Karnov Group AB

Welcome everyone to Karno Group's earnings conference where we will present the outcome of the third quarter of 2024. Please go to slide two. I'm 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. With that said, let's get started with the presentation of the third quarter. Please go to slide three. We deliver strong margins improvement in the quarter as synergies are coming through according to plan. The improvement is a little more than three percentage points in the third quarter. We have expanded our mission critical legal information solutions for our customers, launching AI supported services on all markets, and our new flagship products in France. We have also completed a technical carve-out in Spain and the technical risk in the integration is now removed. Now we are ready and moving into the next phase with focus on profitable growth with a new country manager. Net sales grew to 648 million SEK in the quarter. The organic growth was 2% with Region North driving organic growth in the quarter. Sales in region south were stable, with France growing and Spain being reshaped in line with the integration plan. The adjusted EBITDA margin was 22% in the third quarter, a significant improvement. Synergies from our initiatives are coming through as expected. By the end of the third quarter, we have harvested synergies on an annual run rate basis of 9 million euro. I'll dig deeper into the synergies in the coming slides. At the end of September, our leverage was at 3.1 times EBITDA last 12 months, a slight increase compared to June driven mainly by negative currency effects and seasonal negative cash flow. Let's move over to slide four. We continue to improve margins, harvesting cities from our two initiatives. During the quarter, we have divested our holdings in Ante, Liga cross-border, and procurement link. The divestments have impacted net profit in the quarter with 23 million SEK. This generates cost savings going forward. We have also continued optimizing the organization both in Region North and Region South. In connection with the acquisition of Region South, we launched a technical merger project gathering all content, products and customers of our two Spanish businesses in one same environment. I'm pleased to say we have now completed the technical carve out and that no technical risk is remaining in Spain for Kaunov. That means we now can launch the next phase of the integration with focus on profitable growth. To ensure future commercial success in Spain, we have appointed Alexandra Åkvist as country manager in Spain, She has the right set of skills, having been an important component in creating the organic growth in Region North, and she has experience from uniting two organizations into one successful business. At the end of the quarter, we launched our AI-supported solutions. Sales is progressing on all markets, and feedback from our customers confirm that the solution brings significant value and efficiency uplift. Our AI solutions are sold exclusively in a new top tier package in Region North, while being sold as an add-on in Region South in line with local market practices. Next slide, please. Our competitive advantage is our extensive proprietary legal contents and our long customer relationships. We create significantly enhanced customer value with our AI solutions. 25 years ago we transitioned our customers from books and libraries to databases. Now we enable our customers to interact with 200 years of mission-critical knowledge through our AI solutions. We have conducted a customer survey which confirms that the solution brings significant value and efficiency uplifts. 87% of the users assess AI as make their work significantly more efficient. 70% assess our AI make their work easier. Recently, Born & Geile, one of Denmark's three largest law firms, choose to buy the AI solutions for all its lawyers, paralegals and student assistants. In Norwegian South, we have launched the AI solution as a value enhancing add-on on our products. Our French business has launched new flagship products and Spanish business Aranzadi has launched an updated legal research platform. The AI solution has been confirmed as a value enhancing component on both markets with pleased customers. Next slide, please. We have a strong focus on harvesting synergies from our initiatives. The synergies from the Region South integration come progressively over the period, and at the end of the third quarter, the annual run rate synergies amounted to 5 million euro. During the quarter, we have continued harmonizing the organizations. We reiterate our ambition to generate synergies of 7.5 million euro on an 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 launched our group-wide acceleration initiative. The synergies are being harvested in region north and group in the first phase, while synergies in region south are part of the second phase. Our ambition is to generate cost efficiencies of 10 million euro with full effect on run rate basis at the end of 2026. At the end of the third quarter, the annual run rate synergies amounted to €4 million. 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 in total, and that we now, by the end of the third quarter, have harvested annual run rate synergies of €9 million. Next slide, please. I will now comment a little on our segment performance, starting with Region South. The financial performance is in line with our expectations. The adjusted EBITDA is improving compared to our baseline as synergies are coming through as expected. We are pleased to see growth in France, where we progress with the product rationalization and optimization of the sales force in Spain. During the past period, we have prioritized keeping a high pace in the integration, and this has slightly affected the sales work. Now we are ready and launching the next phase in the integration in Spain with new leadership to generate profitable growth. I'm pleased to say we have now completed the technical carve-out and that no technical integration risk is remaining in Spain. This means that we can now launch the next phase of the integration with focus on profitable growth. To ensure future commercial success in Spain, we have appointed Alexandra Åkvist as country manager in Spain, in addition to her role as CEO with the North. She has the right set of skills, such as customer-centric mindset and a result-oriented leadership. She has also experience from uniting two organizations into one successful business. Next slide, please. Region North continues to deliver profitable growth. Growth is driven by increased subscription-based online sales, especially within the public sector. The acquired carved-out Schultz legal information business has contributed with 24 million SEK in net sales in the quarter. The margin improvement of close to three percentage points is a result of synergies coming through from our acceleration initiatives and operational leverage from the increased net sales. We progress with integration of the acquired carved out Schultz legal information business. The integration is based on the Kano playbook. We have a transitional service agreement in place with Schultz, ensuring a smooth customer experience during the integration. Next slide, please. 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 third quarter. Magnus, the floor is yours.

Thank you, Pontus. So let's start with an overview, switching to slide 12. The net sales grew by 5% in the third quarter, reaching 648 million SEK. The growth is driven by increased online sales, mainly new customers acquired from the Cardart Schultz business. Currency effects had a negative impact on net sales of a little more than 2%. The acquired Carver Schultz legal information business has contributed with 24 million SEK in the net sales in the quarter, mainly relating to acquired customers on the Danish municipality market. Our EHS businesses continue to perform well with strong new sales and low churn. Please go to slide 13. Breaking down net sales on segment level, we see continued strong organic growth in region north and stable sales 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 mentioned before, we expect continued flat sales in region south in the short term. We are pleased to see France generating growth and we are launching the next phase of the integration in Spain to generate profitable growth. Next slide, please. On slide 14, you see the net sales development within online and offline, split into segments. In Region North, the online sales increased by 18% compared to Q3 last year and accounted for 90% of the net sales in the quarter. In Region South, the online sales declined by 3% compared to Q3 last year and accounted for approximately 81% of net sales in the quarter. The decline was mostly driven by negative currency effects. Please change to slide 15. Subscription-based sales increased during the third quarter and represent 90% of sales in the quarter. Please change to slide 16. The adjusted EBITDA amounted to 143 million SEK in the third quarter. This corresponds to an adjusted EBITDA margin of 22.1%, which is an improvement of a little more than 3 percentage points. Synergies are coming through as expected, while cost of goods sold is decreasing due to the increased online sales. Items affecting comparability amounted to 63 million SEK during the third quarter and are related to the integration of Region South as well as the group-wide acceleration initiative. At the end of the third quarter, we have harvested synergies within the group of 9 million euros on an annual run rate basis. The effect in the quarter amounted to 1.9 million euros. 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 on to slide 17, please. Region North has a strong growth trajectory. In the third quarter, net sales amounted to 321 million SEC. Organic growth was 7.4%. The growth is driven by online sales. We continue to strengthen our market position in the public sector, EHS, and tax and accounting. Adjusted EBITDA reached 141 million SEC in the third quarter. This is an increase of 26 million SEC compared to last year. The adjusted EBITDA margin amounted to 44.1%. The improvement is due to two main components, efficiency from the acceleration initiative as well as operational leverage from increased net sales. The effect on EBITDA level from the acceleration initiative amounted to 0.8 million euros in the quarter. Please move on to slide 18, which is the region south segment. Net sales in Region South decreased by 13 million SEK compared to the third quarter of last year, mainly driven by negative currency effects of 9 million SEK. We are pleased to see growth in France while we are reshaping the Spanish business in the next phase of the integration to generate profitable growth. With the technical carve-out now completed, we are confident in our ability to generate best-in-class customer offerings in Spain. The adjusted EBITDA margin was 8% in the third quarter. The effect on EBITDA level from the region's self-integration amounted to 1.1 million euros in the quarter. On an annual run rate basis, the harvested synergies amounted to 5 million euros by the end of the quarter. Moving to slide 19, which presents the segment group functions. Group functions consists of functions performing group-wide tasks. Expenses in the third quarter was 23 million SEK compared to 22 million SEK in the second quarter. Please go to slide 20. The adjusted free cash flow was minus 32 million SEK in the third quarter, which is an improvement of 33 million SEK compared to Q3 of last year. Year to date, our adjusted free cash flow is 15 million SEK stronger than last year. The leverage was 3.1 times EVTA last 12 months at the end of September. We are now entering Our invoicing season in Q4, which typically generate a strong cash flow for Conor Group. I'm now handing over to Pontus again, who will present our last slides.

Thank you, Magnus. Please switch to slide 21. We deliver strong margins improvement in the third quarter as synergies are coming through according to plan. The margin improvement is more than three percentage points in the third quarter. We have completed the technical carve out in Spain and the technical risk in the integration is now removed. Now we are launching the next phase with focus on profitable growth with a new country manager. We have expanded our mission critical legal information solutions for our customers, launching our AI solutions in region south and region north and new versions of the flagship products in France. 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.