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

Hello, and welcome to the Beijer Alma Audiocast with Teleconference Q1 2022. We do apologize for the delay in starting this audio cast. There was a technical problem. We are very sorry for that and the inconvenience this has caused. [Operator Instructions] Today, I'm pleased to present CEO, Henrik Perbeck; and CFO, Erika Stahl. Please go ahead.

Good morning, everybody. Yes, finally, we are online. We have been ready here for quite some time. So welcome to our webcast. We will present our first quarter 2022. So I'm Henrik Perbeck, and I have with me, Erika Stahl, our CFO. In addition to the overall performance of Beijer Alma Group, we will also present our reporting segments of 3 subsidiaries. These are Lesjöfors, full-range supplier of standard and customized industrial springs as well as wire and flat strip components acting globally with majority of sales in Europe. Operator, we are now on Page 2, are you? And it's also Habia Cable, one of Europe's leading manufacturers of custom-designed cables for customers in the telecom, nuclear power, defense, offshore and other industries. And it's Beijer Tech who specializes in industrial trading and manufacturing within Fluid Technology as well as consumable components of machinery to Nordic industrial companies and also building automation. And Beijer Tech is also a platform for acquisitions into new industrial niches. So now we would like to go to the next page, straight to Page 4. So on Page 4 then, just some overall comments on the quarter. So in general, the first quarter was a strong one. But external factors and uncertainty are, of course, affecting Beijer Alma as many others. Demand was fundamentally favorable. Our business model is robust and resilient, thanks to our diversified customer base. Our company succeeded in growing their order bookings, net revenues and operating profit in the quarter. However, we are now navigating an increasingly uncertain world. The COVID pandemic is continuing to cause disruptions in China and actually in some parts of Europe, too. In Europe, the war in Ukraine has resulted in enormous human suffering as well as disruption in the world economy and global supply chains. For Lesjöfors, order bookings and sales grew in both business areas. The Chassis Springs operation in Russia was suspended since March. Habia Cable showed growth driven by favorable demand in the industry, telecom as well as defense consumer segments. For Beijer Tech, a broad-based organic growth in the Nordics was further supported by acquisitions. And operating margin continued to improve. The geopolitical situation will impact the Group, both directly and indirectly, which makes the situation extremely difficult to assess. Apart from managing the supply chains, our companies also need to handle rising inflation through price adjustments and cost control. Finally, as mentioned already in the last call, we had 2 new acquisitions. Swedish Microwave and Mountpac became part of Beijer Tech this quarter. Next, Page 5, please. Now continuing with an overview of the Group's financial performance. In general, based on the strong recovery in performance in 2021, we are facing tougher comparables this year. But despite of this, looking at the performance, we can see that order bookings grew by 32%, of which 13% organically. Net revenues grew by 33%, of which 13% was organic, which was supported by price increases. The operating result before items affecting comparability increased to SEK 271 million with a margin of 15.9%. This is then exclusive of an impairment of assets in Russia of SEK 25 million. Moving on to the performance of our reporting segments, our subsidiary. Next, Page 6, please. Lesjöfors, our spring manufacturer, is organized into 2 business areas, these are industry with mainly customized products to a very diversified customer base globally. The other is Chassis Springs. These are standardized replacement springs sold to car part wholesalers, mainly in Europe. Order bookings for Lesjöfors increased by 23% and organically down by 1%. Net revenues grew by 31%, of which 7% organically. For Industrial Springs or industry, the largest business area, the growth was 39%, broadly across geographies and customer segments. But in particular, Nordic region was strong, whereas in the U.S.A. and Central Europe, growth was [indiscernible] partly due to indirect effects from customers lacking other components. In China, disruptions due to COVID lockdowns had some effect on operations towards the end of the quarter. The recent acquisitions in Lesjöfors, Alcomex and Plymouth Spring have both reported into this segment and contributed well to the business area. Chassis Springs' demand in the aftermarket continued to be strong in Europe, but the effect of the suspended operations in Russia impacted net sales and of course order intake from March. [ Shift to ] Ukraine is also on a very low level due to logistical reasons. We can also note that winter in Europe has been fairly normal, but not quite as harsh as last year, which could have a dampening effect on demand. The operating result before items affecting comparability grew to SEK 191 million, which corresponds to an operating margin of 18.7%. And due to the uncertain situation in Russia, we have made an impairment of assets of SEK 25 million. Next, Page 7, please. Now to Habia Cable, our specialty cable manufacturer. Habia is not organized into business areas. However, sales to nuclear power, defense, offshore customers are usually strongly project related. This can create more volatility, and that's why we show the dynamics of these segments down on the left on the slide. Demand was good in the quarter with order bookings amounting to SEK 312 million, up organically by 53%. This was mainly driven by telecom and industrial customer segments, but also good activity in the defense markets. Net revenues grew by 16% organically, mainly in telecom and industrial segments. Thanks to good capacity utilization and increase of share of the defense, nuclear and offshore versus previous quarters, also the profitability improved. However, material supply continues to be a challenge as well as the COVID situation in China, which is causing disturbances and affecting deliveries to 30%. The operating results improved to SEK 34 million in the quarter. Next page 8, please. Beijer Tech operates in 2 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 reported into industrial products. Thanks to a continued strong demand in the Nordics, growth in order bookings amounted to 38%, where 23% was organic. Net revenues grew broadly by 46%, of which 26% was organic. Within both business areas, Industrial Products and Fluid Technology growth was broad over the Nordics and revenues grew organically with support from price increases. In addition, the last year's 5 acquisitions contributes to the profitable growth. Challenges remain in the form of longer lead times and price increases, and they are handled proactively by the companies and are expected to continue. Operating result increased to SEK 53 million with a healthy 12% operating margin. And there was already some good impact in the quarter from recent acquisitions, Swedish Microwave and Mountpac. Next, Page 9, please. And I will now hand over to Erika to comment around the financials. We can go straight to Page 10.

Thank you, Henrik. This is probably the business page of Beijer Tech. And I think it includes a summary of the quarter. Of course, I will not go through all of that. I will only highlight a few things that Henrik has not already mentioned. One thing to note this has been the profit after net financial items, which is up by 14% at SEK 238 million. I would also like to comment on the cash flow. As you see that is negative in this quarter. And this has a lot due to the fact that we have had higher accounts receivables driven by the higher sales, and we have also higher inventory levels, which is then related to the higher material costs and higher volume that we have added to secure availability of period. I think also one other thing worth mentioning is the fact that the first quarter is usually quite weak cash flow for Beijer Alma group. And there was, of course, no difference this quarter due to the seasonality of our business. And of course, as you see here, we have an impact on our available liquidity here as well, which, of course, is related to the lower cash flow that we had in the first quarter. And when we look at the net debt, this is also to keep in mind, what Henrik has talked about, we have made 7 acquisitions since April last year, 5 in 2021 and 2 in 2022, which, of course, has had an impact on the net debt situation as they have been financed by debt to a large extent. Please go to Page 11, please. And this page then shows the bridges of order bookings and net revenue for the first quarter for the Beijer Alma Group. In the first quarter, we have had taken approximately 4% from currencies for both order bookings and net revenues. Total growth for order bookings was 32%, and for net revenues, it was 33%. And in both of cases, we had an organic growth of 13%. And then we had 15% growth from -- in order bookings and 16% growth in net revenues from the acquisitions that were made in Lesjöfors and Beijer Tech. Now move to Page 12, please. This page is then having 2 differences, then showing the contribution from the subsidiaries on net revenues and operating results. And all 3 subsidiaries report growing net revenue, as Henrik has already presented. And Beijer Tech and Lesjöfors then also had the support from their acquisitions. On the operating results side, we have, as already Henrik has mentioned, items affecting comparability, item of SEK 25 million, which then is related to the impairments of assets in Lesjöfors in Russian company. And looking at the margin development for Lesjöfors, we had an impact -- a dilutive impact from the acquisitions of Alcomex and Plymouth. We also had a gross margin impact from inventory buildup and increased material costs, which have been mitigated by price increases. And then I think it's also worth mentioning that for both Habia and Beijer Tech, they had very good results improvements, and that's something that we want to highlight in this quarter. And all in all, it added up to an operating results before items affecting comparability of SEK 271 million, including then the item affecting comparability of SEK 243 million compared to the SEK 215 million last year. So now I hand over to you, Henrik.

Yes. So we go to Page 13, and actually, we can go straight to Page 14. Some concluding remarks, I would first like to highlight our sustainability work, which is of overly increasing importance. We published our 2021 sustainability report in March. So today is a good opportunity to present the focus and -- on the progress. Our objectives are in areas that are relevant for Beijer Alma and related to the UN Sustainability Development Goals. So the main objectives are sound business ethics with a social commitment, with more efficient use of resources, such as energy and materials and reduce climate impact. And finally, and most importantly, is safe and stimulating work environment for employees. So looking at the progress, let's please go to Page 15. I have to report that we have made improvements in most areas during 2021. I will highlight, in particular, in terms of climate input. We have reduced our carbon intensity by 32%. This has been achieved through a number of projects, including installing solar panels on factory roofs, to supply factories directly with electricity. Also, several Lesjöfors plants in Sweden have shifted or are in the process of shifting to biogas as a heating process, which can reduce their local carbon footprint by 70% to 90%. I'm also happy to see that workplace accidents are continuously reduced towards our zero vision. And this is our highest focus, no matter wherever we have our production plants. Next page 16, please. So conclusions on the key developments in the quarter. Demand essentially remained favorable, and the Group increased order bookings, net sales and operating result. The uncertainty has indeed increased overall. In addition to the COVID situation, the war in Ukraine is causing some direct effects such as the suspension of our operations in Russia, but also indirect effects such as amplified challenges in the supply chains and increasing inflation. And consequently, we continue to focus on price increases. 2 well-performing companies was acquired into Beijer Tech, Swedish Microwave and Mountpac during the quarter. And we are continuing to look for attractive companies to continue our profitable growth through acquisitions. And finally, I would also like to note that from first of June, Johan Dufvenmark will join us as our new CFO. This also means that it is the last time you hear Erika in this forum, so thank you, Erika.

Thank you, Henrik.

And now we will move on to Q&A, which, for the final time, you're eager to answer. So please, Page 17.

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

It's Carl from Nordea. A few questions. Firstly, on the organic growth, could you try to split up, I mean, on the 13% you grew in the quarter, how much is coming from price and how much that comes from volume?

Well, I can say that there's been a significant part coming from price, but it's a mix of 2 effects.

So is it the majority of price? Or is it the majority of volume or...

It's -- we have a very diversified both customer base and product base, so it's a combination of both, and I can't give you a direct number on that.

Okay. Perfect. And also on China, I guess the lockdown situation has obviously worsened first Q1. What impact does this have for you, both in terms of direct and indirect ones? I guess you have 10% of employees in China, right?

Yes. So in terms of the impact, we saw actually 1 week in March, our factories had to close down. But that was -- they opened back again after a week. I would say now that mainly it's the indirect effect related to delivery of materials, both incoming and outgoing of our products. And also, of course, the general logistics situation, not only within China, but also going out and into China. So this -- it depends a little bit on different regions and different timings, but we are producing at full speed at the moment. But there are disturbances. Often, we can catch up, but we expect some disturbances going forward.

But then it sounds like it's sequentially the same as in Q1 or it's so far in Q2, the headwinds from China?

It's -- we've only been a few weeks into Q2. But I would say that the -- it came in towards the end of Q1, this effect, and as we speak -- as you read in the newspaper it's ongoing. And as I said, it depends on different regions. And right now, all our plants are running.

Okay. That seems fairly okay at least for now. And in terms of the raw mat situation, you've handled it quite well so far in Q1, obviously, is it fair to expect a more significant headwind in Q2 being able to offset it through price increases also in the very short term?

I think the volatility on the pricing of raw materials is continuing. And of course, it's not better with the impact from the Ukraine situation. It is absolutely the highest priority for all our companies to work with these matters, primarily, of course, raw material, as you mentioned, but we also have some other factors such as energy, and it is -- it continues to be a market where it is understood from parties in the value chain that these kind of swings needs to be pushed on through the value chain. And with the combination of our inventory levels that also Erika mentioned, and our contracts, we continue to focus on this relentlessly to get these direct effects.

Okay. Perfect. And also in terms of Habia Cable, you had 53% organic order growth. Is this driven by any larger orders? Or is it sort of bread and butter business that's performing quite well. And also can you split the order intake by subsegments perhaps or give some flavor on it?

Well, as I said, Carl, you have used the word bread and better, looking at what we present, we have in telecom, which is what you could call more non-project oriented. And that is the main growth driver, both in terms of order intake and sales. And high demand in Europe in industrial sectors and also in the telecom sector, thanks to a lot of the 5G rollouts that are going on. So those are the main drivers. As you can also see, the more project-oriented business with defense, offshore and nuclear picked up a bit versus previous quarters, all of the comparable a year ago was actually quite strong there. But looking at the last 3 quarters, it picked up. And that's also a pretty similar picture on the order intake. As I mentioned, defense, in particular, has good tailwind from the market, of course, because there's a lot of focus on the defense industry these days. So -- but the main part is certainly from industry and telecom.

And the final one from my side is on Beijer Tech, quite nice margin uplift in the quarter. Could you help me split up the margin drivers there? Is it fair to assume that, that the vast majority of the margin uplift came from acquisitions in the quarter. I mean just looking at the 2 you partly consolidated during the quarter, they drove the margin by 100 basis points. So is it...

There are several drivers, Carl. I think that certainly the acquisitions, the acquisitions we have made during the last 12 months period for Beijer Tech are margin accretive and -- including the last quarter. But also, we should point out, it's also a strong demand situation and a leverage, of course, a fixed cost, thanks to that. And price increases are contributing to the organic growth. And we see a good -- actually, I think you could also summarize it that Beijer Tech has a lot of diversified companies. And right now, this quarter, fundamentally, all of them are performing well. So that adds up to a good margin.

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

Hjalmar Jernström from Erik Penser Bank. My first question is on the inventory and the change year-on-year. Could you perhaps break down the effects that come from volume building on your part versus increase in purchase price. You mentioned that both, of course, affecting the inventory buildup.

You mean versus first quarter last year, then, of course, we need to add the whole Alcomex Group in terms of volume. And if we rather look compared to the year-end, I think that probably half of the growth is sales -- pure volume related and the other one is then related to inventory buildup ahead of season. And...

Yes. We have 2 effects, the value, thanks to the price increases for incoming and as Erika said, the buildup because the supply chains are uncertain, so we need to have good stock to secure our production deliveries.

All right. And my second question is regarding the order book in Lesjöfors. Could you elaborate a bit on the impact from cost versus the industrial springs and perhaps give us some flavor on what you've seen so far in the start of Q2?

So in terms of the mix, of course, all the -- as you know, all the acquisition going to the industrial side. In terms of -- in general, in terms of Chassis, we have the impact from Russia, which is partly impacting sales, but also, of course, the order intake. And secondly, as I alluded to, we do see a little bit more of a normal winter pattern, whereas last year, we had a very strong pickup in the spring, both thanks to the harsh winter, but also post-COVID sort of effects. So I say that the effect is probably a little more on the Chassis side.

The next question comes from the line of [ Eileen Gatan ] from Carnegie.

Yes. Thank you for good report. I just have 2 questions. Firstly, you have been doing price increases for 1 year now. How -- is your customer still responding positively or how are they responding to these price increases?

Let me handle that. Well, I don't want to say that any customer is responding positively to price increases, but you are right, this -- the trend and the development of all material prices started already a year ago, which we managed through last year. But once again, the swings and the volatility that we see now, it is understood, I think, throughout the value chain that as a manufacturer or an industrial trading for that sake, you cannot absorb this kind of margins. So we are very much focused on compensating and negotiating where needed. And also in some contracts we already have, of course, in the contracts that you are allowed to increase the material costs directly. But so I would say it's still a lot of understanding related to that, but no one is really happy about it.

No, of course. I also wondered, has the cost catched (sic) [ caught ] up. So last quarter, you had some problems -- the margin was a bit weaker because the cost catched (sic) [ caught ] up from the price increases on raw materials. Are they in line right now? Or are we expecting more costs to come up further quarters?

As I said, we have a fairly good balance of sort of inventory levels of raw materials and you may have production and orders committed to. So there is -- but there is, of course, a little bit of catch-up effect that we got, as you mentioned last quarter that, in some cases, we were able to increase price ahead of the full impact. But I would say we are in this wave and we are very consciously working towards securing the future orders and making sure we have the right cost base in terms of material. So I don't want -- not really a sort of catch-up effect as such. I think we are in that right now.

Okay. Super. And the last question, how is the pipeline of acquisitions?

As I said, we're definitely looking further for new opportunities. And in terms of pipeline, we have our pipe -- of course, there is -- the market may be a bit more cautious now with the uncertainties, but we certainly have things to work with and handle in our site. So it's -- we continue our focus on looking for the companies. And I want to emphasize that good companies is most important. We have -- we're very happy with the acquisitions we made through the last year and this year as well. And so we look forward to welcoming more companies to the Beijer Alma Group.

[Operator Instructions] There are currently no further questions. I'll hand the conference back to you, speakers.

So thank you very much, everybody, for joining our webcast and -- this first quarter. And have a good day.

Thank you.

Bye-Bye.

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