Storskogen Group AB (publ)

Welcome to the Storskogen Q2 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 go ahead.

Good morning and welcome to the presentation of Storskogen's report for the second quarter of 2025. I'm Christer Ahnsson CEO of Storskogen and with me today is Lena Glader our CFO. Keeping a strong operational focus has continued to be key in the quarter, especially given the global uncertainty. Along with measures to reduce our debt and improve our finance, we are now at the point where we are beginning to carefully add acquisitions to our growth. More on this shortly, but before we get into the details, let's begin with an overview of Storskogen. Storskogen is a diversified international business group with sales of about 33 billion SEK over the last 12 months and adjusted EBITDA of 3.2 billion SEK spread across our three business areas. Service and industry are tracking above our 10% margin goal on an annual basis. We trade currently at 8.3% up from 7.8% a year ago. Following a merger of business units in industry in the quarter, at the end of the second quarter, we consisted of 112 business units with an average annual sales of about 300 million SEK. Next, let's take a look at the highlights for the quarter. We reported sales of about 8.5 billion SEK and adjusted EBITDA of 843 million SEK and adjusted the EBITDA margin of 10% for the quarter. Over the past quarter, trade conflicts and geopolitical unrest have continued to slow the pace of recovery. Our organic sales growth for the quarter was slightly negative and flat for the first half year of 2025. The second quarter's results of 843 million SEK was largely impacted by currency fluctuation and short-term tariff effects as well as negative organic growth. If we look at our results for the first half year, adjusting for the effects from currency movements and tariffs, it would be on par with the results from the first half year of 2024. In short, we are navigating a challenging environment reasonably well. Our absolute focus remains on growing our profits, and our companies continue to make progress with efficiency-enhancing measures, cost control and sales initiatives, all aimed at driving organic growth. Operationally, our efforts have delivered margin improvements with a positive year-on-year trend holding steady. producing debt and improving our financial position have also been priorities. And I'm very pleased that we refinanced our bond at the best margin to date, meaning that our positive trend of lower interest costs will continue with a significant decrease to be seen as of Q3 of 2025. And with no significant maturities until 2027, lower interest costs and leverage rates at a healthy level, I'm now also pleased that we are carefully resuming acquisitions. Our strong cash flows over the past two years have played a key role in achieving our current financial position. It has allowed us to reduce debt and thereby reaching a comfortable leverage position, allowing us to slowly resume acquisition, as just mentioned. Looking to the second quarter, the cash flow is higher than the first quarter, which is typically our softest quarter due to tax payment and increased inventory. The cash flow from the second quarter was however lower compared to the same period last year. This is explained by changes in working capital, primarily by increase in other operating receivables, which Liana will shed further light on later on in the presentation. As you can see from comparison to the LTM numbers to the right, given the seasonal fluctuations that we are experiencing quarter by quarter, I want to underscore that it's more appropriate to look at our cash flow from operations on a rolling 12 months basis. And as you can see, since the beginning of last year, each quarter we are averaging a cash flow from operation at about 3 billion SEC on an LTM basis. Continuing to generate solid cash flow year after year is vital for our business model and our long-term success. Next, I want to draw your attention to our net sales and EBITDA margin. Sales decreased with 9% compared to the same period last year, where 5% is the result of divestment in 2024. Our adjusted EBITDA margin for the quarter is now at 10%. The first time it has been at this level since the fall of 2021. Similar to our cash flow, the LTM numbers to the right are most relevant given the seasonal variations. On a rolling 12-month basis, our margin was kept steady at 9.6%, which has improved to the equivalent margin in Q2 of 2024 of 8.7%. And now let's take a closer look at the performance of our three business areas. In the second quarter, services reported lower sales but achieved a significant increase in profitability. The 17% decline in sales was largely driven by divestment, which accounted for 8%. The remaining decline in sales continue to reflect our focus on project profitability, which means that business units are deliberately opting out of long-term, bigger contracts with insufficient margins to have the flexibility to take on more profitable projects. This along with the divestment support the margin improvement at 10.8% for the quarter, up from 10.2% a year ago. And viewed on an LTM basis, we are now at 11.6%, up from 9.2%. As in recent quarters, our vertical business services, especially those businesses offering digital service and logistics, continue to perform well. In contrast, those offering infrastructure services continue to experience hesitant demand and margin pressure. Looking ahead, Q3 is a seasonally softer quarter. The trend for coming quarters is expected to be cautiously optimistic, even if market conditions are very difficult to predict. For the business area trade, the expected recovery continues to be pushed forward into the future. We reported positive organic year-on-year sales growth of 1%, however offset by divestments which had an effect of minus 5% for the quarter and with 6% year-to-date. The adjusted EBITDA decreased with 9% to 225 million SEK in the quarter and with 5% year-to-date. In terms of profitability, the LTM margin edged slightly higher to 8.3% up from 7.8% in the comparable period a year ago. This reflects the continuation of the challenging environment from last year into this year. The professional products vertical record sales in line with a year ago, however, with a degree of price pressure. Demand in consumer product was negatively affected by continued geopolitical turbulence, leading to subdued demand. In addition, a late Easter holiday period and cold weather did not help either. Looking ahead, the third quarter is normally somewhat softer than the second quarter, and price pressure is expected to persist. Even if the strengthened Swedish currency had no significant effect on the profitability for the first half year, it has the potential to benefit the margins in the business area significantly as large part of the purchases are made in Euros and US dollars. Net sales for industry business area decreased by 4% in the second quarter, while organic sales grew with 3% year to date. Adjusted EBITDA declined by 11% in the second quarter and with 10% year-to-date. In addition to negative organic growth, the result was also largely affected by FX headwinds in the quarter and for the first half year. Adjusted EBITDA morning decreased to 10.4% from 11.2% a year ago. several project companies mainly in automation experience continued solid demand in the quarter but notice slightly margin pressure due to increased competition compared to last year however softer demand due to the current economic climate was more noticeable for several companies within large production with large production facilities these companies primarily in industrial technologies and product solutions reported lower earnings which also affected the profitability negatively due to lower capacity on utilization. The business area remains focused on sales development, cost efficiency and ongoing productivity improvement, measures to expect to support profitability going forward. Order intake in the quarter was solid and to provide an outlook the order book for Q3 is roughly the same as last year. The global environment is still uncertain with currency movements and trade policy risk making it hard to predict when the overall market will recover. Over the long term, trends like automation, digitalization and shift to greener solution should support the growth in the business area. Next, before I provide some details on the recent acquisitions, a reminder of our capital allocation model. We start with the capital we have available to deploy, generated through strong cash flows and disciplined balance sheet management. From there, we have two choices. The first, of course, is expansion within our existing businesses, whether that's target CAPEX to strengthen operations or OPEX investment to accelerate sales initiative, pricing, or operational efficiency. The second is acquisitions, either from new platform in attractive sectors or adding complementary businesses to existing platforms to strengthen market positions and give synergies. In every case, our guiding principle is to allocate capital where it delivers the highest, most sustainable returns with a clear line of sight of value creation. As a reminder, our capital allocation is guided by clear investment themes that we presented at our Capital Markets Day back in November. These are areas where we see strong sustainable demand, where we already have an edge through many of our portfolio companies, These are health and well-being, automation, energy and sustainability, digitalization and infrastructure. These themes are not tied to a single business area or vertical. They can be presented across all business areas. An acquired business may not be directly involved in the theme in a linear way, but could be a key supplier to a company more directly engaged in it. We'll share more about this as we go through the recent acquisitions after the quarter's end. Let me now highlight three recent acquisitions, all of them highly profitable businesses, well above our financial target of margin above 10%. And these acquisitions all are also aligned with our investment these. Starting with LEP, a Swiss company providing digital intervention catalogs and analytic tools for healthcare. Their solution are integrated with more than 1,250 healthcare providers across Switzerland, Germany, and Austria, with about 80% of revenue from recurring subscription. This is a scalable business that ties into our digitalization and health and wellbeing investment team. Next, Kerry Gently, a UK niche logistic operator specializing in secure, high-value freight for technology and healthcare customers. They have built a long-standing relationships with the majority of revenue coming from clients that they have served for over a decade. It's defensible, non-cyclical market with tailwinds from IT infrastructure investments and healthcare demand. This also fits into our health and wellbeing and digitalization themes, and also allows for synergies with our existing stop-start transport business in the UK. Caregently was on our radar for about a year, and the deal closed last Friday. Finally, an add-on, Pushback, acquired by our business unit, Veeba. Veeba is one of our largest business units with about 1 billion SEC in annual sales. Pushback was acquired as part of Veeba's strategy to expand within the fast-growing energy and infrastructure segment. This strategic move not only enhanced Vibe's offering, but also supports the company's global strategy. Discussion for this opportunity started in the end of 2023, with Vibe actively seeking a business of this profile. All three acquisitions are strong examples of how we apply our investment teams across all business areas. Whether the business is directly active in the same or play a critical role as a supplier to those that are. With that, I'll hand over to Lena.

Well, thank you, Krister. We look forward to bringing those new acquisitions on board, but let's have a look at the Q2 financial adjusted for items affecting comparability. On this page, net sales growth, we mentioned already minus 9%. in Q2 and minus 7% for the first six months. And I'll show a more detailed sales bridge on a separate slide in a while. Adjusted EBITDA and EBITDA both decreased slightly less than the sales, so decreased by 6% in the second quarter. And the decline for the first six months was also slightly less, minus four and minus three percent respectively for Q2 and for EBITDA and EBITDA. Looking at the operating profit EBIT for the second quarter that declined by 3% to 670 million. This corresponds to a margin of 7.9%, which is an improvement from 7.5 in the second quarter of last year. And the improved margin is driven by divestments primarily and lower central costs. Turning to net financials adjusted for non-recurring items here were minus 216 million in the quarter and of this net interest costs were 168 million which is a notable decrease of 60 million compared to the net interest costs of Q2 last year. Overall lower cost base as you can see and also a lower effective tax rate meant that our net profit actually grew by 8% on declining sales year on year in the second quarter and it grew by 15% for the first six months. And turning to the financial KPI table there below, our earnings per share adjusted for items affecting comparability grew actually by 15%. This is the part of the profit that's attributable to the parent company shareholders to 0.19 Swedish krona in the quarter and adjusted EPS grew by 22% for the first six months year-on-year. Adjusted return on equity also improved from a low 4% to 6% for the last 12-month period. Even though this is an improvement from a year ago, our ambition is to continue to grow this metric. And the same goes for the return on capital employed for the last 12-month period of 10.4%. This is also an improvement year on year, but it's not at a level that we are content with. Net of goodwill, the return on capital employed was 25.7%, which may be an indication or is an indication of the operational return on capital employed. And then very briefly, let's touch upon the reported P&L on the next page here. The main deviation between the reported and the adjusted that I showed on the previous page is the close to one billion Swedish krona loss that we recorded last year in conjunction with the divestment of these nine unprofitable companies. This divestment happened in the second quarter last year. In Q2 this year, the largest deviation stems from 80 million of one-off costs related to the tendering and buyback of the expensive 2 billion bond that Krister mentioned before, and this is on the net financials line. This 80 million costs will, however, be more than compensated by a significant reduction in interest expenses going forward. Interest expenses will, in fact, be reduced by 20 million quarterly as of the third quarter this year. And as I said, we would have a look at the sales bridge here for the year to date. And this is showing organic sales growth of 0% for the group for the first six months and for the isolated quarter, the sales growth was minus 1%. We have that also in the appendix. Divestments represented a negative 5% of sales decline. This relates to this portfolio of non-profitable businesses that we sold last year. Currency represented a negative 2% of the year-on-year change in net sales in the first half year. And... I'm sorry, 1% correction there. Divestments will partly have an effect also in the third quarter, as last year's large portfolio divestment was still included in July last year. And thereafter, the effect will be smaller, of course, from divestments, whereas we will add some sales from acquisitions going forward as well. So it will look a little bit different going forward. Over to the similar year-to-date EBITDA breach here. For the first six months on this page, the total EBITDA decline was 3%. This derives from lower group costs, divestments and acquisitions contributing a positive 5%. Currency translation effects is approximately minus 1%. This is translation effect defined by pure so when translating earnings from other currencies to Swedish krona, whereas the organic EBITDA growth here today was minus six. However, a large part of this negative growth, the minus six, stems from transactional FX effects, from revaluation of balance sheet items. And this is actually all in all minus 32 million in the first six months, And we also had an unfortunate short-term hit from US tariffs of 5 million, which are expected to be compensated by price increases going forward. So all in all, negative 57 million of our EBITDA change year to date is attributable to FX translation, transaction, and short-term US tariff effects. And this explains more or less, or it explains the entire 3% EBITDA drop year to date. And over to the cash flow statement for the second quarter. Paid income tax was minus 155 million in the quarter, which is 18% lower than in Q2 last year. And we have had an even more significant decrease in the first quarter. We've worked on both our paid taxes and effective tax rates to improve our efficiency and reduce intra-year volatility. And we have started to see positive effects, both in paid taxes, but also in the effective tax rates. Change in networking capital contributed a negative 260 million. So this is a slight build up in the quarter. However, important to note is that inventory, accounts receivable and accounts payable are pretty much unchanged during the quarter, while other operating receivables represent almost all of that change. These stem from a number of large new orders in our project companies within industry, primarily automation that Christy mentioned before. And these new orders or projects tie up some working capital in the very initial phase, which we see here in the quarter. So summing up cash flow from operating activities, after interest and tax, we arrive at 527 million. in the quarter and for the last 12 month period, 2.8 billion. CapEx was fairly low at 110 million in the quarter. This corresponds to a CapEx to sales ratio of 1.3%. Acquisitions and divestments also fairly low, minus 182 in the quarter and the largest shares of this 140 1 million actually relates to buybacks of minority shares in existing subsidiaries. So M&A spend on acquisitions was very low. And the cash flow from financing activities, a negative 167 million. And this includes, of course, dividend payments to shareholders in the quarter. So net cash flow for the period was 69 million all in all for the second quarter. Our cash conversion rate in the quarter was 66%, and for the last 12-month period, it was 80%. Our cash balance, 1.15 billion SEK at the end of June, with total available liquidity of 4 billion Swedish kronor, including cash, of course, and also unutilized credit facilities. On the next page, we illustrate the operating cash flow and cash conversion rate. which is, and cash conversion rate is one of our most important financial KPIs. We have a target of at least 70% over a 12 month period. And that is illustrated by the dotted line here on this page. In fact, cash conversion rate was 80% for the last 12 month period. So that's above target. And we have said repeatedly during our earnings calls the past year that a cash conversion rate of around 100% which is the level that it has been at since more or less the third quarter in 23, as you see here. And that level we've said is not sustainable, and we do expect it to normalize, which we are now seeing, but still kept above the 70%. And it will be, however, still a very highly prioritized area for us. Very briefly on the balance sheet on the next page. Total balance sheet was 42.3 billion Swedish kronor. A slight decrease year on year. Our interest-bearing debt has decreased by 1.1 billion over the past 12 months. And the interest-bearing net debt has decreased by 1 billion, helped by the strong cash flows illustrated on the previous page. And during the quarter, the net debt increased, however, somewhat by around 300 million Swedish krona. This corresponds basically to paid dividend and currency translation of debt items. And I'll come back to the net debt and leverage on the next page. On this page, first a few comments on the debt restructuring that Christer mentioned also. We have over the past years worked through our entire debt portfolio to reduce refinancing risk by distributing and prolonging our maturities. On the bank facility side, we have this year extended our revolving credit facility where we have close to 3 billion unutilized commitments now. And we have also refinanced our term loan facility. All of this was done in the Q1 and Q2. And on the bond side, we did another bond refinancing in this quarter, where the margin was reduced by 400 basis points to 290 above Stibor, and the amount was also downsized from 2 billion to 1.25. And this, we think, was the last bigger piece to refinance for now. And we have no larger maturities near term until the second half of 2027. And in addition, as stated before, we will have notably lower interest costs going forward, helped by both central banks, of course, and lower rates on our facilities. And finally, a few comments on net debt and leverage. Interest bearing net debt and leverage ratio are illustrated here over a nine-quarter period. Interest-bearing debt amounted to 10.2 billion at the end of June. This is a small increase during the quarter. And as I mentioned before, dividend to shareholders, buybacks of minorities and negative currency effects explain this increase. And our leverage ratio consequently increased a little from 2.3 to 2.4 times, which is still within our target range of 2 to 3. times and our ambition to keep it below around 2.5 is still unchanged. So by that, I hand the word back to you, Krister.

Thank you, Lena. And as we close the second quarter of 2025, here are the key takeaways. Our operational focus across our business group continues in order to generate strong cash flows, as Lena discussed, improve profitability and generate organic profit growth. Our financial position is strong, no significant near-term maturities of any size, and significantly lower interest costs and a comfortable leverage position. This has allowed us to slowly resume our acquisitive agenda during the second half of 2025. With that, thank you all for listening, and now we look forward to 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 Ragnarstam from Nordia. Please go ahead.

Good morning. It's Carl here from Nordia. A couple of questions from my side. You mentioned a bit on the working capital headwinds in the quarter and the big newly taken orders. Could you perhaps shed some light into how you look into the cash generation of these orders look like in the coming quarter? Should we expect the full working capital sort of build up or the effect in the quarter to be released in Q3 when you potentially deliver upon those orders or is it more of a Q4 thing?

Hi Carl, thanks for the question. The working capital stem to this orders are long-term orders that we will see some effects of this releasing in Q3 but the most important part for us is we are continually working and focus on working capital and cash conversion should be around 70 percent and this can fluctuate taking new orders which of course is a good thing this is long-term profitable orders That can come in in a quarter and shift working capital over the quarter, so to say. But some will be released during this quarter. But the most important is for us to continue the work on the cash conversion side, which we have said should be over 70%.

Okay, perfect. Just coming back on that. Is it possible to give any magnitude of what portion that would be released in Q3 or is it too early to tell?

That's too early to tell. But as I said, continue to work on the long-term 70% cash conversion. It's the absolute focus from us.

Sorry, a comment on that. The typical pattern is obviously that the customer pays in tranches. So the first tranche after the initial build-up phase has already been paid, as I understand it, in the quarter from these customers. And then there will be successive payments as the projects evolve.

Yes. Some of them are long-term projects as well, so there will be some releasing.

Okay, that's very clear. On the organic growth, obviously it's a sluggish macro environment, mostly, I guess, in your key markets, but I'm curious to hear if you've seen any trends during the quarter, which could be worth acknowledging for us. I mean, we obviously had the tariff announcements that could have impacted, for example, the month of May. Have you seen any fluctuations between the month or especially entering now or what we saw in July as well?

No, actually, I think the The toughest month for us in the court was May, which was really a lot of uncertainties in that month. Looking at the organic, as I said, in services we see a muted demand on infrastructure and and projects around that. Of course, the hesitant consumer affects both industry and trade in the quarter. But in industry, a big portion is the FX, as Liana showed, and the other part is actually coming from the producing companies with large production facilities, where the customers kind of called on volumes, week by week. And they had was our customers who really hesitate kind of in May and taking in new volumes from us, not canceling order, but just not calling off the same amount of volume.

Okay, so then you saw a pickup in June versus May or was, I guess so.

Yeah, June was better there. So we saw June was more better month and May was absolutely the toughest months for our business areas.

And is it too early to tell what happened in July or is it anything you want to comment on?

First of all, July is a super, you know, it's a really small month and it's too early to say anything about that.

Okay, that is very clear. And also looking into the M&A agenda, which you have slowly restarted three acquisitions, as you said, Is it possible to shed any insight into the KPIs of the acquisition in terms of profitability, acquisition multiples, either one by one or combined? And would you say that the KPIs isn't a good indication of the near-term pipelines characteristic?

Yes, thanks. That's a good and great question. Well, yes, the really important KPIs for us is we are only looking to acquisitions within the themes that we have, because we think that's long term, less volatility in those We are absolutely looking at high margin companies, and these three companies have plus 20-25% margins, so really, really good margins. And the multiples are below the average, what we talked about at the capital market. Very great companies and we are super happy to have found those and we are looking forward to work with them. So the KPIs are really there and we are what we have been looking for. And yes, on the question, the characteristics, we will be really clear on taking the ones, the companies that we bring on will be high margin companies. So that's absolutely something that we're looking for.

and the final question on that topic as well this is around the M&A headroom you're sort of playing with you are at currently 2.4 times of course you hopefully could release some working capital but it should be expected you've had a few hundred million current year or is it Are you satisfied there?

No, but I don't want to guide any. I think we're absolutely building our pipeline. We will be careful. We will monitor this and we will be really disciplined in kind of taking on where we see when it fits, so to say. So we have no rush. But what we're doing now is building a great pipeline where we can choose from and really get the great companies in. But I don't want to guide, I mean, we're building and working on the pipeline all the time. So, of course, now we have started this and I don't see that we, I'm not seeing that we should stop. We should continue, but it will be in the pace that our balance sheet can handle, so to say.

Okay, that's very clear. Thank you.

Thanks.

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 thank you for the great questions, Carl. I hope that you have a great day and a great rest of the week. Bye from us at Storskogen.