Beijer Alma AB

STO:BEIA B

Earnings Call Transcript 2024-Q1

[Operator]

Welcome to the Beijer Alma Q1 2024 Report Presentation. [Operator Instructions] Now, I will hand the conference over to the speakers. CEO, Henrik Perbeck; and CFO, Johan Dufvenmark. Please go ahead.

[Henrik Perbeck, executive]

Good morning, everybody. And welcome to our webcast where we will today present our first quarter 2024. My name is Henrik Perbeck, and with me, I have our CFO, Johan Dufvenmark.Today, we will present the overall performance of our group. In addition, we will also discuss our reporting segments, our 2 main subsidiaries. These are Lesjofors, which is a full-range supplier of standard and customized industrial springs and other wire and flat strip components.Lesjofors is acting globally where the majority of sales in Europe and the U.S. And then the other Beijer Tech acts mainly in the Nordics within specialized manufacturing, value-adding industrial trading and automation in profitable niches and may take us also a platform for acquisitions into new industrial niches.Starting off with some comments from my side. Today, I will present to you what I think is a fairly good report given the world around us and where we are in the business cycle.We saw our first quarter with strong development in Chassis Springs and several other niches. Overall, for the group, we had some growth, both organically and thanks to acquisitions. Of course, demand was still quite varied within our very diversified customer base. The automotive aftermarket, medical technology and other niches posted good growth, whereas broad industrial segments were softer.In Lesjofors, we saw a mixed demand between customer segments and geographies. As mentioned, Chassis Springs business area posted good growth and is now in high season. This was driven by strong and customer demand normalized inventory levels and also our high delivery speed and service level.Within Industrial Springs, the Nordics, U.K. and U.S. and North Asia contributed some organic growth, not a lot, but still.In Central Europe, however, demand was weaker in relation to general industrial and construction activity. But perhaps most importantly for Lesjofors, we could see the sequential improvement of margins compared with previous quarters. This is thanks to actions taken but also favorable mix effects.The tech in the Nordics, demand was generally stable. As you will have seen in the report, Beijer Tech is now presenting a new business area called niche technologies. And this is actually the area that is delivering high growth in this quarter, thanks to a combination of acquisitions and organic growth.Fluid Technology and Industrial Products experienced a softer market. Norwegian market stood out more positively and contributed growth, whereas, for example, Finland was somewhat weaker, partly to the indirect effects of the strikes.In the quarter, we also completed 1 new acquisition, ABS Power in Finland. ABS is a leading wholesale and manufacturer of pneumatics, industrial valves and compressors. And we think the company fits very well into Beijer Tech Fluid Technology also with potential for cooperation within the Nordics.And generally, the activity level within the M&A is good, and we can see several opportunities in our pipeline. Having said that, business cycle and the operating environment is still uncertain, and we will balance investments for growth with savings.Looking into our financial performance of the group. Looking at the performance, we can see that order bookings grew by 4%, but was down 4% organically. This is not so dramatic, and I will comment on this in more detail when speaking about Beijer Tech.The net revenues grew by 7%, of which 3% was organic, which I think better mirrors the demand we are experiencing in the market. And also, worth pointing out, which cannot be seen on this graph, actually, but we have reached SEK 7 billion in net revenues over the last 12 months. And that's a kind of milestone.During the quarter, demand has been fairly stable and healthy since the start of the year and certainly better than the end of Q4. The comparables for Q1 last year are fairly strong. And not the least since March this year had 3 trading days less than last year due to early Easter. And, of course, this should come back in April, but still.So, adjusted operating profit was NOK 242 million with a margin of 13.3%. So, moving on to the performance of the reporting segments, starting with Lesjofors, our spring manufacturer.Lesjofors is organized into 2 business areas. These are Industry with mainly customized products to a very diversified customer base globally. And Chassis Springs that our standardized replacement spring sold to car part wholesalers, mainly in Europe and you can see the share of revenues down on the right where Chassis Springs a little bit more than 15 this quarter.Order bookings for Lesjofors, 6% increase, of which 3% is organically. Net revenue also grew by 6%, where 5% was organically with Chassis Springs being the key growth driver, of course. But starting with Industry, the largest business area, growth was 3% and mainly organic since the net of acquisitions and divestments, this quarter were neutral.As mentioned, volumes grew somewhat in the Nordics, U.K., U.S. and Asia. In Central Europe, including Alcomex. The operating environment remained tougher and demand was affected by lower industrial and construction activities.With Chassis Springs net revenues increased by 19%, thanks to good demand during the first quarter and we have now entered the high season. Inventory levels at wholesalers were estimated to be normalized in the beginning of the quarter, and end consumer demand drove volumes actually in all the key markets.Adjusted operating profit for Lesjofors increased to SEK 200 million with an EBITDA operating margin in the quarter of 15.8%. And as you can see top right, the operating margin improved sequentially versus preceding quarters, almost reaching the level over last Q1 and this is an improvement, of course, thanks to product mix effect, but also several actions taken. And, for example, the divestment in December of a German subsidiary, which had a slightly positive effect.Moving over to Beijer Tech. So, Beijer Tech, since the beginning of this year, operating in 3 business areas: Fluid Technology and Industrial products, as you know, both acting within industrial trading and manufacturing.The third business area, a new one is called niche technologies, which includes companies with strong market positions in various industrial niches, such as building automation, waste management and specialized machinery. And typically, these companies have other drivers, market drivers than a more general industrial demand.For Beijer Tech, overall, order bookings decreased in the quarter by 1% of which minus 21% organically. Now, this negative organic growth in the order book does not really mirror the demand we're seeing in the market and order bookings, in fact, are higher than net revenues in the quarter. Instead, this minus 21% is related to very high comps last year.And some of you might remember that a year ago showed 25% organic growth, it was actually attributed to certain specific projects. So, trading-wise, it is, as I said, book-to-bill is positive. So, net revenue grew by 9%, of which 2% was organic. And, here, of course, we can see some negative calendar effects towards the end of the quarter in March.Now, within business area, Industrial Products and Fluid Technology, demand was overall stable, but on the weaker side with slightly declining volumes. As mentioned, Norway stood out stronger, whilst Finland was weaker. We did not actually have any direct effects of these strikes, but several of our customers had. So, Industrial Products decreased net revenues by 6% versus last year and Fluid Technology grew by 3%.In the new business area, niche technologies, growth came both from acquisitions which now is only Finn Lamex in this quarter, but also organic growth. So, in total growth of 51%. Beijer Techs operating result decreased to SEK 49 million. But here, I want to point out that it did include some acquisitions costs late in the quarter, including Finnish transaction tax. So, the reported 9% operating margin, it's not such a trend down. The underlying margin would be well above 10%, adjusting for that. Good.Now, I will hand over to Johan for some more comments on the financials.

[Johan Dufvenmark, executive]

Thank you, Henrik. As mentioned, net revenue is up SEK 119 million compared to last year. The largest part of this is due to acquisitions, together with divestments, which contributed with SEK 60 million, and it's equal to an increase of 4%, while organic growth was 3%.Lesjofors had an organic growth of 5%, mainly affected by strong sales in the Chassis Springs business area, and Beijer Tech had a negative organic growth of minus 2%.As Henrik mentioned, this was an effect from general demand, calendar effect and as well as strikes in Finland. There was also a small positive effect from currency in the quarter. Order bookings increased with SEK 68 million to SEK 1,876 million.Acquisitions were positive 7%, while the organic growth was minus 4%. And as Henrik mentioned, the main reason for the effect that order bookings were negative was the was very strong comparables in Beijer Tech for last year, where orders related to projects were delayed from the previous year.Lesjofors had a positive organic growth in order bookings, plus 3%. Let's continue with a short look on the segments and how they contribute to revenue and operating results. As we saw in the previous slide, net revenue increased with SEK 119 million to SEK 1,812 million. We had an increase from all 3 factors, organic growth, net effect from acquisitions and divestments and as well currency. While the biggest factor for the growth in Lesjofors was organic, Beijer Tech growth was related to acquisitions.Adjusted operating profit was SEK 242 million in Q1. Increase compared to last year was, among other things related to Chassis Springs, which also is in the high season, but a somewhat more challenging environment in Central Europe contributed less positive. Beijer Tech's operating result was affected by acquisition cost of minus 7%. Adjusted for this, Beijer Tech was on par with last year.Underlying, we see a strong development for the companies within Niche Technology and parts of Fluid Technology, but a softer demand for some of the companies within Industrial Products. These companies also experienced a stronger calendar effect compared with last year.We did as well reverse an additional SEK 2 million from the Russia close-down provision that we made in 2022, which is the difference between adjusted and unadjusted EBIT. Now, to sum of the key financial ratios.Adjusted EBITDA is up SEK 4 million compared to last year. The difference to adjusted EBIT being higher depreciation following a number of acquisitions. Cash flow after capital expenditure was minus SEK 38 million, almost in line with last year. The negative cash flow was mainly related to seasonal effects, especially within Chassis Springs.Overall, we are satisfied with the development of the working capital, even though the seasonality effect in Q1 ties a little more capital. Net debt is higher than last year, and this is related to acquisitions and most recently, the acquisition of Avis Power in Finland.The financial net has improved compared to last year. A small part of the improvement is related to more efficient use of cash, but also there are some positive FX effects in the quarter. Thank you. And back to Henrik for a continued look on acquisitions and also sustainability.

[Henrik Perbeck, executive]

Yes. So, just to comment on our acquisition strategy. We continue to further grow by acquisitions. During this spring, we have seen good activity on the M&A market, and we have discussions with several good companies in our pipeline. Last year, the acquired companies added over SEK 0.5 billion to our run rate revenue with good profitability.And now in 2024, one new company has been added to contribute profitable growth. And, here, I would also like to take the opportunity to welcome [indiscernible] and the whole ABS team to our group.Now, on a different note. During this webcast, I would like to mention some of the highlights from our sustainability report, which was published recently, together with our annual report.We said that on our sustainability targets 5 years ago and has now reached the end of that goal period. And I will not go through everything here. But, overall, I think we have developed very well as a group in many of these areas.And, in particular, I want to point out in terms of climate impact, as you can see in the middle of this busy slide, we have reduced our carbon intensity by 55% during these years, well above the target of 25%. This is driven by a range of activities such as and most importantly, reduced energy consumption of 36%.But also a larger share of renewable energy, solar panels and transition to bio-based fuels. So, good progress during these years. So now, we move over to a new target period. And we're now setting ambitious targets for the future and the year 2030. These are now aligned with that we have set so-called science-based targets for reducing our climate impact, and 2030 is what is called our near-term target.Here, it is not only our own impact that matters, but the climate impact from the whole value chain and significant improvements can only be achieved through close partnership with our customers and suppliers. And, of course, at the same time, we will continue to focus and reduce our own footprint.Also in other sustainability areas, we must work closer within our value chain. One example is within business ethics where we have started steps with our business partner, Code of Conduct and, over the time, we'll develop a closer due diligence process of suppliers, also in conjunction with the development of the legislation in this field.And further, we must use resources such as energy and materials more efficiently. For this, we will develop circular solutions for waste, but perhaps even more importantly, to bring sustainability into our innovation and design process, then we can really add value to our customers and their strive to reduce impact from their final products. So, a new journey ahead. So, now just summarizing what we said regarding Q1.Growth this quarter came in particular from Chassis Springs and Industrial Niches, but demand was varied and the broader industrial segments were softer. In Lesjofors, the strong performance in Chassis Springs.Nordic, U.K., U.S. and Asia contributed some organic growth, whereas weaker demand in Central Europe and Alcomex in relation to general industrial and construction activity. And also for Lesjofors sequentially improved margins and the recovery from the end of last year in that sense.For Beijer Tech, the new business are technologies contributed growth. Industrial Trading was particularly strong in Norway, a little bit weaker in Finland and underlying margins remained stable. And finally, our new acquisition of AVS Power in Finland, a good fit into Beijer Tech Fluid Technologies. So, with that, we will open up for some questions.

[Operator]

[Operator Instructions] The next question comes from Karl Noren from SEB.

[Karl Noren, analyst]

A couple of questions from our sides. Maybe if we start off with Lesjofors and the Chassis Springs. I mean, quite a strong quarter. I think the best Q1 ever. I didn't really catch what you said there on the normalized inventory level. Did you say that they were normalized in the beginning of the quarter and at the end of the quarter? So just some comments around that would be helpful.

[Henrik Perbeck, executive]

It's a good question. So, I didn't say it, in fact, that it's normalized in the beginning of the quarter, meaning that, first of all, a year ago, we had some strong effects on inventory reduction still from the sort of the supply chain issues. But then in the high season, in general, there is a natural buildup of inventory with our wholesalers.So, of course, we have good sales now and we're entering the high season, and the part of that is, of course, also the fact that they have increased demand, and they are building up stock for the season.So, you could also say that it has been at normalized levels in the quarter, nothing particular there. It's more the end consumer demand that is driving. And also, as I wanted to point out, the fact that we have a service model that is very strong in the market, so we can respond quickly.And we do, in fact, build up stock. As Johan said, also, we tied a little bit more capital in the first quarter in order to meet the spring demand. So, it's also a part of our business model to really be able to respond to this. So, yes, a very good quarter indeed.

[Karl Noren, analyst]

And on Beijer Tech then a little bit weaker margins there than we're used to in the last quarter here. So, can you just help us understand if it's more lit on the curve driven by some calendar effect on maybe impact constructs in Finland or if there is some, let's say, company-specific issues in some of the subsidiaries or?

[Henrik Perbeck, executive]

Well, first of all, I want to once again just reiterate the fact that we didn't get this M&A cost late in the quarter, meaning that we had very little contribution from that acquisition in terms of profitability, but the full cost of that transaction.So, say for that, margin level is around 10.3%, which I think is absolutely fine for Beijer Tech. We do see, as mentioned, a little bit softer markets in Industrial Trading, and you can see the industrial products is down by 6%. And, of course, that matters as well. So, I think nothing that stands out as such, but we are still in a market which is fairly flat.Ana as you said, the calendar days in the end of the quarter was part of the --

[Karl Noren, analyst]

I guess that can impact profitability a little bit or one extra work, et cetera. And then just a question on the M&A as well. I mean, in the report, you said that they have a good pipeline and are in discussion with several targets, but you also mentioned there's high uncertainty, et cetera, high interest rates.I mean, I want to hear your view on your balance sheet and ability to take on more acquisitions here near term and what you expect, I mean, you mentioned SEK 0.5 billion in M&A added during '23. Is that also possible for '24, you think?

[Henrik Perbeck, executive]

Yes. So, first of all, on the market, as I mentioned, it's been very interesting that there is a lot of activity. Of course, when looking into companies in this, what should we say, these times, you need to evaluate what is the performance of the company, and there's maybe less growth.So, it's a matter of meeting buyer and seller in a good way, but there is plenty of interesting opportunities. Yes, I think we do have capacity for a similar amount of acquisitions this year with our debt ratio.So, that is not holding us back, but we will continue to be selecting very good companies to work with because we're in it for a long time, forever, properly. So, we really want to make sure we acquire the right companies. But in terms of financial capability, we should be able to similar numbers.

[Operator]

The next question comes from Johan Dahl from Danske Bank.

[Johan Dahl, analyst]

Just on the [Indiscernible] intake, you reported up 3%, I think, organically in the quarter. Obviously, we have this issue with the subsiding prices and good end user demand. But on the industrial side, on order intake, are you seeing sort of any sort of trend shift there? You talked about the U.K. being a bit better. I'm just trying to sort of pin down whether this market is would be close to bottom or if you're seeing any cross-selling impact here?

[Henrik Perbeck, executive]

Good question. If we start on the market side, I mean, the numbers are not, let's say, big in any direction as 3% up, and we have an effect, of course, there also from Chassis Spring. So, I think last quarter, we reported that Nordic was a little bit softer.So, that is more normal now perhaps a percentage point or something positive. I wouldn't want to speak about a big trend shift, but it's certainly not worse than Q4, but it's a fairly stable and fairly low numbers. But at least they are also positive in a way, in these regions that you mentioned.Still, we feel that Europe is softer and a bit tougher. So, this balance between the regions and Europe and Alcomex is a little bit weaker, whereas the others somewhat positive side. So, it's really hard to say.In terms of cross-selling effects, these are, I think it's a constant work kicking in. We do have some more specific segments where it's clearer, like we have mentioned before, the medical technology area where will cooperate very well across the companies and even the continents. But it's hard to break out that in this quarter with such low numbers, but it's positive, at least, and I think that's what we should bring with us.

[Johan Dahl, analyst]

And you talked about both growth and savings in your sort of management agenda, what new savings initiatives are on the table right now? I mean you did compete last year, have you identified any new sort of avenues here?

[Henrik Perbeck, executive]

So, there are several things going on in a big group, and we're working in many ways, be centralized. So, I would say it's a general sort of cost consciousness as the basis for everything. We do have certain initiatives.We really try to get the companies together, for example, in procurement, where these are times where you really need to work to get together to find the best deal. In terms of -- I mean, I think what we did with Stuhm, it's not very often, we do structural moves like that.But definitely, we are looking for opportunities also in related to footprint and where to produce the product in the best way. But it's a little bit of just hard work down in the subsidiaries and being cost conscious and right now.But then, as I said, it is a balance because we do have some very interesting areas that we want to invest in and make sure we have salespeople. So, it's really the balance that's trickier to at the same time.

[Johan Dahl, analyst]

Just finally, the minus 8 in minority interest, which subsidiaries is that primarily? Just to remind us there.

[Henrik Perbeck, executive]

You think which one?

[Johan Dufvenmark, executive]

There are some in biotech in the satellite business, for example.

[Henrik Perbeck, executive]

Yes. I mean, if you go through all the press releases, you will see, there is a minority stake in Alcomex. There is a minority stake in some of the Beijer Tech companies like the satellite business like Finn Lamex, in Finland, et cetera. So, there are a few companies with a handful of companies with minority Intel.

[Operator]

There are no more phone questions at this time. So, I hand the conference back to the speakers for any written questions and closing comments.

[Henrik Perbeck, executive]

Thank you everybody for joining our webcast this morning and I wish you all a great day. Thank you very much.