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

Good morning, everybody, and welcome to our webcast where we will present our fourth quarter 2022. I'm Henrik Perbeck, and with me I have our CFO, Johan Dufvenmark.

Good morning.

So in addition to the overall performance and recent developments of the Beijer Alma Group, we will also present our reporting segments, our two subsidiaries. These are Lesjofors, a 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. And this -- Beijer Tech specializes in industrial trading and manufacturing within fluid technology as well as consumables and machinery to Nordic industrial companies and also building automation. And Beijer Tech is also a platform for acquisitions into new through niches. Finally, I would also like to repeat what mentioned in our last webcast, Habia Cable was divested early October and does not have a direct impact on the business performance in this quarter, except for capital gains effect, cash flow and certain balance sheet items. So moving on to the next page. Some comments from my side. A quarter with varying demand and growth driven by the acquisitions. So in general, the demand was varied between the regions and different segments. And overall, somewhat weaker versus preceding quarters, especially towards the end of the quarter, However, now at the start of the new year, we have seen a return to more stable levels. Continued inflation has led to increased costs and inventory values. So our focus has been to compensate through price increases and adapt stock levels as we see now, more stabilizing supply chains. For Lesjofors, Chassis Springs, which is now in low season in the fourth quarter. We saw lower volumes. This is still mainly due to the suspended sales to Russia, but also in other parts of Europe. Industrial Springs, Nordic region continued to be the strongest supported by the U.S., whereas Asia and Central Europe has showed weaker and more volatile demand. Beijer Tech had stable demand in the Nordic markets in both of its business areas. We did, however, see a slowdown in the order intake towards the end of the quarter, but we were also happy to see the positive contribution from recent acquisitions. And now with the completed divestment of Habia, we have strengthened the group's strategic focus to ensure a continued scope for creating value through investments and acquisitions in Lesjofors and Beijer Tech. In October, the Turkish spring manufacturer Telform was acquired. This is strategically interesting for us since it has enabled Lesjofors to expand its production footprint and low-cost manufacturing capabilities. And here, I would also like to take the opportunity to comment that our operations in Turkey are not impacted by the terrible recent earthquake. After the quarter, we also completed two further acquisitions. Amatec, a successful spring distributor in the Netherlands, which is now a part of Alcomex, Lesjofors subsidiary. And Botek, which was acquired by Beijer Tech. A very interesting technology company within waste management and I will comment more on these acquisitions towards the end of our presentation. Moving on to next page. So now continuing with an overview of the group's financial performance. So, once again, since Habia has been divested in this Q4 report, it is reported as discontinued operation and not part of the consolidated accounts or the comparables in this presentation. So looking at the performance, we can see that order bookings grew 9%, but decreased 8% organically. And as mentioned before, mainly towards the end of the quarter. Net revenues grew by 17% but decreased 2% organically. And with the continuous price increases during the year, this implies that volumes are down in the fourth quarter versus last year. To give you some further flavor regarding the developments, as mentioned, we saw more stable performance in the first 2 months, whereas December was a bit unusual in its dynamics with lower order intake. And as I mentioned, January back on more stable levels. Operating result decreased slightly to SEK 170 million, which is a margin of 12%. There are no items this quarter reported as affecting comparability, only in the comparables and historical numbers on the right. There are, however, some one-off effects, both in the quarter and the comparables, which I will point out more specifically following -- on the next pages. So moving on to the performance of our reporting segments, our subsidiaries. Starting with Lesjofors, our spring manufacturer, which is organized into two main business areas. These are Industry, with mainly customized products to a very diversified customer base globally. And the other one is Chassis Springs that are standardized replacement springs sold to car parts wholesalers mainly in Europe. Order bookings for Lesjofors increased by 16%, supported by acquisitions and currency effects. The net revenues grew by 21% with a decline 5% organically. For Industrial Springs, the largest business area, growth was 32%, whereas mentioned, Nordic region remained the strongest supported by the U.S. In Europe, volumes have been somewhat lower and more volatile. And also in Asia or China specifically, the economic uncertainty has affected demand. The recent acquisitions, last year, Plymouth, John Evans and Telform contributed, of course, to growth. For Chassis Springs, where Q4 is the low season, demand in the aftermarket was lower in Europe, in addition, of course, to the main effect of the suspended operations in Russia. This impacted net sales and order intake. There was a somewhat lower end customer demand, but in addition, wholesalers continue to be very cautious to build stock for the season. This led to a decline in net revenue of 16% compared to last year. While on this topic, I would also like to comment that following our stop of sales to the Russian market, we have, during the fourth quarter, finalized the orderly close down process and now no longer have any operations in Russia. The operating results for Lesjofors increased to SEK 139 million, which corresponds to an operating margin of 14%. However, adjusted for some onetime effects of SEK 11 million from the Telform acquisition, the margin is just over 15%. So in addition to this, to summarize, the key drivers of lower profitability in Lesjofors are, firstly, the direct effects of the suspended sales to Russia and lower volumes. The contribution from the Chassis Spring business is lower than previous periods. So as you can see on the right, it's 16% of the Lesjofors total sales in the quarter. Further, in Industrial Springs, as described, volumes and consequently profitability were impacted in Central Europe and Asia. And while -- and finally, while prices increases that have been made to offset cost increases have affected margin in percent. Moving on to the next page, Beijer Tech operates in two business areas: Fluid Technology and Industrial Products, both acting within industrial trading and manufacturing. And further, it's a platform for acquisitions into new attractive industrial niches, such as building automation, which is reported in industrial products. Order bookings decreased by 5%, where the slowdown came mainly towards the end of the quarter. Net revenue grew by 17%, of which 5% was organic. Within both business areas, Industrial Products and Fluid Technology, demand was somewhat weaker, but stable over the Nordics and organic revenue growth was driven mainly from price increases. Our acquisitions, Swedish Microwave and Mountpac contributes to the growth in Industrial Products business area. Step-by-step, challenges in the supply chains have improved. There are still for certain products, long lead times, but in general, a better situation. Beijer Tech's operating result decreased to SEK 39 million, but it's actually on level with last year's where we had some one-off effects of SEK 11 million -- positive one-off effects. Operating margin at 8.5% is somewhat lower than preceding quarter, but includes also some acquisition costs of SEK 2 million. I will now hand over to our CFO, Johan Dufvenmark for some more comments on the financials.

Thank you, Henrik. As mentioned a few times already, and what we all know by now is that Habia Cable is divested, which is reflected in the report as Habia Cable in most cases, it's not part of the consolidated group. For Q4, this is extra true for operations since we reported no revenue or no operating profit for Habia Cable, but we have accounted for the capital gain of SEK 352 million in the quarter. Looking at the numbers for the remaining group. Net revenue is up SEK 241 million compared to last year. The acquisitions contributed with SEK 184 million, which is an increase of 15%, while the organic growth was negative SEK 26 million. Organic growth in Lesjofors was negative 5%, while Beijer Tech showed a good development as we have seen during the year and the organic growth was 5%. The low organic growth for the group in the quarter was mainly related to lower volumes within Lesjofors Chassis Springs, but revenues was also affected by the slow economy in Central Europe. Compared to last year, the currency effect on revenue was positive SEK 82 million. Order bookings increased to SEK 1,429 million compared to last year, where acquisitions contributed with SEK 140 million, an increase of 11%, whereas the organic growth was negative 8%. The decline was related to both the Beijer Tech and Lesjofors. Now a short look on the segments and how they contribute to the revenue and operating results. Here, I have included Habia Cable to make comparison easy with last year. As we saw on the previous slide, net revenue increased, which is true even if we include effect of Habia Cable from last year. Revenue in 2021 was SEK 1,233 million with Habia excluded and SEK 1,435 million with Habia included. The total increase in Lesjofors was SEK 175 million, and Beijer Tech contributed with an increase of SEK 66 million in revenue compared to last year. As you remember from the last slide, the increase was -- the overall increase was related to acquisition and currency. The operating profit was SEK 170 million in Q4. And as Henrik said, the quarter did not contain any items that we account as affecting comparability, but we did have one-off costs of SEK 11 million related to the Telform acquisition. Lesjofors increase in revenue was mostly related to acquisitions or Chassis Springs had lower volumes and profit. Beijer Tech met some strong comparables in last year and adjusted for these, the result was on par. Overall, Beijer Tech had a very strong year, both in revenue and profit. Next slide, please. Now let's take a look on some of the key financial ratios. We have already spoken about the revenue up 18% compared to last year, mainly driven by acquisitions, but also a good development in Beijer Tech. There were no items affecting comparability but as I said previously, we had SEK 11 million of positive effects in last year for Beijer Tech and one-off cost in Lesjofors SEK 11 million this year. Please also note that the capital gain for Habia Cable was SEK 352 million, which can be noted in the line profit for the period. Financial net was a little bit higher than usual affected by a half year effect of negative SEK 40 million, and this was related to the discounting of the earnout of John Evans’ Sons. Cash flow after capital expenditure, but excluding acquisitions, and then including the Habia Cable divestment, was SEK 815 million. Looking at net debt, it increased, which is mainly an effect of acquisitions, then especially John Evans’ Sons, but there are also still some increases related to working capital. Next slide, please. And then a little bit to conclude the year. Let's talk about the dividend. The Board of Beijer Alma proposes to the Annual General Meeting a dividend of SEK 3.75 per share, which corresponds to 35% (sic) [ 37% ] of the profit, excluding Habia capital gain. This is in line with the company's dividend policy and continued focus on acquisition-driven growth. Thank you. And back to Henrik for look at events after quarter and some final remarks.

Thank you, Johan. I would now like to come back to two positive events after the close of the quarter. On January 4, we completed the earlier announced acquisition of Botek into Beijer Tech. Botek, Swedish company, is a highly interesting company, active in a true niche, which is the design, production and installation of balances and RFID system for waste management vehicles. Botek has a strong market position in Sweden. They are expanding strongly in the Nordics and has started the journey to capture further international opportunities. And we look forward for Beijer Tech and Botek's management to develop this company over the next years. On January 10, Lesjofors subsidiary, Alcomex, acquired Amatec, a strong distributor of industrial springs in the Netherlands. This expands our distribution footprint in both stock springs, but also customized springs in Europe. And following on the next page, which I've shown before. So the journey continues with growing our group through acquisitions, and we can see increasing impact from this. We continue to look for good companies, which fits into our group and can deliver strong long-term growth. So in 2022, we acquired companies, bringing some SEK 620 million in revenues with good profitability. And in this year 2023, we can also have -- we also see already an impact from these newly acquired companies, so continuing that journey. Now some concluding remarks, just to reiterate what we said. Still demand in general, stable, but varied across geographies and segments. Slower in the end of the quarter, as mentioned. It could be more a temporary effect as we saw a recovery in the beginning of this year. So the growth consequently came mainly from acquisitions in the quarter. There's a focus to manage cost increases and inventory levels as the supply chains have stabilized. We were happy to welcome Telform acquired in Turkey, which has expanded sales and production footprint for Lesjofors. And the divestment of Habia Cable gives strength for future acquisitions and strategic focus on building Beijer Tech and Lesjofors. And finally, as I just mentioned, two new companies joined our group in the beginning of this year, Botek and Amatec. Now we will open up for some Q&A.

[Operator Instructions] The next question comes from Carl Ragnerstam from Nordea.

It's Carl from Nordea. A few questions. Firstly, I mean it was, obviously, a tad light margin in Beijer Tech. What would you see is sort of the main reasons behind the pressure in Q4, especially considering the quite margin accretive acquisitions. So underlying the margins should have seen a quite substantial drop year-on-year even excluding one-offs. Is it correct? And -- yes -- what -- I mean, is it a temporary effect given sort of, as you said, maybe a slightly weak end of the year? Or is it any structural things?

No, as I mentioned in my comments previously, we -- it was somewhat slower end of the quarter, where we have seen a more normalization already at the beginning of this year. The trading companies, December is a shorter month and that could be one of the impacts. So no structural reasons as such.

Okay. So is it -- then it's fair to assume that the whole margin delta sort of year-over-year is explained by sort of the weak end of the year. And as you said, maybe a more normalized start of or a good start of 2023, we maybe should see margins for revert back then or is there anything else that we should consider burden at the start of the year?

Not at the start of the year, but as I think you saw also there are some extra costs related to acquisitions in the fourth quarter. But in general, that would be -- we saw a more stable demand in the beginning of this year.

Perfect. And also, is it possible to sort of quantify the sales drop in rest -- in Chassis for rest of Europe, excluding Russia, affects the price. I mean -- and also -- I also wonder -- I mean, historically, the segment hasn't really been cyclical as it's -- it could be at least defined as consumer and nondiscretionary. So what would you say is sort of behind the organic drop excluding all of these effects in Europe?

So in general, of course, we are comparing to a year before, which had -- which was a record-breaking year in -- for the Chassis Springs business following the runoff impacts of COVID, et cetera. Q4, as you know, is the low season. We saw in the previous quarter, in Q3, further drop. And now in Q4, we have seen that -- as I mentioned, the wholesalers are not building up stock, being cautious with their inventory levels. So I think we have the effect of Russia, which is some around 15% on that business area. And in addition, as I mentioned, there are also lower volumes in the wholesalers in Europe, which is -- of course, we have compensated with price. So that implies a similar size of lower volumes in the rest of Europe.

The next question comes from Hjalmar Jernström from Erik Penser.

First one, you mentioned generally a more stable demand in the start of 2023. Can you maybe give some flavor on this and perhaps how this relates to the slowdown in the Beijer Tech order intake in late Q4. Is it a recovery of the drop? And how should we view this?

Can you hear me well now?

Yes.

Sorry about that, that we were locked out technically. So -- as I mentioned, the dynamics during the quarter was -- there was a lower demand in the end of the quarter and in the order intake. And now we have seen more normalized levels in January. So I can't really quantify it as such, but there was a bit of a special effect in December.

All right. And then on the Lesjofors, you mentioned inventory levels of customers that are being overlooked or reduced. Can you give us some flavor on how do you feel that the general inventory level is currently? Is it more on a stable level? Or do you think that this reduction will continue through the Q1? How do you look at that place?

What I mentioned before was more specifically in the -- for the Chassis Springs business, which has a seasonality, and we can see that wholesalers are being careful to build up inventories. When the normal season starts, we will be fully ready to deliver to the market. The dynamics in the general industry is somewhat harder to tell, looking at our own situation, we are of course, also working on inventory levels to balance this as supply chains are now much more stabilized.

All right. And then one final question on the general process of price increases. How do you feel -- maybe in Lesjofors, particularly, how do you feel that the price sensitivity, so to speak, has developed through 2022? And can you say something about the price-increase initiatives carried out so far in 2023?

So in general, there has been a long period now, over a year, of price increases. Of course, for every step you take, there is more resistance. We are still trading on fairly high raw material prices. So it's important to work with our margins and offset cost increases. And I don't want to comment on -- just specifically on 2023. But I think in general, of course, on a high level, the -- getting through price increases is more challenging and -- but we are also long-term seeing the raw materials coming down.

[Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

So thank you, everybody, for attending our webcast, and thanks for good questions. So have a good day, everybody. Bye-bye.

Bye-bye.