Welcome to Brødrene A & O Johansen's Q3 2024 Interim Report Presentation. During the presentation, all participants are in a listen-only mode. Afterwards, there will be a question and answer session. To ask a question, please press five star on your telephone keypad. This call is being recorded. I will now turn the call over to CEO Niels A. Johansen. Please begin. Good afternoon, and welcome to our Q3 2024 Webcast. Let us look at some of the highlights of the Q3. AO is back in organic growth in both segments. AO saw the second highest Q3 sales ever, a reported growth of almost 8%, the organic growth was 1.8%. Sales came in slightly higher than estimated. Renovation, modernization, and maintenance shows satisfactory growth. AO holds a strong position in home improvement. Our focus in expanding our outlets is a key element in making AO the preferred place to do your daily business. And in Q3, we opened a flagship outlet in Hillerød, which is going to be a cornerstone in our continued growth in the North Zealand. The number of customers in the stores remain higher than in previous years, which is very satisfying. B2C growth continues. B2C continues the organic growth for the fourth consecutive quarter, and sales were highest ever recorded in the Q3. It is rewarding to see that households are gaining appetite to invest in household improvements. Expansion in Stockholm exceeds expectations. Sales and profitability, driven out of our Vallentuna site, confirms the market potentials for the region. Back in Q2, I shared with you our plans to open a second site during first half of 2025. I'm happy to share that we have decided to open our third site also in first half of 2025. Workwear Group and VVS Group are getting ready to high season. Activities preparing Workwear Group to serve AO's B2B customers are on track and follow the plan. Workwear Group and VVS Group are preparing for the Black Week activities, which is peak season for both. December is also quite a large sales month for Workwear Group due to Christmas season. AO is taking important steps in order to meet and implement new ESG legislation. AO is on track to implement the systems enabling us to comply with the new CSRD reporting. In Q3, AO was certified within the ISO 27701 on IT security, representing an important investment in the future. Let us look at the management's observations. Q3 saw higher than expected pressure on margins. That is a tough battle on the marketplace. Competition is fierce, and customers are pushing the rebate dialogue intensively. We expect to see this pressure also in Q4. As our customers will see lower interest rates, higher activity level within projects, and hopefully at 2025, with slightly improved activity in general, we believe that the pressure will ease gradually during 2025. In AO, we stay selective to not take orders with an unsatisfactory margin, but it is still our aim to grow our share also within projects. This fact is likely to have a short-term negative impact on margins. Lower basket sizes call for internal manpower. Basket sizes have reduced approximately by 10% compared to last year. The lower basket sizes result in more inventory picks per millions of sales and more logistic drops per million of sales. On the short term, this puts pressure and challenges on plans to improve the cost of doing business ratio. We simply need more hands to serve the revenues. Cost inflation makes it tough to reduce cost of doing business. In parallel, with most costs increasing rapidly, we also face a significant number of new legislations and administrative burdens. This forces us and other companies to recruit more administrative personnel supporting sales activities, but with no direct influence on increasing sales. We acknowledge that this is a necessity and an investment in the future in order to serve customers professionally in the long run and to stay compliant. No doubt, the hard effort taking place now are essential to ensure a competitive advantage and license to operate in future environment. Customers have paused green transition when it comes to installation of heat pumps. We are closely observing the subsidy scheme launched at the beginning of June. The conversion rate continues to be rather depressive, and we do not expect a significant short-term uptick. AO sales of heat pumps and other energy solutions amount to less than 5% of AO's revenue. We have included cost risk of approximately DKK 20 million in our rest-of-year estimate. As mentioned in Q2, we face transition and integration costs related to the three acquisitions, as well as increased headcount from the competencies we have hired and will hire to proactively position ourselves for the growth expected. Approximately half of the amount is included in Q3 earnings, and the remaining part will impact Q4. We are observing the geopolitical and macroeconomic tensions. In the short run, we do not see significant changes to the geopolitical and macroeconomic tensions. We do foresee continued uncertainty and fierce competition throughout 2024. Uncertainty is not beneficial for the customers' appetite to order projects, nor to increase investment. Summing up, my main takeaways are: we are back to organic growth in both segments. We are facing a tough climate at the marketplace, and we are very satisfied with the performance of the three companies recently acquired. Now, Per, please take us through the financial performance. Thank you, Niels. Reported Q3 sales came in at index one hundred and eight, and organically at index one hundred two. This was slightly higher than expected, and sales were only a few DKK million shy of our all-time high Q3 sales. As Niels said, we are satisfied that both segments have returned to growth. Renovation sales reached index one hundred and four, which is very satisfying, and projects came in at approximately index ninety. While satisfied about the sales, we are facing a tough rebate push from customers taking advantage of the overcapacity in the Danish wholesaler sector. Gross margins reduced from 23% last year to 21.8%, and B2B suffered a more than two percentage points reduction. External cost came in DKK 8 million higher than Q3 last year, and salary cost increased DKK 8 million as well. The increases relates mainly to the impact from newly acquired companies. EBITDA came in at DKK 99.6 million and an EBITDA margin of 7.5%. The numbers include a gain from sale of a property at Amager, Copenhagen of DKK 14 million. Adjusted EBITDA margin is 6.5%, reflecting lower gross margins and higher cost. EBT ended at 58.2 million, against 63.3 million last year. Earnings were as expected. Now, let's turn to margins. We are satisfied to see that acquisitions have impacted margins by 0.8 percentage point upwards. Also satisfied that B2C margins are increasing. B2B margins are pressured by fierce competition and overcapacity in the market, driving low margins, especially in projects. We expect the margin rates to stay as intense rest of year. Let's leave the margins and turn to segment info. The B2B segment accounted for 84.7% of revenue, and B2C segment accounted for 15.3% of revenue. B2B showed positive growth for the second consecutive quarter and delivered a 3.2 percentage growth, and organically, a 2% growth. B2C showed positive growth for the Q4 in a row. The increased share of revenue was partly due to organic growth of approximately 3% and due to the impact from acquired companies. From a margin point of view, as I said before, B2B took a hit of 2.6 percentage point due to the margin pressure. On the other hand, B2C took a notable jump of 5.6 percentage point due to a favorable mix, which came mainly from Workwear group sales. Indirect, non-allocated cost was DKK 6 million lower than last year. The reduction relates more to timing than to savings as such, and one should not expect to see the same reduction next quarter. Now, let's turn to the investments, and please be aware that the chart does not include M&A investments. The highlighted band shows the normal level of maintenance investments in AO. As you see, the investments in Q3 2024 came in lower than Q3 the previous years. Investments and properties came in quite low this quarter. This is, however, partly due to the divestment of a property. We continue to invest in our outlets. They are a cornerstone in AO's business model. This is where we meet thousands of customers each day. Let's turn to cash flow and net interest bearing debt. From a Q3 perspective, AO cash flow from operating activities were hammered by timing impact in large account payable payments end of months. Cash flow from investments were impacted by the acquisition of Workwear Group. Therefore, net interest-bearing debt ended at DKK 1.3 billion, against roughly DKK 800 million end of last quarter. Financial gearing was 3.9 times EBITDA. Net interest-bearing debt and gearing will be reduced during Q4. Let's turn to guidance for 2024. We keep the guidance unchanged compared to Q2, and are thus guiding revenues of DKK 5.3-DKK 5.5 billion, EBITDA of DKK 340-DKK 370 million, and an EBT of DKK 200-DKK 230 million. The DKK 14 million gain from sale of property has been expected all year and was part of our original 2024 guidance. As a rule of thumb, M&A impacts are not part of guidance, while sale of smaller properties will be part of normal guidance, unless otherwise stated. We do stress the fact that the geopolitical and macroeconomic tensions result in a market activity being more volatile than normal, which puts an additional uncertainty to estimates. This concludes our presentation, and we are ready to take your questions. Thank you. If you do wish to ask a question, please press five star on your telephone keypad. To withdraw your question, you may do so by pressing five star again. The first question is from the line of Kristian Turner from SEB. Please go ahead. Your line will now be unmuted. Yes, thank you, and good afternoon. I have a couple of questions, as per usual. So, if we start with development here in the Q4, have you seen any improvement, or do you expect Q4 more or less to be a continuation of the trend you just reported for Q3? Hi, Christian. Q4 is not really on the agenda today for us, but had we seen anything else than what we are guiding full year, we would have included that. You can assume that what we have seen in Q4 up till now follows our expectation. Fair enough. Then to the gross margin pressure, is that also hitting the removal segment, or is it only in your project segment? Well, what we see, Christian, is that even smaller projects that used to be, you could say, on the shelf sales, customers are taking advantage of the imbalance between supply and demand, and they are asking us to make an offer for these smaller works. So you could say that the criteria for when it is a project has changed, and this will be changed back to normal again, when we have a more imbalanced situation between supply and demand. That makes sense. So, I mean, volume increase is the solution to easing price pressure, that's what you're saying? Yeah. Yeah. Just the same question on products. Is there any? I mean, is it across product categories you see this price pressure, or are some product categories more impacted than others? It's pretty much an across product situation or pressure. Okay. Understood. Then, the DKK 20 million you highlight, which is included in this year's guidance, where you said half was in Q3, and the other half would be in Q4. Just to understand, how sticky is that? Is that a one-off? We shouldn't expect that to be repeated next year, or will some of that cost stick into 2025? Some of it will stick in. You could say that one half is us adding up competencies in order to be ready for growth when the market is ready. So that's that cost, we will also bear that cost going forward. But obviously, we will expect these costs to add sales. The other part of the equation is the interest and the increased acquisitions and transition cost of the acquisitions of the three companies. And until our interest bank debt is as low as what it was before we acquired, then it would also stick in the financial cost, at least. Does it make sense, Christian? Sure. It does. Okay. Great. And then just to your commentary around the indirect costs. Indirect cost in the quarter was DKK 38 million, and as you point out, that's down DKK 6 million year on year. You say we shouldn't expect to see the same reduction in Q4. Q4 last year, indirect cost was DKK 60 million. If I understand you correctly, we should expect the thirty-eight here in Q3 to increase back to around sixty, again, in Q4. Is that what you're trying to say? No, don't expect that, but just saying that the fourteen will be a one-off, clearly. And Sure. And then we had, due to timings, a pretty low Q3 indirect non-allocated cost, partly due to us capitalizing more than usual IT projects, which is mainly due to the integration work with regards to the acquired companies. And we're just saying don't expect those six going forward. Okay, that makes sense. But obviously... So the sixty you had in Q4 last year was, on the other hand, fairly high. So, I mean, we could potentially see a decrease, but for other reasons than the ones decreasing the indirect cost in Q3. But is that fair to say? W e don't separately disclose on this item, Christian, but the sixty is a fairly high number last year. Great. That's all I wanted to clarify. But Christian, on the other hand, please be aware that the Google cost, of course, part of the Google cost and most of the Google cost will be allocated, but the Google cost budget will be significantly higher in Q4, right? Sure. Due to Black Friday and Black Week. Okay, makes sense. Then just to the comment on you opening a third site in Sweden, I assume that's in Stockholm as well, so you have three sites in Stockholm. What triggered you to open the third site? The idea with the acquisition of Svenska VA-Grossisten has been twofold from the beginning. One being that we took over a splendid business in Vallentuna, and the second being that the management team of Svenska VA-Grossisten, part of their future job would be to assist AO in putting us on the map in Greater Stockholm. Site number two and site number three to be opened in first half of 2025 will also be in the Greater Stockholm area. I won't be more precise for now. No need to wake up competitors. It has been... But you could say part of the payment of Svenska VA-Grossisten, part of the goodwill paid for Svenska VA-Grossisten, is also the, their ability to help us, grow our business in the Stockholm area, outside Vallentuna. Okay, that makes sense. And my follow-up would be: Do you have visibility on sales potential? 'Cause then obviously you are now investing in that business as well, and I expect that should be accompanied with an increased sale. Sure. How good is your visibility into that? Our leadership in the Stockholm area are seasoned sailors, so they know the business pretty well in the Stockholm area. What we have known for some time is that the market potential in Stockholm, the Greater Stockholm, is probably almost half of the entire Sweden. And also from a pricing point of view, it's a pretty interesting region. So it has been a wish of ours for a couple of years to grow in Stockholm, and now we have the ability, and we want to grow the business there. You're right to assume that the business will grow in Stockholm. Obviously, when establishing a new site, it will take some times to grow the revenue. But you should absolutely expect, Christian, that our sales will increase. We expect that. Understood. And then just my last question. So, in Denmark, we have had the announcement from the government that they want to reintroduce the BoligJob scheme, or essentially tax credits for renovation. Do you have any commentary on the potential of this scheme for you as it looks like now, and what clarity do you need to fairly be able to assess the potential? Well, first of all, we are happy about the package or the tax credit initiative that will stimulate the activity. And we expect the initiative to be centered around environmental investments from private consumers and probably also storm flood investments. So it will definitely have an impact. It's a DKK 300 million annually program, as to what we know now, annually. So obviously there is a limit on how much it will work, but we surely welcome the initiative. The easy part of my answer is that it will stimulate the activity. The more tricky part of my answer is that, when it has been announced, how will it slow down people's investments up to the program launch? We don't know that yet. But ideally, we would like such program to be launched without notice but you can't have it all. Sure. Sure. That makes sense. All right, well, interesting. Perfect. That was all for me. Thank you so much for the answers. Thank you, Christian. Then we got. We do not have any more questions on the telephone at this moment, so I'll hand it back to you, Per Toelstang. Please go ahead. Okay. Thank you. I have a question regarding our Q4 performance. Whether the Q4 performance will be enough in order for us to reduce our net debt into the level where we will be able to pay out the 50% ratio in dividends. We will normally, and also this year, we will see quite a positive cash flow quarter in Q4. I estimate this to change our, you could say, debt to EBITDA ratio from 3.9 to around 3. And around 3 is above our range. However, our board have, in the capital allocation principles, guided that it would be pretty normal that our normal range from 1.5 to 2.5 will be, or we will be over that limit, after M&A acquisitions, and you could probably see the 50% payout in dividends at 3% guidance. That would be my expectation. Should the quarter end out differently than that, then of course the board will have to evaluate the situation. But in my thinking, I would say that the 3 in leverage would not jeopardize the 50% payout in dividend. Then another question, you have talked about the margin pressure in project sales. What makes you believe current low margins are temporary? I t's just a classic supply-demand game, and also what we have seen in prior times like these, that customers are fast to take advantage of the situation, that supply is significantly higher than demand. So are suppliers and wholesalers when demand is significantly higher than supply. So it's just the classic game. So I'm pretty sure then when things are more balanced, then we will be back to what you could say is more normal situation. We have a question regarding our working capital, and the booming working capital. And you are right that the net working capital is quite high, end of this quarter. It is though due to. Most of it is due to timing. It's because that we have paid out more than usual accounts payable the last day of the month of September. So, it's my expectations that we'll go back to more or less normal levels from a net working capital point of view. It's also. We also have a question with regards to our accounts receivable risks. Well, the most recent statistics brought to me actually shows that now we are seeing a reduction in bankruptcies in Denmark, which is pretty good news. Still, we have a situation that credit institutions, they have, in some cases, lowered their credit levels or credit insurance levels. So, my risk is not that much referring to the bankruptcy risk, but more to that our own exposure of risk increases slightly in times like these. It's great news that the number of bankruptcies are now reducing, because then also our credit insurers insurance companies, they will go back to normal practices. Then we have a question related to the businesses in Sweden, both the AO stores and the new business in Stockholm area. Does it have the same profitability as the business in Denmark? Our business is in Sweden is carrying a good profitability. It's not... You could say it's- we are supporting the business of Sweden from our headquarter in Denmark. So, they don't have, you could say, indirect cost that we carry. But, the profitability in our Sweden company is we are satisfied about the profitability in Sweden. The profitability in Stockholm is at least as high as in the rest of Sweden. I just, I'm just checking if I had another one, another question. Okay. Might there be any plans to extend the business beyond water sanitation? If not, why? Xylem is pretty dominant. You're right about the market dominance. It's pretty much dominated by two giants, Xylem and Dahl. We have a management that are world-class within water drainage. And for now, until anything else should be decided, we will concentrate in gaining market share within the present assortment. Another question, it's related to the acquisitions. If we should expect to see operating improvement in the acquired companies going forward. And the question relates to that the multiples paid seem to be a bit high. Well, the multiples are fair. Obviously, I would expect, and we would expect in AO that under our ownership that we should help them in improving the operational efficiency. And then, and we also estimate from the three acquisitions that we will have a solid sales synergies. The EBT guidance, I'm asked if the EBT guidance is excluding acquisition. Well, yes and no. You could say the EBT guidance of DKK 200 million-DKK 230 million is, as you say, in principle, without the acquisitions. But since we have this 20 million DKK cost burden with regards to us hiring new competencies in investing in the future and transition cost, these 20 million DKK mitigates the impact from the acquired companies. I'm asked if there is more property sales included in the full year guidance than the 14 million DKK from Q3. As we see it, for now, we don't have more property gains included the rest of year. Then we are asked if the new shops in Stockholm include electrical equipment like in Denmark? No. As I said before, we will maintain the activity in Sweden, for now, within the water and drainage business. Any more questions from you guys? Because, that's it from my screen. Otherwise, let's call it a day. Thank you for all your questions. They were good and relevant. We are looking forward to see you next time. Bye for now.