Lagercrantz Group AB (publ) (LAGRB) Earnings Call Transcript & Summary

Yes. Thank you, and good morning, everyone. Me speaking is Jörgen Wigh, CEO of the group. And together with me here this morning is Peter Thysell, our CFO. We will -- as normally, we have released our numbers this morning. And here, we, in the morning here, tried to open up for some questions, give a presentation of the -- what we released, open up for some questions and have a session of, yes, 40, 45 minutes, maybe up to an hour with questions. And so welcome, everyone. We will, as normal, have a short introduction. We will go over the numbers and then look a little bit ahead of what's going on in the group and what we -- how we see things. So that's sort of the 3 different parts of the session. We will open up for questions at the end. So to get a short introduction, I mean, Lagercrantz is a tech group with leading positioning in expansive niches. And you can see over to the right here on this slide where we are located. We have our companies both in Northern Europe, most of them, but we also have some foot holes as many of our companies are nowadays exporting to a larger extent along the way. You can see all over to the right where we also have some foot holes and export activities going on in North America, in China, in India as well. We have organized ourselves into these 5 divisions and we'll all conduct in the what we call serial acquiring without an exit horizon, where we are acquiring and building a group around sort of having a buy-and-build sort of strategy where we buy companies that have strong cash flows and use those cash flows to develop the businesses, but also to acquire more businesses and through that, building an earnings per share along the way. We currently have sort of been growing for many years. And currently, we have revenues exceeding some SEK 9.6 billion and currently some 3,300 employees. We are firm believers in decentralization and having all the companies autonomously run. So currently, we have some 85 profit centers organized into these 5 divisions. M&A is, of course, then a very central part of our business model, and you could see -- we will talk about that later on. We have been on the stock exchange since 2001. And before that, we were part of the Bergman & Beving Group, but have been under our own name and separately listed since 2001. So that was an introduction. Yes, we released our numbers here this morning. And here, you can see our trajectory of our revenues and profits over some many years, some 20 years or so. And you could see that we have now posted yet another solid quarter with good earnings growth and revenue growth, as well along the way. We have, along the way, put our sort of goals for the time being. We have an ambition of growing with some 15% per year, i.e., doubling every 5 years. That is our overarching goal. But along the way, we have sort of translated that where we are. And when we were at SEK 500 million here in profits, we set a target for SEK 1 billion, and we surpassed that here 1.5 years ago or 2 years ago. And then we have been now moving towards the SEK 2 billion. And we could see that this new quarter was also well in line with those ambitions. So a solid good quarter as we see it. We -- our commentary on the business conditions. Well, we have seen a recovery in the market over some period now. We have had now some 4, 5 quarters of positive organic growth. And here in the quarter, it was some 3% or so organic growth. But the recovery has been -- we view the market as generally stable and improving a little bit along the way, but it is from -- it is slowly recovering. So the hesitation remains in the market, but that's still on the sort of the positive side. And we see that demand continue to vary across companies and segments. We saw especially within the electrification and also within the infrastructure segments within Electrify, there we had some strongest growth, but also some parts of the Niche Products division with especially some companies there that had posted some good growth along the way. But we also see demand more hesitant, and the construction-related business is still struggling where the market remained sluggish during the quarter. All in all, we still think it's a quite positive in terms of that order intake for comparable units was in line with or slightly above invoiced sales. So the book-to-bill was slightly positive, which was good. But of course, we are also very occupied by looking at the market and see how geopolitical sort of uncertainty develops. And that, I think, is bringing some hesitation to the market, which we've seen from others that are reporting as well. So I think we are well in line with what's happening in the market. And our exposure then to the U.S. is limited. We also commented on here to U.S. with amounted to less than 4% group sales. So it's small, but still, of course, sort of affecting different parts of the market as well. But from -- still on an improvement track, but slowly -- slow improvement is what we see in the market with exception of the construction sector where we see some -- that the market has remained sluggish. We have -- you can see down here that we also have some sort of key metrics we follow. The proprietary products were at 78% now for the moving 12 months. It was 79%, I think, is in the quarter, but still that is a key sort of strategic ambition for us. And we also see that we are growing the business sort of becoming more and more international, and you can see the net revenue by geographic market down there to the right. And you could see that the Nordic and businesses outside the Nordics is gradually sort of growing faster than the group average. So it's -- that's also something that we are keen on seeing happening along the way. Peter, could you maybe take us through some of the numbers, please?

Sure. I'd like to start by summering the quarter. It's a solid start to the financial year where we have positive organic growth and also positive contributions from acquisitions. We can see that net revenues increased by some 10% and acquisitions contributed with 10% and the organic growth was 3% and equal numbers with currencies. The EBITA increased 12% and the EBITA margin improved to 17.5%. The cash flow was relatively strong, up 23% from the previous year. And the earnings before tax increased by some 14%, a little bit below our target of 15%, but still stronger than the previous year. And the profit after tax increased a little bit more, 18%, but that was mainly due to higher taxes last year. The earnings per share increased to SEK 5.14. And as you know, the Board has proposed a dividend of SEK 2.2 per share. We have completed some 11 acquisitions in the past year or more exactly from the 1st of July 2024 until today. And this corresponds to some 15% of net revenues of the net revenues for last year. And this is the pace we have kept for almost 3 years now. And I think you will see that since some of these acquisitions came in rather late in the quarter and also on the 1st of July after the quarter end. If we take a look by division, you can note that the strongest divisions are this quarter, Electrify and the Control divisions, where we have noted very good earnings improvements, also followed by the niche products, but with some weaker performance, particularly in the TecSec division, but also to some extent in International. But if you look at the bottom for the EBITA margin, we are quite happy to see that almost all divisions contribute to the margin improvement. So maybe, Jörgen, you will comment a little bit more details by division.

Yes, a little bit on the divisions. And Electrify was then the first division and was the strongest performer here. We saw revenues grow by 20% and organically 13%, so very good on organic. And that we sort of see coming from the electrification and infrastructure investments being done and those companies with that type of say addressing that segment had a generally a good quarter. So, we saw some good performance coming in from Nordic Road Safety, Elkapsling led by Elpress, Elfac and EFC and all those companies have that in common. A very strong sort of performance from the Electrify division and a strong EBITA margin as well of 18.3%, which is up from 16% last year. So a very strong and good performance from the Electrify division. Within the Control division, this was also very good. Revenues grew by 21% and -- but organically, it was somewhat weak with minus 2% and also some FX effects of minus 4%, but EBITA grew then by 46% driven by -- driven mostly by M&A. And also the EBITA margin picked up to 16%, also driven by M&A within the division. Generally, we saw -- they saw a stable market situation, combined with the successful acquisitions contributed to a good improvement in earnings and margins during the quarter. And some companies stood out, the [ CPK's ] acquisitions we made last summer has had a positive development, while others sort of more of our legacy businesses with the [ letting ] MH Modules is fairly new, but also Precimeter is more of a -- been with us for many years, showed earnings improvements in the quarter. While we are struggling with some of the smaller businesses in within the division. And here also the He-Man, the company we acquired here last -- earlier this spring, had a promising start within Lagercrantz. And also good to see is that they posted another acquisition of the [ ORX ] here in the -- just here during the summer. I'll come back to that one. So Control, a strong performance. The one lagging behind a little bit and not performing -- living up to expectations is the TecSec division. TecSec division, here, we saw revenues decline by some 2% and organically was minus 5%. A couple of companies here addressing more of the construction sector. And here, we see that sort of coming through. But EBITA amounted to 84% and still a good EBITA margin, generally speaking, of 16%, even though it was down a little bit from last year of 18.2%. So -- but the more construction-related businesses with [ Arkon ], door and joinery started out very strong within the group, had a fairly good performance, but still not living up to last year. Principal Doorsets and CW Lundberg remained affected by the weak market situation within the construction sector. And also the division's largest business, the PCP in Denmark and Northern Europe, noted a stable demand, but reported a slightly weaker start to the year. So TecSec is the one a little bit struggling. Niche Products division, there, we saw revenues pick up by 15% and organically, it was plus 1%. So okay, but still a little bit on the low side. EBITA then picked up 14%. So that was good and EBITA margin of 20%. This has been our high performance in terms of EBITDA margin, and they continue to be so here during the quarter as well. A stable quarter, and we also see some companies stand out a bit. The Prido with the folding doors had a very strong performance and also the newly acquired Van Leeuwen in the Netherlands, the VLT company came in with a very good start within the Lagercrantz. But also other more legacy type businesses, the Sajas, the Profsafe and Vendig also delivered clear earnings improvements, while also some of the bigger ones, the Tormek, ASEPT and ASEPT, Water Proof performed in line with previous years. So a good strong performance within the Niche Products division and they also posted a smaller acquisition and add-on company for the Wapro business here. I'll come back to that later on as well, also sort of building the division for the future. The last division then, last but not least, is the International. They posted a decline a little bit in revenues of minus 2%. But organically, it was up 3%, but were more affected by the FX of minus 5%. So EBITA picked up with only 1%, but still the EBITA margin up to 0.5 percentage point to 18%. So still a good performance. The -- as for those of you that have been with us for a long period of time, International was the one struggling a bit with the EBITA margin, but they have since now in a couple of years, 2, 3, 4 years, they've been well in line with the rest of the group. So they've improved their performance and show that, that's been structurally and sustainable in terms of living up to that expectation. Especially the Marine business in Libra and the DPCs in the U.K. continue to develop strongly. And other companies also did very well. And here, it's also good to point out that International now have posted 2 sort of slightly bigger acquisitions with the Epoke in Denmark and also Friggerakers in Sweden, and those are now being sort of consolidated within the group from 1st of July. So they are not really within the -- in the numbers just yet in terms of P&L numbers. So that's also ahead of us, so to speak. So that was the comments by division. And that will sort of -- we move then into the next section. I mean, we are then continuing building our group, and we are aiming then for the Lagercrantz towards the SEK 2 billion. And I think we have the trajectory, and this was just another quarter where we see that we are well in line with that ambition in terms of timing and the sort of route to get there. I mean what we're trying to build within Lagercrantz is this strong portfolio of companies with -- and really having companies that are working in building market-leading position in niches. And our financial goal since then to grow the EBITA by 15%, where at least 1/3 should come organically and the rest through 8 to 12 acquisitions per year. And we have now for a couple of 2, 3, 4 years, really been living up to this. As the base grows, of course, we need to increase the number of acquisitions and the current pace of 8% to 12% or some 10% of ourselves every year is something that we're living up to. And you noted maybe that Peter reported that it was 15% here last rolling 12 months coming from acquisitions and that's good to see. We're well ahead of the sort of 10% that we have as a general benchmark. So the annual profit growth of 15% is where we aim to be and i.e., doubling the group every 5 years and reaching then the SEK 2 billion along the way, well on time or ahead of time. Return on equity, then we should do this in a very profitable way by having a return on equity of at least 25%, and we were currently at the 28%, as you saw maybe from the report. So we have also been delivering on that financial goal for us. So, we continue building the group with the 5 divisions. We have, in the last few years, been putting increased emphasis on the divisional level, building some resources and really get going with making investments and finding acquisitions for us. And we could see that the pipeline of acquisitions are strong -- is strong, and we have basically more people working with this along the way a little bit. We are some 20 people or so, 23 or whatever we are in the overhead here now, and that includes the people working on the divisional level. So still sort of mean and lean, but very dedicated to building these divisions along the way. And we also see that we have since now 4 years, I think it is, been addressing different segments in each of these divisions. And that has also been very key for our sort of last few years good performance when we see that we are addressing specific segments and markets with our different divisions. You could see there the focus area on the different divisions here. And you could see that we have a number of units, a number of profit centers within the different divisions, but this is where we put emphasis to building this and building capabilities and resources and get going with building these divisions. Building positions in sustainable segments with underlying structural growth is the sort of key theme here when we're building the different divisions, and we continue doing so over time. Another key sort of strategic ambition for us is to build the proprietary products. You could see that this is where we're coming from. You could see how it's been developing that, that is the sort of brown part of the slide here or and you could see that we have been growing that, and we had the ambition of getting to the 75% for quite some time. But then lately, we have now put up the ambition for 85% in this sort of time -- sort of moving to the SEK 2 billion goal. And we are currently at SEK 78 million or in the last quarter, as you could see, 79% from the report. Here, it's a moving 12 months figure of 78%. So that is also working in the right direction for us. We see within proprietary products, we see higher margins, and we also see greater sort of opportunities for exports, meaning that also the organic growth sort of ambition is easier to deliver on when we see a broader market for our companies. And that has also been a key thing for us when we have looked at finding more proprietary products to bring to the group. So that's been good for us as well. Last but not least, I will talk a little bit about the acquisitions. Well, to grow a [ serial ] acquirer by 15% per year over a long period of time, we also need to then both produce some organic growth, but also do quite a lot of M&A. And that is, of course, a key thing for us. And in the last sort of set of goals, we have ambition of growing some 10% of ourselves, i.e., some 8 to 12 companies per year is how we translated that. And I think we're well underway here with the 11 acquisitions that we posted here since July 2024, adding some SEK 1,382 in annual business volume, i.e., 15 -- roughly 15% or 15% of ourselves really in that period. And you could see that we have some -- posted some 85 acquisitions since 2006. And here, we had yet another good sort of time period on more acquisitions. And just to highlight what we're acquiring, we're both doing -- we move to the next one, please. We're both acquiring sort of smaller companies that are bolt-ons to companies that we already have. And within the Niche Products division, we are building a water sort of cluster of companies -- and here, we found another company adding to that cluster, the Wapro cluster within. It's not very big this company, but still a good add-on for and important for the Wapro business. And you can see down to the right here that it's been performing well and will be a good add-on to that company to the Wapro sort of area. The next acquisition I'd like to highlight is then more of a stand-alone acquisition. This is a very strong player and a leading player within -- in Sweden in terms of products handling and maintenance for funeral and cemetery sectors. So a lot of things that goes into sort of cemetery and that market. Also a very good well-run company with some SEK 50 million in terms of sort of turnover and some EBIT of around SEK 9 million, as you can see there. And you can also see the EBIT margin down at 17% to 20% or so, a good add-on and a company that could sort of develop very well within the Lagercrantz sort of framework, Swedish company, part of the Control division. Then we -- I would like to highlight a couple of bigger acquisitions. Here in Denmark, we acquired here in June, the Epoke company, which is a leading manufacturer of equipment for winter road maintenance equip and road safety, especially for spreading sand and salt. And you can see this is slightly bigger. This is Danish millions as well. So, it's going to be a good and important add-on for the International division, just newly acquired, based in Jutland in Denmark, but also have some subsidiary in Germany and with the production facility in Denmark. So, a very good and important add-on on a new company within the International division. And related to somewhat to that is also then the Swedish company, Friggerakers, which is also making the sand and salt spreaders under the Swedish name that many of you might recognize, which is the Falkoping brand, well known in Sweden, a very well-run Swedish company with some SEK 120 million, SEK 130 million in terms of sales in Sweden and in EBITA of some -- yes, EBITDA margin of 20%, 25%, as you can see down there. This company we acquired here in the 1st of July. So this will be sort of consolidated here from the 1st of July as well. So that was not in the numbers here that we reported. And an important company also for the International division and similar or related to also the Epoke business. So to round off, I think we posted a good solid quarter. And you can see here that our good trajectory in terms of the financial figures continued in the quarter. We had a good net sales improvement and a good EBITA improvement and the EBT and the EBT growth is currently now at the 17% on a sort of rolling 12 months sort of basis as opposed to the -- to be compared with the target then of the 15%. And the return on equity there the financial goal is 25%, and we're currently running at 28%. That is also very good. And the earnings per share growth was 19% compared to then to the goal of 15%. So a good strong quarter and continue sort of on our trajectory here. So that was good to see. And with that, I think we will open up for some questions. Moving to the question -- Q&A session.

The next question comes from Max Bacco from SEB.

Well done in the quarter, a solid one indeed. Just one question from my side. We have heard from one of your bigger peers here during the reporting season that they have postponed some M&A transactions due to the geopolitical unrest and low visibility. But you seem to do the opposite, take advantage of the slightly slower market and I guess also lower competition for quality companies. So basically, the question is then, what are your thoughts on doing acquisitions in the current market environment, which is perhaps characterized by uncertainty. Any thoughts on that would be interesting?

Well, I think we have more or less been doing what we've always been doing. We are looking at good companies. And since we have -- we don't have an exit horizon, we are very, very long-term. I don't think that we should sort of stop or sort of adjust very much for a geopolitical situation that might be sort of in some parts of the world or so. Of course, we are sort of observant to what's going on in a specific acquisition. So, looking at acquisition I just presented, most of them are very addressing markets and customers in Europe or even in Sweden in some instances. So, I don't think they will be very affected by the geopolitical situation in sort of North America or so. Of course, if there is then -- a bigger thing happening with sort of -- yes, whatever that might be, but if that's happening. But we are looking at case by case. And if we feel that they're sort of -- they're addressing a market in Northern Europe or so, I think we are still very sort of, yes, keen on continuing our M&A sort of -- yes, our M&A activities. So, we have not hop to adjust it very much, no. That's true.

The next question comes from Christian Binder from Redeye.

First one regarding organic growth. I remember correctly, in Q4 2023, '24, you noted that the timing of Easter kind of had a negative effect of 3 percentage points on organic growth in that quarter. Can we assume there was like a similar effect in this Q1 when comparing it to last year's Q1?

Yes, I think there was a slight sort of -- sort of -- yes, the organic growth was slightly stronger in the previous quarter with some 5%, I think we posted in the last quarter. And this quarter, we posted 3%. And some of that effect was really sort of coming from the calendar effect. That's true. But I don't think we should make that a key point here. I think that we are -- in our companies, we see quite sort of a different sort of landscape in terms of organic growth, as you could see when we went through it from the divisional side. So I'm not sure that, that's sort of to be expected here going forward. The market is improving, but slowly, as pointed out earlier.

Okay. Perfect. Got it. And then one question regarding Epoke. Looking at the last 10 years of consolidated financials for a company, it seems like sales haven't changed too much, but EBIT margin has improved a lot. Can you just give a little bit more color on what kind of has changed in the business?

Yes, I think they've been going through some improvement programs and some cut out of costs as well within the business. But I also know that they have been addressing more of the aftermarket and been much better at addressing the aftermarket than they used to be. And that has been -- all those things have added up to some better improvements, better performance in that company in more recent years. And that we see as sustainable going forward.

The next question comes from Patrik Schwartz from Pareto Securities.

Jörgen and Peter, congrats on another solid quarter. I have a couple of questions here. First, on Electrify. Obviously, we've had some really strong organic growth here the last couple of quarters, although admittedly against perhaps some easier comparatives. Looking forward, I think it's getting a bit more difficult now. What is the feeling here on organic growth? Should we expect it to -- obviously, I mean, 10%, 11% is perhaps not too sustainable, but what should we think going forward?

Yes. Well, that's a very difficult question. I think the key engine -- the engine within the electrification has been our Elpress. And our Elpress has been performing very well for many, many years. And they have been -- had a growth pace of maybe 8% to 10% for some years. But now in the last couple of years, it's been a little bit above 10%, so 10%, 12%, 15%, somewhere there. So Elpress, but they are also meeting a better market. We see that the sort of investments in electrical infrastructure and cable lugs and the electrical grid is improving and picking up along the way. And I probably see that continue for a number of years going forward. But whether we should translate that to strong organic growth for Elpress and the other of our companies, well, I think it will be fairly strong, but whether it will be this strong, it's really hard to tell. Yes, we will come back to that. We'll see what happens. But in the neighborhood or slightly in the neighborhood we should probably be, yes.

Okay. And then since you mentioned Elpress here, obviously, we've had some announced tariffs here on copper prices. I know that the U.S. exposure here is quite limited, but Elpress is 60%, 70% copper products. Do you see any impact here on demand and then on profitability?

Not really, not really. I think that most of what the Elpress is doing is quite sort of competitive. It's -- I think they've been doing very well, and the U.S. is a very small market to them. I think from my knowledge as well, some of the products were also accepted from the tariffs early on. I don't know whether that has changed here or whether that is about to change, but it's nothing that we have seen so far.

Yes, yes. Okay. Good. And then here, a final question here on Epoke. How should we think about seasonality going forward? Is it strong Q3, strong -- sorry, strong Q4 to strong Q1 and then soft Q2, Q3 or yes.

Yes, that's good spotted. There is a seasonality to both the Epoke and Fliger Friggerakers that is related to the -- after summer and winter sort of those are the strong seasons and slower in the beginning of the year or yes, spring time, spring to summer.

Sometimes kind of the opposite of Nordic road safety.

Right, yes.

There are no more phone questions at this time. So, I hand the conference back to the speakers for written questions or any closing comments.

From -- yes, thank you. And from what I can see, we have no written comments. So, I think we'll round off there. Thank you for listening in and posting yet another good quarter and sounds very -- feels very satisfying to be doing that here just ahead of summer. So -- and Peter and I are available here if you would like to contact us individually. But otherwise, have a good summer, everyone, and speak to you soon as we get back from vacation. Thank you very much.