Storskogen Group AB (publ)

Great to have you listening in. So my name is Daniel Kaplan. I'm the CEO and one of the co-founders of Storskogen. And together with me today, I have Lina Glader, CFO.

Good morning.

Good morning. So let's jump right into it. First, Storskogen in brief. I think you all know us by now, but still a brief look 37 billion about in sales 3.5 billion in annual EBITDA these last 12 months and the average size might be an interesting fact for our business units is about 280 million Swedish kronor I might actually comment on that the fact that is that The average size of our business units have grown with 62% in the last two years. And this, of course, really reduces the risk in each and every individual business unit with bigger management teams, less customer concentration and less supplier concentration as well. So just an aspect. We are about 13,000 employees in 28 countries divided into four market areas. where we do business. Moving ahead to page number three, we are divided into three business areas, services, trade and industry. Each of these with different traits, services, higher degree of personal dependency, but quite often very strong local market positions. Low capex, so very high cash conversion on average and very stable regardless of business cycle. I think those are the traits of services. It's about a third of all our revenue and headed by Peter Ahlgren. We have seven different verticals within services. Expanding installation and infrastructure engineering to logistics, digital services, HR and competence and contracting services. Looking at trade, it's about 28% of our turnover. Typical trades of the trade companies are they are scalable, they have quite often market leading and sometimes exclusive market positions in their chosen areas. And within four verticals, home and living, niche businesses, health and beauty, sports, clothing and accessories. Finally, we have industry. We're headed by Fredrik Bergergaard. This is our biggest business area. Industrial technology, automation and products are the verticals. And looking at typical traits of industry, I would say once again, market leading companies, strong niches, less personal dependency, but on the other hand, you have higher CapEx and capital in general. Those are a little bit on the different business areas, of course. Moving ahead, looking at Q1, some of the highlights here. It's been a strong quarter. From a seasonality perspective, the first quarter is usually the weakest, but that's with 9.2 billion in sales, a 33% increase, an organic sales growth of 3%. An adjusted EBITDA of 885 which is actually 56% increase. We have to of course be satisfied with the quarter. The organic EBITDA growth 6% decent in a complex environment. With the adjusted EBITDA margin of 9.6% up from 8.2%. So we are happy with that of course. One should say that the Q1 last year was tempered by covid close downs accelerating inflation and the war in the Ukraine so in this case comparisons were not so tough to be honest but now we're bouncing back to a more normalized margin I would say this has some great consequences including earnings per share which increased with 118 cash flow relatively strong. Normally, we tie up capital in the first quarter, but in this case, we actually had a 79% cash conversion, taking us to an LTM of 71%, which is more or less spot on target. We extended our credit facilities, and our net interest-bearing net debt through adjusted EBITDA and RTM was at 2.6, remained at 2.6. We did three acquisitions in the quarter, another three after the quarter, so six transactions in total and one small divestment as well. And then of course we bought AC Electrical and in concert with that we also issued some convertibles that will be converted to Storskogen shares within a year. A comment on net sales and EBITDA margin. As you can see, we always have a relatively stable margin, but that said, a strong development in Q1. And, well, we are happy with that. And I think it's a consequence also because of our hard work protecting margins with restructuring in our portfolio companies, reducing central costs. Because it is true that a third of our companies are currently in a recession environment. So this is, of course, a demanding and complex environment to do business. So especially in light of that, we are happy with that turnout. Moving on to page six, market development. So looking at the macro, we still see a very strong industry business cycle, services more stable. We have been successful in pushing on price increases, which is, of course, very important in an inflationary environment. Even though we can see some of the inflationary pressures now going down, freight costs are going down, for example. Also, supply chain disruptions were really impacted last year are easing up, enabling us to work on releasing working capital, for example. On the negative side, we do see weak demand in most consumer facing industries. And also companies that are early in the construction cycle, where as interest rate costs kind of go through the economy. The outlook, well, of course, from a company level, we usually have a seasonality wise stronger second quarter. So that's for us. But if you look at the macro, well, we see a stable outlook for the second quarter, but we don't dare to say much when it comes to a very uncertain macro environment for 2023. Looking at the transaction market and M&A, well, we're moving into recession, meaning that we have fewer companies out for sale, somewhat decreasing multiples. at least in some segments, still strong demand in others. But deal processes are longer. It's harder to ascertain future earnings, especially in the short term. So all in all, a slower transaction market. And this is well in line with our own strategy at the moment or tactics at the moment with a reduced M&A pace. So looking at our financial targets, We can see that we are actually having a quarter where we're more or less spot on most targets. The real GDP growth, one to two percentage points is our target. We deliver 6% this quarter. The adjusted EBITDA growth, including acquisitions, 56% this quarter. I think given the cost of capital and access to capital, I think this is something that will be slower this year than historically. But nevertheless, we are, of course, very happy with 56%. The adjusted EBITDA margin over time, 10%, is our financial target. We're currently on the LTM on 9.5, 9.6 in the quarter. So I think given that Q1 is actually normally the weakest quarter, I think we are well on track there. Cash conversion, 70%. We're currently at LTM 71%, so we're back to our, well, the range where we've been for quite a few years actually so it's not a coincidence and hopefully this year of course we get into that we will have a continued strong cash conversion going forward and our leverage 2.6 actually reduced somewhat if you would add another another decimal but that said Still remains unchanged despite the quarter with significant tax payments and otherwise. So quite happy with our adherence to our financial targets. Looking at our business areas, we can start off with services, very stable, stable sales growth, positive margin development. The first quarter is actually seasonally weaker. It's about the number of working days. But also, if you have lots of snow and if it's a cold quarter, which we actually had this year, this means that our infrastructure teams have more difficulties being productive. And there are some other aspects pushing down the first quarter. But nevertheless, a decent quarter from services. And we can also see a stable outlook as far as we can see, at least for the second quarter. We did one add-on acquisition in Sweden. Looking at trade, we had a solid sales growth, but in this case we really see a challenging macro environment. Not only do we see a soft consumer confidence and demand, But also we had a problem with lots of our customers being overstocked, and they are currently working on reducing their stock. And that's potentially the light in the tunnel in this case. We do see some of our customers have received more normalized inventory levels and are starting to buy again. But of course, it's a mixed bag. Some of our companies within, for example, health and beauty are performing great. It's not a completely coherent picture in trade. One divestment completed within niche businesses. All right, moving on to industry. Industry had a super strong quarter and exceptionally strong, I would say. Strong organic, well, the organic sales growth of 4% is one, Of course, with alleviated supply chain disruptions, access to semiconductors and other important intermediate goods that enables us to have more efficient production. And we have a strong underlying market, good demand, strong order books. The ordering flow a little bit lower, but nevertheless stabilized on what we believe is a high, relatively high level. basically all verticals and almost all companies are performing well with a few exceptions of companies facing consumers but even those have been very competent in reducing their costs and protecting their margins and we see the underlying trends the automation trend the reshoring closer production in production closer to home all of these things drive the industry sentiment in a positive way. Two other acquisitions in industry. So looking at the acquisitions, we did a total of six acquisitions and one divestiture in the period and the period after. Actually, another actually divestiture even after the period. At this point, we have a reduced M&A pace, so if you look closely, you will see that Hässleholm's Sotavent, it's a chimney sweeper, adding to our very successful roll-up of the chimney sweeping segment, creating a market leader here in Sweden. Höga Kusten and Loginor provides software competence and other competences to Arat Group, which is our automation roll-up within the sawmill industry. Very important for us to ascertain those competences. We did one platform acquisition after the period, AC Electrical in the UK, providing some strong growth and revenues and margins in that sector. So we're very happy with that. And then we did a few other add-ons as well after the period. And as you could saw we did a small divestment of Medco and after the period an additional divestment which we haven't yet disclosed to the staff. So therefore we cannot name it at this point. All in all we're quite happy with the transaction anyway strengthening the market positions with our companies without actually affecting our leverage in any meaningful way. I would say that AC electrical actually has, on the margin, a positive impact on our leverage, i.e. it reduces leverage. So, financial performance, Lina.