Lagercrantz Group AB (publ) (LAGRB) Earnings Call Transcript

Welcome to Lagercrantz Group Q1 Report 2026-'27. [Operator Instructions] Now, I will hand the conference over to President and CEO, Jörgen Wigh; and CFO, Karin Mellegard Djarf. Please go ahead.

Yes. Thank you, and good morning, everyone, and welcome to our intervene report for the Q1. And As you know, we are starting our year 1st of April. So this is the quarter ending at April through June then. Welcome, everyone. A bit puzzled around for the reaction here this morning. We thought we posted a strong quarter, well in line where we have been before or even a bit slightly stronger with some earnings per share growth of 20% and some 6 M&A deals over the last quarter, which is more than we've done before. So it's -- but we will get into that as we move along here. Together with me here, I have Karin with us as well, our new CFO since a few months ago. And we will go over the presentation in sort of three chapters or parts, where we will start with a short introduction to Lagercrantz Group for those that are new to us, and then we will jump right into the quarterly report, and then we will end up with some, yes, some comments on where we are with the group going forward. So welcome, everyone. I will start with an introduction to Lagercrantz Group then, I mean, we are -- you've seen this many times. We are a tech group building through M&A and development of the companies that we have, building leading positions in expansive niches. You can see over to the right where we have most of our companies, it's Northern Europe that we cover now. And -- but we also have some really export-related businesses. So all the way to the right, you can also see where we have some footholds all around over the world, with some in the North America, with some in Asia as well. We have our scope where we would like to work is the B2B tech or B2B industrials, where we have offer value-creating technology in expansive niches. And we have organized ourselves into these five divisions that you can see, and we will comment on how the developments are in these divisions as we move along. We are very keen on working in a decentralized fashion. So we have all our companies organized individually under their own brand name in their own market, addressing their own market and customers. And you can see where we have our profit units or companies as we call them here with 17 companies in Electrify, 17 in Control, 15 in TecSec, 21 in Niche Products and 16 in International. We have just surpassed SEK 11 billion. It wasn't long ago since we went above SEK 10 billion. And now we also, with this quarter, surpassed SEK 11 billion in sales or total revenues for the group, and we have about 3,800 employees as of today. And as you all know, we are a buy and build or we are a serial acquirer, acquiring companies. So acquisitions is a very central part of our business model. We expect 2/3 of our growth to come through M&A over the years, and that's where we were also in this quarter. And we were part of the Bergmen & Beving Group up until 2001, where we were split out and have been listed as a separate unit, separate entity since 2001. So that's a bit of a background. So let's move into the quarterly report or the interim report. And here, we can see that we posted another strong quarter, we think, in terms of growth, and we are well on the way towards the SEK 2 billion goal. And you can see that the trajectory has been very strong over the last 3, 5 years here and that we continue that with another strong quarter. You can see that the scales left to right here are proportional, meaning that you could also see that we have a strong growth also in terms of margins over the years, and we have continued that also here in the last quarter. So that's -- and yes, we'll get into the numbers in a while here in just a bit. We also believe that we saw some improvements in terms of the business conditions during the quarter. On the aggregated level, we have a lot of different segments, so it varies between the segments. But on an aggregated level, we've seen a continued positively stable activities during the quarter and especially in the sectors where we are strong in terms of electrification, infrastructure, security and defense, also within marine. And also some of the clusters that we're building within Niche products have had a good development during the quarter. And along the way here, where we also see some uptick in the order intake, as you can see here. While we still feel that the demand in the construction sector have remained sluggish, that is the sector lagging behind, even though we've seen some slight improvements also there, but from a very low level and small ones. The order intake, then, was very strong. We have posted some 6% or 5% or so in the last couple of quarters. But here during this quarter, it was -- the order intake was 10% higher than the invoice sales. And when sales are growing like it is, it's actually a very good number compared to previously. But we also saw that some of these orders that came in were more project-related orders with longer lead times. Those are around sort of different types of sectors, construction, infrastructure projects with some lead times of 6 to 18 months or so, but still good that those project orders are happening, which is also, I think, a sign of that we see some improvements in the market and in the general business climate. Gross margins remain stable, but we also saw some signs of -- or strong signs of cost inflation, driven by higher raw materials and freight prices. And therefore, we are working also with compensation through price increases to customers in many of our companies. That, I think we learned over the years and especially during the pandemic, where we've got used to really drive things through price increases and price adjustments as we see raw material prices and freight prices really change. And I think we have learned that over the years. I think we're pretty good at it. And therefore, we -- but now we are in a phase where we need to push that a little bit more even. We can also see that during the quarter here, we continued our good growth in terms of proprietary products. We're currently at the 80%. And we also see over the years that we are becoming more and more international over the years. So you can see that we are -- especially -- you see that Sweden is growing, but as part of the total group, the net revenues are currently at some 30%. Denmark is our second biggest market. And we have also been quite acquisitive and active in the United Kingdom. And therefore, that is currently our third biggest market in the same level as Norway, but still at the 9%. It used to be much smaller. So we are growing and becoming more international over the years. By that, I think we're going to move right into the numbers, and I'll hand over to you, Karin, to describe a little bit what happened during the quarter in terms of figures.

Good. Thank you. And as Jörgen already mentioned, we believe that we started our financial year with a really strong first quarter. As you can see, our revenues increased by some 18% with acquisitions contributing with 12% and the organic growth reached 6%, and this is the same level as in quarter 4. We had no currency impact in this quarter. EBITA increased by 15% and landed at SEK 498 million, and the EBITA margin ended up at 7.1% (sic) [ 17.1% ] compared to 7.5% (sic) [ 17.5% ] last year. The cash flow from operation was more or less in line with prior year and was relatively strong, and ended up at SEK 279 million. Profit after financial items, EBT, increased with 18% to SEK 405 million and profit after tax improved with some 20%. Earnings per share in the quarter improved with 20% and increased to SEK 1.53 per share. And rolling 12 months, we reached SEK 6.07 per share. And as we have communicated earlier, the Board proposes a dividend of SEK 2.50 per share. During the quarter, we have completed 6 acquisitions with approximately SEK 400 million in annual sales. And Jörgen will talk more about these acquisitions later, but they are divided both between divisions and countries. And then just very briefly on the outcome by divisions. If we take a look at the outcome per division in the first quarter, we can note that the strongest divisions are Electrify and Niche Products, both continues to grow and maintain an EBITA margin over 20% for another quarter. TecSec has improved the EBITA margin compared with prior quarters, and International is in the quarter impacted by seasonality in two newly acquired companies that will be mentioned later. And Control is not on the level that we would like them to be. But Jörgen, you will tell us more about the divisions now.

Yes. I think it's worth mentioning why we're on this -- when we have these numbers in front of us that you see the International division. I mean, we have also had some seasonality to the business. And we have commented on that earlier, and you can see that here. There is some sales being added in the International compared to last year, but you can see that the volumes are significantly lower than they were here during the winter time. So we have the Friggerakers and Epoke that is affecting the numbers in a negative way here in terms of how the quarter came out. They have a strong tendency towards the fall and the winter with a very slow season here during the summer, which we have commented on. And that's, of course, affecting the international numbers here, which we have communicated earlier to you guys. So -- and a little bit more on what happened in each of the divisions. Well, we had some segments that were really strong for us during the quarter and especially the Electrify and the electrification and infrastructure that they have their business related to. Here, revenues were up some 13% and acquisitions were 3% and organically some 10% growth. So here, we see some good organic growth in this. EBITA was up 25% to SEK 153 million, and the EBITA margin was for another quarter then above the 20%, which is the target. So 20.1% as opposed to 18.3% last year. Here, we saw some broad-based organic -- positive organic development in these companies. Many of them performed very well and particularly so for the company Mastsystem in Finland, Nordic Road Safety, Elfak and Elpress. Four major companies within the division that have all posted good numbers and good development during the quarter. Here, we also concluded one acquisition during the quarter, which is Michael Smith Switchgear in the U.K., a leading provider, which I'll come back to of low-voltage switchgear solutions. And I'll describe the company a little bit later here during the presentation. But a really good add-on straight into where we would like to be in the segments, with what we're offering. And also, I mean, where Electrify is being set up in the U.K., they haven't been there before in that division. The Control division increased their revenues by 14%, but most of that came from acquisitions. And the acquisitions has been landing very well. But we also have had some companies that have been lagging behind. So organically, it was only 2%. The EBITA stood still then at the SEK 51 million, and the EBITA margin fell slightly then to 14%. Some companies still are doing it very well in the division, Direktronik, Radonova and Stegborgs showed good improvements, while others, especially smaller businesses related to the construction sector, which we have been discussing before, the Vanpee companies, especially in Norway, a couple of smaller companies have been struggling. And therefore, we are also taking some measures during the quarter here, which has also added some one-offs in terms of costs here during the quarter. And also, we had the Precimeter, which has been performing very well for us over the years, reported a weaker quarter, and that is behind the somewhat disappointment in terms of EBITA here in this division. And the newly acquired Danish company, Hycon, which I will also introduce later on, made a strong start within the division. So good acquisitions and a good development and also dealing with some of the low performers in the division during the quarter here, which adds up to these numbers. In the TecSec division had a positive development during the quarter. Revenues were up some 28% and acquisition was 17% on organic 12%. So really good growth from both acquisitions and organically within the division. EBITA was up 20% to SEK 101 million as opposed to SEK 84 million last year and the EBITA margin at 15.1%. Several of the division security business delivered improvements in a continued sluggish market environment. We are still dealing with that, but somewhat better here and especially Idesco in Finland and ISG Nordic, CW Lundberg and R-Con had good performance during the quarter. While others struggle a little bit more, PcP in Denmark and Northern Europe with their ratings struggled and also some construction-related U.K. businesses with specialist a couple of the door companies, Door and Joinery and Principal Doorsets did not live up to last year's performance. On the other hand, we had the Holland acquisition that was acquired in November, reported a strong result during the quarter. That is a significant acquisition for TecSec and for Lagercrantz, and that had a very, really good start. That is also bringing us to a new segment with MedTech businesses, and that showed very -- has been very promising for us. So the Holland, we're very keen on. And during the quarter, we also landed another one, a second one within the MedTech segment, which is the Marsden acquisition, which has also come back with some weighing solutions and weighing scales for NHS and other customers within -- especially in the U.K. The fourth division is then the Niche Products posted revenues up with 16% -- most of that came through acquisitions, the 15%. So organically it was a bit slow. They're still struggling a bit with the companies related to the U.S., but maybe less so than before. So EBITA was up 21% to SEK 137 million, and EBITA margin improved slightly to almost 21%, which is a really good number for Lagercrantz and for the companies that we have and where the normal where Niche products usually are. Posted a stable quarter with good profitability in several of the businesses, especially Truxor, Wapro and Thermod delivered clear improvements in earnings compared to last year. While we saw some weaker organic growth, especially in the more U.S.-related businesses, the Asept and the Tormek, which are really important and still are on a good level, but not living up to last year's very strong performance. And the more recently acquired Sit Right and Enskede Hydraul had off to a good start within Lagercrantz. And here, we concluded two acquisitions during the quarter, Nivex Topsafe and Stalon, and both of them have had a good start within the group. I'll come back to those as well. Last but not least is the International division. Revenues there were up 16%. Acquisitions stood for 13%, organically 3%. And the EBITA was down then SEK 66 million, mostly down due to this seasonality effect that I already described. The market situation was stable overall, and the division delivered a quarter with a solid growth across many of its businesses. And especially the marine businesses, the Libra in Norway and Tebul in Finland, as well as also the companies that have been strong performing for us before is the DP Seals and also G9, a fairly small company, but still doing it really well for us in Denmark in the last year or so. We have a new management team on board there and then, doing a great job with that company. But the seasonality effects are the big factors here due to why the EBITA was slightly down was down. And that since we included them their P&L first consolidated in July 2025, so we didn't have them last year this quarter. And that means that they're coming in with some -- yes, losses really, and that means that, that is affecting the EBITA for the whole division. So that's comments by division. And by that, I think we should look ahead. I think that we should come back to our vision and financial goals. And I mean, we continue building our group with all these really nice niche-oriented businesses. And I think this quarter was no exception, a strong growth. And we also have been talking about that we should grow EBT long term by more than 15%. I think the EBT grew by 18% now. And during the quarter, the earnings per share was up 20%. So it's actually growing faster than our long-term goal. And we also talked about that at least 1/3 of that should come organically and the rest through 8 to 12 acquisitions per year, and that's where we've been also this quarter. We concluded some 6 acquisitions during the quarter. And the split between organic and inorganic was exactly 1/3 organic and 2/3 inorganic. So that also meets those targets and what we expect. Return on equity should be at least at 25%. And if I remember correctly, I think the figure was 29% now. So it's been really good in terms of also return on equity. So we're continuing building our five divisions. I think that we have five really strong divisions that we've seen. And it's good to see that they're growing and taking on over responsibilities really driving it like they were an individual Lagercrantz, all of them, becoming really sort of important both in terms of developing the companies that we have, but also adding some 2 to 3 acquisitions per division per year, which adds up to the number that we expect from the total group then. I think we have also very well-positioned companies. We are within safety technology. We are within electrification and infrastructure. We are within defense. So I also see that a slight pickup in the market will be good for us as we move along here. So we are like to build these divisions in attractive segments with underlying structural growth, which has been the theme that we've been talking about for some time now. We will also have -- continue with our strategic ambition of driving the proprietary products to the 85%. We said that we would do that within five years. We are on that sort of level of improvement or gradually changing it. So we are currently at 80% halfway from the 75% we used to be. So it's -- we are well underway but also delivering on the 85% proprietary products. Looking a little bit at the acquisitions. I mean that is really important. That is 2/3 of our growth should come from acquisitions. And we have now -- and I said 8 to 12 companies per year or acquisitions per year. And currently, we have a pace of 14 since April 2025, adding some SEK 1.5 billion in annual business volume, which is more than the -- since we have SEK 11 billion now in total, so it's more than 10% that we expect. So it's on a good level. I think what we've seen, we've seen a good M&A market over the last year, and we continue to see a good market. And here during the quarter, we posted some six acquisitions here. You can see them down there to the right. But since 2025, the April, it's been 14 acquisitions. So a really good sort of level. And I think we are up and running in terms of how the divisions are working with this and really closing more deals along the way and really drive things through M&A as well. Just -- and as you know, we try to illustrate what type of companies we are acquiring by having these type of fact sheets on all of them. And I'll just flip through a few of them. During the quarter, we acquired here Michael Smith Switchgear. And it's a U.K. company with manufacturing of bespoke low-voltage switchgear and electrical distribution assemblies. Headquartered in Leicester and a really good company, used to be family-owned, and we're working together with the management team and the family there going forward as well and looks very promising in a sector where we really would like to be. And this is then for the Electrify, a very important step into the U.K. market. So this is the Electrify's first U.K. acquisition, which is also a bit of an achievement. Within the Control division, we acquired Hycon, which is a Danish company based in Stovring in Denmark, which is a leading supplier of high-performance hydraulic tools and power packs for cutting, drilling and pumping in harsh environments. So you can see from the picture there. So in subsea, for instance, you need to use hydraulic as opposed to electronic -- electrical sort of tools, and that's where Hycon is positioned. And you can see a good development and also some high EBITA margins down to the right there expected of that company. So really a traditional good company with proprietary products in the Nordics, which I think will be a good add-on then within the Control division. Within the Niche Products division, we acquired Nivex Topsafe, which is -- will be a stand-alone business, but it is related also to the Profsafe that we already own within this sector or within the segment. With safe storage products and other types of cabinets, fire cabinets and safe rooms that they're providing for especially the Nordic market with also some good developments. And some stable and good developments you can see there, but also some -- yes, in terms of purchasing, in terms of manufacturing, we're also looking into some synergies there together with the Profsafe business that we already own, which is of the same size as this one. So building a bit of a cluster here with a strong market position with these two companies in the same -- under the same owner. Another company we acquired within the Niche Products division is the Stalon business, which is the manufacturer of silencers for hunting firearms. Another proprietary product type company, which -- and you can see down there, it's not that big, but it is having really good numbers in terms of EBITA and EBITA margin. So it will be a good add-on for the Niche Products division going forward, will be a stand-alone business. And last but not least, I will like to introduce the Marsden business, which is another U.K. business. We talked about TecSec getting into the MedTech business as well with the Holland acquisition here of last November. And this is the second one coming into the Marsden business. This is smaller than the Holland, but still on a very good level in terms of the EBITA and EBITA margin. A very appreciated supplier of and trusted company delivering to NHS and other sort of public type character or buyers or customers and doing it really well over many years. It's been -- they've been around for more than 100 years, and we can come in as a good next owner of this type of company. So a good example of how we would like to work with things. So to round off this, here we have the financial overview. As said, I think -- we think that we posted a very strong and just a quarter adding to what we've done before. We see that we had some good organic growth, 6% in the quarter and also a book-to-bill of more than 1.1, which is really good on top of that strong growth in sales. We increased our earnings per share by 20%. He says 18%, which is on an annual base. But in the quarter, it was actually 20%. And we concluded some 6 M&A deals, which is more than we have done in any quarter, I think, before. So -- and also entering some new sectors with MedTech along the way as well. So it's -- I think we are in a very good position and looking forward to the future with some -- yes, given what's happening geopolitically, we'd like to be a bit careful what we say going forward. But as of now, it looks good for the future. So with that, I think we'll round off and open up for questions.

[Operator Instructions] The next question comes from Zino Engdalen Ricciuti from Handelsbanken, please go ahead.

First one on the International segment. We seem to not have captured the full seasonality in our estimates. But I'm wondering if we put the Epoke and Friggerakers aside, is it possible to elaborate on how the margin developed year-over-year?

The year-over-year, they were a slight improvement in margins. So the Friggerakers and Epoke effect is significant. Yes, it is.

Very clear. And regarding your outlook comments in the report, I think you've written for a while now that you've been cautiously optimistic and now you are entering the future with confidence, is how you're wording it. Would you say that this increase in confidence, is it due to you now having seen organic growth for a while now? Or is it something in the quarter that has made you more confident?

I think we've seen a gradual improvement over the last couple of 2, 3 quarters, but that has, yes, materialized even further and gone and been slightly even stronger here during the quarter, which we indicate by saying that the book-to-bill was 1.1 in the quarter or about slightly more than that. which is strong was about 6%, I think, before. So we're now at 10% and that is, yes, giving us some increased confidence, yes.

Very clear. And just last question for me, the higher cost inflation that you're seeing, you have a track record of handling that. But I'm wondering if there's any mismatch in the quarter we see now between cost and price.

I think that we have some growth. And you could see that the gross margin on a group level is about the same as it has been. So I don't think there is a significant mismatch. But on -- when I look down certain companies, we could see that we need to push pricing even further to get fully where we would like to be. And we also see some cost inflation in terms of our own overhead and things like that, and that we also need to be very careful with as we move along. So not significant, but still some things to work with there.

The next question comes from Johan Sundén from DNB Carnegie.

Actually, a couple of questions that touch upon what in just asked about. Is it possible to get some kind of quantitative figures on the quarter-to-quarter step down in EBITA in -- due to Epoke and Friggerakers?

Well, I don't think it's fair to communicate that here. We should do that in a more -- in another fashion then or yes, communicate that with the press release and stuff like that. So I think that's -- but as I said, it is -- and we have talked about it ever since our last quarterly report, right? So we have talked about it. So it is a significant effect as it is.

Yes. I just try to get some more color there. Second one is on -- also on cost side. Note that the admin cost in the P&L is ticking up quite a bit here in Q1 versus Q4. What is happening there? Is there anything worth flagging why admin cost is coming up, say, SEK 30 million quarter-on-quarter?

I don't think there is something worth flagging for now. I think it will -- there are always some sort of one-offs or things like that, that we need to address in every quarter. So it will go up and down, but it's not like it's a structural change or anything. I don't know, Karin, if you have some color to that.

No. But yes, I agree what you say. It's kind of -- you need to have a look at the more rolling 12 thing here. So it's nothing particular.

Fair enough. And on Electrified, just curious to hear your thoughts about kind of pipeline coming quarters regarding specific kind of product deliveries that we should be aware of? -- delays or big projects that ought to be delivered?