Storskogen Group AB (publ)

Good morning and welcome to the presentation of Storskogens year end report for 2024. I'm Krister Ahlson and joining me today as always, Lena Glader, Storskogens CFO. It's been an intense yet rewarding years in stepping into the role as CEO. And I'm pleased with the progress that we have made across our operations over the past year. And I'm confident that we are moving in the right direction. Looking at the fourth quarter, it stands out as one of our stronger quarters since our IPO in terms of several key metrics. And I'm eager to get into the details with you. So let's begin with an overview of Storskogen before we take a closer look at the quarter's highlights. Storskogen is a diversified international business group with sales of 34.2 billion SEK of the last 12 months. And just the EBITDA of 3.2 billion SEK spread across our three business areas. I'm especially happy to note that services and industry track above 10% margin on an annual basis. Following the several completed divestment over the past year, we now consist of 115 business units, each with an average sales of about 290 million SEK. Moving on to the highlights for the fourth quarter, we reported sales of about 8.6 billion SEK and adjusted EBITDA of 849 million SEK and adjusted EBITDA margin of .9% for the quarter. Cash flow, organic EBITDA growth and profitability have been our top priorities of the past year and will remain so going forward. This quarter reaffirms that we are on the right track on several levels, including achieving the strongest recorded quarterly cash flow in our history at almost 1.7 billion SEK. Our cash conversion rate at 97% continues to be well above our target, reflecting the great work of our companies over the past couple of years. Operationally, our efforts have yielded continued margin improvements in addition to sequential improvements throughout the year in terms of organic EBITDA growth. Our leverage rate has moved towards the lower end of our target range, reaching its lowest level since the first quarter of 2022 at 2.3 times EBITDA. Lastly, I want to highlight the leadership transition. Alexander Bjärgård will be stepping down from the management team. As head of M&A and corporate development and one of Storskogens co-founders, Alexander has been an integral part of reshaping our strategic direction. He will now serve as a chair of the investment committee, overseeing investments and capital allocation. He will also continue as board member of Storskoga. At the same time, I'm pleased to welcome Johan Ekström to the management team as a group head of M&A. His extensive experience in M&A makes him an ideal successor to Alexander. In Q4, we delivered positive organic sales and EBITDA growth alongside significant margin improvements in both trade and services. Our .9% margin is an improvement of 2.1 percentage points compared to the same period last year, marking the strongest quarterly margins in Storskogens IPO. In 2024, sales and margin followed the usual seasonal trend, a softer Q1, a stronger Q2, a slightly softer Q3 compared to the historically stronger Q4. And we expect a similar pattern for 2025. The decline in reported sales was primarily due to divestments, accounting for 6% reduction, slightly upset by organic growth, acquisitions and FX. Our meaningful -on-year margin improvements to .9% reflects the strategic initiatives we've implemented to drive organic EBITDA, also demonstrated by the positive organic growth recorded by all three business areas. Divestments of low performance also had a positive impact. That said, our ambition is to continue to work hard to reach our newly commuted margin target of above 10% on annual basis, starting in 2025. Looking at the past two years, I'm very pleased with the result we have accomplished in terms of cash flow in both 2023 and 2024, with over 3 billion SEK each year. This is a testament to a lot of hard work and processes put in place, and it will benefit Storskogen as we move forward. So let's move onwards to take a closer look at the business areas. For services, in the fourth quarter, services reported lower sales, but achieved a significant increase in profitability. The 12% decline in sales was largely driven by divestments, which accounted for 11% points. On the profitability side, adjusted EBITDA grew with 32% -over-year and with 4% for the full year, reflecting the success of our ongoing efficiency measures. We are especially happy with this, in addition to the margin expansion, which improved from .8% in Q4 last year to .2% for Q4. Divestments and the increased focus on organic EBITDA growth have had a positive impact, both in the quarter and for the full year. In addition to working with efficiency measures, we have prioritized projects with strong profitability. Similar to Q3, we observed underlying improvements in most areas, but especially for business units offering digital services, logistics and installation services. However, the market for companies exposed to construction remained soft. Looking ahead, Q1 is seasonally softer quarter, though overall we are continuing to see positive signs of improved market sentiments and we are cautiously optimistic. For business area trade, organic sales grew with 5% in the quarter. The impact of divestments resulted in a decrease of 7%, which generated a total sales decline of 2%. More importantly, adjusted EBITDA grew with 21%, whereof 15% organically. Consumer demand remains muted, but we are seeing signs of recovery both in gradual improvements and in sentiment. When demand picks up, we see potential for stronger profitability supported by the operational initiatives that we have implemented throughout this year. Looking ahead, as with services, we anticipate a somewhat softer first quarter, but in line with historical patterns. Industry sales for the fourth quarter was in line with last year's figures, while full year sales declined by 2%. Adjusted EBITDA and margins also remained in line with previous year's fourth quarter, with a margin of 10.5%. Overall, market conditions remain stable, with order books at healthy levels. Businesses focus on automation, especially those offering robot integrations, continue to see solid demand, while those with exposure to consumer demand, in addition to various businesses with exposure to Germany and UK, have a softer sentiment than those with exposure to the Nordics. Global uncertainties persist, of course, making it difficult to predict when demand will recover fully. In the meantime, we are committed to counter uncertainties by focusing on areas that we can affect to maintain continued operational resilience. Since becoming the CEO, I've emphasized the importance of organic growth as a key driver to improve our leverage ratio and to focus on long-term success of the group. And I think that we are now seeing continued progress in organic growth improvements. Improving sales, optimizing pricing, having cost controls are part of the daily operations of our business units, year-round and across business cycle. However, from a Storskogen perspective, we can always improve, especially by identifying best practices in certain areas and replicating them across the group. To illustrate our progress of the past year, I want to turn your attention to the next slide. Looking at this bar chart, it illustrates the sequential improvements in organic sales and EBITDA growth quarter by quarter throughout 2024. We started the year facing tough comparables against Q1 of 2023. This prompted the launch of target initiatives to focus on driving a recovery in organic EBITDA growth. And as you can see, while sales have remained relatively stable over the year, we have seen steady improvements in organic EBITDA growth, reflecting our ongoing focus on operational efficiency and profitability. And I want to highlight the .8% organic growth in the fourth quarter. Before wrapping up, I want to revisit another familiar theme from our past few quarterly presentations related to the sum of our prioritized areas. Our main focus at hand under the Today header has been on driving organic EBITDA growth, pursuing cash flows, improving our leverage ratio and reviewing our portfolio. And in sum, we have made significant progress across all of these areas and remain committed to further improvements. Looking ahead, we are approaching the key triggers that will allow us to return to more normalized situation. One where we can reinvest our cash flow into a balanced mix of organic and acquired EBITDA growth. In sum, our efforts are moving ahead in the right direction. And with that, I'll now hand over to Lena for a closer look at our financial performance.

Thank you, Krister. Let's start with a closer look at the financial summary here, adjusted for items affecting comparability. And on the next page, I'll show the reported numbers. First of all, I echo what Krister just said. We're happy, of course, from the financial standpoint also to see that our focus on efficiency across all areas, operational, you mentioned already, but it also has to do with financial efficiency, tax efficiency, etc., have all resulted in notable improvements in the past three quarters. We mentioned the net sales decline already, 5% in the quarter. This is driven by divestments, whereas organic growth was flat for both the fourth quarter and the full year. But despite the sales decline, our adjusted operating profit or EBITDA grew by 33% to 655 million in the fourth quarter, and it grew by 3% to 2.4 billion for the full year. This was, of course, helped by divestments of the nine unprofitable businesses earlier in the year, but the improvement is also backed up by operational efficiency improvements, most notably in business area services, but also within trade. In addition, Group EBITDA was positively affected by lower central costs in terms of lower personnel expenses. As for adjusted net profit, it increased by 228% to 376 million in the fourth quarter, and by 22% to 1.1 billion for the full year. This is adjusted, of course, then. Net profit is helped by both lower tax, especially in the fourth quarter, and by lower financial costs. Financing costs is an area that we paid particular attention to during the year. With lower debt now and some relief in the base rates towards the end of the year, we started to see positive effects already in the fourth quarter with a decrease of financial items by 31% year on year. But given that most of the base or the rate cuts were done during the fourth quarter and also in the beginning of this year, we expect to see more visible positive effects on this line as of the first quarter this year, of course, also helped by a lower gross debt. Turning to the financial KPIs in the table below there, Krister, you already mentioned the adjusted EBITDA growth of 20% and the EBITDA margin of 9.9 in Q4, .4% for the full year. Adjusted return on equity was 5.6%, and our adjusted return on capital employed was 7.6%. Net of Goodwill, this adjusted return on capital employed was 17.7%. Even though both of these metrics, return on equity, return on capital employed, are still below acceptable levels according to us, we are glad to see a year on year improvement also in this metric. And we will continue to work towards improving them by growing our profits, of course, and maintaining a healthy balance sheet also as we begin to add M&A growth. Finally, the earnings per share adjusted for items affecting comparability grew by 321% to 0.19 krona per share in the fourth quarter, and the growth was 26% on the full year to 0.57 per share. And then just a quick comment here on the reported provident loss statement here. Items affecting comparability, which is the difference between this and the previous P&L that I showed, were quite small in the fourth quarter. Total effect on net profit only 12 million in items affecting comparability, and this largely has to do with a capital gain from the divestment of a Swiss entity in Q4, and also partly refinancing costs. But for the full year, we had larger items affecting comparability, obviously related to the divestment of the nine unprofitable businesses that we announced in the second quarter. The effect on EBIT from that was 947 million, and the effect on net profit was 1 billion Swedish krona, and we explained these items in more detail during our Q2 earnings call. But including these items, of course, the reported full year net profit was positive 116 million, whereas our reported earnings per share attributable to the parent company shareholder was a negative 0.03 krona per share. Right, then we have a closer look at the Q4 sales bridge here on the next page. We illustrate on this slide the contribution from organic structural and currency changes to the fourth quarter's sales growth of minus 5%. Organic growth flat, we already mentioned that in the quarter, it was positive in trade and industry and negative in services as a result of a clearer focus on profitability in projects and assignments, as Christo described. Result investment represent minus 6% of the sales decline. FX effect on sales growth was a positive 1% in the quarter stemming from a weaker Swedish krona, and we had no acquisition or no effect from, notable effect at least from acquisitions. And on the following page, we have, we're showing sales and EBITDA bridge again for the fourth quarter, but here divided by business area. And let's start with the sales bridge to the left. What I'd like to bring your attention to here is that business area services, their sales decline, both organic and from divestment, represented the largest by far largest share of the group's sales decline, obviously, but this also includes divestments, of course. However, to the right there in the EBITDA waterfall, you see the opposite effect on EBITDA. So you see that the divestments made in services actually lift group EBITDA and that this contribution represents more than half of the total profit growth in the quarter year on year, whereas lower central costs contribute positively around 4% points of that. And the contribution from trade is also positive 5%. And let's move on to the cash flow statement for the fourth quarter and the full year. The fourth quarter is typically strong in terms of cash flow when inventory and receivables are reduced after typically building up in the third quarter. But this quarter's strong cash flow is not only due to seasonality, it is also a result of a continuous improvement in our subsidiaries working capital management. Cash flow from change in net working capital was a positive 621 million in the quarter and the largest contributor here was reduction in receivables. We also had some reduction in inventories, but they were more or less offset by lower payables. But summing up cash flow from operating activities, mind you, this is after paid interest and paid tax. We arrive at 1.7 billion for the fourth quarter and 3.1 for the full year. Cash effects from M&A was a negative 108 million in the quarter and minus 372 million for the full year. This item includes paid earnals as well as buyback of minority shares in existing subsidiaries and those items in fact make up most of that minus 372 million in the full year. Cash flow from financing activities was minus 745, so in other words that stems from loan amortizations and minus 1.7 billion for the full year also due to loan reductions or debt reductions. So adding it all up gives us a cash flow for the period of 599 million, that's almost 600 million in the quarter, and 309 for the full year. Which gives us a cash balance of 1.9 billion at the end of December. In addition to that we had the unutilized credit facilities of 3 billion SEC, so the total available liquidity for S&M Group at the end of the year was 4.9 billion, which is a comfortable level obviously. Next page then where we are showing the operating cash flow and cash conversion on a rolling 12 month basis. This is the EBITDA based operating cash flow for the past 10 quarters that we see here. So we've gone from a cash conversion rate of 50% to being at or around 100% for the past 6 quarters now, and that is on a rolling 12 month basis. Again this is well above our communicated target of 70%. For the isolated 4th quarter cash conversion was in fact 140%. Over to Storskogen Groups condensed balance sheet on the following page. The total balance sheet amounts to 43.2 billion, which is 2% lower compared to a year ago. Largely a result of divestments, reduced working capital and consequently reduced debt. I'll show how net debt items and leverage have developed in more details on the following pages. But I look at the equity ratio here. Finally it increases to 48% from 46% a year ago. And then let's move on to the interest bearing net debt and interest bearing net debt to EBITDA, so the leverage. Interest bearing net debt decreased by 1.2 billion during the quarter and is now below 10 billion SEK for the first time since Q1 2022. And our leverage ratio is also at its lowest level since then, coming down from 2.6 in Q3 to 2.3 in Q4. And it is in other words now in the lower end of the target range of 2-3 times that we've stated quite clearly as our ambition. And here essentially the same figures but in more detail showing total debt, cash and EBITDA. The dotted line first there shows our 12 month per forma EBITDA development, which we use in the leverage definition. After a period of declining EBITDA up until the first quarter 2024, we managed to stabilize it in the second quarter and in the third quarter. And now in Q4 we can show a more visible increase in our EBITDA to 4.26 billion SEK. On this graph you can also see that all debt items, interest bearing debt, leasing and non-interest bearing debt all decreased while cash and cash equivalence increased. As for the non-interest bearing debt of 1.94 billion, almost all of that is minority options liability. And we expect to buy back roughly between 4 and 500 million during this year, which will be EPS-equitive obviously. And finally on the next page, as we touched upon briefly at our capital markets day in November, we will as of Q1 this year start reporting our profit and loss statement based on nature of cost instead of function. This is the table to the left. We believe that this better reflects how we manage and how we follow up our business areas operationally. And I believe it will also make it easier for you to track important cost items such as raw material and goods, personnel costs, and not least depreciation and amortization. I'd like to point out that all KPIs are unchanged such as sales, EBIT, profit before tax and after tax etc. And of course in this setup we will also show EBITDA and EBITDA in the P&L statement as separate lines. And to the right there we will also in line with our ambition to streamline and to focus our operational steering, reduce the number of verticals from previously 14 verticals to 7. Our new verticals are shown in the table to the right as you see there. There are no changes to the business areas nor to our reporting only to the sub-verticals. Services will now have two verticals, business services and infrastructure services. Trade will also have two verticals, consumer products and professional products, whereas industry is unchanged. Automation, industrial technologies and product solutions. That was my last slide. Over to you Krister.

Thank you Lena. To summarize today's presentation, our operational initiatives are yielding positive effects with a strong organic EBITDA growth in the fourth quarter, laying a great foundation for years ahead. We achieved the highest quarterly cash flow in our history, reaching 1.7 billion SEK, while also delivering our highest margin since going public. I also want to highlight that our interest bearing net debt is below 10 billion for the first time since the beginning of 2022, also reflected in our lowest leverage ratio since Q1 of 2022. The steps we have taken reaffirm our commitment to driving organic EBITDA growth and maintaining strong cash flows. This position as well for the implementation of our updated strategy and financial targets as outlined at our capital markets day in November. With that, thank you all for listening and we look forward to take your questions.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Carl Johan Bonnevier from DNB Markets. Please go ahead.

Yes, good morning Christian and Lina. Congratulations to Solid Development and excellent cash flow in Q4. And on the back of that level, I know you earlier talked about that you had an aim to get down maybe to the lower end of your 2-3 times net debt to EBITDA financial target. Looking at how the solid cash flow is these days and I guess also as you pointed out Lina that we're now coming into maybe a lower interest rate cycle and so on. Do you feel that getting down to the lower end of the target before you maybe start to initiate more acquisition kind of those initiatives to courses or that you can maybe be complacent with what you have now in that respect?

Thank you. Thank you for the questions. Well, we said at the capital markets day that we believe that if we continue to develop in the way that we have been developed that we can start doing acquisitions in Q2 or Q3 of this year. And so we believe that this position as well to start doing that and we feel comfortable with coming down to 2.3, which is the lowest that we've been in three years. So with that said, we believe that we can start doing acquisitions again within the next couple of quarters.

I maybe clarify when we've talked about the lower end of the range, we've always pointed to the lower like that between 2 and 2.5. And when we talk about the lower end, we don't mean 2.0.

So with that said, we think that we are in a good position with what we have delivered during this year and especially during Q4.

And yes, also on the few verticals that you will show going forward to us outside the company, does it also imply any changes to the structure, how you are managing these operations in-house and maybe rationalization to the structures you have?

The big structure we have already reduced a lot of as we talked also about on the capital markets today. The big that we're driving is trade services and industry. But we think this aligns more with the focus that we will have going forward on the investment themes and what we want to drive. But no major shifts in kind of the headquarters here. We have already taken those steps prior to this. So this is more how to align what we want to do and what we want to achieve going forward.

Excellent. Thank you very much and all the best out there. Thank you.

Thank you.

The next question comes from Andreas Koski from BNP Paribas Exane. Please go ahead.

Thank you and good morning. Just one question about the very strong margin in services. When reading the report, it sounds like you think this is a sustainable step up that we have seen and that it will even continue to improve from the levels that we saw in the fourth quarter. Is it possible to split the positive impact from the divestment and the efficiency improvement that you have done? And can you just confirm that you didn't have any, what could be considered as one of the strong margins in the fourth quarter? And also remind us of the margin seasonality for services as well and the 2025. Thank you.

I can start. You can take the questions on the divestments. I think the margin improvements in services has been also, we did that, we had a great margin improvements also in Q3. So there are structural parts of that. We have been really so much more focused on taking on projects that are better profitability. Actually taking, said no to projects that are not that profitable for us. So I think there is, and also a lot of fewer FTEs driving this, doing the services. So in that sense, we think that we are on a strong level and we'll have, but .2% is really, really strong.

And regarding how much of the improvement is attributable to divestments, as we've indicated, the divestment, especially of the portfolio in the summer, has had the largest effect on services, but there's also other positive effects in there. So roughly 50-50 of the margin improvements is attributable to divestments and to kind of operational organic improvements.

And also, as I mentioned, if you look at the Q4 numbers, we're growing the EBITDA level with over 30% in Q4 compared to Q4 last year, and about 22% of those are organically for the quarter.

Yes, that's why I'm wondering if this should be seen as sustainable or if there were any sort of things that could be considered one of in the quarter and that we might see margin coming down again in the coming quarters. There

will be seasonality, of course, in our year, but we think that the measures and the efficiency measures that we've taken in services will be sustainable.

There were no material one-offs in either direction in services in the quarter. Quite solid improvements throughout actually all verticals, on most verticals.

That's great. Thank you very much. Thank you.

As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Thank you all for listening, and I wish you all a great day and soon a great weekend.

Thank you so much.

Thank you. Bye bye.