Bergman & Beving AB (publ) (BERGB) Earnings Call Transcript

Welcome to the Bergman & Beving Q1 2026 Report Presentation. [Operator Instructions] Now I will hand the conference over to speakers, CEO, Magnus Söderlind; and CFO, Peter Schön. Please go ahead.

So good morning, everyone, and welcome to the presentation here of our financial report for the first quarter fiscal year '26-'27. So I'm Magnus Söderlind, and I have also Peter Schön here on the side.

Hi, everyone.

So just to give you some highlights from the quarter. On the underlying market, the key things are two, I would say. I mean, we see some effect of the Iran conflict in rising raw material costs and energy prices and also in freight costs. And that is something that we had great focus to manage during the quarter. So I would say all the companies that are affected of these kind of increases have proactively worked with price adjustments. And on a group level, I would say we have been successful in doing so. So we don't currently see that we should have any negative effect of this, at least on the short-term perspective. If we look at the market, we are 40% exposed to the construction industry and then mainly in the Nordic and the U.K. and then 60% of our revenue is to the Industry segments. And both of them are currently that we -- still we feel are cautious. We don't see they are declining, but they are not increasing in a big term anyway. And we had some positive signs in end last calendar year, but our kind of hypothesis is that the Iran conflict has partly put some damp on the recovery of the industries. There are some good signs in the construction area, but we don't see those kind of investment increases yet in the business we are running. But hopefully, we should see that in the coming quarters. Still, we are able to increase earnings, increase margins and returns and also earnings per share. So if we look at the turnover, we had 1% organic growth. This is the third consecutive quarters with some organic growth even if there are small numbers. So that, I think, is a good kind of sign that we have reached at the kind of bottom of the kind of underlying market development, and we hope then to see a continued growth going forward, but still in low numbers. So we increased the EBITDA with 9%, and we now had 26 consecutive quarters with improved profits. And also, we continue to improve the EBITDA margin. So it's now 10.7% above 10%, and that is an improvement with 0.8% units compared with last fiscal year same period. And we also continue to work on improving the returns measured as profit working capital as one KPI, and we continue to increase that, and we reached 37% this quarter. And this is a rolling 12 number. So underlying, if we look at the 3-month figure, it's even higher than that. So we have a positive momentum in the profitable working capital ratio and I expect that to continue going forward. And we had an earnings per share rolling 12 improvement from SEK 8.2 to SEK 8.5. So all kind of our key parameters is moving in the right direction, and that, I think, is very positive despite that the market is still quite cautious. If we look at acquisition, this is the rolling 12 situation. We acquired one company in the Q1 quarter, All Coating. It's a Swedish company. As you see, we have been quite active in the U.K. during the last 12 months. So this was the first acquisition in Sweden from some time. And this is actually an add-on acquisition to Uveco, one of our platforms, working then in the coating segments. If we look at overall the acquisition situation, I mean, we still have the ambitions to acquire in the range of SEK 50 million to SEK 80 million EBIT per annum, and that is something we aim for doing this year as well. Even if this acquisition was quite small, it's SEK 25 million even -- but the profit is very, very good. But still, of course, we need to do additional acquisitions going forward to keep up that path. But that is still in the target to do so. I showed this before, and this gives you the kind of the historical perspective. As you can see, we had this positive EBITA growth and we also have this positive trend in the EBITA margin. And we -- as I said earlier, we are aiming to continue improving both the profit and the profit margin over time, even if some specific quarters may not have an increase. But over time, we should see a continued development like we see on this picture in both margins and profit in absolute terms. So the net sales, as I said earlier, we had 1% organic turnover growth. We didn't have any currency effect in this quarter. And you who has been following us for some time know that we made some divestments. The biggest one was the Skydda Nordic operations, but we also divested Luna Baltic. And we also, earlier than that, divested the fastest development in Asia, even if that is not part of this comparable period. But it's here, you see the Skydda and the Luna Baltic effect that then the combined acquisition and divestment had a negative effect of 1%. So on the total, it was a 0 quarter compared with previous year. The gross margin, we had a steady positive development, as you can see on this slide, over time in the gross margin. I said it before, it's mainly organic driven. Even if we only acquire highly profitable companies, it's not per definition that they have a gross margin above 50%. So this improvement that you see is mainly organic driven, and that's also the case in the last quarter here. And we now have 3 consecutive quarters with a margin around 50%. I said it before, this is also positively affect of the divestment we've done. So it's not per definition that new acquisition will enhance this development over time. But still, we are not happy really with this level. So I expect some improvement over time, even also it's kind of big numbers, and you should see that as a development over time more than in specific quarters. And the divestment and also the acquisition, as you can see on the right part of this has brought us to 82% of our own product companies compared with 72% some years ago here, 2 years ago. So we have had a positive development also in the mix that is partly then the explanation for the gross margin trend. So if we look at the group level, we set the target to reach profitable working capital of 45% an EBIT of SEK 500 million and an EBIT margin of 10%. We continue to improve and work towards those targets. As said before, we had hoped all it to be at least on the EBIT and EBIT-margin on those levels, but that then we had expected the underlying market to kind of be stronger that it has been during the last quarters. But we expect to have a positive effect when the market starts -- underlying market starts to pick up because we have now a higher gross margin on a group level. Also, we have lowered costs organically, cost that we don't see we need to rebuild when the market pick up. So we should have good leverage with the good and higher gross margin levels in combination with a more effective, cost-effective operations. And the top line then will be a very good contribution to the margins and to the EBIT in absolute terms and also then, of course, to the working capital measurements. So we are still having those targets at sight, and we continue to work on that, but we need to get some help on the underlying market to get there in the coming quarters. So I will then hand over to Peter to talk about the earnings per share development and some other topics.

Thank you, Magnus. And earnings per share continues to improve. Rolling 12, it's increased from SEK 8. 45 to SEK 8.50 -- and there is a slight reduction in the quarterly EPS, and that's mainly caused by slightly higher interest costs and currency revaluation. But still, we're on an EPS growth path going forward. If we look at the inventory levels, we do have a lower organic reduction, as we said there for a few quarters now. We had a quite high organic reduction rate going back a few quarters. But now it's a bit slower. The organic inventory decrease is SEK 18 million in the quarter, and it's affected partly that some of our companies have decided to increase their safety stock as Magnus said before, it's a bit turbulent in the wake of the Iran crisis. So they have decided to increase their safety stock somewhat. And that, of course, also makes the reduction rate a bit slower as well. And that also reflects on the ITO. It's relatively flat, and it's negatively impacted also from the divestments that we've made. So both divestments and the increased safety stock has influenced that one, so. But the work still continues. We do have some stock to reduce going forward, but we'll see how it plays out with the safety stock. But it's not on the level that we had in like COVID or so. It's just a slightly bump up in the safety stock. The cash flow was more or less according to plan. It's normally a quite strong quarter. So it was this quarter as well. So not much to say. As I normally say, it's the Q4, we have quite a bad cash flow, and it's based mainly due to ESSVE Spring order that they get paid now in this quarter and the coming quarter. So this is a normal seasonality pattern. But as we acquire more and more companies, of course, this seasonality pattern will be more spread out, I think so, but yes, according to plan. And we decreased the net debt, mainly due, of course, to the good cash flow. So we decreased the net debt by SEK 100 million in the quarter. And the net debt to EBITDA is back on the same level as it was a year ago, so 2.5. And from that point 1 year ago, we made acquisitions of SEK 550 million and divestments of SEK 280 million. And as Magnus said, we just made a smaller acquisition in this quarter, but the acquisition target remains intact, and we have a good pipeline as well. So we will continue on that path going forward. So I think back to you, Magnus.

Yes. So let's get into the different divisions performance. So the Core Solutions continued to have a very strong development. They had a revenue increase of 11% in the quarter, and half of that were organically driven and half of that was due to acquisitions. This is the division with the biggest exposure, I would say, on aggregate level to the construction sector with ESSVE being a company with a turnover of roughly SEK 1 billion. They faced quite a flat quarter, but there are companies in this division exposed to the public property sector as well as the infrastructure, and they faced a good demand actually in this quarter. The EBITA increased by 30%, and the EBITA margin is now 14.7%. And you can see on the slides here on the lower end that we have had a good EBITA development rolling 12 as well as the EBITA margin here rolling 12 and partly due to increased revenues, but also strengthening the margins and the profit levels organically as well. So I'm happy with this division. We also have a profit of working capital well above the 45%. So it's a good cash conversion in this division. The next division is Safety Technology. And here, the revenue increased 27% and actually had some growth across the majority of all companies. This is partly facing the Industry segment as well as the Construction segments. And they also had a very positive EBITA increase by 29% in the quarter, and that is also a combination of organic development as well as successful acquisitions. And the latest acquisition in this division was A1S, this fire curtain companies based in the U.K., and they have come in, in a very good way in the group and performed even a little bit better than expected in the first month here. So overall, we had a strong contribution in the fire segment, Safety segment as well as safety signage and safety equipment. And also here, the margin increased to 16.8%, and there was previously on 16.4%, but still a very good development. And also, you can see on the lower end here, a strong revenue development mainly through acquisition, but also some organic growth. And we also have some improvement in EBITA margin despite they are already on a good level. But the foremost, we have a strong development here in the EBITA in absolute terms. So I'm very satisfied with this division as well. The Machinery and Equipment was a disappointment in this quarter. This is a division and a cluster of companies that has performed on a much higher level historically. They have been on -- as you can see here on the EBITA margin, well above 10%. They are actually now at -- in this quarter, only at 4.2% compared with 11.6% last fiscal year. And also, we had a decline in EBITA here, and that is mainly due to a less favorable business mix and also that we have some one-off cost here. And we also have a flat revenue here in the group. And I think if we look at the revenue development, it's -- one of the reason is that this is more of investment products. Machinery is typically investments taking over the customers' investment budgets. And we feel there are some hesitations due to the uncertainties, partly due to the Iran conflict and maybe some other uncertainties, but they have kind of prolonged the order time for some machineries, some that the company is expected to come in this quarter but they are needed by the customers, but maybe we will see them in the quarter we are currently or the quarter after that. So there are some needs out in the customers that they need to fulfill, and we hope and expect them to come here in the coming quarters. So I assume and expect this to be kind of a temporary dip, and I expect them to be back on a much more healthier level in this Q2 quarter. This was also the quarter -- sorry, this was division, Uveco made the add-on acquisition of All Coating, and they have come in, in a very good way as well even if they've only been here since April 1. But I would say they are also a little bit above the expectation we've had in terms of performance. So that is promising for the future. So once again, a big disappointment, but my expectation is that this will bounce back already in this current quarter. Then we have the PPE and Utilities division. And this is, I would say, more of the traditional old Bergman & Beving products and the Luna Group, who is the big wholesalers in this group. And if you look here, the revenue totaled SEK 360 million compared with SEK 485 million last fiscal year. But if you adjust for the divestments, it's more or less a flat revenue development in this division. And that is also the case for the profit. The EBITA is SEK 9 million compared with SEK 19 million. But if you would kind of make the adjustments for the divestments, the EBITA level is on the same level as last fiscal year. But here, we still have some work to be done, and we are continuously working to improve and improve the efficiency and the margins and also look into other -- if we need to make some other activities to get this division on a better level. So this is something -- this is not a quick fix. You shouldn't expect this division to bounce up back on a higher level in the next quarter and the next coming quarters. So this is more kind of long-term task to improve the performance of this division. But there are good improvement opportunities, and there are a lot of good activities going on. So I expect also that we should see some improvements here. But as I said, it will be a much slower improvement path in this division compared with the Machinery and Equipment division. So what are our priorities going forward? Yes, the underlying market is still a little bit uncertain and difficult to predict. And we have this emerging cost increases that I said in the beginning that we have, I mean, addressed and I think is under control and shouldn't affect our gross margin here in near term, at least. So I think that is under control. I don't expect a big kind of underlying market growth in this current quarter, but hopefully, we will see that in the end of this calendar year, but that is still uncertain, I would say. As you know, there are an increased conflict again in the Iran area. And we don't really -- it's very difficult to predict what type of effect that will have on the global economy and ultimately on our companies. But we will continue to do what we've always been doing to focus on profit expansion over revenue growth, even if we hope and expect to get some support from the underlying market going forward. We continue to allocate capital in line with the focus model, and we continue to support our companies with the B&B Tool Box. Here is a very hot topic, AI. We had really encouraged our companies and supporting them to approach AI and really look into how that could support their businesses. And we have some good traction, I would say, across many companies currently, companies that have been able to leverage AI, increase their kind of service level, increase their cost efficiency and also enhance the sales performance. So we see some positive effect already now, and I expect to see some positive effect on that going forward as well. And if you are interested, we have a separate section in our annual report we released some weeks ago about some case examples and some more in-depth details on what we are doing within the group and our companies in the AI space. And then last but not least, acquisition is part of our DNA. And as Peter was saying, and I earlier also mentioned, we continue to work on acquisitions, and we expect to deliver on the acquisition target that we have set during this fiscal year as well. And we have some group theme. Peter showed the ITO and also mentioned that we -- some companies are now building some extra safety stock. It is not on the magnitude that we had during the corona. And I don't hope and expect we should be -- need to go there. This is, of course, monitoring on a daily basis based on what's happening with the logistics flows and so forth. But inventory turnover is a key KPI we measure and follow up on all our companies, and that is a focus that all our companies are working on. We had some good development in this, and we are close to be back on the pre-corona level, and we expect to have our companies to continue to work on that going forward. And as I said, we're very focused on the gross margin, making sure our companies are focused on the value add, the highly value-add business that they have, and that is the business they are focusing on and also to make sure that we effectively address the price adjustment triggered by the emerging cost increases that we have seen in raw material and freight and also in production costs. And last but not least, we are still -- as I said earlier, we had worked on the gross margin improvements across the group. We have worked on the cost efficiency, taking out some SEK 100 million in cost during the last quarters. And we think we are in a much stronger position when the underlying market starts to pick up. And hopefully, we will see that in the next coming quarter, and then we expect to have a good leverage in the position that we have. So with that said, I think we're ready to open up for the Q&A.

[Operator Instructions] The next question comes from Anton Ingves from Nordea.

Maybe starting off on the rising input costs that you alluded to. Would you say that how much worse has the situation become here sequentially since Q4?

It has been very volatile. For example, some plastic components, they peaked at 50% price increases. They are now down to 30%. But of course, if this situation in the Hormuz and will kind of escalate, I mean, maybe will be some additional price increases those plastic components. In the steel area, for example, we have a 10% year-on-year increases, mainly triggered by increased energy costs. So this is something that we're actually monitoring more or less on a daily basis, actually partly support by AI. Some companies have built agents following in real time, the freight and raw material cost development, making them to take tactical decisions on when to order, but also to monitoring and make sure that they are -- can make some compensation for those increases that they are facing. But still, it's very uncertain what kind of an escalation of the conflict will kind of result in terms of price increases on both freight and energy and then raw material costs. And it needs to be very monitored very, very closely going forward. I don't know if that was an answer on your question because -- but it's really kind of measured and a follow-up on a daily basis currently.

Yes, and maybe a follow-up on that as well. You said that you sort of put some price hikes to mitigate this quite successfully. But looking at the 1% organic growth, how much is volume versus price in that? It seems fair to assume that volume is a bit down given the price increases?

I mean it's very few of our companies that can change the pricing overnight. So what you -- and it also takes time before the price increases actually affects the cost of goods solds in our companies because then you need to consider the current stock levels and the delivery times and so forth. So you don't really see the effects, neither of the cost increases or the price adjustment in this quarter. So that is a fact that have some delays. And partly, you will see some effects in this current quarter, the Q2 quarter. But as I said, it takes some time before those 2 factors actually influence the margins and the costs.

And when they come through, then you think you are quite well prepared with price hikes to mitigate this?

Yes, yes.

Yes. Great. Understood. And in Core Solutions, obviously, very impressive margins here in the quarter. Is there sort of any temporary effects driving this? And how much is sort of organic versus acquired in this sort of margin uplift?

No, I will say this is the result of the work we have been doing organically in combination with good acquisitions. So there is no kind of temporary effects in this division that you see. This is kind of a result of the work that has been done over time. And that's also relevant for the Safety Technology division.

[Operator Instructions] The next question comes from Emanuel Jansson from Danske Bank.

Just 2 questions from my side. Obviously, strong development within Safety Technology and Core Solutions, which are currently carrying the group forward, looking at earnings. But how are you thinking about the capital allocation between the divisions going forward? Should we expect acquisitions to be concentrated into these high performers or are you to deploy capital into machinery and equipment and PPE and utilities to accelerate their turnaround?

Yes. We have said that we currently have the 4 divisions. The PPE and Utility division, you shouldn't expect acquisitions within that division in the coming quarters. This division is focusing on getting improved the performance in the current portfolio of companies. The acquisition activities will then be run across the 3 remaining division, including Machinery and Equipment. And if you look at the turnover of that division, it's much significant smaller than both the Core Solutions and Safety Technology division. So with that said, they have some capacity to be active within the acquisition space. So you should also expect to have some acquisition within the Machinery and Equipment division going forward.

Understood. And also looking at the operational leverage and obviously, and improved the gross margin in a very impressive way. I know that the Luna business, which is -- does not have the same margin profile, if that company continues -- will start to turn around and grow again, will you be able to maintain a gross margin around 50%, do you think?

I mean if Luna has quite a broad exposure, including the industrial sector as well as the construction sector. So if they would have some underlying market increase, I expect that effect also to take place in -- across the group. So I think that the portion of the Luna business will not increase on a group level. So yes, I expect us to be able to remain -- maintain the margin level that we have if Luna starts to grow their business.