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

Welcome to Lagercrantz Group Q2 Report 2025, '26. [Operator Instructions] Now I will hand the conference over to CEO, Jörgen Wigh; and CFO, Peter Thysell. Please go ahead.

Thank you, and welcome, everyone, to our interim report. We do this every quarter. So this is our Q2 report. As you know, we are starting our year 1st of April. So we are concluding the numbers at the end of September as of today. Together with me here, myself, Jörgen Wigh speaking and also Peter Thysell right beside me here. When we get to the numbers, we'll let him do that part as well. So welcome, everyone. I would like to start off with just a short introduction to the group for those of you that are new to the group and then carry on with the report in a couple of slides. Well, Lagercrantz is the tech group or an industrial group, where we are working with a buy-and-build model, building a group around a number of subsidiaries, currently some 85 subsidiaries or profit centers as we call them, building leading position in expansive niches is where we are. We have -- all companies are working autonomously, but we are gathering them into our 5 divisions, as you can see here, the Electrify, Control, TecSec Niche Products and International divisions. You can see the number of profit centers or companies within each of these divisions. We have been on the stock exchange since 2001. And before that, we were part of the Bergman & Beving Group, but under our separate name since 2001. We are currently just going through the bar of SEK 10 billion in terms of sales or revenues, and we are some 3,400 employees within the group. All our -- what we're doing in the companies are B2B. So we're selling hardware and all types of industrial products in niches to other companies. So it's B2B all of it. And we are firm believers in running it in a very decentralized way with a decentralized organization with some 85 profit centers gathered in these 5 divisions. You can see over to the right where we have our locations. We are Northern European today with a number of footholds around in Europe. And you can see some 30% or so is in Sweden. Denmark is our second biggest market, but then Finland, Norway and the U.K. are of similar size, as you can see from one of them -- if you look into it. You can also see that most of what we're doing in the businesses are also, to some extent, export related. So you can see all over to the right where we also have some footholds through our subsidiaries in a number of places around the world. So it's in the U.S., in China and in India as well, where we have some footholds where we try to sort of establish ourselves and drive exports through those hubs as we call them in different parts of the world. So that's an introduction to the group. Coming into the interim report then, yes, I think we closed another strong quarter. You could see here that we have had a strong trajectory with our profits picking up every quarter for a number of quarters now, and this was in line where we expected -- we expect to grow profits or earnings before tax with around 15%, and the figure now was 17%. So slightly above where we have our profit targets and a strong really sort of solid report, we think it was. You can see where we have our -- where we've been over the years, and you can see that we have also increased our margins a little bit along the way, and that was the case also this quarter. So a strong quarter and approaching the SEK 1.4 billion in terms of profits. We communicated a SEK 2 billion goal some -- about 2 years ago, and we should reach the SEK 2 billion within 5 years that we said, and we are well in line with that pace here as you can see. So yes, we move to the next one, I think. Talking about the interim report and the Q2 and the business conditions. We noted that the market situation was generally stable and slightly better during the second quarter compared to the same period previous year and earlier on. So slightly better. This quarter is always very sort of affected by the summer. So it's actually not in September where we see that things are actually where things are turning out, and it looks fairly good in September. So a strong end to the quarter as well. Of course, demand continued to vary across companies and segments, but we saw some strong demand, especially within the Electrify, electrification and the infrastructure within the International division and within the TecSec division that had all good order intake, while demand was weaker in Control and Niche Products divisions. We also concluded that the order intake was comparable -- for comparable units was slightly above invoiced sales and increased organically with 5% compared to the same quarter previous year. And that was also then adjusted for the currency effects that impacted some negative by 2%. So stronger order intake than the organic growth that we had in sales that was only 1% really in the quarter, but we see that as more of an effect of sort of how much we managed to invoice during the quarter. So that's why we also highlighted here the percentage in order intake. You can see down to the -- further down here on the slide that we also have the net revenues by business type. And it's good to see that we're also in line with our proprietary products target of reaching the 85%. We are currently here on moving 12 months at 79%. But in the quarter, it was 80%. So we crossed that sort of limit as well or that bar as well now here during this quarter. And you can see also that we -- from the far right there, you can see that we are over the years getting more and more international with the share of -- Sweden is growing, but as a percentage of the total, it's actually declining a little bit, but as we become more international. Peter, maybe we should hand over and look at the numbers a little bit.

Yes. Thank you, Jörgen. As mentioned before, we are quite pleased to report another strong quarter with earnings before tax up by some 17%. Net sales increased by 13% with acquisitions contributing with 14%. The organic growth in sales were 1% and the currency effects were negative 2%. The EBITA increased 14%, and the EBITA margin improved to 17.9%. We're not entirely happy with the cash flow in the quarter, but we feel it remained quite robust. If we turn to the 6-month period, the net revenues increased by 11% with, again, the acquisitions contributing with the majority of 12%. The organic growth was slightly higher at 2% and the currency effects were negative 3%. And the EBITA increased 13% and EBITA margins also improved to 17.7%. And as Jörgen mentioned before, we are well on track towards our long-term target with our earnings before tax improving by 15% in the first half year. And as you can see, cash flows in a little bit longer period increased by 11%. Return on equity was at 30% and the equity ratio was 31%. Our internal measure, the profit of working capital was at 73% compared to 75%, a little bit stronger last year. And so far this year, we have completed 5 acquisitions, but the pace is 10 acquisitions in the past 12 months, contributing with some 12% growth in net revenues. If we look at divisions, we noticed that we have a solid growth in 4 out of 5 divisions and especially strong in the International and Electrify divisions. We also saw strong EBITA growth and margins improvements in 3 out of our 5 divisions that is in the Electrify, Control and International divisions. But we also saw some headwind in the quarter, especially for TecSec that we have seen in a couple of quarters, but this quarter also for niche products. And maybe, Jörgen, you can comment by division?

Yes. Let's make some comments on each of the divisions. We'll start with Electrify. Electrify posted a very strong quarter, I would say. Revenue is up 17% and 9% coming from acquisitions. So organically, it's 9%, a really good quarter for them. And FX was, yes, minus 1%. The EBITA rose by 23% to SEK 132 million and a strong EBITA margin. They haven't been used to really having it above 20%, but here we are -- and that's the goal we've had and now they posted their first quarter at 21.2%, which is really good compared to 18.8% last year. Electrify is working in a favorable market within both the electrification and infrastructure segments they're addressing. And that contributed to a strong second quarter with good growth and improved margins. We noticed especially that we had good performance in companies like Nordic Road Safety had a really strong quarter, but also Elkapsling, Elfac, EFC, Enkom, KPRO and Norwesco, a number of companies there. We'd like to highlight the companies here to you guys. And of course, they have their own web pages to understand what they are really doing, what they're all about. You can go to their web pages and see what -- if you're interested. But the Nordic Road Safety company stood out here during the quarter, but also the more traditional companies like Elpress, they posted a good quarter, even though they're not mentioned here, but also Elkapsling and the other one was mentioned here. The small but still very good company, PPV, newly acquired, reported good earnings and Mastsystem, which was a major acquisition we have made last year, had a strong order intake during the quarter, which will be -- is promising for the future -- looks promising for the future. We move to the Control division, their revenues grew by 13% and acquisitions then was the whole thing. So 13% through acquisitions, but also organically 3%, but FX minus 3%. So EBITA picked up nicely with 43% to SEK 48 million and the EBITA margin at 15.1%. A strong EBITA margin. Control is, for those that have been with us has been usually having a very strong Q3 and Q4, but have also done through some acquisition, balance that out over the year. So now the EBITA margin is really strong here also during the summer with 15.1%. A stable market with some successful acquisitions especially CP Cases in the U.K. and the U.S. continue to have a positive development, but also companies in Norway like Leteng, MH Modules in Sweden, Stegborgs in Sweden and Precimeter in Sweden, but also working very internationally showed good earnings improvements. But meanwhile, we, in this division also have a number of smaller businesses with still reliant on the construction market. And that market, we still see has been very sluggish and slow with some real major headwinds there in that market. But that is affecting some of the smaller companies here, not the major ones. The newly acquired He-Man posted a good start to the year and also this quarter. And during the quarter, we also made an acquisition, a bolt-on acquisition to Direktronik with the Qvintus acquisition. I'll come back to that later on. So 2 really strong divisions there. What we're struggling more with is the TecSec division. Here, we saw revenues fall back a little bit, 4% and organically minus 1% and no acquisitions here. They're still looking at acquisitions and like everyone else. So nothing new there really, but they have been -- yes, they're looking at some interesting things going forward. But during the quarter, they are lately still not been very much of acquisitions within the TecSec division. The EBITA amounted to SEK 68 million, and the EBITA margin fell to 13.8% as opposed to 17% last year. Many of the companies still performed very well in the continued stable market like ARAS, COBS, Frictape and Idesco. But some of the bigger ones struggled more with ISG Nordic and Suomen Diesel Voima, they reported a good order intake, but slightly weaker earnings in the quarter. But some of the larger units, the PcP, R-CON and Door & Joinery, Principal Doorsets and CW Lundberg remained affected by the weak market situation within the construction sector, and that has affected the TecSec development here organically in the quarter and so far this year. Within the Niche Products division, some comments there. Revenues rose by 10% and out of that came 17% organically -- sorry, through acquisitions and organically was minus 5%. So a bit of a sluggish quarter and with some headwinds. Niche Products have a very broad portfolio of companies dependent on a number of segments and markets. But here, some of the really major ones had some headwinds at the same time. And therefore, we are not entirely happy with the performance of the Niche Products division in the quarter. EBITA still on a good level at SEK 102 million and an EBITDA margin of 19.2%. So strong still, but not entirely living up to last year, which was a really strong quarter and period for some of the companies and tough comparables for Tormek and Asept, for instance, but also Truxor and Westmatic performed below last year. And some of these companies also have a dependency up on the U.S., where we have seen some headwinds, partly due to the tariffs and the trade sort of discussions going on, but then also due to that they had really strong performances with some project-related businesses last year that they had difficulties meeting this year. But still, a couple of other companies really standing out very strong. Prido is one, continue to perform very well. And also the VLT or Van Leeuwen Test Group in the Netherlands has been a really good acquisition coming in very well for the Niche Products division. And some of the older ones, Profsafe, SIB, Thermod and Waterproof delivered some good improvement as well. So -- and the International division then the last one, there, we are very happy. The revenues were up 35% to SEK 500 million. So strong growth there, but most of it came from acquisitions then. So organically, there was 0 and some FX minus 4%. The EBITA was up 47% within the division and the EBITA margin of 19.2%, a really strong quarter. International has been the division that has been behind the others in terms of EBITDA margin, but they have picked up here lately. And in the last few years, it's been a gradual improvement or structural improvement within the International division. They are having some seasonality to their business now going forward. So we'll see what happens during the full year. But so far, it looks very good with the newcomers here, the Friggeråkers and the Epoke coming in very nicely here, have a strong period at this part of the year. But also the Marine business, Libra in Norway, DP Seals in the U.K. and G9 in Denmark continue to develop strongly. So a number of companies doing it very well also within the International division, but a strong quarter from the International division. So 3 divisions we're really very happy with the TecSec and the Niche Products have a lot to work with or a few things to work with, but will probably pick up here going forward within -- so temporarily weaker period. So that was the quarterly report. Let's move on to where we would like to be with the group. Well, to start with, I mean, we're really sort of focused on delivering on the Lagercrantz towards the SEK 2 billion goal. And we -- as we've said many times, we would like our annual profits to get there. We would like our annual profits to grow by 15% per year. So we will double our profits every 5 years. And we've said that 1/3 of that should come organically and the rest through 8 to 12 acquisitions per year. And as we said already earlier, we posted some 10 acquisitions here in the last 12 months. So we are basically on that pace as we are now. The return on equity, we should do this in a very profitable way. So we say that return on equity should exceed 25%. And as you saw from the numbers, we're trying to get to 30%. So we're ahead on that target as well as we move forward. Building a very strong group of niche-oriented B2B tech and industrial companies. And building in these 5 divisions. So we are -- have since now 3 years, 3.5 years, building around these 5 divisions, building positions in what we feel is segments with some underlying structural growth, the electrification, the safety type products, a number of areas within the niche products area, but also within the international with the marine businesses, the water cluster that we have within the Niche Products division. So we're really finding -- trying to find areas where we see some underlying structural growth. Most of our companies should be growing between 5% to 10% per year. So it's not dramatic growth, but still high single digit is the ambition that we have for most or all of our companies, building around these 5 divisions. One strategic ambition, which is also very important to us is the aim for increasing the share of proprietary products. And we have that as a key KPI for us. So -- and here, you can see how that's evolved since 2006, '07, where we made acquisition of Elpress, which is one of the early ones in terms of having -- now we -- go back, you saw that in 2006, '07, 13% there. But they have been growing. And now when we surpassed the SEK 1 billion goal, we said that we will move from 75% to 85%, and we are currently then on the moving 12 months at 79%. But in the report, you can also read that in the quarter, we were at 80%. So we are approaching the 80% halfway, and that is -- so we are basically on the right pace there as well as we move forward. With the model, we are also then looking quite a lot at acquisitions, 8 to 12 per year. And again, we posted some 10 acquisitions in -- since October 2024. And you can see which ones those are here on this slide. We are -- have gradually been putting more emphasis on our divisions to do more of the acquisitions, and they're really picking that up. So I think we are looking at a very good pipeline at the moment. And we have also then gone more international with our M&A ambitions. So we have since a couple of 3, 4 years now been really present in the U.K. market, but we're also now looking into the Netherlands and other markets as well, Germany, Switzerland, other sort of Northern European markets and gradually increasing our emphasis there. So it looks really very well. And I think we're growing and scaling Lagercrantz in a very good way at the moment. So let's look into some -- to give you an idea of what we've been acquiring. Just a few ones, MT Miljøteknik is a company in Denmark that is a bolt-on to the water cluster that we're building within the Niche Products division around the Wapro Group, not a very big company, but still very good and very niche oriented in their market, strong in their market and delivering, as you can see, good EBITA margins and good growth as well over the last few years. So it's a nice bolt-on, and that's how we normally work with things. We'd like to do this in a decentralized way and would like to see a lot of bolt-ons to the companies that we have already. So that was one example. Another, which is more of a platform investment is within the Control division, where we acquired a company called Orax, which is a leading Swedish supplier of products for handling and maintenance within the funeral and cemetery sectors. So it's a company we've been looking at for many years really, but now it came up for sale in the right way. And we -- it's based in the west part of Sweden, close to Gothenburg. And we -- you can see down there, it's around SEK 50 million in terms of sales and an EBITA margin of, yes, close to or slightly below 20%, as you can see there. So it's a very niche-oriented strong company within that specific niche where we're working. A couple of more acquisitions, the Epoke is another one where -- a slightly bigger one that we made in Denmark, which is a leading manufacturer equipment for winter road maintenance and road safety, especially for spreading sand and salt, a strong player, a clear market leader in Denmark, strong also in Norway and in Germany and in the Netherlands based out of Denmark and slightly bigger than what we've done -- slightly bigger than the average, so to say. So that -- and related to that, to some extent, at least is the Friggeråkers Verkstäder that was with a brand name Falöping, which is a very strong player in the Swedish market, a market leader in Sweden and Norway with the salt spreaders that they are providing. You see them in winter time and have some annual profits of -- annual revenue of SEK 110 million and some EBITA margin of close to 20% to 25%, as you can see here. So a strong company, and both of these companies are then joining the International division or have been here for -- since summer. And last but not least, we have another bolt-on, which is a bolt-on also within the Control division now connected to the Direktronik that have acquired some 100% of the shares, a smaller acquisition, but still, as you can see there, a strong EBITA margin down there to the right. Some manufacturing supplies of instrument for measuring temperature and pressure is their niche that they're working in. And Direktronik has other adjacent assortments, and this will add to that. So it will be working in close relationship with Direktronik which is an online sort of provider of different types of -- yes, more IT and network-related products, but this will fit right in with what they're doing there. So to round off, well, thank you. I think we posted yet another good quarter. You should see that net sales are approaching the SEK 10 billion and probably we'll get there in a quarter or 2. And then we see the EBITA and EBITA margin picking up along the way. You can see the EBITDA growing, going towards SEK 2 billion, as we have said. And then return on equity should be 25%. You see that's been above 25% for quite some time now. And the EPS growth has also been very good for the last few years, and we continue now with the pace of 21% here. That was not -- we had a stronger period last year, but still doing the 17% here in the quarter, as you saw from earlier. So with that, I think we will round off and open up for questions.

[Operator Instructions] The next question comes from Jakob Marken from Danske Bank.

I have 2, but I can start with one of them. So I'm just wondering if you can help us a bit on the M&A contribution in international, quite a lot here in the quarter. And I guess that myself and my sell-side colleagues had expected the summer months to be a bit weaker for Epoke and Friggeråkers, but that does not seem to be the case. So if you can help us with the seasonality of those acquisitions, it will be great.

Yes. I think the seasonality is that they are building and working quite a lot with their projects. I mean it's a winter-related products they're selling, right? So they're selling most of what they're doing in the fall. I think they will have a strong sort of October, November -- September, October, November is usually their really strong period of the year. I think they're doing and delivering quite a lot doing that. And then it will take another couple of months before they get the cash flows out of that. But the seasonality in those companies are strong, and we will need to deal with that along the way.

Okay. Perfect. That's good. And the second one, I'm just wondering if you can help us a bit on the organic order growth. Would you say that they are similar to the sales performance in the different segments? Or are there any segment that sticks out both on the positive or the negative side on the order growth?

Yes. I think we have some project-related orders that is also to be delivered here going forward. So if you look into it, you could see that we've highlighted that TecSec actually had a good order intake, but it's not delivering in terms of sort of the quarter here. I think they have picked up with a number of good more long-term related orders. I also see that we have that within the Electrify division. We also see the Mastsystem picking up with some good order intake, that is also sort of behind the strong order intake. So it's -- I think it's -- generally speaking, it's very related as you're suggesting, but with some sort of things that we've also highlighted in the report that especially within the TecSec and also within the Electrify, we've had some strong order intake. I think...

Actually also in the International division has been strong, while it has been slightly weaker in the last quarter in Control and Niche Products divisions.

The next question comes from Christian Binder from Redeye.

One would be whether you could clarify around cash flow. You mentioned that you're not entirely satisfied with this quarter's performance. Can you just talk a little bit more about underlying reasons and potential measures, how that's going to improve in coming quarters?

Yes. I mean we've seen some seasonality coming into the group, right, with the NRS business in Nordic road safety that we talked about. I mean they're delivering most of what they're doing during the summer. And then they're getting sort of a better cash flow or getting paid during the fall. And that we see happening and it has been so for the -- they've been with the group now for 2 years or something. And then on the Epoke and Friggeråkers, we have a similar seasonality, but it's more delayed leading towards the fall rather than the summer. And then we see sort of good cash flows. We expect good cash flows to come in here in Q3 and Q4, we'll see.

I can add to that, that we have seen some improvements in the working capital also related to, for example, inventory and things like that, that we are working with and not entirely happy in the quarter.

All right. Perfect. That was clear. And then just one follow-up on order intake. If I understood correctly, niche products was a little bit weak this quarter, and it seems like comparables for organic growth will remain a little bit tough. So should we kind of expect this performance to continue for the next quarter or 2?

Yes, we're working on it, but there was some sort of strong sales in some of the really strong comparables in a couple of companies last year, and that will probably continue for another quarter or so. Yes, that's probably correct.

The next question comes from Zino Engdalen Ricciuti from Handelsbanken.

Two of them on the margin. Firstly, a follow-up on International. Yes, big improvement which you attribute to M&A. And I would just like to understand that a bit more, especially with the slide on Epoke, which is the larger one which you showed, which at least on a yearly basis is margin dilutive, but yes they boosted it in what seems to be a seasonally relatively weak quarter. If you could nuance that a little bit.

Well, there is a seasonality also to the margin, right? What you see there on the Epoke slide is for the full year, right? But we are not -- and we are expecting Epoke should -- as most of our companies, we have definitely the ambition to drive margins in these type of businesses, especially the new ones. And we expect that to pick up. Maybe it's not done overnight, but that is definitely the ambition going forward that it should live up to the expectation and basically the average or so of the group. So it's -- we have the ambition to always buy companies that have in excess of EBITA margin of more than 15%. And Epoke has been in that neighborhood, but we would like to establish them on about 15% more sort of on a stable, yes, continuously. So we have that as an ambition for that company, yes.

Understood. And secondly, on the margin in Electrify, which continues to be quite strong. Are there any effects in this quarter we should take into consideration so we don't extrapolate something that's maybe a bit better than it should?

I think many of the companies are doing very well within the Electrify division, and we have some really strong companies there. I think what stood out here during the quarter, as we mentioned, is the NRS business that had a strong seasonality, but also had a strong sort of performance here during the quarter. So whether that will be sustainable? Well, let's see what happens, but there is a seasonality in there as well.

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

We have one question also around declining interest rates in Sweden. Maybe you should take that one, Peter.

Yes. The question is also if we can see more competition with -- triggered by this cheaper financing and more competition in M&A. And I think we have repeated this message a number of times that over time, our multiples in M&A has been very, very stable. And as we have mentioned in the report, we see a very, very good M&A pipeline. And we haven't seen any material effect of more competition on the acquisitions lately. So I think we're very, very stable and solid, M&A situation.

Yes. We see interest rates coming down a little bit. And that, of course, is making our financing a bit cheaper, but we don't see that affecting M&A to a large extent, we don't know. It's a short answer. Okay. Good. Thank you, everyone, for listening in. Me and Peter are available here during the day if you have sort of additional questions you would like to ask us. And if not, have a good day. Thank you for listening in. I think a strong solid quarter from us and looks -- and we look into the future with bright eyes. So thank you very much.