Karnell Group AB (publ) (KARNELB) Earnings Call Transcript & Summary

Good morning, and welcome to Karnell's Q2 2026 Earnings Presentation. I am Petter Moldenius, CEO of Karnell, and joined by our CFO, Niklas Svensson. Q2 2026 is a quarter we will look back to as a milestone in Karnell's development. For the first time, our quarterly EBITA exceeds SEK 100 million. And on a rolling 12-month basis, our EBITA margin has now reached 15.4%. And by that, surpassing the financial target we set out at the time of the IPO in March 2024. As usual, I'll begin with an overview of the quarter and the progress we've made. Niklas will then take you through the segmentations performance and financials in more detail, including cash flow and leverage. I'll then return and discuss our latest acquisition and close with some key takeaways. And for those of you who are joining us for the first time, Karnell is an active and long-term industrial owner. We acquire and develop small- to medium-sized industrial technology companies with strong position in their respective niches. We operate in a fully decentralized model. Our companies run their own businesses, supported by a lean central team focused on M&A, capital allocation and ownership. Today, Karnell comprises of 20 companies across Sweden, Finland, the U.K. and Italy, employing around 900 people. And with that, let's turn to the quarter. As I mentioned, Q2 marked a significant milestone for Karnell. EBITA crossed SEK 100 million for the first time on a net sales of SEK 584 million. The EBITA margin for the quarter was 17.1% compared to 14.6% a year ago. On a rolling 12-month basis, our EBITA margin is now 15.4%, and we have thereby achieved the financial target of at least 15%, a target we communicated to our investors ahead of the IPO and said that we would reach it in a medium term. That commitment has now been met. But I should also note that our target is defined of our business cycle, getting there is one step, staying there is the goal, and we believe that the quality of our businesses supports that goal. Two other numbers that stands out to me this quarter. The operating cash flow, SEK 62 million. It's up 210% from the same quarter last year. And if you look at the net debt to EBITDA, it stands at 1.9x, which is within our stated target. It would also be worth noting that both 2026 acquisitions are not fully reflected in the LTM EBITDA, so the ratio will naturally compress as they contribute to a full year of earnings. To summarize, strong earnings, improved cash flow and a solid balance sheet. The chart on this slide shows the consistent margin improvements. Since our IPO, our rolling 12 months EBITA margin has moved from around 11% to the 15.4% that we see here today. This has been driven by our operational development across our companies and the quality of our acquisitions. I want to give some specific attention to the cash flow. H1 operating cash flow of SEK 121 million compared to SEK 33 million in the first half of 2025. That improvement reflects higher earnings, of course, but also a structural change in the seasonality profile of our business. Our geographical expansion, particularly the U.K. and Italy, has introduced companies with lower seasonality variations. And together with target measures within the group, we have also gradually shifted away from previous patterns where a large majority of our annual cash flow was concentrated in the second half of the year. Two additional metrics that I would like to highlight is the return on capital employed stands at 13.6%. That's a number that's essentially flat year-on-year, but I also think it reflects the pace of our M&A activity. Capital deployed hits the balance sheet immediately while earnings builds over time. I would also like to stress that we remain very disciplined on valuation and which you can verify in the purchase price allocation in the notes of the report. And for a group like ours, I personally think probably that EBITA per share is a more meaningful measure of value creation than reported EPS since EPS to a large extent, is influenced by noncash items and acquisition accounting. But with that said, looking at the earnings per share after dilutions for the quarter, we now stand at SEK 1 per share versus SEK 0.68 a year ago. That's a 47% increase per share. And with that, I'll hand over to Niklas.

Thank you, Petter. So let me walk you through the financial details for the quarter and starting off with the group. Net sales increased 36% to SEK 584 million with an organic growth of 17%. Acquisitions contributed 19%, while currency effects were a marginal negative 1%. On the right-hand side, you can see that EBITA increased 59% to SEK 100 million, and the organic EBITA growth was 34%. Acquisitions contributed 26% and currency was negative 2%. The EBITA margin improved from 14.6% to 17.1%. The margin improvement was broad-based, supported by strong organic development and continued positive contribution from recent acquisitions. And this also brought our rolling 12-month EBITA margin to 15.4%, which is the first time we surpassed our long-term financial target of at least 15%. The quarter also includes SEK 4 million in acquisition costs. Moving to our segments. Product companies delivered net sales of SEK 305 million, up 40%, and this was driven by acquisition, which accounted for 25 percentage points of growth and organic growth, which came in at 16%. EBITA increased 56% to SEK 50 million, and organically, EBITA grew 32% and acquisition contributed with 26%. The EBITA margin improved from 14.8% to 16.5%. The recently acquired companies, they continue to perform in line with our expectation and contributed with stable margins. Niche manufacturers had another exceptionally strong quarter where net sales increased 31% to SEK 279 million with an organic growth of 19% and acquisitions contributed 13%. EBITA increased 54% to SEK 65 million, and organic EBITA growth was 36% and acquisitions contributed 20%. The margin reached 23.1%, up from 19.7%. Most companies in the segment developed well with stable demand and good cost discipline. But worth noting is that as in the first quarter, growth was also supported by continued high demand from a single customer at levels that we don't consider sustainable in the long term. Together, the 2 business areas remain evenly balanced and product companies represented around 52% of group net sales and niche manufacturers, the other 48%. Turning to cash flow. Operating cash flow for the quarter came in at SEK 62 million compared to SEK 20 million in the same quarter last year, which is a significant improvement. For the first half of the year, operating cash flow reached SEK 121 million, up from SEK 33 million a year ago, and this reflects higher earnings, but also our own work to smooth cash flow more evenly across the year. As we add companies with less seasonal swing and roll out targeted initiatives across the group, we are moving away from the old pattern where most of our cash flow used to land in the second half of the year. On an LTM basis, operating cash flow reached SEK 307 million, which is an increase of 86% compared to LTM Q2 last year, and this is the strongest level we have reported to date. Finally, our capital structure, where interest-bearing debt at the end of the quarter was SEK 771 million, up from SEK 370 million at year-end, reflecting debt drawn for this year's acquisitions, OBA in the first quarter and Flex7 in the second quarter. Cash and equivalents stood at SEK 145 million, giving us a net debt, excluding leasing of SEK 627 million. EBITDA, excluding leasing adjustments on an LTM basis was SEK 337 million, resulting in a leverage ratio of 1.9x, within our financial target of normally not exceeding 2x EBITDA. Worth noting is that EBITDA only includes 3 and 4 months of profit contribution from our latest acquisitions. Total financial debt, including leasing liabilities, contingent considerations and put/call options related to noncontrolling interest was SEK 945 million, and strong organic cash flow generation and debt level within our target range continue to give us the flexibility to act on attractive acquisition opportunities. And that concludes the financial overview, and I'll hand back to Petter before we open up for questions.

Good. Thank you, Niklas. Yes, in April, we completed the acquisition of Flex7. It's a British developer and manufacturer of modular connectivity and control system for lighting in commercial and public buildings. Flex7 is based in Twyford in the U.K., and it has annual revenues of approximately GBP 9 million and solid profitability, as you can see in the chart on the slide. What attracted us to Flex7 is a combination of proprietary and product technology, a strong customer base and in a well-defined niche. It's a business model that fits naturally with our approach, running in a decentralized, product-focused and servicing B2B niche markets. Flex7 joins our product company business area, and the company is off to a good start under Karnell's ownership and is developing in line with our expectations. I'll note on the broader M&A, our pipeline remains active with good momentum, particularly in Italy and in the U.K. We continue to evaluate high volume of opportunities and remain disciplined on valuation and structure. When the right company comes along at the right terms, then we will act. Key takeaways. So let me close with the key messages from this quarter. Q2 remarked -- marks a milestone for Karnell. EBITA exceeds SEK 100 million for the first time. And on a rolling 12 months basis, we reached 15.4%, meeting the long-term financial targets we set at the IPO. This is the result of sustained efforts, not a single quarter. Growth was broad-based. Organic growth was 17% in Q2, driven by both business areas. Our acquisition, OBA and Flex7 are contributing as planned. Cash flow continues to improve significantly. First half operating cash flow stands at SEK 121 million compared to the SEK 33 million a year ago, and that reflects a fundamental shift in the seasonality profile of our business in addition to the higher earning base. I think this is an important change in the quality of our cash flow generation as a whole. Our balance sheet remains disciplined at 1.9x in net debt to EBITDA, giving us the platform to continue to acquire selectively. Markets remained mixed, but our decentralized model, geographical reach and sector diversification allow us to continue to build the businesses regardless of these short-term fluctuations. We are well positioned, and we will continue to execute our strategy. I would like to thank you for joining the call today, and we look forward to updating you again when we report the Q3 results on October 23. And with that, let's open the floor for any questions that you may have.

[Operator Instructions] We have our first caller is Max Bacco from SEB.

Once again, well done in the quarter and especially on the cash flow, nice to see a smoother pattern on that. So a couple of questions from my side. And we discussed this the last quarter as well, this single customer that you deem currently operate at unsustainable volumes in terms of demand. Is it possible to give some kind of indication looking at the niche manufacturer segment, which grew some SEK 41 million organically in terms of sales and SEK 15 million on EBITA. How much of that is linked to this specific customer, if you can give any indication on that?

I think I would like to start to say it's very broad-based organic growth across the niche manufacturing businesses in Q2. So very solid results overall across those companies. That momentum continued in this regards to the single customer from Q1. But in relative terms, it is smaller now than it was in Q1. So we're starting to see some sort of level of normalization while it's still a boost for us in Q2.

Okay. Understood. And do you see going into Q3 now, do you see any impact also in the ongoing quarter from this specific project? Or is it behind us now?

Well, this is an existing customer of ours since many years. So it's not going to go away. It's more about the levels that are unusually high the half -- well, the H1, and we are not to comment on the future here in Q3.

Okay. Understood. And then also, I mean, you have already mentioned that both on a group level and also within the segments, the strength was quite broad-based. But looking also at the product companies, very nice organic growth, which, to my understanding, as is this above current market growth. Anything specific in the portfolio that stands out or any actions from your side that might have contributed to the very strong performance here?

I would say also there is rather broad-based, very stable across our group. I would say that our team are doing a terrific job in general. I think it's -- as you say, it's not reflected by the market. This is more that our companies has been taking share of wallet or growing in the markets in general. And I think we see some smaller signs or a bit more that the market is starting to pick up, perhaps especially Finland than it has for the last few years. But again, I would say it's more that our companies or the teams are very successful in adding new customers and increasing share of wallet with some of the existing customers that's driven this organic development.