Alligo AB (publ) (ALLIGOB) Earnings Call Transcript

Good day, and thank you for standing by. Welcome to the Alligo Interim Report Q2 2026 Conference Call and Webcast. [Operator Instructions] Please note that today's conference is being recorded. I would now like to turn the conference over to your speaker, Samuel Alteborg, CEO. Please go ahead, sir.

Thank you. And hi, and welcome, everyone, to this presentation then of Alligo's second quarter results for 2026. And last time you met Alligo, in this context, it was, I think, the 51st consecutive report by my predecessor, Clein Ullenvik. And I just want to start by thanking Clein for a long-lasting fantastic effort to form this company Alligo and also for handing over a well-managed company for the rest of us now to continue to develop. My name is Samuel Alteborg, new then CEO, obviously, from 1st of June. And today, I will present the second quarter together with our CFO and Deputy CEO, Irene Wisenborn Bellander. So let's get going. As always, what we will do, we will give a brief on as a company and then some highlights for the second quarter and update on a few specific initiatives that we are running before Irene takes us through the financials more in detail, and then we sum up with an outlook for the remainder of the year. But to start then, Alligo, as I believe most of us know, a leading player in workwear, personal protection tools and supplies across the Nordic region. We did roughly or slightly below SEK 10 billion revenue. We employ around 2,500 employees and currently operate from 234 stores. And anyone with a good memory may remember that when we reported Q1, we talked about 239 stores, so since then, we have closed 2 stores in Finland as part of the efficiency program that we are running there. And we have also combined a few stores in big cities in Sweden. This is more, you could say, an ongoing natural evolution of the footprint that we have. Revenue-wise, majority, of course, coming from Sweden, even more so the profit where Sweden is very strong. And there is one key driver to keep in focus here when you look on the revenue, and that's the share of own brands that we sell to our customers. We are currently at roughly 18%, and this is the main driver for profit in our business. So that's about Alligo. And then we normally talk about Alligo as an integrated Nordic business, with roughly 80% of our sales is coming from one common platform and shared functions across that platform. And this is an effort that has been done in many years to combine a lot of entities into this platform, and then we now operate on the same IT systems, ERP systems, BI, et cetera. And we have really glued together, you could say, all of our backbone, which brings us a lot of opportunities, both through the data transparency, so we can now see everything across, and we can learn from each other and spread best practice. And of course, it also generates a lot of efficiencies. So where we are now, I would say this is a lot about just leveraging all the opportunities fully that comes from the integrated business that we now run. Sales channels, also important. And as you can see on the right side, we integrated business. We have roughly 32% of our sales from our stores and our store network, and roughly 30% from our various digital channels. And then in addition, we are operating a few, we call them, industry stores. Those are more or less more pop-up stores at industry location, construction sites, et cetera, where something temporarily is happening and where it makes sense to be present locally. But it's also a store we will close down whenever that project or whatever this is, is completed. In addition, to the integrated business, we also have a number of nonintegrated companies, and they represent roughly 22% of our sales. I think it's around 35 companies right now, and we have acquired them over time in selected, you could say, product and technology niches or areas where they come with strong expertise. And for me, this is a perfect mix. So we have a strong core with the integrated companies that we then build on and add these selected technology areas, which are adjacent in the sense that some parts of the product range may overlap, but they also come with a much stronger and broader product range in their niche. Some customers may overlap, but they also come with a new customer base. And of course, they bring a lot of expertise to us. So all in all, it really strengthens our position on the market, makes us even more relevant, and it also enables us to leverage our platform again, where we can find both cost synergies, procurement synergies and an ability to cross-sell. So a really good mix of a strong core in the integrated business and with some flavors then from these nonintegrated companies. And we try to operate these companies in groups. So currently, we run a few groups then that are bigger. Product media, you know about welding we have built quite recently, 8 companies now. We are also strong within batteries. And we have another set of companies as well that is performing really well for us. So let's move on, and then we're going to talk about some highlights for this second quarter. And if we start with macroeconomics, and we are all aware of the exciting geopolitical situation that, of course, brings uncertainty to many companies. We have said before that it has limited direct impact on Alligo and that statement still stands. And my reflection coming in now is that we have probably learned well over time, how to maneuver risks in the supply chain and fluctuations in raw material prices, et cetera, in a really good way. Because what we see now is very few or very low impact from the situation and that's very positive, of course, for us overall. If we look on the market, we call the market in the Nordics right now stable, but we also see that it's uneven across the segments or the countries. Starting with Sweden. It's definitely a stable market overall in the sense that it's not declining any longer, which it has done for a few years, as we all know, but it's not growing rapidly either. So it's really kind of on par month by month or with maybe a little positive signs going into some type of positive trend. But what we do see is some areas what we call them pockets of growth in various sectors. Defense industry is obvious, and that we have succeeded well historically. Data center is also a pocket of growth that we can tap into. So there are such areas, which is positive, even of market overall is still stable. If you look in Norway, we could apply the same kind of stability as in Sweden, but you could almost argue that there are pockets of growth that is instead pockets of decline, which is, of course, a bit tough. Oil and gas being the most obvious one. A few years ago, there was a lot of incentives by the state in Norway to build out energy capabilities around oil and gas, and several investment projects started. Of course, we and many others have benefited from good business in those projects over the years, and now they are more or less completed. So coming back a bit to normal levels. And therefore, we see overall a decline in the oil and gas market. If we go to Finland, a bit more positive, definitely a continued recovery. It's supported by manufacturing and small and mid customers. And here, we see a market which has probably left the bottom, and it's now gradually moving upwards. So that is positive. Overall, customers remain cautious. The basket sizes are limited. They buy only what they plan to buy. And of course, that puts also somewhat pressure on our sales. So given this macroeconomic situation and the market situation, of course, you have to apply a very proactive management. And I think Alligo has done that for many years now. This productivity stretches from everything, but in sales and pricing to all cost elements. We will continue to do that in the same way as we have done in the past, maybe even with some new flavors that we will talk about as we move along. And finally, then our delivery capacity or capability. Again, we don't see any big impact right now from the uncertainty in the geopolitics, and if we look in our supply chain and deliveries, there are no major disruptions -- hardly any disruptions to be honest. So surprisingly strong and really a limited impact so far from the situation in the Middle East, which is again very positive for us. So now moving into the actual results for the second quarter. And starting to say, we are very happy with the quarter that we're now reporting based on a revenue growth of 5.7%. It comes from various drivers, and Irene will talk a bit more about this, but it's a mix of organic growth, acquisition driven, also some FX effect and the positive calendar. But add an improving gross margin to this growth. And of course, we get a very nice effect on EBITDA. This is a scale business, and then we can see 30% improvement in EBITDA which we're, of course, very satisfied with. That brings up the margin heavily, as you can see, up to 7.2% and the operating cash flow is more than twice than Q2 last year. So overall, again, we think there are many positives in our second quarter. And of course, as always, there are also things that we want to work on and improve even further. If we take the highlights. So from a sales perspective, we talked about defense still driving a lot of sales in a positive way. And we have also seen a stabilization over time in our store traffic, a majority then coming from small and midsized customers. This is very good for us. We see positively that our share of own brands is increasing, and if you look on the total picture here with the nonintegrated companies taking a bit of a bigger share of the total business, you could think that the own brands would actually decrease that will be kind of the expectation. But we are succeeding well, specifically with workwear, and therefore, we see a higher share of our own brand, which is a good driver for profit. If we look into operations, we have executed cost reductions in the second quarter in Finland as part of the restructuring program we are running there, and they have fallen out well. We also, as always, I should say, continue to optimize our assortment and pricing strategy. We need to stay relevant to customers in relation to price level, but of course, also secure our own profitability and that we do continuously. And then we have also been working throughout the year on an area of improvement for us, which is the capital efficiency, and we have reduced inventory levels according to our plan and see positive development also there. On the acquisition side, we actually talked already in the Q1 presentation on 2 new acquisitions, but they took place in the second quarter. We're happy to welcome Robot techniques and to our portfolio of companies. And we are also now completing the footprint, you can say, in the southern part of Sweden in a very nice way with good geographical coverage. The 2 companies combined an annual revenue of slightly above SEK 50 million. And now into the updates, and we said that we will look a bit more in detail on 2 things, starting with TOOLS Finland. And I know we have seen this update before. It relates to the efficiency program that we are running in Finland, and we are happy to see good progress in many aspects of this program. During the quarter, we have closed 2 stores. And we have also almost that we completed the phaseout of 2 quite large customers and luckily, also then been able to replace those customers and that revenue with other customers instead, which has been a very positive development for our margin. And you can see the numbers on the right side, the EBITDA margin going up in Finland and the Selena brands developing well. So again, overall, very happy with the work the team has done with indeed, and we look forward to continue to monitor their progress as we move along. Another that we want to do is into our new service solution that we call ReCare. And this is a solution for work clothes that includes laundry service, the logistics around that, and also the ability to repair or reuse clothes on behalf of our customers and, of course, recycle them when they can no longer be used. It's a clear business logic here, and I'm really happy to say that we have launched this service. Alligo is really strong in workwear, but specifically towards smaller and midsized customers. But of course, our strong product range will fit really well also to big industries and big customers overall. But this is the ticket that is needed to come into that type of business, because the big industries, they want to have a solution where they not only buy the clothes, but where they also can longer them and the whole logistics, getting the right kind of clothing back and forth to the user in a controlled way. And again, the ability to repair and reduce the close. So now we have this in place, and we are super happy then to talk with customers and open up new possibilities to expand our work we're offering. And if we look a little bit on how it's going, it's now launched across the Nordics, and we have gone from pilot projects into an established offering that is functioning well. It's a clear demand. We have dialogue with a lot of customers around this. The sales cycle is a bit long. So it takes time before we build the customer base, but very confident that this will be a driver of growth and profit for us in the long run. We also brought a few kind of classic customer example here. Swisslog and SES Energy are industrial companies in automation and in services. And we have another manufacturing customer in Finland that we also just signed for this solution. And as you can see, it starts somewhere when you have around 100 employees and then stretches upwards, then it fits well and it's a very logic thing to buy and utilize cash in this way. So looking forward to talk more about care in the long run and how that business is developing. So now we move over to Irene and talk more about the financials.

Thank you. And as Samuel mentioned, we delivered a strong quarter with organic growth, improved profitability, stronger cash flow and continued decreased leverage. It was actually referred consecutive quarter with organic growth and the fourth quarter with improved results. Revenue increased by 5.7% in the quarter, supported by organic growth of 1.3%, acquisition-related growth of 1.4% and one additional trading day and the positive currency effect. The market remained stable, but uneven across segments. We achieved organic growth in Sweden and Finland, where the demand in the oil and gas segment in Norway remained weaker. EBITDA reached SEK 187 million, representing an improvement of SEK 43 million or plus 30%. The increase was due to improved results in Sweden and Finland and was driven by higher volumes, improved gross margin and cost reduction. In addition, earnings were positively impacted by a SEK 9 million -- SEK 9 million from the release of contingent consideration liabilities as certain performance targets were not achieved. The corresponding amount last year was SEK 4 million. The gross margin improvement compared to last year was driven by active sales and assortment management, including a higher share of own brand sales and more favorable couple weeks and a stronger set against U.S. dollars. And this was partly offset by increased contribution from Finland, where the gross margin levels are lower. This is a big slide. But as you can see, Sweden has the highest share of SCE and on brand for a normal Queenland has the lowest. And this directly correlates with profitability in each market. The higher the share the greater profitability. And the lower gray boxes show the share of own brand with an integrated business. And as shown, this share has increased across all countries, driven by higher sales of workwear and PPE in all countries, which posting the impact of the trading gross margin. Moving on to some highlights of each market's development in Q2. When it comes to Freedom, total revenues increased by 3.7%, driven by both organic and acquisition-related growth. Organic growth was primarily driven by direct sales and a long integrated business, i.e., welding and battery, where store sales remained stable. Growth in direct sales was driven by increased demand from last large manufacturing customers as well as customers in the defense industry. And EBITDA improved as a result of higher volumes, a stronger gross margin and cost savings. Revenue in Norway increased supported by currency effects and acquisition-related growth was partly offset by negative organic growth. And the decline was mainly attributable to weaker demand in the Oil & Gas segment, which began to slow down during the second half of 2025. EBITDA was in line with last year as weaker oil and gas volumes were partially offset by higher margin volumes in other customer segments. Several initiatives are underway to increase sales activity, strengthen margins for active face assortment management and improve operational efficiency. When it comes to Finland, sales continued to recover among over industrial customers supported by improved store sales. And this development more than offset the impact of the 2 larger customer relationships that have now largely been phased out. And as Samuel mentioned, the efficiency program in Finland is progressing according to plan and has strengthened operational execution across the business. And EBITDA improved during the quarter, driven by higher volumes and the ongoing realization of cost savings. Operating cash flow improved compared with last year, driven by higher EBITDA and lower working capital. Inventory levels continued to decline following strong sales of work parent during the quarter. And while our capital efficiency initiatives continue to contribute positively in Q2, there is still room for improvement. Our vision is to reduce net working capital as a percentage of sale from the 28% to 24%, which was the level achieved in 2022. When it comes to investing activities during the quarter that mainly related to organic investments, the acquisition of the 2 welding companies and also earn-out payments. And the CapEx to depreciation ratio was 0.8% on a rolling 12-month basis. Financing activities primarily related to the amortization of the revolving credit facility and leasing liabilities and also dividend payment. When it comes to leasing amortization that was higher than the normal level in Q2 and lower than normal level in Q1 due to some lease payments being deferred from Q1 to Q2. However, for the first half of the year, we took the remains at a normal level. Net debt decreased further during the second quarter, a strong operating cash flow more than offset the recent expedition for welding companies as well as dividend and on payments during the period. Leverage continued to improve in Q2, supported by both higher EBITDA and lower net debt. And the net debt to EBITDA ratio was 2.1 at the end of the quarter compared to 2.5 at year-end, which is well below our financial targets. Our covenants relate to interest coverage and equity asset ratio and all these covenants were fulfilled at the end of the period with good headroom before reaching the thresholds. And as mentioned earlier, we also recently refinanced the business and currently have available cash and unutilized credit facility facilities of SEK 2 billion. And combined with a healthy operating cash flow, this provides us with a strong financial position and the capacity to continue investing in our organic growth and capitalize on acquisition opportunities. Handing over to you Samuel for summary and outlook.

Thank you. So to summarize, again, saying this was for us a positive quarter. We are happy with the 30% uplift in EBITDA, the stronger cash flow and also that we continue to grow organically. We're also happy with the recovery progressing well in Finland. And we are doing all of this despite then that our customers still remain cautious and the demand focused on their daily needs. So positive Q2. And if we then look a little bit ahead, for the second half. It's important to remind ourselves of our leading market position, supported by this compelling offer that we have, which we are -- we very much believe is relevant also as we move along. This is a sales-focused industry, a sales-focused company, and we will continue to do so. and sales will very much be focusing on both broadening the customer base, so bringing in new customers to us, but also cross-sell all our products across all the companies and the entities we have. This has always been a focus for Alligo and it will definitely continue, and then we will add a few more flavors to it as we move on. There is also a potential in Alligo to enhance execution both in how we drive cost initiatives and growth initiatives and part of our acquisitions. And we will work on this as we move along during the second half. And then, of course, important to mention, we will also shift a bit focus on our common efforts towards Norway, which has a little bit less of growth and improvement than the rest of the companies -- rest of the countries. So focus of Norway here in the coming months. And that's it from us now. Now we shift over to questions.

[Operator Instructions] We are now going to proceed with our first question. And the questions come from the line of Karl-Johan Bonnevier from DNB Carnegie.

A couple of questions to follow up on that. Finland, obviously stands out in the quarter when you're looking at the margin improvement. And do you see that we are now reestablishing that operation on a sustainably higher level? Or was there some sort of additional things that helps you in Q2 there?

So if we look to Finland, as you say, we are very positive about the progress we have had in the efficiency program and how it's developing. There is always some element, you could say, of one-off or bigger customer deals or whatever that impact the quarter. But on the other hand, we actually see quite strong momentum across the customer base. So I would not say that it's kind of linked to one-off as a whole. It's rather a good progress overall.

And...

Nothing really exceptional standing out. And looking at Patria, is that now up to what you would see as a normal kind of take rate during the quarter?

Yes, I think so. It fluctuates mostly, but that business is growing continuously. So we will grow together with in the future.

Excellent. And Norway, I noticed that the small acquisition you did had a negative contribution in the quarter. Is that a seasonality in that operation? Or is something else in.

There is well, notice there is a so seasonality in that acquisition. It's pretty much based on very high sale around the Christmas season. So this has been the pattern of that company before, and it's obviously the pattern also this year.

And when you look at the Swedish operation, you still talk about a good traffic, but maybe not getting the basket size up -- do you feel that more recent sales initiatives are starting to gain more traction because it feels like there is more of a general kind of positive appeal in the Swedish market at least?

Yes and no. Definitely, lots have been done in the sales arena to both, of course, generate new and more customers, but also, of course, creating assortment campaigns, et cetera, to fill the basket even more. I think we are doing a lot of good activities. But from our perspective, customers are still cautious. They are quite specific on their needs, and they tend to feel on with them. So that is probably the same as it has been for quite some time.

It sounds very similar. And Irene, looking at the earnouts in the quarter, is that a higher speed? Or is that the annual adjustment that we saw coming through normally in Q2? Or is this a high rate coming through in the rest of the year as well?

Yes. We had a positive effect in Q2 last year of SEK 4 million, and it's to be SEK 9 million in this quarter.

Sorry, I need to rephrase that talk more about the cash flow impact, the SEK 22 million that went out in payments.

Yes, that was earn-out payment that was actually paid out.

Exactly. But then looking forward into the next couple of quarters, are there similar upcoming? Or is this the annual impact coming through in Q2?

Yes. We have some more earnout payments, but it will be on a lower level.

And Samuel, you just looking at, say, your first view coming into the company. It's a good description already. But when you compare to your previous employer and the kind of same type of decentralized setup, do you see any low-hanging fruits that could be implemented in the Alligo model compared to what you are used to?

Good question, obviously. I've taken the opportunity as new to travel around and in both in Norway and Sweden, visiting doors, customers, our logistics centers, et cetera. So -- and of course, meeting a lot of people. Really nice and positive with high energy across. As you say, there are many similarities, the business model as such is a bit different, but the decentralized set that as a whole. And we touched on it a little bit. You can steer sales in many different ways in this type of context. And I think here, we will add some new flavors as we move along to how we prioritize and how we steer our sales efforts. You can also optimize a lot how you work with execution and how you get benefits out from various initiatives in this type of decentralized organization and that we will also work on as we move along. And I think we can improve a few steps there. And then it's all about -- a lot in this company is about winning the local market. So being best in town and the one, the customers in that specific city wants to buy their inventories from. So of course, we can always also develop that model and strengthen ourselves even further. But that we will work on as we move along.

Just to get a feel for it when you now traveled around and how many cities would you feel where your met management team that has already established that kind of position and how many are work in progress?

I mean it's just 1 that it's a mix. But to be honest, in many places where I'm confident that we have a lot of in place. And where we really have a strong position locally. We know the customers really well, and we are appreciated for what we do in our services. So I think we have a lot of good examples of where we want to be. And then, of course, there are a few as well that we can improve.