Alligo AB (publ) (ALLIGOB) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Momentum Group AB Financial Reports 2020. Today, I'm pleased to present Ulf Lilius. [Operator Instructions] I will now hand over to the speaker. Please begin.

Thank you. Could you please go to Slide 2? First, I would like to say welcome to our web meeting presenting our financial report for the shortened financial year 2020, together with my colleagues, Niklas, Executive Vice President; and Clein, Business Area Manager. If we go to Slide 4, I'll give you some highlights. The pandemic have had effect on the group's operations during 2020 and also, of course, in the third quarter, even though the sales were recovered somewhat during the last quarter. Actions have been taken to mitigate the negative effects of lower demand in both business areas with Business Area Components & Services managed to maintain a stable profit development throughout the whole year. The integration between TOOLS and Swedol continues according to plan with store and purchasing coordination as well as starting the implementation of own brands in the business area. The pandemic would like to continue to affect the groups in the coming months. And we carefully follow development and take actions accordingly, even though the group's financial position remained strong even after the acquisitions we made in February. If we go to Slide 5, I hand over to Clein.

Thank you, and I'd say welcome to Business Area Tools, Consumables, Workwear & Protective Equipment. And as we communicated earlier, we had a decrease in sales during 2020 and it was also decreasing in the last quarter of 2020 but less bad. Of course, we were affected, as Ulf said, by COVID-19, but we also have our own internal issues we need to address. But a positive thing for us was that at the end of the year, we got some colder and snowier weather, which is helpful for us with our -- especially with our workwear collection. EBITA ended up at SEK 164 million compared to SEK 178 million in the quarter and an EBITA margin of 7.3% instead of 7% -- compared to 7.6%. The integration of our businesses are continuing according to plan. The organization is in place, as you know, as of 1st of October. So we had a quarter to practice to work in the new structure, so we can hit the floor running 1st of January this year, as we have done. We are launching our own brands into the TOOLS system. First out is our Gesto shoes, high-quality shoes at a little lower price point. We are co-locating stores according to plans, 6 stores, we have finalized now and we have around 25 yet to come. So we are continuing our integration program, and we are developing and developing our business at the same time, and we are building a stable business for the future. So now to Slide 6 and back to you, Ulf.

Thank you, Clein. Some highlights of Components & Services. Of course, the sales in the business area decreased also in the quarter, around 10% and 12% for the year, of course, affected by corona as well as weaker summer months. But demand from industrial customers recovered gradually during the last quarter, as I mentioned before. Measures to improve cost efficiency had a positive effect on the contribution ratios and operating profit during the quarter and the year. And our focus has been on profitable growth, both organic and acquired. The acquisition of SKF's spindle service operations in Sweden is now integrated into Rörick and was followed by 4 corporate acquisitions with a total turnover of SEK 285 million. And that was concluded after the end of the financial year. The acquisitions of 3 electromechanical workshops from Assemblin, former NEA, and Mekano with their presence in Helsingborg, Malmö, Perstorp and Göteborg, strengthened our position within industrial services. Our latest acquisition was Öbergs i Karlstad, which is a competent supply of pneumatics as well as industrial components. Öbergs will be an excellent complement to ETAB, which is our specialist in hydraulics in the group. If we can go to Slide 7, see if we combine the total. The general demand, as I mentioned, has been affected in the Nordic region but, of course, with some variation between different customer segments and countries. In total for the group, the net sales decreased by 7% during the shortened financial year compared with last year. The pandemic is considered to be the main reason for the negative sales development but also in conjunction with weak summer months. Measures have been taken to increase margin. And that has resulted in stable earnings and also a somewhat okay development for protective equipment. And we will continue to work with initiatives to increase sales efficiency in order to improve the profit development. In total for the financial year, EBITA decreased by 12% for the group. One of the main focus areas is continuously decreasing funds tied up in working capital. And I'm very satisfied that the group's cash flows from operating activities was very, very strong during the year, in excess of SEK 1 billion. And our efforts to decrease working capital will continue. The Board of Directors proposes a dividend of SEK 1.50 per share for the shortened financial year. This is a promised return to the company's dividend policy after last year's uncertainties for future development of the group, which resulted in no dividend being paid for 2020 -- in 2020. If we turn to Slide 8, Niklas will give you some more about our good cash flow.

Thank you, Ulf. Looking at Page -- Slide 8 then. My name is Niklas Enmark. I'm CFO at Momentum Group. As Ulf mentioned, during this year, we have a strong -- we have had a strong focus on the cash flow in the group, not least during the turbulent times that we have seen during this financial year. The emphasis has been on securing its strong liquidity situation and making sure that we don't take any unnecessary customer risks. This is, of course, even more important now that we are a larger group off the Swedol acquisition and with a higher CapEx level than before. And as Ulf mentioned also, it's very positive to note that we ended the year with a very strong cash flow from operations. During last quarter, which is normally then a strong quarter cash flow-wise, we had cash flow from operations before changes in working capital of more than SEK 300 million and for the full reporting period, SEK 763 million. Add to this, the positive contribution from changes in working capital both during the quarter and for the reporting period, meaning that for the first time, Momentum Group exceeded SEK 1 billion in cash flow from operations. In all fairness, part of that change is, in working capital, is, of course, due to the decreased level of sales, thus reducing our accounts receivables by approximately SEK 100 million during the period. However, the largest change positive to see is that we have been able to reduce the inventory levels by some SEK 170 million during the period despite the lower sales level. And I think this shows the strength of our business model and the corporate culture that we have. This actually means that we have been able to increase our turnover of working capital to more than 5x this last quarter. IFRS 16 effect impacted operating cash flow by some -- plus SEK 295 million for the period and close to SEK 90 million for the quarter, which is then mitigated or reduced by the same amount in the cash flow from financing activities. As I mentioned before, our level of CapEx is high today due to the Swedol acquisition. Of the CapEx during the period, the largest part has been attributed to the Örebro logistics facility that we now own. That investment phase is coming to a completion during the first calendar quarter of this year. However, we see that partly due to the strong cash flow that we have, we will keep up the momentum in our level of investments also going forward. However, for this year, 2021, the focus for the investment is to facilitate the realization of synergies in the integration of TOOLS and Swedol, aiming to consolidate and revamp a number of stores, establish the common IT platform, which after the start with Finland in this first quarter of this year will continue with Sweden later on this year. If you turn to Slide 9, I will comment on some performance measures for the rolling 12-month period. First, let me just highlight that some of these numbers that you see here with notes are shown including the Swedol acquisition for comparability reasons then. Looking at the top line, our revenue stood at approximately SEK 9.2 billion for the last 12 months, including then Swedol. This is down 6% compared to the financial year of last year, also then pro forma including Swedol. Despite this drop in sales, our EBITA margins have been kept pretty stable. This, in turn, is due to the fact that we have been able to decrease our cost base compared to last year like-for-like, out of which around SEK 150 million is decreased in personnel expenses. Our financial position is strong in relation to EBITDA. And adjusted for IFRS 16 effect, our net debt-to-EBITDA stood at 1.8 by the end of the year. Cash and cash equivalents, including unutilized granted credit facilities, totaled SEK 101.4 billion end of the period. And related to our other external financial objective, our return on equity was 12%. This measure is, of course, affected by the restructuring reserve on this year as well. The equity/assets ratio was 39% at the end of the financial year. Handing back to you, Ulf.

Thank you, Niklas. If we move on to Slide 11, we will continue to focus on the 3 main areas: integration and merger of TOOLS and Swedol, continued development and mitigate the effects of what happened in the market. And of course, the third acquisition-driven growth in Business Area Components & Services, we have a strong financial position. And we are increasingly building a good pipeline in this business area. So if we turn to Slide 12, Clein will give you some notes about the integration.

Yes, very good. Thank you, Ulf. So back to the Tools, Consumables, Workwear & Protective Equipment. We established -- we launched a new organization 1st of October. And now we also have, during the last quarter, carved out a common mission ambition for the business area going forward. So with that as a base, we have continued to work with what should our core values be, our common core values, so that we will start rolling out now together with a leadership training. We are so fully convinced that having our leaders with us on this journey will be -- will do a world of a difference. So that is being rolled out now. New ERP system for TOOLS Finland is planned to go live now in a couple of weeks and Sweden and Norway to follow in 2022 next year. Local stores, as I said, is going just as planned. You see a couple of pictures there, how it could look from the external side from the shops and it's worked well. Supplier and our assortment range, that work has been done. And we are -- or have concluded the negotiations with the suppliers, which has gone well. And we're also now focusing on -- as I said, we are not so happy with the sales development on large accounts in the industrial sector, and we have developed also smart services concept, where you have -- you can store the consumables closer to the workplace, you don't have to work so far to get your product. So that is being launched at the same time now. And as we said earlier, the private label is now being rolled out in the group, especially in the TOOLS system. Logistics centers in Norway are now concluded. All the regional warehouses have been closed. And as Niklas touched, the Örebro extension is finalized. So now we have our 30,000 [ lights ] central warehouse in Örebro while the Hisings Backa, which came with the Grolls acquisition is now closed. So over to Page 13 and back to you, Ulf.

Thank you. Yes, what are we looking for in Components & Services? Well, the main focus is to grow, as I mentioned. We're looking for companies working with industrial components as well as industrial services and our acquisition target should be able to achieve long-term sustainable profitability and growth. So Slide 14. And so far, promising results. And based on this strategic focus, we have so far been able to add 5 interesting business with niche competencies and offerings in industrial services as well as industrial components with a total turnover of SEK 300 million. So if we go to Slide 15, today, after the latest acquisition, the business area now has a substantial turnover in both our focus areas, industrial components with some SEK 1.1 billion in annual revenue and industrial services with some SEK 400 million in annual revenue. Our companies' competencies and offerings will strengthen our market positions going forward, both individually and whenever, to advantage for the customers and us combined. And the acquisition pipeline continues to look interesting for further development. So if we turn to Slide 16, so before we open up for Q&A, as I've stated before, turbulent times call for warm heart and a cool head. We intend to continue along the path we have established with a focus on earnings growth, reduced funds tied up in working capital and corporate acquisitions in order to increase profitability. Our main responsibility is to focus on what we can affect in our daily operations and a decentralized earnings responsibility entails. All in the Momentum Group will take the necessary steps to responsibly safeguard earnings, liquidity and cash flows to thereby strengthen conditions for the group and its employees over the long term. Our group structure with 2 operational independent business areas is creating new interesting opportunities for the future and all of the employees. So thank you. Now we can take some Q&A.

[Operator Instructions] Our first question comes from Karl-Johan Bonnevier from DNB Markets.

Yes. Congratulations to a good finish of a short fiscal year. Clein, I'd just like to start with -- get a little better grasp on how you see your development, given the market conditions out there. It feels like if I was slightly more worried about market share loss in -- during Q2, it seems like you have recovered something of that in Q3. And I appreciate there's a lot of moving parts in your internal integration and all these kind of things. But how do you feel about your positioning in the market now where you end this quarter and going into 2021 compared to, I guess, the structure you inherited, say, 2, 3 quarters ago?

It's exactly that's what we're focusing on. We have a good visibility where we are developing nicely and where we have challenges. And we are focusing on getting all our businesses back on track. But to the greatest extent, we have a good development and we have a good product offering. But we have a part of our business which has a decreasing sales. And it will take some time to move that because you have lost contracts that needs to roll out through the books, and you need to fill up with new one contracts. We have a time issue there before you can see an effect. But we are winning new contracts. But we also still have some effects of the previously lost contracts. So -- and in relation to market shares, it's also different if you compare with which part of the business you compare with. But within the industrial sector, you start to hear positive signals from the business from our competitors. We also see an increased activity. But we are not where we would like to be. So that's why we are addressing that with great emphasis right now.

And when you look at the 6 stores that you now have consolidated and the 25 to come, is there a great risk of losing local market share? Or do you have your system to really try to capture the opportunity?