A word from the CEO

A SOLID FOUNDATION IN SUCCESSFUL ACQUISITIONS AND ROBUST
CASH FLOWS IN A CONTINUED TURBULENT ENVIRONMENT

We look back on the year with a sense of progress and strengthened financial and strategic position. Our acquisitions in recent years have performed at a high level, validating our growth strategy. The stability and growth opportunities of the Group have also improved significantly, providing us with a solid foundation to build upon. Notably, the strong cash flow has also contributed to verifying that we are on the right track.

Several of the challenges that characterized 2022 have not caused as much headache in 2023, but have nonetheless provided a breeding ground for other difficulties. Our efforts during the year could have resulted in a much stronger outcome but were naturally influenced by these factors. Higher financing costs for our customers in the broadband segment have dampened demand in a few markets, while the data centre segment has shown growth that has exceeded our expectations. The varying demand also underscores the strength of our broader geographic presence and diversified segment exposure that we have developed in recent years.

For the full year 2023, the Group’s net sales increased by 42 percent to 1,573 MSEK. EBITA increased by 56 percent to 107 MSEK, and the cash flow from operating activities increased by 470 percent to 137 MSEK, corresponding to an operational cash flow per share of 6.4 SEK (1.2 SEK in 2022). Excluding direct acquisition costs, unrealized exchange rate changes, and refunded additional purchase prices related to acquisitions, EBITA increased by 33 percent. Margins were negatively affected by currency developments and cost inflation, as well as the lagging effect in passing on cost increases. Price increases to counteract cost inflation have been implemented gradually throughout the year with the desired effect. The acquired companies also have lower gross margins than the original Nordic operations, which affects the comparison. The financial situation remains solid with a high solvency ratio of 44 percent and a net debt, including lease liabilities, of 350 MSEK as of December 31, 2023 (a reduction from 447 MSEK on December 31, 2022). Our financial situation is thus reassuring and provides ample room for manoeuvre in the future.

In Q1 2024, Wood Communication in Ireland was acquired, primarily financed through a new issue and payment with shares in Alcadon Group. The company has an impressive track record and should fit well into Alcadon.

The year ended strongly with both organic growth and continued strong cash flow from operating activities in Q4. Growth in local currency during the quarter was strongest in Benelux at 135 percent, closely followed by Germany at 58 percent, and the UK at 16 percent. The weakest performance was in Denmark and Norway with growth rates of -50 percent and -28 percent respectively.

MARKET DEVELOPMENT AND TRENDS

Over time, our market is primarily influenced by increasing data volumes, an inevitable fact that supports our growth ambitions. The emergence of artificial intelligence and the increasing need for energy-efficient data storage create strong pressure for investments in data centres and fiber. This has been very clear in 2023 and is a trend expected to continue in the future.

Despite underlying drivers, megatrends, and clear logic supporting long-term growth, not all segments will exhibit high growth simultaneously in all markets (except for the data centre segment in 2023).

We are coming from a period, or cycle, within broadband expansion with significantly increasing demand and substantial investments in expanded capacity in several markets. Naturally, this has resulted in some excess capacity and weaker capacity utilization in an environment that in 2023 was partly characterized by higher financing costs and thus lower demand. We are now in a recovery period in markets such as Germany, the UK, and Denmark where some consolidation has been observed among our customers. Returns on our customers’ investments should logically increase gradually in the future, which we see clear signs of. In other words, do not dismiss broadband expansion in Europe; we will speak as warmly about it in the near future as we do today about the data centre segment. Currently, several operators perceive significant market turbulence, but long-term action will lay the foundation for good times ahead when inevitable investment decisions favor fewer actors after a welcome consolidation.

Our perspective is that network investments in properties will continue to be a stable segment, and data centres should grow significantly in the coming years. Expectations are also that broadband expansion will recover in the near future in markets where development has been weaker and continue to grow significantly in several markets.

Being a flexible distributor with no major capital investment needs and with a presence in several segments within network infrastructure has been advantageous in these times. It will continue to be so in the future.

THE SIGNIFICANCE OF ACQUISITIONS

Finding, executing, and integrating good acquisitions is not always easy but need not be unfeasible either. We consider ourselves relatively risk-averse, having only acquired companies in recent years where we have an established and longstanding relationship. This caution is also reflected in our low acquisition frequency and is one reason why we often are not classified as a serial acquirer, roll-up, or similar. Despite the low acquisition frequency, acquisitions over the past four years represent approximately 75 percent of our net sales.

More important than the contributions of acquisitions to the Group’s turnover is, of course, the return and contribution to the Group’s future development. In our evaluation of acquisitions, we try to consider not only the strategic value and synergies but also the perspective of equating acquisitions with an investment in a standalone company. This means analyzing the expected returns of acquired companies initially and over time, cash flow per share, and what we can expect in different scenarios, with and without synergies. The process is, of course, filled with assumptions, and we try to be reasonably conservative in our assessments. The main thing is that the willingness and experience to analyze acquisitions from various perspectives exist, which reduces risk and significantly facilitates the integration process.

In our interactions with both investors and other acquiring companies, we often observe a tendency where companies and their acquisitions are primarily based on individual key metrics. Which key figures are fashionable to track often change over time depending on market sentiment. In many cases, logical opinions are aired when this is discussed, but at times the messages are contradictory and expressed as if the value of one key metric excludes others. Naturally, we act based on what we believe is logical to create long-term shareholder value, something most naturally strive for. But a solid understanding requires a holistic view. One key metric often provides limtied insight, while the combination of several metrics offers a more comprehensive udnerstanding. Cash flow, operating margins, organic profit growth, return on reinvested profits, and earnings per share development are all important key figures but cannot be seen in isolation. The analysis must be nuanced even if there is a point in simplifying in a complex environment.

Incrementally, we believe that our acquisitions contribute to the Group’s (financial and strategic) development in a positive way, and capital allocation has, in our opinion, functioned as intended. Today, we also have an efficient playbook for how we want to integrate our acquisitions over time and create value, something we intend to continue and improve upon. We have a proven decentralized model and are both aware of, and actively seek, collaborative synergies between our companies. This is appreciated by sellers and has provided greater benefits than we often initially assessed. both aware of, and actively seek, collaborative synergies between our companies. This is appreciated by sellers and has provided greater benefits than we often initially assessed.

Gradually we are moving towards becoming one of Europe’s most appreciated providers of network infrastructure, perhaps partly already there, and acquisitions have played a significant role in that work.

TOWARDS 2024 WITH CONFIDENCE

It is with great pride that I look back on what we have accomplished in recent years. Acquisitions have been the key to strengthening our foundation for continued high organic growth and returns. In addition to this, they have contributed to increased stability in our business and a significantly stronger customer offering, which benefits us going forward.

I also want to extend a big thank you to all the fantastic employees who have joined us and are leading us forward in an entrepreneurial, decentralized environment. In a decentralized organization, the company’s success depends on individuals’ wise judgments and their commitment to contribute, and it is working very well today.

We believe in our model, and I am convinced that we have the best times ahead of us.

Sonny Mirborn
President and CEO