Karnell Group AB ser. B

Good morning and welcome to Canell's Q2 2026 earnings presentation.

I am Petter Malenius, the CEO of Canell and joined by our CFO, Niklas Svensson. Q2 2026 is a quarter we will look back to as a milestone in Canell's development. For the first time, our quarterly EBIT A exceeds 100 million SEK. And on a rolling 12-month basis, our EBITDA margin has now reached 15.4%. And by that, surpassing the financial target we set out at the time of the IPO in March 2024. As usual, I'll begin with an overview of the quarter and the progress we've made. Niklas will then take you through the segmentation's performance and financials in more detail. including cash flow and leverage. I'll then return and discuss our latest acquisition and close with some key takeaways. And for those of you who are joining us for the first time, Canell is an active and long term industrial owner. We acquire and develop small to medium sized industrial technology companies with strong position in their respective niches. We operate in a fully decentralized model, Our companies run their own businesses supported by a lean central team focused on M&A, capital allocation and ownership. Today, Canell comprises of 20 companies across Sweden, Finland, the UK and Italy, employing around 900 people. And with that, let's turn to the quarter. As I mentioned, Q2 marks a significant milestone for Canel. EBIT A crossed 100 million SEK for the first time on a net sales of 584 million SEK. The EBIT A margin for the quarter was 17.1% compared to 14.6% a year ago. On a rolling 12 month basis, our EBIT A margin is now 15.4% and we have thereby achieved the financial target of at least 15%. A target we communicated to our investors ahead of the IPO and said that we would reach it in a medium term. That commitment has now been met. But I should also note that our target is defined of our business cycle. Getting there is one step. Staying there is the goal, and we believe that the quality of our businesses supports that goal. Two other numbers that stands out to me this quarter, the operating cash flow, 62 million. It's up 210% from the same quarter last year. And if you look at the net debt to EBITDA, it stands at 1.9 times, which is within our stated target. It would also be worth noting that both 2026 acquisitions are not fully reflected in the LTM EBITDA, so the ratio will naturally compress as they contribute to a full year of earnings. To summarize, strong earnings, improved cash flow and a solid balance sheet. The chart on this slide shows the consistent margin improvements. Since our IPO, our rolling 12 months EBIT A margin has moved from around 11% to the 15.4% that we see here today. This has been driven by our operational development across our companies and the quality of our acquisitions. I want to give some specific attention to the cash flow. H1 operating cash flow of 121 million SEK compared to 33 million in the first half of 2025. That improvement reflects higher earnings, of course, but also structural change in the seasonality profile of our business. Our geographical expansion, particularly the UK and Italy, has introduced companies with lower seasonality variations and together with target measures within the Group, we have also gradually shifted away from previous patterns where a large majority of our annual cash flow was concentrated in the second half of the year. Two additional metrics that I would like to highlight is the return on capital employed stands at 13.6%. That's a number that's essentially flat year on year. But I also think it reflects the pace of our M&A activity. Capital deployed hits the balance sheet immediately while earnings builds over time. I'd also like to stress that we remain very disciplined on valuation and which you can verify in the purchase price allocation in the notes of the report. And for a group like ours, I personally think probably that EBIT A per share is a more meaningful measure of value creation than reported EPS, since EPS to a large extent is influenced by non-cash items and acquisition accounting. But with that said, looking at the earnings per share after dilutions for the quarter, we now stand at one krona per share versus 0.68 a year ago.

That's a 47% increase per share. And with that, I'll hand over to Niklas.

Thank you, Petter. So let me walk you through the financial details for the quarter and starting off with the Group. Net sales increased 36% to 584 million with an organic growth of 17%. Acquisitions contributed 19%, while currency effects were a marginal negative 1%. On the right hand side, you can see that EBITDA increased 59% to 100 million and organic EBITDA growth was 34%. Acquisitions contributed 26% and currency was negative 2%. The EBITDA margin improved from 14.6 to 17.1%. The margin improvement was broad based, supported by strong organic development and continued positive contribution from recent acquisitions. And this also brought our rolling 12 month EBITDA margin to 15.4%, which is the first time we surpassed our long term financial target of at least 15%. The quarter also includes 4 million in acquisition costs. Moving to our segments, product companies delivered net sales of 305 million, up 40%. And this was driven by acquisition, which accounted for 25 percentage points of growth and organic growth, which came in at 16%. EBITDA increased 56% to 50 million, Organically, EBITDA grew 32% and acquisition contributed with 26%. EBITDA margin improved from 14.8% to 16.5%. The recently acquired companies continued to perform in line with our expectations and contributed with stable margins. Niche manufacturers had another exceptionally strong quarter when net sales increased 31% to 279 million with an organic growth of 19% and acquisitions contributed 13%. EBITDA increased 54% to 65 million and organic EBITDA growth was 36% and acquisitions contributed 20%. The margin reach 23.1% up from 19.7. Most companies in the segment develop well with stable demand and good cost discipline. But worth noting is that as in the first quarter growth was also supported by continued high demand from a single customer at levels that we don't consider sustainable in the long term. Together, the two business areas remain evenly balanced and product companies represented around 52% group net sales and niche manufacturers the other 48%. Turning to cash flow, operating cash flow for the quarter came in at 62 million compared to 20 million in the same quarter last year, which is a significant improvement. For the first half of the year, operating cash flow reached 121 million, up from 33 million a year ago, and this reflects higher earnings, but also our own work to smooth cash flow more evenly across the year. As we add companies with less seasonal swing and roll out targeted initiatives across the Group, we are moving away from the old pattern where most of our cash flow used to land in the second half of the year. On an LTM basis, operating cash flow reached 307 million, which is an increase of 86% compared to LTM Q2 last year. And this is the strongest level we have reported today. Finally, our capital structure, where interest bearing debt at the end of the quarter was 771 million, up from 370 million at year end. Reflecting debt drawn for this year's acquisitions, UBA in the first quarter and Flex 7 in the second quarter. Cash and equivalents stood at 145 million, giving us a net debt excluding leasing of 627 million. EBTA excluding leasing adjustments on an LTM basis was 337 million, resulting in a leverage ratio of 1.9 times. within our financial target of normally not exceeding two times EBTA. Worth noting is that EBTA only includes three and four months of profit contribution from our latest acquisitions. Total financial debt including leasing liabilities, continued considerations and put and call options related to non-controlling interest was 945 million. Strong organic cash flow generation and debt level within our target range continue to give us the flexibility to act on attractive acquisition opportunities. And that concludes the financial overview and I'll hand back to Petter before we open up for questions.

Good, thank you, Niklas. Yes, in April we completed the acquisition of Flex7. It's a British developer and manufacturer of modular connectivity and control system for lightning in commercial and public buildings. Flex7 is based in Tyford in the UK and it has annual revenues of approximately 9 million British pounds and solid profitability as you can see in the chart on the slide. What attracted us to Flex7 is a combination of proprietary and product technology, a strong customer base, and in a well-defined niche. It's a business model that fits naturally with our approach, running a decentralized, product-focused, and servicing B2B niche markets. Flex7 joins our product company business area and the company is off to a good start on the candidates ownership and is developing in line with our expectations. A note on the broader M&A, our pipeline remains active with good momentum, particularly in Italy and in the UK. We continue to evaluate high volume of opportunities and remain disciplined on valuation and structure. When the right company comes along at the right terms, then we will act. Key takeaways. So let me close with the key messages from this quarter. Q2 marked a milestone for Canel. EBITDA exceeds 100 million for the first time and on a rolling 12 bonds basis, we reached 15.4%. Meeting the long-term financial target, we sat at the IPO. This is the result of sustained efforts, not a single quarter. Growth was broad-based. Organic growth was 17% in Q2, driven by both business areas. Our acquisition, OBA and Flex7, are contributing as planned. Cash flow continues to improve significantly. First half operating cash flow stands at 121 million SEER compared to the 33 a year ago, and that reflects a fundamental shift in the seasonality profile of our business. in addition to the higher earning base. I think this is an important change in the quality of our cash flow generation as a whole. Our balance sheet remains disciplined at 1.9 times the net depth of EBITDA, giving us the platform to continue to acquire selectively Markets remained mixed, but our decentralized model, geographical reach and sector diversification allow us to continue to build the businesses regardless of these short term fluctuations. We are well positioned and we will continue to execute our strategy. I would like to thank you for joining the call today and we look forward to updating you again when we report the Q3 results on October 23 to 23.

And with that, let's open the floor for 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. We have our first caller is Max Baku from SEB. Please go ahead.

Thank you and good morning Petter and Niklas once again well done in the quarter and especially on the cash flow nice to see a smoother pattern on that. So a couple of questions from my side and we discussed this the last quarter as well this single customer that you deem currently operate at Unsustainable volumes in terms of demand. Is it possible to give some kind of indication looking at the niche manufacturer segment which grew some 41 million SEK organically in terms of sales and 50 million SEK on EBIT A. How much of that is linked to the specific customer? If you can give any indication on that.

I think I would like to start to say, well, it's very broad based organic growth across the niche manufacturing businesses in Q2. So very solid results overall across those companies. That momentum continued in this regards to the single customer from Q1. But in the relative terms, it is smaller now than it was in Q1. So we started to see some sort of level of normalization while it's still a boost for us in Q2.

Okay, understood. And do you see going into Q3 now, do you see any impact also in the ongoing quarter from this specific project or is it behind us now?

Well, this is an existing customer of ours since many years, so it's not going to go away. It's more about the levels that are unusually high, the H1. And we are not to comment on the future here in Q3.

Okay, understood. And then also, I mean, you have already mentioned that Both on a group level and also within the segments, the strength was quite broad based, but looking also at the product companies, very nice organic growth, which to my understanding of this above current market growth. Anything specific in the portfolio that stands out or any actions from your side that might have contributed to the very strong performance here?

I would say also there is rather broad base, very stable across our group. I would say that our team are doing a terrific job in general. I think it's it's as you say, it's not reflected by the market. This is more that our companies has been has been taking share of wallet or growing in the markets in general. And I think we see some smaller signs and a bit more that the market is starting to pick up, perhaps especially Finland, than it has for the last few years. But again, I would say it's more that our companies or the teams are very successful in adding new customers and increasing share wallet with some of the existing customers that's driven this organic development.

Okay, interesting. I'm not sure if it has been mentioned already, but what are you seeing on the cost side in terms of input materials and also, I guess, freight costs and so on? Have you seen any impact from that and any actions taken already or perhaps going forward within the Group in terms of price increases and so on?

In short, I think raw materials, especially plastic raw materials, has been very volatile, of course, this first half year. Again, I think our companies has learned a lot from the previous turmoil from COVID to Russia invading Ukraine. So I think we've also been much more agile and adopted here than we were a couple of years ago, even though I think they did a good job even then. But now we've been able to Move some of the cost increase to the customer more directly. So, yeah, it's definitely been a little bit more volatile and historically. But again, I think we've been managing this very well across the group and in our subsidiaries. And that's really the strength of the model. We have a decentralized model where where our companies are making decisions very close to the customers and finding the right balance there.

Okay, sounds promising. And then the final question from me. I mean, it seems quite natural, but looking at the cash flow here in the quarter, you tie up some 36 million in networking capital, which makes sense given the strong organic growth. But is it something else beyond that that influenced the dynamic here in the quarter? If you have any thoughts on that.

As you said, we tie up capital and it is related to the organic growth. And so most of the of the the increase is related to to account receivables, but also slightly in inventory. So so no, it's related to the growth that we have. And so we are happy with with even with that growth based being able to to to have the cash flow that we had both in Q1, but also now in Q2.

OK, understood that was all from me once again. Very well done here and hope you enjoy the summer ahead. Thanks.

Thank you. Thank you. OK, so we have another question here. A written question and it relates to our to our product companies. And the question is, the previous four years have shown 250 to 400 basis point increase in margin in Q3 versus Q2, meaning that Q3 has been a strong quarter from seasonality. Should we expect the same this year, taking into consideration that you talk about the smoothing of seasonality effects?

I think again, we don't guide going forward, but I can give you some context for the historical data. And I think again, as rightfully stated in the question, we have had and we still do have some seasonality across the group. I think Q3 is a quarter where more or less all the company are doing well. We have some of the companies who are By default or by definition, making some losses during some of the quarters around the year. But Q3 is typically the quarter where everybody's contributing. So I think that's also been shown in the numbers historically. Of course, as we continue to expand, we continue to add profitable companies will, of course, see a different pattern. But I think overall, that's been the historical reasons for higher margins in Q3. And I think that's what we're going to say about that question. Another one. Question in the chat was the question about the 15 percent that we now reached, if we now are going to come with new financial targets, I think You know, this is the first quarter, as I mentioned, that we reached this number. It's not about a quarter. It's really over a business cycle. For me, it's more important now that we establish ourselves with some headroom to that level going forward and continue to focus on the returns that we can create for our shareholders. That 15% that we set in just before the IPO, I think that shouldn't be... That should be more seen as the quality stamp of the companies we're trying to acquire. I think one should also be a bit careful with just looking at the EBIT A number as a proxy for how well we're doing, because in the end it's about the returns that we created for our shareholders. You have to find the right balance and we think that the starting point for 15% is a good starting point for that. Any other questions? No, but then we thank you so much for joining the call today. And of course, if you have further question, you're free to email us or IR at canal dot SC. And with that, we wish you all a great summer and looking forward to meeting you of the summer. Thank you.