Welcome to the Storskogen Q1 presentation for 2023. During the questions- and- answer session, participants are able to ask questions by dialing star five on their telephone keypad. I will hand the conference over to the CEO, Daniel Kaplan, and CFO, Lena Glader. Please begin your meeting. Hi, everybody. Great to have you listening in. My name is Daniel Kaplan. I'm the CEO and one of the cofounders of Storskogen. Together with me today, I have Lena Glader, CFO. Good morning. Good morning. Let's jump right into it. First Storskogen in brief. I think you all of us know us by now, but still, a brief look, SEK 37 billion about in sales, SEK 3.5 billion in annual EBITA these last 12 months. The average size might be an interesting fact, for our business unit is about SEK 280 million. I might actually comment on that. The fact that is that, the average size of our business units have grown with 62% for in the last two years. This of course really reduces the risk in each and every individual business unit with bigger management teams, less customer concentration or less supplier concentration as well. Just an aspect. We are about 13,000 employees in 28 countries, divided into four market areas, where we do business. Moving ahead to page number three. We are divided into three business areas, Services, Trade, and Industry. Each of these with different traits. Services, higher degree of personal dependency, but quite often very strong local market positions, low CapEx, so very high cash conversion on average and very stable regardless of business cycle. I think those are the traits of Services. It's about a third of all our revenue and headed by Peter Ahlgren. We have seven different verticals within Services, spanning installation and infrastructure and engineering to logistics, digital services, HR and competence, and contracting services. Looking at Trade, it's about 28% of our turnover. Typical trades of the trade companies are they are scalable. They have quite often market leading and sometimes exclusive market positions in their chosen areas and within four verticals, home and living niche businesses, health and beauty, sports clothing, and accessories. Finally, we have Industry, headed by Fredrik Bergegård. This is our biggest business area. Industrial technology, automation, and products are the verticals. Looking at typical trades of Industry, I would say once again, market leading companies, strong niches, less personal dependency, but on the other hand, you have higher CapEx and capital in general. Those are a little bit on the different business areas, of course. Moving ahead, looking at Q1. Some of the highlights here. It's been a strong quarter. From a seasonality perspective, the first quarter is usually the weakest. That said, with SEK 9.2 billion in sales, a 33% increase, an organic sales growth of 3%, an adjusted EBITA of SEK 885, which is actually a 56% increase, we have to of course be satisfied with the quarter. The organic EBITA growth, 6%, decent, in a complex environment, with the adjusted EBITA margin of 9.6%, up from 8.2%. We are happy with that, of course. One should say that Q1 last year was tempered by COVID close downs, accelerating inflation and the war in the Ukraine. In this case, comparisons were not so tough, to be honest. Now we're bouncing back to a more normalized margin, I would say. This has some great consequences, including earnings per share, which increased with 118%. Cash flow, relatively strong. Normally, we tie up capital in the first quarter, but in this case, we actually had a 79% cash conversion, taking us to an LTM of 71%, which is more or less spot on target. We extended our credit facilities, and our interest bearing net debt through our adjusted EBITDA, RTM was at 2.6x, remained at 2.6x. We did three acquisitions in the quarter, another three after the quarter, so six transactions in total and one small divestment as well. Of course, we bought AC Electrical, and in concert with that, we also issued some convertibles that will be converted to Storskogen shares within a year. A comment on net sales and EBITA margin. Well, as you can see, we always have a relative stable margin, but that said, a strong development in Q1. Well, we are happy with that. I think it's a consequence also because of our hard work protecting margins with restructuring in our portfolio companies, reducing central costs, because it is true that, like, 1/3 of our companies are currently in a recession environment. This is, of course, a demanding and complex environment to do business. Especially in light of that, we are happy with that turnout. Moving on to page six, market development. Looking at the macro, we still see a very strong Industry business cycle. Service is more stable. We have been successful in pushing on price increases, which is, of course, very important in an inflationary environment. Even though we can see some of the inflationary pressures now going down, freight costs are going down, for example. Also, supply chain disruptions were really impacted last year are easing up, enabling us to work on releasing working capital, for example. On the negative side, we do see weak demand in most consumer-facing industries, and also companies that are early in the construction cycle, where as interest rate costs kind of go through the economy. The outlook, well, of course, From a company level, we usually have a seasonality-wise stronger second quarter. That's for us. If you look at the macro, well, we see a stable outlook for the second quarter, but we don't dare to say much when it comes to a very uncertain macro environment for 2023. Looking at the transaction market and M&A, well, we're moving into recession, meaning that we have fewer companies out for sale, somewhat decreasing multiples, at least in some segments, still strong demand in others. Deal processes are longer. It's harder to ascertain future earnings, especially in the short term. All in all, a slower transaction market. This is well in line with our own strategy at the moment or tactics at the moment with a reduced M&A pace. Looking at our financial targets, we can see that we are actually having a quarter where we're more or less spot on most targets. The real GDP growth, 1 - 2 percentage points is our target. We delivered 6% this quarter. The adjusted EBITA growth, including acquisitions, 56% this quarter. I think given the cost of capital and access to capital, I think this is something that will be slower this year than historically. Nevertheless, we are, of course, very happy with 56%. The adjusted EBITA margin over time, 10% is our financial target. We're currently on the LTM on 9.5%, 9.6% in the quarter. I think given that Q1 is actually normally the weakest quarter, I think we are well on track there. Cash conversion, 70%. We're currently at LTM 71%, so we're back to our the range where we've been for quite a few years, actually. It's not a coincidence. Hopefully this year, of course, we get into that, we will have a continued strong cash conversion going forward. Our leverage, 2.6x, actually reduced somewhat if you would add another another decimal. That said, still remains unchanged despite the quarter with significant tax payments and otherwise. Quite happy with our adherence to our financial targets. Looking at our business areas, we can start off with Services, very stable sales growth, positive margin development. The first quarter is actually seasonally weaker. It's about the number of working days, but also it's if you have lots of snow and if it's a cold quarter, which we actually had this year, this means that our infrastructure teams have more difficulties being productive. There are some other aspects pushing down the first quarter. Nevertheless, a decent quarter from Services. We can also see a stable outlook as far as we can see, at least for the second quarter. We did one add-on acquisition in Sweden. Looking at Trade, we had a stable, solid sales growth. In this case, we really see a challenging macro environment. Not only do we see a soft consumer confidence and demand, but also we had a problem with lots of our customers being overstocked, and they are currently working on reducing their stock. That's potentially the light in the tunnel in this case. We do see some of our customers have received more normalized inventory levels and are starting to buy again. Of course, it's a mixed bag. Some of our companies at within, for example, health and beauty are performing great. It's not a completely coherent picture in Trade. One divestment completed within niche businesses. All right. Moving on to Industry. Industry had a super strong quarter, an exceptionally strong, I would say. The organic sales growth of 4% is one, but of course, with alleviated supply chain disruptions, access to semiconductors and other important intermediate goods, that enables us to have more efficient production. We have a strong underlying market, good demand, strong order books. The ordering inflow a little bit lower, but nevertheless stabilized on what we believe is a high, relatively high level. Basically all verticals and almost all companies are performing well with a few exceptions of companies facing consumers. Even those have been very competent in reducing their costs and protecting their margins. We see the underlying trends, the automation trend, the reshoring closer production, I mean, production closer to home. All of these things drive the Industry sentiment in a positive way. Two other acquisitions in Industry. Looking at the acquisitions, we did a total of six acquisitions and one divestiture in the period and the period after. Actually, another actually divestiture even after the period. At this point, we have a reduced M&A pace. If you look closely, you will see that Hässleholms Sot & Vent, it's a chimney sweeper adding to our very successful roll-up of the chimney sweeping segment, creating a market leader here in Sweden. Höga Kusten and Loginor provides software competence and other competences to ARAT Group, which is our automation roll-up within the sawmill industry. Very important for us to ascertain those competences. We did one platform acquisition after the period, AC Electrical, in the U.K., providing some strong not growth and revenues and margins in that sector. We're very happy with that. We did a few other add-ons as well after the period. As you could saw, we did a small divestment of Medkoh, and after the period, an additional divestment, which we haven't yet disclosed to the stock, so therefore we cannot name it at this point. All in all, we're quite happy with the transaction anyway, strengthening the market positions with our companies without actually affecting our leverage in any meaningful way. I would say that AC Electrical actually has, on the margin, a positive impact on our leverage, i.e., it reduces leverage. Financial performance, Lena. Well, thank you, Daniel. Key financial performance metrics here in this table. Let's have a closer look at those numbers. Now, Daniel mentioned already some of the key numbers, of course, initially, but I'll just repeat them. Q1 net sales grew by 33% year-on-year, from SEK 6.9 billion - SEK 9.2 billion in the quarter. Net sales for the last 12 months, that's the owned period, was SEK 36.5 billion. Pro forma, that's the RTM, as if we'd owned all our companies the entire 12-month period, was SEK 37.7 billion. Moving down to EBITA. Adjusted EBITA grew by 56% year-on-year to SEK 885 million. Last 12 months, SEK 3.5 billion, and RTM pro forma, again, SEK 3.6 billion in earnings capacity. This corresponds to the EBITA corresponds to a margin of 9.6% for the quarter, which is quite a significant increase, actually, by 1.4 percentage points from 8.2 in Q1 last year. The EBITA margin in Q1 was in fact a sequential improvement even from Q4. It reflects operational efficiency improvements in the subsidiary. It reflects the successful price increases that now show through, as seen also in the organic growth numbers, and strong demand, particularly in Industry. Not showing on this page, but worth mentioning perhaps, is that the contribution from group operations reduced further to - SEK 68 million in Q1 from - SEK 74 million actually in Q1 last year. This obviously also has a positive effect on the group margin. EPS, as Daniel mentioned, grew by all, 118% to SEK 0.28 per share. This year-on-year growth is largely actually explained by, of course, lower P&L tax in the P&L, not paid tax, not to mix up those, lower financial net also as a percentage of EBIT, and also the re- positive contribution from revaluations of earn-out liabilities that are in fact adjusted for in the adjusted EBITA, but not in the EPS. All of those contribute positively to the earnings per share. Return on equity, return on capital employed both improved from last year. Return on equity to 10.0% from 8.9%, and return on capital employed to 10.7% from 8.9% last year. Return on capital employed in the underlying businesses, so excluding group goodwill and intangibles, was actually 28.4% for this last 12-month period, which is a good improvement from 18.5% a year ago. This, of course, illustrates that the businesses are generating good returns on their own, but that the impact from group goodwill and the fact that many of these units are recently acquired have had a dilutive effect, obviously, on return on capital employed, which we expect to gradually diminish. We had cash flow from operating activities, as in the cash flow statement, of SEK 467 million in Q1. This is an improvement, actually of 651 compared to last year, with 2.3 billion in cash flow from operating activities for the last 12-month period. Now, Daniel, you briefly mentioned that we had high paid taxes in Q1 of more than SEK 400 million. Obviously Q1 paid taxes is usually larger, bear in mind that in Q4 we had very low paid taxes. Those are not operational cash flow items. Cash conversion was 79%, as Daniel mentioned, in Q1. Also an improvement, significant improvement actually from 15% in Q1 last year, which was a weak quarter. We're back at the 71% for the last 12-month period. I'll come back to cash conversion and leverage separately in a little while. Over to organic growth. Organic sales growth was 3% in Q1. As you can see from this graph, sales growth has been strong the past two years driven by volume and price. We've been able to prove time and time again that our subsidiaries do have quite strong pricing power, having been able to push through to cover up for cost inflation to a large extent over this period of high inflation environment. In the first quarter, the organic growth was 3%. Obviously price makes up for this organic growth. Not shown on this page either is the organic EBITA growth, which was strong in Q1 at 6%. Very strong organic EBITA growth in Industry as expected. Over to operating cash flow and cash conversion. Here we show the operating cash flow, which we here defined as EBITDA less change in net working capital less CapEx, and the cash conversion, which is this operating cash flow through EBITDA. This in fact shows how much cash is generated out of the operating activities, and here we don't include these negative effects from taxes paid. We show LTM on this slide, obviously it's a rolling 12 month. The operating cash flow bar in Q1 was, as you can see here, SEK 3.2 billion, is a record strong. We've had improvements on an LTM basis for four consecutive quarter. Again, building on improvements from Q1 last year, which was pretty weak. And cash conversion as well, we mentioned this before, has of course improved as well. Why has cash conversion improved so much? Well, it's largely thanks to lower inventories in the quarter. We also lowered our inventories in Q4. This is the second consecutive quarter where we see lower inventories as previous supply problems are diminishing, of course. We have worked and we continue to work actively to reduce net working capital where inventories is one of the key drivers here. Payables increased, contributing positively, whereas receivables and in particular work in progress contributed somewhat negatively to the net working capital. Again, Q1 typically being a fairly weak quarter also in net working capital terms. Cash flow improvements from Q1 last year are significant here, showing through in the isolated quarter, again with a cash conversion of 79% from 15% last year. Net debt and leverage on the following slide here. Here we show the interest-bearing net debt on the bars and the net debt to EBITDA, which is the line here. Interest-bearing net debt was SEK 12.1 billion at the end of Q1. This is a slight decrease during the quarter. Leverage was at 2.6x at the end of the quarter, which is the same as year-end. As Daniel Kaplan mentioned also, in fact a small reduction if you look more closely. Our ambition continues to be to reduce this leverage towards the lower end of this range using our operational efficiency and cash flow to get there. Our total available liquidity amounts to SEK 9 billion. We're up SEK 2.6 billion in cash and SEK 6.4 billion in unutilized credit facilities. We are, as we have communicated before, working towards extending the overall maturity profile of our debt portfolio. To arrive at a more diversified maturity profile and to reduce the absolute level of debt. This is particularly relevant, of course, with the current interest rate environment. As part of this focus, we extended our bank loan facilities by one year, and the next upcoming maturity is now in May 2024. One more slide here on solid margins across business areas. We keep talking about our diversified portfolio, and on this page we illustrate how that works also in the, in the near term. Here we show the three legs, Services, Trade, and Industry, and how their EBITA margin has performed over the past six quarters. Illustrated here you see that the EBITA margin from our operations is much more stable, of course, on the dotted line, which is the group level when the business areas combined, whereas we have more variations between quarters also within each of the business area. Trade has historically been more sensitive early in the business cycle, whereas Industry typically is more delayed. This is what you would see in not only Storskogen but in many companies in different markets. Of course, we don't know yet how this business cycle will develop, but we are confident nevertheless that the diversification of our businesses will be a protection in any case. Over to you again, Daniel. Thank you, Lena. In conclusion, I think we had a good start to the year. The first quarter is seasonally weaker, but I think we have seen a very strong margin development, positive organic sales, EBITA growth. This has been led by Industry, with a strong demand, but also hard work in all three business areas, protecting margins, restructuring, driving out costs. I think we are very happy with the performance of our CEOs out there, and our team, of course, how we work with that. The leverage ratio unchanged at 2.6x actually slightly decreased even. And extending the maturity of our credit facilities, of course, helps us with the debt maturity profile. I think that's of course important. Going forward, we continue to focus on operational excellence, on the cash flow, reducing leverage. I think we see a very strong determination into the entire company that this is important, and we can really see the results coming as well. We are happy with that performance. Of course, once we have reduced leverage, we can kind of gradually restart the acquisition engine to a more tempered M&A growth using our free cash flow with retaining a relatively low leverage, I think, going forward until macro is more, is more certain. All in all, a good quarter. That was basically what we had to say before Q&A. If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Carl Ragnerstam from Nordea. Please go ahead. Good morning. It's Carl here from Nordea. A couple of questions from my side. Firstly, when you sort of mentioned a stable macro for Q2, should we interpret that as sequentially unchanged demand in general? And also if you have seen any sort of larger variations on the segment levels during the latter part of the quarter, maybe entering April and May as well? A very good question. I mean, we have visibility now, some visibility for the second quarter. We do see that the Industry demand is stable. There are of course in some industries you can see projects being moved forward, but on the other hand, you, we do have access. We see that we fill that demand with other demands, so to say. I think this is more or less across all Industry segments. Apart maybe for those with consumer-facing industries, where we actually have a weak demand. When you look at Trade, we really see different sub-trends in different sectors where you have the, what you call the lipstick industry, i.e. health and beauty going quite strongly, whereas other sports, health, sports and accessories, for example, they're having a tougher time. We do see that the destocking in the value chains has, you know, gone quite far. We actually foresee that we will have a hopefully a more decent demand, but we will see how that it turns out. I mean, the uncertainty is still relatively high. Looking at Services, we see very variations in the different verticals. We saw logistics coming in the year with lower volumes, simply because Trade is down. That said, I think they've managed to retain margins at a decent level. Installation is doing quite well, but then one should bear in mind that the comparisons were not that hard to beat given that, last year was really affected by COVID, et cetera. Of course, we have SoVent Group, for example, the chimney sweepers, they're having a very good market at the moment, given the energy crisis. A little bit different between the companies. If you look at verticals such as, infrastructure, then it boils down to individual companies and the micro market. You can see the companies active, for example, in Gothenburg are doing quite well, whereas in other markets, depending on the customer profile, you could have a mixed bag of performance. Not self-evident exactly how that moves going forward. For the latter part of the year, we don't dare to say much because, well, macro is uncertain. I should mention also that the companies early on in construction, so to say demolition, we have an architectural firm, et cetera, those are having a weak demand at the moment. Okay, very clear. Also on central costs, it came down a bit here sequential and year-over-year. Are you satisfied with the level or should we expect it to continue to come down a bit here in 2023? Also is it related to reductions of FTEs or just that you pushed out the cost to subsidiaries? I think we're relatively happy with the cost level centrally. We're not foreseeing any particular redundancy programs, et cetera. It's true that we have pushed out costs gradually onto our business units and et cetera, with operational roles taken up by central. People previously employed centrally, they're now taking operational roles, sometimes even in the companies. All in all, we're quite happy with the central cost at the moment. Of course, as we grow, we don't necessarily see that our central costs will grow to scale, so to say. Over time, I think, it's fair to say that we anticipate a gradual reduction in central costs to sales over time. Okay, very good. You also continue to divest companies one in the quarter and potentially one more here post-quarter. Is it possible to give some flavor on the rationale behind the divestitures? Also how many companies measured in units or sales would you say is currently under review? Also on this topic, I mean, how has it impacted your culture in the organization when you divest companies? Is it an impact from it or? Basically three questions. First of all, I mean, we are continuously looking at our portfolio, and I think we are doing that with a little bit less patience now. The rationale is primarily strategic. I think as a quoted company, we notice, and I mean, the lessons learned is that some of the companies that we bought are not simply aligned with our long-term targets, both with regard to ESG or our financial targets with regard to margins, or if you take cyclicality, the earnings volatility could be very high, and that would put them on our review list, so to say. It could be smaller companies or it could be bigger companies if we don't see that they fit into our long-term strategy. I mean, for example, some industries have a structurally lower margins, for example. In that case, we would probably, if we do a roll-up in that industry, we would see that it would be difficult for us to continue to do that roll-up. We wouldn't want to buy more companies, and that would affect the individual business unit adversely. In that case, it might even be that the company would do better with a different owner. There are all kinds of strategic rationale when we look at the companies. To your second question, how big a portion of our companies are subject to this review? I can't comment on that. Finally, has it affected our culture? Well, to some extent, I think we really stress that we are super long term. When we buy a company, still our ambition is to be the eternal owner of that company. That hasn't really changed. We've always said to our CEOs that, you know, we are not a charity. If you don't perform over time, you could be closed down or divested. This, of course, pushes home the point, so to say, in that respect. I would say it's a good thing from an operational perspective. It adds discipline and urgency to change programs, out in our portfolio companies. Okay, very clear. That's all for me. Thank you. Thank you. The next question comes from Karl-Johan Bonnevier from DNB Markets. Please go ahead. Daniel and Lena. I noticed in the report that you are not commenting on ongoing processes anymore, the non-binding letters of intent or similar things. Is that because there's nothing ongoing or you just decided to stop reporting on it? I mean, it's a good question. I think we decided to have, like, the LOI pipeline, et cetera, very explicitly when we grew with a 100%. It was like, for you to understand better where we were going. In this case, with the reduced M&A pace, it's basically not material in that respect anymore. It's not that we don't have anything ongoing, but of course, the extent with the reduced M&A pace is a lot less. So I think that would be the rationale for not kind of highlighting it the way we did previously. I think even as we move into a better business cycle with more access to capital, I think a lesson learned is that we will probably increase our acquisition activity, but not to the extent that we had before. It's a less relevant metric, I think, to analyze us now than it was a year ago. Going forward also, you will continue to report basically when you close acquisition rather than say, earlier in the phase, as I guess you did earlier as well. Yes. That's correct. Given that you have this focus of degearing, have you seen your incoming opportunity, so to say, also taking a little beating, or are you still getting as much proposal as you used to? I think we have two movements. The main one is macro. I think in the recession with very uncertain earnings, a lot of... I mean, we only buy profitable companies, really successful. If they feel that they will not get paid enough, they just don't come to market. I think we do see a decreasing deal flow, but that's more a generic thing for the entire market. It's not relevant for us. Yeah. If you look at our deal flow as such, I think we quite recently established ourselves on quite a few geographies. Overall, actually, our deal flow is quite strong, I would say. I think we have a decent deal flow. We... Of course, with the current pace, we are being very selective. It doesn't really... We are looking at cases, and we are acquiring quite a... Still six acquisitions since the start of the year. Compared to most, I think we are still considered an active buyer. Excellent. When you're looking at, maybe increasing the pace again, good move on the cash flow in the quarter, gearing down a further notch, do you still see that being maybe a thing for the latter part of this year, or is it more of a question for 2024? I can't really comment on that. We want probably to deliver first. We have a low visibility on the second half, and I think it's also dependent on macro. If we really feel that the world is very uncertain, we would want to go lower on the leverage. I think that's the key priority for this year, at least. If we feel more and more certainty on macro, I think we could probably start to do acquisitions already this year. I think that's too early to say. We will have to see to the left... save that discussion for a few more quarters. I will do that. Thank you very much for the color and all the best out there. Thank you. As a reminder, if you wish to ask a question, please dial star five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers. Thank you very much for listening in. It's been a pleasure, and for your questions as well. Have a nice afternoon, enjoy the wonderful weather for those of you in Sweden. Take care. Thank you. Speak again in August. Bye.