Beijer Alma AB (publ) (BEIAB) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to our first quarterly report webcast. Despite this being the first call of this kind, Beijer Alma, has, of course, been a public company since 1987. And by that, published well over 100 quarterly reports. So my name is Henrik Perbeck. I've been the CEO of Beijer Alma for 3 years. With me, I have Erika Stahl, our CFO, since August last year.

Good morning, everyone.

In addition to the overall performance of Beijer Alma Group, we will also today discuss our reporting segments, our 3 subsidiaries. These are Lesjofors, full-range supplier of standard and customized industrial springs, impacting globally and with the majority of its sales in Europe; it's Habia Cable, one of Europe's largest manufacturers of custom-designed cables for customers in telecom, nuclear power, defense, offshore and other industries; and Beijer Tech, which specializes in industrial trading and manufacturing, within fluid technology as well as consumables, components and machinery for Nordic industrial companies. Beijer Tech is also a platform for acquisitions into new industrial niches. Next page. You can go straight to Page 4, please. So I'm happy to report that the first quarter has been a strong one, with increased profitable growth, thanks to the strong recovery in demand and continued cost control. We saw favorable demand in most customer segments and geographies. Order bookings and sales increased both compared with previous quarter and same quarter last year. Together with a competitive cost base, this led to the strongest quarterly results in the group's history. Looking at the subsidiaries, Lesjofors saw a broad uptick both in order bookings and sales, in particular, in the Chassis Springs business area. Production was in full swing to meet demand after this year of -- with effects from the pandemic. For Habia, order bookings and sales recovered compared to preceding quarters as demand increased, especially among industrial customers. Also Beijer Tech noted stronger demand with organic growth, both in order bookings and in sales, in addition to the profitable growth from its acquisitions. Next, Page 5, please. Now I continue with an overview of the group's financial performance. But first, I want to make 2 comments regarding effects of the COVID pandemic. First one related to last year and the comparables we are using. But last Q1, we actually had very limited COVID effects. So all in all, the comparables are quite normal. This year, we have really not seen significant impact on our customers' demand during this quarter. Of course, it impacts our way of working, and we are working from home, almost no business travel, and that gives a somewhat lower overhead cost level. So looking at the performance, you can see that order bookings grew by 16% organically and net sales somewhat less by 8% organically. The operating result is up significantly to SEK 250 million, with a margin of 16.7%. This I see the margin improvement -- is an improvement also from last quarter, Q4, which should contain some one-off effects. Below left, you can see the share of revenues in our subsidiaries during the quarter. I will now move on to cover this in more detail. Next, Page 6, please. Lesjofors, our spring manufacturer, is organized into 2 business areas: Industry or Industrial Springs, which are mainly customized products to a very diversified customer base globally. The other business area is Chassis Springs, which are standardized replacement springs, sold to car parts wholesalers, mainly in Europe. Order bookings for Lesjofors increased by 29%, which is a very strong development. It was built across business areas. To be fair, we did actually have some COVID impact last year in the order bookings, especially for Chassis Springs in the very end of March. The sales grew organically by 14%. For Industrial Springs, the largest business area, growth was 3%. Here, Asia stood out as the highest contributor to growth. For the Chassis Springs, increased end customer demand was driven by colder winter conditions than last year, which tends to increase the need to change springs and has a clear impact when comparing demand between the years. In addition, our customers, the wholesalers, builds up inventory to meet this demand, which amplifies the effect for Lesjofors. The operating result increased to SEK 172 million, with margin improvements broadly across business areas and geographies, thanks to cost control and high production utilization. Actually, also, here, it's an underlying continued improvement from Q4, which did contain some one-off effects. So next, Page 7, please. Now to Habia, our specialty cable manufacturer. Habia is no longer organized into business areas. Still, the sales to nuclear power, defense and offshore are usually strongly project-related. This can create more volatility, and that's why we show the dynamics of these customer segments down on the left. Demand for Habia came back this quarter from preceding quarters, albeit still lower than last year. Order bookings amounted to SEK 198 million, which is down organically by 11%. And net revenues declined by 6% organically. The product mix was positive, both from project deliveries and also within telecom, together with a structurally lower cost base, the profitability improved significantly, as you can see on the curve on the right. And operating profit amounted to SEK 26 million in this quarter. Next, Page 8, please. Beijer Tech operates in 2 business areas: Fluid Technology and Industrial Products, mainly in trading, but also manufacturing and customized products. Also, as I mentioned upfront, it is a platform for acquisitions into new products and business areas. INUstyr active in building automation was acquired half a year ago and is reported into industrial products. We're happy to show organic growth in both order bookings and net revenues by 8% and 5%, respectively. In addition, the acquired growth are contributing to profitability. All in all, the operating result increased to SEK 23 million this quarter. And regarding acquisitions, I will shortly come back to positive events in April. Next, Page 9, please. I will now hand over to Erika to further comment on the financials.

Thank you, Henrik. So let's move on to Page 10, which is a summary of the strong beginning of this year. And I'm going to highlight a few things that have not already been mentioned by Henrik. We have an operating margin of 16.7%, which is the second highest in a very long time. Actually, already in Q4 last year, we had a slightly higher margin, but that's included some one-off items. So excluding that, Q1 2021 is actually the highest margin we've had in the last almost 10 years. We are also recording a good cash flow, where the increase in working capital was compensated for by higher results. I also want to point out the net debt and cash positions. Net debt is up versus year-end, and the cash position is down. Please keep in mind that we have a dividend payout of SEK 180 million now in March. And also, we had -- about a year ago, we added 300 million of additional credit facilities that we did not extend over the year-end. So that we no longer have in our available cash position. But despite this, we do still have a very strong financial position after the closing of first quarter 2021. Please move to Page 11, please. This is then a page with 2 bridges, one showing the order bookings and the other showing net revenues. And as you can see, both of them have currency headwinds of 5% and 6%. We also have 2% of acquisition impact, and this then is coming from the acquisitions in Beijer Tech. And as Henrik already mentioned, we did see some impact from the pandemic already in the end of March last year. So that, of course, is affecting our order bookings development year-over-year. However, I still think that the 16% organic growth in order booking is quite impressive. Our net revenues had an 8% organic growth. So let's move on to Page 12, please. And here, we have 2 other bridges, showing the contribution from the subsidiaries on net revenue and operating results. Both Lesjofors and Beijer Tech have reported organic growth in net revenue, while Habia had a decline versus the first quarter last year. And if we look at the operating results side, all subsidiaries contributed well. And as Henrik has already mentioned, Lesjofors' improvements come from many business areas and geographies. And it's related to a good cost control and high production utilization, helping result improvement. And despite the negative development of net revenues, Habia presented a result improvement, which then is supported by favorable product mix and a lower cost base. Also for Beijer Tech, we had a favorable mix, which then is combined with lower levels on the cost side, and we had a good contribution from recent acquisitions adding to that development. All in all, this leads up to the SEK 215 million operating results for first quarter 2021. And now I hand over back to you, Henrik.

Thank you, Erika. Next, Page 14, please. So coming back to some events after the quarter. And during the quarter, we maintained a high focus for further growth by acquisitions. And in early April, we could close 2 transactions. On April 1, Beijer Tech acquired Noxon. Noxon provides decanter centrifuges, polymer machines, control systems and after-sales service related to water treatment in several applications. It has revenues of approximately SEK 70 million and good profitability. Noxon will complement Beijer Tech with new products and customer segments in the fluid technology area. On the 6th of April, Beijer Tech acquired 75% of Novosystems. Novosystems is active in building automation systems and offers energy-efficient solutions for public and private customers in Sweden, with revenues of approximately SEK 50 million and favorable profitability. Novosystems will be included in Beijer Tech's subsidiary industry to build a stronger player in the Swedish market, covering complementary geographies. I'm very happy to report these 2 acquisitions. Now on a less positive note, on April 12, we announced that Habia Cable had been exposed to data intrusion. The incident impacted large part of Habia's operation. Habia has informed its affected customers of the situation and is acting in accordance with its Business Continuity Plan in order to return to normal operations and full production at all plants as soon as possible. Habia is working with leading IT security experts to restore affected IT systems. It's still too early to determine the ultimate financial impact of the data intrusion, but it is expected to be limited through the group's cyber insurance policy. Next, Page 15, please. Our sustainability work is of heavily increasing importance. In March, we published our 2020 sustainability report. So today, it's a good opportunity to present our focus and also progress. In 2019, we set our objectives for the next 5-year cycle, in areas relevant for Beijer Alma and its operations and related to the United Nation's Sustainability Development Goals. The main objectives are: number one, sound business ethics with social commitment; number two, more efficient use of resources in the energy and waste management; third, reduce climate impact; and last but not least, number four, safe and stimulating work environment. Next, Page 16, please. So to update on the progress, in 2020, which was a very special year, we still made improvements in most areas. And particularly, I want to highlight, in terms of climate impact, we reduced our carbon intensity by 14%. And on that theme, not yet seen in the numbers, we have in the last 6 months installed solar panels on 2 factory routes to supply the factories directly with electricity. In addition, recently, our Lesjofors plant in Värmland completely switched to biogas in the heating processes, which will reduce our local footprint by over 70%. I'm also very happy to see that workplace accidents are continuously reduced. This is our highest focus, no matter where in the world we have our production facilities. Now of course, there's much more to read about our initiatives in our annual report and sustainability report. So please have a look there. Next, Page 17, please. As many of you know, we do not guide or give specific forecast for the future. Instead, I want to wrap up by summarizing our strategic focus now as the pandemic is losing its grip. We focus on profitable growth, both organic and through acquisitions. Of course, during last year, we held back some of the investments, but now we see as business is normal again, we want to support our subsidiaries in new initiatives to drive organic growth. Beijer Alma has a stable earnings base, thanks to customized products and the diversified, not the local customer base. The resilience in the supply chain and delivery to customers is key. And this is something we could really prove during the last year and is likely to be a strategic importance going forward of supply chains are regional more and more and may be not as global. Increased acquisition focus. The continued consolidation of the industrial springs market through Lesjofors, Beijer Tech can be seen as a compounder within industrial niches, and at the same time, we are looking for opportunities for portfolio acquisitions in Nordic industry. And this all supported by a strong financial position to finance acquisitions. Overall, we are a long-term owner and believe strongly in the decentralized governance structure to empower our local management and encourage entrepreneurship to make the best business decisions locally close to our customers. Next page, please. So we now open up for questions. So operator, please?

[Operator Instructions]. And we have a question coming from the line of Carl Ragnerstam from Nordea.

It's [ Colin ] from Nordea. So in the report, you stated that you experienced some inventory build up within, especially within the Chassis Springs subsegment. So my question is, if you see any changes in that picture at the end of Q1 or maybe going into Q2? Or maybe do you see that the distributors already have a quite high inventory level after the build up in Q1? Or how should we look at that?

Well, yes, just to clarify, it's not we that experienced the build up. But it's right that typically, when the end customer demand grows, meaning the actual springs that are changed out in the workshops all across Europe, our customers, the wholesaler, needs to build up their inventory. So as I said, typically, the effect is amplified. And normally, the seasons for the Chassis Springs are, in Q1, there is a build up season; and Q2 is the main season for out on the market. Of course, there will be very different dynamics from last year, obviously, where the whole corona hit very harshly in Q2 all over Europe. So you'll see different dynamics compared to last year's numbers. But much more normal dynamics with strong Q1 and the main season only being in Q2.

Okay. Perfect. And in Habia Cables, would you say that we in Q1 saw the full impact of the cost out program? Or will it probably be seen first in Q2, the full impact from the savings?

I would say you saw the full impact already now. And actually already last quarter, what you're referring to is just restructuring and -- last Q2, but yes, we can see the full impact now.

Perfect. And then another question might be a bit difficult to answer, but I would try it anyway. So in Lesjofors, you managed to lift margins by 500 basis points year-over-year. So could you please help us bridge that? I mean how much is maybe temporary cost saving structure ones as well as a positive margin mix probably from a high Chassis Springs share of sales?

The margin improvement, as I said, was broad across both business areas. And I would say that, of course, there are, as I mentioned, some aspects of the way we are working right now with reduced travel and expeditions and all that. But all in all, for Lesjofors, that is not significant. I think the real lever here is that we now have -- based on a competitive cost base and some savings that were made during last year, we now have a high utilization again in most of the factories. So I would say a large share of this is -- on these production levels and demand levels is indeed sustainable. But it's very hard to say exactly what's the impact, which we are working. And to be fair, we might not go back to exactly the same way of working when we -- even when we are allowed to.

Yes. Okay. Perfect. And also on the component and raw material side, I mean, firstly, on the raw materials, specifically the steel price probably, how will this impact you? Had we implemented price increases? And are you able to push forward the vast majority of the price increases? And also do you experience any component shortages that might hamper growth in Q2? Or how should we look at that?

Regarding the raw material price increases, yes, they are, indeed, significant, especially for metal. And that is, of course, mainly impacting Lesjofors. This is partly handled. In some instances, there are -- given in the contract, indexations that take care of this. But certainly, on this -- with these kind of things, this is absolutely reason to -- for price increases. And the organization is actively doing this. Regarding components, we are not so much affected by lack of components directly. We did mainly use raw material as we talked about. Of course, there could be indirect effect going forward. But related to our customers, it may lack other components, but that could be effective production output, but we have not seen that so far.

As we have no further questions, I hand back for closing remarks.

So thank you, everybody, for joining this first call. And have a good day.