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

Welcome to the Beijer Alma Q4 2023 Conference Call. [Operator Instructions] Now I will hand the conference over to the speakers, CEO, Henrik Perbeck and CFO, Johan Dufvenmark. Please, go ahead.

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

Good morning, everybody.

So we will present the overall performance and the recent development of the Beijer Alma Group. And in addition, we will present our reporting segments, our 2 main subsidiaries. These are Lesjofors, 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 secondly, Beijer Tech, acting mainly in the Nordics, within specialized manufacturing, value-adding industrial trading and automation in profitable niches. And Beijer Tech is also a platform for acquisitions into new industrial niches. So starting with some comments from my side. Today, I will present to you what I believe is a bit of a mixed report in the uncertain operating environment we are in today. We saw first quarter with a good cash flow, some healthy organic growth, but also margin development in industrial segments that I'm not entirely happy about. So the group noted a [ vary ] demand situation, and as you know, we have a very diversified customer base. Volumes in the broad industrial segments were fairly stable, whereas some other customer segments, such as the automotive aftermarket, the medical technology and some other niches, posted good growth. We have however, seen margin pressure. This has been addressed through measures in relevant businesses, and it has an impact on the profits for the quarter. Cash flow remained strong as a result of consistent earnings and also our focus on gradually reducing our inventory levels. In Lesjöfors, we saw mix demand picture between customer segments. The Chassis Springs business area posted strong growth, although Q4 is typically the low season. Within Industrial Springs, demand decreased somewhat in the Nordics, U.S. and Asia. The situation varies between customer segments. For example, once again, demand in medical technology was good, whereas, for example, door springs used by end customers in construction had a tougher demand situation. The U.K. grew profitably, but several other businesses in Central Europe continued to experience margin pressure. A number of measures were taken such as savings and local restructuring to ensure profitability and growth over the long term. Beijer Tech in the Nordics had a more stable demand situation. Order bookings increased organically, primarily due to new projects, while volumes in industrial trading declined slightly. Several of our niche companies noted good demand, driven by trends aside from the activity level in manufacturing industry. For example, the last year's acquisitions, Botek and Finn Lamex, contributed to profitable growth and have had an excellent start in our group. So overall, a good quarter for Beijer Tech. So the operating environment remains dominated by some uncertainty regarding demand but also inflation in interest rates, of course. This means that we're continuously trying to balance between growth initiatives and savings. During this quarter, or Q4, German Lesjofors company was divested, where we could not really see the long-term potential for profitable growth. When it comes to acquisitions, we continue to evaluate good companies that could strengthen the group by contributing to further profitable growth. So let's look a little bit an overview of the group's financial performance. Yes. And firstly, again, Habia Cable was divested in Q4 2022. And it is reported as discontinued operations. And unless stated otherwise, it's not included in the comparables. So looking at the performance, we can see that order bookings grew by 20% and -- of which 17% was organic. The net revenues grew by 16% and 13% organically. And to give some further flavor of the developments during the quarter, we had a quite stable situation during the first months and unexpectedly, a little bit weaker December. The start of the new year, however, we have seen demand levels back to normal levels. Part of the reason for December could be that some operations, our own and also customer operations, decided to close manufacturing during Christmas week. The adjusted operating profit increased to SEK 177 million with a margin of 10.4%. There were adjustments made, which has a net positive effect of SEK 64 million on actually EBIT, but Johan will come back to this and go through in more detail. So moving on to the performance of the reporting segments, our subsidiaries. Start with Lesjofors. So Lesjofors, our spring manufacturer, has 2 business areas: Industry, which is mainly a customized product to a very diversified customer base globally. And the other Chassis Springs, our standardized replacement spring, so to car part wholesalers, mainly in Europe. Order bookings for Lesjofors versus last Q4 increased by 13%, of which 18% organically. Net revenue also grew by 13%, where 17% was organically, so a significant headwind from currencies here by minus 8%. For Lesjofors, we did see a weaker December, as mentioned, but the first month of the new year showed a more normal and stable levels. For Industrial Spring, the largest business area, which, as you can see, is now [ 83% ] here in Q4; growth was 11%, thanks to organic growth and also acquisitions, but with negative currency effects. As mentioned, the volumes decreased somewhat in the Nordics, U.S. and Asia. In Europe, U.K. was good and posted profitable growth, while several operations in Central Europe faced greater margin pressure despite fairly stable volumes. Actions have been taken to improve profitability. Some end markets positive growth, such as [ Medtech ]. The building sector was weaker, however. And we have the last year's acquisitions, Amatec and Tollman, of course, contribute with inorganic growth. Chassis Springs, relatively good demand during the fourth quarter despite this is, of course, the low season. So it has a smaller share of Lesjofors total business. Now it's 17% in this quarter. We believe inventory at wholesalers are at normalized levels and its end customer demand driving volumes, although it's a little bit still too early to see any significant effect of colder winter temperatures. For Lesjofors, the adjusted operating profit decreased somewhat to SEK 130 million. There are adjustments, as mentioned, of SEK 64 million, which Johan will comment on in more detail. As you can see top right, operating margin in Lesjofors was lower than preceding quarters and last year by 2.5 percentage points on adjusted EBIT terms this quarter. This is, of course, not satisfactory and can be explained by a combination of product or mix effects, with more organic growth and less contributing areas, but also some one-off effects related to cost reduction initiatives and year-end reservations. One example of, as mentioned, of this more of restructuring is the announced divestiture of German Lesjofors company in December, which was a strategic choice with -- despite cost savings achieved in the short term, we evaluated not seeing the long-term development in line with Lesjofors' profitable growth targets. Moving over to Beijer Tech. Beijer Tech operates in 2 business areas: Fluid Technology and Industrial Products, both acting within industrial trading and manufacturing. And as you know, it's a platform for acquisitions into new interesting industrial niches, such as building automation, which is, for now, reported into Industrial Products. For the quarter for Beijer Tech, I think it was a good and healthy quarter. Order bookings continued to increase by 35%, of which 15% organically. The organic growth is partly thanks to new projects, but also sort of a healthy, stable underlying business in the trading segments. Net revenue grew by 22%, of which 3% was organic. Both business areas, Industrial Products and Fluid Technology, demand was overall stable. Within the trading segments, volume declined slightly, whereas demand was good in several of our new niches. And I think this is interesting because these niches are -- demand is typically not driven by industrial cycle, but other trends. And latest acquisitions, Botek and Finn Lamex, are good examples of this and contribute to growth in the Industrial Products business area. And to reflect going back a couple of years, Beijer Tech used to be a much more cyclical company. But it's not much more resilient to fluctuations in the overall demand cycle. The operating result for Beijer Tech increased to SEK 58 million, with a healthy operating margin of 10.3%. And there are no adjustments in the Beijer Tech result. So now I will hand over to Johan Dufvenmark for some more comments on the financials.

Thank you, Henrik. So let's look further into the financials. As mentioned, net revenue is up SEK 232 million compared to last year. The largest part of this is due to organic growth, which was SEK 190 million and equal to an increase of [ 18% ] and while acquisitions contributed with 13%. Both Lesjofors and Beijer Tech had a positive organic growth, 17% and 3%, respectively. . The effect from a stronger Swedish krona was large, minus SEK 85 million. Order bookings increased with [ SEK 232 million ] to SEK 1,710 million. Both acquisitions and organic growth were positive 9% and 17%, while the currency effect in [ old ] bookings was negative SEK 93 million. Beijer Tech had an organic increase in order bookings of [ 15% ] and Lesjofors [ 18% ]. Let's go into the segments. So as we saw in the previous slide, we had a strong increase in net revenue, and it was related to both acquisitions and organic growth in as well Lesjofors as in Beijer Tech. Adjusted operating profit was SEK 177 million in Q4. The increase compared to last year was, among other things, related to [ Chassis ] Springs. [ Some ] strong segments in the [ Medicare ] technology and acquisitions. Beijer Tech had a strong last quarter, driven by parts of the Fluid Technology and acquisition as well, concluding a record year. We have some items affecting comparability in the period. And these are -- that the earn-out provision for John Evans' Sons has been lower to USD 60 million corresponding to SEK 165 million. And therefore, SEK [ 107 ] million have been reversed as a positive in the P&L. Our assessment of the earnout is that the ambitious thresholds probably will not be met -- fully be met. But still, we are satisfied with the overall performance of the company. And as Henrik mentioned, and as we have discussed earlier, is that we sold the company, Stumpp & Schüle, on December 21. The main reason for this was poor economic performance as well as limited possibility for synergies with other Lesjofors companies, as well as decreased exposure towards the automotive sector. The divestment resulted in a write-down of assets and other items of SEK 107 million in the fourth quarter, to be added to the previous items affecting comparability in Q3 of SEK 40 million. And we did as well reversed an additional SEK 2 million from the Russia close-down provisions that we took as an item affecting compatibility in 2022. And in total, these items mentioned was a positive SEK 64 million and all related to Lesjofors. And now let's look into some of the key financial ratios. Adjusted EBITDA is up SEK 7 million compared to last year, the difference to adjusted EBIT being higher depreciation following a number of acquisitions. Cash flow after capital expenditure was positive SEK 145 million, lower than last year, which has well contained the result of the Habia Cable divestment. Overall, we are satisfied with the cash flow in Q4 and the overall performance in regards to a more efficient use of working capital during the year. Net debt is higher than last year, and this is related to acquisitions. But we have seen a positive development related to good cash flows and a slimmer balance sheet since Q1. The financial net is no longer affected with the main effect from IAS 29 since the method adopted in Q3 was faulty. We have retrospectively, removed a large IAS 29 effect from Q3, and you can read about this in the report. But still, there are some negative revaluation effects related to IAS 29 finance sheet. And for Q4, this amounted to minus SEK 9 million. Overall, the finance net in 2023 was higher compared to 2022, and this is related to higher net debt, but most of all, higher base interest rates. And now let's talk as well about EPS and dividends. As you can see in the report, the Board of Beijer Alma proposes to the Annual General Meeting a dividend of SEK 3.85 per share, and this corresponds to 45% of the profit. This is in line with the company's dividend policy and continued focus on acquisitive growth. When it comes to the EPS, please note that in last year, earnings per share contain the capital gain from sales of Habia Cable and also 9 months of profit from the ownership of Habia. If we take this into account, EPS for 2023 is 1% lower in 2022. Thank you. Back to Henrik for look at the events [ after quarter ] and final remarks.

Before I conclude on the quarter, I want to also shortly summarize our full year 2023. We can report a solid year's performance, with profitable growth in the challenging market environment. Growth was mainly through acquisitions but also some organic growth. And the demand picture over the year has been mixed. If we take out some highlights. I think the record year for Beijer Tech, thanks to successful niche companies on top of a healthy underlying industrial trading business. . We had a good profitable growth in Lesjofors Chassis Springs after having put the departure from Russian market behind us finally and good development in some segments like medical segment and also including the John Evans' Sons acquisition in the U.S. and more general, the establishment of Lesjofors as a top 5 player in the U.S. industrial spring market, but of course, also the margin pressure in the Lesjofors Industrial Springs, which reflects the challenging market conditions, among other things, in the door spring business. So overall, the EBIT -- adjusted operating result EBIT grew by 8%, where the margin ended up at 12.5% for the group for the full year. And in terms of acquisitions during the year, we acquired 4 companies together, bringing around SEK 520 million run rate in annual net revenues. There were 2 in Lesjofors, Amatec in Holland and Tollman Spring in the U.S., which strengthened both our European and U.S. platforms for Lesjofors. In Beijer Tech, both Botek and Finn Lamex are very interesting niche companies. And with this, we continue to transform Beijer Tech to a group with increased value-add and expose to attractive market trends. Our acquisition strategy is long term, and we were perhaps a bit more cautious during the autumn. Currently, we are evaluating several interesting companies in our pipeline. So coming back then to the conclusions on Q4. Growth in the quarter was mainly organic. And overall demand situation varied across the customer segments. Nordic, U.S. and Asia were somewhat lower volumes in Industrial segments. In Europe, we saw growth in the U.K., where Central Europe experienced margin pressure. And actions to improve profitability have been taken. We did the divestiture of German Lesjofors company in Q4. And within Lesjofors, medical technology and Chassis Springs were areas with good demanding and performance. Strong continued order intake in Beijer Tech especially with niches in nonindustrial trends and in general, a very solid quarter from Beijer Tech. And we generated a strong cash flow in the quarter. And finally, as I just mentioned, the acquisition strategy is long term, and we're continuing to build pipelines of interesting companies for the future. With that, we will open up for some questions.

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

It's Carl here from Nordea. A couple of questions. Firstly, I mean, looking at the Lesjofors margin, inevitably quite a little bit on the lower side. Could you help us bridge sort of the margin development year-over-year? I mean, especially considering the quite strong organic growth here in the quarter, it seemly gets zero to nothing drop-through from it. And also, if you could give some flavor on the significance of the nonrecurring items you might have here related to restructuring and other activities as well.

So regarding the margin drop in Lesjofors, which I commented on, there is, of course -- as I said, it's not satisfactory, and it is a combination of items, what I call the product mix effect or actually -- also geographic mix effect. I have mentioned several times that some of the European markets have been -- we have seen margin pressure and -- so whereas the volumes in some of the other markets such as Nordics were somewhat lower. So we have a kind of negative mix effect from there in terms of the -- related to the organic growth. And in terms of one-off items, there -- as I mentioned, there are some initiatives taken. Some were related to the actual divestiture but also in addition to that, and also from reservations for year-end with reservations for inventory levels and customer receivables, et cetera. So all in all, this creates this bridge. And we will -- we're, of course, not entirely happy about that margin, but we continue to work our way up. Yes.

Okay. And I mean, looking at the margin trend in Lesjofors, it's been -- I mean, you've done some initiatives, right. But it's, seemingly, not giving any tangible effect on the margin so far, at least maybe it's at early stage. . Could you give us some flavor on how you see the margin trajectory from here? I mean also maybe putting it into context that you've done quite a few acquisitions, maybe some of them quite -- some margin enhancing, some of them dilutive. So how do you see the margin trajectory here in 2024?

Well, I don't want to comment specifically on the trajectory. But certainly, the initiatives that we have taken in Q4 will -- or are expected to have positive effects and -- versus a trend in the last quarter. Regarding the acquisitions, you are right that they are -- some of them are a little bit dilutive for the overall Lesjofors group. I think we have discussed earlier, if we look at the -- for example, on Alcomex and the door spring business, this is somewhat lower, on average, than the overall Lesjofors group. But it has -- and also has a bit of seasonality with a weaker Q4. So certainly, the aim of the initiatives we have been taking is to improve margins.

And also, if you reflect a little bit, which I think is interesting, because Lesjofors historically has been fairly resilient operation. And if you compare it to sort of what has happened with the margin here over the past couple of quarters or maybe a couple of years, would you do anything different now, in retrospect? Or have you been to -- I mean, [ too late ] on implementing cost initiatives? Or is it maybe management changes that we have had that happen in Lesjofors, which could be impacting? Or how did it end up in this situation a bit?

I think we have a lot of very interesting -- I think Lesjofors has a very interesting strategy, globally, in the niche of springs, so to say, and we have certainly building a very interesting global group around that. Over the last couple of quarters, we have seen a small decrease in volumes. And I think we are now in -- not only Lesjofors but in general market in Europe, in particular, we are in a bit of a down cycle. So as I mentioned upfront, it's a balance between building for the future and what will hopefully create a lot of value and also keeping track on costs and savings. So -- and of course, we have done some major acquisitions. Lesjofors is almost twice as big as a couple of years ago. And so of course, we hope to and plan to find some very interesting new business related to this over the next couple of quarters and years, most of all.

But if I look at -- I mean organic growth in Lesjofors in the quarter is 17%. We have Chassis Springs growing by 25%, Industrial up at just 11%. And so that should at least provide some margin tailwind, right? So could you give some flavor on what volumes you've actually taken to drive the 17%? Is it that you're stuck in some longer contract for some reason? Or -- I mean, because they must be very -- I mean, close to, I guess, loss making if you end up in these kind of margins, the additional contracts -- I mean, volumes you've delivered in some regions.

If you look at the growth in Q4 versus last Q4, the Chassis Springs is a higher part of that growth. And on the Industrial side, it's about 10% growth. Of course, the -- as you described, it's not really about taking additional contracts that on a sort of -- it's more about the general volume of all the existing contracts are where you see the volume effects. So yes, so it's more of the overall demand rather than some initial new contracts. But in the short term -- in the short -- in Q4, of course, the Chassis Spring had a better quarter than last year, and the growth was less in -- relatively less in the Industrial Springs.

And the final one from my side. Sorry for quite a few questions here. But when you said that demand situation improved or at least seemingly so far in Q1 versus what you saw in Q4 with a weak December, would you say that the mix effect will also be restored by that, I mean that the -- I mean, the customers that closed down the production ahead of Christmas maybe comes with higher margins or...

Yes. I think it's -- we saw a much more normal picture in the first start of this year.

No, but I think that some parts, of course -- so even if we saw this a little bit stronger start of the year, I think that when it comes to the possible [ exports ] to like new buildings, maybe that will not change for Q1. So that, of course, will remain [ export ]. But we are very positive that, that market will come back. But if you look on the overall picture, we probably will still see the effects on this segment.

The next question comes from Johan Dahl from Danske Bank.

Can you hear me?

Yes, we can hear you, Johan.

Excellent. Just a few questions, please. Firstly, on the contribution from Amatec and Tollman Springs, was that positive in the quarter from a year-on-year perspective in Q4 versus Q4 last year? Or was it flat or in the negative?

Amatec is at expectations. So they are following the plan that we kind of acquired them on. When it comes to Tollman, if you remember that we did move back the additional purchase price consideration. So of course, they are -- as we said in the Q2 report, they are performing not up to these -- the targets we had for that when we acquired them. They are a little bit exposed to general industrial demand. So I can say, one is performing where we thought. And the other one is performing a little bit below what we expected.

Okay. So no material contribution, is that how we should read it there?

I think it's not a very big company. So if you call it major, so the answer is no. But still, it has [ positive ] contribution. And Tollman has also a positive contribution, but it's a little bit less than we expected.

Got you. On this -- you talked about margin pressure in Europe in the Lesjofors. To what extent is that sort of generated from competitive pressures such as pricing, raw material inflation or what have you? To what extent is it sort of internally generated in your operations, general cost inflation sort of lagging on productivity, et cetera?

Well, without giving a specific split, I would say, you have both impacting. When it comes to the competitive side, of course, the current market in Europe, right now, is harder to get out to price increases than maybe a year ago. And of course, general cost inflation also matters.

Can you talk on a -- yes, can you -- I mean, you grew 17% in Lesjofors organically you claim. How was production levels in Lesjofors roughly in line with that? We obviously have a working capital component in cash flow, but sort of overall or was it a significant reduction in inventories in Lesjofors?

Not a significant reduction compared to last quarter. But I think if you look on it on a year-to-year basis, you can say that there are -- a much more efficient use of working capital, that is true. . When it comes to the organic growth, of course, there is a strong FX effect. So when we calculate the organic growth, we look on the average of the FX effect. And that -- then the residual is the organic growth for the quarter. So of course, taking that into account, there is, as we said, quite a large mix effect, when it comes to the profitability, in the end.

Yes. No, I have difficulties in understanding that FX effect, but we can take that offline later on. I mean it's fairly significant. And I was just wondering, finally, if you could talk about -- did it have an inventory valuation impact on Lesjofors results that you saw this FX effect on in the fourth quarter that's material and worth talking about?

No, it's not material. Of course, when it comes to the year-end, we do look on the inventory, but we -- that's something we do all the time, but there are some -- a couple of millions. So it's absolutely less than SEK 10 million, but it's not zero.

[Operator Instructions] The next question comes from Aline Ghatan from Carnegie Investment Bank.

I was just wondering if you could talk a little bit more about the mix effect in the order book. Could we expect the same effect that we saw in [ Q4 ] on top line?

You mean between -- mix between what?

In top line. So in the order book that you saw a very strong organic growth in the order book. And I wonder, is it that the same mix of customers and demand as you're seeing on top line? So what I'm trying to look at is, should we expect the same margin in the next quarter by looking at the order book?

So I think for some parts of the business, it's true. So if we look, for example, for the door spring business, of course, in that particular part of Lesjofors, we think that the mix will be the same. So a little bit weaker on door springs, but very strong on Industrial Springs, but giving a little bit of a negative mix effect, but pretty much the same as Q4 then. When it comes to other parts of the business, it's not easy to say.

No. I mean you have -- of course, Chassis Springs typically, as you know, has a low season in Q4 and more higher season in Q1 and most of all Q2, so that, of course, has some of the order intake related to that. But also in Beijer Tech, of course, as I mentioned, we have -- the trading side is fairly stable and healthy, with a little bit lower volumes. Here, we see, of course, good order intake on the -- in several of the niche companies that also, by nature, has a little bit longer order book. And this has been a trend, of course, during the year, and Beijer Tech has a strong order intake over the whole year versus sales. So that should be a good mix effect from that.

All right. So the projects in the order book for Beijer Tech, are they -- are you expecting them to happen during Q1? Or will they happen during the full year '24?

More than just Q1. It's a little bit -- it's a lot of companies, as you know. Some are, for example, in automation, it's related to building projects, and that would be more of a sort of yearly deliveries. Some are related to machinery and equipment, and that could rather be within 1 or 2 quarters. So it's a little bit of mix and -- but overall, good news with a good order book.

Okay. And on the acquisition side, you mentioned a bit in the beginning of the presentation, Henrik, that you're seeing a good opportunity to acquire. Do you have a good pipeline already? Or how far -- because you [ worked ] down net debt, so you seem to have firepower to do more acquisitions, going forward.

We have a healthy balance sheet to continue our acquisition strategy. We -- as I mentioned, we were a little bit more cautious during the autumn, following the 4 acquisitions we did in the start of the 2023. We have interesting cases that we're working on. So I think the pipeline is decent and good to work from. But as always, with acquisitions, that takes two to tango. So we -- a lot of our discussions are companies that we know, and it's a matter of when things are completed. So it's absolutely activity out there, both from internally generated, but also from what you can call the market in terms of companies being sold.

Okay. Okay. And then I have one last question on Beijer Tech. Could you just talk a little bit about the difference of EBIT last year and to this year? It was a quite improvement that we saw. And I just wonder, what was driving this improvement?

So to be fair, I think -- the Beijer Tech EBIT or the margin is similar to recent quarters. So I think it's a healthy margin for Beijer Tech. Actually, if you recall, last Q4 was actually a bit weaker than we expected. So I think it's more a matter of that we have a little bit weaker comparables from last year. And it's more -- quarter-on-quarter, rolling quarters, it's a stable and healthy mix of business.

And of course, the [ acquisitions ] as we...

Including the acquisition.

As we said, were not part of last year.

Thank you, Aline, for asking some questions about Beijer Tech. So any questions via email?

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

So thank you all for participating in today. And goodbye from our side. Thank you.

Thank you.