Karnov Group AB (publ)

Welcome

everyone to Carno Group's earnings conference, where we will present the outcome of the first quarter of 2024. Please go to slide two. I am Pontus Bulusson, president and CEO of the company. With me, I have our CFO, Magnus Hansson, and our head of investor relations, Erik Bergen. Magnus and I will present the outcome of the quarter using a few slides, and then we'll open up for questions. As you may have noticed, a bid consortium consisting of Green Oaks and Long Path has earlier today announced a cash offer on all shares in Carno for 84 cents. The board of directors has unanimously decided to recommend shareholders of the company to accept the offer. We refer any questions regarding the board's recommendation to our chairman, Magnus Mandelsson, through our head of investor relations, Erik Bergen, and any questions regarding the offer to the consortium. With that said, let's get started with the presentation of the first quarter. Please go to slide three. Carno Group delivers on our promises in the first quarter. We continue to expand our mission-critical legal information solutions for our customers, creating value for all stakeholders. We have a strong focus on delivering profitable growth and harvesting synergies, while at the same time launching new innovations, including AI. Net sales grew to 632 million SEC. The organic growth was 3%, with Region North driving organic growth in the quarter, while Region South, now reported organically, was flat in line with what we earlier have communicated. The adjusted EBITDA margin was 23% in the first quarter, with synergies coming through as expected in Region South, while we have taken actions on our newly launched acceleration initiative. I'll dig deeper into the harvesting of synergies in the coming slides. At the end of March, our leverage was at 2.7 times EBITDA last 12 months, an improvement compared to Q4.

Let's move over to slide four.

The synergies from the Region South integration come progressively over the period, and at the end of the first quarter, the annual run rate synergies amounted to 3 million euro. We reiterate our ambition to generate synergies of 7.5 million euro on annual run rate basis by the end of 2024, and 10 million euro by the end of 2026.

Next slide, please. In

February this year, we announced our acceleration initiative. The ambition is to further strengthen customer value while also improving the group profitability. The synergies are being harvested in Region North and grouped in the first phase, while synergies in Region South are part of the second phase. At the end of the first quarter, the annual run rate synergies amounted to 2 million euro. Our ambition is to generate cost efficiencies of 10 million euro, with full effect on run rate basis at the end of

2026. Next slide,

please. In this slide, you can see our two cost efficiency initiatives running until the end of 2026, with the ambition of harvesting efficiencies of 20 million euro in total, and that we now, by the end of the first quarter of 2024, have harvested annual run rate synergies of 5

million euro. Next slide, please.

Our industry is changing with two tailwinds driving growth opportunities for kind of group. The first tailwind is the rising number of laws and regulations, which are also increasingly complex to comprehend. The second tailwind is generative AI, which transforms how professionals work with legal information. Karno Group has, through the decades, consistently developed our solutions to generate mission-critical value for our customers. We are well-positioned to capture these opportunities with our proprietary content, strong local market positions, and robust capital capacity from our free cash flow. Please go to slide eight. So, what are our strategic focus areas to capture the market opportunities? Well, in the beginning of October, at the Capital Markets Day, we presented our medium-term strategy and the strategic enablers, talent and culture, common tech infrastructure, implementing AI, all contributing to profitable growth. Talent and culture is all about fostering a culture which drive profitable growth, implementing an even greater commercial mindset and customer-centricity. Common tech infrastructure is about developing with many markets in mind and then enhancing with local authored content. Generative AI enables great interaction with our content and make our customers more efficient. We have an ambitious pipeline of AI innovation to come. Please go to slide nine. I will now comment a little on our segment performance, starting with Region North. Region North continues to have a strong development with organic growth and robust margins. Growth is driven by increased subscription-based online sales, especially within the public sector. We are also performing well within EHS and tax and accounting. Our Norwegian business, Deep Kunskop, has recently launched its ESG solution across Scandinavia. The solution helps businesses with ESG compliance and the sales numbers have been impressive since the launch. We are continuing to expand within EHS and recently closed the acquisition of QSC Kunsei in France. The acquisition provides Kano Group a strong presence in the local French EHS market and also accelerates the European expansion.

Turning the page to slide 10.

We continue to progress ahead of plan with the Region South integration and the financial performance is in line with our short-term expectations. Net sales are flat compared to Q1 last year, following our progress with product rationalization and optimization of the Spanish sales force. Magnus will speak more about the optimization of the sales force. The adjusted EBITDA is improving as synergies are coming through as expected. Close to 70% of the Aranthadi content is now merged onto the Common Content platform. Cross-selling initiatives in Spain are making progress and we have launched a common sales team in Spain. During Q1, we launched AI-based notifications of the product Aranthadi Fusion, which is combining content and workflow. The notifications are making customers more efficient in their operations. Turning the page to slide 11. With that said, I will now hand over the floor to our CFO, Magnus Hansson. He will tell us more about the financial results in the first quarter. Magnus, the floor is yours.

Thank you, Magnus. So let's start with an overview, switching to slide 12. The net sales grew by 3% in the first quarter, reaching 632 million sales. The growth is driven by increased online sales and legal training. The increased online sales were due to a mix of volume and annual price adjustment. Currents effects have added slight positive impact on net sales. Please go to slide 13. Breaking down net sales on segment level, we see continued strong organic growth in region north and stable development in region south. Organic growth is driven by online sales within the public sector, supported by our EHS businesses and tax and accounting business. As we've mentioned before, we expect continued flat sales in region south throughout the first phase of the integration. In the first quarter, we have managed to maintain net sales flat despite the significant number of sales reps in Spain have been made redundant and we have initiated product rationalizations. Furthermore, printed material continues to decline throughout the group.

Next

slide, please. On slide 14, you see net sales development within online and offline, split into segments. In region north, the online sales increased by 15% compared to the first quarter last year and accounted for 86% of the net sales in the quarter. In region south, the online sales declined by 1% compared to the first quarter last year and accounted for approximately 76% of net sales in the quarter, again related to product rationalizations and redundant sales reps. Please change to slide 15. Subscription based sales increased during the first quarter and represent 86% of sales in the quarter. The subscription based sales also generate the solid free cash flow. Please change to slide 16. The adjusted EBITDA amounted to 143 million SEC in the first quarter. This corresponds to an adjusted EBITDA margin of 22.7%, which is in line with last year. We see synergies falling through and with lower operating expenses offset by increased DNA of six million SEC in the quarter, items affecting comparability amounted to 36 million SEC during the first quarter and is mainly related to the integration of region south, but we have also made some initial investments into the group-wide acceleration

initiative.

At

the

end of the first quarter, we have harvested synergies within the group of 5 million euros on an annual run rate basis, 3 million euros from the integration program and 2 million euros from the acceleration initiative. The synergies from the acceleration initiative have had limited impact in the first quarter. As earlier announced, we are delivering on our plan to harvest synergies of 20 million euros with full effect on an annual run rate basis by the end of 2026.

Let's move to slide 17, please. As mentioned,

region north has had a strong net sales development. In the first quarter, net sales amounted to 294 million SEC. Organic growth was 5.7%. The growth is driven by online sales. We continue to strengthen our market position in the public sector, EHS and tax and accounting. Compared to last year, we have divested our training business in Sweden, although with a small financial impact. A yesterday beta reached 127 million in the first quarter. This is an increase of 7 million compared to last year. The yesterday beta margin amounted to 43.2%. The slight decline is explained by increased depreciations of 3 million SEC compared to last year due to completed capitalized and developed projects. Please move on to slide 18, which is the region south SEC group. Net sales in region south increased by 2 million SEC compared to Q1 last year. The performance is due to currency. We have defended the top line despite optimizing the sales force in Spain. The yesterday beta margin was .5% in the first quarter. Compared to the first quarter of last year, depreciations of capitalized development have increased as we have completed development project for the future growth. Furthermore, a recalculation of the lease agreement in Paris have increased depreciation. Compared to Q4 last year, depreciations have decreased with 3 million SEC and amortization of capitalized development costs have increased by one. The adjusted EBTA margin improved to .2% in the first quarter. We have harvested synergies of 0.8 million euros in the first quarter of 2024. And the adjusted cost base have decreased by 0.5 million euros compared to the baseline. The difference between the decrease in expenses and the synergies is entirely explained by the increased depreciations and amortizations of development costs that I just mentioned. Housed synergies, annual run rate basis amounted 3.4 million euros by the end of the quarter. Moving to slide 19, which presents the segment group functions. Group function consists of functions taking responsibility for group-wide tasks. Expenses in the first quarter was 19 million SEC compared to 26 million SEC in the fourth quarter. Please go to slide 20. Connor Group has a strong cash generation in our invoicing season. The adjusted free cash flow was 107 million SEC in the first quarter. The lower free cash flow compared to the first quarter of last year mainly relates to the timing of tax payments of 45 million SEC. Increased payments of leasing liability and as well as timing of invoicing in region south, impacting our network capital. The leverage was 2.7 times EBTA last month at the end of March. Meaning we are well below our financial target of three times EBTA last month. I'm now handing over to Pontus again

who will present our last slide. Thank you Magnus. Please switch to slide 21. These are our highlights of the first quarter. Region north continues to generate strong results. We are expanding within EHS and recently closed the acquisition of QSC Concei for future growth and accelerated European expansion. The region south integration progresses ahead of plan and synergies are coming through as expected. Net sales are flat compared to Q1 last year, following our progress with product rationalization and optimization of the Spanish sales force. We are taking action on our cost efficiency initiatives to advance our profitable growth strategy across the group. At the end of Q1, the annual run rate synergies amounted to 5 million euro.

Please go to slide 22.

And by this, I'll end our presentation and we are now ready to take questions. So I'll hand over the conference again

to our host.

If you wish to ask a question, please dial hash five

on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial hash

six on your telephone keypad. There are no questions

at this time. So I hand the conference back to the speakers for any written questions and closing comments.

There are no written questions. So I would like to thank everyone for listening. We will discuss our Q2 report on the 21st of August and we hope to hear from you then, if not earlier. Thank you and have a nice day.

Thank you, bye.