Relais had its capital markets day today and we have the CEO of Relais, Christian Gebauer, in interview. Welcome to the interview.

Thank you very much.

All right. So let's kick off with the new strategy and what were the key changes relative to the old strategy?

I think the headline of the new strategy is turning growth into returns. And we are entering in the era of shareholder return. So that is probably the biggest, you know, change in the strategy and the things that the shareholders will notice the most. Alright, so shifting focus from growth to returns. To follow up on this, how this change in mindset changes the day-to-day work or the operating model of Relais? You know, to grow EBITDA and to acquire companies to get EBITDA growth is quite simple. What is challenging is to acquire and grow EBITDA with good quality, where you get the returns that you need and that you want to have. So I think it's the discipline about, you know, being ready to step away from an acquisition opportunity if we don't see that the valuation or the characteristics of the company are good enough, to be disciplined not to get too motivated to conduct acquisitions but to be calm and disciplined and ready to move away. That I think is one important thing. The other one is, you know, when we are working with organic growth in our companies, we have to make sure that we don't only get top line growth, but that the EBITDA is coming through, that we get a good high quality EBITDA growth. And it's also a bit new for the companies when it comes to the capital allocation and the return on the capital that they have. Now it's not for sure that they will be able to keep all the capital that they have in the company and that they will be able to reinvest the cash flow that they generate. If they are not showing good enough returns, the cash that they generate may be taken away and deployed into another uh company in the group or into an acquisition. So that makes everyone think about How do I really allocate my capital? Is this the right thing to do? Do I get the most bang for the bucks by doing this decision?

Hmm, interesting. Uh in the strategy release you published this morning you uh laid out three building blocks for the implementation of the strategy. So uh you already uh elaborated on the uh maybe the quality of growth, which one which was one of the building blocks. The other two were building foundation for the next wave of growth and scaling with capital efficiency. So could you elaborate on those a bit more?

Yeah, so in our next phase we will have a stronger focus on identifying interesting companies bottom-up through our presence in the business, through our existing companies, our business area heads will be developing a pipeline of smaller interesting companies for us to acquire. This means we might do more deals in the future, but the size might be slightly smaller than the deals we have done in the past. And to be able to do more acquisitions, to have a higher pace, to be able to onboard those companies to our group to keep control and for these companies not to get too much administrative pressure and spending too much time on what they would see as bureaucracy and non-value adding work, allowing them to spend time creating value for their customers, we need to make sure that we have a well-run run engine, a well-trimmed engine running not on four or five cylinders but with eight cylinders. And that is what we are working on now to to get to that stage. And then we are working with a capital focus to get the returns up. to get the better, you know, EBIT growth of a higher quality. So we are starting on these fronts and we are doing some parallel activity, and then when we have the base in place, we feel comfortable with the current situation, we will accelerate the growth, especially with the acquisitions.

Following up on the acquisitions and doing more or smaller M&A. So does this reflect a change in your M&A process? And uh you probably need to uh have the skills to do M&A related work uh more uh more down

Yeah

on your on your uh organisation structure. So What does this require?

This requires that all our managers in the group, it doesn't matter if you work on the group level or in one of the companies, should always keep in mind, is this company a company that we would like to acquire? I mean, we are moving out in the businesses. We meet a lot of companies operating in the vehicle aftermarket. We are responsible to feed up the possibly interesting acquisitions. Maybe when we scan them, they are not interesting, but we need to get the flow so that we can filter and sort out the most interesting ones. And I think so that is a change, but also the pipeline by business area head is something new. I mean, the business area head is responsible for the development of the companies in the business area, but additionally responsible for making sure that we have an attractive pipeline and are able to conduct and execute on value adding acquisitions. So the job is kind of split in these two areas.

All right. Then moving on to the financial targets you published also with the strategy. So starting from the EBITDA, double-digit EBITDA growth that you are targeting. So how much do you see role of organic growth in this target? How much is M&A? The follow-up on that is, is this in line with what you see? What are you targeting with top line growth, or do you see EBITDA growth being higher than the top line growth?

So to start with the top line, bottom line, so I don't look so much at the top line. I mean the bottom line growth is what creates value.

Mm-hmm.

Of course in the long run we have to grow the top line as well, but not the other way around. Growing top line without returns is forbidden in our culture. What was the first part of your question, sorry?

It was about what is the role of organic growth in relation

All

to

right,

M&A?

yeah, so we need to have both, that's the short answer. Organic growth after acquisitions and in our existing companies is important for us, very important, and we need to put a lot of focus on that. But we also need to take all opportunities in acquisitions to further, you know, fuel the growth in the group. So there will be a combination and one year it will be higher organic, less M&A, the other year it will be the other way around. In total we should reach double digit growth over a business cycle.

All right. You're going forward with three business units. Commercial vehicle services, product and services and technical wholesale.

Hmm.

So do you see some... more interesting market pockets in some of these? And also, you already had European operations in Belgium, but in my eyes you expanded the target markets from the Nordics and Baltics to more broadly Europe. So do you see some interesting markets or more interesting markets than others in Europe in general?

Yeah, so I see appealing value creation opportunities in all three business areas. So that's an important point. When it comes to geographies in the products and solutions business area, they are not dependent on a local market for their sales, but rather they can be based in Sweden or Belgium or whatever, but they are distributing globally. So from that sense, it's flexible where the company is located as long as it is a strong brand company fulfilling Johan's requirements of the type of business that he wants to take on and continue to develop. So, but we are looking into acquisitions in all three business areas as well as focusing on organic growth. And the business areas are a bit different as you have seen today and that is a strength for us. It's a strength to have a combination of different personalities and different ways of doing business and together we become strong.

That question about a capital allocation. M&A stays at the core of Relais' strategy. You're running currently quite high on leverage metrics. You are targeting 30% dividend payments of annual earnings. So how do you balance between these different capital allocation decisions at the moment?

So in my view the priorities are our existing companies should get the capital they need to grow organically as long as they have good returns on the capital that we have in the company, because that is a very value-adding way for the shareholders to get growth. So so that is maybe priority one. Priority two is to look into interesting acquisitions in our business areas and, you know, conduct acquisitions that add attractive multiples and attractive terms. And then of course we have a new dividend policy that will steer the distribution to shareholders and the rest of the capital we will reinvest in our in our uh group.

Right. Lastly, you brought up a new financial target, which was at least thirteen percent return on invested capital or capital employed.

Mm-hmm.

How much of this is an improvement on the current level? I think Relais already achieved this level in 2024.

Yeah so First of all, if you don't do any acquisitions for a while, the return on capital employed in our business will go up because we won't get new capital employed into the equation and we will improve the return in our existing companies quarter after quarter. So due to the fact that we are a high-paced acquisition engine, we get a kind of pressure downwards on return on capital employed compared to the typical serial acquirer history with a strong cash flow and a lot of companies that can fuel the M&A. So that's the first point. But we are confident that even though we are going to keep the acquisition pace. We also have opportunities with organic growth and free up cash in our companies so that we should get to 13% even without having to reduce the pace of acquisitions for the coming years.

All right. So maybe to clear things up for me and for the viewers, this metric is kind of lagging.

It's lagging.

Capital gets, like, you get punished for the capital immediately. And the results will like come, come uh uh with a lag.

Exactly.

So doesn't this make not making M&A more attractive for you if you want to optimise this metric.

Yes, but uh we have two financial targets.

Oh yeah, right.

We have EBITDA growth, double digit, and we have the returns. And we have to balance these two.

Sure.

That is where we will get the best shareholder value. Doing only one of them is not in the long term going to create the the best shareholder value.

Yeah. Last question regarding the return on capital employed metric. Do you see current improvement more on improving the operating margin or the capital efficiency?

Yeah, I see opportunities both on the return and on the capital that we employ, to decrease that. So we will work on both areas, so to say, and together they will over time lead to improved return on capital.

Thank you so much for the interview and very much luck with the new strategy.

Thank you.