Earnings Call: Q3 2021

Jan 28, 2021

Welcome to you all. Nilski is Jorgen Ri, CEO of Logic Kraums. And together with me on the line is Christine as well, our CFO, Kristine Hester. And we will try and run you through the interim report, our Q3 report, that we released this morning. And the report is available on our website, lagerkrans.com, And you can find it there to download it, and that's how we normally do it. And we will run you through that and comment along the way, and we will open up for questions in the end of the presentation. It usually takes around 40, 45 minutes before we open up for questions. We will put you all on mute. And if you would like to interrupt me along the way, please, you could use Do that by using star 6 to unmute yourself if you'd like to interrupt. Otherwise, you will or sort of have questions in the middle. Otherwise, we will open up in general for questions at the end, as I pointed out earlier. So I will now unmute you all. Hope this works. Okay, good. I hope everyone is muted and can listen in. Again, a warm welcome, And I will start and I will point out along the way which slide I'm on. So let's and normally the way we normally do this is We'll start with a short introduction, a couple of slides. It's too long to introduce all the newcomers to the group, what we are all about. And then we will jump into the numbers, and then we will also discuss a little bit, especially around the M and A situation, I think, in the FDM here. So I think yes, that's how we normally run it and do it that way as well today. So we start at on Slide number 2. Nagikram's then an introduction is that we are a tech group with a very strong focus in building sort of strong positions in niches. And currently, we are around 60 somewhat short of 60 profit centers, and they're split into the 4 divisions that we have, the electronics, the mechatronics, the communications and the niche products divisions that you can see there on the slide. And as you can see, we have events that we are up in the Nordics, but we have a sort of a Northern Europe group with also some companies in the UK, some companies in Germany, in Poland and also in the Dutch region or in the Netherlands. We have some 1500 employees all in all in the group, and we have a turnover of some SEK 4,000,000,000 around roughly around that. And as you all know or most of you know is that We have M and A as a very strong sort of DNA of how we run things. We are building the group with focus on organic growth and especially on organic profit growth and so the improvement in the companies that we have, but also in terms of doing M and A with a clear ambition of acquiring 4 to 6 companies per year, around 10% of the group should come from or growth or sort of the group should grow by around 10 and coming from M and A every year is our aim. We have been on the Stockholm Stock Exchange since 2000 and 1 as a separate entity, and we are currently on the mid cap on the Stockholm Stock Exchange. Moving over to Page 3. We give you a little bit of sense for what we have in our different divisions. Here we have them again, the 4 divisions. And you can see from the left that electronics is the where we came from. We used to do quite a lot of electronics distribution, but nowadays, we have changed the content of electronics quite dramatically. We're both moving to more of modular and semi finished goods. So much more complex products, much more solution based type sales. And we've also moved in some proprietary products areas with LED, with other types of areas which we're in, RFID and also some marine applications that we also have within the electronics division. And we also have a couple of other companies doing more special materials or more like infrastructure related and type of businesses that we have in the electronics. And through all of that, we have lifted the margin within From 10 years ago, it's somewhere around 3% to 5%, up now to more than 10%, which I think is a good performance from the electronics division. Alongside with having the electronics, we also have the mechatronics, and that is currently our biggest division. Here, we have also the biggest company within the group, the Hillcrest company, providing cable logs and electrical connection systems for a lot of interesting sectors going quite a lot for the wind turbine industry as well, with components going in there. But also in the electrification of the whole society, we have a number of companies working in that area with Yield Press as one of them, but also the cable harnesses companies, Yield Capsule and Norvesco, a couple of other companies going in that direction. Here, we have quite a density of of our company, but also by the density of our earnings and volumes. And you can see this 33% of EBITA last year. The 3rd addition is around communications, and that is also it is built around the 2 verticals or 2 areas, technical security area. We have where we also have our biggest company within that division, that is the Altcom who's providing different type of infrastructure for the sprinkler systems with pumps and another type of infrastructure around building sprinklers for houses and factories and that type of thing, in those type of environments. We have a couple of other companies within that area doing more of traditional technical security with alarm and protecting, for instance, in prisons and that type of thing. And we also have a couple of companies around that. Within communications, we also have the control and access area where we have a number of companies. And one example is that I don't know that you could see there. They are one of the market leaders in rate of measurement, doing quite well for us. And Pesimeter is another company doing very well for in an area for measuring and working in aluminum industry with the you can all find separate home pages for these companies, if you'd like, to understand better what they're doing. Since 2012, we are also building a niche products division, which is becoming increasingly important to us, and it's here at 25% per EBITA. Currently, it's growing faster than the group all in all, and that is very promising. Here, we really find some and that's been very important to us. And the strategy that we have for the group is to find the niche proprietary products companies that we can add to the group. Here, we have a number of different companies. We have the, for instance, the FIB. You can see up to the left there, work with brush systems using to clear runways at airports from snow. We don't provide the vehicles, but we provide the brush that we have there. You can see there. We also have a number of other companies, and the company doing Best in this division is the tool neck. You can see the sharpening machine there to the right, not entirely to the top, but a second picture from the top there to the right. You can see the sharpening tool and a softening machine being used there. And you can also see and that company is doing very well for us on exports, especially in the U. S. And in the mid Europe. So that's also a very strong company within the whole group, but especially for the niche products division and a number of other companies that we have in Indonesia Best Division. So that was sort of an introduction to the Lagerfeld Group. We'll move on with going into numbers. Here, we have our chart that we have used over the years, showing where we are with the moving 12 months figures in terms of sales and profits. And you could see that we concluded yet another good quarter. We have had a little bit of a strong over time, we had a very strong upward trend in our numbers. And as you can see, The space on to the left and to the right here are proportionate, meaning that we also can see the margins lifting along the way here, exceeding 10% as of the UPC 2016. So we're there. We started to exceed 10%, and we have been above 10% since then basically as an EBIT margin then. And that has been very good. We you could also see that we had a very strong performance in 20 eighteen-nineteen. And then we reached a very high there about a year ago, a little bit more than a year ago. And since then, we have also been, as most The company has been dealing with the COVID-nineteen situation. And therefore, we had a couple of slow quarters. But after that, we have now had 2 stronger quarters than the same quarter through this year. And that means that we are still on a very good trend when it comes to our profits. Along the way here, we have also been doing different types of themes. You can see that in the bubbles here. We started out with some restructuring of the group. We put a new sort of corporate governance model in place in the years 2,005 and onwards, and that is very good for us. And we had a downturn in the financial crisis where we took some actions around during the recession. But since then, we have had some recovery and started out doing more and more acquisitions and improving with operational improvements along the way. And then we have created some organic growth and more acquisitions along the way, especially the proprietary products that is has been lifting our margins and our profits along the way, which brings us to the full picture here. Moving on to Page 5, a little bit more on the Q3 report or much more really. I think what we saw in the quarter is that we had a recovery during the quarter, which we did some good improvement in many of our companies. And we saw some limited effect to the COVID-nineteen pandemic in total. We We saw some companies doing really well and especially the bigger companies have been doing very well for us. With the yield press is doing very well on exports within the mechatronics division. We saw in the communications, the ARCOM with the sprinkler pumps that I mentioned earlier. They're also doing very well for us within the communications division. And the fastest growing company in the group this year has been the Tornek company with the sharpening machines there that I also pointed out earlier within the niche products division. A couple of other companies within the niche products The division has also been doing very well for us. So Wabburg, for instance, the Nicodone in Denmark has been doing very well for us within the Nicodex division. And as you will see from the numbers, the niche products division is the one growing their profits the most here in the quarter. On the other side, niche products have also had a couple of And it has been affected by the COVID-nineteen, especially assets that was doing very well for us last year with their products, their dispenser products for the fast food industry and the fast food And the fact that restaurants in the U. S. Especially, I think we can all understand that those type of sectors have been very severely hit by the COVID-nineteen. And that has some examples that sort of affected our eSAPS business. We have a couple of other companies that have also been affected by the by the pandemic, and that is the special within the methotronics division with It fits and also some QD has also been affected. But all in all, the most important ones and the strong ones have been performing very well. And all in all, I think it was a quarter that we saw some strong recovery and some strong order intake in many of our companies, and that is promising for the future as well. What we also saw in the quarter was that we saw we did, and I had commented on that earlier, as we did some really restructuring of the electronics division about a year ago, and that has taken some time. But we have here now again a strong quarter from the electronics division where we saw some good effects from from the restructuring we did last year. We closed 1 company in Germany sorry, we restructured 1 company in Germany. We It's a couple of new management teams in place in a couple of companies and the close one unit in Norway. And that has come to have had a good effect on the value of finance division here. And you can see they come back very well here. And during the quarter here, we also made 4 more acquisitions. We took a little bit of a pause here during the summer and especially during the spring summer, but have then picked up the M and A activity here again and completed now 4 acquisitions during the quarter, which I think is very promising. They are strong companies as such, but they also have clear connections and some synergies with all the companies that we already have. I'll come back We also tried to comment on the charts down here below on Page 5. And you can see that our share of international business is slowly but steadily increasing over to the right. And you can also see that the proprietary product is up to 63% right now. So that's also been a key metrics for us driving the growth and the profitability of the group. I'll come back to that as well. Looking a little bit more on the numbers to Q3, We had some net revenues at SEK 1,000,000,000,000, SEK 1,000,000,000,000 And then EBITA then increased by 8% to EUR168 versus EUR 156 last year and a very strong EBITA margin, as you You can see there from 15.6%, which is a very good number, I think. And the profit as the financial items also increased by 8%. So So we're stronger than we've had in the previous quarters. And due to the recovery, we're coming back and having a better sort of grip on whether COVID-nineteen will are affecting us and where it's not and driving the group in a better way. Yes, we're down the road here, means that we had a good recovery here in this quarter. What I also like to point out is the very strong cash flows we have. The 2.26%, you can see here as opposed to 1.78% Last year, there was also a strong quarter, plus 2.26 years is even stronger. And again, for acquisitions, I'll come back to them later on here in the presentation. That means that on Page 7, you can see the full 9 months figures, And you can see that the EBITA then increased in the quarter by 80%. And here during 9 months, it was 2%. So we had a stronger a strong dependency along the way, even though Q3 last year was a very strong quarter. And then EBITDA margin for the full 9 months so 14.3%. And yes, and earnings per share as well at 1.78%. As most of you have recognized, We did a split of our share here during the period. So in CET1, And that is, of course, expecting the earnings per share, those type of numbers. And that's all been sort of adjusted for a year, of course. The return on equity was 22%, and we had a very strong balance sheet going forward as well with the equity ratio of 40% as opposed to 38%. That leaves quite a lot of room for more acquisitions. And again, very strong cash flows from operations here with the $552,000,000 as plus €15,000,000 last year. So cash flows is a strong point as well, I think. Looking at the outcome for division on Page 8, you can see how it looks by division. And I think it's important to highlight here the strong performance in these products. These products have had some quite strong quarters and is becoming sort of a very strong team within the group with and the main team really to build niche products division and those type of companies. We have those in the other divisions as well with the proprietary products. And that proves you can see how niche products is evolving over time here. And another strong point is the recovery in the after the restructuring and electronics now back with the EBITA margin of 12.5%, which is the strongest we have in the timeline here. I think having close to that earlier on, but still a very strong quarter. And There's more of acquisitions and building electronics further. The aim is, of course, to improve that further. But I think the important thing here now is that the recovery the restructure from last year had a good effect during the quarter. You could also look a little bit on Page 9, where we have the Commerzbuy division. If you look at the electronics division, again, the restructuring, I went over that already, I think. And that was in Poland, Norway and Germany. That was the reason behind the improvements. Within the mechatronics, we see the main units doing very well for us. The division's largest units with the El Pesci, El Capstan, El Fak and Norvesco are doing very well for us. But we also saw some negative effects from the pandemic, specifically related to the QD and the fixed rate businesses. Nothing that we really worry about in the long term, but because we can see clear reasons for why it's happening now. It's very difficult for Brickjet, for instance, to visit customers and do installations out at customer sites when we have a lot of lockdowns in different parts of the world. And Kyiv, we also have some international projects, and We had one last year during this time of during last year, but that was not repeated this year. But we also have some and some good projects coming downstream. But to some extent, they are a bit delayed here, and that's why you made this comment around the telecom with a delay in some telecom related projects here in the mechatronics division. Within the communications, we also had a good EBITA, we think, very good margin of 19.4%. We have some type of seasonality within the communications, as I pointed out earlier. But we all and we also see that some of the bigger units, the Arcon and ISG, Nordic And we are paying interest in Israel doing very well during the quarter, while we also saw some negatives affecting the labor measurement business, the LadaNova, That was negatively affected by the pandemic. And so and that was also very important for us. And within the niche product division, that was the one increase in the EBITA most, up 46% as opposed to last year. I think we see some really good performances from especially the tool mix business, but also from the drop from Dodon. Dorothea and Konniska also made very well in Vembig. On the other hand, as ASF made a very strong quarter last year. But I also said to them, as I pointed out earlier, by the COVID-nineteen pandemic. So it's And I also think that's very easy to explain. And we are confident that, that will come back as soon as we actually the pandemic and our approaching summer here and the things that we'll turn for the better in many of these companies that have some effect. So moving on, that was what I would like to present around the numbers of the quarter. A little looking a little bit ahead, I think I try to highlight a few things. I think we'll continue, as we always do, to adjust strategies and measures and actions the situation in each company. When we have a portfolio of 60 companies, it's always some companies that we are more in the restructuring phase, while others are sort of really driving growth and doing very well. And I think we have a very strong management team that is that are adjusting adjusting measures what is needed in each company. And so we run the companies through the boards and pay sort of Recipes and the strategies vary quite a lot between the different companies to what we do. All in all, of course, we have There's some action as we did for the COVID-nineteen pandemic. I think we are dealing with that on a company by company basis as well. And because I think we have a good grip on where it's affecting us both. But and we don't see any sort of really dramatic measures as to the new lockdowns that we've seen in the last recent weeks or months here. I think that we sort of still working on a very good level for us in most instances. As we get through the COVID-nineteen pandemic, I think we also will put much more focus on growth again, And we will continue our focus on value add. And we will also then, as we already picked up now, renewal acquisitions. I will comment on that a little bit further on. So look, I think we will move to Page 12, where you can see the focus on value add. This is something that is very important to us, and you see that it's been a focus for us for many years. You can also see that we have been good in delivering an improvement in value add. I think this comes a lot from what we see on Page 13, which is the boarding operations and the increase in proprietary products. You can see that is a clear target for us. And as pointed out earlier, we are aiming for the 75%. And with the recent acquisitions, this will also be pushed in the right direction. So we are definitely on the path to reach 75% in the next, yes, 3 to 4 years or something like that. We will be there 2 to 4 years maybe depending on how acquisitive we are along the way. Looking at acquisitions, we are on Page 14. He can look a little bit. And as pointed out, we have made 6 acquisitions in the last year or so, while we made 4 here in the last quarter. And the Fias group came in, that is affecting in the numbers in the quarter, while the other fee will affect the numbers starting from 1st January. So we have we only have sales We've been sent through the numbers in the Q3, while the other ones will affect us from Q4. And the acquisitions is a key thing for us. We have seen some very interesting projects, and we still see some interesting projects along the way. It's been very exciting to be in this market, and it's very exciting to be in this market. We have more acquisitions that we're looking into. And that, I think, is very promising for the coming quarters as well. Looking at what we have The client here during the call, the Siletz Group is the first one, go over them a little bit. Thales Group is a leading supplier of brushes and for road sweeping, airfield and ready road cleaning and that type of thing. You can see a little bit of the products over to the right on Page 15. And here is an annual revenue of some 10,000,000 euros And this is a Finnish based company in Pampre, in Finland. But we also have operations and production in Tallinn and also some states in Tallinn and also some state organizations, primarily in Germany. So a strong player. And here, this can be connected now to the FID business that we already have within niche products division. So it's there, we're making buses and bus systems for being runways and airfield while we here have a broader spectrum. And therefore, we see some pure synergies between the companies. And Syoss also has significant sales the Swedish customers. And that means that we can also sort of collaborate going to market here We're with 2 different companies. So that's very promising. You can see the numbers down to the right there. Normally, we would like the EBITA to be about 15%. They have not been truly there, but our previous business is there and has been there. And therefore, of course, we have some profitability measures to be taken here in order to improve this further. But a very promising acquisition that we need that area. And that will affect the area that came into the numbers as of November here last year, though, and then Q3. The second acquisition we made is the Holdipom International. That is a Dutch company based in the Netherlands. And that is connected has a clear connection to the APES business that we also have within the image product solution. Here, we're making different types of dispenser solutions. As you may know, the ASPEC came basically from a lot of ketchup dispensing and those type of and equipment that you see in restaurants and McDonald's and that type of thing. And but we also see clear other areas where there is more dispensing with other type of solution. And we made an acquisition of 1 there in the Dutch region, the very nice acquisition a few years back. And now we have also made the second acquisition here with the Holicom business coming in as of January. You can see some really good numbers down to the right and really strong profit margins. And that is, of course, adding to the overall strength of Asia and NIES Prologs and also to the group as a whole. So very interesting, and we feel that acquisition is. The third one on Page 17 is ESRE. ESRE is a Finnish company. We have similar business, maybe more of enclosures, smaller types of Gosher's in Sweden, our oil capsid business. And here, we have another company in a similar customers and similar sort of applications in Finland. And here, of course, we will see some synergies also with Estrada being brought to Sweden and Eelkaps, I mean, brought to Finland. And through that, we find some synergies on market wise. This company is located in Kaustonen, and you can also see some good numbers down to the right there. Here, Capsule is providing even better numbers. So we also see some synergies that can be explored here in order to maybe reach the 20% level here. I think it's pretty reasonable. The last acquisition, but not the least, is the Dieter Mittal on Page 18. That is a company that we acquired here in Norway, And they're making inclusive connectors where you build for high voltage applications. And you can see the applications over to the left there. And as you may know, the Hillcap screen is making and CableLabs as well using a print technology. This is more this is another technology using explosives making these enclosing connectors that is used. The application of these are easier to be applied, especially when we're talking about high voltage application and the transmission network in and it's really a very strong player in the application of the society. And therefore, we play well into the ambitions we have within the mechatronics division. This is a Norwegian company, as pointed out. It's located in Ralfos in Norway. And you can see down to the right there, also very strong in terms of margins and performance. And the growth has not been very high, as you can see there. I think that is a clear ambition for us to put some growth into this company. They have been very sort of Norwegian and been very sort of local in many things, what they've been doing. But they have a set up now some sales organizations in both in Sweden and in Finland, but also in Canada, for instance. And we will together with them and with Yeltze and with stronger exports on their agenda and be a type of dealer company further on with exports as a primary source of the Yves company. That's also a very interesting company being brought into the mechatronics division. So to round off, I think we produced a very solid quarter here with some profit improvements of 8% in Q3. And now accumulated, we are above last year despite the pandemic, and I think that's a very strong sign for us. I think in addition, we have very strong cash flows and a good cost control in what we're really doing. And as you as pointed out, especially The division is probably a very strong quarter. And Electronics came back after some restructuring for a couple of quarters. We still see some negative effects from the pandemic, but once we have through this, I think we also will see some stronger growth from our companies. And as pointed out, we've also then picked up our M and A activities with closing additional 4 acquisitions along the way here. And with the strong balance sheet we have, I feel confident that we have are looking forward to 2020 and the coming quarters. That was my presentation. I think we will try and open up for questions then. I would like to unmute you all here first. Let's see. Thank you. I will unmute. Do we have any questions from you? Who would like to start? If you would like to unmute yourself, you could also star 6 situated. Hello, can you hear me? Yes, I can hear you. Yes. This is Victor Hansen from Nordea Equities. Hello, everyone. Leech collects, right? You can start. Yes. Thank you, Jorgen. If you could please give us a split or at least elaborate on how much of the margin improvement in electronics that is due to general market performance and how much is due to your restructuring and cost Efforts, please. I don't have a clear number for that. I would say that from sort of my gut, I would say that 50% of the margin improvement is due to restructuring and 42% to margin due to market improvement. We saw some clearly sort of lower growth in some of Our Danish businesses last year, that has picked up again. So that's sort of a market improvement. We also saw some improvements in Germany, but we have we had seen some clear sort of and some stronger improvements from actually, but it's coming from the structures in Norway and joining us on the balance. So $6,000,000 to $4,000,000 I would say. Thank you very much. That's all for me. Yes. Jorgen, it's Johan of Dancken. Just two quick questions. Firstly, can you just address If you look into the coming 12 months, if you see a normalization of your SG and A, I. E, sort of internal education, traveling, etcetera, If you just look on the cost headwind from those issues as society normalizes hopefully, And if you compare that against that, so you saw a slight decline in number of employees in the group. How do you expect that net to sort of pan out In the coming 12 months, let's see your perspective. I wouldn't put Really so much emphasis on that. I believe that we have been good at cost control, and we have decided to had out some employees given the pandemic and some companies affected by that. And it's not like we will hire them all back as soon as we sort of see some improvements. That won't happen, I think. So I think that we I think what I expect in the next year is also that we see some improvement in top line and business volume that will address that. So of course, yes, we will get some SG and A back, but I don't think that effect will be significant growth. I think we see some. And I don't see that we sort of will that will affect our margins to a large extent. That, I have a difficult really I think you feel we could argue that, that would be the case. But I feel that I think the improvement in volume and the gross margins and our gross contributions will sort of be strong as well in the next year. All right. Just another question on can you just quantify in very sort of Long terms, your exposure to electric infrastructure sort of transmission business. And also, What are you hearing from those companies in terms of long term planning, sort of long term dialogues with their clients? Is there any And sort of a shift, a long term shift in demand. Lots going on, obviously, on a very high level in that area. Yes. And I think we are very well positioned in that sort of when that is happening. I think that We have, I think, around 60%, 70% of the business we have in Move Within Electronics is related to that type of happening in the society. But we also have other businesses that are also affected by that. So that, I think, is a a very strong platform for us to build. And especially now when we've also made the additional acquisition into that area, I think But I think that's a good place to be. And given the discussions we have was sort of what we see is that, Of course, there is a lot of discussions on both the need for more electricity to be produced, but also the imbalances in the systems in the networks that also needs the networks to be further developed. And that, I think, is very promising. When you look into more customers and different types of sort of expansion plans, you find different things. But All in all, I think the growth will be pretty good in those areas. As you know, talking about And then it's rather stronger than weaker than it Okay. But no sort of step change which you can identify as yet, is that correct? So how do you understand it? Yes. There's been some articles around that lately, and there you could see basically a step change, but we have not really yet been able to verify that in sort of the discussions we've had with customers. So I think That's the politicians sort of starting out in that area, and then it will happen along the way. But it maybe takes a year or 2 more before we're there. Okay. Thank you. More questions? Anyone else? Okay. As always then, me and Christine are available here during today. So please, if you'd like, give us a call, and we will try to give you a brief sort of Either of you or short one on one, if you'd like, if you have some additional questions. So don't hesitate if you'd like. So and thank you for listening in, and have a good day.