Fagerhult Group AB (FAG) Earnings Call Transcript & Summary

Thank you all for joining us today. I'm Niklas Willstrand, Head of Communications at Fagerhult Group and it's my pleasure to welcome you to our Q2 2026 results presentation. On the call today, we have our President and CEO, Bodil Sonesson Gallon, along with our CFO, Oscar Wallsten. Bodil will begin with a brief overview of our second quarter results, followed by a presentation of the strategic priorities announced as part of our recently published strategic review. Oscar will then provide a deeper dive into the group's financial performance. And to close, Bodil will summarize the key points before we open the floor for your questions. We will start questions from the conference call participants and then take questions from the webcast. [Operator Instructions] Please note that today's session is being recorded and will be available on our website later today. So with that, I will hand over to you, Bodil. Please go ahead.

Thank you, Niklas, and welcome and good morning for joining us today. So I will start with the word stabilization today, and we noted a stabilization in order intake noted already in April, continued through most of the quarter, with order intake increasing to SEK 2.68 billion in the second quarter. And sales also increased during the period. Profitability, although improved from Q1 remains below our expectations. And while activity levels improve, customers in several markets continue to postpone investment decisions. And I wouldn't say that the general market conditions have fundamentally changed. . In early January, we presented the priorities that will strengthen the group's performance and improve profitability. The first step and the first focus is to restore margins through cost reductions, efficiency improvements and a stronger goods in Europe. We also see significant opportunities to improve performance through closer collaboration across brands, markets and functions. At the same time, we will continue to invest in innovation and in growth segments where we see the greatest long-term potential. And smart lighting is part of that. Several of these priorities is already reflected in our day-to-day operations. And during the quarter, we continued to see strong activity in energy-efficient lighting and modernization projects. So Fagerhult secured several projects linked to the transitional lead lighting solution. as well as important projects within health care, including the new emergency hospital in V ster s that's being built and Scandinavia's largest orthopedic center. Another example of how we're strengthening the group's overall position is Trato TLV, which is our French group company, which has now been part of the group for exactly 1 year. So the company has developed in line with expectations and the integration has progressed well. Synergies have been realized why the first projects in new markets together have been secured. So we continue to explore opportunities to further develop and working on possibilities together with Trato TLV in their international presence in collaboration with other group rates. We also saw positive development in several great segments, driven by long-term investment trends. Capelon, when we look into public investments, secured new municipalities reflecting the growing demand for smart lighting solutions, while Designplan, our British brand achieved the highest order backlog in its history. At the same time, Veko secured a project for an open factory in Germany and continue to expand its pipeline within the European data segment, where they have a very suitable product portfolio. So that was a short summary. And if we then look into the numbers, we start with the Q2 numbers. And as I said, our order intake reached SEK 2.68 billion during the quarter, which was up 8.6% compared to last year. And including for acquisitions and currency effect, it was -- the order intake was down with 0.5%. The -- it was -- we see it as positive that while order intake exceeded SEK 2 billion, which is always a milestone for us. It was not any single megadeal that made the difference, but rather many midsized steel, which we see as a positive indicator of the activity level. And net sales increased by 6.8% to SEK 1.978 billion, supported by acquisitions completed last year and favorable currency effects. And adjusted for acquisitions and currency movements, sales declined by 1.4%. The Overall, the group's EBITA before AAC was SEK 113 million, which was a decrease of 16.9% with an EBITA margin before IAC of 5.7%. We -- so we're still not satisfied with that level. Of course, we're working hard to get back towards our target. But as I said initially, still a stabilization compared to and earnings before share -- earnings per share before IAC was SEK 0.08. And we ended also positively the quarter with an order backlog of SEK 1.916 billion, which was up both from a year ago and from the first quarter. So we are moving forward with the implementation of our strategic priorities. But before we get there, let's look also at the half year numbers in brief. And if we look at the year-to-date numbers, they appointed an order intake to SEK 4.37 billion a decrease of 2.3% or 8.1% adjusted for currency effects and acquisitions. And net sales amounted to SEK 3.795 billion, an increase of 0.2%. And then again, when we adjust for currency effects and acquisitions, a decrease of 5.2%. And EBITDA before items affecting comparability amounted to SEK 158 million and the EBITA margins for the half year was 4.2% compared to 7.9% in the corresponding period last year. And we have an earnings per share of minus SEK 0.09 for the half year. So then leave the numbers for the moment, and let us go to the strategic review and priorities for future profitable growth. And as you already know, we communicated the outcome of our strategic review in July, where we sent out a press release. And our vision remains unchanged, which is a world enhanced by light, the review confirmed the need to sharpen our focus and strengthen the group's performance. So we are focusing on 3 key areas to improve our profits grow our market share and build a foundation for lasting success. Our first -- and we have 3 main priorities and our first priority is to restore stability and resilience across the group, and that's where we started. And selected initiatives, including a cost-saving program, which is throughout the organization, combined with selected consolidation activities are expected to deliver an improvement of SEK 220 million, which was what we communicated in the press release. These effects will be realized gradually over the next 6 to 12 months. And we are already working on a lot of these activities related to the scope of the savings. They haven't yet had any impact on the Q2. The better result in Q2 compared to Q1 was to refer to the increased sales. So these activities will have an impact as we continue the year. And we will inform the market when we have executed on the activities. And the guiding staff for us that we're working towards is a stronger focus in Europe, a laser focus and a clear premium market positioning that will support the ambition of building a more resilient and a more competitive group. The second priority is to improve performance through stronger execution and increased collaboration across the group. This starts with clear responsibilities, greater accountability and a more effective way of working. So we, of course, will continue to have empowerment close to the customers in a decentralized organization, which is in line with our way of working. Responsibility for customers, sales product development, production, operational excellence, and ultimately, the P&L performance remains close to the brands and business areas. At the group level, we will strengthen governance around strategy execution, finance, HR and IT, including both cybersecurity and AI. By sharing all the expertise we're having in the room, we will be leveraging the strength of our different businesses, and we will collaborate where it makes sense. And in this way, we can operate much more effectively and better support our customers. Two concrete examples are that we have started to work much closer in an IT forum with the sponsor from the group and then leverage all the competence we have in the organization. We've also started a project to leverage our current footprint in Germany, where we have 3 German brands, local brands and 5 additional brands in the group being present on the market with very limited cooperation today. And in addition to this, we have put an ambition target, ambitious target for the next 3-year period based on high efficiencies, selected focus areas and better corporation. And the third priority is to continue investing in innovation and attractive growth segments. Close customer relationships and the ability to develop solutions that meet changing customer needs remain a very important strength of the group. So demand for smart lighting solution continues to grow, where we had a very good first half year while several other markets are supported by long-term investment trends, including defense, public infrastructure, data centers and also retail. And during the quarter, we saw positive development in a number of these segments, reflecting the opportunities created by the underlying trends we all see in the market. Several of these markets are expected to remain attractive over the coming years, providing a solid foundation for future growth. We all know that the landscape in the construction industry has fundamentally changed the last few years. And therefore, it is important for us to be very agile and finding great opportunities. It's important to defend the premium market where customers understand the benefits of good lighting quality and for us, in many cases, bespoke solutions. So if we try to summarize this and to conclude, our first priority to remember is to improve profitability and strengthen the foundations of the business. That's where we start. And as mentioned, we already have quite a few selected initiatives that are expected to deliver an earnings improvement of approximately SEK 220 million over the next 6 to 12 months. Nothing of this, as I said, is included in the Q2. At the same time, these initiatives will help to create a more resilient and cost-conscious group by further strengthening our presence in Europe and supporting the long-term development of the business. While our vision remains unchanged, as you can see it here, are well enhanced by light. The focus is on positioning the group for sustainable long-term growth. So continued innovation and increased exposure to new growth segments combined with an ambition to become a top 3 player in selected European markets with a strong focus on some markets will support future growth opportunities and long-term value creation. We believe we need to be laser-focused for the period to come. So as I said, restoring profitability comes first. Then in the next step, looking into accelerating growth once the profitability is achieved. And our ambition remains clear a 10% EBITA margin and then in the second step, a growth of 6%, which is then primarily driven by organic risk, and we will not have an M&A focus in the fourth coming period. We also have a focus on net working capital with the goal of free cash flow of 6%, which for us primarily means a focus on reducing inventory. And that was a quick summary of our 3 main pillars in our strategy and how we're going to go from a vision to value creation. And with that, I will hand over to our CFO, Oscar Wallsten to give you a much more detailed update on the financials.

Excellent. Thank you, Bodil. Good morning, and welcome, everyone, to this call. This has been a stronger quarter compared to the weak start of the year. Order intake has developed in a positive way and the business areas, collection and infrastructure are the main drivers behind the positive development. Both business areas grew organically in order intake in the quarter. For the group as a total, the gross margin is still a challenge as both production costs are higher than last year as the sales mix is also unfavorable. Still, we see an improved EBITA margin in Professional, thanks to Trato TLV, but for the group as a total, a weaker margin compared to last year, which is explained by weaker performance in our largest business areas, collection and premium. During the quarter, the group reported SEK 19.8 million other operating income that relates to the Trato TLV earnout liability. Now when the outcome for the first vesting period has been determined, the liability could be reduced and hence an income has been reported for the group. While organic order intake declined by 0.5% compared to last year, total reported order intake increased by 8.6%. In the quarter, the order intake is negatively impacted by FX. The stronger Swedish krona is affecting our euro business in a negative way also this quarter. On the other hand, the order intake is impacted positively by acquisitions. By this time last year, our brand company Trato TLV was not yet incorporated in our numbers. However, since the acquisition has now been part of the group for a full year. This will be the last quarter in which Trato TLV is mentioned as an explanatory item compared to the previous year. Sales decreased organically by 1.4% in the quarter, where FX had a negative impact by SEK 19 million where acquisitions improved the numbers by SEK 171 million, totaling to a net impact of SEK 152 million. The second quarter's EBITDA margin landed on 5.7%, a decline by 1% compared to last year. The margin drop is mainly related to lower business volumes in our 2 largest business areas, collection and premium. The decline in sales in these business areas has negative impact on our profitability. In the quarter, we had a negative operating cash flow of SEK 9 million compared to positive SEK 162 million last year. We saw a weakening in working capital also in this quarter. I will come back to more cash flow insights later in the presentation. Year-to-date order intake is slightly lower than last year. We see a decrease of 2.3% and an organic decrease of 8.2% year-to-date. Explanation lies in the weak first quarter. Q1 last year was a tough comparison period with a couple of large projects. Sales on the other hand are higher than last year's year-to-date and increased by 0.2%, yet with an organic decrease of 5.2%. The EBITA margin is 4.2%, which is lower than last year's 7.9%. The lower gross margin compared to last year is the main explanation. Cash flow year-to-date is negative SEK 169 million, which can be compared to plus SEK 188 million last year, but more about cash flow later. Sales development, the rolling 12-month net sales shows an increase in this quarter. We're back at the same level as Q4 last year after the dip in the first quarter. And looking at margin development. Also, the margin improved again in the second quarter as a consequence of a recovery in sales. The rolling 12 development is, however, still impacted by the weak Q1 and hence, a decline in the line chart. Moving over to the business areas, starting with collection. In collection, the second quarter order intake of SEK 894 million in tail an organic increase of 2%. The improvement in order intake is coming from both iGuzzini and WE-EF. Net sales in the quarter amounted to SEK 886 million, corresponding to an organic increase of 1%. The EBITDA before IAC was SEK 76 million, which is lower than last year's SEK 95 million for the second quarter. The EBITDA margin is consequently lower as well 8.6% compared to 10.7% last year. The demand on collections home market has been weak during the quarter despite that iGuzzini, LED Linear have succeeded in delivering growth in sales, which compensates for the development in the other brand companies. Premium delivered an order intake for the quarter of SEK 608 million and tailing an organic decline of 4.4%. Net sales for the quarter totaled SEK 601 million and EBITA landed on SEK 60 million. As you can see in the chart, both numbers result in a decline compared to last year. The EBITDA margin was 10%, which represents a weakening compared to the second quarter last year when it was 14.5%. Just like business area collection premium encounter a weak market, especially in the new construction sector and generally fewer larger projects than normal. Moving over to professional. Business Area professionals order intake for the quarter increased to SEK 378 million, mainly thanks to the acquisition of Trato TLV. Net sales for the quarter totaled SEK 366 million with an organic growth of 10%. Organic sales growth remained strong in the second quarter and was mainly driven by a strong quarter in the U.K. compared with the corresponding period of the previous year. In France, the retail sector also continued to perform well, driven both by existing customers and by new business opportunities where we are registering increased demand for retrofit solutions. In addition to the organic growth in net sales, Professional also gets a positive impact of SEK 164 million in net sales from Trato TLV. EBITDA before IAC amounted to SEK 8 million, which in turn resulted in an EBITDA margin of 2.2%. The lower EBITDA margin in the business area is primarily related to brand companies, Eagle and Arlight. Trato TLV has now been a part of the Fagerhult Group for 1 year. The company has delivered in line with expectations and the integration has progressed well. As mentioned earlier, this is the last quarter we will refer to Trato TLV as an explanatory item compared to last year. And then looking at infrastructure. Infrastructure's order intake for the quarter totaled SEK 170 million corresponding to an organic increase of 16%. This was a result from design plan securing a significant U.K. prison project in the quarter and setting a new all-time high for the company's order backlog. Veko also showed signs of recovery in the form of a project for an Opel plant in Germany, as Bodil mentioned before, and a growing project pipeline in the European data center segment. The net sales for the quarter totaled SEK 164 million, representing an organic increase of 2.4%. The EBITDA margins is, however, still negative and landed on negative 2.2% for the quarter. The profitability of infrastructure is still suffering from volume and fixed costs that remain at a high level. Favorable development of Evolus is unfortunately weakening the business area as a whole. Looking at the cash flow, the operating flow in the quarter was negative at SEK 9 million compared with a positive SEK 162 million in the same period last year. The large difference in operating cash flow compared to last year is mainly explained by adjustments for noncash items, which amounted to as much as SEK 121 million last year. In addition to that, we saw a weakening in working capital also this quarter. Working capital has developed in a unfavorable way. It is the customer receivables that have increased during the quarter and hence affected the cash flow in the wrong direction. Yet as the increase in customer receivables is a consequence of higher sales, we don't see a risk in this particular development. Net debt. The recent investment in Trato TLV and Capelon has increased our net debt to a current level, which is higher than before. In the second quarter, our net debt-to-EBITDA ratio has increased again because of the development in profitability and weak cash flow. Earnings per share before IAC landed on SEK 0.08 per share for the quarter. Thank you for your attention, and now back to Bodil.

Thank you, Oscar, for the financial numbers. So I'll make a short summary before we move over to questions. And I will use the same word as I used initially, and that is we see a stabilization. I think that is what characterizing the quarter. And the stabilization in order intake that we saw starting in April continued through most of the quarter, although many customers still remain cautious with investment decisions. . So they take a little bit longer than normal. Although -- and we haven't seen when we look at the general market conditions that they have changed substantially. But we see still that we have markets and segments where we have strong efficiency -- strong activities. And also, we see still the activity remains strong in energy-efficient lighting, where we see lead conversion projects and several, as I've mentioned before, new attractive growth segments. At the same time, we have taken steps -- important steps to strengthen the group. So with the first focus, as I said, on profitability and improving profitability, also increasing efficiency and strengthening our competitive position. So we have selected initiatives, including a general cost saving program for the group and other selected initiatives in terms of consolidation that are expected to contribute to approximately SEK 220 million in earnings improvements over the next 6 to 12 months. While there is still work to do, we are building on the strength of the group, a stronger European focus increased collaboration across brands and markets, continued innovation and greater exposure to attractive growth segments such as defense, public infrastructure and data centers. will provide a solid foundation for a long-term profitable growth. We also believe that both outdoor and indoor smart solution will be part of our future growth drivers. And with that, I will hand over to Niklas for questions and answers.

Thank you, Bodil and Oscar, of course, thank you for your presentation. We will now start with the Q&A session, and we will start with questions from the participants on the conference call. I will leave it over to the operator to take your questions.

[Operator Instructions] The first question is from Lara Mohtadi from ABG Sundal Collier.

Just a couple of questions for me. First one on the strategic review. How should we sort of think about the phasing of this SEK 22 million how much of it lands in 2026 versus 2027? And sort of a follow-up on the same theme. What restructuring costs should we sort of expect alongside it?

Yes, I can take that. Thank you, Laura. So I would divide it into 2 buckets, that is general cost savings, OpEx, if you like, and that will be SEK 100 million and the ambition we have, the plan we are executing according to is to take that out during the second half of this year, which would result in a run rate reduction compared to 2025 to 2027 of SEK 100 million less in spend. The remaining SEK 120 million is strategic activities that is going to have a positive impact on bottom line, and we're aiming to get those done in Q4, but it might spill over to Q1, depending on the market conditions, if that helped?

Yes. And also on restructuring costs.

And the restructuring costs will be quite high we're probably going to see a restructuring cost around SEK 350 million to SEK 400 million, which will end up as a onetime cost in IAC.

Okay. Great. Very clear. And just on the gross margin, you had a decline in the quarter. You talked a little bit about production costs and mix. Can you maybe help us understand how much is production costs and how much is mix?

I would say 85% is related to mix and very much related to the large projects that we had last year. So it's 15% to 20% of it is related to actually increase of the prices that goes into to the manufacturing process then?

Okay. And you also mentioned that orders have stabilized throughout the most of the quarter. What are you sort of seeing in July?

I don't know, Bodil did, is that something...

I think it's a bit too early to say now. If you look into what we were saying, we saw as I mentioned, and I think we said it already in the earnings call that we had in the beginning of May that April was good, and we saw that continuing. Then you always have normal changes you have made with a lot of holidays, but I think we saw a very strong June as well in general. Then if I look into the longer indicators, we don't see a fundamental difference as where it goes. So I would say what we've seen in Q2, it seems to continue. But then it's always -- we are -- even though I said it's positive, we didn't have a mega project, I think that's something we should listen to. But then you always have -- you have some weeks which are better than others when you have projects. So -- and I think we have a where we have the benefit of having the Southern European and Northern European businesses. So the summer tends to equal out from vacation periods.

The next question is from Oscar Ronnkvist from SEB. .

Thank you, and good morning. So first question would also be sort of the outlook. I think the tonality was quite unchanged, but still accelerated through the quarter and some pretty sharp increase from the Q1. So just to have any question on how to read the outlook comments, given the positive momentum, which I interpreted at least. And also, do you have seen any impact from the EU building directive performance or performance directive that was implemented recently. .

I would say, I think I've said it before, is that it's always positive when we have order intake above SEK 2 billion. That's for us a benchmark. So I think that you should look into that. Then we -- I mean we don't give a forecast or an outlook for the future, but that is 1 indicator. What I also said is you can look at the order backlog, which is better. I think it was 6% -- 6.3% compared to Q1 and 5.4% compared to Q2 last year. And then when you look into the landscape we have, I mean, there's nothing that has fundamentally changed in the building market since last time. I think what we see is that we see the change. So we see that the segments I was highlighting, whether it's data centers, public spending, -- and when we speak about public spending, we see health care. I see a lot of health care activity around Europe. And also, we see on the retail side, we see positive activity. So I think the trends that we've been seeing for a while, they're getting stronger. So -- and I also said that we have the products for those segments, we have more work to do on working on the market side, and that's what we're currently doing. So we're building our pipeline on the data center side of things, for example, and we're doing the same in the defense markets. So a different landscape compared to if you go back 2 years, and I think that is getting more and more obvious that that's the way it is. So we need to be agile. The question about European Performance of Buildings Directive -- it's a good one. I can't give you a very saying we see a big difference. But some of these public investments that we are seeing, I think, some of that is maybe also driven by the European performance of Buildings Directive. I would estimate so.

All right. And also, I think you touched upon in the CEO letter, I think you touched upon competition from low-cost actors or maybe knocking our competition. If you just could expand that a little bit is it increased competition from low-priced actors? Or is it more that the sort of underlying demand is more shifted towards low-cost products .

I think when you have a tougher market situation in general, I think then you see more low-cost competition. I think also -- so we see it, I would say, in the entry-level segment. And that also -- I mean, we are premium positioned. And you heard me saying that defending our position on the premium side of things is very, very important for us. So I would say we will see somewhat higher activities from low-cost importers. Maybe there is a stronger focus from the Chinese competitors into Europe because of the tariff situation in the U.S. as well. So somewhat higher competition, I would say, yes, in the entry-level segment.

Perfect. Then just some follow-ups on the cost initiatives -- sorry, did you have .

No, go ahead. Go ahead.

No. Yes. Now some follow-ups on the cost initiatives. So just first of all, to clarify, the SEK 220 million. So you say earnings, would that be EBITDA or would that be earnings including that you expect some positive cash flows to reduce the debt levels. And also the SEK 120 million in sort of mix effects, if you could just clarify that a little bit. So are you sort of aiming to increase the exposure to some high-margin brands? Or what's that driven by?

Yes. Thank you, Oscar. So the SEK 120 million is EBITDA improvement to start with. And it is about addressing our cost base, which means that we will reduce the cost base -- the structural cost base, if you like, which will result in an EBITDA improvement of SEK 120 million .

All right. And just to sort of get these baseline SEK 40 million to SEK 120 million, what would be a good baseline if we should sort of evaluate that afterwards? Is H1 EBITDA?

Yes. I would say Q1 .

Yes. So Q1 run rate sort of.

Yes. if you annualize that.

Perfect. Great. And then just the margin in Professional, I appreciate the comments about Eagle and Arlight explaining those. But can you expand a bit more on what you see in the margin? Would that be cost pressure from production cost? Or is it just a pure mix effect or...

So in those brands, we have seen a slight decline in business performance and -- which results in negative the impact on the business mix coming from those 2 brands into the business area.

All right. Great. And then I think orders in collection was a bit better, and I suppose that would be a positive driver for the gross margin ahead. Is that correct to interpret?

That is a good assumption, I would say.