Beijer Ref AB (publ) (BEIJB) Earnings Call Transcript & Summary

Welcome to the Beijer Ref Q2 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 Norbye, Joel Davidsson here. Thanks for calling in. We'll get right started and having a short presentation of the second quarter, and then we'll go into some Q&A. So moving on to Slide 3. So summarizing Q2, a very good quarter. Of course, there is some uncertainties out there. But as we described before, a very good and stable underlying business model, we believe we can navigate well in this environment as well. And if you summarize on the financials, it was a very strong Q2 for us. Q2, it's usually our biggest quarter of the year, so a very important quarter. And with a sales increase of 12%, excluding currency, I'm sure we'll come back a little bit to currency, 2% organic, one less working day, which is, working days is very correlated to our business as we do a lot of daily trading. So underlying, I would say, on organic side continue at the same pace as last quarter. Very good on the acquisition side, good growth in the summertime here around in Europe and also the U.S. to plus 10% and a negative 6% of the currency. On the EBITDA increase of 15%. So continue to do very well on the profit growth, excluding currency and also a record margin. And for us, it's a nice milestone to go with 12% EBITDA in the quarter for the first time. So we continue to work a lot on our strategic initiatives on the margin from private label, synergies and acquisition purchasing while we'll continue to invest a lot in -- especially in the U.S. and different initiatives to drive growth long term. So very pleased with the margin development in the quarter. And then also a very good cash flow for being one of our highest net working capital [ tying ] quarters, double of last year, and we expect a good cash flow are coming through in Q3 and Q4 as well. And then finally, an EPS growth of 10%, excluding currency. So continue to have strong double-digit EPS growth here in Q2 despite currency effect. So all in all, I would say, strong quarters on all areas of the business. So moving on to the next slide, looking at the different segments. I mean, it's fairly stable around in the second quarter or at similar levels at Q1, both on the refrigeration side, on the HVAC side. And then on the OEM side, we continue to do very well on the green side SCM Frigo and Fenagy, whose our product financial refrigerants grew double digits in the quarter. SCM Frigo, very good order. Backlog continues to be active, strong, especially in EMEA, got our first -- or continue to get orders in the U.S. We continue to build the organization in the U.S. So very interesting for the future. And then a little bit weaker in the APAC region, especially in the food retail, but still some nice opportunities also in Asia that we addressed from the OEMs. So continues to be positive on the green OEMs continue to grow double digits as going forward. Moving on to the next slide, focusing a little bit on EMEA. Very good quarter in EMEA, 17% growth, stable on the organic side. We continue to do well here on acquisitions, good growth in Eastern Europe and also seen a good trend there in June and July across, I would say all regions in EMEA. So very happy to see some higher activity levels on there. OEM, as we said, on the SCM Frigo and Fenagy continue to do well in the business. Greater margins in the quarter, driven by good strategic initiatives on the private label side, but also on purchasing. So we continue -- I mean, EMEA had, I would say, a fantastic quarter in Q2 and started well here in Q3 as well. So happy with our largest region here. Moving on to APAC. APAC, of course, now is a little bit in off season. It's a smaller quarter on there, fairly stable across the board. Some nice wins on natural refrigerants in South Korea, also working on some bigger projects around in Southeast Asia, and it looks very promising. Slower market on the OEM side in Australia and New Zealand, less investments on the food retail, good backlog, a little bit slower to move forward. So generally, a stable quarter in APAC, as having very good organic growth the last couple of quarters in high season. And the other thing we continue to work a lot within in the region is our margin. And you can see nice continued margin development and moving for the year above those 10% has been the target for a couple of years. So all in all, a stable quarter, but very good on the profit side. And then moving on to North America. A lot of things happening in North America, maybe start off a little bit with the transition. As some of you know that we are transitioning into new solution based on more lower GWP refrigerants, 454B on there. So in the quarter here, I think we're about 30% to 40% transition, and we expect to be 100% transition by the end of Q3. So I would say things developing well in that transition for us. We had some issues with, and I think the whole industry with missing refrigerants that has held us back a little bit in Q2. And we also had some worst weather this year compared to last year. So we had a good momentum coming out of June and started in July. So it has been an interesting quarter for us. We continue to open branches. We also launched our private label, Sinclair, in the market with very good response. It will be very interesting to follow that here as we go through Q3. And also on M&A pipeline, we'll have a more back-end heavy year here, but there is a good pipeline, and I would say it's actually increasing for the future here. So also be very interesting to see us run through the year and next year on the platform in the U.S. So things continue to develop stable, but with a lot of good opportunities going forward. So also happy with the development in the U.S. So moving on to the next slide. You can see here we continue to grow, of course, turning a negative here on specialty currency, underlying with 12% up here in Q2, stable on organic side. As I said, we missed the date, I would say, similar level as Q1, but with some positive development in June and July. So hopefully, that transitioned into a good second half of the year on the sales growth. Then moving onto to margin. Record margins, as we said, it's more a nice result on 2% organic growth and continue to expand the margin shows the strength in the business model and also the work we do as you don't get anything for free in this type of environment. So I would say this is what I'm mostly proud of in the quarter, the margin side and development there that shows that we're, of course, on the right path in everything we do. So summary in the quarter, sales growth of 5% despite the 6% currency organic growth around 2%. EBITDA growth, 8% and still despite currency double-digit EPS growth. So I would say a strong Q2 and a good first half of the year with some uncertainty in the markets, but also some good trends in June and July for us. So we look forward to the second half of the year and also Q3 is a big quarter for us starting here in July. So we'll continue to drive the business forward. So on that, I will hand over to Joel to get down to some of the details.

Not so much details, but, lower in the P&L, right now. So thank you, Chris, and good morning, everyone. On the EBIT side, I mean, we already touched on EBITDA and on the rest of it, but good growth, 8% compared to last year. If you come to our financial net, it continues to develop well, both sequentially and again last year and came in SEK 12 million below last year, and there is obviously a nice tailwind for us on lower base rates here being slightly more than 1% down compared to last year in the quarter. On the tax expense side, SEK 264 million, representing an effective tax rate of 25% in the quarter, slightly up from last year. But all in all, resulting in a net profit of SEK 793 million, which is up 9% compared to last year. So moving on to our EPS growth. EPS in the quarter, as you have seen, SEK 1.56 translate to 10% increase. I mean all in all, of course, we are very happy with the quarter and development on the margin side. And on the interest net and so on, so very happy with the 10% growth here despite the currency headwinds. And if you look at it year-to-date, we are at an EPS growth of 13%. Cash flow side, we continue to deliver a solid operational cash flow in Q2, SEK 635 million. Despite the seasonal buildup of net working capital that we're having, I would say it's in line with our expectations. Cash flow in the quarter was almost SEK 300 million higher than last year, and it's -- the main difference here is lower net working cash tied up compared to last year, which is primarily driven by our continued efforts to optimize our inventory. On the next slide here, you see a positive trend on operational cash flow. We are year-to-date, our cash flow amounts to SEK 1.1 billion, which is up from SEK 900 million last year. And as we said here before, I mean, we are coming in here in Q3 and Q4 are the bigger cash flow quarters for Beijer Ref as a group. On the leverage side, very stable development. Net debt to EBITDA, excluding lease and pensions came in at 1.9% sequentially stable and 0.2x lower than a year ago on higher EBITDA. So all in all, we feel a really strong balance sheet, especially now coming into H2, which I just said is the major cash flow quarters for us. So we really looking strong here for our future M&A pipelines and so on. So with that, I hand over back to Chris for a summary.

Thank you, all. So a short summary of the quarter and then a little bit on the long-term fundamentals that hasn't changed. But as we said, good double-digit growth with 2% organic, good development in the acquisitions on here in our high season. As I said in Q1, this is one of our most important quarters of the year, and I think it was a very good execution out there. EBITDA grew 15% and record margins across the board, I would say, and very good development, both, I would say, in EMEA and the U.S. and APAC on the margin side. Also on the cash flow, positive for being in second quarter and now 8 quarters in a row with positive cash flow and also expect a good trend there in the third and fourth quarter and then double-digit EPS growth this quarter as well. So based on that long term, we continue to see a transition in the U.S. to a product. We see good development of green OEM in EMEA, and we've also seen in Asia now more and more initiatives. We're getting orders on the green solutions in the U.S., very early days. We'll continue to invest in that organization to build that up. And also a lot of things happening in the U.S., opening branches. We're launching private label and also on the acquisition pipeline, as I said, will be more back-end heavy, but it looks, I would say, looks stronger now than we did a quarter ago. So also very happy with that. In general, we would summarize this as a strong quarter in uncertain times, but also with good trends, we see wrapping up the quarter and starting in here in July. So with that, we'll finish our presentation and open up for Q&A.

[Operator Instructions] The next question comes from Gustaf Schwerin from Handelsbanken.

Firstly, can I ask from the comment on somewhat cautious customer activity in EMEA and the uptick throughout the quarter. What do you think drove this and how much stronger was quarter end versus start? That's the first one.

Sorry, what was the first sentence?

Yes. Sorry, you were calling out in the report that you saw somewhat cautious customer activity in EMEA and an uptick throughout the quarter. So just looking for reasons and also quarter end versus start.

Okay. So it was more a timing in the quarter, not so much on the cautious side, but we saw a stable development in the beginning of the quarter and then an acceleration in June, and we've seen that continuing in July. So it's pretty high activity. Part of it is, of course, seasonal. The further you move into June and July, the activity level picks up on there. But it's been on a level -- it's still early days, right, with a couple of weeks into July, but the end of June and July has been very promising to see if the market are picking up, especially market like France, another market that's been less active on the residential side, and we see good activity levels there. We see good in Spain, Italy, the whole Southern Europe, Central Europe also. So in general, we haven't seen this type of activity levels in a couple of years across all regions in EMEA towards the end of June and beginning of July. So it's a promising development, but still early days in the business.

Okay. Perfect. Secondly, what kind of price contribution are we looking at for North America in the quarter? And any update on how you see that developing into second half?

Yes. So in EMEA and APAC, I would say pricing is flat. I know your question was the U.S., and I'll come back to that. In the U.S., if you look at our mix, I would say, a couple of percent coming in, in pricing in Q2, and I expect that to go up a little bit in Q3 as we transition more and more into the A2L solutions as we expect to -- by the end of Q3 to be 100% transitioned into the A2L, and they carry somewhere between 7% to 10% higher price depending on solution and et cetera. So that will show itself also on the pricing as we move into Q3.

Perfect. And then just lastly, you mentioned the increased activity on the M&A discussions. Why are you calling this out now? Should we expect you guys to close some deals before end?

Yes. The reason calling out is, of course, it's a complex processes that you do. And of course, we know what's under LOI, and we know those are going to close. It's just more a timing and that continues to be at a good level that we expect to close during the year. So we still expect to have a good M&A year as last year and this year, nothing has changed. But what we've seen, especially in the U.S. over the last 4 to 6 weeks is quite a lot of new activities coming up where we are in discussions on there. So that's why I'm calling it out because it's some interesting developments for us at least. And those will be more likely to come if we do something on the discussions we have that's the end of the year in 2026. So that's the reason I'm calling it out.

Next question comes from Adela Dashian from Jefferies.

A couple from me. Firstly, maybe just a confirmation on the commentary here around EMEA. Would it be fair to say that the acceleration in demand is related to the significant heat waves that we've seen across Europe?

No. I think it's too easy to say. That's part of it. As we usually say, it's been a better development across the board on there. And part of it is, of course, weather, but we also see some activity levels we haven't seen some while on the side on refrigeration and exchange service maintenance and other things. But in the end, it's early days. I don't want to completely secure it as a big shift in the market, but there are some positive signals also not just related to the weather in the different product segments.

That's good to hear. Then secondly, on the record high EBITDA margin here in the quarter. Could you specify -- I mean, you already have mentioned some, but a bit more specific on the main drivers behind this performance? And then also going forward, I guess, how sustainable is this level of profitability? And the reason why I'm asking is because we have been seeing North America specifically being diluted by the recent acquisition, and that's tapering off now unless you start to accelerate M&A towards the end of the year. So what's your view on that?

Yes. I think our -- I mean, again, [ 2/10 ] there and one there and et cetera, is, of course, not the revolution of the world, but I think we're calling out part of it to go across the 12% for the first time. But I would say, of course, it's sustainable. The things we do in our margin development is driven mainly in improving the gross margins from purchasing synergies, private label and other initiatives. And I think also I said before that normally our underlying margin is always higher than reporting, because we continue to make acquisitions. If I exclude acquisition side, this is a sustainable development at these volumes, and we see continued opportunities to improve the margin. We also do continue to do as in the U.S. investment, opening new branches, e-commerce, launching a private label, I mean, that's not free in the beginning to do quite a lot of work. So I think we always want to balance the margin in percentage with the growth initiatives that we're doing across the world and the globe. And in the U.S., you're right, but we'll continue to open branches in the U.S. 2, 3 more in the pipeline that to be sorted, and we believe that's the right strategy. So I think we're running at a good margin, and we believe it's sustainable. And then also depending on how we do acquisitions, that will always be something we will call out when and if -- or not when, but if it happens and how dilutive it is and how long term it takes to bring it back on.

Makes sense -- and then maybe just lastly on the A12 transition. I appreciate the commentary around expectations that you will be 100% transitioned by Q3. But could you highlight what level of transition you experienced in Q2, especially in light of the fact that pricing only, maybe you could say increased a couple of [ percentage ] points.

Yes. I think we're somewhere around less than 40% in Q2. And remembering HVAC is around 40% of our sales. And the rest is parts and supplies and other type of products. So we're around 40% transition in Q2, a little bit less.

The next question comes from Carl Ragnerstam from Nordea.

Good morning, it's Carl here from Nordea. A few questions first or coming back a little bit to the detailed regulation. You said the vast majority in Q3 will be 454 products. How -- do you still have the sellback agreement with your supplier on the R410 products? Or do you think that the sort of replacement market should be enough for you if you don't sell out everything during the year? And also, you said that there has been a shortage of 454 lately, something has been quite widely written about in the press. But do you think that you managed to keep market shares? Or how have you managed your sourcing compared to peers and potential lost sales on the back of it?

Yes. So on the first one, it's not a concern. I mean we'll -- we're fighting to keep some 410A equipment for replacement and spares and other things at the end of the year. So that will not be a problem at all. And a lot of areas are already sold out in there. So that's still a highly attractive product to sell in the market on there. So not an issue that will be -- it's more by the end of the quarter how much for spares and replacements do we keep as you cannot, of course, get all of it. So on the second part, on the 454B, I would say pretty much everybody is in the same situation on. I mean there are some pockets and it's easing up now. But of course, if you're selling R32 Daikin or something, I mean, you would have access to it. So that's why we said we might have lost some sales short term, but we're not concerned of losing market share because it, because our main competitors are all in the same, and that's why we call it out, and we see it easing up now on the 454B on there. And we're in a good position on the charges on the private label in Sinclair. So we do have good solution to balance it. And hopefully, as we transition out of July, it's not an issue anymore. But it's pretty much the same for everyone on the 454B. Was there one more question?

Okay. That's very clear. No, no, that was good for that part, at least. And on maybe for Joel, but of course, you're seasonally building up working capital in the quarter, less so than last year. I mean, because you did prebuying, obviously, of R410, you built up quite a bit of inventory into the transition. Is that totally flushed out? Or how much is flushed out of what you built up before year-end '24? And then how much do you think will come out here in Q3 of that because you said you'll be fully transitioned?

Yes. I mean it's -- overall, it's not yet flushed out fully, of course. I mean we do carry our inventory as long as we are continuing to sell the [ 410A ] being still in Q2 more than half. So I don't have the exact numbers, but I would assume we are somewhere around halfway through the inventory, the extra inventory that we have on stock in the U.S.

I think maybe just to add to that, if I have to do an assumption, I mean, the easy one, I think, is to go by the end of the year, we should be back to normal levels. But I think the other point we're having a discussion in the U.S., it'd be very -- I mean, it's nice that this transition happening, don't get me wrong. But we can also focus a little bit more on aligning inventory in 2026 as we had a more normal year from a product point of view in that area, I think so.

And the final one, if I may, is on OEM. You mentioned sort of the setback in the non-green part of OEM, the heat exchanger business. Did it come as a surprise to you? And what do you hear when you talk to your customers and as well as suppliers? Are they expecting a worsening situation in the short term? Or will it improve a little bit? Or what is the discussion when you talk to both suppliers and customers?

Yes, we think it will start to improve a little bit as we move forward.

Already from Q3 or?.

Yes.

Okay. And was it a surprise to you? What actually happened, do you think? Just asking...

No. No. It's a very project-related business, and it was very strong last year. We're talking about people on the call it the heat exchanger in OEM business, non-green on there, that's the project, it's mainly heat exchanger to wind turbines at the sea. And there are longer lead times on projects. We see it starting to improve second half of the year. And in the meantime, as we discussed, the green business of SCM Frigo and Fenagy continues to grow double digits. So we expect that part to start improving in the second half of the year compared to the first half so.

The next question comes from Carl Deijenberg from DNB Carnegie. .

So two questions from my side. Firstly, on the commentary regarding acquisitions or, let's say, ongoing discussions in the U.S. I just wanted to ask a little bit on sort of acquisition pricing and multiples and so forth because I guess we've heard a little bit from other of your peers as well that M&A activity looks to be quite solid right now. And yes, the question is, do you see competition on acquisition that has that been increasing? And follow-up is, of course, do you see target multiples being higher now relative, let's say, 6, 12 months ago?

Yes. So on the projects that we have under LOI, of course, I know what the multiple is. And that's not -- that's at levels that we've seen before. And a lot of these discussions are one-on-one as well. So all of them we have on LOI. Of course, the discussions we're having now that's not on the LOI. I don't have an answer yet. So we'll see how the quarter and the next couple of quarters develop on that. I don't see this big discussion on expansion of multiples, the discussion we have is a little bit much more related to where are we in the cycle, Housing sales, volumes, these type of discussion, because that's also the biggest value creation, I would say, on M&A, if you take the U.S. is that we believe that the activities in the market, not acquisition, but in the business will start picking up in the next year or two, which means the timing right now is pretty good on the acquisition side. So let's see how it pans out. But the answer right here and right now is not any significant margin -- sorry, multiple expansions.

Okay. Okay. And then maybe following up on that one as well. I mean just looking at sort of the latest acquisitions you've done in the U.S., you've had a couple of branches, which have been, let's say, in other states, at least relative to where you came from on the heritage side. So just out of curiosity, the LOIs and the inbound that you're having right now, do you see them being in the presence where you are, let's say, relatively present already now? Or do you see you entering new states already with the ones that you're having in discussion right now?

There will be -- I mean, discussion that I can't go into because it's -- that's a different topic. But if the LOI and those that we most likely now will close here in the next couple of quarters, there are expansion of the areas we have. So it's expanding our territories into new territories and states, but close to where our core business is. So no, it's a new areas. So of course, every time we do these type of acquisition, our potential to then complement with new branches will continue to increase. So -- and I would say we have a good track record and good toolbox to do that. And it's not the only thing we're doing. We're also expanding into refrigeration in our HVAC branches and other things through there. And that's usually why I say there's a lot of things ongoing in the U.S. and will be for the next 5, 10 years as well as we continue to build out the business model.

Yes. Fair enough. And maybe just finally, on the commentary to the rollout of Sinclair in the U.S. I just wanted to hear also assortment-wise and so on and where you come from on the EMEA side. Would you say that the full assortment, is that fully compliant and so forth with your U.S. branches and so forth? And how does that rollout work out in practice? Do you go full wide directly? Or is it with selective branches gradually filling it out over the period?

Yes. So it's -- I'll try and summarize it in a short minute here. What we've done -- in the U.S., the product side is different than Europe. So the launch we've done now is ducted 454B. So we're not doing, of course, all technology. And we built up what we call heritage imports. So we have central warehousing for this. And then we step-by-step roll it out to the branches, but it will not be at all branches short term. It's focusing in areas where we think also we need to be a little bit more competitive on the product side. We also have customer interest. So it's a rolling buildup of an expansion. And it will take time. The next step is adding also ductless type of equipment. We'll do that for the season next year. So there's a lot of activities on there. I think the reason I'm calling it out is more -- it's been a very positive response. I mean -- but it's early days, as I usually say, as well in this, but it looks like we have a good possibility in niche here to build the business with this type of product as well as we've done in EU.

[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 all for calling in. And I think I usually say that let's hope for a really hot and nice summer out there everywhere, and hope you -- hope you all have a nice break when it comes to you, and thanks from us and appreciate the time. .

Thank you very much.

Thank you.