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

Good morning, everybody, and welcome to our webcast where we present our first quarter 2023. I'm Henrik Perbeck, and with me, I have our CFO, Johan Dufvenmark.

Good morning.

We're calling from a beautiful Upsalla, which is today celebrating our King's 50th anniversary with a Royal visit, the 2 big events today. So we'll today present the overall performance and recent developments of the group. Well, in addition, we'll also present our reporting segments, our 2 main subsidiaries, and these are Lesjöfors, a full-range supplier of standard and customized industrial springs as well as wire and flat strip components, acting globally with the majority of sales in Europe. And it is Beijer Tech acting mainly in the Nordics with specialized manufacturing, value-adding industrial trading and automation in profitable niches. Beijer Tech is also a platform for acquisitions into new industrial niches. Moving on to the next slide. So today, I'm happy to present to you what I believe is a solid report in a somewhat uncertain world. In this first quarter, we, the group, noted overall stable demand, of course, with variations within our very diversified customer base. There was an improvement compared with the preceding quarter, but volumes are somewhat lower year-on-year. Nordics and North America remain the strongest regions for us, whereas demand was weaker in the rest of Europe and Asia, and this was partly due to that customers reduced inventory levels. Supply chains in general have stabilized, and also we have taken actions to reduce inventory levels. In Lesjöfors, demand varies between geographies and customer segments. For business areas, Chassis Springs, the quarter began with continued inventory reductions at customers. However, as the quarter progressed, demand gradually increased as we moved closer to the spring high season. For Industrial Springs, as mentioned, Nordic and U.S. were the strongest regions with slightly lower demand in Central Europe and Asia, which I'll come back to. In China, we do not still see the hard signs of the anticipated pickup in demand and economic activity. Beijer Tech in the Nordics had a favorable demand situation. Order bookings increased sharply, partly as a result of important new projects, but also underpinned by broad demand in Norway and Sweden. Further, during the quarter, we renewed and secured a robust financing to secure and support the group's growth strategy. And in the beginning of the year, 2 acquisitions were completed. It was Amatec, which is a successful Dutch Spring distributor, was acquired by Alcomex within Lesjöfors Group. And the second was Botek, was acquired by Beijer Tech and it's a manufacturer of scales, RFID systems and software for waste management vehicles. Botek offers highly technical proprietary products, commands a strong market position in the Nordic region and exposed to an interesting and growing international markets. Both companies had a good start in our group and contributed profitable growth. And finally, as I will come back to later in April, Lesjöfors acquired American company, Tollman Spring. Now continuing with an overview of the group's financial performance. And since Habia Cable was divested in Q4 last year, Habia reported that discontinued operations and not part of the consolidated accounts or comparables in this report nor in this presentation. Looking at the performance, we can see that order bookings grew by 25%, and the increase was 8% organically. Net revenues grew by 16%, but was flat organically. Bearing in mind the continuous price increases during the last year, this means that volumes are somewhat lower versus Q1 last year. To give you some flavor on the developments during the quarter, we saw a stable performance in the first 2 months, and order intake and revenues improved in March. The adjusted operating profit increased to SEK 243 million with a margin of 14.3%. There are no adjustments this quarter only in the comparables in the last year, where SEK 25 million was reserved for the exit from the Russian market. Now more interestingly, moving on to the performance of the reporting segments, our subsidiaries. Lesjöfors, our spring manufacturer is organized into 2 business areas. These are industry with mainly customized products to a very diversified customer base globally. And it's Chassis Springs, which are standardized replacement springs sold to car part wholesalers, mainly in Europe. Order bookings for Lesjöfors increased by 22%, supported 16% by acquisitions and currency effects of 6%. Net revenue grew by 18%, but declined 2% organically. Looking at the business areas. For Industrial Springs, the largest business area, growth was 25%, whereas mentioned, Nordics and U.S. were the strongest. In Europe, volumes have been somewhat lower and more varied. Some industries, such as medical and automotive, we saw growth, whereas, for example, building sector was weaker. In Asia, as mentioned, we are not really seeing any real uptick in demand, but anticipate this based on improved macro. Recent acquisitions, John Evans’ Sons and Telform contributed well to growth in the quarter. For Chassis Springs, and I hope to say this for the last time, the negative growth was driven by the exit from the Russian market 1 year ago. Apart from that, we saw an increased demand evolving during the quarter. We started off with continued inventory level reductions of customers but improved as the spring high season approach. Adjusted operating profit improved to SEK 194 million. And here, the adjustment is only in the comparables where SEK 25 million was reserved last year for the Russian business. And finally, as you can see top right, operating margin also improved versus preceding quarters and was 16.3% on EBIT terms this quarter. In this report, we have also complemented with the information on EBITDA level, and the EBITDA margin was 1% higher than EBIT margin. That is 17.3% this quarter. Moving on to Beijer Tech. Beijer Tech operates in 2 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 into Industrial Products. Order bookings improved significantly from Q4, and this quarter increased 35% year-on-year organically by 25%. The organic growth was partly thanks to new projects and agreements in building automation, industrial consumables and fluid technology. This order book will support sales development over the coming year. Net revenue grew by 13%, of which 6% was organic. Within both business areas, Industrial Products and Fluid Technology, demand was stable and stronger in Norway and Sweden versus the Finnish and Danish markets. The organic revenue growth was primarily driven by last year's price increases. The latest acquisition, Botek, had a good start and that contributes to growth in the Industrial Products business area in this quarter. Beijer Tech's operating result increased despite challenging comparables to SEK 56 million. And as you can see top right, operating margin recovered versus last Q4 to 11.2%. I will now hand over to our CFO, Johan Dufvenmark, for some more comments on the financials.

Thank you, Henrik. Let's look into some of the financials. As mentioned, net revenue is up SEK 232 million compared to last year. Acquisitions contributed with SEK 179 million, which was an increase of 12%, while the organic growth was almost unchanged on the total. We did see a positive organic growth in Beijer Tech plus 5%, but a negative organic growth in the comfort of 2%, mainly related to the discontinued business in Russia, but also related to parts of the European market. Order bookings were strong with an increase of SEK 368 million to SEK 1,808 million. This was due to all 3 factors: acquisitions, organic growth and currency. The acquisitions contributed with almost SEK 200 million, an increase of 14%, whereas the organic growth was 8%. Looking at the underlying business, Lesjöfors order book was organically flat, but Beijer Tech had an increase of 25%. As Henrik mentioned, the increase in Beijer Tech order bookings was mainly related to building automation, industrial consumables and fluid technology. Next slide, please. Now short look on the segments and how they contribute to the revenue and operating results. As we saw on the previous slide, net revenue increased and the main effect was within Lesjöfors and was related to the acquisitions. Also, some of the increased revenue is related to price increases, and these were mainly carried out during 2022. Operating profit was SEK 243 million in Q1, and the quarter did not contain any items affecting comparability. Of the profit, Lesjöfors contributed with SEK 194 million and Beijer Tech with SEK 56 million. Both segments delivered strong results. The change in adjusted operating profit is small compared to last year, but do keep in mind that Q1 last year still has some profits from -- that we originated in Russia. Next slide, please. And now to some of the key financial ratios. As you can see in the report, we have made some changes. We have added EBITDA and EBITDA margin for the group and the segments. We have as well changed what was previously called items affecting comparability to adjust it, as for example, adjusted EBIT. The use of adjusted compared to items affecting comparability will not change. EBITDA is up SEK 30 million compared to last year, the difference to EBIT being higher depreciation following acquisitions as John Evans’ Sons and Telform. Cash flow after capital expenditure was negative SEK 17 million in the period affected by seasonal changes in working capital related to mainly accounts receivable. Overall accounts receivable have increased from good sales compared to last period. In inventory, we have seen positive effects from the work being carried out to increase working capital efficiency. The cash flow in the quarter, one being negative, was still stronger than last year, which was minus SEK 145 million. During Q1, and as Henrik mentioned, we have renewed our main credit facilities. This was related to the previously short tenure in the loan portfolio and consolidation of debt to receive better pricing. The new financing is more flexible compared to previously and if we support the Alma's growth ambitions. Thank you. And back to Henrik for look at the events after the quarter.

Thank you, Johan. So I would now like to mention a positive event after the quarter. On April 14, Lesjöfors completed the earlier announced acquisition of Tollman Spring Company situated in Connecticut U.S.A. By this acquisition, Lesjöfors further strengthens its position on the North American market and is now one of the leading Industrial Spring groups. Tollman Spring had a turnover of approximately USD 22 million in 2022, generating a pro forma EBIT of USD 3.3 million. The company has a solid reputation with long-lasting customers in attractive segments, for example, in industrial, electrical, defense and automotive applications. So we're happy to have Matt Zink and his team on board, and we welcome Tollman Spring to our group. Following on that, to summarize, our strategy to further grow by acquisitions is having an increasing impact. And we continue to look for good companies, which fits into our group and can deliver long-term growth. In '22, the acquired companies are bringing around SEK 620 million in net revenues with good profitability. And now in 2023, 3 new companies mentioned today have already been added to contribute profitable growth. Now before I summarize the quarter, I would like to switch the attention to our sustainability work, which is an important basis for Beijer Alma's operations. In March, we published our 2022 sustainability report that today is a good opportunity to present our focus on progress. The Alma's sustainability work is focused on 4 prioritized areas: its sound business ethics and social commitment; its more efficient use of resources, such as energy and materials; its reduced climate impact; and a safe and stimulating work environment. And this work was further developed in 2022. We have set objectives on a 5-year time scale until 2023. Sustainability reporting has been expanded to include the companies acquired in 2021 and also the divestment of Habia Cable has been adjusted for pro rata. In particular, in terms of climate impact, in the middle of this quite busy slide, we have reduced our carbon intensity by 41%. This downward trend from the base year of 2018 shows the results of measures over time. It's driven by a large share of renewable energy through solar panels, transitioned to bio-based fuel and energy savings. Assessment of the climate impact throughout the value chain called Scope 3 have been further developed and we continue to be reported for the future. We can note that for a manufacturer like us, the key footprint is coming from raw materials. And here, you can see it's 10x our own footprint. We have a high ambition level for circular contributions, ensuring that our generated waste is used as new material or energy. We have some challenging waste fractions, but worked closely with our partners to find new innovative solutions. I'm also very happy to see that workplace accidents are continuously reduced, which is our highest focus, no matter where in the world, we have our production. The sustainability arena is moving fast towards a greater responsibility throughout the value chain. So I would like to highlight 3 areas for a broader scope already in 2023 here in orange. Firstly, in our collaboration with our business partners such as suppliers, agents and distributors, we have put forward business-partner code of conduct principles and perform a risk-based ESG assessment. And number three here, we can see that the climate and climate-related issues are high on the sustainability agenda of our customers and other stakeholders throughout the value chain. The group has begun to develop science-based climate targets in accordance with the Paris Agreement. And finally, when it comes to the development and innovation of components and services, we see that life cycle perspective is becoming more prominent and supporting the transition to lower [indiscernible] and will create new business opportunities. So this broadened scope will be fully reflected in our new updated objectives for the next year's gold period. Now coming back to briefly summarize our first quarter 2023, and what I initially called solid report. So the main points, demand was stable, but varied across customers and regions. Nordics and U.S.A., strongest with Europe and Asia lagging. Growth in the quarter came mainly from acquisitions, year-on-year volumes are somewhat lower, strong order intake, especially in the Nordics and in Beijer Tech. And as mentioned, during the quarter, we renewed and secured robust financing to support the group's growth strategy. 2 new acquisitions were welcomed in the quarter, Amatec and Lesjöfors and Botek and Beijer Tech. And then finally, the acquisition of Tollman Spring after the end of the quarter, strengthens Lesjöfors in North America. So thank you. We will now open up for questions.

[Operator Instructions] The next question comes from [ Alain Garten ] from Carnegie Investment Bank.

Congratulations on a great report. I have a question regarding the margins. So in the margin Lesjöfors we saw an improvement quarter-over-quarter. I wonder if you could discuss a little bit about the components of the margin development looking essentially quarter-over-quarter.

So a short comment from my side. So I think the components are -- the increase is coming from also larger volumes. And also, we have compared to last quarter before in Q4, we have a good mix between the business areas and also the regions I mentioned. So partly mix, but also better volumes.

Okay. Would you say that there's a lot of price increases that will be offset by suppliers going forward? Or is it mainly operational leverage?

Well, now it's, of course, important thinking what we compare with. If we look on a year-on-year comparison, there is certainly a significant portion of price increases. There are still some going on, but it's to a lesser extent if you compare with Q4. There, I would say it's more relation to operational leverage.

Then I had a similar question on Beijer Tech as well. If you can just touch upon the EBIT margin improvement quarter-to-quarter? As you touched about it in a shorter presentation but I wonder as well it's the operational leverage or pricing fall? And also, if you're seeing that the prices are increasing and the [indiscernible]?

Yes. And actually, there will be a similar answer to that. So there is certainly a good development of turnover. So some operational leverage versus what -- if you remember, I commented last time that December was a bit slower. So that is the main reason. There -- once again, there are some price increases being made, but compared to 6, 9 months, the pace of price increase is ticking off. So compared to a year ago, yes, significant part of price increase, but compared to year-on-year more operational leverage and also a good contribution of, as I mentioned, a newly acquired company is also adding.

Okay. I have one last question regarding inventory levels. Have you seen the customers have reduced inventory enough? Or should we see that they continue in Q2 as well?

Well, that's -- we have a very broad customer base, and it's -- I think this is more of a continuous process. If you look at the industrial segment, what I did comment on was a little bit more specifically in the Chassis Springs business area. And there, we saw that around in the beginning of the year, that was still sort of a strategy from our customers to work on that, where as we know, it is a seasonal business, and the volumes are typically highest in the spring in Q2. So based on that, the end customer demand will create also a good demand for us to our wholesale customers. So there is an end to that, of course, to the reductions.

The next question comes from Hjalmar Jernström from Erik Penser Bank.

First one is on Beijer Tech and the strong order intake. You mentioned the particular industries here. I was wondering, can you maybe elaborate a bit on this and maybe the implications then for the Q2 margins from these particular segments? Are these projects in general, accretive or dilutive? Maybe you can develop some of this please?

Yes, it's a good question. So Beijer Tech, looking back -- taking a little bit longer perspective on Beijer Tech, it's a group that, of course, has evolved during the last couple of years. And historically, the order book or the order intake -- the order book was short time between order and sales. So typically, the revenues and order intake were almost the same. Now what we do have is some other -- some companies that are working a little bit more with project based, for example, as mentioned, in building automation. We also have in the fluid technology. We have machinery -- machine builders. So there is an underlying strong demand, which I pointed out, but there is also some of these orders are a little bit more long term. And as I commented, it will be -- it will support our sales during this year. So it's not an automatic Q1 order gives Q2 sales impact. Now on the question of accretiveness, I would say, yes, it's good interesting business for Beijer Tech companies that have built this order book.

All right. And second question is on the price increase initiatives in the Lesjöfors. Could you maybe elaborate a bit on the general reception of the EC in the first quarter? And maybe give us some flavor on what you expect in terms of pricing looking forward, please?

Well, I think a general comment like I gave to [ Alina ] before is that we have been through a very strong cycle of price increases for Lesjöfors that was, of course, a lot driven by raw material increases. They have peaked raw materials. So we are now on a different curve. Having said that, there are other inflatory aspects that we must ensure that we can cover our margin for it. So it is an ongoing work. But compared to a year ago or 9 months ago, certainly, the way this is -- yes, it's harder to push through price increases, but there needs to be a logic behind it, definitely.

All right. And then one final question. If we look at the acquisitions from 2022 and maybe, for example, John Evans’ Sons, do you see the operating margin contribution here being accretive for the proportion in the first quarter? And maybe you could give us some flavor then on the general margins in the U.S., please?

Yes. I think the acquisitions that we have made in the U.S., actually both Plymouth that came in already now, it's 15 months ago and also [indiscernible], it's certainly a very good and healthy and profitable business that is adding to our group. Also, this is, of course, one of the reasons why we have started also to report the EBITDA since we do have some amortizations of material assets related to this. So -- but it's certainly a good contribution to Lesjöfors and Beijer Alma also in terms of profitable growth.

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

Okay. So then we have no further questions, no written questions. So thank you very much for today, and have a good day, everybody. Bye bye.

Thank you.