Hello, everyone, and welcome to this fireside chat here with ABG. My name is Adrian Gilani, and I'm an equity analyst. I'm joined today by the CEO of Alcadon, Mr. Sonny Mirborn. We're going to talk a bit about recent events, an acquisition made last night, as well as perhaps more generally as well about Alcadon and your prospects ahead. I guess before we go into the acquisition yesterday, can you just give us a brief overview of Alcadon as a company for those who aren't as familiar with you, and how you sort of differentiate yourself?
Sure. I mean, we are, as you know, a supplier of material, passive material for network infrastructure, present in three fields or segments, basically: data centers, structured cabling for commercial properties, and the broadband segment. In terms of what differentiates us, I'd say that being in these three segments is a strength. It's risk-reducing, but it's also enhancing our value offer to our customers. I would also like to point out that we are a distributor, so we are basically working with some of the most well-renowned manufacturers in our industry, but we also have production and product development, and somehow the mix of these two creates a very strong customer offer. We get flexibility, but we also make sure that we are always able to offer the latest technology to our customers, so that's basically a strength.
Otherwise, I'd say that a lot of Nordic companies do this in general, but we work very decentralized. I'd say in our industry, it's not unusual, but few companies work as decentralized as we do, and we think that that's one key concept that has worked very, very well for us.
Perfect, and with that being said, as mentioned, you announced an acquisition yesterday of Wood Communications. Can you just give us a brief outline of Wood's offering, and what was the strategic rationale for carrying out this acquisition?
Sure. It's still very fresh. We did it, as you said, last night. Very nice company, 16 employees, a strong position in their segments in the Irish market. They are very similar to us in terms of them having an offer and a strength in the data center segment, in the cabling segment, and also to some extent in the broadband segment, but they are very focused on the data center segment and cabling segment in general. They've been around for almost exactly 100 years, so they have a long, proud history.
Mm.
They have worked for the last, I'd say, 10 years very closely with Networks Centre, our previous acquisition that we did in September 2022, and basically, that's how we came in contact with the company. We started discussing with them in October, November 2022, and eventually, we found a deal that we think is a win-win situation. With Wood, we are able to service data centers that we are not able to reach ourselves because decisions on material purchases are made in the Irish market-
Mm
... for some of the larger hyperscales.
Mm.
On the other way around, we can help Wood, which is a rather small company, to go with their customers to the European market.
Mm.
Sometimes it's required that you have an established local presence, so we can offer them that. So we see basically a lot of potential synergies in the company, but based on what we paid and acquired the company for, I'd say that from a financial perspective, it's very sound. It's a sound investment. EPS effect is positive, earnings per share, but also the cash EPS effect, return on capital employed-
Mm
... looks great from an Alcadon perspective.
Mm.
It's a very cash-generating company.
Mm.
We don't expect them standalone to exhibit growth rates of 10%-15% a year like we do with Networks Centre, for example. This company is a solid, stable company with very strong cash flow, and hopefully, we will be able to add a lot of synergies, non-invasive top-line synergies on top of that. But it's a nice acquisition. They will fit very well into the Alcadon family, I feel.
You touched already a bit on the financials, but one thing that stood out to me was the margins, almost, you know, twice as much as your current ones. Is this a sustainable level of profitability for WOOD going forward, and if so, how come the margins are so high?
Well, the margins depend on, of course, which segments you are present in, the choices that you make over a long period of time, but also the market you are present in. And in the Irish market, for sure, you can have margins like this. They have sustained margins above 16% for a very, very long time, so we feel quite confident about that.
Mm.
They have also chosen to exhibit strong margins instead of creating a very strong growth.
Mm.
So that's a choice that they have made. Networks Centre was on the contrary. They always chose to grow profit and grow top line instead of focusing on the margin itself. So it's a good mix for us, and it's not unusual to find smaller companies with these strong margins in our industry. So that fits very well into Alcadon.
Also then perhaps looking at the financing side, part of the transaction is shares going to the sellers, but you actually decided to raise more than, more than needed, so to say, in equity. What, what is the discrepancy there? What, what will that equity issue be used for?
Well, you can say that we like to acquire companies partly with our own shares because creates a common incentive going forward, and we like the key-
Mm
... key staff or owners of Alcadon Group, so that has worked very well for us in the past.
Mm.
This time, about 25% of the enterprise value was purchased with shares. We did a capital raise. It does not fulfill the whole capital needs, so we'd also have some debt, but that's only 10 million SEK or something. So we did the capital raise because we saw an opportunity to bring in some new owners on board. With this being done, we feel that we have dry powder, and we can do some smaller acquisitions the next 18 or 24 months without raising equity and doing only debt-financed acquisitions. So it gives us some room to maneuver, so to speak.
Mm. I understand. And, perhaps then if we leave wood for a while, take a step back and look at the broader Alcadon Group, can you just talk a bit about the different product verticals at the moment, how you see the demand picture across the different segments that you have?
Yeah, sure. It's you can say that the structured cabling segment or the commercial property segment, as we sometimes call it. It's quite stable.
Mm.
If you look at the macro data in terms of the investments being made in this market, it's quite stable. It's looked the same for the last two years, and the forecast is that about the same is going to occur in the future. It's the public sector. The military investments are going to increase somewhat, so we are focusing a little bit on those segments in several markets, but it's a stable market. In terms of broadband, it's a very mixed picture.
Mm.
It's a very nice market in Sweden, for example, a very strong market in the Benelux region. I'd say that the Danish market is very, very weak, also the British market. That has not affected us that much because we have other segments growing quite rapidly. The German market is not feeling well, but we have performed there anyways because we are, you know, we have a lower level from the standpoint, and we have some customers that are growing, so that helps us a lot.
Mm.
We expect this picture to change during this year, and we get positive signals from several customers in several markets. To some extent, like in the UK, it's that the consolidation journey among our customers is starting to finalize.
Mm.
Interest rates are coming down or expected to come down, and somehow the customers have focused more on their cash flow, and they are reaching a level where they can start thinking about the future, so that's positive.
Mm.
The big, bright picture for us is the data center segment.
Mm.
I mean, we have focused on that segment for many, many years, but from 2020, we really started to focus on it. Networks Centre has had a strong position in their market for over 10 years. Somehow, that has really taken off with the introduction of artificial intelligence. We see a lot of investments being removed, and that market has really taken off. I know public data says that it's about to grow 10%-25% a year in the coming years.
Mm.
We think that it can be even stronger if you're focusing on the right sub-segments.
Mm
... but, it's a very nice market in all our geographical markets, I would say.
When you say focusing on data centers, obviously one aspect of that is acquisitions, like we saw-
Yeah
... yesterday. But what are you also doing, sort of, on a day-to-day basis to leverage the momentum on the data center segment?
I'd say primarily we're focusing on collaboration across different markets. Our customer offer still differs a little bit, depending on which market we look at. In Sweden and Norway, we have been very focused on the installers and approaching them, and through them, reaching the data centers.
Mm.
In the UK, we have reached larger data center deals, also in Denmark, by approaching the data centers directly. So by learning from each other which product assortment we can use for different approaches, it helps us a lot.
Mm.
We have started cooperation or collaboration with some really large manufacturers that are focused on the data center segment.
Mm
... across the whole group of Alcadon, and that has helped us a lot to reach some of the really large, potential deals.
And then perhaps if we look on the other side, the markets that you mentioned that currently are seeing weaker demand, what is your sort of approach in a weaker demand environment? How do you handle that situation?
Basically, we continue as usual. As long as we feel ourselves that the market will bounce back, then we... Of course, we do some things on OpEx. We focus on the gross margins. The important thing is to have patience and continue to approach the market in the way you feel is appropriate, and that we have done with a lot of patience. As I said, as we see positive signs, we're not overly worried about the demand picture for the long term.
Mm. And then, I'm going to finish off with a more long-term question on that note. If we just look ahead five years, according to your vision, where is Alcadon in five years, and how are you a different and perhaps even a better company in five years than you are now?
I'd say already in 1-2 years, we'll reach what I'm just about to say we'll reach in 5 years.
Mm.
We are seeking to be a steady state, more of a serial acquirer within our field-
Mm
... being able to have a steady cash flow, perhaps paying a dividend and doing acquisitions with our own cash flow. But on the strategic side, we are, of course, going to be larger, not for the sake of being larger, but we do expect to grow a lot organically and to continue to do acquisitions within our limited field of network infrastructure. And we have a few adjacent segments that we are looking at that are very closely related to what we're doing today. So I think that, growth-wise, that will not be an issue for us.
Mm. And with that being said, I'd just like to thank you for your time, and we look forward to following yours and Wood's performance going forward here.
Thank you very much.