Beijer Ref AB (publ) (BEIJB) Earnings Call Transcript

Welcome to the Beijer Ref Q2 presentation for 2026 during the questions-and-answer session. [Operator Instructions] Now I will hand the conference over to the CEO, Christopher Norby, and CFO, Joel Davidson. Please go ahead.

Welcome, everyone. Christopher and Joe here on a beautiful summer day looking forward to present the result. And then as usual, we'll finish off with some Q&A at the end of the presentation. . So starting a little bit of summary of the quarter. Of course, we like -- they're heading of another record quarter. And as you know, when we put all of our business together, Q2, driven by EMEA is the strongest quarter of the year. So we had a 6% growth of sales about 1% organic of that 6%, the rest of acquisitions. And also, as we stated a little bit before, we're now coming to the end of a very strong comps from Eastern Europe, driven by some inventory issues in Eastern Europe last year. So as we move forward now to Q3 and Q4, they will be fading off. And that's also why we stated we adjust freezed Europe, underlying organic growth was around 5%. So we see some good trends in -- especially in EMEA APAC continues to be positive, and there is no major changes in the U.S. market. We also notified of course, this quarter, no FX. It's nice to be more of a clean result in the business. Solid margin, again, I would say, in all regions across the board. So we have been continuing to work with our margins and develop value in the different regions despite reporting just 1% organic growth. Cash flow continues to be positive. You'll always speak more of that, but now we move into a very strong cash flow generation in the next couple of quarters as we flush out our accounts receivable for the year. We also closed AM distributors in Q2, a very nice asset in Florida, a new state for us, focused on parts and supply with good margins and extremely good growth profile. And we do see quite some opportunities to grow organically in Florida as we expand their business. So all in all, I would say, another solid quarter, but we're picking up underlying trends, especially in EMEA, and we'll come back to that in the next slides. So looking at the group. As I noted, we will continue and accelerate growth in our OEM business, driven by EMEA, but also very good activities around in APAC, in Southeast Asia. We see more and more trends moving over to natural refrigants, and a lot of activities there. In EMEA, we see an accelerated transition into the natural refringent and Part of that is that January 1 quarter levels in the EU is going to be up, and also, you see a lot of trends on the natural refrigants on the heating side through our energy platform. So record backlogs, good growth in the OEM side, and we see that continue as we move through the rest of the the year. APAC, negative affected by Eastern Europe, otherwise, positive, and we also see trends now in Europe of picking up demand in countries like France, Netherlands, U.K. and other markets. So pretty positive on the HVAC development as we move through the year. Refrigeration stable, 3%. So solid quarter on the industrial and commercial refrigeration side. Moving over a little bit to EMEA, as we talked about, we would say good underlying organic growth in the platform. We see good activities across the board. As I said, Nordics positive. Central Europe positive, Southern Europe positive, and we see that trend moving in with good backlogs on the HVAC side as we move into the second half of the year. So positive on EMEA as Eastern Europe is fading away in Q3, we'll have a good development as we move through the year, both driven by the HVAC side, but also on the OEM side, as we mentioned before. And also, I would say, a good backlog. And as we state here on this slide, both our 2 key platforms in OEM, energy and SM Frigo having record order intake and record backlogs to move through the year. So we see a lot of activities on the OEM segment, and also, of course, a very strong quarter for them on the sales side. Margins at good levels. We still are producing at record levels for here in Q2. So we continue to be happy with the margin side in EMEA. So all in all, a very solid quarter in EMEA. And as I stated, before it looks positive as we move into the rest of the year in the EMEA division for us. So very happy about that. Moving to APAC. APAC continues to deliver a solid development continued to be driven by Australia and rest of Asia. Also active in the OEM segment, a very happy, a lot of these regions don't have regulation, but still looking at transitioning into natural refrigerants. So they continue to do a very good job in those areas. And we'll continue to invest quite a lot of building up sales training centers around Southeast Asia, we have more activities in a lot of countries, South Korea is mentioned here, China, Thailand, India, so quite a lot of activities here that we believe long term will also start driving more growth in this region as step by step, they start moving into more of OEM type solution for us. Margin solid. All in all, Q2 is a smaller quarter. It's more a winter quarter out in Australia and New Zealand. So of course, their season starts ramping up at the end of Q3 moving into Q4. So and had a good solid development in our APAC region for the quarter. Moving into the U.S., minus 3% organic. It was kind of a messy quarter in the U.S. to be very -- it started off with some bad weather and rain in April, so the season got started late. Then we also had some announcement on May on pricing and different type of customs from Mexico, where a lot of equipment is manufactured, so we first had sharp price increases, then the announcement were pulled back and then price decreases and et cetera. So for us, as a distributor, it was a very messy May to align with this. And our exclusive OEM went first with price increases then realigned it. So looking at more clean June and July was pretty good and nice growth in there. So we'll keep on track of that. We believe the pricing issues are behind us. But a little bit of a messy quarter start off April and May, but strong June and a good development in July. Margins solid. If you adjust for dilution, continue to develop good margins, nice acquisition and AM distribution, and we do have -- continue to have a nice pipeline expecting to close a nice deal here in the next couple of weeks as well. That's very strategic for the U.S. So all in all, quite positive. As I mentioned before, we don't see any big trends in the market shifting. We're still waiting for higher activity in the housing market. But in the meantime, we continue to develop well and stable in the U.S. in the aftermarket replacement repair. I think worth mentioning, well, what's going extremely well in the U.S. is our private label. Expansion now moved in to almost 90 over 130 branches. We're going to continue to expand the portfolio, and we'll continue to grow at double high, high double-digit levels of this, and we expect this to continue. So it's a very nice added part of our portfolio in the U.S. and also as we move into this acquisition, a big driver to expand their sales and margin through this platform. So we continue to expand in the U.S., and we expect this to continue. If you summarize the quarter sales growth of 6%, organic one, EBITDA of 5%, EPS changed 5%. So an okay quarter, but a little bit more positive as we move into the rest of the year. especially in our EMEA platform that we expect to see pretty good growth. And that should also accelerate our numbers in this type of slide as we move into the rest of the year and next year. With that, I'll hand over to Joe.

All right. Thank you, Christopher. Good morning, everyone. As always, straight into our EBIT, which is up 5% compared to last year. As mentioned, the FX translation effect that has been substantial now for a number of quarters, have now almost finally faded fully. And on a currency-neutral basis, our Q2 EBIT is up 6%. Financial net continues to develop well on the back of our new financing structure. We report a financial net year in the quarter of SEK 122 million, which is SEK 5 million below last year despite the higher net debt position. We did have some favorable FX effects in the financial net compared to last year, but adjusted for that, we are basically on par with last year. Tax line, SEK 285 million, effective tax rate of 25%, in line with last year. And -- so all in all, net profit of SEK 834 million, 5% higher than last year. So moving over to EPS, 1.64 in the quarter, increase of 5% year-to-date, we are at 3%. But as you remember from Q1, we had some relatively tough FX headwind. And on a currency-neutral basis, our EPS is up 5%. So cash flow, as you know, Q2 is also a quarter where we continue to build working capital -- we did, however, deliver an operational cash flow in Q2 of almost SEK 300 million. Yes, cash flow in Q2 was lower compared to last year, but it was driven almost exclusively by a more back-ended buildup of accounts receivable this year compared to Q2 last year, where trading faded a little bit different in the individual months in the quarter. Next slide here, as you see, continue to deliver positive cash flow in our seasonally weaker first half of the year, and now we are entering the more cash generated quarters where we have a rolling 12 months operating cash flow of SEK 4 billion here so far. Leverage net debt increased by approximately SEK 1 billion here in the quarter on the back of M&A activity and distribution to shareholders. Our leverage ratio here sits at 2.16, which is turns above Q1 and also about Q2 last year. And as said, we are now entering the seasonally much stronger cash flow generating quarters and we are in a very good position to continue to execute on our M&A pipeline. So with that, I'll hand back over to Christopher.

So summarizing Q2, another record quarter. As I said before, Q2 is our strongest quarter, driven by the EMEA summer season. good underlying organic growth. If we adjust or look at the EMEA and a lot of regions, especially in Europe looks good, OEM, strong development. solid EBITDA in that only the second time over 12%. Of course, it was Q2 last year, but then there were some currency effect. So underlying margin and what we see looks good. Cash flow, as you all said, will accelerate quite a lot in Q3 and Q4. So that it looks positive, always move into the rest of the year. And then you have the acquisition that we really like down in Florida and were more of those hopefully coming in here in -- actually in the next couple of weeks. So it looks good. And then if you look at the long term, I think just updated here is, of course, the backlogs in the OEM and the development there. I see a lot of activities in there and looks positive here not only for the rest of this year, but also for 2027 and moving forward. And hopefully, we start seeing this acceleration in transition as by 23 in the EU, you cannot use synthetic refrigerants and moving off to these type of equipment that we focus on. And also, in general, in EMEA, backlogs and HVAC looks good. I mean, you follow the news, it's been quite all over the place and a lot of requirements on moving into HVAC. As you're probably aware, today in Europe, I think penetration is less than 17%, 18%. Just a reference point in the U.S. penetration is 80%. So it's 2 different market also, and this is, of course, not going to change in the short term. So looks good. The U.S. platform, I think a little bit of a messy quarter running through April and May, especially on the pricing side, as we talked about, looks to be in control now and find the right alignment with private label continue to grow at a high pace and will continue to expand in our portfolio. And then if you look at the rest of the position, balance sheet, cash flow and pipeline looks good. So a little bit more positive. This quarter is moving to to the rest of the year in 27 as we finally at least in EMEA, see some good traction and improvement of the business. So with that, our presentation is concluded, and then we open up for any questions on the call out there.

[Operator Instructions] The next question comes from Adela Dashian from Jefferies.

Good morning, gentlemen. A couple from me. Firstly, you mentioned here that you started to see accelerating momentum towards the end of the quarter and into July. You did Chris over mention heatwaves just now on your ending commentary. -- we dive a little bit deeper into that? Are you actually seeing that heat waste across Europe is impacting your demand positively? And if that's the case, I guess, what sort of trends should we expect for Q3 because you are meeting tougher comps on reported numbers in Q3 than you did in Q2?

Yes. Thanks. And as you know and talking about weather always makes you a little bit uncomfortable because it's probably 1 of the hardest thing to predict and understand and see. But sitting here in EMEA and in countries like France, I mean, if you try and get HVAC now, I mean, your installers are probably tell you have to wait quite some time. So what we see in key markets, Central Europe, U.K. and France, what has been extremely hot for a long time and penetration in those countries are not at the levels. If you have heat waves in Spain or Greece and other countries, it's less -- it's more replacement market. But in these markets, you also get penetration in that sense. In these segments, it's -- we're realigning inventory setups and moving inventory in here and supporting because there is a lot of demand out there. So I think we're moving towards higher comps. So you're absolutely right. But if you look at EMEA, with this trend and also on the OEM side, we still feel pretty positive around a good EMEA expansion here over the future. So with those 2 points, it looks promising. Also remembering we're sitting in July. It's 1 month moving into that. But June was pretty solid. July started, Eastern Europe is fading away during the quarter. So all in all, what we seeing at right now looks good in that part of the world.

Can you remind us if the contribution was a significant in Q2 last year as it was in Q2?

Yes, it was massive, and that is 1 of the main components. And if you -- if you look at of last year, we reported that sales growth in M&A as it was in organic. So it has a major impact on organic growth in EMEA in in Q2, and then it faded off. And for details, the reason why cool for you was up so much last year because it was an inventory issue in their key market, Hungary, where they have huge market share. So they have to replenish the whole inventory that drove up their sales. It wasn't sales out. There was more sales into their distributors. So it was a little bit of a special situation there. So when we look at these things, the underlying development in most of our regions is really good. And as you see in EMEA, it was solid in Q2 if you exclude this. So yes, cool fuel is 1 of the main reasons for it more a one-off situation last year, and that's normalizing now as move into Q3 and Q4.

Great. And then you were talking about the refrigerant upgrades in Europe as well. Should this result in any sort of price tailwinds as you enter H2?

No. I think on what we're seeing in that is, of course, the acceleration on the OEM side, driving that, you need to replace your equipment. On the refrigerants per se, we have seen one, and I think some of the analysts picked that up. U.K. has made a significant price increase on refrigerant because they're starting to fall more the EU phaseout and they haven't been doing that for many years. So that's positive for us, but it's not big enough for BRF to be making any significant difference. In the rest of Europe, right now, refrigerants are stable. That there's no significant price changes. We are curious how the market will start moving at the second half of the year as January 1, the quota levels for refrigerants in EU will be cut by another 50%, but right now, we're seeing more stable prices on the refrigerant. So so no major impact on our margins.

Okay. And then lastly, if I may, on North America. It has been somewhat of a disappointment over the past 3 quarters, granted it's been the moving factors impacting the organic growth development. But how confident are you in the recovery now already by the third quarter?

No. I think it depends on your expectations, and we were challenged were disappointed. I think right now, as we see the U.S. market, it -- for that to start on the distribution side, you had some alignment on product changes on a being phased out in your Sears. So OEM and distribution wasn't in line for the last I think it's in line now. And then on the market that we see an active on the Astea replacement and repair, we see the market as pretty stable. And we haven't seen any change really in the market from Q1 and Q2, and we don't expect to see it really in in Q3 or Q4. But in the meantime, we don't see any deterioration, but I don't see any major improvements. And I think we need to start looking at housing sales and other trigger to start picking up in the U.S. to start seeing that tailwind. But of course, what we've seen in the market is that you start building up a pretty nice pent-up demand on the housing side, but also as you're repairing equipment, you need to replacement. And you have in the case that you start getting to an age of the equipment that a replacement cycle, mathematical should start picking up here in the second half -- but I think to balance that, you need also the consumer to get some more investment into it with intent rates, housing sales, how it's connected until you start seeing a nice tailwind in the U.S. So I don't have any signals today where we look that that's shifting or changing. But in the meantime, I don't see -- I have no signals either that the market is going backwards either.

The next question comes from Victor Charlston from Danske. .

Perhaps firstly, if I could push a little bit on there's a bit of moving parts here in Q2. And if you could just elaborate a bit more on the selling of comps in in EMEA, you obviously sound quite optimistic for growth in the coming quarters. But I guess, in Q4 this year, comes in cool for you will be completing on if I don't feel this commentary wrong? But how will it look now in Q3, more specifically? I mean, you had a 7% headwind now in Q2? Is it half? Is it -- and perhaps you have to another perspective on that, you mentioned 8% underlying organic growth in EMEA how does that help us for Q3 given how comps develop? I mean we'll does that enter 5% organic growth or whatever in Q3. If you could just help us a little bit with quantify?

You want an exact number? .

I do have the decimal holes plus. .

Yes, yes. Now let me open my AI tool, and I'll get it to you. No, but I understand what you're asking for. And of course, there's mathematical ways to calculate on our side depending on comps and et cetera, and then you have the market and trends and everything else. I'll leave the details to you all on how it fades out. But I think if you try and just be short term, Victor, I mean just to take that was kind of a weak comp quarter. So I'm not too worried about or while Q3 was still okay in most regions. I think we had a 5% organic growth. So it's more of overcoming that. as Q2 last year or last 2. So Q3 was a good quarter for us. But I think you can look at the Eastern Europe fading away, at least 50% as we move into Q3 and completely gone in Q4. So based on that, underlying looks good. You have the OEM sales. Now we had a really strong OEM in Q2, right, plus 25%. So you look at those components, it's just we'll move more from the BRF underlying or the adjusted for Eastern Europe. We think these are the activity levels we see right now, in the same token, let's not get carried away and start pushing out very high numbers. Let's see. But we do believe, based on those adjustment in the OEM side and activities in EMEA that they will accelerate as we move into the rest of the year and into next year based on what we see right now.

That's brilliant, but very helpful. And perhaps just a follow-up on that because from my perspective, 8% underlying organic growth in Europe in Q2, very solid. We discussed a bit hit wells or weather difficult to forecast also. But the question building, do you feel like that includes a lot of heat will in Europe? Or is that more of a Q3 topic, I don't know, end June or July? Just to understand, if that is boosted a lot from that.

Of course, it is because if you look at our Q3 and as we speak about EMEA, the 2 big months of June and July. -- right? As you move into August, you pretty much have 2 weeks of business then all of a sudden Europe shuts down for 2, 3 weeks and et cetera. So I mean, you have parts of the heat wave in June and then it triggers off in July. So yes, of course, part of that 8% is the very high growth in OEM, right? If it's 25% growth, and then you add June strong and July at a good level. And then the numbers for us as a seasonality fades off in August, September. So I think you can look at it half in Q2 and have in Q3 type of thing. And then, of course, the OEM will continue and grow double digit and balance that. So I think with those points, that's how we're looking at the market right now.

Fair enough. And then if I just -- just a final on North America, just to understand a little bit because a lot of parts, but it sounds like massive a bit better in June, July. Could you just help us, what is One and July talking you discussed a flat market? Is that volumes and if you could just help us with what is the kittens on volumes and on top of that price, of course, because you discussed price quite a lot in North America. Is that a positive factor now into Q3? And yes, if you could help us with some sort of [indiscernible].

Yes. And I think it's looking a little bit on if you try and and help you with exact numbers. You look at 2025 and 2026, and we don't see the market have changed a lot on the sentiment, right? It's still repair, it's replacement, Housing sales continues to be weak, new construction this week. But of course, if you live in the southern parts of the U.S., you have to repair or replace your HVAC equipment. So it continues to be, I would say, on a sales level, a flattish level. And then if you take volume, you probably have 3%, 4% price mixed into that. So I would have seen volume being down 5% or a little bit more. And depending on that. And I do -- of course, sometimes this will catch up. But I think to catch it up, you need some trigger points where this volume is going to start picking up organically on volume. So I don't see that trend changing right now. I think you need some changes in the housing and et cetera, to move. But of course, in the meantime, you can only repair this equipment so many times. They are aging and replacement cycle coming in. So I'm more looking at more of the same in 2026, 2025. And then you might have a quarter that's up a little bit down depending on some project or some weather patterns or anything else that affects the business short term. and expecting that were similar in Q3 and in Q4, you moved a little bit more into heating and then let's see how 2027 plays out. But of course, for every quarter in the U.S. with these type of development, you continue to build out a pent-up demand because the difference here is, of course, you have 80% is installed HVAC in the U.S. and the equipment is aging. -- and it's getting hotter. So you're wearing it down. So I think long term, we feel extremely good about the U.S. And then short term, we continue to invest in branches, in private label acquisitions. It's a very good time to buy companies, we believe. So we're active in those sets. So our sentiment, I usually say every quarter is a quarter closer to the market improving. But right now, I'm more used the word stable.

The next question comes from Anders Akerblom from Nordea. .

Yes, just a few questions from my end. I mean, firstly, I wanted to ask a bit about OEM. Obviously, very strong sort of numbers here on organic growth. And I mean you say that both SCM Frigo and Fang enter Q3 with record order books. Could you give a bit more color on sort of the -- I guess, the backlog duration and if you see any production capacity constraints going forward?

Yes. It's 2 different colors, right? If you look at at a company like energy, their backlog is built on longer lead times and projects. There's no standard product in their portfolio. So energy backlog will be somewhere between 6, 12 and 18 months, and then you deliver accordingly. So the fantastic part of energy. I mean the we have a backlog now well into 2027 with nice growth and a lot of activities out there. Well, SM Frigo should have a lead time of 10 to 12 weeks -- what happens when the order intake of activities is higher than we expected, Lead times gets pushed out, and you shouldn't have more than 10 or 12 weeks in this industry. to be competitive because our customers doesn't have the same view as if you do a project with Feng, might be planned to be executed 6 to 12 months later. So it's 2 different stories. -- capacity, yes, we are ramping up in SMC. It's more putting on a second shift and these type of things, but we've been working on that for the last 6 months as we've seen the order book accelerating. So I think that the question, should I assume 25% growth every quarter going forward? No. But should I assume whatever? And I think this was a lot of finishing projects on Finergy but double digits, I feel pretty comfortable to say, yes, it will be double digit as we see for quite some time now in the backlog we have in the OEM side.

And I also wanted to ask a bit about the U.S., not maybe talking so much about the sort of organic prospects as that's been covered quite quite well, it sounds like. But you mentioned expecting a strategic deal in the next coming weeks, if I didn't sort of hear you wrong there. I mean, without disclosing specifics, could you characterize anything about sort of the size or geography or product segment of this?

I can give you one. It's HVAC. I was looking for. But all right. Well, by the way, to say anything more. I can give you. But the reason specific is that we're just about to wrap it up but we will in the next couple of weeks. I mean, I can give you, it's bigger than AM. It's an HVAC. It's a strategic area for us, and we've been working quite some time together with this target. So we really look forward to get it over the fence. And of course, in the U.S., when we do signing, it's signing and closing at the same time because you don't have any competition authorities. But we also have a fantastic opportunity in Europe where we're looking at expanding the OEM side with new capabilities. That's also on the way in. So we're -- yes, we're positive on that side as well. And we don't -- we are lumpy when we do acquisition, right? It doesn't come 5 a quarter. So we've been working on this for quite some time. They're fairly strategic for us. And we look forward to getting them into the platform here by hopefully in the next couple of weeks, to be honest.

Exciting. And finally, I just wanted to ask sort of a high-level question. But I mean, elephant in the room, obviously, MSAB set to become the -- or is the sort of larger shareholder by voting rights. I mean, does this change sort of in any way the strategic direction of you guys sort of alter the pace or nature of sort of capital allocation decisions going forward? Anything there that you want to share?