Storskogen Group AB (publ)

The Storskogen Q1 presentation for 2025. During the questions and answers session, participants are able to ask questions by dialing pound key 5 on their telephone keypad. Now I will hand the conference over to the CEO, Krister Hansen, and CFO, Lena Glatter. Please begin your meeting.

Good morning and welcome to the presentation of Storskogen's report for the first quarter of 2025. I'm Christer Ahnsson, CEO of Storskogen and with me today is Lena Glader, our CFO. This past quarter once again underlines the strength of our diversified strategy. Owning and developing small and medium-sized businesses across trade, services and industry. The breadth gives us exposure to different parts of the economy and helps balance our performance across cycles. The first quarter is however usually our softest period of the year. Still, I'm pleased to see that the positive progress across our operations has continued into the new year. Before we get into the details, let's begin with an overview of Storskogen. Storskogen is a diversified international business group with sales of 33.8 billion SEK over the last 12 months. An adjusted EBITDA of 3.2 billion SEK spread across our three business areas. Services and industry track above the 10% margin on an annual basis. We trade currently at 8.4%. Following two mergers of business units in the quarter, one in services and one in industry, we now consist of 113 business units with an average sales of about 300 million SEK. Moving on to the highlights for the first quarter. We reported sales of about 7.9 billion SEK, an adjusted EBITDA of 700 million SEK, and an adjusted EBITDA margin of 8.8% for the quarter. Over the past year, we have been focusing on three main priorities, cashflow, organic EBITDA growth, and profitability. And these remain our top priorities going forward. This quarter reaffirms that we are on the right track. Our cash conversion rate at 88% continues to be above our target. Operationally, our efforts have yielded continued margin improvement with a continued positive year-on-year margin trend holding steady. since our leverage rate has also improved and remains at the same level as in Q4, at 2.3 times EVTA, its lowest level since the first quarter of 2022, and a level that we're quite comfortable with. Keeping a strong operational focus continues to be key, especially now as uncertainty in the global economy has increased. Scenario planning and adapting to new situations have been an integrated part of our operations since the pandemic and continues to be so. Maintaining our healthy leverage ratio not only strengthens our position, it also gives us flexibility to resume acquisitions in the coming quarters. In fact, we just completed a small add-on acquisition last Friday when our automation business Damatic acquired a smaller business that was within its offering. Our strong cash flows over the past two years have played a key role in achieving the lower leverage ratio and enable us to make acquisitions. Continuing to generate solid cash flows is vital for our business model and our long-term success. Looking to the first quarter, it's a period where cash flow is affected by tax payments and increases of inventory. Given the seasonal fluctuations quarter by quarter, it's more appropriate to look at our cash flow from operations on a rolling 12 months basis. And as you can see, this remains very solid around 3 billion SEC. The results we have accomplished in terms of cash flows for 2023 and 2024 is a testament of a lot of hard work and processes put in place. And these are expected to benefit us as we move forward. Next, I want to draw your attention to our net sales and EBITDA margin. As mentioned, the first quarter is our seasonally softest period. Still, we delivered positive organic EBITDA growth in both trade and services, alongside margin improvements. Sales decreased with 5% compared to the same period last year due to the investments made in 2024, accounting for a decrease of 6%. Slightly offset by organic growth of 1%. On a rolling 12 months basis, our margin improves to 9.6%, which is an improvement to equivalent margin in Q4 of 9.4%. Let's take a closer look on how our diversified approach is reflecting in the performance of our three business areas in terms of margin. On the left hand side, you see the timeline from the fourth quarter of 2023 to the first quarter of 2025. It shows the margin development for services, industry and trade. Over this period, services has steadily improved its margins, moving from below 10% to above 11%. In industry, margins have softened slightly, moving from just above 11% to slightly above 10%. Meanwhile, trade has moved more sideways overall, but with a gradual and positive uptake in recent quarters. As a result of our diversified approach, the combined margin of the business area, seen as the dotted line, has continuously improved since early 2024. Moving to the right hand side, we see the development of the groups adjusted EBITDA margin, now including group operations on the last 12 months basis. Similar to the previous combined business area margin, the margin initially trended down reaching a low of 8.7% during the first half of 2024. Since then, we have seen steady improvement with group margin increasing quarter by quarter, reaching 9.6% for the last 12 months by the first quarter of 2025. Our ambition is to continue to work hard to reach our margin target above 10% on an annual basis. Next, let's move in onwards and take a closer look at the business areas. Start with services. In the first quarter, services reported lower sales, but achieved a significant increase in profitability. The 14% decline in sales was largely driven by divestments, which accounted for it. In terms of adjusted EBITDA, the service business area grew 16% year over year, where of 4% organically. The decline in sales, excluding divestment, alongside improved EBITDA reflects our focus on project profitability. This means that business units are deliberately opting out of long-term contracts with insufficient margins to have the flexibility to take on more profitable projects in the future. In line with the developments in the past few quarters, our business units offering digital services and logistics continue to do especially well. However, the market for companies in the infrastructure vertical experienced another challenging quarter when compared to the business services. The infrastructure businesses are more exposed to seasonality, especially those exposed to the construction industry, as also noted in previous quarters. Looking ahead, Q2 is usually seasonally stronger for the business area. Projects start to plan, and order intake has picked up in many businesses, and the trend for coming quarter is expected to be cautiously positive. For business area trade, we reported positive organic sales growth of 3%, however, offset by divestments which had an effect of minus 6%. In terms of profitability, organic EBITDA growth in the quarter was 2%, resulting in slight year-over-year margin improvement. Consumer products, the larger vertical in the business area, experienced a solid quarter with somewhat increased sales. Adjusted for divestment in the previous year, the professional products vertical noted slightly higher sales, which in combination with the company's long-term efforts, including pricing initiatives, cost focus and efficiency measures, also resulted in improved profitability. Looking ahead, the second quarter is normally seasonally stronger. The strengthened Swedish currency had no significant effect on the profitability in the quarter, but has the potential to significantly benefit the business area as a large part of the purchases are made in Euro and US dollars. Industry sales for the first quarter grew with 1%, while organic sales grew with 4%. Adjusted EBITDA decreased by 9%, primarily organically, and the margin decreased to 9.8% from 10.9% a year ago. The start of the year for business area industry was slow, with an EBITDA and margin below expectation. First off, the companies in product solution delivered sales and EBITDA in line with last year. However, companies in industrial technologies and automation came in below expectation. driven by a slow start to the quarter. Even though sales were broadly in line with last year, we did see margin pressure and some projects were delayed into Q2. On a positive note, the market situation improved sequentially with March seeing activity and profitability levels in line with expectations. We also noted a strong order intake during the quarter, which combined with a strong March gives us confidence ahead of Q2 that we will see profitability recovering back to the strong level reported last year. In the meantime, we're committed to counter uncertainties by focusing on areas that we can affect to maintain continued operational resilience. As we highlighted during our Capital Markets Day in November, a key focus for Storskogen is to strengthen the foundation for long-term profitable growth. On this slide, you can see our current exposure. A large share of our sales today comes from Sweden, both at the group level and within each of the three business areas. This strong position in Sweden and our exposure to more cyclical sectors puts us in a favorable position to benefit when the economy rebounds. The cash flow generated from these businesses will play a crucial role in supporting our future growth plans. At the same time, the high concentration to Sweden and to cyclical sectors also highlights why we are taking active steps to further diversify our profile, both geographically and sector-wise, to strengthen our resilience over time. On the next slide, you will see our executing on that strategy. Going forward, we are focused on three main initiatives. First, increasing our exposure to non-cyclical businesses to build a stronger and more stable earning space. Second, increasing our geographic exposure outside Sweden to reduce country and certain FX specific risks. This has become even more important recently, given the rising uncertainty related to trade tariffs, especially from the United States. Third, increasing our exposure to selected investment themes where we see a long-term structural growth opportunities such as automation, digitalization and well-being. All of these initiatives aim towards the same objective, delivering profitable growth and building greater resilience for the future. We are confident that our strong cash flow from our existing businesses combined with a sharpened strategy focus will allow Storskogen to continue growing while steadily improving the quality and resilience of our business group over time. Before I hand over to Ligana, I want to briefly touch on how we are set to improve the resilience of our business group in terms of capital allocation and where we see future investments. Here you see the five investment themes we have already have businesses today, health and wellbeing, automation, energy and sustainability, digitalization and infrastructure. While for example, automation is mainly part of our industry segments today, all five themes are relevant across our three business areas. That said, we would welcome an investment in for example, a trading company that is a supplier to area of automation. These themes are important because they are highlights where we see the future opportunities for growth, both organically and through acquisitions. With that, I will now hand over to Lina.

Well, thank you, Christer. Now let's move on to the Q1 financials. Here, first of all, I'd like to say that we made a number of changes to our financial report as of the first quarter. And on this page, we show the adjusted profit and loss statement. On the next page, the reported figures. Now, as of Q1, our profit and loss statement is shown per cost item instead of previously per function, as we believe that this gives them more transparent and better understanding of our underlying performance. So starting off with sales, the year-on-year sales decline of 5% to 7.9 billion is driven by divestments, as we've heard from Krister just now. And looking at the cost items, our largest cost items, raw material and personnel costs were 6% lower than in Q1 of last year and our EBITDA declined by 3%. which is slightly less than the sales decline. Depreciations on tangible assets and amortizations of intangibles reduced by 7% and 14% respectively. The amortization part is expected to continue to decline going forward. And this led to an adjusted EBIT growth of 5% to 523 million. Net financials decreased substantially, as expected, by 23% to 198 million on the back of rate cuts and lower absolute debt levels. And this translated into a 35% increase in adjusted pre-tax profit. Finally, a few words on the financial KPIs below. Now, Chris, you already mentioned the adjusted EBITDA margin of 8.8%. But looking at our earnings per share, EPS adjusted for items affecting comparability here, grew by 35% to 0.13 Swedish kronor per share from 9 euro per share in Q1 last year. Adjusted return on equity was 5.8%, and our return on capital employed was 10.4%. Both of these metrics are based on the rolling 12-month period, and both of them have improved year on year. Return on capital net of goodwill, which is not shown here on this page, was 25.8%. And on the following page, we show the reported unadjusted profit and loss statement. And the difference between this and the P&L on the previous page is that this one includes items affecting comparability of minus 20 million, consisting of a negative effect from reassessment of burnout liabilities during the quarter. Including these items, the reported profit before tax was 305 million, so a growth of 54%, and our reported earnings per share attributable to the parent company's shareholders was 12 öre per share. And let's take a closer look at the Q1 sales bridge. Kristo touched upon this already, but here we will illustrate the contribution to sales from organic growth, structural changes and currency. First off, organic sales growth for the group was plus 1% in this quarter. We saw positive growth in trade and industry as mentioned, but services experienced a decline due to this sharper focus on profitability in projects ahead of sales growth that Krister described. Currency and acquisitions had a marginal but yet positive effect on sales growth. And given the currency exposure based on the geographic exposure shown on the previous page, we do anticipate a slight negative translation effect if the Swedish krona remains at these levels going forward from non-Swedish businesses. However, on the other hand, we also expect a positive margin contribution to business area trade towards Q2-Q3 as purchases are typically made in euros and dollars that have weakened against the Swedish krona. Divestments accounted for a 6% drop in sales. So that's the largest explanation behind the overall 5% sales decline. And the largest impact here, of course, came from the portfolio divestment that we made and announced last summer. On the following page, we show the similar EBITDA bridge. Now, this is a bit different from the sales bridge we discussed earlier in terms of dynamics. First of all, divestments contributed a positive 3% to operating profit. This is because the assets that we divested last summer in particular were running with a negative profit in Q1 last year, amounting actually to minus 21 million in Q1 2024. Currency and acquisitions had a marginally positive effect on EBITDA, similar to their effect on sales, while organic EBITDA growth was negative 4% in Q1. While we saw positive organic EBITDA growth in trade and services, it was negative in industry as described earlier. And then over to the condensed cash flow statement for the first quarter. In the first quarter, we saw a 4% increase in cash flow from operating activities year on year, reaching 113 million. But looking at the 12-month rolling period, our operating cash flow was 3.1 billion. The cash flow from operating activities is largely attributable to profit growth, which has been supported by lower interest payments in the quarter and significantly reduced tax payments compared to the same period last year. On the other hand, we did experience a higher working capital build up of 436 million. It's important to note again that the first quarter typically sees an increase in inventory and receivables in anticipation of higher volumes in the second quarter. Looking at the net working capital to sales ratio, This has remained steady at 15% over the past 12 months period, which is a level that we're comfortable with and will continue to monitor and focus on. Our capex to sales ratio was 1.9% in Q1, up from 1.6% last year. And on the financing side, we did spend 733 million on debt amortization, supporting our lower interest payments, obviously. And when we sum everything up, the cash flow for the period was a negative 777 million. Our total available liquidity at the end of the quarter was 4.1 billion Swedish krona, including cash balance and credit facilities. And this obviously provides us with good flexibility, which I think is particularly reassuring in these times of uncertainty and volatility on the credit markets. And then having a closer look at the operating cash flow and cash conversion, turning to the rolling 12-month EBITDA-based operating cash flow on this page and cash conversion since Q3 2022. Now, the group target is for a cash conversion of over 70% over a rolling 12-month period. And as you see, and those of you who followed us know that it has been above these levels significantly. during the past years. And in Q1, cash conversion was 88% for their rolling 12-month period, still above the target level. And also, again, as a reminder, maintaining, of course, 100% cash conversion is challenging for our line of businesses over a longer period of time. So reaching a more normal level, still a good level, is anticipated. And then a few words on the balance sheet here on the next page. Our total balance sheet was 41.7 billion, 7% lighter compared to a year ago, largely as a result of divestments, reduced working capital and consequently significantly reduced debt actually. And I'll come back to the net debt and leverage on the next page. Looking at our equity ratio, it increased to 49% from 46% a year ago, also helped by currency. And as regards our debt portfolio, still a few words on that. During the quarter, we extended our revolving credit facility of 400 million euros, which today is largely undrawn to the first half of 2028. And after the quarter, We've refinanced our term loan facility and extended that to September 27 with a year extension option. And at the same time, it was increased also in terms of amount from 290 million euros to 345 million. Of course, this is drawn debt at lower margins. And this means that we have no larger debt maturities until 2027. And on the following page, finally, we show our interest-bearing net debt and leverage ratio over the past nine quarters. Our interest-bearing net debt remained below 10 billion or at 9.9 billion at the end of Q1. This is actually 1.6 billion lower compared to Q1 2024. This also translates into our leverage ratio, which was unchanged from year end at 2.3 times and also significantly lower than the 2.8 times we had a year ago. So to summarize the financials, we have seen margin improvements year on year again, healthy cash flows supported by lower interest payments, underlying profits and continued focus on cash flows. We have continued to reduce our debt and we have no longer, no larger near term debt maturities, I should add. And this all brings us to a comfortable conclusion. financial position for the upcoming quarters I would say. So over to Kristoffer for some concluding remarks.

Thank you Lena. To summarize today's presentation as we close the first quarter of 2025 these are the takeaways. First quarter was seasonally slower quarter as expected. I'm pleased with the margin expansion and the continuous strong cash flow on a rolling 12 months basis. And we are now looking ahead to a stronger second quarter. Second point to be made, we remain firmly focused on operational value drivers still generating organic EBITDA growth and ensuring solid cash flow performance. And finally, we are preparing to make acquisitions in the coming quarters, building on the strategic groundwork we have laid. All in all, we have made meaningful progress in 2024, and that progress gives us a robust platform to continue executing on our strategy with confidence. Thank you all for listening, and we are now looking forward for your questions.

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 Ragnarstam from Nordia. Please go ahead.

Good morning. It's Carl here from Nordia. A few questions. First, looking at industry. You mentioned a tad light margin in the quarter and you also mentioned, I think you mentioned postponed projects and a slow start to the quarter. I mean, is a slow start to the year and postponed projects related to each other or is it separate issues? And also could you quantify the magnitude of the postponed projects? And on that note as well, when you guide for flat margin year-over-year in Q2 for industry, is it including these projects that could in that case boost Q2?

Thank you Carl. First of all, looking at the Q1 on industry, we have had a slow start in a couple of the companies in automation and industrial technologies that brings the margin down and these are high margin companies. We believe that going into Q2 that we will be coming back to the same level earnings wise that we were on last year with that with the postponed projects so that's what we're saying.

Okay what are these because when I look at it just from the numbers it might not be correct but the US is around 11-12% of industry right? When looking at sales contraction, it is fairly substantial, 7% year-on-year in that segment. Is it there you see the projects being postponed or should we look at it from a geographical point of view?

And I think it's not only based in the US, it's more broadly on several, but it's temporarily in several business units, not only in the US. I would say it's more on temporary slow start than looking at it on another way.

And you said that you've seen any improvement in March. I guess given your guidance it is fair to assume that you see it continuing so far in April and May as well I guess or?

Yeah we have seen an improvement in March and it looks and also good order intake in the quarter and also continued in April yes correct.

Okay perfect very clear. We also saw you doing two bolt-ons in the quarter should we interpret and also one sorry one post the court as well as that as you reach the stable leverage situation and you're now ready to really restart the M&A agenda or is it just two quite small bolt-ons not representative for the overall strategy how should we look at it

I think you should look at it. I said it already on the Capital Markets Day in November that I thought that we were going to start in Q2 and Q3. And of course, we will start with doing a couple of add-ons acquisitions. But we are absolutely starting to look at opportunities and have been building a pipeline and looking at acquisitions again. As you said, our leverage ratio is now on a comfortable level and we will continue and we will and have started already look at that company to acquire and as I said start with a couple of add-on acquisitions it's probably going to be the first and then you later in the year there will hopefully be also platform acquisitions

very good and then on the capital markets day you talked about doing just the high margin acquisitions and the ones you've done so far obviously they are quite small but anyway when you look at the margin profile of these acquisitions are they in line with what you said during the capital markets day of them being highly profitable yes and then you also have to look at the

When we're doing add-on acquisitions, we are also looking into synergies that will be built into it. So yes, but we will not do acquisitions that are not giving us a path towards a higher margin.

I believe that if you read the report closely, you will find that the add-on acquisition made after the end of the quarter was actually in fact 15 or more than 50% margin business.

And that's on their own, but I mean, we're looking at, this will be an integrated part of all our automated company dynamic. And of course, hopefully we will have synergies as well there. So yes, we're looking at high modern acquisitions.

Okay, very clear. And the final one from my side is on service. As you said, that you see in tendencies of improved markets in in infra services that's been sluggish I guess. Is it quotations only or is it firm orders?

It's both. We see order intake has been better. There's more quotation that is out there so there is a better kind of we're seeing a better situation in the market going forward. But both.

That's good. And with the lead times you have, when do you think that these projects or orders might be delivered? Is it a quarter or six months? Or what kind of orders are we talking about? Or is it bread, butter delivered during the same quarter?

That's all over the place. There are some small ones. There are larger ones as well. But there is kind of activity. I think the most important thing is that the activity in the market is increasing somewhat.

Okay.

Very clear. That's all for me. Thank you.

Thank you.

I would like to add to one of your questions, Karls, when it came to the proportion of US sales and industry, just a reminder that when you compare Q4 to Q1, for instance, you would need to bear in mind that the SEC has strengthened, I think, roughly 10% against the dollar during that quarter. So during the first quarter alone. So just try to bear that in mind. It won't have any larger effect on the overall group sales because it's only 11% of business industry, but we're looking specifically on that.

Okay. Thank you.

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

Thank you for the questions Carl and thank you all for listening. I hope that you will have a continued good day and thanks from all of us here at Storskogen.

Thank you.