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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Hello, and welcome to Momentum Group Q3 Report 2021. [Operator Instructions] Today, I'm pleased to present our first speaker, CEO, Ulf Lilius. Please go ahead.
Thank you. Please take the next slide. First, I would like to say welcome to our web meeting, presenting our interim report with my colleagues: Niklas Enmark, Executive Vice President and CFO; Clein Johansson Ullenvik, Business Area Manager, Alligo; and Irene Wisenborn Bellander, CFO, Alligo. Most welcome.If we turn to Slide 3. Momentum Group is today operating with a decentralized business model, where our 2 business areas are operationally independent of each other. And as communicated, we will split the group through a spin-off during the first half of next year. The purpose is to strengthen each business area's conditions for achieving its ambitions in the best way and thereby creating increased shareholder value. If you turn to Slide 4 and then Slide 5, Niklas Enmark will give you some highlights from the report.
Thank you, Ulf. Turning then to Slide 5, some highlights from the report. Sales and earnings for the majority of the group's operations developed positively during the third quarter with maintained delivery capacity despite certain challenges with material shortages and increased raw material and transport prices. EBITA for the entire group increased by 56% during the quarter. In the Alligo business area, the integration work between TOOLS and Swedol continues in order to achieve targeted synergies and economies of scale. And in the quarter, it was decided to move TOOLS' logistics center to Örebro, contributing to cost reductions and a more efficient supply chain. As a consequence, restructuring costs of SEK 108 million was accounted for in the quarter. In addition to the 5 acquisitions made in the period, we added 2 more after the end of the period in Components & Services. Intertechna was acquired. The company strengthens the offering within technical services. In Alligo, RAF Romerike, a clothing specialist in the Oslo area, was acquired. Also in Alligo, an agreement was made to divest the company Gigant. The Board of Directors also decided in the quarter to proceed with the spin-off into 2 independent companies with the ambition for a separate listing of Components & Services on Nasdaq Stockholm in the first half of next year. And as was communicated this morning, in preparation for the spin-off, the Board has proposed to an Extra General Meeting to change the name of Momentum Group to Alligo as the spin-off company would then be listed with the Momentum Group name. Also, as a preparation step, it was decided to make a management change in Momentum in effect from November 1. I would now like to hand over to Clein and Irene.
Thank you, Niklas, and welcome, everybody, to the business area, Alligo. We will bring up a few highlights. You read the report, and we'll come back with questions later on. I will come back when we look at more forward-oriented focus. But first, Irene, CFO, Alligo, take it away.
Thank you, Clein. Revenues increased by 5% for the quarter and by 3% for the reporting period. This is partly a result of recovery from COVID-19 but also stable organic growth in Sweden related to small and midsized companies. This growth has been weaker in Norway and Finland, and we still have challenges in the industry segment but are continuously taking steps to improve our market position. EBITA increased by 64% to SEK 154 million in the quarter, corresponding to an EBITA margin of 8.2% compared to 5.3% last year. And for the reported period, EBITA increased by 32% on comparable units. The improvement is mainly related to the Swedish business and is due to higher volume, integration synergies and price adjustments, which offset supplier price increases for certain product areas and higher costs for freight and customs handling. Due to the challenges in the freight market, the launch of own brands in TOOLS related to workwear has been postponed to Q4. Own branded shoes and gloves were launched during spring. After the reporting period, the final decision has been made to move TOOLS' Swedish logistics operations to Alligo's logistics center in Örebro. As a consequence, we will not use the central warehouse in Alligo for the coming 6 years, and the restructuring cost of SEK 108 million has been accounted for in Q3. In addition, there will be an investment in automation equipment of SEK 19 million, and annual cost savings are estimated to SEK 25 million. Finally, we have agreed upon divesting Gigant, which offers comprehensive solutions for workplace in order to focus on sales to end users.Turning to Page 7 and back to Niklas and Ulf.
Thank you, Irene. Turning then to Slide 7, some comments on the business area, Components & Services. Both sales and earnings developed in the Components & Services area and were positive during the third quarter. Net sales for comparable units in the business area increased by approximately 16% during the quarter and 10% for the reporting period. The businesses acquired during the financial year has so far contributed with approximately SEK 140 million in sales. We see a positive outlook for the remainder of the year from many customers despite some challenges with the availability of certain products in the short term. In order to meet demand, we are working diligently with proactive stock management in order to keep a good level of availability to our customers. And during the year, we have made a number of larger stock purchases of [ hide ] runners. EBITA increased by 38% to SEK 51 million for the quarter, corresponding to an EBITA margin of 14.9%. And for the full reporting period, EBITA increased by 24%. The increased sales measures for improved efficiency, price adjustments and a good product mix contributed to the strong profit development. We are also very happy to note that our return on working capital for the first time ever has reached 70% for the rolling 12-month period. As I mentioned before, we are also completed -- we have also completed the acquisition of Intertechna after the period, which will then strengthen our offer in digitized maintenance. On Slide 8, I would like to comment on the group's development. Revenue increased by 6% for comparable units during the third quarter. And for the full reporting period, the increase was 4%. As mentioned before also, EBITA increased by 56%, corresponding to an EBITA margin of 9.1%. And for the reporting period, the EBITA increased by 29%. The work to enable the split of the group into 2 separate listed companies proceeds according to plan and has resulted in advisory costs, et cetera, affecting comparability by SEK 7 million during the reporting period, in addition then to the SEK 180 million in restructuring costs in business area Alligo related then to the TOOLS Swedish logistics operation. The measures that we have taken continue to have a positive contribution to profitability, where return on working capital increased to 37% for the rolling 12-month period. Turning to Slide 9, some comments on the cash flow statement. And as I mentioned the last quarter, during the year, we have seen a sequential change in working capital composition, which is quite customary when we see an uptick in revenue as we do now. First, our accounts payables increased and then our inventory and lastly, our accounts receivables. The rather significant working capital change of minus SEK 297 million during the quarter is thus attributed to a reduction of accounts payables of close to SEK 200 million that we previously then built up. As said, we continue to have a strong focus on working capital. And looking at the working capital turnover, we have increased it by 0.5x compared -- for the last 12-month period compared to last year. This last quarter cash flow from operations after working capital changes amounted to minus SEK 55 million. That's caused by the working capital changes mentioned earlier compared to plus SEK 220 million. Our cash flow for the rolling 12-month period amounted to SEK 0.9 billion, corresponding to cash conversion of approximately 90%. Of the CapEx during the period, the largest part has been attributed to the finalization of the Örebro logistics facility as well as store adaptations and IT-related investments in Alligo. And as Irene mentioned also, the move to Örebro from Alingsås will also entail coming investments of approximately SEK 90 million. Looking at Slide 10, you see some selected key ratios for the rolling 12-month period. Our top line revenue stood at approximately SEK 9.6 billion for the last 12 months. This means that we are still lying a bit behind prepandemic levels. Despite this, our EBITA level is higher and also our EBITA margin. Our financial position is strong. Operational net loan liability amounted to SEK 1,462 million at the end of the quarter. In relation to EBITDA and adjusted for IFRS 16 effects, our net debt-to-EBITDA stood at 1.8 by the end of the period. Cash and cash equivalents, including unutilized granted credit facilities, totaled SEK 1.2 billion in the period. And related to our other external financial objective, our return on equity was 13%. Equity/assets ratio is strong with 40% at the end of the period. If you turn then to Page 12 and some comments on this morning's press releases. And to prepare then the group for a split into 2 separate listed companies, the Board have decided to change the group management as of November 1 to be able to focus to finalize the work, to be able to list the new companies first half of next year. This means that Clein and Irene will have the Alligo company, whereas Ulf and myself will have the new company. Also, a proposal to an Extra General Meeting was presented to change the name of the listed company to Alligo and thereby change the name of Components & Services to Momentum Group. I now hand over to Clein again for an overview of business area, Alligo.
Thank you, Niklas. So Page 13, as Niklas mentioned, we are working on a split. We are running a fairly complex business in Alligo, but we are also focusing on doing this merger or building the Alligo with the former TOOLS parts and former Swedol parts. And that happened, a lot of things during the last year, and a lot of things are still there to be done. But so far, everything has gone well. We are developing according to plan, but we would like to share with you just a few things today which could be of interest. So if we turn to Page 14, you can see our strategy map. And for us, that is very, very important because that is one of our cornerstones in building this business. So now it's complete. With our mission, we make businesses work, which is not limiting us in any way, but it's guiding us. Our vision, we are unbeatable. And a number of strategic objectives: Customer perspective, employee perspective, from a process and efficiency perspective and also from a sustainability perspective, and then we have our core values. Our strategy map is in place, and this is what we use now for our business planning going forward. We use it already for the business planning/budget process for 2022. And if we turn to Slide 15, I'd just like to make a few highlights of some strategic decisions we have taken. And if we start with the orange part at the top, it's a statement that we, in Alligo, we want to be a fully integrated company. In our dream world, we have one legal entity per country. We have one ERP system throughout the group. We are a very harmonized and streamlined business, and that differs a little bit compared to the way we run the business in the Components & Services part. So -- and if you look from the customer perspective, we focus on professional customers, of course. But the second point is quite interesting to highlight. It's that our priority is to be strong facing the end customer. And by that, we mean that we use our own brands for us to be strong meeting the customers, i.e., you will not find our own brands in -- at any of our competitors. So we use our own brands to make us strong when we meet the customers. That's a very important statement to make. If you look at the middle column, offering, we are focusing on consumables. That is -- by that, we mean we don't supply products for customers' production. It's not material that they use, it's -- as in the material to be used in production as such. It's the consumables around production and building industry and so forth. And services also are a very important part where we have good services. We're offering on-site storage solutions. So we do embroideries. We have insole solutions. And so a lot of services we add to our product offering. And to the far right, you can find the go-to-market column, where we have said early on that wherever the customer wants to meet us, they should have the same look and feel. If it's in the digital world or it's in the physical world or wherever they want to meet us, in shops or in the direct sales, we should have the same theme wherever you meet us. We believe in the digital channels, of course, and we have a complex structure today with many, many concept brands. And of course, we would like to have fewer concept brands. It's not of any value to have too many. So we have started the journey to have fewer concept brands per country, and we will arrive there over time. So turning to Slide 16 and back to you, Niklas.
Thank you. Then some comments on the business area, Components & Services. As we have mentioned before, the main focus for the business area is to operate development growth through acquisitions. We are looking for companies working within industrial components as well as industrial services in 3 main focus areas: acquisition targets should be able to achieve long-term sustainable profitability and growth and have committed and proven management with the willingness to improve in a digitalized environment based on simplicity. Based on this strategic focus, we have so far been able to add 5 interesting businesses with niche competencies and offerings in industrial services as well as industrial components and with a total turnover over SEK 300 million this last year. Turning to Page 7 -- 17, sorry. Beyond the work with the listing that we are extremely focused on right now, then, of course, we are focused on developing our companies through active ownership with the group resources as well as support the local managers to grow through, as said, decentralized responsibility and then enable employee development in order to calculate each company. We also want to grow through acquisitions and, of course, of sustainable companies, and the acquisition of the pipeline continues to look interesting for further development. And we continuously work to meet more and more companies in the Nordic area. And on Page 18, finally, I would like to thank you all for your time and interest. And we would now like to open up for questions, please.
[Operator Instructions] Our first question comes from Karl-Johan Bonnevier with DNB Markets.
Good to hear that the split-up seems to be progressing according to your plans and still seems to be a logical move for both parts. A couple of questions on the quarter looking at Alligo. Very strong margins obviously in Sweden and coming back to historic levels almost on Swedol. Could you give us some color on that climb this year? What has come into play, so to say, during this quarter that you didn't have that before? Or is it some sort of temporary effect or that is helping you in this quarter?
No. We are, as you said, developing strongly in Sweden. And there you have a much better foundation of old Swedol in the Swedish business, and that we can use as a turbocharger to the rest of the business. So we've been successful launching private labels. We've been successful both in the price adjustments. We have had price adjustments coming in. We are in an inflation economy. We've been successful in carrying those forward, and we've been running the business reasonably efficient and effective, absolutely not fine-tuned in any way since we are running 2 different ERP systems and we are having a lot of inefficiencies still in Sweden. But Sweden is a strong market. We have a strong position in the market, and we are doing it reasonably well. In Finland, we have changed the ERP system this year. So there was potentially a little bit of a disturbance there initially, but we are now gradually changing the business in Finland as well. And in Norway, it's the same thing. We're trying to implement the business model we would like to have throughout the Alligo group.
But to sum up what you say, basically, you are benefiting from the good recovery, industrial confidence in Sweden. That's really what's driving the numbers rather than it's some sort of early gains in the integration process that's coming through.
The integration part is running just according to plan, but we have had a favorable customer mix, where the largest customer's share of our sales in Sweden is lower and thereby, of course, higher margins and better profitability. And that's what we're working intensely within Finland and Norway as well to get a better mix of customers and getting less dependent on single customers, which is extremely dangerous and not profitable.
Excellent. And looking at the SEK 108 million restructuring charge for ending your presence in Alingsås, I guess that, at this stage, is a noncash charge, but then it's going to be basically then fed back over the next 6 years then into the accounts. Or how does it work?
Exactly. So it's a cost. It's a lost contract. When you move out of the premise, it's a lost contract. And then we have to take the cost upfront. But that was a cost we would have anyway. So based on -- I shouldn't make golf analogies because I'm not a golfer, but you play the ball where it is. And this time, we could make a move which is profitable and favorable for us even if we take that into account that we are stuck with these contracts for another 6 years.
And looking at other old legacy systems on the IT side and similar things, are there any more of, say, adjustments to your old book values that is needed?
There are some in the Alingsås and also some fixed assets that need to be written off and also some IT-related costs. But if you mean generally, I've had to promise the Board that there shouldn't be anymore bigger restructuring programs. We did one last year, as you remember. And now this with Alingsås and now, we should be -- we should have done -- we have done what we need to do in that sense.
And one question on the split-up. I realize it's probably a little early days. But do you have any indications or guidance how you will, say, set up the 2 companies' financials, so to say, from a net debt-to-EBITDA perspective? It's just a question of splitting what's out there in 2 or in equal share, so to say, to the revenue base? Or is there some other consideration we should think about?
I think it's too early. Do you want to comment, Niklas?
I think it's a bit too early, KJ. But I mean, basically, we have to revert back to that question a bit later on.
Our next question comes from Emanuel Jansson with Danske Bank.
Perfect. Can you hear me?
Yes. Absolutely.
I guess continuing with the Alligo business area. And Clein, are you happy with the current portfolio of companies/brands within Alligo? Are you looking -- or is there any possibility to divest further companies within Alligo?
It's a strange feeling selling businesses. But on that note, just quickly, Gigant, we are much better off without Gigant, and Gigant is much better off without us. But it's a really, really strange feeling, since I'm always preaching growth, to actually divest something. But as you perhaps know, it's a complicated business where we -- as Alligo is the biggest customer representing half of Gigant's sales, and the other half is selling to Alligo's worst competitors. So over time, Gigant would probably just die out since they will lose customer by customer. So that strategic decision was extremely easy, even it was complicated to sell. So Gigant was a good strategic move to sell, and we still emphasize on workplace equipment. So it's not that we are stepping out of workplace equipment. On the contrary, we are focusing more on it, but we are getting rid of the complexity with Gigant. But no, I don't see any other businesses I'd like to sell. I'd like to buy businesses.
Perfect. Yes, clear answer, Clein. And just looking on the private labels, you mentioned that you have some shipping issues from Asia with the propriety brands. So you have like any targets of how much in terms of relation to sales the private labels will represent ahead for the whole group?
We said 20%, and we are around that figure now. But the potential is much, much bigger, of course. We were much higher in the former Swedol. But if you look at the industrial customers, it's a longer sales process. You have to -- it's easy to shift if you have a high degree of shop sales. It's more difficult if you have a long-term relationship and you have a different decision process with the customers. So it will take a little bit longer to get into the former TOOLS customers, but we will get there. And to the shipping issue, yes, we are seeing that, and we are suffering somewhat from it. And we -- as we communicated, we delayed the launch of our own brands into the TOOLS system from being the full application to being launched right now. And even now, we have to exclude parts of our business in Sweden because of shortages. But we have managed reasonably well. I ran into one of our good product managers at the coffee machine the day before yesterday, and he gave me an example just to really be sure that we got the Gesto shoes in time. We used train. We skipped the ship transportation. We used train. And that after 4.5 months, the containers are not back in China. Yes, they got stuck in Kazakhstan and had to be shipped back. So not even -- there is no easy way to be ensured that we get the product at the time we need it. So we tried train, and it backfired. So 4.5 months later, the containers are back in China and will now be shipped by boat. So we are suffering a bit, but we are coping well. And we also try to stock up so we have some products to launch.
Perfect. And lastly, on the Alligo side, could you give us some flavor about Finland, for example? We can see the EBITA margin slightly decreased during the quarter, and you mentioned earlier the customer mix from small, medium to large. Is that the main reason or...
I would imagine that one of you would ask. You say you have a weaker development, and you have growth in Finland. But we have an unfavorable growth in Finland, where large customers grow a lot. So part of our business in Finland is highly profitable, very good EBITA margins, and those are the businesses focusing on small and medium-sized customers. And then we have profitability issues with the part of business we have -- which are focusing on larger customers. So we are quite persistent in how we would like to run the business and how we run pricing. Even saying no, thank you to customers, which are possible, they are much better off with our competitors than with us. And so with the Finnish team, it's fully dedicated in doing that transformation. But it, of course, takes time, but we are not at all happy with the profitability level as it is in Finland, absolutely not.
Perfect. And just quickly jumping to Components & Services, Ulf and Niklas. How is the M&A pipeline looking? And can we expect new acquisitions to be done before the separating of the 2 business areas?
Would you like to comment, Ulf?
Yes. Well, of course, we have dialogues with companies, but we will also have to be when we can do it. Maybe we can do it before. But after we have been listed, we take them into the books due to the fact we have to close our capital structure as well. So it's a little bit delicate issue on how to do it.
Yes. I understand. And last question from my side, you also mentioned some efficiency measures that has been made to help increase EBITDA margins as well. Could you give us some flavor of those measures that you mentioned in the report?
No. Efficiencies, turnover per employee, gross profit per employee and gross margin, so it's more of that kind of key performance indices that we follow. So we have been able to increase our sales and gross profit on almost -- and keep the same level of employees, and that runs through down to the EBIT level.
There are no further questions. I hand back to our speakers.
Right. I actually have some questions coming in from our online audience. So I can just read them out loud. And the first question is, "Can you talk about the win-back ratio or win-back rate of large customers, which you have previously said has been a challenge?" And that is then directed to Alligo.
Thank you. We follow, of course, large customers very closely and especially when they are up for renegotiations. But as I said, we try to bring them to a level which is a level which is a decent and a reasonable level of profitability-wise. But I can say -- without mentioning any figures, I can say that we have gone from a situation just half a year or 3 quarters ago where we were in a defend mode. So if I looked at the top negotiations we had by country, almost all of them were existing customers, i.e., we need to win them not to lose the top line. And today, I can see a much, much better mix. There are not so many existing customers we are approaching with quite a high degree of new customers. That's what we were aiming for, and that's where we are today. So the pipeline of customers we are tendering and working with are, to a much higher degree, new ones compared to earlier ones. So the ones we are winning are, to a higher degree, new ones. It takes time before they are won and they are implemented, and we start to see sales kicking in. But that ratio is much, much better today.
And I also received one more question from the online audience. "Can you explain the high inventory level compared to sales this quarter?" And I can start from a Components & Services perspective, just to comment, and then perhaps Irene or Clein can comment on the Alligo side. But from our side, as I explained, we have been proactively monitoring our stock levels. And we have actually made some extra stock purchases in order to be prepared for the increased demand in order to not run dry on some high-demand products. And that is basically the explanation from our side. And over to you.
And from our side, it's a traditional seasonal buildup. We have our highest -- the busiest time of the year is exactly where we are now and also in combination with, as I mentioned before, the launch of the private label. And despite that, we even have not as much as we would like to have. So a high degree of own brand and a seasonal buildup.
That was the questions that I have received online here.
We have no further questions in our telephone conference. So I'll hand back the word to you, speakers.
Okay. Yes. Thank you very much for attending this webcast or telephone conferencing. Thank you for listening, and thank you for your questions as well. And we are, of course, here after as well if you have any additional questions or topics that you would like to raise, okay? Thank you very much.
Thank you.