Earnings Call: Q2 2021

Aug 16, 2021

Quarterly report

Hi, and welcome to Storch Guggen and our quarterly presentation for the Q2 in 2021. My name is Daniel Kaplan. Kaplan. I'm the CEO and Co Founder of Storkogonen. Together with me, I have Liana Glade, our CFO. Today, we'll, as usual, have 3 sections, Presentation of the quarterly report. We'll go deeper into our Business Area Trade together with Christian Hansen, who's heading that business area as well as with Jonas Sja Dorst, who's the CEO of Borstagruppen, one of our business units. So how do we perform in the 2nd quarter? We had a very strong quarter. We had a 32% organic EBITA Growth, we did 25 acquisitions. And the focus for the quarter has been truly the organic growth. We had a high acquisition activity in general, both internationally with a significant increase in deal flow. We also conducted, like we told you in the last quarterly report, a capital injection during the later part of the spring. And in the end, it turned out to be SEK 3,700,000,000 in new equity being brought into the company. We'll continue our international expansion, setting up our teams in DACH and the U. K. And through the acquisitions, we're currently active in with 7,000 employees in 21 countries. So things are really moving along. If you take the quarter in numbers, we had a turnover of SEK 3,800,000,000 and and EBITDA of SEK383,000,000,000 adjusted. And this actually brings us up together with all the acquisitions, including a few that are not yet closed, but signed up to SEK 2,250,000,000 in run rate as we would have if we would have owned all of these companies for 12 months. Moving ahead, Liana? Thank you, Daniel. Well, as you heard already, it was a very active quarter for Storskogen, to say the least. Activity was seen basically in 2 areas. 1 is the organic operational Activity. That resulted in with strong pent up demand among customers, Strengthen market positions in almost all business segments and then work with cost Control and cash flow management that resulted in very strong cash flow and solid profitability as well. And you can see this in the organic sales growth. That was 21% in the Q2 compared to the Q2 last year. We had, as Daniel said, a total revenue of SEK 3,800,000,000 in Q2. And in the last 12 months, our owned period, the revenue was SEK 11,500,000,000. And the work With the cost control and profitability and the strong tailwind that the companies had also resulted in a solid EBITA Margin, adjusted EBITA margin of 10% in the 2nd quarter. It might seem here as though the margin actually fell compared to last year. But bear in mind that last year was the profit last year included some government grants related to COVID-nineteen That actually represent approximately 1 percentage point of margins in Q2 last year. So actually, Fundamentally, it was a margin improvement compared to last year. And then finally, we had Strong very strong cash flow. As you can see here, we have worked hard with cash flow throughout this year and last year And it resulted in a cash conversion rate of 175%. Now this is an exceptionally high cash conversion in Q2. Looking at the last 12 months, the cash conversion was 111%, so that's also very Stronger than I would say a normal year. So overall, good growth, organic Growth in revenue, organic growth also 32% in EBITA, solid margins. And then the other part of the activity Is the M and A activity that Daniel mentioned here. And this can be seen in the RTM column here to the right. Now RTM As you said, that is as if Storchbogen had owned all subsidiaries during the entire last 12 month period. And so here, we can actually see what the acquisition activity has resulted in. This is the Run rate of Storzkogen's earnings capacity. And that run rate is, per the end of Q2, a revenue of SEK 18.6 €1,000,000,000 and an EBITA level of NOK 2,100,000,000 as if we'd owned all these companies. And just as you said, We've made some acquisitions also after Q2. And if we add those, then we would add another SEK 1,000,000,000 To revenue, we would have an EBITDA of roughly SEK 2,250,000,000. And then finally, The net debt to EBITA, which has remained on a comfortable level at around 2.6 times the RTM EBITDA, so that's been kept under control despite these acquisitions, thanks to Share issues and that Daniel, I think, will come back to you later. Now on this page, we show the Q The quarter on quarter performance or development of the revenue to the left, where you can see that the Bar to the right there has grown significantly from Q1, and that's partly thanks to acquisitions, obviously, but also to the Strong organic growth. And the EBITA margin has been kept at around 10% throughout the periods. And to the right here, we show The LTM EBITDA, that's our owned 12 month period on a rolling basis. And you can see that the LTM is SEK 1,100,000,000 per the end of Q2. And as I just previously said, if we'd owned all the companies the entire 12 month period, EBITA would have been roughly SEK 2,100,000,000 as you can see here. Now that's almost Twice as high as the owned period EBITDA. So that's the earnings capacity of Storchkogen today. So how are the operations doing, Daniel? Exactly. And the answer is they're doing quite well. If you look at our 3 business areas, I think In general, they have been they were very proactive during COVID, being very careful with cost control and cash flow monitoring cash flows, which you've seen on our great cash conversion. We bring that with us into 2021. In addition to that, we can see, of course, that demand is increasing and you have a good sentiment in almost all subsectors. So if we look at trade with the SEK 3,500,000,000 in turnover, We see a very strong organic growth, 51%. Trade were actually delivered even last year. They had a decent growth even then. And this year, I mean, the companies are well positioned. They are really appreciated by their customers, and they have a strong market position in most of their areas. So It's a healthy growth, and we'll go into a little bit more about the fantastic work that's being done out in the business units to create this organic growth. And of course, one of the deliverables of this one, one of the results is, of course, a higher EBITDA margin. And In addition to that, 11 acquisitions, lots of add on acquisitions, strengthening each and every company significantly. If we look at Services, Services had a 29% EBITDA growth during the first half of the year, which is very strong being services companies. We see a mixed performance where some aspects, some segments such as installation have more difficulties. And but as a rule across digital services, education and HR, logistics, Engineering, most of these areas go very, very well and perform extremely well. And with a total of 9 acquisitions, it remains also our biggest business area with almost SEK 5,000,000,000 in LTM revenue. If we take industry, industry, of course, had a poor performance last year in the second quarter, even though we actually had an organic growth on the total. But with SEK 2,900,000,000 in turnover and extremely good strong organic growth to compare to last year, not only because of the comparison to last year, but also because a lot of the companies are performing really well. Once again, the product companies, especially, I think, are growing very well. We've done a number of acquisitions. We'll get into that later. But Five acquisitions, but significant acquisitions. So industry is growing very quickly and very strong margins as well. So going into deeper into the acquisitions we've made, 25 acquisitions, 32 if you include the ones that we've signed, but not necessarily we'll close them in the Q2, a few of them at least in the Q3, sorry, or Q4. We have An increase in deal flow, a significant increase, especially internationally. We just started off, but already more than onethree of our entire deal flow is from our New Geographies. And I think as we are really getting our teams into place now in the U. K. And DACH, I think that will increase significantly over time. I think we've shown that we are more and more able to handle complex transactions. We've done A few significant and bigger acquisitions. We talked last quarter about the big group. This time, it's Brand Group, another great company with a market leading position. We did our first German acquisition of Rollef. And Then we followed up with the acquisition of Arthum. And Arthum is basically a Stoshkoggen based in Switzerland and Germany. So we're getting a full team with 10 years of experience, and it's a strategic game changer for us in that region with they have a very strong brand name. And culturally, they are very similar to us. So we're really looking forward to this partnership together with Arto. And of course, a portfolio of great companies that we already see that are performing. So that's fantastic. And in addition to that, we bought another portfolio, which we will close in October. So how come we're so successful? Well, it all boils down to culture. And I think as we grow, when we recruit lots of people, The cultural fit is the key. And what has driven our success so far? I mean, it's If you talk about our core values, it's entrepreneurship, it's looking and finding opportunities, driving profitability. But also As a consequence daring to make decisions without necessarily having all information and being curious in developing the business. In addition to that, we believe that one of our core strengths is that we are respectful, respectful of the entrepreneurs and the CEOs and the management teams, a part of our decentralized model and also towards each other being careful and humble in our approach towards the challenges that we face. We are truly long term. We don't we have done 142 acquisitions. We've never divested any. We have never discontinued operations. We don't give up easily. We see to it as that and almost all of our business units are, in fact, profitable. So We have a great responsibility when we buy a company. We intend to fulfill that for our employees and society as a whole and of course to our shareholders to create value. In addition to that, and this is where it comes interesting, I think the friction between the different value words, professional to always hunt for that operational excellence to improve just a little bit every day, measuring, reporting and being a big company and the small one as well. And I think that combination, if we manage To see the opportunities we put in the hard work, and we're really long term prioritizing long term decisions and being respectful of the challenges and each other. I think that will be the continuous the grounds for continuous success. If we talk about strategic developments, well, As you've seen, we've grown from 12 countries of operations to 21. We are seeing significantly a bigger team, both in come U. K. And DACH. So a lot of our work now is about consolidating, understanding and running, managing our internationalization and our organization, so that we can continue to scale operations and do acquisitions when we're successful with quality. We're looking at a calmer 3rd quarter, as always, it's seasonally. We don't do as many acquisitions during autumn. And this will give us I'm to really focus on our companies and operational improvements going forward. We talked about the private placement we did. These were necessary for us to enable us to do the acquisitions that we've done with a decent net debt EBITDA multiple. So it's very important for us, and we thank you for that support. Most of that capital injection actually came from company sellers in addition to big investors. Unfortunately, employees and current shareholders were not invited, but this was in fact, Well, a must for us. So we couldn't do it else in other way. And we're continuing to evaluate the IPO opportunity, and we'll continue. And if the market allows, and so we'll go forward with those plans. So that was that about Stooskogen this far. I think we're happy with another strong quarter. Great operations, Organic growth, great acquisitions. And I think the team in both in Sweden and internationally are really performing. Exciting times indeed. Exactly. Thank you very much. Thank you.