In 2024, all three divisions delivered the best annual earnings ever, despite the tougher markets, and EBITDA increased by 35% to 863 million SEK compared to 640 last year. EBITDA margin at 11.1% compared to 8.6 last year. EPS increased to 3.02 SEK per share, and that's a 44% increase from last year. And we have also seen that the board has now proposed a dividend of 1.15 SEK per share, which is an increase of 15% from last year. So all in all, we have organic growth, we have improved efficiency, and we have made add-on acquisitions in the company. We can also see that we have a very strong improvement in cash flow from operations. That is 45% increase to 701 million SEK for the full year. And I have more details later on in the presentation. And then I'm going to hand over to Johan to talk more about the acquisitions that we made.

Acquisitions. It's an important part of our group. growth strategy. Thanks to our strong financial position with low debt, Aldo Group can continue executing on its value creating acquisition strategy with a healthy risk appetite. 2024, we did seven complimentary acquisitions. And so far in 2025, we have signed one acquisition. So looking at the acquisition we did in Q4, C2C software strengthened Symmetry's portfolio of proprietary add-ins for Autodesk software. C2C has more than 40,000 users of the software, such as architects, engineer, and construction professionals. It will increase our penetration of own software on the Autodesk platform and is strategic and makes us more valued as a partner to the customers. After we published the report, we also did an acquisition and signed up for Conjera in the first quarter of 2025. It's a provider of digital solutions to the Swedish defense industry. Conjera has revenue of approximately 25 million SEK and already has a successful partnership with the process management division companies. So looking at Anno Group, as you know, we are three divisions, design management, product lifecycle management and process management. The biggest division is design management and represent roughly 50 plus percent of EBITDA and process management, close to 30% and PLM 20%. So design management, in Q4. Sales compared to last year were strong, particularly in Europe, supported by a product mix with a high share of three-year Autodesk agreements. The AEC market in Nordic countries showed signs of a cautious recovery. In the US, the manufacturing industry contributed to a positive earnings trend in the quarter. Demand for Symmetries proprietary software also increased in the US, supported with the largest order to date for the division's Navi8 software. The improvement in EBITDA in the division was attributable to solid sales in both the US and Europe, a product mix with a high share of proprietary products and a high share of three-year Autodesk agreements sold. As Kristina mentioned earlier, reported net sales are affected by changes in business models and reclassifications of third-party agreements. Under the previous Autodesk reseller model and before reclassifications, the division's currency adjusted organic growth would amount to approximately 18%. Gross profit increased by 16%. A strong quarter for design management in Q4. Looking at the division product lifecycle management, Q4. Sales for PLM systems and related services were stable in the Nordic countries, UK and the US, where customer segments are more diversified spanning manufacturing defense and life sciences. Sales were weaker in Germany, mainly due to declining licenses in the automotive industry. Reported net sales were also impacted by reclassifications of third-party agreements. If the reclassifications of third-party agreements had not taken place, it is estimated that currency-adjusted organic growth would have amounted to approximately 3%. EBITDA was in level with last year. The trend of customers increasingly preferring to rent licenses on a fixed-term basis rather than purchasing licenses with perpetual right of use is continuing. Process management. The process management division delivered a stable performance in the quarter and an improved EBITDA margin. While the number of tenders has decreased, our assessment is, like we said earlier, that we're gaining market share in terms of the number of tenders worn. The public sector continues to offer many opportunities for upselling digital solutions to existing customers. Net sales growth adjusted for currency effects was minus 2%. But EBITDA increased by 4% to 70 million, and the EBITDA margin increased to 20.3% compared to last year, 19.4%. So solid quarter for the Leveson. So with that, I would like to hand over to our CFO again. Kristina, please.

Thank you, Johan. This is the pro forma information that I was discussing a little bit earlier. And in this graph, we have recalculated the previous quarters in 2024, where we have estimated the quarters net sales using the same principles as we have used in Q4 2024. And the pro forma presumes that the reclassification of the third-party agreements to an agent model and also Autodesk implementation of the new transition model was effective from January 1st, 2024. And you can see that the black bars represent the net sales that we have reported. And next to them are the gray bars that are the pro forma net sales using the same principle as in Q4. And the line graphs above the bars represent the EBITDA margin And the top one, the dark blue one, represent the EBITDA margin of the pro forma. And the light blue one at the bottom is the reported EBITDA margin. And on the next page, we have a detailed table of the pro forma numbers per division. And I hope this will make it easy to understand our business going forward. And we have listened to your requests to make it easier to understand the changes made. And I'm not going to go into details here, but this is more information for you going forward, looking into the company. So if we're looking at a little bit more about the cash flow, the consolidated cash flow, that we can see that the fourth quarter cash flow from operations was good at 275 million. compared to 228 million in the previous year. And this is in line with what we communicated about 12 months ago, that the cash flow would not be affected by the change in Autodesk model. And so we see here that it hasn't. And you can see that the improvement was mainly related to the better operating profit both for the quarter and also for the full year together with the changes in working capital and on cash items. Cash flow from investing activities in the quarter minus 159 includes the acquisitions that we made and We can also see that investment in development of our own products and solutions is key for Adnode. And we continue to invest in development of our proprietary products. And that amounted to about 49 million SEK in the current quarter. And for the year, the full year, cash flow from investment activities as minus 532 million. Includes acquisitions and also considerations to sellers for amounting to about 314 million. And also investment in non-solutions and products and purchases of external software amounts to 169 in that line item. Cash flow from financing activities in the quarter 96 represent a new loan in foreign currency for acquisitions and also the effect of the EIF IRS leasing and repayment of loans. And for the year, finance activities 211 includes new loans for acquisitions of 182 million and also dividend payments, last year's dividend of 133 million and also repayment of loan and IFRS leasing of 260 million SEK. Looking at the consolidated financial provisions, I just would like to highlight a few areas and also pay attention to this is the operational balance sheet and not the balance sheet presented in our report. And we continue to operate supported by a resilient balance sheet. It's an important foundation for a continued growth organically and also for acquisitions. And the changes in the balance sheet 2024 are mainly driven from the acquisitions that we have made during the year. You can see that the 390 increase in internal and non-current assets representing the acquisitions. There's also a translation difference in the effect of goodwill. Our business model, as we always talk about, enables us to operate with a negative net working capital, and we continue to do so, minus 524 million as of 31st of December 2024. And the line item provisions taxes and other debts, 691, includes earnouts and other liabilities to sellers, about 518 million SEK. And the majority of those represent the companies we acquired in the United States, 2022 and 2023. And of those, payments are due in 2024, about 220 million. And in 2026, 178 million. Net debt, just over 1 billion SEK. And we have calculated the leverage amounting to about 1.1. We can see that we have facilities available about 997 million SEK unutilized that we are able to utilize for future acquisitions. I think that we can also see, just for pointing out, that we have a return on capital employed of about 19%, which is an increase of 5% compared to last year. And then I would like to hand over to Johan again.

Thank you, Kristina. Just to end up the presentation, just to say that It's not been a perfect market in 2024, but we were able to deliver our best year so far, financial-wise. Anna Group, we're all about equalization for a better society. And our strong position in segments with structural underlying growth has provided us with a good foundation to continue our profitable and sustainable growth journey. And also thanks that we have a good cash generation that Christina described and we have a strong financial position with low debt. We believe that we can continue to execute our accusation strategy with a healthy risk appetite. So with that, I would like to open up for Q&A.

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 six on your telephone keypad. The next question comes from Eric Larson from SEB. Please go ahead.

Good morning. I hope you're all good. I have three questions and I'll take them one by one. So first off, a bit technical here, but I saw that long-term receivables is up by around 560 million year on year. And this row on the balance sheet was not specified last quarter. So I'm just asking if you could give some color on what's moving here.

Yes, I'm taking that question. This is relating to our three-year contract that we have with Autodesk. And the year after 12 months is now recorded as a long-term receivable and also a long-term debt on the balance sheet. So that is a good reflection. And we have reclassified the 2023 for that as well.

Okay. Thank you very much for that. And then I also noted that other external expenses grew quite a lot here in Q4. So I'm just curious if anything is standing out there that is more maybe of a one-time nature or so.

We have in other expenses, we have the acquisition, corporate acquisitions that would explain.

We're trying to understand it because when you're saying that other external expenses has increased, well, what, Trying to understand. Yeah, yeah. Other external costs, 167 million. No, I think it's not that we have increased our cost rate. It's like Christina said, it could be a reflection. So my opinion, the thing that we are growing as well, so that we are a change, it's up 20 million. I think that's just more of a fluctuation over the year. It's not that we have sort of increased our structural costs.

Okay, yeah, fair enough. It's all good. And then final, heading into 2025 here, just want to hear how you think about this customer cohort, which signed three-year deals in 2022, because you have seen some tailwinds in 2024 here, but all else equal, you have a pretty large group of customers that seem to come up for renewal soon. So has anything changed there or, yeah?

No, I think we're... I think one of the things we have as a resilient business structure, meaning that this is something that it's the basic tools that the customers use in their daily work. So it means that we are expecting them to renew their existing contracts. So I'm not so that concerned about that. I think we will be able to, I don't expect any sort of big changes in insurance and et cetera. I think we, are in a position to renew the contracts that we, basically the contracts that we sold three years ago, I think we'll be able to renew the upcoming years as well. So that will support the growth.

Okay, and just like, yeah, yeah, kind of, and also like, you mentioned that you had a higher share of three-year deals this year. It isn't so that customers from 2022, for instance, just sort of renewed earlier or anything to a wide extent.

I think it's a mix of that, but I don't think we will see sort of any sort of the negative effect of that coming up here in Q1, Q2. So I think there is an underlying growth in the market as well, as we said. So all the growth is not coming up from sort of changes in the mix. There's an underlying growth as well that supports it.

Okay, that's all for me. Thank you very much.

Thank you, Erik.

The next question comes from Fredrik Nilsson from Redeye. Please go ahead.

Thank you. Good morning.

Thank you.

I want to start with process management. Slightly lower growth than we've seen in recent quarters. Is it a slightly weaker market or perhaps a calendar effect or just a normal variation? I mean, if you could elaborate a bit on that.

No, I think like we stated in the report, there has been compared to last year before, there is a number of tenders. It's a bit less, but we believe that we are sort of have a good hit rate on that and winning our portion a little bit more supported by that. There might be some calendar effects, but we don't tend to look at that because it will change from quarter to quarter. And most of our business is related to the software and the digital solutions that we sell. Having said that, yes, there are services as well. So that could have an effect. But I think what is represented is the market has been a little bit slower this year. And we're hoping that it will sort of So yes, the market has been a little bit slower. But in the slow market, we are able to uphold our market share and probably do a little bit better than our competitors in Sweden, basically, we have this business.

Okay, I see. Great. And regarding PLM, there was a quite significant decline in license sales, although I assume that the reclassification might explain parts of it. But I mean, could you give some kind of approximation about the impact, because the decline is quite significant compared to Q4 last year.

Yes, you're right, Fredrik, that reclassification has an effect, and you can see in the pro forma also what PLM would have looked like if we had the reclassification done already from January 1st.

Basically, we say the reclassification in PLM is related to third-party license sales. That means that the license sales last quarter was gross, and this year is net, the margin. And the effect of that is we are able to uphold license sales in the business, but the reported license sales of third-party, basically what we do for Dassault, is reported net this quarter compared to last year when it was gross. gross, so that has a negative effect on the reported net sales. So it should not be viewed totally that we have sort of lost the license sales this year compared to, it's more related to the classification.

We can also see that customers are moving away from the lifelong license sales and moving on to rental and subscription.

That's true. So there's an effect of that. I was reflecting earlier on this. The more dramatic effect of that is related to the classification. But we have a long-term progress more to rental agreements rather than license agreements in that area.

Okay, great. Thanks. And regarding symmetry, just a clarification. You mentioned that construction and manufacturing in Northern Europe was strong, but the AEC market in the Nordics rebounded somewhat. So just so I understand this correctly, is Nordic not a part of Northern Europe, or is it that architects and engineering is lagging behind construction?

I think both statements are right. What we are saying is that we had a strong sales in both construction and towards construction, if you mean AEC market and manufacturing in a quarter. But looking market-wise, we can see that the AEC market is becoming better and better. So what we basically were saying is that we had a good progress in the market. Compared to the market, we believe that we did a good quarter. So both statements are correct.

That's clear. And lastly, looking at the pro forma figures for design management and looking at first quarter 2024, you had a really strong margin. I mean, should we expect a stronger seasonal pattern in the new transaction model, or was it something special that quarter that you could remind us of?

Margin wise, are we talking about EBITDA margin now?

Yeah, exactly. It was 25% in the pro forma for Q1 in design management.

I think basically what it reflects, even though you can see in the old model as well, that we have a stronger quarter in Q1, and that has to do with that Basically, Q1 has always been a strong quarter, and that's related to Autodesk. Their last end of Q4 ends in January, so it's always been a good, strong sales drive in Q1, so I think it reflects that. So it should be a pattern more saying that we have historically sold more in Q1. And if we sell more with the same sort of cost base in the other quarters, then we should get a better result out of that in Q1.

I see. Okay. That's all from me. Thank you.

Thank you.

The next question comes from Raymond Ku from Nordea. Please go ahead.

Hi, guys. A couple of questions for me. First one, in terms of sort of improving margins and proprietary sales in the Team D3 and Microdesk, Do you expect them to reach the same level of symmetry in Europe over time? And how far along are you in that journey and sort of extract synergies there?

First, there's no reason why we should not be able to reach the same margins. And the way to move forward is to work more efficiently with regards to how we operate and we're in the process of that. And then also, like you said, support how can we increase the penetration rate of our own software that benefits the customers from their first investment in the Autodesk platform so those are the two things we are seeing good progress in that like we mentioned we were able to do our actually our biggest sale of own software in that area this quarter irrespective of it's been in Europe or us it's the biggest so far we need to do more of those deals going forward make that happen We will probably not see the full effect of that in 2025. We probably need 2026 as well to reach that. But I think we're on a good way to make that happen.

Got it. And just sort of a clarification on the German market and your cyclicality. The weakness in Germany and the auto industry is no secret. Is sort of your pipeline synced with the industrial cycle, would you say? Or do you feel like PLM only starts hurting after or even before the challenging market is a fact? Do you understand my question?

Yes, I think so. PLM has always been late cyclical. It has to do with predominantly you have more bigger customers, bigger investments. That means that they have historically tend to been in the boardrooms they've been supported to investments in new design software new sort of PLM installations or when they sort of economy as well and then they order it and then we deliver it so we have an order book more to fulfill and that's it historic has been more late cyclical we are able to sell and do business in like you said we are We see some negative growth, but we're still being able to, we have sole licenses in Q4, but historically late cyclical outset.

Yeah. And 2024, sorry, 22 was a big year for three-year contract renewals. But we also have seen quite a lot of early sort of contract renewals here in 24. Do you still expect 25 to be a big year or bigger year maybe than 24 is? In terms of three-year contract renewals.

It's always hard to, we would like to give prognosis, but like you said, the contract that the customer signs in 2022, we probably expect those three-year contracts to be renewed in 2025 as well. Because if you think about the customers who have chosen the three-year contract is, they were probably customers who were on one-year contracts and decided to go for three-year contracts. So there was, So basically what I'm saying, the cyclicality of the one who's had a three-year contract in 2022, historically, it's been a good chance that they will renew the three-year contracts coming up. Otherwise, they would have to go for a one-year contract. Do you see the mechanism?

Yeah, that makes a lot of sense. Just a final question for me also. considering that you forward sort of any price hikes to customers, would you say price hikes is the biggest upside to a high share of three-year contracts being renewed in a given year? Or is there some other P&L impact that we're missing here?

So you're thinking about from a customer perspective or why they would go for?

No, from sort of your earning capacity, when there's a three-year contract, How does that hit when there's a big year for three-year contract renewals?

What happens is that if we are saying the same underlying business volume, let's say, for example, 100 contracts, if the customer sign-up shows to renew that, go from a one-year to a three-year contract, We have to do our revenue recognition principles, as we've discussed a lot over the year with agent modeling, et cetera. As we are an agent, we must, according to IFRS, report the value of the full contract when we sell it. And that means that if you sell a three-year contract and the value is is 300 out of that. Then we need to report in our P&L net sales of 300. And if we sell a one-year contract to the same customer, it's 100 in that period. So you will have a timing effect of that. So from us, if we increase sort of the portion of the three-year compared to last year, with the same underlying business volume, we will have a boost in that quarter. So it's more of a timing effect over the quarter. So I think that's the effect with that. And in regards to prices, yes, there are always some sort of price increase we're trying to do, but that's not the major driver in this quarter. The major driver here is that we have sold more. And like we said, there are also an effect of the three-year contracts.

Very clear. Thank you so much for answering my questions.

Thank you.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad.

So thank you for that.

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

So thank you for taking the time to listen to our presentation and some very good questions. And thank you.

Thank you.