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

Welcome to the Beijer Alma Q3 2024 Report Presentation [Operator Instructions]. Now I will hand the conference over to the speakers: CEO, Henrik Perbeck; and CFO, Johan Dufvenmark. Please go ahead.

Thank you. Good morning, everybody, and welcome to our webcast where we today present third quarter 2024. I am Henrik Perbeck, and with me, I have our CFO, Johan Dufvenmark.

Good morning, everybody.

So today, we'll present the overall performance and the recent developments of our group, Beijer Alma Group. In addition, we will also discuss our reporting segments, our 2 main subsidiaries. These are Lesjofors, which is a full-range supplier of standard and customized industrial springs and other wire and flat strip components. Lesjofors is acting globally with majority of sales in Europe and the U.S.A. And it is Beijer Tech, which acts 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, let us move on. So, starting with some comments from my side. Today, we will present what I think is a solid and decent report in today's economy, where we can also report some organic growth in the quarter overall on the group level. And what we see is the industrial economy continued to slow down after the summer. Demand was still varied within our very diversified customer base and in the different geographical regions. So the big picture geographically is that Nordics was our strongest region, but also supported by growth in Asia and U.K. Germany stands out even more as the weakest market, also affecting, of course, the nearby Central European region. So for the -- for our 2 companies, if we start with Lesjofors, Lesjofors had a mixed demand picture and a flat development of order bookings organically. The Chassis Springs business area slowed down this quarter compared to the strong start of the year and has sort of gone into low season now, also compared to the strong comparables from last year revenues where revenues were lower, particularly in key markets like U.K. and Germany. On Industry, or Industrial Springs, Nordics was indeed the key driver of some growth, followed by Asia and U.K. In the U.S., a little bit mixed picture where some industrial segments were good, delivering growth, whereas deliveries to the medical projects were more volatile and lower. And as mentioned before, Germany and Central Europe were the weaker markets. For Beijer Tech, acting mainly in the Nordics, demand was overall stable, but also varied. Fluid technology grew both organically and thanks to the AVS acquisition in Q2. The newly formed business area, Niche Technologies, stood up well by meeting to the very tough comparables from last year. In Industrial Products, we see a little bit different dynamics. The Norwegian market was the strongest, whereas, in particular, Finland was weaker, and also followed by Sweden and Denmark. So, coming into acquisitions. In our last call, the 2 acquisitions announced were closed during the third quarter. Lesjofors acquired Clifford Springs and also Beijer Tech acquired Clemco. So these are 2 good companies that will support our profitable growth journey ahead. We have also announced one new deal since the last call, and that is the Lesjofors acquisition of Lacroix, which was further closed on the 1st of October, so after the end of this reported quarter, and I will come back to talk a little bit about Lacroix later in the presentation. Overall, we continue to feel that the activity level in the M&A market is decent, which is interesting for us and creates opportunities to find new attractive companies that could strengthen the group going forward. But at the same time, of course, with this economic uncertainty, still including high interest rates, leads us to conducting a balancing act between investing for growth and savings. So -- continue with an overview of the group's financial performance. Looking at the performance, we can see that order bookings declined by 1%, whereas growth was organically 1%. Net revenues grew only slightly and about 1% organic growth. And these are, of course, quite modest growth numbers, but at least show some stability for our group as a whole. Operating -- adjusted operating profit was SEK 212 million with a margin of 12.6%, which is down 0.8 percentage points versus last year. I will now move on to the performance of the reporting segments, our subsidiaries, Lesjofors and Beijer Tech. Starting with Lesjofors. Lesjofors, our spring manufacturer, is organized into 2 main business areas, and these are industry, with mainly customized products to a very diversified customer base globally, which as you can see here is the main part. Chassis Springs are standardized replacement springs sold to car part wholesalers, mainly in Europe. Order bookings for Lesjofors decreased by 5%, but with a flat organic development, and because we have a currency headwind of 2% and also a negative impact from the net of divestments and acquisitions last year -- versus last year. The net revenue also decreased overall here by 3% and organically up 1%. So starting with industry, the largest business area. Growth was minus 2%, but actually positive organic growth. And now, as mentioned, growth mainly from the Nordics, Asia and U.K., whereas Central Europe and in particular, Germany was weaker. And speaking of Central Europe, this also goes for the Alcomex European operations. The U.S. market, as mentioned, was a bit of a mix. Some Industrial segment grew, in fact, whereas deliveries within medical were somewhat lower than high levels of last year. And in addition, Alcomex launched door springs in the U.S. over the last several months, and it had a positive impact on the growth in the quarter, however, with some one-off costs related to the launch and diluting the margin in this quarter, but it's a good start for that growth. For Chassis Springs, the strongest -- the strong demand from beginning of the year has slowed down. Net revenues decreased by 8%, facing tough comps from last year. In particular, some key markets such as U.K. and Germany slowed down and also driven by wholesale customers, actively reducing stock levels for the low season. Adjusted operating profit decreased to SEK 162 million with an EBIT operating margin adjusted of 14%. So I also want to mention in terms of adjustments that in the quarter, there is a significant adjustment on the operating profit. We have released the provision for the earn-out for John Evans' Sons acquisition, affecting the operation profit with SEK 187 million. And this was done since the specific targets in the agreement are not expected to be met despite an overall satisfactory performance. Good. Moving over to Beijer Tech. So Beijer Tech is since the beginning of this year operating in 3 business areas. Fluid Technology and Industrial Products are both acting within industrial trading and manufacturing. The third business area we call Niche Technologies, which includes companies with strong market positions in various industrial niches, such as building automation, waste management, specialized replacement parts, components and machinery. And typically, these companies have other market drivers than [ in ] general industrial demand. So order bookings for Beijer Tech increased in the quarter by 9%, of which 1% was organically. The net revenues grew by 10%, with 2% organic growth. Within the business area Industrial Products, demand was overall, I would say, a bit weaker and revenues decreased. Still, the demand varied across the geographies. Norway continued strongly, whereas in particular, Finland and also Sweden and Denmark had weaker demand. Fluid Technology stands out this quarter with a growth of 35%. Part of this is, of course, thanks to the acquisition of AVS in March, but also organic growth in Norway and Sweden. Niche Technologies had tough comparables this quarter with -- and with no acquisition effects anymore, managed to keep up with the performance of Q3 last year, which we're happy about. Overall, Beijer Tech's operating result increased to SEK 58 million with a good operating margin of over 11%. I will now hand over to Johan, our CFO, for some more comments on the financials.

Thank you, Henrik. Let's take a further look into the financials. As mentioned, net revenue is relatively unchanged compared to last year, up SEK 7 million. Acquisitions together with divestments contributed with SEK 10 million. The divestment was the German company, Stumpp, which was sold in December 2023. The organic growth was SEK 24 million, corresponding to a little over 1%, and both Lesjofors and Beijer Tech had a positive organic growth. The revenue was also affected by currency effects, minus SEK 27 million. Order bookings decreased with SEK 60 million to SEK 1,650 million. Acquisitions and divestments together with organic growth was slightly positive and combined almost 1% in growth. Beijer Tech's organic growth was 1% and the growth from acquisitions 9%, while Lesjofors order bookings decreased related mainly to the divestment last year. Let's continue with a short look on the segments and how they contribute to the revenue and operating result. As we saw on the previous slide, net revenue increased with SEK 7 million to SEK 1,683 million. Lesjofors revenue decreased with SEK 39 million related to lower sales in the Chassis Springs business area and as well as divestment last year, while revenue in the Nordics, Asia and U.K. was good. Beijer Tech's revenue increased both organically and from acquisitions, mostly driven by the acquisition. Adjusted operating profit was SEK 212 million in Q3 this year. In last year's operating profit, we had an item of other income related to energy subsidiaries in Sweden, so-called [indiscernible] of SEK 7 million. In Beijer Tech, fluid technology was the main reason for the profit increase. Within Lesjofors Industry, operating result was, as mentioned, positively affected by markets at the Nordic and U.K. and the development in Chassis Springs was affected by lower volumes, but also strong comparables. And now to some of the key financial ratios. Adjusted EBITA was SEK 230 million, SEK 50 million lower compared to last year, the difference to adjusted EBIT being higher depreciation following a number of acquisitions. Operating profit was affected by the reversal of the provision for John Evans' Sons earn-out amounting to SEK 187 million, and this is treated as an item affecting comparability. Cash flow from operating activities was SEK 212 million, lower than last year. And last year's interest and taxes paid was lower in the quarter, but the effect this year will even out during the rest [ for the ] year. The release of working capital was a little bit lower than last year, but still it follows a normal seasonal pattern. Net debt was as well in line with last year, and that was also true for the financial net. This quarter, we introduced net debt-to-EBITDA as a financial KPI. Net debt is used without the IFRS 16 leasing and is the same as in this picture. With a debt leverage of 1.8, we have a strong financial position to support our growth strategy. Thank you, and back to Henrik for some look on the acquisitions.

Thank you, Johan. Yes, before concluding, I would like to highlight the one acquisition we announced since last time. In late July, Lesjofors signed an agreement to acquire Lacroix. It's a French industrial spring manufacturer with high technology specialization. The company focuses primarily on small to medium-sized batches for a broad customer base. Customers are mainly in hydraulics and general industry, but also very interesting segments such as aerospace and medical. And for Lesjofors, the acquisition provides a platform on a key European market with further potential for cross sales of the group's broad product portfolio. The acquisition was completed after the end of the quarter, now on 1st of October, and I want to take this opportunity to -- a warm welcome to MD, Yohan Dutheil and his team in [indiscernible] and now members of Lesjofors and the Beijer Alma Group. Looking at these last -- new companies within our group, we can see that we continue our strategy to further grow by acquisitions. And as mentioned, we also continue to see decent activity on the M&A market, where we have discussions with several good companies in our pipeline for the future. And please note on this slide, this is just an illustration of the overall impact from our acquisition strategy, showing the run rate revenue at the time of acquisition and number of acquired companies, so 4 this year with revenue of SEK 325 million. It's not a slide showing the reported revenues impact this year. Good. So now just a short summary of our third quarter. Key message, some organic growth in a weakened economy. And for Lesjofors, mixed demand with flat organic growth in order bookings, growth, Nordics, Asia, U.K. and U.S. Industrial and lower volumes, mainly in Germany and Central Europe. And Chassis Springs slowed down in the third quarter compared to the strong start of the year. And for Beijer Tech, growth was driven mainly by fluid technology, both organically and by acquisition. And as I just recently spoke about the one new acquisition, Lacroix, spring company in France going into Lesjofors. So with that, we conclude on the presentation, and we open up for Q&A.

[Operator Instructions] The next question comes from Karl Noren from SEB.

Got into the call a little bit late, so didn't catch everything. But if we start off with a question on Lesjofors, I'm just wondering a bit if it's possible to say anything regarding the profit development, if you split up, let's say, the Industrial segment versus the Chassis Springs a little bit? I guess the Industrial segment had a better performance year-over-year in terms of profit than the Chassis. Is that correct?

Yes, regarding the profit development or the margin, or how you would like to see it in Lesjofors, we have mentioned during our call today, in our report a couple of areas having an impact. And firstly, it is indeed, as you -- it's the chassis slowdown, number one. We have also mentioned -- Johan also mentioned more of a comparable effect with this -- the energy support last year. And also, as I mentioned, we had this -- actually the positive launch of the door springs in the U.S. where -- for Alcomex, where we had some one-off costs there. But then, of course, also, as we point out several times regarding the European and in particular, German economy is weaker. So those are some of the key impacts in what you could call a bridge between -- but chassis, yes, definitely.

And yes, on the weak demand you said here in Germany and Central Europe, I guess it's nothing specific for you really, but I'm just wondering if like the demand deteriorated, you would say, during the quarter, and do you see Q4 now being sequentially worse, let's say, than Q3? Or what are you seeing in terms of demand there?