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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Welcome to Karnov Group Q4 Report 2022. [Operator Instructions] Now I will hand the conference over to the speakers CEO, Pontus Bodelsson; and Interim CFO, Leif Mårtensson. Please go ahead.
Thank you. Welcome, everyone, to Karnov Group's earnings conference where we will present the outcome of the fourth quarter and the full year 2022. Please go to Slide 2. I am Pontus Bodelsson, President and CEO of the company. With me, I have our Interim CFO, Leif Mårtensson and our Head of Investor Relations, Erik Berggren. Leif and I will present the outcome of the quarter and year using a few slides, and then we'll open up for questions. With that said, let's get started with the presentation. Please go to Slide 3. We are satisfied to have completed our first large European acquisition in the fourth quarter as we welcome Region South to the Karnov family on the 30th of November. Karnov Group is now a European player with strong offerings in the Nordics, Spain, France and Portugal. During the first -- during the fourth quarter, the organic growth was 10%, and organic growth during 2022 was 9%. This is thanks to a strong sales development in all our markets as we capture market opportunities following an increased demand for our services. Online sales continue to grow. And in the fourth quarter, off-line sales also had a positive development. We are satisfied with the organic growth in the quarter and full year. Net sales grew by 67% and amounted to SEK 368 million in the fourth quarter. This was mainly due to acquired growth coming from Region South. Excluding Region South, net sales grew by 15%. The adjusted EBITA margin in Region North comprising Denmark and Sweden, Norway, 33% and Karnov Group's margin was 25% in the fourth quarter. The Nordic margin is in line with the previous year in the fourth quarter, while the group margin is diluted due to the acquisition of Region South. We are satisfied with the margin in the Nordics, which proves our earnings capabilities also while preparing for the European expansion. Thanks to a strong operating cash flow, our leverage was at 3.6x EBITDA last 12 months at the end of the year. Let's move over to Slide 4. Karnov Group has become a strong European player in 2022 following the acquisition of Region South. This provides exciting opportunities within the group onwards. We see possibilities of cross-selling products between the local markets and also shared products between Region North and Region South. Region North, which consists of Denmark and Sweden, Norway continued to perform well in the fourth quarter. Sales drivers work similar to recent quarters, the public sector, municipalities and EHS. Last month, we strengthened our EHS offering with a small acquisition in Denmark, which I will present more in detail on a coming slide. Region South, which consists of our newly acquired businesses in France, Spain and Portugal is currently being integrated into Karnov Group. Our focus for the coming period is to ensure continued focus on customer centricity while simultaneously initiate projects to harvest our intended cost synergies. Please go to Slide #5. I will now comment a little on our segments, starting first with Denmark. We delivered stable growth in Denmark. The organic growth was 6.0% and the adjusted EBITA margin was 27.5% in the fourth quarter. Leif will comment on the margin later. Our municipality solution has been well received in the market since the launch during the autumn of 2021. In the fourth quarter, we have continued onboarding additional municipalities. Customer satisfaction is high and the customers appreciate the combination of broad content and practical guidance. In January this year, we supplemented our EHS portfolio with the acquisition of Nørskov Miljø. Karnov has thereby become the largest EHS provider also in Denmark. It is a small acquisition and has now been integrated with Notisum Denmark to create an even stronger customer offering. Nørskov is a provider of a software and service platform for EHS legal compliance and chemical compliance. Net sales in 2022 was DKK 6.4 million with solid profitability. We continuously add value to our legal platform. In the fourth quarter, we have incorporated the content from the public Domsdatabasen on our legal platform to the benefit of our customers.
Turning the page to Slide 6. In Sweden, Norway, we ended the year on a strong note. Organic growth was 14.1%, and the adjusted EBITA margin was at the high level of 36.8%. The growth in Sweden is due to our growing online business. We are able to sell more licenses to our existing customers and attract new customers. We see a trend with a broader customer group now using our services. The new initiative Rättsområdesanalyser has now started selling as an add-on feature on JUNO platform. Customers are satisfied with this new product, which fits well into the workflow of lawyers. In the fourth quarter, we also have a minor positive impact from school publications. Turning the page to Slide 7. Region South became part of the Karnov family on the 30th of November. Net sales and adjusted EBITA in December were in line with expectations. With this acquisition, we capture an attractive opportunity to create best-in-class offerings on the local markets with strong market positions. Further, some of the most innovative brands in the European legal information service market will come under 1 umbrella, creating a strong basis for new legal tech solutions. We initiated the integration in connection with closing and all progress in line with the work plan. We are currently preparing a common product portfolio in Spain, utilizing the best of both businesses while preparing having only 1 platform in Region South, including also our French business. Our intention is to harvest synergies of EUR 7.5 million with full effect at the end of 2024 and synergies of a total of EUR 10 million with full effect at the end of 2026. Cost to achieve these synergies are estimated to amount to EUR 24 million. Please go to Slide #8. 2022 was a year marked by a turbulent global environment that began with Russia's invasion of Ukraine with the macroeconomic and geopolitical changes as a consequence. Combined with high inflation and gradually rising interest rates, this has put pressure on financial markets. Of course, business is also affected. And for Karnov, this is testing our resilience. It is, therefore, with the utmost humbleness that I note that we have built a solid business model that has remained unaffected by economic fluctuations and continues to evolve and deliver value to our customers. We will continue to add value, developing new solutions to make our users more efficient. It is all about understanding our customers' challenges of today and opportunities of tomorrow. We will also continue having our eyes open for additional M&A activities in Europe to bring more value to customers and to shareholders. Please go to Slide #9. I will now hand over the floor to our Interim CFO, Leif Mårtensson, who will tell us more about the financial results in the fourth quarter and the full year.
Thank you, Pontus. Glad to be here talking to you guys today. Let's turn to Page 10. Looking at our sales development during 2022. And as you know, due to the acquisitions, they're also due to very strong organic growth during '22, we are on a growth journey. And we actually reached a milestone in what we could call old Karnov or as I will call it in this presentation, Region North, of just shy of SEK 1 billion. And if we include the acquired business, we're actually quite well over SEK 1 billion. We had a very strong quarter 4, ended the year in a very good way with a 10% organic growth in North. And that, on top of that, was added a currency effect of 5% due to the weakness of the Swedish krona. The Q4, including South was SEK 368 million. So that's quite a substantial growth on our total sales. And I must also add that South is coming in according to expectations and very close to what we have seen through the year until we manage to finalize the acquisition and close it by the end of November. Turning to the next page. We also had a very similar and strong development on our margins with SEK 83 million margin in North, 32.5% and we have to add to that 32.5% that we are taking some SEK 7 million extra costs, similar to what we did in Q3. So, the actual underlying operating margin is 35.4% in the business, whereas the SEK 7 million is the preparation for the fact that the group is actually becoming twice as large as of 1st of December or 30th of November. So we are continuing on a very strong trajectory with protecting our margins. And if we look at the full year, presenting SEK 354 million margin, 35.4%. If we add back the extra cost, we're actually spot on the 37% we had last year and then taking the good top line growth into consideration. We are a lot strong coming out of 2022 than we were out of 2021. Then of course, I will come back a little bit more to the development, including South. But as you can see, South is only marginally adding to our margin, of course, due to the fact that it's only 1 month of development. If we turn to Page 12 and look at the quarterly development. We can conclude that sales is growing quarter-by-quarter in a very strong way, not really any sort of downfalls in the development. And of course, as you can see, we have made South light blue here, so you can actually see the development in the underlying business in the North. Turning to Page 13. Same story goes for the earnings. We have very stable adjusted EBITA margin and also adding back the extra cost that we've taken on in Q3 and Q4, you can see that the trajectory is actually really good. And we're continuing to make good money on the underlying business. And in spite of the fact that we had a really good spike in Q3 from off-line sales in Sweden with slightly lower margin but still adding to the totality. Moving on to Slide 14. If we look at our online sales, as you can see, we're growing really well on the online sales, and we are keeping our ratio between online and off-line in a good way. We did have an extra spike of off-line, as I just mentioned, particularly in Q3 but we are on a very good trajectory on our online sales, and that is the basis for the underlying growth in North. South will have a slight detrimental effect on the online due to the fact that they have a lower percentage of online in their business, which also actually gives us a great opportunity to increase profitability and growth in South with the experiences we have in North. So we're actually on a good trajectory on that one as well. Moving on to Page 15. If we look at subscriptions, same story as with off-line. We're increasing the part, that's subscriptions, in a very positive way. And in this case, we will not have any negative effects from South because they have basically the same patterns as we have in Region North when it comes to subscriptions, which is very positive. It's easier to add on products and services to existing customer base with existing contracts. Getting a little bit more into the details. Moving on to Page 16. If we look at Denmark, and what meets the eye is, of course, that Denmark looks as we are not getting into good territory. But I must remind you that all the extra costs for group activities that we've taken on in -- during 2022 has actually been in Denmark. So if you look at the margin in Q4 of 28%, it's actually 33% when we add back to group costs. And if we look at it on the full year, it's 37.6%, which means that they are still on a very good margin. And on top of that, we have a 6% organic growth in sales in Denmark. So it's definitely not a burning platform. It's a part of the business that is continuously growing and it's growing with good profitability. What also spikes the numbers on sales is, of course, that we've had a 9% currency effect in Q4, again, due to the Swedish krona being slightly weaker towards the euro and the Danish kroner. Turning to Page 17. Looking at Sweden, extremely good development on sales, plus 14% in Q4, which is not so different from the full year, which is actually plus 13%. And the margins on 37%, both in Q4 and full year in spite -- also on top of that we have quite high off-line sales this year due to the school curricular in Q3, which built over a little bit into Q4 as well. But we have good development across the board. Municipalities are signing up, and we're doing really well on the EHS side as well. So it's really strong underlying development in Sweden, Norway. If we then turn to Page 18, which is a new page, we're happily welcoming the guys from France, Spain and Portugal into the family. They have contributed with sales of SEK 114 million in December, i.e., Q4 and the SEK 10 million EBITA margin, which constitutes a 9% margin -- profitability margin on South, which is in line with the expectations. So -- and as you have seen in our previous numbers, there is a difference in profitability in the newly acquired [indiscernible] and the old Karnov, which will, of course, have a dilutive effect on the totality for the business. If we look at the synergies, we are confirming that we are still looking for the SEK 7.5 million synergies by the end of 2024 and an additional SEK 2.5 million in the end of 2026. And we have so far not seen anything that will dilute those synergies. On the contrary, we will most likely be able to deliver more synergies now that we gradually know more and more about the business. So -- and from just also on a different note, from Q1, we will report Region North, South and group function separately. So including full LTM numbers, so you will be able to follow the development of this business in an organic way as well. Turning to Page 19. Good cash flow, SEK 261 million, which is actually SEK 47 million higher than last year. We are ending the year with a good cash pile of SEK 671 million. We came in at the leverage of 3.6x, which was slightly lower than what we expected, just so close after the closing of the deal. So we will be able to improve on that leverage as we go along through the year. But the high leverage, 3.6x is still pretty high for a company of our structure that has led the Board to recommend the AGM that there will be no dividend so we can further strengthen our leverage during the year. Thank you, guys. Handing back over to Pontus.
Thank you very much, Leif. Please switch to Slide 20. I just want to conclude this presentation by presenting a summary of the highlights of Q4 2022. It has been a transformative year for Karnov Group with the acquisition of Region South, as highlighted at the end of November. We are satisfied with an organic growth of 9.2% and adjusted EBITA margin of 32.7% during 2022. Karnov Group has grown in both Denmark and Sweden, Norway during 2022. We see a strong demand for our services and look forward to continuing strengthening our offering to cement our position as market leaders in the Nordics. France, Spain and Portugal are our new home markets. We look forward to integrating the local businesses and to get stronger offerings to the benefit of our customers. Please switch to Slide 21. So by this, I'll end our presentation, and we are now ready to take questions. So I'll hand over the conference again to our host.
[Operator Instructions] The next question comes from Daniel Ovin from Nordea.
The first question is on the very strong organic sales growth in the Swedish and Norway segment despite now meeting quite a tough comparison. You mentioned here in municipalities, EHS, but also school publication. Perhaps you can shed some more light if this -- what is the main driver here? And also, if there is some nonrecurring nature also in Q4, perhaps you can quantify if that is the case. That's the first question.
Yes, you're totally right. It's the public sector, municipalities and the EHS vertical that drives it. So it's mostly online products. But on top of that, as you mentioned, is still the school publications. It's something that we saw in Q3 and still some sales on those products during Q4, which is positive, but a bit surprising. And going forward, I would say that it's not to be expected to have those extraordinary off-line sales in Q3 and [ 4 ] next year. So that's sort of a forecast regarding those off-line products.
But it's not in the same range as in Q3, you mentioned. I mean is it supporting by a few percentage points now? Or is it still a big support from the school publications in Q4?
It's much less in Q4 than in Q3.
Okay. Okay. Great. All right. Then also, I have a question on the Danish segment. The SEK 7 million in cost for incorporating the South region. How should we think about this going forward? Should it be roughly at this level or perhaps even come up further from these levels going forward. Perhaps you can shed some light on that. That's the second question.
It's actually going to come down a little bit going forward because we've had a sort of built up where we had to get systems from consultants on top of hiring people that will constitute the group functions. So they will actually come down. So it's not a permanent story. But we had to make these changes ahead of the closing of the acquisition of South. So it will come down slightly, but there will be some remains left, but all the consultancy fees will come out.
Okay. Great. And then lastly, just a question on the South group. Now it's only 1 month here that we have the number for. But I mean, if you just do kind of annualize that number and if you look at the margin and the kind of EBITA that would suggest it seems a bit lower than the numbers that you gave when you did the acquisition. I think that was like SEK 170 million, SEK 180 million in EBITA, and now you're doing SEK 10 million in a month. And I think at that time, the adjusted EBITA margin looks to be around 13%, 14%, and now it's around 9%. I don't know if there's seasonality here? Or is there some one-off factors? Or has it actually been a slowdown in the -- those assets since the acquisition, perhaps you can just share some light on that? That's the last question.
It's actually the difference between EBITA and EBITDA. The EBITDA margin is actually still on the expected level. And in the report now to be consistent with our other reporting, we report EBITA. So we're looking at an EBITA on the level that was expected and the EBITDA comes in also on the level expected. So there has been no major changes in -- or no changes, I would say. Actually, South came out pretty good on both top line and margin and as expected. So this level of profitability on the EBITA level is actually what was -- that we communicated EBITDA previously.
The next question comes from Predrag Savinovic from Carnegie.
Thank you very much. I'd like to start with a strategic maybe a question on Region South. If you could compare or take a step back and compare your position there relative to what you have in the Nordics? And what I'm particularly interested in is your annotations that you've built up in the Nordic region, which is quite important for the value of the platform. If you can tie that into your commentary on Nordics versus South and if you have any plans on how to take these closer to 1 another in the coming years?
Thank you. It's an important question, of course. And what we see in the South is, I'd say, a starting point -- as a starting point for this reasoning is that our mission and our products are very similar, meaning that the products having databases and inventories and preparatory work, et cetera, et cetera. I gathered in 1 legal information solutions, that's about the same, both in Denmark, Sweden, and for the countries and the markets in the South. So there's no big difference there. So the products are produced in the same way, meaning that we do have experts, authors, that's really a valuable partner for our company. So there's no big differences in that context. We could say that in the 2 companies in Spain, LA LEY and Aranzadi, there's, of course, differences and different strengths. In Aranzadi, they have a premium product called Aranzadi Digital, which is the product for lawyers in Spain. And that's, of course, if you compare to Denmark, it's a [indiscernible] online, which bears the same premium taste, so to say. Comparing with LA LEY is really strong in -- among the public sector and small and solar law firm. So slightly different flavor to those products. In France, they're very strong when it comes to labor law. They're actually the market leader in terms of labor law with the product, [ liaisons-sociales ]. So yes, the foundation for the products is more or less the same, built upon experts, long relationships with the very best experts and offers in the different markets and then working closely together with them forming the information. So we are able to add the value. And as we say in the Nordics, gives also from the South, making better decisions faster. That's why we exist. The markets are a bit more scattered in the South compared to the North. We are, as you know, market leaders in Sweden and Denmark. We are from now on also in Spain, combining the 2, LA LEY and Aranzadi. And in France, we are #3. So that's about how the markets are structured.
Okay. I think that's quite encouraging. Can you -- on the cash flow, not particularly for this quarter, but for '23 and onwards, if you can give some flavor on what we should expect relative to sales or EBITDA on a pro forma level now because there's a lot happening, of course, when these ones, I mean, come into the book, so to speak.
Yes. If we comment slightly on the cash flow, I mean, the structure of the businesses is quite similar. So the drop-through of EBITDA into cash is quite similar from a structural point of view. So we see a strong cash flow going forward as well. On the other side of the coin, of course, is the fact that we are going to obtain some synergies that will give us some extra costs. And we will also invest in our IT systems that will keep [ CapEx ] on a similar level as in the past going forward. So we will continue to be a strong cash generator, and we will be able also to decrease our leverage, as I mentioned earlier, in a positive way.
Okay. And another thing, Leif, you mentioned is -- and this might be early days, but it sounds as if you had a few first positive impressions from the consolidation. I think you mentioned you might see more synergies, for example. Why is that? What have you seen that it could make you potentially when upgrade this synergy target?
You can take that one, Pontus.
Yes. I'd say that your comment, Leif is I'd say, especially relevant in terms of timing because we -- as Leif said, we hope to reap the benefits of EUR 7.5 million at the end of 2024. But we have already seen a few and small good promising things like we have a combination of content in Spain, where we buy databases now not only 2 companies, but to the total entity in Spain. So there are -- we are beginning to see the cost efficiencies already now. But the big chunk, of course, will be not until the end of '24.
Okay. Super. And then just a final one. You said you were eyeing the market for other acquisitions. Is this, I mean, now in the near term, I'm thinking you have quite a backlog of integration work and you commented on your leverage? Or is that more to tell us after we've come through some of the integration will add more acquisitions as well.
Well, this is, of course, a big bite for us. So let's be humble. We will have to focus on the integration for some time. But even -- having said that, we do have a good list of potential candidates, of course, for M&A. So as Leif said, we try to be prepared from a financial point of view, and we try to get also prepared from a management point of view. But again, it's a big bite. We are working hard to integrate these companies into Karnov. But we are on a growth track. So we'll see in the time to come.
There are no more questions at this time. So I hand the conference back to the speakers for any questions from the web.
Okay then. Let me then thank you, everyone, for listening and for your questions. We will disclose our Q1 report on the 9th of May. So we hope to hear from you then, if not earlier. Thank you very much.