Good morning, and welcome to the Beijer Alma Q2 2022 Earnings Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing Star and then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press Star and then one on your telephone keypad. To withdraw your question, please press Star and then two. Please note that this event is being recorded. I would now like to turn the conference over to the CEO, Mr. Henrik Perbeck. Please go ahead, sir.
Good morning, everybody, and welcome to our webcast where we present our second quarter 2022. I am Henrik Perbeck, and with me, I have our new CFO since first of June, Johan Dufvenmark. A special welcome to you, Johan.
Thank you, Henrik.
In addition to the overall performance and recent developments in the Beijer Alma group, we will also present our reporting segments. These are our three subsidiaries. These are Lesjöfors, full range supplier of standard and customized industrial springs, as well as wire and flat strip components acting globally with majority of sales in Europe. It is Habia Cable, a leading manufacturer of custom design cables for customers in telecom, nuclear power, defense, offshore, and other industries. Beijer Tech specializes in industrial trading and manufacturing within fluid technology, as well as consumables, components, and machinery to Nordic industrial companies, and also building automation. Beijer Tech is also a platform for acquisitions into new industrial niches. Let's go to next page. Straight to page four, please.
In the second quarter, the group's growth was acquisition-driven, demand was stable, and we increased our strategic focus through some important events we'll discuss today. In general, demand was stable and good, but more varied across regions. The Nordics remained the strongest region with organic growth, whereas Central Europe and Asia were more impacted by external factors such as still the COVID and also the war in Ukraine and supply chains. Continued high inflation has led to increased costs, which to a large extent have been compensated by price increases. For Lesjöfors, chassis springs showed growth in most of Europe, but the suspended sales to Russia and decrease in Ukraine had a negative impact on revenues and earnings. For Lesjöfors industrial springs, the Nordic region, as mentioned, this remained the strongest, whereas Asia and Central Europe was more impacted by customer and supplier disruptions, especially in markets such as automotive.
Habia Cable had another strong quarter with favorable order bookings, revenues, and profitability. Demand was strong in the industry and telecom customer segments, as well as the defense market. Beijer Tech had favorable demand in the Nordic markets in both of its business areas, despite a continued challenging environment in terms of supply. We're also happy to see the positive contribution from recent acquisitions. At the very end of the quarter, we signed the acquisition of John Evans' Sons, an important and strategic acquisition for Lesjöfors, which doubles our presence in the US and also increases our sales to the interesting medical device market. Finally, and importantly, in July, we announced the divestment of Habia Cable following our strategic review during the spring. This strengthens the strategic focus of our group. Next, page five, please. Now, continue with an overview of the group's financial performance.
Firstly, since Habia Cable will be divested in our Q2 report, according to IFRS accounting rules, Habia Cable is reported as discontinued operations and not part of the consolidated accounts and comparables in the report and not in this presentation. Below left, you can see a split of the revenues and how it changes with and without Habia Cable included. In general, based on a very strong recovery and performance last year, we are facing tough comparables this quarter. Despite this, looking at the performance, we can see that order bookings grew by 22%, but decreased 1% organically. Net revenues grew by 29%, of which 3% was organic, which of course includes price increases, implying that volumes are somewhat down versus the strong Q2 last year. The operating result decreased slightly to SEK 190 million with a margin of 13%.
There are no items this quarter affecting comparability, only in historical numbers, where, for example, the impairment of assets in Russia of SEK 25 million in Q1. Moving on to the performance of the reporting segments, our subsidiaries. Next, page 6, please. Lesjöfors, our spring manufacturer, is organized into two business areas. These are industrial springs with mainly customized products to a very diversified customer base globally. The other business area is chassis springs. These are standardized replacement springs sold to car part wholesalers, mainly in Europe. Order bookings for Lesjöfors increased by 20%, and the net revenues grew by 28%, but declined 1% organically. For industrial springs, the largest business area, the growth was 39%. Or sorry, 44%, where, as mentioned, the Nordic region was the strongest.
In Central Europe, the volumes were impacted by indirect effects from customers lacking other components, supply chain issues. In Asia and China, we had disruptions due to COVID lockdowns, which affected operations during the quarter. The recent acquisitions, Alcomex and Plymouth Spring, contributed with strong performance, and they are reported into this business area. For Chassis Springs, demand in the aftermarket in Europe was relatively good, but the effect of the suspended operations in Russia and also lower sales to Ukraine impacted sales and order intake. This contributed to a decline in net revenue by 7% compared to last strong year. The operating result declined to SEK 156 million, which corresponds to an operating margin of 15.4%.
The key drivers of reduced profitability in the quarter when comparing to the strong Q2 2021 were firstly, of course, the direct effect from suspended sales to Russia and short-term also lower volumes to Ukraine. In addition, the sudden drop in volumes for Chassis Springs due to Russia in late Q1 happened at a time where we were, as usual, having built up inventory for the full season. This had an impact not only on the sales, but also temporary effects of less efficient operations. Several actions have been taken to adapt to the new situation, and already towards the end of the quarter, we could see positive effects. Further, thirdly, within Industrial Springs, as described, volumes and profitability were impacted in Central Europe and Asia. Finally, as a remark, price increases that have been made to offset cost increase affects the margin in percent.
To summarize, apart from the sales to Russia, we do consider these effects to be mostly temporary. Next page seven, please. Beijer Tech. Beijer Tech operates in two business areas, fluid technology and industrial products, both acting within industrial trading and manufacturing. Further, it's a platform for acquisitions into new attractive niches, such as building automation, which is reported into industrial products. Thanks to a continued stable demand, growth in order bookings amounted to 28%. Net revenues grew broadly by 28%, of which 14% was organic. Within both business areas, industrial products and fluid technology, growth was broad over the Nordics, and the revenues grew organically with, of course, support from price increases. In addition, the recent acquisitions this year of Swedish Microwave and Mountpac contributes to the profitable growth in the industrial products business area.
Challenges in the form of longer lead times and price increases are handled proactively in the companies but continued to be challenging during the quarter. Operating results increased to SEK 42 million with an operating margin just under 10%. Next page eight, please. Now briefly also some comments on Habia Cable, which is, as mentioned, reported as discontinued operations, but still a part of our group. I also want to comment that the comparables for Habia in Q2 last year were impacted by the data intrusion event in that quarter last year. Demand continued to be good in the quarter with order bookings amounting to SEK 260 million. Net revenues grew by 45% organically. This was driven by the telecom and industrial customer segments, but also good activity in defense projects.
Thanks to good capacity utilization and an increased share of defense, nuclear, and offshore versus previous quarters, the profitability improved. An operating result improved to SEK 44 million in the quarter. Next, page 9, please. I will now hand over to our CFO, Johan Dufvenmark, for some more comments on the financials. Next, page 10, please.
Thank you, Henrik. As mentioned in the report, Habia Cable is regarded as a discontinued operation, and it's not part of the consolidated group in most cases. Looking at the numbers for the remaining group, net revenue is up SEK 377 million compared to last year. The acquisitions contributed to with almost SEK 222 million, which made up 19% of the increase, while the organic growth was SEK 39 million. The low organic growth in the quarter was mainly related to the discontinued sales to Russia, which affected negatively, while price increases have had a positive effect. Compared to last year, the currency effect on revenue was SEK 56 million.
Order bookings increased to SEK 1,437 million compared to last year, where acquisitions contributed with SEK 217 million, 18% of the increase, whereas the organic growth was slightly negative. Next page eleven, please. Now a short look on the segments and on how they contribute to revenue and operating results. As you saw on the previous slide, net revenue increased to SEK 1,461 million in the quarter, driven mainly by acquisitions in both Lesjöfors and Beijer Tech. The total increase in Lesjöfors was SEK 218 million, and Beijer Tech contributed with an increase of SEK 99 million compared to last year. The development of the operating result paints a little different picture as there was a strong development in Beijer Tech, which Henrik told you about earlier, but a decrease in operating profit in Lesjöfors.
As Henrik Perbeck mentioned, this was due to decreased sales to the Russian and Ukrainian market, challenges related to COVID lockdowns in China, as well as strains on the supply chain for some customers in Europe. Next page 12, please. Now let's take a look on some of the financial KPIs. For quite some time, we have seen an outflow of cash related to inventory and more precisely due to increased raw material prices. We expect now this effect to have leveled out since raw material prices have come down some in the commodity market. Net debt have increased in almost SEK 1 billion since last year and was almost SEK 1.7 billion. The increase is mainly related to acquisitions and higher working capital, more specifically higher raw material prices.
In regards to available liquidity, which is cash and undrawn credit facilities, Beijer Alma increased its activities in handling the acquisition of John Evans' Sons, and the total is now back on a more normal and lower level. Thank you. Now back to Henrik for a look at events after the quarter and some final remarks.
Thank you, Johan. I would now like to turn our focus to two exciting and significant events after the quarter. On July fifth, we announced that we had entered into an agreement to divest Habia Cable. On July eighth, we completed the acquisition of John Evans' Sons into Lesjöfors. Next page 14, please. First, let's go to the announced divestment of Habia Cable, which followed a strategic review during the spring. Beijer Alma has owned Habia Cable since 1985 and is now handing over to the German cable company, HEW-KABEL, which in turn will create a European group specializing in custom design cables. This, we believe, is a good home for Habia to flourish in the future.
At the same time, the divestment will strengthen our financial profile to allow us to continue creating value through investments and acquisitions in Lesjöfors and Beijer Tech, and thereby strengthening our strategic focus. In Lesjöfors, we focus on add-on acquisitions, and a great example is of course, most recently with John Evans' Sons. In Beijer Tech, we see ample opportunities both with add-on acquisitions and also new attractive niches, such as shown with Swedish Microwave and Mountpac in the first quarter this year. I'm confident when it comes to our prospects for continuing to generate profitable growth. Next, page 15, please. In late June, we were proud to disclose the strategic acquisition of John Evans' Sons by Lesjöfors. I would like to take this opportunity in the call to present the company to you.
John Evans' Sons is actually the oldest spring maker in America, starting in 1850 and still a leader in its fields. As a fun fact, Lesjöfors actually produced its first springs in 1852. Located in Pennsylvania, John Evans' Sons focuses, similar to Lesjöfors, on customer-centric product development and has long-standing customer relationships. It takes pride in its skilled workforce. In a snapshot, they bring $37 million with high profitability to our group. With strong focus on spiral torsion and constant force springs, we gain a leading market position also in these product areas. Further, the consistent focus to develop medical device market is impressive and gives an attractive end market split. The transaction also enables other opportunities for profitable growth, such as purchasing coordination, cross-selling, co-development projects, as well as resource and knowledge sharing with Lesjöfors other companies.
Not the least, it doubles our presence on the North American market. By value, it is the largest acquisition to date by Lesjöfors and actually Beijer Alma, and will bring significant impact to the profitable growth for Beijer Alma as a group. The next page, 16th, please. We can now see that our strategy to further grow by acquisitions is having an increasing impact. We continue to look for good companies which fits into our group and can deliver long-term growth. This year, the acquired companies bring some SEK 500 million in net revenues with good profitability. Next, page 17, please. Actually straight to page 18, please. A brief recap of today's main messages. Demand, stable and favorable, but varied across geographies. Growth came from acquisitions. The price increases have, to a large extent, offset cost increases.
The discontinued business to Russia impacted growth and earnings. The divestment of Habia Cable gives strength for future acquisitions. Of course, as an example of such, the acquisition of John Evans' Sons in the U.S. strengthens Lesjöfors position and builds further scale. Next, page 19, please. Now we open up for questions. Operator, please.
Thank you very much. We will now begin the question and answer session. To ask a question, you may press star and then one on your telephone keypad. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. Our first question is from Carl Ragnerstam of Nordea. Please go ahead.
Good morning. It's Carl here from Nordea. A few questions. Firstly, on Lesjöfors. Obviously, on a year-to-year basis, quite soft margin. Of course, tough comparisons as you said. Is it possible for you to sort of give any or to quantify the Russian discontinuation impact on the margins, China lockdowns, maybe some raw material headwinds, if I understood you correctly. Yeah, we'll start there. Thank you.
Hello, Carl. Referring to what I commented on, speaking about Lesjöfors, we saw, as I said, four drivers, as I mentioned. We have the direct effect in Russia. We also have the operations effect of a fast reduction in volumes. As mentioned also in industrial springs, the Central Europe and, finally also the price versus cost offset impact on the margins. Once, as you said, we are comparing to a very strong quarter last year. I would say this is also, without giving the specific numbers, these are the main drivers, and also in that priority.
Together, the two parts that are related to well, the war and the situation in Russia, of course, has an impact for us. I would say that's the priority of the impact.
Okay, that's very good. Okay, if we look into second half, what portions or what part of these drivers to the sort of weaker margin is, or do you expect to sort of ease out in the second half?
Yeah, so as I said, some of the drivers, the sales, continued sales to Russia, that is of course as we see the situation of permanent nature. However, the more short-term would be of course the sales going into Ukraine. That is already actually towards the end of the quarter we could see improvements versus of course April. Then of course as once again the effect on operations going from maximum production capacity to basically overnight being overstocked, so we needed to reset and replan and that is certainly could be seen as a temporary. I mentioned also that we could see good effects from this also towards the end of the quarter.
COVID in China, well, we saw the impact mainly in April, May, where we had lockdowns, which disturbed the deliveries. We managed to produce quite well, but it was operationally very tricky. Whether that is a completely temporary thing, I would say right now I guess it looks better. That remains to be seen. I would still right now classify that as a more especially early Q2 effect. When it comes to European business, of course, the supply chains in many markets are, I guess, expected to get more organized as we hear from many of the large industrial players. In a way, that will also hopefully ride out.
Of course, once again, it comes of course jointly with the development of the demand situation. Yeah, so those, that's how I would classify in terms of what is temporary and.
The lost sales in Russia, as you mentioned, is it the biggest impact, or where would you rank it?
Well, I would.
The one which is the-
Sure
Easing in second half.
I would say last year we sold SEK 150 million in Russia, which we disclosed in our annual report. We also saw a very strong start of the year up until late February. Of course that has an impact, absolutely.
Okay. Is it possible to quantify it versus the other effect if it's the sort of the bigger effect of those?
I would say out of what I mentioned, it is the number one, but altogether they play a part of course.
Okay. Perfect. Also in the Lesjöfors, have you seen any changes in the underlying market demand throughout the quarter which is worth mentioning also? I mean, of course your chassis sales is to some extent towards consumers. It's non-discretionary in area. However, have you seen any impacts from a sort of weakening consumer or is it not impacting your business at all or?
Well, I wouldn't specifically tie it maybe to the weaker consumer demand. But of course, there could be such aspects, but that's not what we see. More, what we see, I think I discussed in the last call, was also fairly normal winter climate, not a very harsh winter, which always has an impact for us. Once again, comparing to last year, it's a tough comparison. Overall, as I commented, the demand is good in Europe. There are no big shifts on the chassis side. Once again, on the industrial side of course our customers are all the leading industrial manufacturers in the Nordics and Europe.
Of course, the demand follows to a large extent that, but also fairly stable. You know, there are no big shifts, as we see, especially quarter from quarter.
Okay. Very good. Also with the raw materials starting to come down to pre-pandemic levels, do you think that you'll be able to maintain your prices? Maybe in that case, I guess, realize the margin tailwind at some point? Or do you think that your customer, they have a pretty good visibility and by that you need to sort of lower your prices?
If I could, the question, Carl, that you want here. Of course we've tried to defend the prices that we have. I think it's also important to remember that we are kind of when it comes to raw material, we don't buy raw material. We buy steel for our springs. There will be a lag when the prices go down. Of course, we will try to defend our prices. There are of course some places where if this could be a very big shift, the prices will come down, of course. Still, there could be a positive effect on this.
Okay.
And once again-
One final-
Yeah, sorry. Continue.
When looking at John Evans' Sons, obviously quite a bit of medical sales, have you looked into whether they are or were boosted by sort of COVID or had COVID volumes, and by that you're sort of facing tougher comparables in the short term? Or were they unaffected during the COVID period?
John Evans' Sons has built their customer base over a long period of time. There are no immediate products related to COVID treatments in there, as such. I don't see any direct correlation with that. I think it's a very interesting company that brings in a nice mix both from the end markets, as I mentioned, but also in the way they work long-term to establish these customer relationships. Yeah, not really as such.
Okay. Very good. Thank you.
Thank you very much. The next question is from Johan Dahl of Danske Bank. Please go ahead.
Yes, good. Good morning. Just you talked about the integration benefits from this big U.S. acquisition. Can you talk a little bit more about that? How you look at sort of the earnings trajectory for this business going forward? How it has integrated into Lesjöfors? What your targets are there in terms of synergies, sales, and cost, et cetera?
Morning, Johan. well very fundamentally, typically when we acquire companies, and in particular like John Evans' Sons, they will continue to operate as standalone business. They will remain with their brand and become a part of the Lesjöfors family or group. You know, as I mentioned, as, of course we do with all our newly acquired companies, we try and find win-win through purchasing, et cetera. Cross-selling is always a very important theme. What does that mean? Well, they are truly a a market leader in this product group that I mentioned. And also their good experience with working in the medical segment.
Of course, in terms of development and perhaps some resource sharing. In general, fundamentally, the company continues to operate standalone, so it's not a full integration, as such. We see very interesting opportunities to cooperate together with the team in Pennsylvania and our other units in the US. Also, as I said, cross-selling wise, particularly in Europe.
Also a quick question on this capacity utilization issue you talked about there in Russia, et cetera. Why should that not be a sort of a more long-term problem as you've lost these volumes to Russia? I appreciate you even did some inventory reductions, but what's your sort of mitigation plan there to get that utilization up again in Lesjöfors?
That's a good question. As I said already during the quarter, we took several actions to rectify. Of course, you have one long-term effect. You're right in that. As you know, in our business, it's seasonal. You know, we were planning for a full year, building up inventory, and then basically overnight, we had to replan. That cost short term replanning of the the operations in the production to go down on short term, quite low levels in order to match with the inventory levels built up. There is some part of long term, but.
Also of course, over time we will look for new markets where we can sell further. But there was a specific effect that I mentioned also early in the quarter.
Okay. Can you just repeat also, when did you close this acquisition in the U.S. and when do you expect Habia to close, in your best estimate?
We closed the acquisition in the U.S. on the eighth of July, a few weeks later after we announced it. That's a part of our group already now. Habia is, we estimate end of third quarter.
Thank you so much.
Thank you very much. The next question is from Hjalmar Jernström of Erik Penser Bank. Please go ahead.
Good morning. Thank you. Thanks for taking my question. First one is on inflation. Can you put any numbers then on the current levels that you're experiencing? Maybe you can emphasize if you feel that it's particularly settling down as a comfortable zone or problem case.
Good morning, Hjalmar. I'm sorry, we had a bad connection from your line. I heard inflation, but not really what you asked. Yeah.
I was wondering if you could elaborate on the inflation number that you're experiencing? Maybe if you feel that it particularly hits a certain cost of this comfort zone or selling prices. Do you feel that you can elaborate on the inflation levels you currently?
We have seen the cost increases, of course, related both to energy and commodities as such. We've not really given a number on how much, but it is our view that we have been compensated the full effect of this or at least pretty much almost the full effect of the price increases with our own price increases.
All right. Thank you. The second one is on the acquisition in the US, John Evans' Sons. Could you elaborate on the current level of profitability? I mean, I assume that you are taking some effects on prices, pricing, et cetera, so forth. Do you believe that long-term prospects, that they will maintain a higher profitability than the rest of Lesjöfors?
As we disclosed in the presentation and also when we made the acquisitions, for the current year, we expect on an annual basis the company and the assets we acquired to generate $10 billion based on a turnover of $37 million, which I think is of course a very good profitability. This will of course have a positive effect on Lesjöfors and Beijer Alma. That's it for the current year that we expect to see.
All right. Thank you. One final question within the report then. Could you elaborate a bit on the acquisition potential that you can see in the U.S. market? Are you seeing any effects during 2022 on the availability then of potential acquisition targets is?
Yes. I think the availability is exciting and good. As always, when we acquire in Lesjöfors, the most important is that the company is good. It has a well-diversified customer base, and good operations. I would say the availability is good. We focus on finding or selecting really good companies that will fit well and benefit from being part of Lesjöfors. I think there are good opportunities.
Very useful. Thank you so much.
Thank you very much. We have no further questions on the conference call.
Okay. Good. Thank you, operator. Thank you, everybody. We have no further questions electronically either. We will wrap up for today. Thank you for taking your time and have a good final hot day in Stockholm if you're here. Okay. Bye-bye. Bye.
Thank you very much. Ladies and gentlemen, the conference is now concluded. Thank you for attending today's presentation, and you may now disconnect.