Hello, and welcome to Alligo Q3 2021 Report. Throughout the call, all participants will be in listening only mode, and afterwards, there will be a question and answer session. 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 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 three. Momentum Group is today operating with the decentralized business model, where our two business areas are operationally independent of each other. 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 four, and then slide five, Niklas Enmark will give you some highlights from the report.
Thank you, Ulf. Turning then to slide five, some highlights from the report. Sales and earnings for the majority of the group's operations developed positively during the third quarter. We've maintained delivery capacity despite certain challenges with material shortages and increased raw material and transport prices. EBITDA 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. 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 quarter. In addition to the five acquisitions made in the period, we added two 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 two independent companies with the ambition for a separate listing of Components & Services on Nasdaq Stockholm in the first half of next year. 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 first. I would now like to hand over to Clein and Iréne.
Thank you, Niklas, and welcome everybody to 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. First, Iréne, 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 mid-sized companies. This growth has been weaker in Norway and Finland, and we still have challenges in the industry segments, but are continuously taking steps to improve our market position. EBITDA increased by 64% to SEK 154 million in the quarter, corresponding to an EBITDA margin of 8.2% compared to 5.3% last year. For the reporting period, EBITDA 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 and duties. 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 a logistics center in Örebro. As a consequence, we will not use the central warehouse in Alingsås for the coming six years, and the restructuring costs of SEK 108 million have been accounted for in Q3.
In addition, there will be an investment in automation equipment of SEK 90 million, and annual cost savings are estimated to SEK 25 million. Finally, we have agreed upon divesting Gigant, which offers comprehensive solutions for workplaces in order to focus on sales to end users. Turning to page seven, back to Niklas and Ulf.
Thank you, Iréne. Turning to slide seven, some comments on the business area Components and Services. Both sales and earnings developed in the Components and Services area 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 have 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. During the year, we have made a number of larger stock purchases of hydraulic hoses.
EBITA increased by 38% to SEK 51 million for the quarter, corresponding to an EBITA margin of 14.9%. For the full reporting period, the EBITA increased by 24%. 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 have also completed the acquisition of Intertechna after the period, which will then strengthen our offer in technical maintenance. On slide eight, 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%. For the reporting period, EBITA increased by 29%. The work to enable the split of the group into two separate listed companies proceeds according to plan and has resulted in advisory costs, etc., affecting comparability by SEK 7 million during the reporting period in addition to SEK 180 million in restructuring costs in business area Alligo related to the TOOLS Swedish logistics operation. The measures that we are taking 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 nine, some comments on the cash flow statement.
As I mentioned the last quarter, during the year, we have seen a sequential change of working capital composition, which is quite customary when we see an uptake in revenue as we do now. First, our accounts payables increase, and then our inventory and last our accounts receivables. The rather significant working capital change of SEK -297 million during the quarter is thus attributed to a reduction of accounts payables of close to SEK 200 million that we previously had 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 0.5 x compared to for the last 12-month period compared to last year.
This last quarter cash flow from operations after working capital changes amounted to SEK -55 million. That's caused by the working capital changes mentioned earlier, compared to SEK +220 million last year. Our cash flow for the rolling 12-month period amounted to SEK 0.9 billion, corresponding to cash conversion of approximately 9%. 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. As Iréne 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 month. This means that we are still lagging a bit behind pre-pandemic levels. Despite this, our EBITA level is higher and also our EBITA margin. Our financial position is strong. Operational net debt 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 end of the period. Related to our other external financial objective, our return on equity was 13%.
Net debt to assets ratio is strong with 40% at the end of the period. If you turn then to page 12, some comments on this morning's press releases. To prepare then the group for a split into two 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 company first half of next year. This means that Clein and Iréne 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. 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. That's happened a lot of things during the last year, and a lot of things are still there to be done. So far everything has gone well. We are developing according to plan. We would like to share with you just a few things today, which could be of interest. If we turn to page 14, you can see our strategy map. For us that is very, very important because that is one of our cornerstones in building this business. 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 invaluable at a number of strategic objectives, customer perspective, employee perspective, from a process and efficiency perspective, and also from a sustainability perspective. Then we have our core values. Our strategy map is in place, and this we use now for our business planning going forward. We use it already for the business planning/budget process for 2022. If we turn to slide 15, just like to make a few highlights of some strategic decisions we have taken. If we start with the orange part at the top, it's a statement that we in Alligo 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 very harmonized and streamlined business, and that differs a little bit compared to the way we run the business in the Components and Services part. If you look from the customer perspective, we focus on professional customers of course. The second point is quite interesting to highlight, is that our priority is to be strong facing the end customer. By that we mean that we use our own brands to be strong meeting the customers, i.e. you will not find our own brands in at any of our competitors. We use our own brands to make us strong where 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 a customer's production. It's not material that you use it, is as in material to be used in production as such. It's the consumables around production and then building industry and so forth. Service is also a very important part, where we have good services. We're offering on-site storage solutions. So we do embroideries, we have insole solutions. So a lot of services we add to our product offering. 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 feel, wherever you meet us. We believe in the digital channels of course, and we have a complex structure today with many concept brands. Of course, we would like to have fewer concept brands. It's not of any value to have too many. We have started a journey to have fewer concept brands per country, and we will arrive there over time. Turning to slide 16 and back to you, Niklas.
Thank you. Some comments on the business area Components & Services. As we have mentioned before, the main focus for the business area is to operate, develop, and grow through acquisitions. We are looking for companies working within industrial components as well as industrial services in three 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 decentralized environment based on simplicity. Based on this strategic focus, we have so far been able to add five 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 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 to local managers to grow through a decentralized responsibility and then enable employee development in order to cultivate each company. We also want to grow through acquisitions, then of course, of sustainable companies and the acquisition pipeline continues to look interesting for further development, and we continuously work to meet more and more companies in the Nordic area. 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.
Thank you. If you do wish to ask a question, please press zero one on your telephone keypad. If you wish to withdraw your question, you may do so by pressing zero two to cancel. There will be a brief pause while questions are being registered. Our first question comes from Karl-Johan Bonnevier with DNB Markets. Please go ahead.
Yes, good morning. 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 of Sweden. Could you give us some color on that like, to see 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?
Yeah, 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. 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 two different ERP systems, and we are having a lot of inefficiencies still in Sweden. 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, the same thing. We're trying to implement the business model we would like to have throughout the Alligo group.
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 project is running just according to plan, but we have had a favorable customer mix, where the largest customers share of our sales in Sweden is lower and thereby of course, higher margins and better profitability. That's what we're working intensely with in Finland and Norway as well, get a better mix of customers and getting less dependent on single customers, which is extremely dangerous and not comfortable.
Excellent. Looking at the SEK 108 million restructuring charge for, say, ending your presence in Alingsås, I guess that's at this stage a non-cash charge, but then it's going to be basically then fed back over the next six years into the accounts, or how does it work?
Exactly. It's a cost. It's a loss contract. When you move out of a premises, it's a loss contract, and have to take the cost upfront. That was a cost we would have anyway. Based on, I shouldn't make golf analogies since I'm not a golfer, but you play the ball where it is. 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 that lease contract for another six years.
Looking at other old legacy systems on the IT side and similar things, are there any more, say, adjustments to old book values that is needed?
There are some in the Alingsås. There are also some fixed assets that needs to be written off and also some IT-related costs. But if you mean generally, I've had to promise the board that it shouldn't be any more bigger restructuring programs. We did one last year, as you remember, and now this with Alingsås and now we should have done what we need to do in that sense.
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 two companies financials, so to say, from a net debt EBITDA perspective? It's just a question of splitting what's out there in two or say in equal shares, 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 for you. I mean, basically, we have to revert back to that question a bit later on.
That's fair. Thank you very much.
Thank you.
Our next question comes from Emanuel Jansson with Danske Bank. Please go ahead.
Perfect. Hi, guys. Can you hear me?
Yeah, absolutely.
Perfect.
Thank you.
Hi, everyone. I guess, continue with the Alligo business area. 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. On that note, just quickly, Gigant, we are much better off without Gigant, and Gigant is much better off without us. It's a really strange feeling since I'm always preaching growth to actually divest something. That as you perhaps know, it's a complicated business where we as Alligo is the biggest customer representing half of Gigant sales, and the other half is selling to Alligo's worst competitors. Over time, Gigant would probably just die out since they will lose customer by customer. For that, the strategic decision was extremely easy, even if it was complicated to sell. Gigant was a good strategic to sell. We still emphasize on workplace equipment.
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. No, I don't see any other businesses I'd like to sell. I'd like to buy businesses.
Perfect. Yeah. clear answer, Clein. Just looking on the private labels, you mentioned that you have some shipping issues from Asia with the private label brands. Do 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. If you look at the industrial customer systems, the longer sales process, you have to. It's easy to shift if they 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. It will take a little bit longer to get them into the former Tools customers, but we will get there. To the shipping issue, yes, we are seeing that and we're suffering somewhat from it.
As we communicated, we delayed the launch of our own brand into the TOOLS system from being before vacation to being launched right now. Even now we have to exclude parts of our business in Sweden because of shortages. 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 Jalas shoes in time. We skipped the ship transportation. We used train, and that after 4.5 months, the containers are not back in China since they got stuck in Kazakhstan and had to be shipped back. Not even.
There is no easy way to be ensured that we get the product at the time we need it. We tried by train, and it backfired. 4.5 months later, the containers are back in China and will now be shipped by boat. 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. Lastly, on the Alligo side, could you like give us some flavor about Finland, for example? We can see the EBITDA margin slightly decreased during the quarter. You mentioned earlier that the customer mix from small and 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 unsustainable growth in Finland where large customers grow a lot. Part of our business in Finland is highly profitable, very good EBITDA margins, and those are the businesses focusing on the small and medium-sized customers. We have profitability issues with the part of business we have which are focusing on larger customers. We are quite consistent in how we would like to run the business and how we run pricing. We can say no thank you to customers which are not profitable. They are much better off with our competitors than with us.
We have the Finnish team is fully dedicated in doing that transformation, but it of course takes time. We are not at all happy with the profitability level as it is in Finland. Absolutely not.
Yeah. Perfect. Thank you very much, Clein. Just quickly jumping to Components & Services, Ulf and Niklas, how is the M&A pipeline looking? Can we expect new acquisitions to be done before the separating of the two business areas?
Would you like to comment, Ulf?
Yeah. Well, of course, we have dialogues with companies, but we 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. It's a little bit delicate issue how to do it.
Yeah. I understand. Last question from my side. You also mentioned some efficiency measures that has been made to help increase the EBITDA margins as well. Could you give us some flavor of those measures that you mentioned in the report?
No. Efficiency is, turnover per employee, gross profit per employee, gross margin. It's more that kind of key performance indices that we follow. We have been able to increase our sales and gross profits on this, almost achieve the same level of employees, and that runs through down to the EBIT level.
Okay. Yeah. I understand. Perfect. That was all for me. Thank you very much.
Thank you.
Thank you.
There are no further questions. I hand back to our speakers.
Right. I actually have some questions coming in from our online audience. I can just read them out loud. 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 has been directed to Alligo.
Thank you. We follow, of course, large customers very closely, especially when they are up for renegotiations. As I said, we try to bring them to a level which is a decent and reasonable level profitability-wise. I can say without mentioning any figures, I can say that we have gone from a situation just half a year, three quarters ago, where we were in a defend mode. If I looked at the top negotiations we have per country, almost all of them were existing customer, i.e., we need to win them not to lose top line. Today, I can see a 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. The pipeline of customers we are tendering and working with of a much higher degree new ones than earlier, and also the ones we are winning are to a higher degree new ones. It takes time before they are won, and they are implemented then, and we start to see sales kicking in, but that ratio is much, much better today.
I also received one more question from the online audience. Can you explain the high inventory level compared to same this quarter? I can start from a Components & Services perspective just to comment, and then perhaps Irene or Shane can comment on the Alligo side. 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. That is basically the explanation from our side.
From our side, it's traditional seasonal build-up. 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, launch of private label. Despite that, we even have not as much as we would like to have. So a high degree of on brand and a seasonal build-up.
That was the questions that I have received online here.
Okay.
Very good.
We have no further questions in our telephone conference, so I'll hand it back over to the 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. 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.