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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Welcome to the Beijer Ref Q1 presentation for 2024. [Operator Instructions] Now, I will hand the conference over to CEO, Christopher Norbye; and CFO, Joel Davidsson. Please go ahead.
Welcome, everyone, Christopher Norbye here, sitting together with Joel Davidsson. We'll take you through the PowerPoint slide and then, of course, finish off with some Q&A later on.So, we'll move straightaway to the update. We always do with a rolling 12, where we continue to grow our sales, adding employees and, of course, also continue to grow with our branch and customer network. And we'll come back a little bit on the US that we just acquired a critical piece in our strategy in the US with Young supply yesterday.So, moving on to the next slide. There, you get a little bit of a summary of the start of the year, but also a little bit of our historical number to put it in perspective. We continue our past, say, last couple of quarters to phase out on organic side versus very high comps, which we are coming to them here in March.So, as we move forward, we have those comps, organic comps behind us. Despite that with acquisition, we continue to grow 4%, organic was minus 4% as it's been the last couple of quarters. FX is neutral.You can see on the margin slide, 9.5%, I would say, very strong margins and it's across the board. If you look at our APAC business, if you look at our EMEA and the US and product groups, we continue to have very good traction on our gross margin and cost of the business. So, the margin is stable at a high level. We expect this to continue going forward.Of course, I'm proud of the strong cash flow in the quarter. We've been saying that, I would say, all along, as we started the cash or the inventory alignment in Q3 last year. And you can see that on the chart here, continuing during Q1 as we continue to balance our inventory.The units were going into high season here. We continue to have a good traction on it, and we expect this to continue throughout the year, as we've been stating before.Earnings per share are down a little bit related to cost and also a number of shares, but you all will come back to that. And then also proud of saying that we closed a critical acquisition Freddox.Yesterday, in Young Supply, a leading wholesaler that fits extremely well into our network, very strong in the commercial refrigeration. It's a platform for us that we can expand, but also good on the HVAC side and a market-leading position. So, extremely happy about managing all those things here due Q1 in April.Moving on to the next slide. You can see on the highlights here, of course, HVAC has been the highest comps. We had over the last year related to the energy situation we had in Europe, as I said before, that ended for us in March and now will come across more normal comps. But I would say it's still pretty good, the minus 7% versus plus 17%, so continue to be a good market.The OEM side continues to grow, even then we had compared with plus 24%. So, we continue to do very well on OEM as we focus on the green transition in Europe, but also starting in APAC region and one day, we'll have it in the US as well, but not yet.Commercial Industrial Refrigeration is slightly down, mostly related to trading days at that type of business, a 100% of being in the business from all our branches. So, all in all, we're pretty happy with a stable quarter on this side and mostly affected by negative trading base in comps, which we as we move into Q2, those things would disappear.So, then going into our different regions. You have our largest region, EMEA, who continue to deliver well. Of course, they've been growing the most, as you can see here compared to almost 28% last year and a lot related to the energy situation where in Europe and on the HVAC side. But I would say still a good performance.The OEMs growing 16%, commercial industrial refrigeration, also related to trading base, stable margins in the business. And, of course, at the EMEA now as in Q2 and high seasons, we're pretty positive on the future moving here. But, I would say, stable and good development on both the margin side and also on the cash flow side for EMEA.Moving into APAC. APAC did very well, continued to see if you see the trend here of good margin development, I would say stable business on both HVAC and commercial industrial refrigeration and OEM. We see pretty good activity in the pipeline on projects, but that's going to come in more in the second half of the year for APAC.We did a smaller acquisition, QAE, very nicely fits into our geographical footprint on HVAC. But in general, I would say HVAC had a very solid quarter. And, of course, HVAC, very heavy in Australia and New Zealand, and they're just wrapping up their summer season. So, the good traction doing the high season in the APAC region.And finally, moving into, of course, our newest division, North America. Good development in the market, I would say, pretty stable on the trading day to day, which is good. Good margin discipline, good gross margin development.The comparison is hard because this year, we had the first 20 trading date that we didn't have last year, which is about 1% hit from the margins because of those first 20 days of January it's high cost, low sales. So, if you adjust for that, a good development in the platform, also in the US. Of course, we're working with the integration of Amston Webb supply.And then recently, yesterday, we just signed the Young Supply was a nice geographical connection to the rest of our branches. They have a very good, almost 50% is commercial refrigeration and so gives us the platform that we've been looking forward to expand commercial refrigeration, expand CO2, another type of initiatives, but then also very good HVAC business that fits into the rest of [indiscernible].So, very happy and also very much look forward to working with the team in the heritage platform.Then worth mentioning, we continue the journey on the strategic and the US with our own private label in HVAC. We are expanding our refrigeration portfolio, and we will accelerate that as we have Young Supply under our wings as well, opening a new branch in Tennessee here in May and a couple more in the pipeline for the year.Of course, second half of the year will start transitioning into the new equipment that will be the driver for the future in the US. And we continue to have a nice discussion and pipeline as we continue our journey in the US from the consolidation front. So, I'd said, all in all, a very good quarter in the US as well for us.So, summarizing a little bit, total sales grow 4%, organic minus, 4%, slightly growth in EBITDA. And then the EPS change slightly negative. We'll come back to all these numbers as we move through the presentation.This is just looking at how the quarter played out when you look at the organic and the M&A. So, continues to have a nice M&A growth, which we'll, of course, now with Young Supply continuing through Q2. And also, as I said before, better funds and not as much affected by less trading days as we move forward.It's the longer trends as you see, comparing with very, very high comps here that we are coming at the end of her in the comps that we had in Q1 last year of almost 15% growth on there. But continues to be positive, and we expect that to continue here as we move into Q2 and the rest of the year of the business.Here, the organic side on HVAC, which has been the biggest driver of these comps in EMEA and you can see, of course, still growing the 26%, 29%, 17%. So, I would say the development is tracking pretty well on HVAC, and we still see the market has been pretty good out there on the HVAC side.So, we're moving into high season now, especially in EMEA and North America on the HVAC sales. EBITDA, 4% up despite lower sales on the organic side and then you can see very stable margins despite lower sales, so, a good execution on the managing the gross margin and the cost in the business as we expect to do.Here, you can see the margin development continues to be very good. And you can also see the seasonality in our business where you see the development in Q2 and Q3, which is mainly related to or I mean, 100% related to that were much higher volumes in Q2 and Q3 as it gets warmer and warmer.Then, handing over to Joel.
All right. Thank you, Christopher, and good afternoon, everyone. As we covered most of the P&L, I will jump straight to our reported EBIT of SEK 684 million, which is up 3% compared to last year.So, our net financial expenses in the quarter amounted to SEK 141 million, and it is a level which I think is representative of where we are at the current leverage level.Tax expenses in the quarter of SEK 135 million, which represented an effective tax rate of 25%, resulting in a net profit excluding items affecting comparability of SEK 408 million, which is then 12% lower compared to last year.And this decrease in net profit, excluding items comparability is, as you can see, driven by higher financial costs compared to last year, which is a combination of FX, higher debt levels and also higher interest rates.On the EPS side, reported EPS down 4% in the quarter, but if we are adjusting them for items affecting comparability, which is all related to the bridge financing last year and applying the same number of shares, EPS is down 13% in the quarter.Moving over to cash flow. As already mentioned, very strong cash flow in Q1, SEK 582 million, driven by a controlled inventory buildup, which has limited the additional working capital tied up in the quarter to SEK 115 million.Just as a side note here, reported inventory in the month is up approximately SEK 150 million. But if you adjust for the acquisitions we have done, the underlying like-for-like inventories down approximately SEK 450 million compared to last year.If we go to the next slide, the operating cash flow then again is an improvement of almost SEK 790 million compared to last year. And that is primarily driven by net working capital and more specifically, inventory.So, if you look at our report last year, inventory buildup was SEK 1.2 billion in the quarter compared to SEK 400 million this year, and that is the main driver of the improved cash flow.Then we move over to the final slide here, which is the net debt development, which has been very stable here in the quarter, improving from 1.7% at the end of the year to 1.6% here at the end of the quarter.With that, I hand back over to Christopher.
So, to summarize this, the heading for our report, I would say, a solid start to the year, good profitability and also on the cash flow, as we explained.So, I would say, a very good start to the year. The sales slightly negative, mostly related to trading date and very high costs. And that will now reverse as we move into the rest of the year.Good margins, solid margin despite a little bit lower organic sales, where we've been working hard to manage the margins. We would expect to continue throughout the year. Cash flow, almost plus SEK 600 million, which is strong being in a first quarter for us. And as you all know, we're also reducing inventory compared to last year as part of the plan and as part of what we communicated for the last 18 months.At the end of the quarter, we signed an agreement to acquire Young Supply sales of SEK 1.4 billion, a very nice, strong market position, fits straight into our geographical footprint, fits very well with our other assets in the US and also a company where DNA is coming from commercial refrigeration.So, we see a lot of opportunity in how we scale the US now with this type of platform and also we support it from Beijer Ref and also in long term, the CO2 journey we were going to do in the US will be part of this company going forward.And then the long term hasn't changed. This is similar. So, I won't spend a lot of time. It continues to drive our business long term. We have F-gases that will continue to be phased out, just started during the US.The A12 transition will start happening in the second half of the year and, of course, would be a good driver for 2025 and going forward. We talked a little bit about the US platform and continues to develop well and, of course, also noting Young Supply will make us even better in the US and a lot of activities ongoing and supporting the business from private label branches and also agreements that we're working with our suppliers.And we'll continue to work with our acquisition pipeline. It's an active one. It's always active for us. And you can see, of course, one of the results of that is Young supply that we just signed off here yesterday.So, with that, we would like to open up to questions from the people on the call. So, thank you very much for listening, and we're ready to answer your questions.
[Operator Instructions] The next question comes from Karl Bokvist from ABG Sundal Collier.
My first one is just on the organic growth trend. Now when it's been at, maybe say, had a stable figure for a couple of quarters, as you say, now comparables will diminish in a formal way. Just curious, I know you don't usually provide commentary about it, but let's try anyway. Can you say anything about current trading or what we have seen on the market now in March or early April?
Yes, you're right. So, we try and, of course, stay away from very short-term guiding like this is I know I've been fairly clear on the comps and expectations for Q3, Q4 and Q1 this year related to the situation we were in on the special HVAC and EMEA side.But as we have that, I would say the comps are not diminishing, but the easening, but mainly that semantics. But I would say that April started well, and let's see how the rest of the quarter and the year progresses. But I would say, in general, the business continues to be stable with, of course, less headwinds from comps and trading days. So, hopefully, that could give you an answer on that question.
And then just two, is it possible now year-over-year to shed some light on how Heritage has performed perhaps compared to the markets and the second being perhaps more to you will, but how you foresee working capital efforts to continue throughout the year now considering how you started the year in a pretty good fashion, I would say?
Yes. On the US, I would say that if we look at all the market data, I mean, we're trading better than that. But, of course, a lot of the market data is OEM driven. So, you've had a realignment from people like us on the inventory side towards our key HVAC suppliers.And we're in now, as we're moving in, we are done with our inventory adjustment in the US and we are ordering products for the season now. So, I would expect, of course, those numbers to improve.But in general, we feel pretty good with our market and how we're developing and I would say the underlying performance in Q1, and you can see that, of course, on the margin side as well is a flat, stable development in Q1 and now, of course, getting ready for the high season that depending on the next heat wave in the Southeast of the US gets started.So, I would say, compared to numbers I'm seeing, we're performing better, but I don't know if that's 100% relevant because it's different being a wholesaler versus an OEM.
And then you partly answered the working capital question, but could you say anything more about how you expect it to progress during the rest of the year?
Yes, Absolutely, Karl. I mean, as Christopher mentioned here in the beginning as well. I mean, we are working through it continuously during the year, as we highlighted already a quarter ago. But we are still obviously having the seasonal effects as well.So, I mean, we are going into high season, which will, as normal, tie up accounts receivable in a different fashion here in Q2. So, it will still follow as I think we have pointed out earlier, the same patterns as usual, but less pronounced, which I think was clearly in this quarter as well, if you look at the working capital side, that's it.
I think, we expect the normal strong cash flow in Q3 and Q4, but also the way you see in Q1, you might also that we'll have a positive cash flow in Q2 as we realign the inventory side of the business.So, I mean, nothing has changed, but it will be, as we said before, a very strong cash flow year for us because we'll realize inventory throughout the year and then we'll get the strong cash flow from the accounts receivable during end of Q3 and Q4, so, yes.
The next question comes from Dan Johansson from SEB.
I think 2 additional ones, continuing a bit on the few working days and impact from Easter here in the quarter. My question is on the margin side, is it also impacted there? Or were you able to compensate for the lower volumes due to the fewer working days?
Yes. So, I mean some businesses, we actually have costs related to working days. In the US, that'll be very similar the way we pay you while in Europe, it's more fixed independent of the working days.But I would say on the margin side, I mean, it's been a good continued strong development on our gross margin. And then, of course, we're also managing costs a little bit more focused until we start seeing the organic growth coming back in the business.So, I think it's a combination of those 2. And then as in the US as said, the number of working days is related to the cost as a lot of our costs relate to personnel and salaries. But I would say that the main drivers of this, is the work that we do. And, of course, part of that is driving private label.It's driving pricing initiatives, and it continues to be the things we'll focus on as we see continued ticket opportunities in those areas to drive margins going forward as well.
And second question on North America and the sales of the new ATL based HVAC equipment. I think you mentioned it was a support during H2. As you see it right now, could we see some gain already after the summer? Or are we speaking more of a topic for the latter part of the year and Q4? How do you see the dynamics when you see orders coming in there?
Yes. I would expect, but there is a difference of opinion if you listen in on OEMs and other channels, but our best estimate is that you'll start seeing it towards the end of the year.
[Operator Instructions] The next question comes from Karl Bokvist from ABG Sundal Collier.
Then I might go into the strategic objectives that you have this year now with the acquisition of Young supply and refrigeration. First one, their refrigeration products, are they similar to on the HVAC side that you have good relationships or they have with one bigger supplier? I'll start with that one.
Yes, with their key suppliers, we have a very strong relationship across the globe. So, I mean, the ink is just dry on the piece of paper. So, we'll start putting those things together as we move through that.But I think even more important is that, if you think of the strategic driver here is that with that platform, our ambition is to use it to also really drive refrigeration in the rest of the heritage platform. As you know, that's 90%, 95% HVAC.So, it gives us good opportunities from Beijer Ref with our suppliers, and it gives us good opportunity to faster leverage refrigeration in the US as now we have company that this company actually grew up from commercial refrigeration and added HVAC. It's very similar how we developed in Europe.And also, we also have a CO2 platform, CO2-based type of products that we have in our European product portfolio, but that will be more for '25, '26.
And then on the private label in the US, any brand in particular that you really try to focus on or will you launch all of the ones that you have, so to say?
No, we will launch our brand that we'll use in the US is ink clear.
And then just my final one. I know you have said that you have so far not seen that, but given the efforts to lower inventories and so on, have you noted any form of campaign, pricing strategies or similar things either that you have had to do or from competitors?
Yes. I mean I think it's a complex question to answer, of course. In general, as you see, our margins are at a good level, and we expect that to continue. If you look at the US, I would say, not really.If you look at APAC, they're just wrapping up this summer season, so not really. In EMEA, yes, you see some campaigns in HVAC, but that's very normal this time of the year as you're starting to build up for the season.So, I would say, at least as we sit here today, we haven't seen any different behaviors than in the past. So, nothing really that I would, at this stage, would consume me to think that it will be different this year. I'm sure there's a lot of inventory out there, but I think it's a lot of discipline in the market as well. So, no, not really.
The next question comes from Sunny Sri from Infosys.
This is Brijesh from HSBC. Just a quick one on the heat pump market in Europe. Would you be able to tell us anything about how it is related to your comment that the high pace is kind of normalizing in Q1 towards end of Q1 2024, is between the HVAC business? So, any color whether that would be different for heat pump versus the overall heating and ventilation market?
No. I'm not sure I completely understood your question in heat pumps and in what markets or just --
I'll just probably rephrase it. I probably rephrase it. So, within your comment about that HVAC business is kind of coming to a normalized level towards end of Q1. Would you differentiate within HVAC, whether heat pump is better off, worse off or whether that has been normalized or it's still in a big situation?
Yes. I think the reason I don't comment specifically on heat pump because it's not that big part of our business. If you take the US, we do sell heat pumps, there's no change. It's mainly in EMEA question, right? And you have this very strong development.I would say that on the heat pump side of Europe, there's still some transition to do on the inventory side and demand and incentive models. I don't think that market will be super strong.Maybe when you look into the heating season as you move into Q4, probably it's a good checkup point. Right now, it's the Beijer Ref profile. We're all focus on the cooling side as we move into Q2 and Q3. So, the heat pump wouldn't be a strong part of our portfolio as we're into the cooling season that we're focusing on that.
And in terms of pricing, have you seen any kind of trade down happening at your level because the demand is pretty weak?
Yes. I mean, it's hard to say that our demand is pretty weak. It's pretty okay across the board. So, at least we are focusing, what we're working on, it's a pretty okay demand situation. Our installers, our customers are busy. So, we're pretty busy. So, no, not really.
The next question comes from Adela Dashian from Jefferies.
A quick question on your ability to flex up, let's say, if demand is much higher than what you're currently seeing in the books? So, I appreciate your comments about keeping inventory levels discipline ahead of the high season, but let's say it moves in the other direction. And all of a sudden, we have heat waves across the board. What's your view there?
So, the view we have, and, of course, we have a more detailed view on the inventory where it is what we have. And we're expecting we won't run out of product if there is a heat wave. I mean, it's our business model. So, we feel good about the inventory levels and where we are for the season.So, we're expecting a good season. There's nothing developing there. And you have extreme heat waves, you'll be even better. So now, we're in a good position on that side to manage those type of situations.
And then also on margins, sounded quite nice that you were able to keep those stable in the quarter despite the drop in volumes. But how should we look on that now with the fact that you're meeting easier comps in Q2 and onwards, the season is getting started?And I think you've previously mentioned that you don't view 2024 as being the huge margin expansion here, but is there room for improvement beyond these levels as you move into the year?
No, we're done. No. I would say that I still see stable margins as we look throughout the year. If we start getting, of course, very good strong organic growth and et cetera, you'll have a nice drop to.But I think it's still early days. I would say here in Q1, we worked a lot on managing margin because we knew the volumes would be down low as you saw. And as soon as we see those things starting to pick up, we will also pick up a little bit on our investment side of the business.So, I think we need a couple more quarters and see how the market is going on the margin side, if you start talking about expansion. We always have expansion plans, of course. But right now, I think we get a little bit ahead of ourselves to start driving margins. I think it's more related as organic sales coming through stronger than you should expect also the margins to fall off.
And then on cash conversion, are you still targeting pre-pandemic levels and higher in 2024? No change that guidance?
Nothing is changing that guidance. And, of course, Q1 is a confirmation on that that we are on the right track and the plans we have are being executed. So, I say, we feel better about it now than we did in Q4, but we felt pretty good about it in Q4 as well.
Lastly, on acquisitions, especially in the US, should we expect deal sizes to be similar to the one that you just announced? Or will it go back to the range of the 2 that you announced prior to Young Supply?
Yes. I think it's a good question and it's hard to answer because it's a little bit how we look at the pipeline. But I think now when we've been working with this company, Young Supply for quite some time.So, I think if you look at the US for the rest of this year, it will be a little bit focused on add-ons to this platform and around Tennessee, Alabama and the places that we are because we have a lot of work now. Finally, you have in the commercial platform or refrigeration.And then for 2025, we're probably back with some bigger ones. But I think for the rest of the year, it's more of add-ons and tuck-ins that we're looking at, at the moment.
Can you say anything about what the US businesses product split looks like now? Like what percentage of the sales is now refrigeration? I think Heritage was 5% or less than that. What has this new acquisition added to the business mix there?
If I do my math extremely fast in the head, and I'll tell you all to kick me if I'm wrong. I would probably guess it with the development in Heritage in this, it's at least between 15% and 20%.
There are no more questions at this time. So, I hand the conference back to the speakers for any closing comments.
Thank you very much for listening in. And, of course, if you have any more specific questions, we are here to support you. Other than that, nothing else from us right now, and thanks very much for calling in. Thank you.