Beijer Ref AB (publ)

Christoffer Norby here sitting together with Joel Davidson. We'll take you through the PowerPoint slide and of course finish off with some Q&A later on. So we'll move straight away to the update we always do with a rolling 12 where we continue to to grow our sales, adding employees, and of course also continue to grow with our branch and customer network. And we'll come back a little bit on the U.S. that we just acquired a critical piece in our strategy in the U.S. with Young Supply yesterday. So moving on to the next slide. There you get a little bit of summary of the start of the year, but also a little bit of our historic number to put it in perspective. We continue. uh our past a last couple quarters to face out on organic side versus very high comps which we are coming to them here in march so as we move forward we have those problems organic comps behind us despite that with acquisition uh we continue to go four percent organic was minus four uh as it's been the last couple of quarters uh fx is uh is neutral. You can see on the margin side, nine and a half percent of the very strong margins and it's across the board. If you look at our APAC business, if you look at our May on the US and product groups continue to have very good traction on our gross margin and cost to the business. So the margin is stable at a high level and we expect this to continue going forward. Of course, proud of the strong cash flow in the quarter. We've been saying that, I would say, all along as we started the cash or the inventory alignment in Q3 last year. And you can see that on the chart here, continuing to in Q1 as we continue to balance our inventory, even as we've gone into high season. Here we continue a good traction on and we expect this to continue throughout the year as we've been stating before Earnings per share a down a little bit related to Cost and also a number of shares, but you'll come back to that And then also proud of saying that we closed a critical acquisition for us yesterday in young supply a leading wholesaler that fits extremely well into our network, very strong in the commercial refrigeration. So it's a platform for us that we can expand, but also good on the HVAC side and a market leading position. So extremely happy about managing all those things here, do Q1 in April. Moving on to the next slide, you can see on the highlights there, of course, HVAC has been the highest comps we had over the last a year related to the energy situation we had in Europe, as I said before. That ended for us in March. Now we've come across more normal comps. But I would say still pretty good. The minus seven versus plus 17, so it continues to be a good market. The OEM side continues to grow, even though we had compared with plus 24%. So it continues to do very well on the OEM as we focus on the green transition in Europe, but also starting in APEC region and one day we'll have it in the US as well, but not yet. Commercial Industrial Federation is slightly down, mostly related to trading days. That type of business is 100% the daily business from all our branches. So all in all, we're pretty happy with a stable quarter on this side and mostly affected by negative trading days and comms, which we, you know, as we move into Q2, those things would disappear. So then going into our different region, you have our largest region, EMEA, who continue to deliver well. Of course, they've been growing the most, as you can see here, compared to almost 28% last year, and a lot related to the the energy situation we had in Europe and on the HVAC side. But I would say it's still a good performance. The OEM is growing 16%, commercial industrial refrigeration, also related to trading days. Stable margins in the business. And of course, as a man, I moved into Q2 and high season. pretty positive on the future moving here, but I would say stable and good development on both the margin side and also on the cash flow side for EMEA. Moving into APEC, APEC did very well, and I'll continue to see if you see the trends there of good margin development, I would say stable business on both HVAC and commercial industrial refrigeration, then OEM, We see pretty good activity in the pipeline on projects, but that's going to come in more in the second half of the year for APAC. We did a smaller acquisition, QAE, very nicely fit into our geographical footprint on HVAC. But in general, I would say HVAC had a very solid quarter. And of course, HVAC, very heavy in Australia and New Zealand, and they're just wrapping up their their summer season. So there's good traction during the high season in the APAC region. And finally, moving into, of course, our newest division, North America. Good development in the market. I would say pretty stable on the trading day to day, which is good. Good margin discipline, good gross margin development. We do have The comparison is hard because this year we had the first 20 trading days that we didn't have last year, which is usually, it's about 1% hit on the margins because of those first 20 days of January. It's high cost, low sales. So if you adjust to that, a good development in the platform, also in the US, of course, we're working with the integration of Amstron Web Supply. And then recently, yesterday, we just signed the Young Supply, who has a nice geographical connection to the rest of our branches. They have a very good, almost 50% is commercial refrigeration. And so it gives us the platform that we've been looking forward to, to expand commercial refrigeration, expand CO2, and other types of initiatives. But then also a very good HVAC business that fits into the rest of Heritage. Very happy and also very much look forward to working with the team in the heritage platform. Then worth mentioning, we continue the journey on the strategic in the US with our own private label in HVAC. We are expanding our federation portfolio and we will accelerate that as we now have Young Supply under our wings as well. Opening a new branch in Tennessee here in May. and a couple of more in the pipeline for the year. Of course, second half of the year, we'll start transitioning into the A2L new equipment that will be the driver for the future in the U.S. And we'll continue to have a nice discussion and pipeline as we continue our journey in the U.S. on the consolidation front. So, as I said, all in all, a very good quarter in the U.S. as well for us. So summarizing a little bit, total sales growth 4%, organic minus 4, slightly growth in EBITDA, and then the EPS change slightly negative. We'll come back to all these numbers as we move through the presentation. This is just looking at how the quarter played out when you look at the organic and the M&A. So continue to have a nice M&A growth, which will, of course, now with young supply, continue here through Q2. And also, as I said before, better comps and not as much affected by less training days to move forward. Here's the longer trend, as you see, comparing with the very, very high comps here that we are coming at the end of here in the comps that we had in Q1 last year of almost 15% growth. on there, but continue to be positive and we expect that to continue here as we move into Q2 and the rest of the year of the business. Here you have the organic side on HVAC, which has been the biggest driver of these comps in EMEA and you can see, of course, still growing at 26, 29, 17%. So I would say the development is tracking pretty well on HVAC and we still see the market has been pretty good out there on the HVAC side so we're moving into high season now especially in EMEA and North America on the HVAC side EVTA four percent up despite lower sales on the organic side and then you can see very stable margins despite lower sales so a good execution on managing the gross margin and the cost in the business as we expect to do. Here you can see the margin development continue to be very good. You can also see the seasonality in our business where you see the development in Q2 and Q3, which is mainly related to, or I mean, 100% related to that we have much higher volumes in Q2 and Q3 as it gets warmer and warmer.

Then handing over to Joel. All right, thank you, Christopher, and good afternoon, everyone. As we covered most of the P&L, I will jump straight to our report, the EBIT of 684 million, which is up 3% compared to last year. So our net financial expenses in the quarter amounted to 141 million, and it is a level which I think is representative of where we are at the current leverage level. Tax expenses in the quarter of 135 million, which representing an effective tax rate of 25%, resulting in a net profit excluding items affecting comparability of 408 million, which is then 12% lower compared to last year. And this decrease in net profit, excluding items comparability, is, as you can see, driven by higher financial costs compared to last year, which is a combination of FX, higher debt levels, and also higher interest rates. On the EPS side, reported EPS down 4% in the quarter, but if we are adjusting them for items affecting comparability, which is all related to the bridge financing last year, and applying the same number of shares, EPS is down 13% in the quarter. Moving over to cash flow, as already mentioned, very strong cash flow in Q1, 582 million driven by a controlled inventory build-up, which has limited the additional working capital tied up in the quarter to 115 million. Just as a side note here, reported inventory in the month is up approximately 150 million, but if you adjust for the acquisitions, we have done the underlying like-for-like inventory is down approximately 450 million compared to last year. If we go to the next slide, the operating cash flow then again is an improvement of almost 790 million compared to last year, and that is primarily driven by networking capital and more specifically inventory. Look at our report last year, inventory buildup was 1.2 billion in the quarter compared to 400 million this year, and that is the main driver of the improved cash flow. Then we move over to the final slide here, which is the net debt development, which has been very stable here in the quarter, improving from 1.7 at the end of the year to 1.6 here at the end of the quarter. With that, I hand back over to Christopher.

To try and summarize this, the heading for our report, I would say a solid start to the year, good profitability, and also on the cash flow, as we explained. So I'll say a very good start to the year. The sales, slightly negative, mostly related to trading days and very high comps. and that will now reverse as we move into the rest of the year. Good margins, solid margin, despite a little bit lower organic sales. We've been working hard to manage the margins. We will expect to continue throughout the year. Cash flow, almost plus 600 million, which is strong being in the first quarter for us. And as you all know, we're also reducing inventory compared to last year as part of the plan and as part of what we communicated for the last 18 months. At the end of the quarter, we signed an agreement to acquire Young Supply, sales of 1.4 billion. You know, very nice, strong market position, fits straight into our geographical footprint, fits very well with our other assets in the US, and also a company where DNA is coming from commercial refrigeration, so we see a lot of opportunity how we scale the U.S. now with this type of platform and also how we support it from Bayer Ref. Also in long term, the CO2 journey we were going to do in the U.S. will be part of this company going forward. And then, you know, the long term hasn't changed. This is similar, so I won't spend a lot of time. It continues to drive our business long term. We have the F gases that will continue to be phased out, just started journey in the U.S. The A2L transition will start happening in the second half of the year and of course be a good driver for 2025 and going forward. We talked a little about the U.S. platform, it continues to develop well and of course also now adding Young Supply will make us even better in the U.S. and a lot of activities ongoing that's supporting the business from private label branches and also agreements that we're working with our suppliers. I will continue to work with our acquisition pipeline. It's an active one. It's always active for us. And you can see, of course, one of the results of that is Young Supply that we just signed off here yesterday. So with that, we would like to open up to questions from the people on the call. So thank you very much for listening. And we're ready to answer your questions.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Carl Bockwist from ABG Sundal Collier. Please go ahead.

Afternoon. My first one is just on the organic growth trend. Now when it's been at the, may we say, stable figure for a couple of quarters, as you say, now comparables will diminish in a formal way. Just curious, I know you don't usually provide commentary about it, but let's try anyway. Can you say anything about current trading or what you have seen on the market now in March or early April?

Yeah, no, you're right. So we try and, of course, stay away from very short-term guiding like this is. I know I've been fairly clear on the cons and expectations for Q3, Q4 and Q1 this year related to the situation we were in on the special HVAC and EMEA side. But as we have, I would say that comps are not diminishing, but they're easening. But maybe that's semantics. But I would say that April started well. Let's see how the rest of the quarter and the year progresses. But I would say in general, the business continues to be stable with, of course, less headwinds from

from the comps and trading days so hopefully that could give you an answer on that question understood and then just to is it possible now year over year to shed some light on how Heritage has performed perhaps compared to the to the markets and the second being press more to you will but

how you foresee working capital efforts to continue throughout the year now considering how you started the year in a pretty good fashion i would say yes on the us i would say that uh you know if we look at all the the market data um i mean we we're trading and better than that but of course a lot of the market data is oem driven and so you see you you you've had a realignment from people like us on the inventory side towards our key HVAC suppliers. And we're in now, as we're moving in, we're done with our inventory adjustment in the US, and we're ordering products for the season now. So I would expect, of course, those numbers to improve. But in general, we feel pretty good with our market and how we're developing, and I would say the underlying performance in Q1. of course, on the margin side as well, it's a flat, stable development in Q1. And now we're, of course, getting ready for the high season that, you know, depending on the next heat wave in the southeast of the US gets started. So I would say compared to numbers I'm seeing, we're performing better, but I don't know if that's 100% relevant because it's different being a wholesaler versus an OEM.

Understood. And then you partly answered the working capital question, but could you say anything more about how you expected to progress during the rest of the year?

Absolutely. As Christopher mentioned here in the beginning as well, we are working through it continuously during the year, as we highlighted already a quarter ago, but we are still obviously having the seasonal effects as well. So, I mean, we're going into high season, which will, as normal, tie up accounts receivable in a different fashion here in Q2. So, it will still follow, as I think we have been pointed out earlier, the same patterns as usual, but less pronounced, which I think was clearly in this quarter as well, if you look at the working capital side.

I think we expect the normal strong cash flow in Q3 and Q4, but also the way you see in Q1, it might also have a positive cash flow in Q2. as we realign the inventory side of the business. So, I mean, nothing has changed, but it will be, as we said before, a very strong cash flow year for us because we'll realign inventory throughout the year. And then you'll get the strong cash flow from the accounts receivable doing end of Q3 and full Q4. So, yeah.

Understood. That's all from my side. Thank you.

Thank you.

The next question comes from Dan Johansen from SEB. Please go ahead.

Thank you so much for taking my questions. I think two additional ones. Continuing a bit on the few working days and the impact from Easter here in the quarter. My question is on the margin side, did it also impact you there or were you able to compensate for the lower volumes due to the few working days? Thank you.

Yeah, so I mean, some businesses we actually have, you know, costs related to working days. In the US, they'll be very similar. The way we pay out while in Europe, it's more fixed, independent of the working days. But I would say on the margin side, I mean, it's been good, continued strong development on our gross margin. And then, of course, we're also managing costs a little bit more focused until we start seeing... the organic growth coming back in the business. So I think it's a combination of those two. And then as in the US, as I said, there we, you know, the number of working days is related to the cost. It's a lot of our cost relates to personnel and salaries. But I would say that the main drivers of this is the work that we do. And of course, part of that is driving private label, that's driving pricing initiatives. and it continues to be the things we'll focus on as we see continued to get opportunities in those areas to drive margins going forward as well.

Okay, sounds good. Thank you for that. And the second question on North America and the sales of the new ATL based HVAC equipment. I think you mentioned it as a support during H2. As you see it right now, could we see some gain already after the summer or are we speaking more of a topic for the latter part of the year and queue for how you see the dynamics when you'll see orders coming in there. Thank you.

Yeah, I would expect but there is difference of opinion if you listen in on OEMs and other channels but our best estimate is that you'll start seeing it towards the end of the year.

Okay, thank you so much. I think that was all from my side for now. Thank you.

Thank you.

As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. The next question comes from Carl Bockwist from ABG Sundal Collier. Please go ahead.

Yes, hello again. Then I might go into the strategic objectives that you have this year now with the acquisition of Young Supply and refrigeration. First one, their refrigeration products, are they similar to the HVAC side that you have good relationships or they have with one bigger supplier? I'll start with that one.

Yeah, we're their key suppliers. we have a very strong relationship across the globe. So, I mean, the ink is just dry on the piece of paper. So we'll start putting those things together as we move through that. But I think even more important is that, if you think of the strategic driver here, is that with that platform, our ambition is to use it to also really drive refrigeration in the rest of the heritage platform. As you know, that's 90-95% HVAC, so it gives us good opportunities from Bayer F with our suppliers and it gives us good opportunity to faster leverage refrigeration in the US as now we have a company that, you know, this company actually grew up from commercial refrigeration and added HVAC. It's very similar how we developed in Europe and also We also have a future platform, CO2-based type of products that we have in our European product portfolio. But that will be more for 2025-2026.

And then on the private label in the US, any brand in particular that you really try to focus on or will you launch all of the ones that you have, so to say?

No, we will launch... brand that we'll use in the US is Sinclair.

Okay, great. And then just my final one. I know you have said that you have so far not seen that, but given the efforts to lower inventories and so on, have you noted any form of campaign pricing strategies or similar things either that you have had to do or from competitors?

Yeah, I mean, I think it's a complex question to answer, of course. In general, as you see, our margins are at a good level and we expect that to continue. If you look at the US, I would say not really. If you look at APAC, they're just wrapping up their summer season, so not really. And EMEA, yeah, you see some campaigns in HVAC, but that's very normal this time of the year as you're starting to build up for the season. So I would say at least as we sit here today, we haven't seen any different behaviors than in the past. So nothing really that would at this stage would conclude me to think that it would be different this year. I'm sure there's a lot of inventory out there, but I think it's a lot of discipline in the market as well. So no, not really.

Understood. Thank you.

The next question comes from Fanny Sri from Infosys. Please go ahead.

Hi, I'm not sure why he's here. Just a quick one. On the heat pump market in Europe, would you be able to tell us anything about how it is related to your comment that the high base is kind of now normalizing in Q1 towards the end of Q1 2024, especially in the HVAC business. So any color, whether that would be different for heat pump versus the overall heating and ventilation market?

No, I'm not sure I completely understood your question. In heat pumps and in what markets or

I'll probably rephrase it. Within your comment about the HVAC business coming to a normalized level towards the end of Q1, would you differentiate within that HVAC whether heat pump is better off, worse off, whether that has normalized or it's still in a weak situation?

I think the reason I comment specifically on heat pump is because it's It's not that big part of our business. If you take the US, we do sell heat pumps, there's no change. It's mainly an EMEA question, right? And you have this very strong development. I would say that on the heat pump side of Europe, there's still some transition to do on the inventory side and demand and incentive models. I don't think that market will be super strong. Maybe when you look into The heating season as you move into Q4 probably is a good check-up point. Right now, if you Bayer Ref profile, we all focus on the cooling side as we move into Q2 and Q3. So the heat pump wouldn't be a strong part of our portfolio as we're into the cooling season that we're focusing on now.

Very great. That's great. And in terms of pricing, have you seen any kind of trade down happening at your level because the demand is pretty weak?

Yeah, I mean, it's hard to say that our demand is pretty weak. It's pretty okay across the board. So at least where we are focusing, what we're working on, it's a pretty okay demand situation. Our installers, our customers are busy, so So we're pretty busy. So no, not really.

So that's great. Thank you very much and good luck.

Thank you.

The next question comes from Adela Dashian from Jefferies. Please go ahead.

Hello. A quick question on your ability to flex up. Let's say its demand is much higher than what you're currently seeing in the books. I appreciate the comments about keeping inventory levels disciplined ahead of the high season, but let's say it moves in the other direction and all of a sudden we have heat waste across the board. What's your view there? Thanks.

My view is a little bit, but the view we have, and of course we have a more detailed view on the inventory where it is, what we have, And we're expecting, you know, we won't run out of product if there is a heat wave. I mean, it's our business model. So we feel good about the inventory levels and where we are for the season. So we're expecting a good season. There's nothing developing there. And if you have extreme heat waves, you'll be even better. So now we're in a good position on that side to manage those types of situations.

Okay, great. And then also on margins, I found it quite nice that you were able to keep those stable in the quarter despite the drop in volumes. But how should we look on that now with the fact that you're meeting easier comps in Q2 and onwards, the season is getting started and

um i think you've previously mentioned that you don't view 2024 as being the the huge margin expansion year but is there room for improvement beyond these levels as you move into the year no we're done uh no but i would say that you know i still see stable margins as we look throughout the year you know if we start getting of course very good strong organic growth and et cetera, you'll have a nice drop too. But I think it's still early days. I would say here in Q1, we worked a lot with managing margin because we knew the volumes would be down a little bit as you saw. And as soon as we see those things starting to pick up, we'll also pick up a little bit on our investment side of the business. I think we need a couple more quarters and see how the market is going on the margin side. If you start talking about expansion, we always have expansion plans, of course, but right now I think we get a little bit ahead of ourselves to start driving margins. I think it's more related to organic sales coming through stronger than you should expect also the margins to follow.

Okay. And then on cash conversion, are you still targeting pre-pandemic levels?

uh and higher in 2024 no change that guidance nothing changing that guidance so we'll uh and of course here one is a confirmation on that uh that we are on the right track and the plans we have are being executed uh so i say we feel better about it now than we did in q4 but we felt pretty good about it in q4 as well

Lastly, on acquisitions, especially in the US, should we expect deal sizes to be similar to the one that you just announced or will it go back to the range of the two that you announced prior to Young Supply?

Yeah, I think it's a good question and it's hard to answer because it's a little bit how we look at the pipeline. But I think now when we've been working with this company, Young Supply, for quite some time, uh so i think if you look at the us for the rest of this year it'll be a little bit for focus on add-ons uh to this platform and around uh you know tennessee alabama and the places that we are because we have a lot of work now uh finally we're having the commercial platform or refrigeration and then uh you know for 2025 we'll probably be back with with with some uh you know bigger ones but i think the rest of the year it's more of add-ons and tuck-ins that we're looking at at the moment.

Can you say anything about what the US businesses product split looks like now? What percentage of the sales is now refrigeration? I think Heritage was 5% or less than that. What has this new acquisition added to the business mix there?

If I do my math extremely fast in the head, and I'll tell you how well to kick me if I'm wrong, I would probably guess with the development in heritage and this, it's at least between 15 and 20%.

Very good. Thanks, Christopher. Let's see if I was right.

Thank you.

There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Thank you very much for listening in, and of course, if you have any more specific questions, we're here to support you. Other than that, nothing else from us right now, and thanks very much for calling in.