Key messages and Q&A on Year-end Report 2024

Alligo published its Year-end Report for Jan-Sept 2024 on Friday Feb 14, 2024, at 8:00 am CET. Here are the key messages and Q&A on the report.

General & market environment

The slowdown in demand on the market during the quarter applied to most customer segments except for oil and gas in Norway, which continued to develop well. It is predominantly small and medium-sized customers that have been affected by the weaker economy, while sales to some larger industrial customers have increased.

The fourth quarter marked the end of an unusually challenging year. We continued to strengthen and develop Alligo, both to handle a tougher market and to build for the future. We are not satisfied with the outcome for sales and profit, but we are maintaining a strong position on the market while also growing within important new areas.

Alligo continues to maintain a strong financial position, enabling investments in our own operations and through acquisitions, as well as for dividends.

Revenue, sales and operating profit

Revenue increased by 2.0 per cent to MSEK 2,589 (2,538). Acquisitions made had a positive impact on revenue and compensated for negative organic growth in Sweden and Finland, one less trading day, a mild winter and negative currency effects. Organic growth amounted to -3.0 per cent, with a slightly positive contribution made by three new store openings. Acquired growth amounted to 6.8 per cent.

Revenue from like-for-like sales, measured in local currency and adjusted for the number of trading days, decreased by -3.4 per cent compared with the corresponding quarter last year.

Operating profit amounted to MSEK 178 (278). Adjusted EBITA (operating profit excluding items affecting comparability and amortisation of intangible assets arising in connection with corporate acquisitions) amounted to MSEK 214 (308), corresponding to an adjusted EBITA margin of 8.3 per cent (12.1).

The decline in profit was the result of weaker demand on all markets, decreased supplier bonuses and pressure on margins driven by a smaller proportion of small and medium-sized customers, at the same time as sales to some larger industrial customers increased. Cost adjustments are offsetting the weaker sales to a certain extent.

Acquisitions contributed profits of MSEK 26 during the quarter.

Q&A

Q1. You summarise 2024 as an “unusually challenging year” – Could you describe what mitigating actions you have initiated to handle the challenging market?

• We continued to strengthen and develop Alligo, both to handle a tougher market and to build for the future.
• We are investing in new growth/technology areas (as welding and battery) while also developing and strengthening our offering with new services and brands and streamlining our existing business.

Q2. You mention that you seeing the market stabilise in the quarter. Can you elaborate on the current market situation and when you expect to see a turnaround?

• There was less of a decrease during the fourth quarter than earlier in the year and the market situation stabilised in the end of the year. However, it remained at a low level and is not yet directly reflected in sales.
• The slowdown in demand on the market during the quarter applied to most customer segments. The main exception was the oil and gas industry segment in Norway, which continued to develop well and there was a degree of recovery in Finland (larger industrial clients) during the quarter.
• Small and medium-sized customers continue to be most affected by the weaker economy. They buy exactly what they need. Historically we have been through this before, and this is normally the signals you get in this phase of the business cycle. The smaller construction companies are earliest in the recovery phase. They were the first ones to hit the brakes, and they will also be the first ones coming out of a weak market.
• It is difficult to predict the timing of a turnaround: If all the macroeconomics comes into place, the market should be picking up in second half of 2025

Q3. 2024 was a very acquisition intensive year for Alligo. Can we expect the same acquisition pace in 2025?

• Despite a weak market, Alligo has been able to deliver on our acquisition strategy. In 2024, we signed 9 acquisitions– adding 747 MSEK in annual revenue as well as 200 employees and 42 stores.
• In Q4 we signed our two largest acquisitions so far – Corema & Batterilagret. Both these acquisitions have a clear focus on strengthening what we call technology areas, that is product areas with a high technical level that are also important to many of our customers.
• A high acquisition rate needs to be balanced against indebtedness and financial position. The recent acquisitions have resulted in an increase in the ratio of net operational liabilities to adjusted EBITDA, excluding IFRS 16 to- 2.4, compared with our target of it being less than 3.
• Alligo continues to maintain a strong financial position, enabling investments in our own operations and through acquisitions, as well as for dividends.

Q4. In Q4 you report that the disruptions in the logistics centre in Vestby Norway has stabilised. Could you specify how much this have affected the profit in Norway and when can we expect that the problems in Vestby are solved?

• Last quarter, we had the ambition to have solved the disruption in the end of 2024. The problems have stabilized, and the aim now is to improve efficiency.
• The decline in profit in Norway is a result of both lower margins, driven by growth within less profitable customer segments and price pressure, as well as the disturbances in Vestby.

Q5. Could you elaborate on the cost savings – how much have you saved so far in 2024 and how much do you expect so save in 2025?

• The cost adjustments we have initiated so far has paid off and are equivalent to approximately MSEK 100 per year.
• We will continue to adjust our costs as long as the market remains weak and uncertain.

Q6. What actions are you doing to increase the share of own brands in Norway and Finland?

• In 2024, the share of own brands in Norway and Sweden decreased by just over 1 p.p (18.2% vs. 19.4%). This decline is a result of completed acquisitions, as well as increased sales to larger industrial customers with fixed assortments of external brands. In the Finnish Tools business, the share of own brands has increased slightly over the year.
• Stores are Alligo’s most profitable sales channel and have a significant impact on the share of own brands, as our salespeople have greater opportunities to influence customer choices.
• The store network is currently at different stages of development, with Sweden having the most developed and competitive network. In Norway and Finland, Tools has historically focused more on larger industrial customers, where store sales are less critical.
• One initiative to increase the sales of own brands in Norway and Finland is to focus on store sales.

Q7.  What is Alligo’s outlook for the 2025?

• Alligo has a strong position in the market with our concept brands, Swedol, TOOLS and the independent brands, as well as strong own brands in workwear and tools.
• A continued focus on acquisitions in technology areas such as batteries and welding – which will create synergies in the integrated business.
• Build for the future by improving and streamlining existing operations.
• We have a continued cost cautiousness, and we are adjusting the cost base.