Brødrene A & O Johansen A/S (AOJB) Earnings Call Transcript & Summary

Welcome to Brødrene A & O Johansen Interim Report for the first half of 2026. For the first part of the presentation. [Audio Gap] [Operator Instructions] I will now hand it over to your speakers, CEO, Niels A. Johansen; and CFO, Per Toelstang. Please go ahead.

Good afternoon, and welcome to our second quarter and first half of '26 webcast. Let us look at some of the highlights of the second quarter. It is indeed busy times in AO. We are excited about the M&As and the massive investments in the future that we are carrying out. But we are just as satisfied that our daily business is showing strong development, even stronger than we expected. AO saw the highest second quarter sales ever. We saw a growth of 11.6% in Q2. B2B grew revenues by 10.9% and B2C saw 15.4% growth. Excluding VVS-Eksperten, the organic growth was 10.6%. I'm particularly satisfied to note that the growth in Q2 and first half of '26 now exceeded our expectations despite the tough winter, which has a negative impact on the month of February. Based on the higher-than-expected growth in Q2, we revised our guidance, and Per will walk us through the updated guidance later. Gross margin improved 24.6%. Overall margins increased from 24% last year to 24.6%. We calculate that the one-off gain from the increasing prices amount an increase of approximately 0.2%. The pressure on margins is still fierce, but the B2B business managed to deliver margins that are 0.4% higher than last year. B2C margins increased 1.8% to 33.1%. I'm satisfied with the margin development. It is and will be a priority for AO to focus on securing margins and at the same time, growing our projects activities. AO has acquired the JMV Cables A/S as of 1st of August. The acquisition has been approved by the competition authorities. JMV Cables A/S is a Danish supplier of cables for construction for the industry and for the infrastructure market. Yearly revenues amount to approximately DKK 125 million. The acquisition strengthens AO's product assortment, primarily within medium voltage cables and will strengthen our positioning in the project segment. The acquisition is expected to bring approximately DKK 50 million revenues the rest of the year at an EBITDA margin around 10%. Our offer to buy Elektroimportøren has met support from more than 90% of the shareholders of Elektroimportøren. I'm delighted to conclude that by late August, Elektroimportøren will be part of the AO Group of companies. Let's walk through the rationale behind the acquisition, which increases the size of AO Group of companies by more than 20%. Elektroimportøren is a market leader in Norway. Sales of almost NOK 2 billion driven out of 32 stores in Norway and 2 in Sweden, holds a leading position in Norway and has defined Sweden as a growth market. The assortment is a broad range of electrical equipment, serving both the B2B customer and the B2C customer, approximately 52% of sales to B2B and 48% to B2C customers. Elektroimportøren owns an impressive brand called Namron, accounting for approximately 33% of sales. The Namron assortment consists of approximately 1,600 articles and is popular both with B2B and B2C customers. Elektroimportøren has slightly more than 400 full-time employees. More than 70% of all shop employees hold an education as electrical installer, which is a signal of the quality marks in Elektroimportøren. We see a strong rationale in adding Elektroimportøren to the AO family. Combining B2B and B2C activities, Elektroimportøren has a leading position in Norway. AO has a leading position in Denmark. We see a common potential in growing the activity in Sweden. The acquisition supports AO's long-term growth strategy in Scandinavia. Both Elektroimportøren and AO operate a business model that serves B2B and B2C customers. Relevant parts of the AO assortment can be included in the assortment of Elektroimportøren across the 34 shops and vice versa. We will utilize our strong property portfolio in financing the acquisition. The acquisition calls for approximately DKK 800 million in additional financing. Approximately DKK 500 million will be raised by loans as well as sales and leaseback arrangement in our property portfolio. The additional DKK 300 million is expected to be split in DKK 150 million CapEx line, which we plan to repay during the coming 10 quarters and a DKK 150 million revolving credit facility. The acquisition of Elektroimportøren is historical for AO and marks our transition from being a Danish wholesaler into becoming a Scandinavian wholesaler. Now let us look at the management's observations. The competition remains fierce. Demand remains lower than supply of wholesale capacity in Q2. This causes a somewhat one-sided customer focus on price, especially on project sales. During such times, we observe an increasing tendency from customers in negotiation, even smaller order as normally done for larger projects. Over time, we expect a more balanced demand/supply situation. By then, we expect a less one-sided price focus and an increased customer focus towards solution sales and other add-ons such as how the customers are served in the best and most convenient way. Our investment drive up cost of doing business. As we stated in our outlook for '26, our investments in business will increase the cost base. The full year impact from the new shops in Sweden, the investment in additional competencies within the project activities, and our focus on strengthening coverage of tooling and fasteners are all investments which will bring growth. Short term, these investments will increase the cost of doing business ratio. Many of the investments in Denmark have the purpose of supporting our everything under one roof concept. I'm happy to note that customers appreciates this, which further increased our store visits and market share in Q2. Geopolitical tensions and uncertainty. AO buys 88% of all goods in Europe and the rest in Asia. More than 99% of our sales are within Scandinavia. As we speak, we do not see any signs of geopolitical tension in our numbers and order backlogs. However, the warring situation in the Middle East has been driving up price levels. We have chosen to increase inventories by approximately 5% with regards to assortment where we deem the supply situation to be less reliable than usual or where prices are expected to rise further. For the time being and to the best of our perspective, we do not see this having a material impact on AO in '26. But I do want to stress that the current geopolitical and macroeconomic uncertainty increase uncertainty to current outlook. Now Per, please take us through the financial performance.

Thank you, Niels. Number of sales days were the same as Q2 last year. Q2 sales showed a growth of 11.6%. Organic growth, excluding VVS-Eksperten was 10.6%. As Niels said, highest ever Q2 revenue. Sales in Q2 continued the high activity level we saw in March. And as Niels said, the growth was higher than what we had expected. Margins improved from 24% to 24.6% and improved in both segments. Approximately 0.2 percentage points of the margin increase was caused by price increases. Margins appreciated by increased cross-selling and the fact that recent M&As have brought higher margins. Cost of doing business ratio was 17.9% of revenues and at par with last year. High investments in the business mitigated the scale impact. In addition to normal cost inflation, the quarter includes approximately DKK 10 million cost related to the impact from strategic investments in growth initiatives. EBITDA came in at DKK 113 million, 21% higher than Q2 last year, and EBT came in at DKK 62 million, 18% higher than last year. Earnings were slightly higher than expected. Now let's turn to the margins. Q2 margins improved from 24.0% to 24.6%. And as I said, margins appreciated in both segments. AO took advantage of the positive mix effect related to higher margins from recent M&As. Furthermore, AO gained from the positive cross-selling margin impact following our everything under one roof concept. The margin pressure is still intense, especially in projects. Let's leave the margins and turn to the segment info. The B2B segment accounted for 83% of the Q2 revenue and the B2C segment accounted for 17%. We are quite satisfied with the segment performance. B2B revenues grew 10.9% and margins improved 0.4 percentage point in Q2. Costs increased 10% in B2B and consequently, the EBITDA margin amounted to 11.5% compared to 11.0% last year. B2C revenues increased 15%. Organically, B2C grew 10%, while 5% came from the VVS-Eksperten sales. B2C margins increased by 1.8 percentage points and ended at 33.1%. The margin increase mainly relates to continued price management. The B2C segment EBITDA margin increased to 10.5% from 9.1% last year. Finally, indirect non-allocated cost amounted to 4.6% of revenue, up from 4.5%. The increase is mainly due to investments in growth activities. Let's turn to the investments. The highlighted band shows the normal level of maintenance investments in AO, estimated to be close to DKK 100 million on a yearly basis. Please note that we have increased this due to the increased size of the AO business. It used to be DKK 60 million to DKK 100 million. The investments in Q2 2026 amounted to DKK 48 million at par with Q2 last year. Tangible assets included DKK 19.5 million. Whereof approximately half related to the finalization of new warehouse capacity. Intangible assets amounted to DKK 28 million, mainly relating to investments in IT and digitalization and software related to the new warehouse. Full year investments, excluding M&As, is expected to be at the same level as last year. Q2 cash flow from operations before changes in working capital amounts to DKK 114 million, being 20% higher than Q2 last year. Cash tied up in working capital has increased DKK 60 million compared to Q2 last year, the increase being partly due to higher activity and partly due to us increasing inventories where we deem supply to be less reliable due to the geopolitical situation. Interest-bearing debt over EBITDA was 2.7x compared to 2.9x EBITDA end of Q2 last year. Let's turn to the updated guidance for 2026. We increased organic revenue due to higher-than-expected sales in Q2. The previous range was DKK 6.4 billion to DKK 6.6 billion. And now we expect DKK 6.55 billion to DKK 6.7 billion. The new guidance imply a rest of year growth of 5% to 10%. On top of the new organic revenue range, we add DKK 50 million related to rest of year sales from JMV cables. Summing up, the new revenue guidance will be DKK 6.6 billion to DKK 6.75 billion revenues, including JMV cables. Looking at earnings, we expect the increased organic revenue to contribute with additional DKK 15 million earnings, and we expect JMV to contribute with approximately 10% EBITDA margin, thus approximately DKK 5 million earnings. In other words, the underlying earnings guidance thus implies an updated EBITDA expectation of DKK 480 million to DKK 520 million and an EBT range of DKK 280 million to DKK 320 million, both up DKK 20 million. We estimate approximately DKK 20 million transaction cost related to the acquisitions of JMV Cables and Elektroimportøren. The transaction costs relate mainly to advisory fees, et cetera. Summing up, we expect the earning range to be unchanged, DKK 460 million to DKK 500 million EBITDA and DKK 260 million to DKK 300 million EBT, but now including transaction cost of DKK 20 million. Whilst the new guidance includes the impact from JMV cables and estimated transaction cost, the guidance does not include the impact from Elektroimportøren and the financial cost related to the acquisition from closing to end of year. We will issue an updated guidance end of August, which include the rest of year impact from Elektroimportøren and the associated financial costs. As Niels said, we are following the macroeconomic and geopolitical situation closely. We don't see the uncertainty reflected in current numbers, neither in Q2 nor in the order pipelines. The most significant risk towards our guidance are that the margin pressure will increase further during 2026 and that the geopolitical and macroeconomic tension result in lower consumer investment appetite and market activity being more volatile than normally. So this concludes the presentation, and we are ready to take your questions.

Our first question comes from the line of Kristian Tornøe from SEB Bank.

I have a couple of questions. First one goes to the organic growth in the B2B segment, which picked up quite nicely in Q2 compared to Q1. So I'm just wondering whether you think there is any sort of weather-related impact considering the cold weather we had in Q1 and how we should take that into consideration for the second half of the year?

Kristian Well -- yes and no. Of course, you would have the -- it's a right thought that you might have had a catch-up from the cold February or cold Q1. But the growth we have seen since March has been pretty steady. So actually, I think it's only a minor impact from Q1.