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

Hello, and welcome to the Beijer Alma Q4 Report 2021. [Operator Instructions] Today, I'm pleased to present CEO, Henrik Perbeck, and CFO, Erika Ståhl. Please go ahead with your meeting.

Thank you. Good morning, everybody, and welcome to our webcast where we present our fourth quarter 2021. So I'm Henrik Perbeck and with me, I have Erika Ståhl, our CFO. So in addition to the performance of Beijer Alma Group, we will also discuss our reporting segments, our three subsidiaries. These are Lesjöfors, full-range supplier of standard and customized industrial springs as well as flatware strip components acting globally with the majority of sales in Europe. Habia Cable, one of Europe's leading manufacturers of custom design cables for customers in telecom, nuclear power, defense, offshore and other industries. And Beijer Tech, specializes in industrial trading and manufacturing within fluid technology, as well as consumable components and machineries to Nordic industrial companies and also building automation. They take this platform for acquisitions into new industrial niches. So next page, straight to Page 4, please. So today, we conclude what has been a record-breaking year for Beijer Alma, and the last quarter shows continued growth, supported by additional acquisitions. We saw continued strong demand in most customer segments and geographies. It was broad-based growth with strong organic order bookings and sales, supplemented by additional growth from acquisitions. Operating margin has been somewhat impacted by increase in operational costs. The supply chains in the industrial sector continues to be under pressure. For Beijer Alma, the impact is mainly in the supply of certain raw materials and input goods. This has been a daily challenge for our companies. But overall, they have done a great job of resolving the situation and delivering to our customers, which is always the main focus. To manage the inflation further price increases have been implemented since year-end. And despite some uncertainty we see in the world around us, demand has been strong in the beginning of the year. So briefly, looking at our subsidiaries. For Lesjöfors, both order bookings and sales continue to grow in both business areas, industrial springs and shutter springs. Broad across regions, but particularly strong in Nordics where Central Europe and U.S. showed some slower growth. In Habia Cable, key drivers was within industry and telecom, where demand was strong. We also saw high activity within defense projects, which continues to be a focus area going forward. Beijer Tech, active in the Nordics, delivered a broad-based organic growth both in order bookings and sales. And this was supported by profitable growth from acquisitions, which overall grew improved margins. And finally, the group is continuing to focus on acquiring attractive companies that can contribute to our profitable growth. This quarter, Lesjöfors acquired Plymouth Spring, a U.S.-based industrial springs manufacturer. Further, after the quarter end, we welcomed two well-managed companies to Beijer Tech, Swedish Microwave in Montala and Mountpac from the [indiscernible] region. Next, Page 5, please. I'll continue with an overview of the group's financial performance. Looking at the performance, we can see that order bookings grew by 38%, of which 23% was organic. Net sales grew by 33%, of which 16% was organic. We fairly limited currency effects, the contribution from acquisitions is significant with some 15% growth on the net revenues. Operating result increased to SEK 189 million with a margin of 13.2%. This was partly impacted by increased operational costs, but also due to some effects in Lesjöfors, which I will come back to shortly. So moving on to the performance of the reporting segments, our subsidiaries. Next, Page 6, please. Lesjöfors, our spring manufacturer is organized into two business areas. These are industry mainly customized products to a very diversified customer base globally. And the other one, Chassis Springs, which are standardized replacement springs sold to car parts wholesalers mainly in Europe. Overall, order bookings for Lesjöfors increased by 29%, of which 13% was organically. Net revenues grew by 32%, of which 13% was organically. For industrial springs, the largest business area, the growth was 29% broadly across geographies and customer segments but in particular, Nordic region was strong, whereas Central Europe and U.S. growth was lower, partly due to indirect effects from customers lacking other components. Alcomex, acquired last quarter, is reported into this business area. And Alcomex has a somewhat different seasonal profile than Lesjöfors with less contribution in the fourth quarter. For Chassis Springs, demand in the aftermarket was strong despite the fourth quarter is the low season. The operating result was SEK 135 million. Comparing to last year, we should note one-off effects of SEK 18 million in Q4 2020. Aside from that, operating margin was impacted by the seasonal effects from Alcomex just mentioned, but also direct acquisition-related costs for [indiscernible] in December and some impact from increased costs for material and production. Plymouth Springs, a U.S.-based manufacturer of industrial springs and stampings was acquired in December. This provides an exciting platform for growth in the U.S. for Lesjöfors. And also, on the topic of acquisitions, the integration of Alcomex is going well and on its strong fit with Lesjöfors is very clear with synergies between the companies. Next, Page 7, please. Now to Habia Cable, our specialty cable manufacturer. Habia is not organized into business areas. However, the sales to [ nutri power ], defense and offshore customers are usually strongly project related. This can create more volatility, and that is why we show the dynamics of these customer segments down on your left on the screen. Demand was good in the quarter with order bookings amounting to SEK 251 million, up organically by 61%. This was mainly driven by telecom industrial customer segments, but also a good activity in defense projects. Net revenues grew by 20% organically, mainly in the telecom and industrial segments. At the same time, as you can see in the graph below, the share of nuclear and offshore remain at the lower level, which created somewhat negative product mix effect. Together with challenging material supply, we had some negative impact on the operating margin. Operating results improved and increased to SEK 15 million in the quarter. Next, Page 8, please. Beijer Tech operates in two business areas: Fluid Technology and Industrial Products, both acting within industrial trading and manufacturing. Further, it's a platform for acquisitions into new products and business areas such as building automation which is supported in industrial products. Thanks to a continued strong demand growth in order bookings amounted to 45%, where 25% was organic. Net revenues grew broadly by 44%, of which 23% was organic. Within both business areas, Industrial Products and Fluid Technology, growth was broad over the Nordics and revenues grew organically with additional contribution from the acquisitions. Challenges can form longer lead times and price increases are handled proactively in the companies and are expected to continue. Operating result increased to SEK 48 million with a good underlying operating margin. There was a good impact in the quarter for recent acquisitions, and I will come back to the events after the quarter later in the presentation. Next, Page 9, please. I'll now hand over to Erika for some further comments on the financials. So we go to next Page 10, please.

Thank you, Henrik. And on this Page 10 is a very busy page. It includes a summary of both the fourth quarter as well as the full year. And there's a few things I would like to highlight in addition to what Henrik has already mentioned. 2021 was a very good year. Our revenues were up by 27% and the operating result up by 42%. This gave us an operating result of SEK 820 million, if I exclude the one-off item from the sale of the business in Germany. This is then corresponding to a 15.2% margin, which is very high on a high level that we have not seen in very many years for the Beijer Alma Group. Cash flow in the quarter as well as for the full year has been affected by a higher pace in investment in our underlying business. I think that we need to keep in mind that 2020 was a very special year in which we then had very low investment. So we're now back at a higher run rate, which is more in line with our usual pace from pre-pandemic years. Additionally, I'd also like to point out that the working capital -- was -- the change in cash flow from the working capital has been higher than last year as we are tying up more capital now that the business is up quite a lot. Net debt versus previous year is also up, and that is then mainly driven by the five acquisitions that we made in 2021. We have Plymouth Spring, we've Alcomex, [indiscernible], Novosystems and Noxon that have been added and of course, then affected our net debt situation. And with regards to the last numbers on this page, I just want to highlight that the available liquidity from last year is then, of course, affected by the fact that we, in April 2020, added SEK 300 million extra in credit facilities. They were not extended after year-end 2020. But that is not included in the 2021 numbers. So I think that based on this situation, we have a very good room for additional acquisitions. And as you know, we did actually two more acquisitions already now in the first 2 months of 2022. So please go to Page 11, please. This is then a page showing the suggested dividend. And this is -- the proposed dividend for 2021 is SEK 3.50 compared to the SEK 3 we had in 2020. This is then 37% of our earnings per share, which is in line with the policy that we have to give 1/3 of our net result of the period to the shareholders. And we also believe that this level of dividend supports our focus on acquisitions as well. Please move to Page 12. These bridges, we have seen for the last quarters as well, showing then the development of order bookings and net revenues in the quarter. And compared to what we saw earlier quarters this year, we now have a tailwind from currencies in the fourth quarter. And our total growth for order bookings was 38%, of which then 23% was organic growth. For net revenues, we saw a 33% growth, of which 16% was organic. And as you see, we have 14% and 15% respectively growth from acquisitions that then are the ones made in Beijer Tech. And also worth mentioning again is then that in the fourth quarter, all of our subsidiaries report double-digit organic growth for both order bookings and net revenues. Move to Page 14, please. These bridges are then showing the contribution from subsidiaries on net revenue and operating results. And as we see, all three subsidiaries report growing net revenue. And as mentioned already, Lesjöfors Beijer Tech can then additional support from acquisitions. On the operating results side, as Henrik has already mentioned, we have a bit of a mixed picture, where then the 2020 numbers are including some of the one-off items important to keep in mind. For Lesjöfors actually SEK 18 million from 2020 that's monitored then keep in mind when looking at the year-over-year comparison. And also then, as we already mentioned, we have, in Lesjöfors, an impact from a slightly different seasonality. And Alcomex. We have had acquisition costs, and we then have increased cost in material and production. We have also seen some impact on Habia from material supply situation. I think that is worth mentioning is also then that the insurance case has been closed, if you recall related to the data inclusion in second quarter this year, and there was no additional impact on the results from that. And I think all in all, we are now ending the fourth quarter at an operating result of SEK 189 million. Next page, please, which then is handing it back to you, Henrik.

Thank you. So concluding on the key developments in the quarter, strong demand broadly across business areas and geographies, increased operational costs affecting some of operating margin. The challenges in the supply chain remains but handled flexibly. And finally, Plymouth Spring was acquired by Lesjöfors in the U.S. So going to the next Page 16, please. I will now comment on some trends after the quarter. During the quarter, we maintained a high focus on further growth by acquisitions. And in the new year, two transactions are being closed within Beijer Tech. Firstly, on the 14th of January, Beijer Tech acquired 80% of the shares in Swedish Microwave. It's a high-tech developer and manufacturer of equipment for global satellite communication market. Based in Motala, Swedish Microwave is a well-managed, growing company with revenues of approximately SEK 50 million and high profitability. On 3rd of February, Beijer Tech acquired 85% of Mountpac with revenues of approximately SEK 50 million on good profitability. Mountpac is a manufacturing supplier of customized components based in the -- [indiscernible] region in Sweden with a strong track record of profitable growth. We're very happy to welcome these two companies to our group. And finally, yesterday, we announced the initiation of a strategic review of Habia Cable, which I will now comment more on next, Page 17, please. So we have decided to carry out a strategic review of the group's holding in Habia Cable. The review is intended to ensure long-term value creation for Beijer Alma shareholders and to ensure that Habia Cable has the right conditions for growth considering the company's leading position in its niche. The Beijer Alma strategy for active ownership, the goal is to create profitable growth organically and through acquisitions. In recent years, this strategy has not clearly been shown through our largest subsidiaries, Lesjöfors and Beijer Tech. We continue to evaluate how the subsidiaries contribute to the long-term value creation and according with our strategy. In light of this, we have decided to initiate a strategic review to ensure that Habia Cable has the right conditions for growth either as part of Beijer Alma or under another owner. At this moment, we can, of course, not speculate or comment further on the outcome of the strategic review, but it should be completed during the first half of this year. Next, Page 18, please. And I would also like to wrap up these concluding remarks by reflecting on the record-breaking performance in 2001 -- '21 as a full financial year. We saw a strong recovery in high demand, which has characterized the development over the year. This has meant high production volumes, but also, as mentioned, strained supply chains. With growth of order bookings of 34% and revenues of 27%, we also entered the new year with good momentum. The operating result before items affecting comparability grew by 50% in 2021. Next, Page 19, please. On this slide -- long-term slide, we can see how the trend of profitable growth has been restored after the special situation in 2020 and the effects from the pandemic. Now much in line with our strategy. Approximately half the growth is organic and the other half coming from acquisitions. Next, Page 20, please. And finally, on the theme of acquisitions, we continue to see this as an important part to profitable growth. We are now welcome 15 companies in the last 3 years, adding new product groups, new geographies and brand new industrial niches. So I conclude here, and thank you, and we now open up for questions. Page 21, please.

[Operator Instructions] And our first question comes from the line of Carl Ragnerstam from Nordea.

It's Carl from Nordea. A few questions. Firstly, you mentioned that Lesjöfors was negatively impacted by seasonal effects in Alcomex. So just could you remind us of the seasonal variations in Alcomex? I guess they generated just about 10% margin in Q4. They should have 16% on a full year basis. So that's the first question.

Yes, correctly -- or rather the seasonal effect is it's not uncommon in some countries, including Alcomex, that the end of the fourth quarter, it's somewhat weaker contribution. And this is -- we know from the company and the trend and the forecast. So -- but it has, of course, for -- in this comparison, it gives a negative mix on the margins. So yes.

And could you remind us of the seasonal variations otherwise In Alcomex? Would you say that Q1 is better?

Yes. Apart from that, it's very much in line with Lesjöfors as a group.

Okay. So Q1 is a better quarter than Q4 or seasonally in Alcomex?

Yes. Yes. Yes.

Okay. Perfect. Very helpful. And also on raw material headwinds, which you mentioned is one effect as well. You also said that you implemented price increases during the quarter. Would you say that they are fully materialized during Q1, meaning that they will neutralize the impact from the raw material headwinds? Or is it more of a Q2 thing when we'll see the full impact?

So overall, we have worked throughout the year with -- proactively with managing the increase in raw materials. And as I mentioned, we have further increased in the beginning of the year. This is a broad portfolio of companies we have with a very diversified customer base. But there are recent increases as well to manage the raw material increase and the general inflation. On the topic of where inflation is heavy, I think there are, of course, other experts commenting on that. But I think we certainly see the -- overall, the inflation continuing for -- in the near term, and we need to manage that, and we are doing so continuously including now also from on 1st of January.

So do you expect the same headwinds in the coming few quarters compared to what we see -- saw in Q4? Or should we expect that price increases will offset some? Or...

Certainly, the purpose of the price increases is to offset such increases.

Okay. So we see the effect of that already in Q1 then?

Yes, of the price increases that are in the beginning of the quarter, yes.

Okay. Perfect. Also looking at this G&A level here, it increased by almost 200 basis points as a percent of sales in Q4 versus Q4 2020. It's actually up a bit since Q4 2019 as well. So would you say that you are back to normalized cost levels currently? Or should we expect it to ramp up SG&A even further going forward because it looks like at least that you're back to pre-pandemic level?

That's correct analysis. Looking at -- 2020 was a very special year with a lot of cost savings. And then, during 2020, the demand increased and many of our factories was in full production. And over this year -- over 2021, we have, of course, adapted to manage this high level of volumes. So I think we are back with a strong introduction platform and can deliver on this growth. So, yes.

Okay. Perfect. And the final one from my side is a bit on M&A. You -- as you've said on Page 20 here that you've been able to ramp up quite nicely in 2021, the M&A base versus historical levels. Would you say that the M&A pipeline, as you see it, currently, is sort of big enough for -- at least, good enough to sort of sustain a high level of acquired growth also going forward?

Our ambition is certainly to generate continued profitable growth through acquisitions. The market and the pipeline is good. And we are working both in a more proactive approach and building relationships with companies that we think could be a great fit in the Beijer Alma Group in the future. And there, we see an interesting pipeline. And in addition to, as I mentioned, there is also the market for -- with a lot of interest in incoming prospects of companies being sold. So overall, the market level is good in terms of acquisitions as well.

Our next question comes from the line of Hjalmar Jernström from Erik Penser Bank.

You mentioned that the Nordic markets for Lesjöfors industry were strong in the fourth quarter, while the rest of Europe, a bit worse. Could you elaborate a bit on the start of 2022. Have it started in a similar manner for these markets? Or do you see any shifts in the sentiment across Europe?

I think, as I mentioned, there was a somewhat less growth in the two areas I mentioned, the Central Europe and the U.S. We're also active, of course, in other markets such as Asia and the U.K. and Nordics, of course. In general, we see a strong start of the new year with continued growth -- continued strong demand. And it is broad rather than specific region.

All right. And also with regards to the acquisition of Plymouth Spring, this opens up, as you mentioned, for additional acquisitions in the U.S. Could you perhaps elaborate a bit on particular industry segments that you find interesting for future acquisitions and perhaps also elaborate it on the level of competition that Plymouth Spring is facing in the U.S.?

In general, the U.S. market is interesting for -- in particular, for Lesjöfors, of course. And we have already -- we had already before that one company in the U.S., and now we add Plymouth Spring. So we see that this as a good platform and starting point to identify further companies that fits well into the Lesjöfors groups. It's generally within Industrial Springs and also some -- for niche products within Industrial Springs area. So it's a good step forward on -- our presence for the U.S. markets, and we become a more active player. So that's -- and overall, of course, the U.S. market just as in Europe is a competitive market, but I think our group is a good platform for companies to join -- to develop within our group. So we see we have an interesting position to elaborate further on and it's certainly an ambition to look further there.

[Operator Instructions] And as we have no more telephone questions registered, I hand back to our speakers.

Yes. We've received a question in writing then from [indiscernible] regarding the administration costs in the fourth quarter, and I think that Henrik has already elaborated on that. We're more back on pre-pandemic run rate now. However, we have also, of course, then had acquisition costs, which are booked under admin. And there were some certain projects that were then concluded in the fourth quarter, which is also then affecting our admin costs. As a share of sales, however, on a full year basis, we are in line with last year. So that's a comment on that question.

Okay. If there are no other questions, we thank you very much for joining us, and have a good day. Bye-bye.

This now concludes our conference. Thank you all for attending. You may now disconnect.