Earnings Call: Q2 2022

Oct 22, 2021

Good morning, everyone. This speaking is Jurgen Vieg, and welcome to the Lager Crown's quarterly call based on that we released our numbers here this morning for the our fiscal year Q2 then ending end of September. Welcome, everyone. We will be quite a lot of people here, so we will put you all on mute and start the presentation here in just a while. And we have our the presentation is available on our webpage, and that's how we normally do it. We put it on our webpage, and that makes it easy for everyone to access it. It's on lagerkrans.com then. And we will plan to go over the materials, and I will try to find the page I'm on along the way. So we will mute everyone. And That, right. Together with me here also our CFO, Cristina. Welcome to you as well. I didn't use everyone, but I'm not sure I will use it. We will open up for questions in the back end of the meeting. We usually This meeting usually takes around 45 minutes or so to go over the materials. So let's the presentation of today is then sort of put up in a couple of different chapters. First of all, I'd like to give an introduction to the group. And after that, we will dig right into the Q2 numbers and go over that and the report we presented this morning. And after that, we will also highlight some important what we feel is of importance going forward at the end, and then we will open up on an A at the end of the meeting. We'll mute everyone again. We'll see if that works. Yes, I did that already, but okay, good. So let's get going. Let's turn to Page 2 of the presentation to give you an introduction to the Lagerkrans Group. I mean we have been around on the stock exchange since 2000 and 1, but hopefully there are also some new listeners to us to our story. And therefore, we also I'll start with an introduction. We are a tech group with some 60 subsidiaries, all doing business to business technologies in different niches. And we sort of build the group both through organic growth, but also to a great extent through M and A, carrying out some 5 to 10 acquisitions per year or so, adding new companies to the group. We has some revenues of SEK 4,500,000,000 and some 1800 employees within the group. And over to the right, you can see where we have our needle where we are operating. And all the way over to the right, you can also see that we have some footholds also in other parts of the world with some sales companies in China, with sales companies in the U. S. And also in India, where we're also present. But the main proportion of what we're doing is in the Nordics and in Northern Europe, as you can see from the map there on the right. What is important to know about us is that we have a very keen on driving things in a very decentralized manner. So our companies are autonomous working in their specific niche and addressing a specific market under their own brand name or company name addressing a specific niche. And we try to be a very good owner of these companies, sort of challenge them, grow the companies and perform better along the way and also through acquisitions add volume and profits to the group along the way. And again, we've been listed since 2,001 on the Stockholm Stock Exchange. So that's an introduction to the group. You can also see over in the top there, where we have organized the different software centers in 5 divisions: the Electrified Control, HEC, NISPRODITE and International divisions. And you can see how many different companies You can see how many companies or profit centers we have within each division, and I will comment on them along the way here. If we turn to Page 3, where we can see the latest numbers and how we have evolved sort of number wise. You can see that we started out many years ago in 2,005, 2,006 with some low margins and yes, we're struggling back then. But since we have changed the sort of direction of the group, we've had a very strong earnings performance and also margin performance. As you can see, the line is above the bars as the scales are proportionate on this one. You can see that we are now at an all time high in terms of profit as the financial items on the moving 12 months and some really good growth here in the last few quarters, as you can see, all the way to the right with the line there. We have been growing through acquisitions of proprietary products type companies with high margins. And also then in the last time or so, we've also had a better organic growth as it helped us in moving the needle here in our performance, and that's been very good to And again, we had a very strong quarter here. We had our Q1 was also very strong, but we continued our path here in Q2, which we are very sort of satisfied with. It seems like the market is with us, and we're also many of the companies we've had a broad based improvement in many of our companies, and we've also had the newcomers the last few acquisitions been performing well for us during the last few quarters here. And we made a couple of bigger ones, acquisitions here this spring, and both of the Libra and the CW Lundberg has been adding both volumes and profits in a very nice way to the group. And that's also behind the numbers, the strong numbers that we presented this morning. Turning to Page 4. We have some comments on the business conditions. It's important to understand then that we have implemented a new structure within the group as of 1st April, where we have sort of regrouped our companies into the 5 divisions. We were earlier on 4 divisions, adding focusing more on attractive growth segments, which we feel are important to highlight where we would like to go and where we are and where we would like to go even further and focus on. And that is important both internally and externally towards both our personnel and where we would like to head, but also for you guys on the stock market and in the M and A markets to understand what we're all about and where we would like to go. Talking about business conditions then, well, we had a strong revenue growth in Q2, another strong quarter with the 31% revenue growth, and the organic underlying and organic growth was down 13%. For those of you who don't remember that, it was 18% in the Q1, but we also had a comment that, that was based on some softer comparables for last year. I think this quarter was stronger last year as well. So All in all, I think we've we continued on a good path of growth here organically also during this last quarter. We saw some good improvements in our main markets, and we are also talking quite a lot internally here about the broad based it's been broad based. It's a lot of companies doing it better a lot better or slightly better than before. And it's if we look down in the numbers, you'll also see that it's basically in all divisions and in most businesses that we've seen improvements. And we also commented that the order intake remains at a good level. That, that is also a positive sign along the way here. We've also Discussed quite a lot here lately over the last few months around the sort of changes in the supply chain with the rise of freight prices, shortages of components and in sort of raw materials. That has been sort of a very important thing for us to deal with during this last 3 to 6 months and continue to be that really. But we also see some really good work being done with that in our companies. And we see very little of it in our on our group figures really. But it's a lot of things going on in the different companies where we see some drastic price adjustments in some areas. And we've also been sort of dealing very well, I think, in the companies with in finding new delivery routes or even alternative suppliers in some instances to manage to deliver to our customers, which has been very important during this period. We also highlighted that we, in the last 6 months, have then concluded 3 acquisitions, where the CW Lundberg and the Libra are of bigger size, while ASEAN TENAS is a smaller one. That is a very high performing company, but will be integrated into the ISIC, which is in the international division. So that will also be some improvement to the margins basically in the IZIC business and the international business. So that's some comments on the business conditions. Looking at Page 5, we look straight to the numbers. The Q2 then, well, as already mentioned, we grew revenues by 31% to the SEK 1,200,000,000, and we had an organic growth of 13%. The EBITA was up then 45 percent to SEK 192,000,000, and the EBITA margin was at 16% as opposed to 14.4% for last year. So a margin improvement and also a good growth in EBITA. The profit as the financial items grew even a little bit was even stronger with the 50% growth and amounted then to SEK 156,000,000. And profit after tax, you see the number there is SEK 116,000,000 as opposed to SEK 81,000,000 last year. And the earnings per share on a moving 12 month basis then stands at EUR 241,000,000 as opposed to EUR 191,000,000, which was the number for the last fiscal year ending March here March 2021 then. Good to see is also that the return on equity was reached an all time high here. I commented on that also in my comment at the 28%. That's a level we've never been to. We have been struggling and again being around 25,000,000 for quite some time. But now when we're also adding some more acquisitions and increasing the leverage a little bit, we managed to get to the 28%, which I think is a very good positive sign. And the equity ratio is still at a very good level of 34%. It's been increasing a little bit since last year due mainly to the acquisitions we made, the slightly bigger ones we made here this spring. And cash flow of operations was strong at SEK113,000,000 for the quarter. I think what we see is when the underlying organic growth is a little bit stronger, we also tend to build a little bit more of working capital. And therefore, the SEK113,000,000, I think is a good number given that fact really. And we also commented here on the operational net debt that SEK 1,500,000,000 that was largely affected by the acquisitions and dividends paid here during the period. So that Given the acquisitions we made, it's been a strong underlying cash flow as well. Looking at Page 6, we have the 6 months figures, which is basically adding up the 2 quarters then. And you can see here that, yes, I would comment on all of these, but it's good to see that the profit at the financial items then grew by 71% during the 6 months as opposed to the same period last year. And we also and a very strong EBITA margin at the 16.1% as opposed to the SEK 13,500,000 last year. And we concluded, as already said, the 3 acquisitions during the period with the yes, the one mentioned there. And we had a cash flow then of SEK 254,000,000. Looking a little bit on the different divisions, we turn to Page 7. We could see really that we have now 5 divisions that are all performing very well. And we see also if you compare them to last year, they're all growing nicely, and they also are pushing their margins and growing their profits as well. And we can see down to the bottom there that we have the margins, which is evenly distributed among the different really divisions. The really strong ones are the niche products then, about 20%. And the Tech Seq is very strong also at the 17.3%. Good to know there is that the CW London is coming in as a big part there, and that is also then, yes, affecting the numbers in a positive way without sort of affecting the margins too much. So that's really good to see as well. We also know that within the Control division, we have the seasonality. So you can see that the Q3 and Q4 is normally the stronger quarters in the Control division due to the fact that we are doing the radon measurement to a huge part in the winter. So that is also seasonality in that figure in the Control division. The Electrified continues to do it very well. And then we have the international where we did the restructuring a year back or so, a little bit more than a year back. And you can see that, that has had a good effect. And then the Libra is coming in there as well, that new company there, bringing the numbers to the SEK 13,300,000,000, which I think is a very good number for the International division given what type of businesses that we have in that division. We have some comments by division, and we go Page 8. While it's good to see that all divisions really had good revenue growth, you could see that we We put up the number here. The revenues grew by 20% in Electrify, 11% in Control, TechSec 48, niche products, 41% and international, 36%. And you can also see the EBITA growing quite nicely in all the divisions. And to give you a few comments on each division, well, in Electrify, AirPress, our biggest subsidiaries doing continue to do very well. They are very export oriented and selling in basically in all over the world, but especially in in China and in the U. S, they have volumes that has been picking up and doing very nicely during the period. We also have the newcomer Iasi, which in Finland, which is doing it nicely during the quarter and also Norvesco. Important to highlight here is also the QD. QD has been a company that we've been struggling to some extent with, but they're doing it quite a lot better now due to the fact that they also the rollout of the 5 gs, which is Their customer base is starting to happen in Europe and in Sweden and in Europe. But they also have some project related transactions to other customers within the telecom industry was affecting the numbers here in this period. So that's also improving the numbers slightly here during the quarter. But they also have an underlying better business in other sort of more bread and butter type business in that company as well along the way. Within the Control division, I think it's, to a large extent, broad based, the improvements. We see that and especially Simeedra and Exador has been doing it very well during the quarter, but that is a very good organic improvement in both sales and profits in that division, they don't have any acquisitions to feed their growth with during this period. So that's this improvement is organically, all of it. Within the TechSec division, We have some it's also looking quite nicely with Arkon. The main company is really ISG Nordic, Erno Arkon and is doing it very well. And then the CW Lundberg is coming in very nicely, had a very good start within the group, acquired here in April, as We'll look into that a little bit later here. Then we have the niche products division, continue to do it very well. Here, we have some companies also to point out, which is the Vapro, with this have a good success in the U. S, but also other Dovolta Mecconica with their vehicles are doing it quite nicely. And then a couple of other companies, ASEP is coming back, was affected by the COVID quite a lot last year, but it's coming back quite nicely this year. So that's also a positive effect on these products. And last but not least is the International division, where we also have some good growth, also broad based and also then doing it very well with also the restructuring that took place here a year or so back had a good effect. And they also had a strong demand, especially in Germany for some of the companies down there, which, yes, was good for us. So broad based and a few highlights there also, the company is doing quite well on Page 9 of the presentation. So that was basically what I intended to say around the quarterly report. I'd like to also touch a little bit on the program and discuss a little bit what we feel is of importance going forward. And here we have the LagerKraun's towards SEK 1,000,000,000, which is the program that we launched here this spring. This has been very successful for us. I think it's highlighting where we would like to go, what type of areas we would like to be in, where we'd like to focus. And that, I think, is a benefit to all of us really within the organization, but also outside to the outside world with both the stock market and M and A market. We launched this in March, April. And since then, we are now sort of filling the gaps and filling the sort of restructuring and filling the few new positions that we put in and building this in this direction. The key themes here was to clarify the strategies and financial goals. We did the reorganization that I already touched upon with the 5 divisions for to highlight the growth ambitions. We also have some increased capacity within M and A, which I think is a very important part of this program. And then we also put in some focus increased focus to the sustainability issue. I will touch about that a little bit here later as well. And to highlight on these key themes, on Page 11, you could see that we are Our vision and financial goals is very clear, I think, for us all. We would like to build a group of a number of very strong companies highlighted by this cougar of sharp arrows there to the right and really create a strong group of companies with all doing business to business effect with market leading positions in several expansive niches is what we said as a vision statement. And we would like to annually grow our profits by more than 15%, And that means that we should double the group in every 5 years really. And the way it's looking right now, we have a pace that is higher than that. So it looks quite nice. And we've also now highlighted that at least onethree of that should come organically and the rest through 5 to 8 acquisitions per year. That's the sort of setup we've you could argue you could grow faster than that, but we feel it's a good way to sort of take care of the companies that also coming into the group and really give them a good opportunity to set up some clear ambitions, some clear growth and some growth strategies in the companies that we acquire. And we feel that's an important part of how we would like to build the group, both organically and through acquisitions. And we would like to do this in a very profitable way by having a return on equity exceeding 25%. And as already pointed out, we currently are at the 28. So we are basically delivering on these financial goals currently at present. Looking at a few other priorities here is then how we would like to build the group is to aim working with the proprietary products. I think it's a very important part for our success. And you can see here the gray part on Page 12, the gray part of how that's evolved over time. And we started out with the EarPress acquisition in 2006, and that brought us to the 13%, you can see over there. But since then, we have steadily and nice they've been growing the share of proprietary products of the full group. And that means that the gross margins are higher and also that that we have better opportunities for growth, especially on exports, when we can basically address customers all over the world with the proprietary products that that we have the IP rights for within the group. And that, I think, is still a very important part of how to grow LagerKraun's going forward. And therefore, we set up the goal of the 75% proprietaries within the group that we should reach. Looking at Page 13, you can also see how the gross margin and the value add that we bring to our customers has evolved over time. And that is I think it's a good example of how we would like to work with also pushing the proprietary products is part of this. But also other things that we'd like to do in order to push the value add that we bring to our customers. Here, you can see the 38.6. It's been a very nice sort of good improvement here along the way. We here in the last quarter, we saw a slight pressure on gross margins due to the supply shortages and the stuff I already mentioned. I think we dealt with it very well, but we still have some time lags around that and we still need to deal with it in the coming months or so. But I think we are well underway to sort of bring our gross margins to a higher level than we had before. And I think we should be very satisfied with having it at the same level as last year here given what's happening in the supply chain in many companies' flowers. So that's a few comments on that. We On Page 14, you can also see the reorganization into the 5 divisions. I think I've discussed this quite a lot with you guys during the last 6 months. I won't dig into it very much here. But it's good to see that we this has really been sort of an injection and for inspiration in the organization. And therefore, I think it's I think we are well underway in implementing this and getting it to work with the 5 strong divisions being developed here. And we see some good M and A activities going on in many cases here now in the different divisions. And looking at Page 15, Part of the LagerKraun's towards SEK 1,000,000,000 is also then the increased focus on the sustainability. Here, we are really dealing with some group initiatives that goes well hand in hand with the UN Global Goals and compliance with those and working with that from a sort of a group perspective. But what we've also done is we put in some 50 plus local initiatives in our companies. We would like this to be sort of part of what we do on a daily basis in all our companies. And therefore, we would like to implement it down in the different companies rather than have it as a central initiative. And therefore, we put together the 50 plus local initiatives this year. We did this this spring. And now we are following up on what's happened and how that's evolved, and we will have that part of our sustainability report here during for the spring. So that's I think that's very promising. We feel that this is very important, and we would like to sort of highlight that we are working with this. We are in for long term and needs to work sustainably in many aspects in order to get there really. And that's what we're doing in that area. Last but not least is the acquisitions part. That's, as mentioned already, a very important part of the group on what we're doing. So at Page 16, you could see the 59 acquisitions we've done since 2006. And you can see that in the last 12 months, we've added some 10 acquisitions with some approximate sales volume of SEK 700,000,000 And that feels very nice. We feel that the acquisition arena is still very sort of attractive, and we are looking into many sort of opportunities in that area. And we'll continue with We continue with that and release along the way more acquisitions as we go along. Looking at the more recent ones, I think it's important to highlight that some are a little bit bigger. And on Page 17, we can look at the CW Lumber, which is the company we acquired here in April. That has come in very nicely and it is over performing really to what they did last year. They have been managing supply chain and issues around raw material prices and freight prices and that type of thing in a very good way and is growing that part of the Tech Stack division in a very nice way. You can see when we acquire companies, we try to put together a fact sheet on what we have bought, and you can see that over down to the right there. We don't update those numbers, but that is where we were when we acquired the company. And along the way, we will, yes, looking to perform at least on these levels that you see down there. And to have the 18% EBITA margin is very nice for this type of company. And they have started this year in a very good fashion, and it looks very promising for the future to be a very strong group very strong company within the group part of the Techs' acquisition from April. Another good start we had with the Libra company, which is on Page That is a Norwegian company that is a market leader within delivering premium quality doors, hatches and storage units to the marine industry, a very attractive company. I was there just a few weeks ago, and it looks very promising for the future. They have a very niche position, a very strong position in their part of the market. And as you can see down to the right there, I also have some strong numbers and have continued to deliver on those also. It's a huge part here coming into the group. The last acquisition is then on the Page 19, which is the AC Antennas, which is a Danish company. They are making all these type of antennas. And on each marine vessel or ship, You normally have many of these. And they are a very niche oriented company delivering these type of antennas but based on a specific production process, doing it very nicely. It's not a very big company, so it will be added to the IC group that we already have within in Denmark. But as you can see down to the right, they have very nice margins and are performing very well. And it looks very promising to have that come into the IC Group. So we are building both through platform acquisitions, but also through add on acquisitions, adding to what we already had within the group. So we are on Page 20 then. You could see the Financial overview, I think we are continuing with LagerKraun's on a very good path. You can see all the way since 20 12%, 13% here, how the numbers have evolved. And it's great to see that we have a very strong growth at the moment with the EBT growing 42%, with the EBITA margin at 16.3%, which is the highest we have here. We can also see the return on equity at an all time high. So it seems like we are doing many of the right things, and we will continue doing that going forward. So that's to round off my presentation. I will now open up for some Q and A. Let's see now. We should be all unmuted. Do we have some questions for me and Cristina? Are you with me? Are you with us? Okay. Anyone would like to start with some Q and A? Or do we have some technical issues here? Yes. If you would like to unmute yourself, try to Okay. Well, I'm not sure whether it's technical issues or whether you don't have any questions. That Could be either or. So but let's do it this way. Both me and Christine are available here at the office. So if you would like to add some have some 1 on ones or have some additional questions to us, please don't hesitate to call us. There I heard someone. Would you like to anyone would that had a question or Okay. I think we'll round up then. Thank you very much for listening in. Have a nice day and look forward to talking to you soon again. And again, if you have some questions, please don't hesitate to call me or Kristina at the number given on our web page. So thank you very much for listening in, and have a good day.