Earnings Call: Q1 2021

Apr 26, 2021

Good morning, everybody, and welcome to our 1st quarterly report webcast. Despite this being the first call of this kind, BERAMA has, of course, been public company since 1987 and by that published well over 100 quarterly reports. So my name is Henrik Parebeck. I've been the CEO of Bejaner for 3 years. With me, I have Erica Stohl, our CFO since August last year. Good morning, everyone. In addition to the overall performance of the EIRA Group, we will also today discuss our reporting segments, our 3 subsidiaries. These are Les Cheposches, full range supplier of standard and customized industrial springs, It's acting globally and with the majority of its sales in Europe. It's HOVIA Cable, one of Europe's largest manufacturers of custom designed cables for customers in telecom, nuclear power, defense, offshore and other industries. And Beatek, which specializes in industrial trading and manufacturing within Fluid Technology as well as consumables components and machinery for Nordic Industrial Companies. We take this also platform for acquisitions into new industrial niches. Next page, Can you speak to Page 4 please? So I'm happy to report that the Q1 has been a strong one with increased profitable growth, thanks to the strong recovery in demand and continued cost control. We saw favorable demand in most customer segments and geographies. Order bookings and sales increased both compared with previous quarter and same quarter last year. Together with the competitive cost base, this led to the strongest quarterly result in the group's history. Looking at the subsidiaries, Lessepsch saw a broad uptick both in order bookings and sales, in particular, in the Sussex Springs business area. Production was in full swing to meet demand after this year with effects from the pandemic. For HAVIA, Order bookings and sales recovered compared to preceding quarters as demand increased, especially among industrial customers. Also, please take note of the stronger demand with organic growth both in order bookings and in sales in addition to the profitable growth from its acquisitions. Next page, 5 please. Now continuing with an overview of the group's financial performance. First, I want to make 2 comments regarding effects of the COVID pandemic. First one related to last year and the comparables we are using. But last Q1, we actually had very limited COVID effects. So all in all, the comparables are quite normal. This year, we have really not seen significant impact on our customers' demand during this quarter. Of course, it impacts our way of working, many are working from home, almost no business travel, And that gives a somewhat lower overhead cost level. So looking at the performance, You can see that order bookings grew by 16% organically and net sales somewhat less by 8% organically. The operating result is up significantly to SEK250 1,000,000 with a margin of 16.7%. This I see the margin improvement is an improvement also from last quarter, Q4, which should contain some one off effects. Below left, you can see the share of revenues in our subsidiaries during the quarter. I will now move on to cover this in Novbikay. Next Page 6, please. Legepoche, our spring manufacturer, It's organized into 2 business areas, industry or industrial springs, which are mainly customized products to a very diversified customer base globally. The other business area is chassis springs, which are standardized replacement springs sold to car parts wholesalers mainly in Europe. Order bookings for Lessepoch increased by 29%, which is a very strong development. It was broad across business areas. To be fair, we did actually have some COVID impact last year in the order bookings, especially for Shuttle Springs in the very end of March. The sales grew organically by 14%. For industrial springs, the largest business area, growth was 3%. Here Asia stood out as the highest contributor to growth. For the shutter springs, Increased end customer demand was driven by colder winter conditions than last year, which tends to increase the need to change things and has a clear impact when comparing demand between the years. In addition, our customers, the wholesalers, builds up inventory to meet this demand, which amplifies the effect for Lesbosch. The operating result increased to SEK172 1,000,000 with margin improvements broadly across business areas and geographies, thanks to cost control and high production utilization. Actually, also here, It's an underlying continued improvement from Q4, which did contain some one off effects. So next page 7 please. Now to HABEA, our specialty cable manufacturer. HABEA It's no longer organized into business areas. Still, the sales to nuclear power, defense and offshore are usually strongly project related. This can create more volatility and that's why we show the dynamics of these customer segments down on the left. Demand for objects impact this quarter from preceding quarters, albeit still lower than last year. Order bookings amounted to SEK198 1,000,000, which is down organically by 11%. And net revenues declined by 6% organically. The product mix was positive, both from product deliveries and also within telecom. Together with a structurally lower cost base, The profitability improved significantly, as you can see on the curve on the right. And operating profit amounted to NOK26 1,000,000 in this quarter. Next page 8 please. Beotech operates in 2 business areas, Fluid Technology and Industrial Products, mainly in trading, but also manufacturing and customized products. Also, as I mentioned upfront, It is a platform for acquisitions into new products and business areas. Eulesser Active in Building Automation was acquired half a year ago and is reported into industrial products. We're happy to show organic growth in both order bookings and net revenues by 8% and 5%, respectively. In addition, required growth are contributing to profitability. All in all, the operating result increased to CHF 23,000,000 this quarter. And regarding acquisitions, I will shortly come back to positive events in April. Next, Page 9, please. I will now hand over to Edikke to further comment on the financials. Thank you, Henrik. So let's move on to Page 10, Which is a summary of the strong beginning of this year. And I'm going to highlight a few things that have not already been mentioned by Henrik. We have an operating margin of 16.7%, which is the 2nd highest in a very long time. Actually, already in Q4 last This year, we had a slightly higher margin, but that included some one off items. So excluding that, Q1 2021 is actually the highest Martin, we've had in the last almost 10 years. We are also recording a good cash flow, where the increase in working capital was compensated for by higher results. I also want to point out the net debt and Cash positions. Net debt is up versus year end and the cash position is down. Please keep in mind that we have dividend payout SEK 180,000,000 now in March. And also we had about a year ago, we added SEK 300,000,000 of additional credit facilities that we did not extend over the year end so that we no longer have in our available cash position. But despite this, we do still have a very strong financial position after the closing of Q1 2021. Please move to Page 11, please. This is then a page with 2 bridges, one showing the order bookings and the other showing net revenues. And as you can see, both of them have currency headwinds of 5% 6%. We also have 2% of acquisition impact, and this then is coming from the acquisitions in Beatek. And as Henrik already mentioned, we did see some impact from the pandemic already in the End of March last year. So that, of course, is affecting our order bookings development year over year. However, I still think that the 16% organic growth in order booking is quite impressive. Our net revenues had a 8% organic growth. So let's move on to Page 12, please. And here we have 2 other bridges showing the contribution from the subsidiaries on net revenue and operating results. Both Leste Foch and Beatek have reported organic growth in net revenue whilst Hawbir had a decline versus the Q1 last year. And if we look at the operating results side, all the subsidiaries contributed well. And as Henrik has already mentioned, leisure and fossil improvements come from many business areas and geographies. And it's related to a good cost control and high production utilization helping result improvement. And despite the negative development of net revenues, Harbiah presented a Result improvement, which then is supported by favorable product mix and the lower cost base. Also for Veytech, we had a favorable mix, which then is combined with lower levels on the cost side, And we had good contribution from recent acquisitions adding to that development. All in all, This leads up to the SEK 250,000,000 operating results for Q1 2021. And now I hand over back to you, Hendrik. Thank you, Rika. Next page, 15 please. So coming back to some events after the quarter. And During the quarter, we maintained a high focus for further growth by acquisitions. And in early April, We could close 2 transactions. On April 1, Leitek acquired Noxon. Noksel provides the canters centrifuges, polymer machines, control system and after sales service related to water treatment in several applications. It has revenues of approximately SEK70 1,000,000 in good profitability. Loxone will complement Beatek with new products and customer segments in the Fluid Technology area. On the 6th April, Beatek acquired 75% of Novo Systems. Miller Systems is active in building automation systems and offers energy efficient solutions for public and private customers in Sweden, with revenues of approximately €50,000,000 and favorable profitability. Nolosystems will be included in Beitik's subsidiary industry to build a stronger player in the Swedish market, covering complementary geographies. I'm very happy to report these 2 acquisitions. Now on a less positive note, on April 12, we announced that Havya Capel had been exposed to a data intrusion. The incident impacted large part of Havas operation. Havas informed affected customers of the situation, in fact, in accordance with It's business continuity plan in order to return to normal operations and full production at all plants as soon as possible. Almir is working with leading IT security experts to restore defective IT systems. It's still too early to determine the ultimate financial impact of the data intrusion, but it is expected to be limited through the group's cyber insurance policy. Next, page 15, please. Our sustainability work is of ever increasing importance. In March, we published our 2020 sustainability report. So today is a good opportunity to present our focus and also progress. In 2019, we set our objectives for the next 5 year cycle in areas relevant for BER ALMA and its operations and related to the United Nations Sustainability Development Goals. The main objectives are: number 1, sound business ethics with social commitments Number 2, more efficient use of resources, mainly energy and waste management. 3rd, reduced climate impact. And last but not least, number 4, safe and stimulating work environment. Page 16, please. So to update on the progress in 2020, which was a very special year. We still made improvements in most areas. In particularly, I want to highlight in terms of climate impact, we reduced our carbon intensity by 14%. And on that theme, not yet seen any numbers. We have in the last 6 months installed solar panels on 2 factory routes to supply the factories directly with electricity. In addition, recently, our Lechrefour plant in Barmland completely switched to biogas in the heating processes, which will reduce our local footprint by over 70%. I'm also very happy to see that workplace accidents are continuously reduced. This is our highest focus no matter where in the world we have our production facilities. Now of course, there's much more to read about our initiatives in our annual report and sustainability report. So please have a look there. Next page 17 please. As many of you know, we do not guide or give specific forecasts for the future. Instead, I want to wrap up by summarizing our strategic focus now as the pandemic is losing its grip. We focus on profitable growth, both organic and through acquisitions. Of course, during last year, we held back some of the investments, But now we see as business is normal again, we want to support our subsidiaries new initiatives to drive organic growth. Rehanort has a stable earnings base, thanks to customized products and a diversified local customer base. The resilience in the supply chain and delivery to customers is key. And this is something we could really prove during the last year and it's likely to be of strategic importance going forward as supply chains our regional more and more enable of this global. Increased acquisition focus. We continue consolidation of the industrial springs market through Lesbosch. Beitek Chemisteen is a compounder within industrial leases. And at the same time, we are looking for Opportunities for Portfolio Acquisitions in Nordic Industry. And this all supported by a strong financial position to finance acquisitions. Overall, we are a long term owner and we strongly in the decentralized governance structure to empower our local management and encourage entrepreneurship to make the best business decisions locally close to our customers. Next page, please. So we now open up for questions. So operator, Thank And we have a question coming from the line of Karl Rejnostam from Nordea. Please go ahead. Your line is open. Good morning. It's Collin from Rodea. So in the report, you stated that you experienced some Build up within especially within the Shasta Spring sub segment. So my question is if you see any changes in that picture At the end of Q1 or maybe going into Q2 or maybe do you see that the distributors already have a quite high inventory level after the buildup Q1 or how should we look at that? Well, yes, just to clarify, it's not we that experience the buildup. But it's right that typically when the end customer demand grows, meaning the actual springs that are changed out in the workshops all across Europe, our customers, the wholesaler needs to build up their inventory. So as I said, typically the effect is amplified. And Normally, the seasons for the chassis springs are in Q1, there is a buildup season. In Q2, it's the main season for out on the market. Of course, that will be very different dynamics from last year, obviously, where the whole corona hit very harshly in Q2 all over Europe. So you'll see different dynamics compared So that's those numbers, but much more normal dynamics with a strong Q1 and the main season normally being in Q2. Okay, perfect. And in the hardware cables, would you say that we in Q1 saw the full impact of the cost out program? Or will it Probably we see in 1st in Q2, the full impact from the savings. I would say you saw the Full impact already now and actually already last quarter. What you're referring to is restructuring and restructuring costs in last Q2. But yes, you can see the full impact now. Perfect. And another question might be a bit difficult to answer, but I will try it anyway. So in Lekovo, you managed to lift margins Spy 500 basis points year over year. So could you please help us bridge that? I mean, how much is Maybe temporary cost saving structure ones as well as a positive margin mix probably from a high Chassis Springs share of sales? Margin improvement, as I said, was broad across both business areas. And I would say that, of course, there are, as I mentioned, some of the way we are working right now with reduced travel and exhibitions and all that. But all in all, for Les Chepas, that It's not significant. I think the real lever here is that we now have based on a competitive cost base and some Savings that were made during last year, we now have the high utilization again in most of the factories. So I would say a large share of this is on these production levels and demand levels is indeed sustainable. But it's very hard to say exactly what impact the way of working has. And to be fair, we might not go back to exactly the same way of working when we even when we are allowed to. Yes. Okay, perfect. And also on the component and raw material side, I mean, firstly, on the raw materials, Specifically, the steel price rally. How will this impact you? Have we implemented price increases? And are you able to Push forward the vast majority of the price increases? And also do you experience any Yes. The component shortages that might hamper growth in Q2 or how should we look at that? Regarding the raw material price increases, yes, they are indeed significant especially for metal And that is, of course, mainly impacting Lesbosch. This is Partly handle in some instances, there are even in the contracts indexations that take care of this. But certainly on this with these kind of finches, This is absolutely a reason for price increases and the organization is to do this. Regarding components, we are not so much affected by lack of components directly. We did mainly use raw material, as we talked about. Of course, there could be indirect effect going forward, but related to our customers. They lack other components that could to protect our production output, but we have not seen that so far. Okay. That's all for me. Thank you. Thank you, Karl. Thank you. As we have no further questions, I hand it back for closing remarks. So thank you everybody for joining this first call and have a good day. Thank you very much.