Karnell Group AB ser. B

And welcome to Canals Q4 2024 earnings presentation. My name is Petter Mollenius and with me today, I have our CFO Lars Nyeret, and we will be walking you through our financial performance for the quarter and discuss our strategic initiatives and providing insights into our recent acquisition. So we thought that we'll give you a brief introduction to our Q4 and full year 2024. Lars will then give you a more detailed view of our business units and their performance. And I'll then give you a short introduction to the acquisition we did here in the end of January, Manistow. And we'll also, as usual, reserve some time for Q&A at the end of the session. This is now our fourth presentation as a public company, and we have decided to slim it down as the audience of this call knows us really well, many of you at least. And we are also happy to schedule introductionary call with institutional investors that don't know us that well, just reach out to us at ir at canal.se. But as a short and quick reminder, Canal is an active long-term owner of industrial technology companies, focusing on acquiring small to medium sized companies with strong position in their respective niches. We have a very disciplined acquisition strategy, prioritizing quality and leadership within industrial niches. As of now, Canal comprises of 16 companies across Finland, Sweden, and the UK. And all in all, we approximately employ 700 people. And we strive for transparency, even if it means sharing numbers that in the short run might sting us, but we believe that benefits Canal and our shareholders in the long run. And with that, let's turn to Q4 report. In short, as you can see, we had a net sales of 403 million SEK. That's an increase of 32%, which was organically driven on 6.1%. EBITDA 50 million up by 42%. And that's then an equivalent of an EBITDA margin of .5% with a cashflow of 86 million for the quarter, with low leverage of 0.9x. To give you some more context and flavor, we started off Q4 really strong, October, November performing well. December was a bit softer than we had expected, due partly or to a large part to the extended holiday period this year, or 2024, which then had a pronounced effect on some of our businesses. Overall, we are very content with a solid Q4 as a group, though there were notable shifts. Within our business units, our product companies continue to perform well, benefiting from a more stabilizing construction environment. And that has improved the visibility for some of our businesses. And we still see some positive signs at the end of the tunnel, even though we believe it is quite some time before we see full growth recovery in some of these sectors. Encouraging early positive trends are emerging with larger requests and higher levels of engagement with our customers. In contrast, our niche manufacturing companies experience a softer market, impacted by reduced demand and a bit more cautious market sentiment. And this has put some pressure on our margins, and that goes particularly for the customers with capital-intensive products, who are then tied to the later stages of the construction and investment cycles as a whole. Turning then to the full year, 2024. Summarizing that, it has been a very transformative year for Cannell, and was marked by our successful IPO, and the completion of four acquisitions that we did during the year. And as you saw on the last slide, we are close to year on a solid note, resulting in a full year net sales increase of 27% to 1.4 billion CEC. And this growth was driven by a combination of organic development and our strategic acquisitions. Having a bit more detailed look on our EBITDA performance, we increased 21% compared to the same period last year, reaching 166 million. This improvement was primarily driven by acquisitions and strong operational execution within our product-owning companies. However, our niche manufacturing segment faced challenges during the softer market conditions. The EBITDA margin declined from 12.4 to 11.8, due to the IPO-related cost during Q1, as well as the ongoing expenses being associated with being a public listed company. I would like to emphasize the positive organic top line growth, even though we experienced margin compression. This outcome stems from deliberate choices that we've made, based on the belief that our employees are our most valuable assets. In some of our companies, we have consciously prioritized gaining market share by remaining personnel, despite the increased price pressure and lower margins. We believe that positioned us very well to capture growth and high margin customers when the market eventually recovers. Turning to cashflow, furthermore, I would say that the following the IPO, naturally we had, or then existing shareholders most diluted, and the outstanding shares increased to close to 53 million from 42, despite dilution operating cashflow per share rose by .7% to 3.27 CEC, even before the full impact of the acquisitions done during 2024 was realized. We remain focused on executing our growth plan, identifying opportunities in niche markets and delivering on the promises we've made to our shareholders. Despite the broader market challenges, our disciplined approach towards acquisitions and our emphasis on sustainable long-term growth continue to propel canal forward. And I would like to also emphasize we maintain the low leverage and unhealthy M&A pipeline. With that, I'll hand it over to Lars, who will walk you through the financials more in detail.

Thank you, Petter. If we look a little further into Q4, then, let's start with the breakdown of net sales on the left-hand side here. As Petter mentioned, the total increase was 32%, which organic growth was 6%, which we continue to be very happy with considering the current market. Acquisitions were 25% of the increase and a small currency effect, positive currency effect. The beta increased by 42%. Most of that came from acquisitions, 38%, but we also had an organic growth of 3%, just a small currency effect. The beta margin increased from .6% to 12.5%. If we look a bit further on the beta, we had reported a beta from our operating companies throughout our two business segments of 58 million for the quarter, and then we had central costs of 8 million, and no transaction costs or other special costs in the quarter. Over to our business segments then, and starting with our product-owning companies, we had, again, a strong quarter with an increase in sales of 53% to 211 million. Most of that came from acquisitions, but we also had an organic growth of 16%. The beta increased by 72% to 32 million. Most of that also came from acquisition, but at the same time, we had a strong organic growth of 32%. The beta margin improved from .5% last year to .1% this year. And this quarter, again, continued the recovery from a weaker year last year, and almost all companies within the segment performed better with higher sales and higher margins. We also see continued stability for our companies within the construction sector in Finland, and hopefully the recovery will continue within the sector. For our niche manufacturers, sales increased by 15% to 192 million. And here, the full increase came from acquisitions, and we had a slightly negative organic growth of minus 2%. The beta decreased by 9% to 26 million, and here we had an organic decline of 33%. The beta margin decreased from .1% last year to .6% this year. So again, our niche manufacturers had a very strong quarter last year, and this year still shows some lower activities, especially from our larger industrial customers and especially in the Finnish markets. Sales is holding up pretty well, as Petta mentioned, but we see continued margin pressure in several of our businesses. If we combine our two business segments, the beta declined organically by 7%. Moving on to cash flow, and cash flow from operating activities increased by 31% from last year. And for the quarter, it increased by 2% compared to a very strong Q4 last year. And the increases do both to higher profits and to reduced working capital, and especially inventory and accounts receivable. And here, Q4 is usually our strongest cash flow quarter, and so also this year. And then our capital structure and net debt. So we didn't make any acquisitions during the quarter, and we had a strong cash flow, which caused our net debt to decrease substantially, as well as our leverage. As of December, we had a net debt of 174 million, excluding IFRS leasing, and leverage of 0.9x. And then we still don't have the full P&L effect of our latest acquisitions. And as usual, we also exclude earnouts and liabilities for put call options in our calculations. You can see these numbers here on the table on the right. And if we would include all of these, our leverage in Q4 was then 2.1x instead. Back to you, Patrick.

Thank you. Yes, we are happy to announce for the acquisition of Manister. And that was then, as Lars mentioned, not in the quarter, but actually the last day of January. Manister is a manufacturing that specializes in pipe support systems for the marine industry and has proprietary products for HVAC and insulation applications. Manister was founded in 1955, and it's based in Rauma, Finland. It's a family-owned business with annual sales, as you can see here, approximately a little bit more than 6 million euros with strong profitability. The acquisition is expected to have a positive impact on Canel's earning per share on an annual basis. I think Manister represents very well the exact type of company we are looking for when executing our acquisition strategy. It's a family-owned business with strong niche offering, a market leader within its field, and it has a proven track record of delivering high-quality specialized products. The former owners, Teppo and Minna, they have retained .6% stake in the company, ensuring that their continued involvement and commitments to the company's success. Teppo will continue as a CEO and provide continuity and leadership as the company embarks on this new chapter with Canel. And as all our acquisitions, our goal is to support Manister's growth while preserving the core values and expertise. This exemplifies our strategy of acquiring and developing family-owned niche industrial companies with strong market positions with healthy profits. Moving on to wrap up. Solid performance in Q4, supported by organic growth and the resilience, even though it was challenging market conditions. Despite the dynamic market environment, Canel closed 24 with a strong growth and strengthened portfolio through four platform acquisitions. While some of the industrial segments remain uncertain in the short run, the market outlook remains stable for our group companies with low inflations and gradually decreasing interest rates, boosting investment confidence, especially in the interest-sensitive sectors like constructions. We have a strengthened M&A team to further accelerate our acquisitions and support our 16 portfolio companies. We have expanded, extended the team with two investment directors, one based in Finland, in Helsinki, and one here in Stockholm at the headquarters to reinforce our local presence and execution capabilities. With low debt levels, robust cashflow, and a solid M&A pipeline, we are well positioned to advance our growth strategy and leveraging our proven acquisition and ownership model to identify and acquiring promising industrial technology companies. We are excited about the path that lies ahead. We eagerly anticipate continuing our growth journey and further solidifying Canel's position as a leading industrial technology group. And with that, we open the floor to any questions that you may have.

If you wish to ask a question, please dial pound key five. And if you wish to withdraw your question, please dial pound key six. First caller is Max Bakko at SCBM. Max, please go ahead.

Good morning. I hope you can hear me. Petter and Lars, thank you for taking the questions. So perhaps starting with the cashflow, which was really strong here in the quarter and partly driven by working capital release. And I think you mentioned this partly during the presentation, Lars, that is this solely due to seasonality or is this something else in the numbers here in the quarter?

It is mostly seasonality. Q4 is our strongest cashflow quarter, and usually we both see a reduction in inventory and accounts receivable. And I think that this quarter was, it was strong, but quite normal actually. And I think last year was extremely strong. So this was a more normal, but strong quarter and more in line with what we expect pretty much.

Okay, understood. And then also relating to the cashflow noticed here, very detail oriented question, but that we kept some investments for you at least quite high, some 5% of sales. Anything specific that you have done during the quarter here to know about?

Yes, there is a few investments that we've done in the machine park, especially in a few companies that we see a good growth potential in. So we have invested in further strengthening our portfolio companies and capturing that growth that we see in those companies.

Okay, understood. And then turning to the segments focusing on the niche production companies. I mean, as you highlighted here during the presentation, minus 2% organic sales growth, so it's quite resilient on sales, but minus 33% organic growth. And it looks like the underlying margin in the organic units, I would say, comes down quite a lot here from a tough comparable. Is it operating leverage? Is it mixed? Is it price pressure? If you could elaborate a bit what's behind the margin decline here in the quarter, or also, I mean, we have seen it for the full year, if you can add any flavor to that.

Yes, so if I go ahead, I think your question mainly relates to the niche production business unit. Is that correct? Yeah, yeah, yeah, yeah,

yeah, exactly.

So there are numerous variables at play here. I would start by saying, as you alluded to yourself, that the comparables are extremely tough. For Q4 last year was all time high for some of these companies, so it was really tough. Second part I would mention, again, as I mentioned during the call, October, November started off really strong. December was weaker than expected due to the longer or prolonged vacations that many took, and we could also feel that from a customer perspective. Second of all, it's been a bit tougher year, 2024 as in all for these companies, where we felt that it's been a softer market. I think it's a result of our customers. The ones I should say, it's not the single customer, but it's our customers, and we will see the common denominator that many of those have products that are, one could say, capex intensive, that are now struggling at the end of the year a bit more. I think that's part of the investment cycle for larger companies that they also start to feel it's been a bit tough out there. It's just that they've hit the market or the decline has hit the market later on in that sector. I think we have made an active choice. As many of you know, we have 16 companies, typically in rural areas where our key assets are our employees, and we have made an active choice in taking on a bit more lower margin type of business to see to it that our factories are still working at more or less full capacity, and that you can see in the top line numbers those are more or less in line with last year's numbers, but the margins are down due to these choices that we've made, but that's also an investment going forward to see to it that we are in a position to capture the growth and especially then strengthening our market shares when the market starts to pick up again. And actually that will have a time limit on how long we will do that, because margin is key for us, but it's also key to manage and keep employees to the extent that we can. So I guess that's a bit more color to your question.

Yes, yes, indeed. And if I understood you correctly, I mean, right now, we're doing Q4, so we have taken some lower margin projects to keep utilization high. Could you comment on the length of those projects? I mean, if you would see that the market turns up, how quickly could you replace the current low margin projects with new higher margin projects, if you understand?

I mean, again, typically in a more normal market, I would say that could go quite quickly, because we typically, many of our businesses are, again, we don't have volume production in more or less any of our businesses, so it's typically very customized and small products. So that could go rather quickly when the market starts pick up again.

That's good to hear. And then the final one, I mean, you mentioned here in the report that, I mean, for the product companies, for the product segment you have seen during the year, and also here in Q4, some early positive trends, and for the niche manufacturers, a bit softer demand here during 2024 compared to 2023. Sami, if you have any comments, what you have seen here in the beginning of 2025, and what you hear in your dialogues with customers and so on, would be interesting to hear, if you have anything more to add on that.

Well, a few things I could mention. I mean, as you know, we don't give any guidance, but again, to give you a bit more context, I think Q1, as we enter now, is the seasonality lowest quarter for us, and that's just the typical cycle of the industrial cycle, but that also makes it a bit more sensitive. We feel that some of the businesses have started off more aligned with what we saw at the end of last year, while some of the companies are doing very well and have a large interest and demand from customers. So it's quite a mixed picture out there, depending on the customer and where the customer in turn have their markets. Yes, that's...

Okay, understood. Yeah, that was all the questions from me at the moment. Thank you very much.

Thank you.

Thank you.

There are no other questions.

Great. Then we thank you all for taking the time to listen to our presentation. And again, for institutional investors, please reach out to us. Visit us at ior at canal.se or follow us at LinkedIn to see more of the updates that we provide to the market. With that, thank you for listening in and have a good day.