Karnell Group AB ser. B

Good morning all and welcome to Canell's first quarter of 2026 earnings webcast. I'm Petter Wallenius, CEO of Canell and with me today I have our new CFO Niklas Svensson. As usual we'll begin with an overview of the quarter and how our strategy continues to drive profitable growth. Niklas will then walk you through the financials and segment performance in more detail After that, I'll return to present the two acquisitions we have completed during and just after the quarter before we wrap up and take key takeaways and open the floor for your questions. For those of you who are joining us for the first time, Carnell is an active and long-term owner of industrial technology companies. We focus on acquiring small to medium-sized businesses with strong positions in niche markets. We are guided by a disciplined acquisition strategy that prioritizes quality and industrial leadership. Following our most recent acquisition, Carnell now comprises of 20 companies across Finland, Sweden, the UK, and for the first time, I'm happy to say, in Italy, employing roughly now 800 people. As always, our goal is transparency and focus, highlighting what matters most to value creation in our group. And with that, let us turn to the Q1 results. We started 2026 with a strong quarter, delivering broad-based organic growth, margin expansion and a clear step up in cash generation. Net sales increased by 27% to 457 million SEK with an organic growth of 13.1%. That is the strongest organic quarter we've had and delivered since we became a listed company. EBITDA rose 73% to 66 million corresponding to an EBITDA margin of 14.5% up from 10.7 a year ago. Importantly, organic EBITDA growth was 43%, so the margin expansion is real and operationally driven, not just a mixed effect from acquisitions. Cash flow from the operating activities reached 59 million SEK. That's more than four times the level we had Q1 last year, supported by both higher earnings and improved working capital versus last year. Net debt to EBITDA, excluding leasing, remained low at 1.4 times. That's well within our financial framework, even after completing the OBA acquisition during the quarter. Overall, this is an unusual strong start to the year, and importantly, it reflects strong execution in our existing companies rather than a broader market improvement. Turning to the next slide, if we look at the last 12 months, our EBITDA margin now reached 14.6%. That's a new high for Canel and a clear step up towards our medium term target of 15% EBITDA margin. LTM net sales now stands just under 1.8 billion SEK, up from around 1.5 billion a year ago. This improvement reflects the combined effects of operational discipline across our group companies and the continued positive contribution from recent acquisitions. The broader market environment remains mixed and the visibility is still limited. The strength of our Q1 reflects strong execution in our companies, some of which are outperforming their respective markets. This is rather so than the broader market improvement in demand across the board. Our decentralized model and the quality of our businesses allow us to develop the group somewhat independently of short-term cyclical conditions. Our focus remained unchanged, profitable growth through operational improvements and carefully selected acquisitions that strengthen our industrial technology platform. And with that, I'll hand over to Niklas, who will walk you through the financials and the performance of our two business areas in more detail.

Thank you, Petter. So let me walk you through the financials for the quarter and starting off with the group. Net sales increased 27% to 457 million, with an organic growth of 13%. Acquisition contributed 16%, while currency effects were negative 2%, where the Swedish krona has strengthened against both euro and sterling during the quarter. On the right hand side, EBITDA increased 73% to 66 million and organic EBITDA growth was 43%. Acquisitions contributed 34% and currency was negative 4%. The EBITDA margin improved from 10.7 last year to 14.5% this quarter. And the margin improvement was broad-based, supported by strong organic development, especially in niche manufacturers, and also continued positive contribution from last year's acquisitions. During the quarter, the quarter also includes 1.3 million in acquisition costs. So moving on to our segments, product companies delivered net sales of 224 million, which is up 30%. This was primarily driven by acquisition, which accounted for 28 percentage point of growth. Organic growth came in at 3% against the strong comparison quarter last year, and currency effects were marginal at minus 1%. EBITDA increased 71% to 30 million and organically EBITDA grew 8% with a margin of 13.4%, which is up from 10.2 last year. The recently acquired companies continue to perform in line with our expectation and contributed with stable margins. And product companies represent around 50% of group net sales during this quarter. Niche manufacturers had an exceptionally strong quarter when net sale increased 25% to 233 million and with an organic growth of 23%. Acquisitions contributed 6% and currency was a negative 3%. EBITDA increased 62% to 51 million with organic EBITDA growth of 61%. The margin reached 21.7% up from 16.8% last year. All companies in the segment developed well with stable demands and good cost discipline. I should also note that the quarter was supported by non-occurring project activity in one of our larger units, which contributed meaningfully to the strong organic development during the quarter. And niche manufacturers represent the other 50% of group net sales during the quarter. Turning to cash flow, operating cash flow for the quarter came in at 59 million compared to 13 million in Q1 last year, which is a significant improvement. Cash flow before changes in working capital was 62 million up from 40 million and is driven by the higher result. And the working capital change was a negative 3 million, which is a considerable improvement from the negative 27 million we saw in Q1 last year. On an LTM basis, operating cash flow reached 265 million, an increase of 51% compared to LTM Q1 last year. And this is the strongest level we have reported to date and is, of course, also partly driven by acquisitions. And finally, our capital structure. Interest bearing debt at the end of the quarter was 512 million, up from 370 million at the year end, and reflecting the debt drawn from the UBA acquisition done in March. Cash and equivalents stood at 98 million, giving us a net debt excluding leasing of 413 million. EBITDA excluding leasing adjustments on an LTM basis was 299 million, resulting in a leverage ratio of 1.4 times, which is well within our financial target. Total financial net debt, including also leasing liabilities, continuous considerations and put and call options related to non-controlling interest was 727 million. And overall, this position as well to continue investing in both organic growth initiatives across our existing companies and also new acquisitions. And that concludes the financial overview. And I'll now hand back to Petter before we will open up for questions.

Thank you, Niklas. In March, we completed the acquisition of UBA, our first acquisition in Italy. And it's also a meaningful expansion of our niche production business area. OBA is an Italian company based out of Bologna, and it's built a strong position as an approved tier one supplier of premium exterior and interior accessories for leading automotive OEMs. The company is deeply embedded in its customer development processes, working with them from early design all the way through to mass production. That's the kind of partnership that is hard to replicate and exactly the type of niche position we're looking for in every acquisition we make. The company generates around 11 million euros in annual sales and it has consistently delivered strong margins. We acquired the company from the second and third generation of the founding family, with the second generation stepping back as the next generation now takes over operational leadership. This is a familiar setup for us. We step in as long-term industrial owners alongside the team and the family that knows the business best. Italy has been a focus area in deal sourcing for some time. It's a deep pool of family owned, technical, strong industrial businesses where our long term ownership model resonates well. We acquired 90% of the shares with an option to acquire the remaining 10%. complemented by a performance-based earn out between the years 2026 to 2028, ensuring continuity and alignment with the next generation of leadership in the company. Turning now to our latest And after the period, we completed our most recent acquisition in Flex7. It's a UK-based niche specialist who specializes in modular lightning connectors and control systems. Flex7 was founded in 1998 and is headquartered in Tyreford, just outside of London. The company designs and manufactures plug and play wiring systems used in the electrical fit out of commercial and public buildings. For example, in schools, hospitals, offices, retail and hospitality. It is an end market that benefits from structural demand around energy efficiencies and smart building infrastructure. The company has built a leading position in the specialized segment with a recognized brand and loyal installer base. Margins have been strong and consistent. We acquired 98% of the shares from the founder and other shareholders with the managing director retaining 2% stake and continue to lead the business. As with OBA, this is a transition from a founder ownership to a long-term industrial ownership And that's exactly the type of situation that we are built for and cater for. Flex7 fits squarely in our product company's business area and is a good complement to our existing portfolio there. Looking at the broader pipeline, activity remains healthy, particularly in the UK, Italy and the Nordics. And as always, we'll stay disciplined on valuation and structure. We will walk away when the terms do not match our return expectations, and we have done so multiple times in recent quarters. OBA and Flex7 are both good illustrations of how we want to grow selectively with quality and long-term value creation at the center. To sum up, Q1 was a strong start for 2026 for us. The broad base organic growth, a meaningful step up in profitability and one of the strongest cash generation quarters to date. Both businesses areas contributed positively. Niche production delivered exceptionally organic momentum supported by in part some non-recurring project activity in one of our larger units. The product companies delivered stable organic performance against tough comps and a strong contribution from recent acquisitions. We have strengthened the platform in a meaningful way, completing our first acquisition in Italy with OBA and adding Flex7 in the UK shortly after the period end. Both are high-quality niche businesses with strong margins and are structural demand drivers, and both brings us closer to our long-term ambitions. M&A pipeline remains active and is broadening across geographies and end markets. Our balance sheet provides the flexibility to stay selective yet active. We entered the rest of 26 with confidence in our strategy, in our team, our ability to continue to create sustainable long term value creation for our shareholders. Thank you for joining our presentation today. And with that, let's open the floor for any questions 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. And the first caller is Max Bako from SEB. Please go ahead.

Thank you and good morning Petter and Niklas. Well done here in the quarter I must say. A couple of questions from my side if I may. Perhaps then of course starting then with this non-recurring project that you had in niche production segment during the quarter. If you try to exclude that from the numbers is it possible to give an indication of the the broader underlying organic growth for the segment? How much did the non-recurring project contribute with during the quarter?

I guess I can try to answer that question to the extent I can. I think, again, to reiterate, I think it's broad-based, so we have strong development across the whole group, and I would say especially in the niche production area. That goes for all the companies there. So they performed really well, all of them, more so than historically. I think if you look at Q4 numbers, you'll see that we had a good organic momentum and we talked about entering into Q1 with a good momentum. And I think that's what you're seeing in the numbers. Of course, we're trying always to be as transparent as possible. And we've broken it down for you guys in the presentation for the niche production area where you can see the development. And I think, you know, if you think that we have had a strong momentum organically and then you have to shave off that extraordinary project business on top of that in the EBITDA but I think that's the guidance we will give at this point.

Okay understood and I guess I mean perhaps a bit too far away but I guess it's fair to say that Q1 2026 will be quite challenging comparable to fully match when we get to Q1 2027 all else equal. Do you agree on that?

At least in organic growth on EBITDA level, yes, you would be correct to say so. And that's why we're trying to be very careful with highlighting that we had an extraordinary product business in one of our larger units. So we try to be very transparent with that as well.

That's much appreciated. And then turning to the cash flow, which was quite nice here in the quarter and a clear step up compared to Q1 last year. I mean, it's especially given that both the strong sales growth, which tends to tie up some working capital, but also that historically, one has been quite seasonally weak in terms of cash flow. So what explains this quarter? What has changed?

Yeah, and I will try to answer that. And as you say, historically, our first quarter has been somewhat lower when it comes to cash conversion and cash flow generation. We have worked actively to mitigate that. We have also, during the last years, done acquisitions where we can see less seasonality in the cash flow generation and that, of course, gives an impact this quarter. We can also see that even if we are growing, we are tying up more capital in accounts receivable, also in inventory. But at the same time, we have matched it with accounts payable more than we could do last year in the comparison quarter. So this is an active... topic for us of course and something that we work actively in all companies and and we will try to to even it out during the year but but and we have seen seen impact of that this first first quarter okay sounds very good and then turning to to the two acquisitions done here recently OBA and Flex7

as you showed in the presentation here both very profitable companies at least historically what are your expectations going ahead are the last three years representative for both companies in terms of margins or should one expect perhaps some additional costs when you take over I guess management change adding new resources or something similar

I mean, we always try to show these numbers and that's why we have the caveat there in terms of, you know, taking off, you know, family expenses and stuff that's not going to occur again. And on top of that, if they need more cost in CFO or another MD, that's not the case in any of these two cases. But, you know, we're trying to sort of normalize for that in the data that we show. So no, I would say I think this is representative of what we can expect going forward if things develop along the lines of what we hope internally.

Okay, that sounds promising. And if I did my math correct here during the morning, it seems like OBA was acquired at a very very attractive acquisition multiple, despite them a very attractive financial profile. With that acquisition, is it anything to keep in mind here in regards of end market exposure, customer concentration, or something similar that might influence, say, earnings volatility or something similar?

Yes, I think it was a commercially sound price in the end or structure. I mean, it's not just one upfront component. It's also an earner structure and a minority shareholding of 10% that they're going to keep for some time. So, you know, we believe that we find a well-balanced and a good win-win situation both for the family and for ourselves.

Okay, okay. And then the final question also related more broadly speaking to the ambition here in Italy going forward. I know that you have spoken about the intention to make acquisitions in Italy for a number of years now and now you finally made the first one here which is quite interesting. going ahead do you have any ambitions to i guess hire local a local employee to support in the mna scouting perhaps take on board responsibility and so on what are you seeing there

Yes, so we already have since, well, close to a year now, a person on the ground, a senior person who is, yeah, building the pipeline, contacting companies, talking to intermediaries and advisories locally. So we already have that in place and he's going to be the chairman now for OBA, for example. So we're already...

already there and we might even look for another person to add to the team given the potential we see in the market okay perfect that was all the questions i had thank you very much and happy friday thank you thank you

So with that, we don't have any more dialing questions. We have a written question here, which is product companies, 3% organic growth on a very tough comparison. Is it fair to say that comparison will be much easier from Q2? And furthermore, even though market demand is mixed, are you confident that product companies will continue to deliver mid-single positive organic growth due to the easier comps?

I wouldn't say we have easy comps going into Q2. I think last year was quite a good year in general. So I wouldn't say that we have easy comps for Q2. I think that's all we can say in regards to that we as you all know so that's listening to us often we're trying not to guide into into the future too much but just talking about what we have uh right now at the moment and uh yeah tough tough comps in q1 but we'll have to see And I think with that, we don't have any more questions. And if you have more detailed questions, you're always free to email us at ir.canel.se. And with that, we would like to thank you for taking the time to listen to us today and have a good day. Thank you.