Beijer Ref AB (publ) (BEIJ-B.ST) Earnings Call Transcript & Summary

Welcome to the Beijer Ref Q4 presentation for 2025. [Operator Instructions] Now I will hand the conference over to the CEO, Christopher Norbye; and CFO, Joel Davidsson. Please go ahead.

Welcome, everyone. Christopher and Joel here. Looking forward to present the full year and Q4, and of course, some questions. So, I guess, we'll get straight into the numbers. Thanks. So, I just wanted to start a little bit talking about the year as well, and then we'll dig into the quarter. But all in all, we're very happy with the year. We're highlighting here on the slide a fantastic cash flow, which we surely will come back to, but we see the improvements coming through here during the year on the things we worked on for quite some time. So, it's very satisfactory. And of course, on the cash flow, it puts us in a very good position to continue on the M&A activity, and we'll come back to that as well. Also very happy about the margin, very good margins throughout the year despite limited growth in the business. We continue to see progress in all the initiatives we're doing on the margin side. And also in a solid year, 3% organic growth. And of course, we expect that when the markets improve a little bit to come back at a higher level, which puts us in a very good position, I would say. It also then the record margin, 10.7%, so solid margin develop for the year. We also have SEK 4.4 billion of cash flow, which I think is 110%, 111% cash conversion. So very good, which puts us in a strong balance sheet with a net debt of 1.7x, including all the acquisitions here that we announced in Q4. So I think it looks very good. And then we have finally, the dividend proposal of a growth of 7% or SEK 1.50. So, all in all, I mean, we continue to grow. The model continues to develop, and we see a solid 2025 behind us and look forward also to move into 2026. So, then looking into a little bit on Q4, and I think it's the same story as we had all year along on the business. Remember, and also Q4 is our smallest quarter of the year, and we turn into more heating and other products. It's not a massive quarter for us. But the way we see the quarter, stable across the board. We do have quite some high comps in U.S. and APAC, U.S. growing 11% in Q4 last year in APAC, 10%. And I think in the U.S., especially a lot of residential project that we saw in Q4 last year that we didn't see this year, but some other good development in the U.S. that we will talk about. And then also, we lose a trading day in the quarter in most of our big regions, which does have a negative effect on our business. And we'll come back. I think Q1, it's going to be the same amount of trading days. So that's, of course, better than minus 1%. And then we almost had 7% organic growth in Q4 last year. So, all in all, when we look at the Q4, it came in at a stable level, similar to how we've been trading during the year on the sales side. We do have, as I said before, nice development acquisition, four in Q4, two more announced and then a very good pipeline moving in here to 2026 and a nice rollover. So very positive on that side. Joel talked a little bit on the restructuring program. Also, EBITA came in very good underlying margin, 9.5%, so a solid quarter. We did have SEK 25 million of acquisition costs of the acquisition we announced and what we're working on. So a very active quarter on that side, but underlying solid performance across the group and very good in especially the U.S. and APAC, and we'll come back to that. The cash flow, I have highlighted, I think it's worth highlighting again because we're very nice to see the flush through and an important part of our growth journey going forward, and we talked about the acquisition. So, all in all, we're happy with the development in Q4 as well. If you go in a little bit more on the product groups, I think nothing revolutionary there, fairly stable across the board. And we did see, as we said, starting to see an uptick on the OEM side, especially driven by our green OEM, which makes us, of course, happy because that's a segment we to grow. Strong development in our SCM Frigo refrigeration side and also a nice growth in Fenagy and also a good pipeline going forward. So, also a better position, I would say, in going into 2026 and '25. So very satisfying on that. HVAC, of course, more affected in the quarter of the trading days and especially also in the commercial industrial refrigeration. So, I think, the highlight here is stable underlying business for the year and quarter and also a nice uptick starting to show in the OEM segment. If we then move in a little bit to the segments, starting with EMEA. A lot of things happening in the quarter. But if you start on the year, 3% organic growth versus zero the year before, so slight improvement, and again, in a stable market. Of course, EMEA spans across so many regions from Southeast, West, North, down in Africa. So we have some ups and downs. But in general, a stable year, solid on the margin, good acquisition growth, good pipeline also on the acquisition going into '26. I think worth mentioning here also the good OEM in SCM Frigo and Fenagy that we talked about. We, of course, have some nice project going in Q4 and orders in there. And then we are, I guess, you all pretty much done from the strategic consolidation according to plan. So, moving nicely. Also integrating Airwave, nice acquisition for us in the Baltics that we're going to continue to leverage in our strategy around HVAC. So, all in all, also a stable quarter on the margin side, the year, a little bit improvement compared to the previous year and also highlighting the very good development on the green OEM side. If you move into APAC, of course, on the margin side, one of our stars for quite some time now, and it's very satisfying to see the margin development driven by our strategic initiatives. You can see in the quarter -- for the year, the margins are up in a nice way, continue to drive. I know ever remember, but we started three, four years ago saying we want to go over the 10% for the year in APAC, and it has step-by-step gone in that direction. And you can see now 10.6% in 2025. So I would say better than we expected and faster. So done a fantastic job in that region. Also, a strong Q4 last year, plus 10%. So we lost the trading day and came in flat. So I would say it's still a good development in the APAC region. And also, of course, Q4 is one of the key quarters as you have summer in Australia and New Zealand. So a lot of good activity in that region. We do have a little bit still challenging on the OEM side. We see nice project in South Korea and the Asian market is very promising because it's not driven by regulation, it's driven by interest to switching over to this type of solution, which also means we're building up a training center now in South Korea to further leverage on that. And we see quoting activity in Australia and New Zealand picking up. It will be interesting to follow this during 2026. Also, of course, did some acquisitions there, strategic, and we also announced an acquisition in New Zealand that's going through the competition authorities as we speak. Then moving over to North America. Also here, we start with a full year a nice year. I think the organic growth of 3%, it is very solid in an uncertain market in the U.S. So extremely happy how they delivered and executed during the year. Also starting to see the improvements here on the strategic side on the work we're doing on the margin side despite having diluting M&A and branch openings in there and also signing and closing two acquisitions in Q4 with a continued very good pipeline going into '26. So it looks very, very promising on that side. We do have -- if you look in Q4, minus 4%, but it's also compared to 11% growth in Q4 last year. So still a solid underlying growth, and I'm sure we'll talk about it, but a lot of project -- residential projects in Q4 last year that we didn't see this year. But on the other side, stable replacement and good activity on the repair side, which is part of explaining the very nice margin development in Q4 as we make more money, but less sales dollars. So the repair side for us -- and of course, it's creating pent-up demand in the market. So also will be nice when that start moving forward on the replacement and also the project business. So, all in all, a very solid quarter, and we continue to expand our branches and have a plan to further expand that in 2026. Private label continue to expand, and it's also a key point as we move these into our new acquisitions going forward. So, I would say, all in all, a very good year in an uncertain market in the U.S. and a solid Q4 with good potentials as we move here in 2026. Here's a lot of numbers over the quarters. I think it's just worth highlighting is as we move into 2026, we'll start seeing a nice tailwinds from the acquisitions. So we expect this to pick up as we move into '26 as well a nice rollover plus a good pipeline here in the beginning of '26. Then on the margin side, you can see here a similar margin as the last quarter. But if you look at adjusting for the M&A, it's a nice pickup despite 1 minus in organic and driven by the development we said in APAC and North America. So we are -- I think it's a very solid Q4. And of course, on the full -- on the last couple of years, you can see the development on the margin side. So, wrapping that up before I hand over to Joel. You can see the total sales growth adjusted for the currency, 2% in Q4, organic minus 1% EBITA plus 3% and 4% on the EPS. But I think if you look at the full year, it's a very solid year, I would say, 9% growth, organic 3%, 11% EBITA growth and 15% EPS growth. So, putting all that together, we're happy with the year and look forward as we transition into 2026. Joel?

All right. Thank you, Christopher, and good morning, everyone. As always, I will jump into our reported EBITA this time excluding items affecting comparability, which is amounted to SEK 758 million, which reportedly is down 6% compared to last year. However, it is very important to keep in mind here that our EBITA, excluding items affecting comparability is impacted by SEK 25 million of acquisition costs following, as Christopher said, a high acquisition pace here in Q4. In addition, as you know, we faced a pretty significant FX headwind in Q4 of 8%. So if you look at this on a currency-neutral basis and also adjusting for the M&A costs, our underlying Q4 EBITA is actually growing by 6% here in the quarter with an underlying margin of 9.5%. Our financial net continues to develop very well. I mean it's another benefit of our strong cash flow generation and financial net came in at SEK 106 million, which is SEK 24 million below last year. And if you exclude currency effects and so on, I would say that the underlying interest costs remain around SEK 35 million lower in the quarter compared to last year. Tax expenses, excluding items affecting comparability of SEK 151 million, which is an effective tax rate of 25%, slightly below last year. All in all, Q4 reported net profit, excluding items affecting comparability of SEK 445 million, down 3% versus last year. But then again, adjusting for the FX translation headwind, the net profit is up 4%. Moving over to our EPS. EPS in the quarter of SEK 0.87 reported down 2% compared to last year. But as already mentioned, on a currency-neutral basis, it's an increase of 4%. And for the full year, reported plus 10%, which is a good number despite the tough currency headwind. And if you adjust for that, our EPS grew by 15% during 2025. Moving over to cash flow. We continue to develop a very strong cash flow in Q4, SEK 1.7 billion. Cash flow this year is around SEK 400 million higher than last year, and absolutely majority of that is driven by lower working capital tied up as a result of our inventory and capital efficiency programs across the group. And for the full year, we print a record of SEK 4.4 billion, which is driven by the same development in inventory and capital efficiency in general. So, over to the next slide. I don't have that many more comments on this slide, I would say. I think it's a great visualization of the path we are on in terms of cash generation and capital efficiency. So a very nice development here for the last couple of years. Moving over to leverage. Thanks to the strong cash flow, of course, our net debt measured against EBITA, excluding leasing and pension is stable in the quarter despite the high M&A activity, and we end the year at 1.7x, which is leaving us with a very strong balance sheet to continue to execute on our fantastic M&A pipeline. So, with that, I hand over back to Christopher.

All right. Let's try and summarize this. Nothing new on this slide. I think it's somewhere in '25 with a stable growth, 9% with acquisition, a good EBITA development, 11% growth and also a record margin for us despite not being strong markets out there. So, I think, that's also a sentiment to what we're doing. Cash flow gives us a nice, nice firepower as well moving into '26. And you can hear we're fairly, I guess, very positive on how we're going to use this money in '26 to continue to improve the business model, goes hand-in-hand with the balance sheet. I think also if you look at that EPS growth in the year, very solid and even if you -- and if you adjust for the currency plus 15%, which I think is a nice development for the year. Seven new acquisitions integrated into the business and also set a good rollover moving into '26. So, then summarizing Q4. I think we went through all of this, to be honest, I'll move more into a little bit how we see the general market out there and some updates. We are pretty much -- we are done with our A2L transition in the portfolio in the U.S. That's business as usual now in there. We also believe that our -- or we see that our platform continues to develop in the U.S., both on opening new branches, launching private label, building the acquisition platform and capabilities is around there. So we're very happy with the trend there and of course, also some uncertainty in the market, as you can see, if you follow the OEMs and other things, but I think we performed extremely well in these times. And of course, as the market picks up again, it'll be very strong development from our side. We talked about the pipeline in there that also looks very good in the U.S. and also in EMEA for 2026. I think one caveat I had, I just want to share here, and I'm sure we'll get it on the Q&A is I don't know how closely you follow some of us follow business. But knowing in the U.S. what we have around 120 branches. It continues to grow. But we were completely shut down for two days with this winter storm running through snow and ice down in Alabama and Tennessee as well. So, we lost two full days of business, and we also continue to have branches shut down because of power outages in business and also you have a lot of things to clean up. So, we expect in January, we might lose three to four days of sales because of this. Hopefully, we'll see a pickup as we move into the rest of the quarter. But right now, at least you should think about three to four hour shutdown because of that. And I'm sure I get more questions, I can develop it. So, with that, we would like to open up for Q&A. Thank you for listening in on the presentation.

[Operator Instructions] The next question comes from Adela Dashian from Jefferies.

Would it be possible to specify in greater detail what all these moving items actually contributed in terms of the organic growth or the organic decline, like if we start with the trading day and then maybe also the lower volumes from the projects in the U.S. and so on, weather potentially also if that's possible, just to get a view on what the magnitude is and how much of it could be phased into the coming quarters?

So, two questions. One is around Q4 and the second one is just around what I told you about the U.S. for Q1.

Correct.

All right.

So that we can compare Q4 versus Q1 effect and so on.

Yes. So, I mean, the trading day is relatively straightforward. I mean, one day in the quarter and Q4 is fewer trading days than the normal quarter. So that is roughly 2%, I would say. And then in the U.S., I mean, as Christopher alluded to, we are -- underlying business is not so different in Q3 compared to Q4. It is a tough market and the comps is primarily driven by a difference in residential project sales. But you also have, of course, in the general business in this type of environment, a higher degree of exposure towards the repair as opposed to the replacement, which is also affecting revenue dollars, of course.

I think I would look at it this way is that, of course, the trading days is straight up a mathematical effect on the business. So, it's fairly easy. Well, if we have more projects or less projects in the quarter, that's business, right? It's not -- it's part of the business how it runs. So I think the only one worth calling out there is that what we saw the underlying market in the U.S. where we continue to have a strong development on repair, which you can see in the market and fairly stable around the day-to-day replacement market in the U.S. So I think in general, it's not any big what we want to portray if it's worth it, is that the market continues to be at the levels we saw in the year in general. And then in Q4, also remembering both Q4 and Q1 are smaller quarters for us. So it's hard to make big conclusions on it. So, in general, our view is it's a stable underlying market and then we have some projects in the U.S. that didn't come in and the development in repair that also drove the good margin development. So, I mean, it's a nice balance to have in your portfolio because we have so much on aftermarket spare parts in the U.S. versus equipment. So it builds in our view, a stable development in still tougher times right now, reading into OEMs and also other comments in that. So that would be on the Q4 and the Q1. Joel tell me three, four trading days. I would be in the U.S. about -- for the quarter.

So we have roughly a 6%, 7% impact in the U.S. potentially on that.

If you do it straight up, let's see if we get a pickup, and I guess that's about 2% on the full Q1, depending on how we see February, March developing. And we're just highlighting that out. It's hard for us to control that type of situation in the U.S.

I see. And that's very good color. I appreciate that. But I guess it would be fair to say then that maybe you were caught a bit by surprise over the development because if I remember correctly, the comments coming out of Q3 were a bit more robust on the remaining months of the year.

Do you speak in general or on the U.S.?

Just market conditions in the U.S. in general.

Okay. No, I don't see so. We see the trading also more details per branch and the repair and all that. So maybe you could say, did I expect more projects coming through in Q4? Maybe, maybe not. Those things move around quite a lot. It's nothing that we have in our daily business reviews. you get more and it falls in, especially in smaller quarters. So, no, I think we expected this -- or I mean, I would say, if you look at everything else you hear about the U.S. market, we continue to do, in my view, better than anything else I see there. So, I guess, I'm still positive in how we're executing in the U.S. in the market. So, I think, a stable market development right now is a pretty good place to be. And of course, adding on the mix with repair, that's not bad if you look at the margin development in the U.S. as well.

And just two more, if I may. Sorry if I missed, but did you specify how much you have left in terms of the refrigerant transition because you were nearing 10% at the end of the third quarter. So is that now completed?

Yes.

And then lastly, on your comment here on the margins. I mean, you have been a bit active on the M&A pipeline lately. So should we expect some sort of dilutive effect now coming through in 2026?

Yes. And I think if you -- I would say maybe we can take that offline with Joel, and we'll come back and be more clear what is or if you want to take it right now.

Yes. I mean it is relatively similar. I mean the acquisitions we have been pursuing is relatively typical of what we see in the market where we have a few percentage points lower margin in that type of business. So it's relatively short-term simple mathematics as well on the share of acquisitions at a few points lower margin. So absolutely some dilutionary effects of that going into next year gradually -- disappearing on realization of synergies. And of course, we are working on improving the underlying margin in the core business, of course, as always.

The next question comes from Carl Ragnerstam from Nordea.

It's Carl here from Nordea. A couple of questions from my side as well. Starting on the working capital side, you released over SEK 1 billion, as you also mentioned. Is it possible to sort of give a split by market on that, where it came from?