Good afternoon all, welcome to today's Fagerhult Group Q2 2021 investor webcast. My name is Lydia, I'll be coordinating your call today. If you'd like to ask a question during the presentation, you may do so by pressing star followed by 1 on your telephone keypad. If you've joined us via the webcast, please click the Questions tab above the slides. I'll now hand you over to your host, Michael Brüer to begin. Michael, please go ahead when you're ready.
Thanks, Lydia. Hello everyone. Welcome to the presentation of Fagerhult Group Q2 reporting 2021. My name is Michael Brüer, responsible for strategy and communications in Fagerhult Group. I will be the moderator here today. On the call today, we have our President and CEO, Bodil Sonesson, and our CFO, Michael Wood. The presentation will be outlined similar to our last call. Bodil will start with a brief update of the second quarter and half year numbers. Then give an update on some exciting initiatives we see across the group. Michael will then continue with more details about the numbers for the group and the separate business areas. Bodil will conclude with a brief recap. Afterwards, we will open up for questions. We will first allow for questions from the conference call. Then we will allow for questions from the webcast.
You can post questions there in the chat window on your screen, and I will read them out for Bodil and Michael. Before we start, let me also remind you that today's session is recorded and will be available on our homepage later today. With that, I hand over to you, Bodil. Please go ahead.
Thank you, Michael, and welcome everyone. I will start with a short summary of Q2. We've had a lot of positive news. We saw a clear acceleration in the recovery compared to prior quarters, with a strong order intake during the quarter. We still see some differences between regions with effects related to COVID, but I think in overall the construction market is getting more used to work with the situation. We've also had much more face-to-face customer interactions than we had before, which is good for project work, even though we are very used to working with digital too nowadays. We saw very good uptake in Southern Europe, in all the southern regions as well as in the U.K.
We also saw very healthy operating margin thanks to good GP margins, increased market activities, and good cost control as a result of all the activities we initiated last year. That good cost control is continuing. With all these numbers being positive, we of course also posted a very strong EBIT number. We are dealing, which I think everybody is doing today, with overall supply chain challenges. They are time consuming, but I would say we are very resilient, and they are well dealt with by the team, and therefore they have caused very limited effects on net sales in the second quarter. On group strategic topics, we have defined a few ones like connectivity, sustainability, and core values. We took a step forward in all of those.
We see the very positive trend continues in connectivity. We see new markets emerge in both smart buildings and in smart cities. I will give you a few examples later on the presentation. I will do the same in sustainability, where we see a lot of activities in the different brands. I will also give you a sneak view of the launch of our internal group core values. With that, let's look at the concrete numbers for Q2 that, as I said, were all positive. If we put them just into comparison context from last year, we actually had our best quarter last year in net sales, in Q2, and worst quarter for order intake. This year we increased net sales in the quarter with 12.2%, and organic order intake were up a healthy 35.3%.
EBIT, we do SEK 208 million, which represents an EBIT margin of 11.3%. Earnings per share was at SEK 0.78. Michael will come back to you later with some more detailed information on the numbers. Let us look at the half year numbers, which of course also showed a clear comparative increase in all positive news compared to last year. From a half year number, we increased order intake with 11.3% organically and net sales with 9.5%. EBIT is a substantial increase from SEK 164 million last year to SEK 361 million this year. That represents 120% increase and showing that we are actually back to pre-COVID-19 levels in EBIT, which has been achieved by a lot of hard work done by many people in the organization.
I will leave the numbers here, and as Michael Wood said before, I will move into some more market-oriented background to focusing on what we see happening around us. I think that we all know the challenges that COVID has meant for society. I also believe that it has meant that we have understood further that we need to change our habits as humans, especially with regards to the climate and the climate crisis. This is also very true for the construction industry. Buildings are responsible for about 40% of total energy consumption in the EU, and a majority of the European building stock is aged, and roughly 75% of the building stock that we have today is energy efficient. Around 90% of those buildings will still be in use in 2050.
Accelerated renovation is the only economical way to meet climate targets in the building industry. EU is intent to fuel the demand for energy efficient solutions over which you've all heard about, the Green Deal and the Renovation W ave Initiative. The estimation today is that the Renovation Wave Initiative should double the building renovation rate in the next 10 years. For lighting, we know that LED has helped a lot for energy efficient, because we use modern technologies. Also here we are dependent on renovation because today only 30% of the install base has been LED-ified in the last 10 years. If we do more renovation, we will get more energy efficient LED lighting in place. If we add connectivity to those lighting solutions, we can bring an additional 70% of energy savings.
I think when we look into the connectivity technology, it's very rapidly becoming affordable, enabled by reduced component costs, lower cost for data transmission, and cloud computing. Everything is talking that the market will move in that direction, and we also see that. I will give you a few examples of activities and success, both in sustainability and connectivity. Here is the first example . This is from, you all know our Fagerhult brand. One of their best sellers is a product called Multilume, and they have, during Q2, launched a completely new concept called Re:Think, that is reducing climate impact significantly by using innovative materials and product design. I think this is real example of thinking outside of the box. The first product is a new version of this high-selling Multilume. The Multilume Re:Think has a luminaire body made of 100% recyclable cardboard.
It's a completely new material that we're using, and that is reducing the weight of the luminaire by 32%. Also, the packaging concept has been redesigned, and by printing instructions directly on the luminaire, shipping volumes have reduced by 30% and no plastics is needed anymore in the packaging. These products are also equipped with Organic Response in order to make them very easy to be connected and to gain those extra 70%. In total, these changes have reduced the total climate impact by 83%, which I think is really impressive, and it's also been very well received by the market after launch. If you want to learn more, there is a lot of material on the website of fagerhult.com. If we then take another example, you know that the team is working with World Class Manufacturing and Industry 4.0 transformation.
Many steps have been taken over the last year and continued also during the COVID-19 period last year. In Q2, they were awarded World Class Manufacturing bronze level. To continuously strive for improved quality and efficiency is central, and free up resources for new product design and more customer-focused activities. Similar to the World Class Manufacturing award, iGuzzini has also been awarded EcoVadis silver for their sustainability work. Both of these are awards that are valuable acknowledgment of focusing work at iGuzzini. Very positive is that this process-driven work that the whole organization is very used to, thanks to the many years of work with Industry 4.0, makes the shift to focus on processes that drive sustainability much easier.
A special side on the connectivity solutions where we, as I said, we continue to make progress and we have the two solutions within the group, Organic Response for indoor and Citygrid for outdoors. Both solutions are based on the same basic principles, presence detection to reduce energy consumption. For Organic Response, we see continued good growth. For the first half year, the volumes increased again, 60% compared to last year. We also see a lot of partnerships evolve and being launched, which adds new functionality and making use of the sensor data from the luminaire, which in addition to reducing energy, also brings safety, other efficiencies, and a sense of wellbeing for the user. Two examples are the burglar alarm integration with Securitas that I presented last time, and an indoor positioning system with Sony.
We acquired, as you know, Citygrid in Q2, and there we continue the integration and implementation of the technology across all our outdoor brands. With that, let's look at an example here as well. This is an example from the Hickman Building in London, which is showing the possibilities of connectivity. We were involved in the project from the start and have delivered more than 1,300 Organic Response-enabled luminaires to the project. All the luminaires are connected and via cloud API integrated to the building's management system. Based on this integration, there is a specific building app developed that combine all the features from different systems and offers the tenants control over their working environment. Within this area, we see a lot of activities happening in the market, and that opens up the new partner possibilities for our connected technology.
The Hickman Building has actually been acknowledged as one of the smartest building in the world during Q2, which also shows that an increased focus is going on in terms of smart buildings from the whole group perspective side. With that, I said a sneak view on our core values. We have, as you know, worked on this during 2020. This is important for us from a company culture perspective. It's been a good progress, a very inclusive work, which has been creating a lot of positive energy already before launch in the group. We have involved more than 1,800 colleagues with us across the group. In this work, we have considered not just who we are today and what we do well, but also looked into what is important for us in the future to be successful.
Based on this, we have developed a new set of core values, we will launch them during the fall, that will be a strong base for us for our very people-based culture. What you see in the picture here on the slide is actually an internal teaser t hat we are using ahead of launch, we will launch during September with the actual core values. With that, with the picture, which is the Kristianstad Golf Club in Åhus, where you can see all indoor and outdoor lighting is from ateljé Lyktan, from their home area. With that, I will hand over to Michael for some more financial information.
Thank you, Bodil, and thank you, Michael, for the early introduction and a very good afternoon, and welcome to all listeners from myself as well. We see the financial summary slide, which is the regular kickoff point for this part of the presentation. I will take you through several slides forthcoming. The recovery from the impacts of COVID-19 in the second quarter accelerated sharply ahead of the steady start that the group made during the first quarter. As we state in the report, all key measures from order intake through to operating margin recorded strong growth and strong improvement. At SEK 1,845 million, quarter-on-quarter net sales were positively ahead of last year, almost 7%, increasing to just over 12% on a like-to-like organic basis. Growth was recorded across most geographies and almost all product segments that we operate in. At SEK 82 million, currency headwinds remain strong.
It's not a little less strong than we saw in the first quarter, and as we enter the third quarter, we expect this trend to continue for the rest of the year. The operating profit of SEK 208 million delivers a very healthy 11.3% operating margin, mainly driven, as Bodil mentioned earlier on, by increasing the volumes, steady gross margins, and continued good cost control. Profitability for the half year is ahead of that in 2019. People do use 2019 today as a benchmark reference point rather than the COVID-19 hit 2020. Development of earnings per share and operating cash were also positive, but I'll come to more of that later. When we look at sales development, no longer do we see a decline or even a leveling off in the 12-month rolling net sales.
In the second quarter, the trend was +2% positive and now approaches close to SEK 7 billion on the rolling 12-month basis. The trend is even more positive looking forward when adjusted for currencies and disposals. We expect this trend to continue into the future. Next slide now is margin development. Firstly, let's just remind ourselves that you see the two light gray bars in Q3, Q4 last year. They were adjusted for the group's exit from the South African business. I remind us because we shall make comparisons to these quarters and these numbers as we go through the remainder of the year. Coming back to the second quarter, the operating margin of 11.3% is ahead what we see of the market, so we should be pleased with that, and compares well to Q2 last year and the first quarter this year.
The rolling 12-month operating margin at just over 9%, 9.2% to be precise, shows continued good recovery over the last six quarters that we operate. Business Area Collection. The Business Area is a very strong order intake and a solid operating result i n the second quarter. You can see the numbers there, 35.2% organic growth and an operating margin of 9.8%. The second quarter of 2020, I just remind you, this was positively impacted by the catch-up of iGuzzini following the factory reopening following a forced COVID-19 closure. For the year to date, profitability in the Business Area is significantly improved compared to last year. The Business Area enters the second half year with an increased order backlog position and good control of the cost base. We now begin to see some results of the collaboration. Collaboration is a word that we've used several times in these webcast seminars.
Recently, there has been a joint win of a healthcare project in Italy between the Fagerhult brand and the iGuzzini brand. Also there has been strong project quotation activity with new inquiries and new opportunities in Denmark c ollaborating between ateljé Lyktan and iGuzzini. Good work coming through the strategy development process in Business Area Collection. If we move to Premium. In Premium Business Area, we do continue to see mixed results across the European market with the Western countries, including the U.K. for this explanation, being quite positive, and the northern countries generally having a lower level of activity. That was reported for Q1, and we saw that continuing into the second quarter. Activity in the retail segment is high as retailers catch up for lost time and lost time regarding improvements to their estate during the pandemic closure period.
We do see good activity in the retail segment. The quarterly organic order intake was also very strong, 26.2%, and the business area operating margins continued to develop well, increasing to 13.7% in the quarter compared to 8.3% a year ago today. Here we see again an improved order backlog carrying us forward into the remaining part of the year and the start of next year. Coming now to Business Area Professional. The last quarter we did report a strong start to the year, and this start has increased further in the second quarter with a further acceleration in Business Area Professional. 28.2% was the net sales growth and a double-digit operating margin for the first time since mid-2019. This BA is beginning to recover properly to pre-COVID-19 levels. The order backlog position is good.
The forward-looking trajectory looks positive, and the activity level and the result in the U.K. Is particularly strong. When we come to Australia, it's pleasing to see the completion of the rebranding project in Australia and New Zealand and the businesses come together as one brand, creating a more powerful force in the region. Finally, to finish off on the business area slides, we come to Business Area Infrastructure. As mentioned, 90 days ago, more or less, the infrastructure situation got off to a slow start in the year for the first quarter, but now in the second quarter, the situation is improving. The results for the second quarter were good and order intake, net sales, and operating margin all improved. We're fairly pleased about the remaining parts of the year within Infrastructure.
Point out that the organic order intake growth of 65% was very significant, just pointing out that during that quarter, there were two large project wins which boosted the order intake by approximately SEK 50 million. Regardless, even without these two large project wins, order intake was still positively strong at the organic level. Most significant growth opportunities remain here in Europe with business area infrastructure, and we continue to work on our go-to-market approach for the three brands to grow our market share. Operating cash flow. Operating cash flow remains positive for each of the first and second quarters. The achievement as you can see there, is very similar to what was achieved in 2020.
The rolling 12-month cash flow remains above SEK 1 billion, despite a SEK 170 million investment in inventory in the half year to combat and support our customers to combat the supply chain challenges that we see around the globe. We do this to continue to provide a high level of service to our customers. We will continue our focus in cash flow and cash management and as we head through the second part of the year. When we come to net debt, it portrays a very pleasing picture that we see there. Just again, another quick reminder that the chart for net debt is adjusted for IFRS 16 accounting and the chart for net debt EBITDA ratio is also adjusted for IFRS 16 and acquisitions and/or disposals.
We report a closing net debt EBITDA ratio of 2.31, which now matches the position at the end of 2018. Why is this significant? That was the final quarter before the large acquisition of iGuzzini. The group and its profitability and cash management competencies has restored the ratio now to just before the iGuzzini acquisition. The adjusted net debt on this basis is just under SEK 2.1 billion and liquidity in the group is at a good level. Finally, earnings per share. Again, remember that the earnings per share stated for Q4 2020 benefited from the new Italian tax decree, and you should refer to the Q4 and annual report for details of this.
The EPS in the quarter at SEK 0.78 per share was not only ahead of the measure for 2020, which most people would expect, but also importantly, ahead of the SEK 0.74 per share for the second quarter of 2019. Again, the work that's been done puts u s in a position where on some of the metrics, we're now at pre-COVID levels. And we look forward to these things continuing into the future. Whilst the EPS continues to improve, again, it is not yet at the level of our ambition. We strive for greater things in this regard. I now hand back to Bodil for closing before we take a Q&A session. I'll just leave you with a picture of the Cube building in Berlin, an installation that was lit by iGuzzini.
We do like our beautiful pictures, don't we? When you have a vision statement, which is a world enhanced by light, it's a very good way of illustrating that. I would just allow a slide for conclusion and recap. As I hope you've seen from all Michael's numbers in Q2, was a very good quarter for us. After the first six months of 2021, we have seen good recovery, especially in EBIT and order intake, and we entered Q3 with a very healthy backlog. We have dealt with, as we said, very well with the supply chain challenges. We foresee them to continue for the foreseeable future with some risk of delays. We do from our side everything we can to mitigate those, and we will continue the hard work to do that.
Our core values project that I mentioned is of course a collaboration project with achieving, focusing and achieving more together. Michael gave some examples. I think we have many examples of increased collaboration around the group that we can come back to in further reportings in the future. All in all positive. With that, I will end the presentation part and open up for questions. I will hand back to the other Michael for taking care of that.
Thank you, Bodil. With that, we ask Lydia to open up for questions from the conference call. Please, Lydia, go ahead.
Thank you, Michael. Our first question today comes from Mats Liss of Kepler. Mats, please go ahead. Hi, Mats. Your line is open.
I was muted there, sorry. I repeat myself, congrats on the good set of numbers. I have two questions there. 1st, looking at the orders, they are pretty strong numbers. I just wondered if you could say something about the mix there. Are you able to pass on, I mean, we are seeing quite substantial increases in raw material prices and so on. Are you able to pass those cost increases on to the customers?
Okay. Thank you, Mats. Good afternoon, and thank you for the comment regarding the good report and good numbers. It's something that we certainly feel better about than the last couple of iterations. Thank you for that. You're right that the global supply chain challenges for logistics and materials is around us, and all of our operating companies have now passed on the cost impact of those increases through to our luminaire prices to the market. There will of course be a little bit of a timing delay before some of those from quotations finds its way through to orders and invoicing, of course, that's only natural.
Also on the supply chain side, that timing is also represented through the inventories that we hold that were obviously purchased at the lower price levels. In answer to the question, yes, we can pass them on to the market and yes, we have now adjusted our prices accordingly to deal with that.
Okay. Thank you. Then I have a question regarding the-- I mean, looking at the seasonal trend, previously, if you look at the previous years, maybe before the iGuzzini acquisition, you had this of the third quarter was normally somewhat stronger, the strongest of the year. Should we expect to see the same seasonality this year, or is there any sort of If you could give some comments about that?
Okay. Certainly. You're right with your observation, and I think that observation carries on even post the iGuzzini acquisition. What we do know, Mats, is that we are sat on an order backlog position that circa SEK 400 million higher than it was at the start of the year and over SEK 500 million higher than it was a year ago today. We move forward into the third quarter. On the downside to that, we do have the supply chain challenges. As we put in the report and as Bodil has commented, there was no significant disruption caused by that in Q2. We suppose we don't expect any significant consequences of that as we move into the third quarter. The seasonality I think remains intact across the Fagerhult Group. We are sat on probably a record order backlog position.
The only cloud on the horizon now, I suppose, is this supply chain. As Bodil says, we have dealt with it very well so far, and we continue to deal with it well around us today. I think the seasonality comment remains intact, and we look forward to the third and fourth quarters. There's no reason why we shouldn't be. We've got good momentum and good activity levels in most of our main markets and a very strong order backlog position.
I think what you also need to remember from our part, which is very important, is that we are a certification business. When you look into it, takes 12 - 18 months to really make a difference. I think that's also what you saw, that it was difficult in Q2 last year because it was difficult to meet people, and the industry wasn't used to deal with it digitally. That has also been taking step by step in terms of getting more digital mature in dealing with it. We also have had the possibilities of having much more face-to-face meetings compared to what we did a year ago. I think there are also other factors that play in addition to the seasonality. In a little bit of opposite way.
Again, in the outlook, you mentioned that you are back to pre-COVID levels in the second quarter, but you also indicate that for the full-year, it may be too early to see such a performance. I mean, pre-COVID. When do you expect to see that, well, reaching the pre-COVID levels on a yearly basis?
You're right. To pick that up from the outlook, we did mention that it may take a little longer to get to pre-COVID-19 levels on a full annual basis. As Bodil mentioned and I mentioned in the financial side, we are now tracking at the EBIT operating margin level. We are now tracking the rate of profitability that we saw pre-COVID-19. That's good now for the first six months of the year. From a growth perspective, if we do carry on like we performed in the second quarter, then it can't be very many quarters away. You know we don't give ourselves a forward-looking target objective map. If we carry on at the same sort of trajectory, it can't be very far away before the annualized numbers are matching what we saw in 2019.
We are quite conservative people.
Yeah. It's good to know. I try to remember that.
We did say in the Q4 webcast or the Q1 that we do see the recovery taking a while, two-three years. Again, on Bodil's conservative comment. The fact that we're sat here today in August of 2021 and the recovery is coming ahead of that plan, that only serves to do us well for the future. As I say, sat here with a tremendous order backlog. We are pleased that the market is recovering faster than our conservatism that we exhibited 90 and 180 days ago.
Great. Small one here. About the CapEx for the full-year, could you give some guidance there?
About the CapEx?
Yeah.
Yes, certainly. Well, we know that the focus during 2020 was on cash and cash management. We did temporarily suspend capital investment projects. When we realized that we'd got a good grip on liquidity and cash at bank, and additional reserves should we need it, then towards the middle of the fourth quarter last year, we started to release a little bit on the capital investment side. That carried on through the first quarter and carried on quite strongly during the second quarter of this year. We expect the capital investment to be approaching 1.5 percentage points for the full-year, 1.5 percentage points of the net sales number. That's still on the low side for the Fagerhult Group.
It's still less than the long-term level of depreciation, but it's because this gap of temporary suspension that was built in last year, it's now starting to come through, and we do expect to see an increase in that in Q3 going into Q4.
Great. Final one. You mentioned that the gearing is back on pre-iGuzzini level and what is the interpretation of that? Do you see a similar kind of acquisitions out there? Not as large as iGuzzini maybe, but is there more to do in the acquisition side, or should we expect dividends to pick up or something else maybe?
If you look into our strategy, we have a strategy where we're saying we have a high focus and collaboration on organic growth. Of course, M&A is still part of our strategy as well, more coming out of the business areas than is coming from a group level. You've seen us doing some of the smaller technology acquisitions. It needs to fit into the strategy. I think we still have an appetite. I think the number that we are down to pre iGuzzini means that if something comes up and we think that this is good, we are ready for it again. I think that's the first step of it.
Yeah.
Long-term from a strategy, we see both organic and mergers and acquisitions.
We never say we've got more or less money available for dividend distribution. That's not something that we talk about.
No. Okay, great. Thanks a lot.
Okay. Thank you, Mats.
Thank you. As a reminder for everyone, if you'd like to ask a question, please press star followed by one on your telephone keypad. Alternatively, please click the questions tab above the slides if you've joined on the webcast. We have no further questions on the phone line, so I'll hand over to Michael to take questions from the webcast.
Yes. Thank you, Lydia. We have received questions from the webcast. We have one here on our product development, and if we can elaborate a bit from the share of sales from newly developed product compared to historical products.
Can't give you a number, but if you look from a product vitality, I think here it's important, it will vary between the different brands. I think for us, it's part of our goals and how we work as well. Innovation is key for us, is to keep a high rate of new products. It's something we work very strongly on. It will vary, as I said, between the different brands. We, in general, from a product vitality perspective, we look quite good with a high rate of new products.
We actually had in the April/May time of the year, we had three specific product presentations, new product presentations, from three of our brands, from the Fagerhult brand, the iGuzzini brand, and the Whitecroft brand. All three presentations are about what are they doing and what's in the pipeline, both just recent, so within the last six months, and then in the next six-12 months. Each one of those is buoyant activity with some fabulous new products in. I think during COVID, I don't think we've seen a slowing down. I think what it's done is, I think it's given people the opportunity to be even more creative and more design, aesthetic led during that period. Watch out for some nice looking luminaires with a high sustainability impact coming through.
As Bodil pointed out, the Fagerhult Multilume Re:Think is a concept that's fairly leading in its class.
I think it's also, when you see our business model with the 13 brands, it's very good from a sustainability perspective and product development because we see different types of out-of-the-box thinking coming out of the different brands. When they then speak and talk together, they exchange ideas, we create a higher innovation level as such. I spent a fair bit of time in Italy in July. I hadn't been there for a long time, for obvious reasons. I think when you looked into product development, I'd never get out of the sessions because there were so many new things that they wanted to present. I think what Michael said, it hasn't slowed down during COVID. We continue the high innovation level. I hope that answers the question.
Thank you for that answer, Bodil and Michael. We have another question here regarding financial targets and if we plan to communicate any long-term financial targets in the coming year.
The answer is simply no. We had 75 year of history where we don't do such things. Sorry to be so short with the answer, but that's not what we do. Our ambition, short-term ambition, is to return to pre-COVID levels, as soon as we possibly can. We stated that in the Q4 reporting webinar. We stated that again in the Q1 and today in the Q2. First of all, let's get back to pre-COVID, which is a big tick in the box. We're well on the way there. We're excited about the short-term future. Then with all the strategic alignment and strategy plans that are taking shape, they're not just plans now. We talked before about the collaboration areas. Beyond that immediate short-term of getting back to pre-COVID, again, it's a healthy situation that we see.
Yeah, we prefer to have a stable, healthy, long-term growth as a goal, but we won't put any numbers to it externally.
Good. With that, we are done with the questions here. Just before we end, Bodil, any last reflections from your side on the quarter and the presentation here?
I think from a summary, very short summary, was that it was a very good quarter for us, with maybe stronger signs of recovery than we thought. We're very happy about that. I also think that it was positive indicators on all. Normally, when you do something, you have something that feels a little bit less good, but here it was only positive from the numbers. Also that we continue step by step to work on all our strategic topics, which for us is equally important that we see things going in the right direction. I think that was a very short summary. A lot of positives.
Great. With that, I think we end today's call. Thank you everyone for joining the conference call. We hope to see you again with our Q3 presentation, which will be on October 29th. Again, thank you for today.
Thank you from me as well.
Yes, thank you from me as well.
Thank you for joining us. This concludes today's call. You may now disconnect your line.