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

Yes. Welcome, and good morning, everyone. Welcome to Lagercrantz's interim report. Our Q2 was released already this morning. And together with me here is Karin as well, our CFO. We will try to go over the presentation as we normally do with a short introduction. And then after that, we will go right into the numbers and present the report, and then we will also have some highlights at the end and round off with Q&A and questions from you guys. So welcome, everyone, and let's get started. We'll start with Page number 2, where we see the -- just to give you, the newcomers, a bit of an overview to the group. I mean, Lagercrantz is growing gradually, but we tried to -- Yes. And we -- as you can see, we are a Nordic group or Northern European group, which currently some 87, I think it adds up to now, profit centers. Growing little by little every quarter. And you can see that we are developing along the way. We are -- have more and more companies in the U.K. lately. We have also been growing in Central Europe in terms of the Netherlands and also in Poland a little bit here lately. But -- and you can see where we have our needles over to the right there. We have, in the last year or so, surpassed SEK 10 billion in sales and currently at SEK 11.6 billion. So we're growing quite in a high pace, and we are currently some 4,000 employees within the group. We are firm believers in the decentralized way of working with the accountability of freedom and running each of these separate units and profit centers and try to keep them as autonomous as possible in the different -- in their areas and under their own brand name in their own location and addressing their specific customers and markets in each of the specific units. Acquisitions is, of course, a central part of being a serial acquirer, and we are currently running at 8 to 12 acquisitions per year or so, and it's good to see that we posted some 8 acquisitions here in the first 6 months which is a little bit higher than -- yes, we're aiming for and a bit before target. We have now are also celebrating here and did during the quarter as well, celebrating 25 years as a separate company on the Stockholm Stock Exchange. We were part of the Bergman & Beving Group up until August of 2001 and are currently now running on our 25th year or 26th year really as a separate company. We have changed the content of the group over many years now, going from more value-adding distribution and sort of import-related businesses, selling to many of the multinational companies that are buying our components and selling them all over the world. But the customers have been used to be quite on the big ones and the more domestic sales. But with now we are aiming more for proprietary products where they have their own products selling out in the world. And then we're changing the model from being more import related to being more export related. And you can see where we have our footholds in other parts of the world down to the right here, where we are both operating in North America, but also in China and in India and a couple of other places that you can see. So that's a bit of an overview in the group. We announced our figures here this morning, and it's glad to see that we posted really good growth for the quarter and that also translated into good growth in earnings. So we kept our trend here. You can see the trend peaking upwards there, and we're aiming for the SEK 2 billion here, and this was another quarter in that direction where we're -- yes, aiming for that here within -- yes, we started out some 3.5 or so for 2.5 to 3 years maybe ago with the SEK 2 billion, and we're aiming to be there within a year or 2 from where we are today. So another strong quarter. And you can see that the trajectory and we've had in many quarters now in a row where we have grown both profits and revenues over time. So it's another strong quarter. I think we've posted here today. And Karin, maybe you can elaborate on the numbers a bit here then. Yes, first, we should go over the business conditions, yes that's right. The business conditions, well, we think that the trends that we've seen earlier on remained during -- and remained positive during Q2. We -- I mean it is a summer quarter. And in July and August, this was slower due to seasonality, but also a bit slower than it used to be. but it picked up again in September, which I think was good to see. We saw that the businesses exposed to electrification, infrastructure, security and defense the things we've highlighted before and to continue to deliver particularly strong growth, while demand in the construction sector, which we have been waiting for to pick up, but it's still a bit slow and a bit sluggish here along the way within that sector. And of course, the geopolitical situation in the world is, of course, adding to the uncertainty. So we are sort of hesitant, I think, in many areas. We see customers being hesitant to where things are going as things evolve in different parts of the world with the affecting freight prices affecting raw material prices but also affecting sort of the willingness to invest in among customers. But we've seen some strong growth in some areas. So it is picking up from along the way here. As I highlighted, we saw a bit of a softening during the July and August, but it strengthened again towards the end of the period, September then or along the fall here. Gross margins remained stable, but signs of cost inflation was also something that we saw. We saw that was driven by higher raw material prices and freight prices that we've seen. So we are working deliberately now with also compensating through price increases on to customers in many of our companies. So it's a theme that we're running as we normally do, but more -- maybe more fiercely intensely at the moment. You can also see down to the bottom here, we see that we are gradually becoming more and more international. You can see that from the net revenues by geographical market to down to the right there. We are growing in Sweden as well. But as a percentage of the total group, we are growing faster in other markets and especially one that is really growing faster is the United Kingdom or U.K. currently at some 10%, but also with some additional M&A being done there. I think that will pick up even further as we move along. I also think that you will see us more and more into Germany and the Netherlands along the way as we grow. We've also been keen on measuring the proprietary products part of things, and we are aiming for the 85%, which I have maybe on a slide later on. But we are currently at some 80%. I think it was 81% actually for the quarter, but on the rolling 12 months, it's 80%. So that's -- also something that we are aiming for as a strategic aim because we see better growth and better margins within proprietary products than in the rest of the categories. So that's a bit of around the business conditions. And Karin, then it's your turn.

Yes. Thank you, Jörgen. And as Jörgen mentioned earlier, we delivered another really strong quarter. As you can see here, our revenue grew by 22% and with an organic growth accelerating to 12% compared that to last quarter when we ended up with 6% and acquisitions contributed with 9% and currency effects only added up to 1%. Our EBITA increased by 21% to SEK 530 million, that resulted in an EBITA margin of 17.8%. Our most important earnings profit after financial items rose by 24% to SEK 425 million. And cash flow in the quarter was somewhat weaker than we anticipated, but remained at a healthy level. And net profit for the quarter amounted to SEK 340 million. If we sum up the first 6 months then, our revenue increased by 20%. And then in the first 6 months, the acquisition contributed with 11%, while the organic growth amounted to 9%. And we had no material impact from currency effect. EBITA increased by 18% to SEK 1.029 billion compared to SEK 872 million last year, and that resulted in an EBITA margin of 17.4%. Our EBT profits after financial items increased by 21% to SEK 830 million and the operating cash flow ended up at SEK 549 million. Return on equity improved to 31% and the equity ratio strengthened to 32%. Our internal performance measure profit over working capital is in line with previous year, the same quarter and remained at 72%. And our earnings per share increased to SEK 6.45 per share. And then just finally, during the first 6 months, we completed 8 acquisitions with a combined annual sales of approximately SEK 660 million. And Jörgen will describe more about these later on, but these acquisitions were completed across several divisions and countries, and that strengthens our platform for continued growth.

Yes. Thank you. And let's dig down into the different -- dig into the different divisions and what we see there. I mean the electrification and Electrify here has had a tremendous good development in the last few quarters, and that continued here during this quarter with some revenues picking up 22% and we see some acquisitions part is slightly lower than the average of the group, so 4%, but organically up 18%. So here, we see some really good growth in many of the companies. And EBITA also grew by 19%, and the EBITA margin has been now sustainably above 20% here, at 20.7% for the quarter. But if you look at the last few quarters, you can see that's been about 20%, and that's where we would like to have the full group. And now we have really established Electrify on that level. We see some favorable market conditions within this area. A lot of the green transition is happening. A lot of investments are being made in the electricity grid. We are doing the green transition also in terms of wind turbine deployments and there where we have our customers. We also see some good growth within the infrastructure segment, which is also part of this. So we saw a particularly good performance within Elpress, which is the really big contributor and size-wise in the group. And that continued here and strengthened during the quarter as well. So Elpress is doing really well at the moment. Elfac is our Danish operation with also some -- within the wind turbine segment, doing really well at the moment as well. And Tykoflex, VP Metall and Elkapsling are a couple of other companies that are also doing very well, building not only electricity grid, but also fiber grid and all types of other things as well within that area within electrification and infrastructure. It's also good to see that Michael Smith Switchgear that we acquired here in the beginning of the year, posted a strong first half year as part of the group that was the entry of Electrify into the U.K. market, and that turned out really well for us -- for them. The Control division, then on the second one, here, revenues also was up really nicely with 29%. Acquisitions part of that was 12% and organically 16%. So also very good organic growth here within the Control division. The EBITA was slightly lower, but that also resulted in some -- due to some nonrecurring restructuring costs that we are. We have some construction-related smaller businesses that we are addressing at the moment and that added some extra costs here during the quarter. If we take out these extraordinary costs, we probably would have an EBITA margin at the same level as last year or slightly below there. But most of the difference is actually due to these nonrecurring restructuring costs. So -- and here with some -- really some companies that stood out is the CP Cases and the Nikodan, Radonova, Direktronik and Stegborgs. Some of them are doing it really well, but they're smaller, so they don't add that much to the division. But especially CP Cases and Nikodan are slightly bigger in this part of the year and especially the CPKs both in the U.K., but also in the U.S. operation, they performed really well here during the last year. And it's also part of the organic contributing very well to the organic growth that we see here. But we saw some continued headwinds in the Construction segment that impacted parts of the division. So that was also -- we're addressing that along the way here. The two acquisitions completed in August, bf1systems and the Skandinavisk Radoninvest, I'll come back to those, but that's also good that they're making new acquisitions. Control is the smallest division that we have. And then it's good for them to add on some more businesses to sort of have a broader base to work from. And that, I think, is really good for the Control division. The recently acquired Hycon that we did here early on this year during the springtime, performed well in line with the plan during the quarter. The TecSec division, revenues there were up 37%, and most of that was coming from organic -- sort of from acquisitions. But organically, it was even -- it still was 13% and FX 1%. So good organic growth there as well. The EBITA was up 32% to SEK 90 million and an EBITA margin of 13.4%. Here, you know that we are struggling to get the margins to raise again. And we -- I think we posted a decent quarter, but we still have more to expect from the TecSec division. Several of the division's security businesses, especially Idesco in Finland, but also ISG Nordic delivered strong performance during the quarter. PcP, the division's largest business also reported increased sales and earnings across several markets. I think the margin was slightly down, but in terms of earnings, it was it was up from last year. So that is -- business is performing posted a good quarter. The market conditions remain weak for the construction-related businesses, which is Laurea, Door and Joinery and the Principal Doorsets are examples of those. And there, we expect more when we see the market pick up again as we go along here. And the recently acquired medtech business is I Holland and Marsden in the U.K. have both have a strong start to the group or to the division. And especially I Holland, which is a bit more sizable, have performed really well here during their first 9 months. I think it is now, they've been with us. So it's good to have them with a good business that we acquired there in the U.K. We move on to the next one, which is Niche Products. A couple of more to go here. Revenues there were up 19%, and that was mostly acquisition-driven with 11% through acquisitions and organically 7%. That is a good number as well. But even though it's below, so the average of the group of the 12% that we talked about earlier. The EBITA rose by 43%. So they have really and posted a stronger EBITA margin. So they are performing really well and pushed through some -- a lot of their price increases now towards their customers. that was necessary. And they've also had some U.S. exposure that is also picking up and doing it better along the way. So a strong second quarter with solid growth, both organically and through acquisitions, and we saw particularly some companies did it really well. Those are part of the organic side. So Asept in Lünen in North America did really well. Prido with their folding doors in Sweden did really well. And Tormek and Waterproof also did really well here during the quarter. But also the more recently acquired companies Sit Right, [ Enskede ] and especially Stalon have posted a really strong start within Lagercrantz. So welcome to those companies into the group. We ramped up with the last commission, which is the International. Their revenues grew by 5%. And they have not performed an acquisition here in the last 12 months. So therefore, the acquisition part was 0, but organically, it was 5% a fairly good number where they should be, but we probably would expect more in this part of the market at the moment. So -- and we also saw the EBITA declined slightly. Here, they were up against some really tough comparables that I'll come back to, but the EBITA margin is still at a decent level of 17.3%. We saw some stable overall market conditions in most of the businesses. But we also had some that really stood out, which is the Tebul, part of the marine cluster working out of Finland. The DP Seals is doing it better and better all the time, performing really well. And also the Unitronic with their are new business with some new supplier lines adding to that business in Germany with the Unitronic business. So those stood out on the positive side. But we also had some other issues here that we -- I mean, we have posted some good orders within the road maintenance segment. but the deliveries were slightly lower than last year. And last year, they did really well for us. So they also were absent towards some really tough comparables in that business. But I'm not worried going forward. It looks good. Now it's up for us to have a tough winter, which we will like in this business. And also the [ maritime ] company that we have, the Libra in Norway also posted, they were -- had really good performance last year and did it well this year but didn't live up to last year, some ups and downs in a little bit over different companies here. A lot of detail there, but to give you some flavor on what -- how we see things. So I think we'll round off with the outcome by division here. Here you can see the numbers quarter-by-quarter, and it's great to see that we have really 5 really strong divisions. We are building we are building by adding companies in new sectors with the medtech sector, for instance, within the TecSec division. We've added the infrastructure segment within Electrify in the last few years, and that's also paying off the Electrify also growing into new geographical markets. So we are growing our divisions in different areas. Also the control acquisition of bf1 was really important for that division, even though they're still the smallest here, but I think that will pick up here as we move forward. And we are still working with operating margin of, yes, roughly 18% or so. We are -- I'll come back to that shortly. But really, some 5 divisions on a healthy level, even though the Niche Products in electrified are fully at the 20%, where the other ones have a little bit more ways to go before we're fully there. So that was -- yes, so let's look at -- that was the, maybe, the quarterly figures. So let's have some highlights on what we would like to go from here. I mean, we would like to try to -- we would like to continue building our group in terms of building this very strong portfolio companies illustrated with these arrows here, representing one company each very sharp, very lethal, very sort of powerful as separate, but also that we can be a good owner of these companies along the way. And then produced the annual profit growth of 15%, where we -- over a long period of time, I think there is a reasonable expectation that we should have an EBT growth of 15% to 20%. And 1/3 of that should probably come organically while the rest or 2/3 then should come through currently some 8 to 12 acquisitions per year. I think we will gradually need to increase to 8% to 12% as we grow because it should represent some 10% of our sales every year then. And as the base grows, of course, the number of acquisitions needs to pick up along the way. But currently, we're at 8% to 12%, and we posted 8% here in the first 6 months, we are ahead over that goal at the moment. Return on equity then should -- and we should do this in a very profitable way. We have the return on equity at least 25%. We will continue then doing this by building our 5 divisions. The Electrify, Control, TecSec, Niche Products and international, and I've been over these already. But what we have put together here since 5 years is really a setup where we think that we are addressing areas which we find interesting, in terms of that we can build a sustainable good profitability in these areas and good growth. So we are looking for sectors where we see some underlying structural growth by setting it up like this. And that was also what we see in some years down the road as we have had this now for some 4, 5 years, whatever it is, yes, something like that. But we also reiterating the financial targets. You know that we are aiming for the 20%. And even though we had good growth here, I expect more of us in terms of EBITA margin as we move forward. The EBITA margin should -- the target is 20%, and we plan to deliver that within 2 to 3 years, as we've said. And the profitable working capital should then exceed 60%. Which is where we are at the moment when you read the numbers, you can see that we are already there in that target. But we have some still ways to go with the EBITA margin here. So I think I'd like to highlight then instead that the revenues here grew by 22% in Q2. And it's actually the highest and the organic growth then of the 12%, which is the brown part here actually is the highest organic growth we've had since '21, '22. After the pandemic, and we saw some really part of really good organic growth there for some while, where it picked up. So the '21, '22 and '22, '23 was really high. Then it came down a little bit that we saw the market and the business conditions and the business climate, especially in the Nordics and Northern Europe, come down a little bit, that we also had some quarters there, you can see with even negative organic growth. But then it's picked up again, and we have been at 6% here for a couple of quarters, and now we are at 12%. So really good growth, I think, for the quarter. And looking back, it's actually one of the best we've had in for a while. So a strong quarter we closed is our view on it. And then I think -- and then we also posted some 13 acquisitions here since the same quarter last year, so since 1st of July 2025. So we have also added more than the 10% we're aiming for that you saw in the previous picture, it's SEK 1.3 billion here in terms of annual business volume, which are really good companies that been doing really well for us. The Epoke and Friggeråkers is doing really well for us. The season starts now for next year and the winter. The I Holland was a really important one for the TecSec moving into the medtech sector, and that was also then followed up by the Marsden acquisition. And I also would like to highlight the bf1systems in the Control division. So let's look at that one. That's on the next slide. I think. Yes, the bf1systems is the most recent bf we did here in was in August. Which is a company having sensors for pressure and temperature force position and speed, especially for the motorsport industry there is -- having good volumes going into different parts of the motor sports segment, which is the Formula 1 and other categories. but also other areas with these sensors. And then we're performing really well for some years. You can see that on the right there, which is also very good EBITA margins along the way. a bit of a sizable company, especially for the Control division. So this will be an important part -- an important holding for the control division. So that is the bf1systems. I have the other ones as well here, but I think we'll -- I've already introduced these. So maybe we should just round off -- we have the other 7 that we made here. So let's round off and open up for questions. This -- I round up with a financial overview. You can see here that our long-term trajectory with some revenues going from SEK 3 billion to almost SEK 12 billion. So we have good growth in terms of revenues over some years. You see the EBITA and the EBITA margin picking up, and we are now pushing to get to the 20%. The EBT and EBT growth should be 15%, and we have been delivering that most years. Some years have been more -- we've been -- yes, due to different reasons. We have not been every year, but most years, we've been there. And the return on equity that should be 25% is our goal. So we could see that we have over a long period of time, delivered on that. Earnings per share has been growing quite nicely as well. And currently, we have an earnings per share growth of 21% here for the rolling 12 months, compared to last year. It was actually even higher here for the quarter. But I think the 15% to 20% and pushing that a little bit is on a really good level. 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.

Starting off with the organic development, which you highlight is quite strong, while you also highlighted that there are some delays in Electrify I think to Mastsystem then you mentioned that there were delays in International, which I assume is the winter road maintenance companies. Is it possible to give some sort of flavor or quantify the impact? And secondly, if the deliveries could be postponed again in these companies?

Yes. Well, there needs to be an individual answer to that. I think the Mastsystem have a project-related business that when they have big deliveries, which will happen every other quarter or so, then it will be -- stand out, as a very really strong number for them. What we have tried to highlight here is that for this quarter, it was more of a normal quarter for them. So -- and they have things to look forward to, and they're doing a good job in bringing in new orders. But the quarter here was not any huge projects being delivered. -- even though we also highlighted that the outcome was slightly better than last year still, but it was not a big, turnkey delivery that we've seen in a couple of other quarters going back. I think the other companies, I mean, we have some project-related businesses. I think the beauty of Lagercrantz is that -- I mean, we have these in different parts of the group, and they balance out a little bit. So when some have -- so we had a couple of bigger ones being delivered within the Niche Products division. While in other divisions. So it actually balances out over time.

Clear. And regarding Control with the very strong growth. Is there anything that needs to be highlighted there in terms of one-off orders or similar?

I don't think it's one-off orders really. I think most of it is actually coming from good growth -- good underlying growth, especially within the military sector and especially the CPK type business. That part of the business is growing nicely. And we also see some good pickup in Nikodan in Denmark. But that's more of a -- in Nikodan, it might be a bit project related, but most of it is actually more of a new level for them.

And just very lastly for me in Control these restructuring costs that you've taken. Do you think you are done with them? Or should we expect them as well.

I mean, in our ambition to push for the 20%, we're also addressing some of the low-performing companies within the group. And we have a couple in the Control division. We have a capital in the TecSec activation. A couple of other places as well. So there are 3, 4 companies that we are pushing quite hard at the moment. and that might lead to some restructuring costs in those areas also in the coming quarters. But it's -- you have -- we've had that for a couple of quarters now. I think we will probably have it for another quarter or 2 before we're fully through that.

The next question comes from Adrian Gilani from ABG Sundal Collier.