Karnell Group AB ser. B

Good morning everyone and welcome to Kanell's third quarterly report and this earning call for Q3. I'm Petter Modellinius, CEO of Kanell and with me today is our CFO Lars Neret. As usual we'll begin with an overview of the quarter and how our strategy continues to drive profitable growth. Lars will then take you through the financials more in detail, look at the segment performance and afterwards we'll return to discuss our latest acquisition and key takeaway before we open the floor for questions. As a short reminder for our recurring audience, but also then for those joining us for the first time, Kennell is an active and long-term owner of industrial technology companies. We're focusing on acquiring small to medium-sized businesses with strong position in niche markets, guided by our disciplined acquisition strategy that prioritizes quality and industrial leadership. Today, KANEL comprises of 18 companies across Finland, Sweden and the UK, and we employ about 750 people. As always, our goal is transparency and focus, highlighting here what matters most for value creation to our group. And with that, let's dig into the Q3 results. Canal continued to combine growth with improved profitability, delivering the group's highest margin and return on capital to date. The revenue increased by 22% to 436 million, supported by around 4% organic growth. EBITDA rose 26% to 69 million, corresponding to a margin of 15.9% compared to 15.4% last year, which is a clear improvement achieved again versus a strong Q3 in 2024. Also very happy to see that both our business areas contributed positively. Product companies showed strong development driven by both our acquisitions and solid organic growth. Niche manufacturers delivered stable performance and maintained good efficiency in a mixed market condition. Cash flow from operating activities was 46 million SEK. I was quite in line with last year and our net debt to EBITDA ratios remains low at 1.6 times. This provides us with continued flexibility for further selective acquisitions. Overall, I would say we had a solid quarter combining growth, margin improvements and balance sheet strength. Zooming out, looking at the last 12 months, our EBITDA margin reached its highest level to date at 13.6% and continuing our steady progress towards our long-term goal of at least 15% EBITDA margin. This improvement reflects the combined effects of operational excellency across our group and also the contribution from recent high quality acquisitions. In the market, we are seeing early signs of stabilization in our core markets, particularly in the industrial technology sector, infrastructure related areas, while construction markets, especially in Finland, remains more subdued. Market visibility is in general still limited, but activity across most of our companies remain stable and execution levels are high. Our focus remains unchanged, profitable growth through operational improvements and carefully selected acquisitions that strengthen our industrial technology platform. And with that, I'll hand it over to you Lars to walk through the financials a bit more in detail.

Thank you, Petter. If we then look a little further into Q3 and start with a breakdown of net sales on the left here, net sales increased by 22% to 436 million, of which organic growth was 4%. And as Petter mentioned, the markets were still somewhat cautious but stable during the quarter. Acquisitions represented 21% of the increase and currency effects were a negative 2% in the quarter. Beta increased by 26% with an organic growth of 2%. And if we exclude central costs and only account for our two business segments, we had a combined organic growth of 5.5%. We are happy with the growth this quarter with these market conditions and the growth comes from acquisitions as well as organically from both business segments. Acquisitions accounted for 28% of the growth and currency effects a negative 3%. And EBITDA margin increased from 15.4% to 15.9%, which is our highest date. Moving on to our business segments and starting with product companies, sales increased by 45% to 249 million. Most of the increase came from acquisitions with 44%, but we also had an organic growth of 3%. EBITA increased by 61% to 46 million, of which 54% came from acquisitions and 10% organically. EBITA margin improved from 16.6% last year to 18.4% this year. Product companies had a strong quarter, even when compared with the strong quarter last year. Activity levels were high across the segment and profitability improved. Our latest acquisitions continued the strong performance. For our niche manufacturers, sales increased by 1% to 187 million. The increase was organic with 4% and currency effects were a negative 3%. We had no effects from acquisitions in the quarter. EBITDA decreased by 1% to 34 million, but organically EBITDA was up by 2%. EBITDA margin decreased slightly from 18.8% last year to 18.4% this year. The markets still show a little lower activity, but on stable levels, and we see indications that it's gradually improving. The sales increase was across the board from all entities within the segment. Moving on to cash flow and cash flow from operating activities increased slightly from last year on a rolling 12 month basis, as well as for the quarter year over year. For the quarter, we had higher profits than last year, but also higher working capital. The cashflow from working capital was on a more normal level this quarter than previous year, but looking at rolling 12 months, we have tied up more working capital than usual, especially accounts receivable. This is due both to the growth within the group, as well as timing differences where September was a stronger month this year than last year. And we do expect a positive contribution from working capital during the fourth quarter. And as we have previously mentioned, working capital is a focus area for us, but at the same time, we are not trying to optimize it each quarter end. Onto our capital structure and net debt, we made one acquisition during the quarter, Lund-Halesley, which caused our net debt to increase to 410 million, but we still maintain a relatively low leverage of 1.6x. If we include leasing, earn outs and put call options that you see in the table on the right here, we had a leverage of 2.4x at the end of the quarter. With that, back to you, Petter.

Great. Thank you, Lars. Yes, so as mentioned on the last call, we completed the acquisition of Lund Horsley during Q3. And it's a UK-based designer and manufacturer of premium control room consoles used in mission-critical environments such as aviation, infrastructure, and broadcasting. The company has over 40 years of experience, a strong global customer base, a modular product range that meets with demanding ergonomic and technical standards for continuous 24-7 operations. It was our first proactive sourced acquisition in the UK, and it's a clear example of how our dedicated M&A team is expanding Canel's reach and strengthening the deal pipeline. The pipeline itself continues to build good momentum, particularly in the UK and Italy, as we have seen more high quality industrial technology companies that fits our strategy. But at the same time, we remain highly disciplined. We will always stay the course on valuation and structure, and we will walk away when the terms are not consistent with our return expectations. Lund-Haisley is a good illustration of how we want to grow selectively with quality and long-term value creation at the center. To sum up, Q3 marked continued progress for Canel with revenue in EBITDA up double digits, the highest margin and return on capital to date, strong contribution from both business areas. Our group companies are performing well, particularly given the current market condition. The M&A pipeline remains healthy. Our balance sheet provides the flexibility to stay selective yet active as we continue to scale our platform. Market visibility remains limited, but active across our core sectors, but activities in our sectors are still stable. And when we now enter the final quarter of 2025, we do so with confidence in our strategy, in our team, and our ability to create sustainable long-term value for our shareholders. Thank you for joining today's presentation. And with that, let's open the floor for any questions you may have.