Bergman & Beving AB (publ)

So good morning everyone and welcome to our Q2 presentation. So I will start with the highlights from the second quarter and we had a revenue increase of 2% compared with last year. And this is in line with our strategy that we have communicated before. It's really to focus on the companies that we have having good opportunities to grow with good margins and This effect you can see on the next line here. We have a very healthy strong gross margin development ending up with 48.5% compared with 45.9% last quarter fiscal year So this has actually contributed to the strong profit growth we had in the quarter, but we're also taking a lot of efficiency measure along the way in some of our companies, lowering the cost and also improving efficiency in many dimensions. So this in total has then led us to an EBITDA increase of 27% this quarter. And we are now on an EBITDA margin close to 10%. This quarter ended at 9.8. which also is a significant improvement compared with last year and on the ebt level the improvement is a little bit less there and that's maybe a reason is for the increased financial costs but still we have a growth as well on the ebt we have communicated also earlier that we will continue to acquire a company we have a strong balance sheet and we'll also face a more receptive market currently on the seller side. The competition is less and the multiple expectations is a little bit lower. So we have this quarter acquired two companies, Etab and Sunbase. And we expect also to continue to acquire company along the way. We also improved the cash flow significantly. It ended up at 176% compared to 50 million last year. And this is the result, of course, of the working capital reduction we have done. And this is major than the stock. We had to build up or we choose to build up extra safety stocks during the corona. and we now see the effect of you know working that down but we still are not back on the pre-corona levels so that this is a work we will continue me going forward as well so acquisitions we made four acquisitions this fiscal year so far a new theme is that we are back in acquiring in Sweden and Norway We felt that the kind of valuation expectations in Scandinavia was too far-fetched for us, you know, one, two years ago. But that has come down. So that is one of the reasons why we are more active in Sweden and Norway during this fiscal year. You can see some pictures to the right there on the companies we acquired. We acquired Tima Norie here in Q1. That's a Norwegian leading company within orbital welding. So this is a very niche part of the welding market, and it's a very healthy business. And you can see on the slide, that is part of our strategy. All the companies we acquired had an EBTA margin above 15%. So of course, Tiamat Nori is also above that range. In Q2, we also bought Elkington. It's a Swedish company, expert in hatches used in infrastructure projects. So this is related to the construction industry. But when you look into the market they are acting within, we see a growth rather than the decline like we have in the housing market in the Nordics currently. So we see some good opportunities to develop and grow this company, even if the overall construction industry are facing some challenges going forward. That is also the theme for the acquisition of ITAB we did in the Q2 quarter. And you can see a picture there, it's quite a little bit small, but they are leading and specialized in indoor roof in metal. This is used only in commercial buildings. This is a typical travel center in the city of Örebro in Sweden. They are also very big within the criminal prison sector and so forth. a company working within the construction sector, but in a niche in the market where we also see growth this year and also growth going forward as well. And the last one we did was Sunbury. They are expert in handling fluent materials like gas or diesel or other type of fluent kind of products that you need to have well managed. So this they are focusing in on the north of Sweden and have a very strong position there and also there there's a great demand related to a lot of investments that has been and are been doing in the north of Sweden. So overall we think this is very niche companies and with a proven track record of healthy margins. And we also see some growth opportunities in the sector they are acting within. I talked about the profit EBTA this quarter of 107. On this slide, you can see the trend we have had on EBTA. We have now 15 consecutive quarters with increased profits. Normally the Q2 quarter is the weakest quarter for us, but still we also improved the profit compared with the last quarter. So that I think is a very good proof of the model we are running and the path we are taking. Once again also we have this increased profit margin and you can also see that has been the theme Quarter on quarter, we increased the profit margin the last eight quarters. And we see some further opportunities to improve that. And the improvement of gross margin is, of course, an important element of this development. The revenue development reflects our focus on our high margin business and that we also, by purpose, facing out low margin, high volume products. And you can see here, it's more obvious that actually the Q2 quarter typically is the weakest quarter for us, at least in turnover wise. But we have some overlying growth in revenue, but mainly then acquisition driven. So we had an organic decrease of 7% this quarter, and that is kind of in line with what you have seen also historically. And then we have 2% positive currency effect, and then 7% positive effect or acquisition, ending up with a 2% revenue growth in the quarter. This has been a team, I said before, for many quarters, and this will also be a theme going forward for some quarters as well. I talked about it earlier but we have done one of the main reasons for our good profit development is our gross margin development that has been steadily growing quarter on quarter and we are now in an all-time high a gross margin level and this is mainly the reason the cause of this is mainly that we once again have focused on our high margin businesses But we also acquired new businesses with profit margins and gross margin that improved the average rating of the group. And to the right here, you can see the development of the proprietary products compared with other products. And we had had an increase, but it's not a significant increase if you compare on the last fiscal years. But if you will see any development going forward you will see the proprietary product grow as a percentage of the total that that is kind of part of the Agenda we have to make sure that we over time maintain a good gross margins So I will then hand over to Peter Trump Thank You Magnus and we continue with the earnings per share and

And on this page you can see the earnings per quarter but also the rolling 12-month value. And the main reason you see the slight decrease in earnings per share is of course a rapidly increasing interest rate. And this will level out going forward as the interest rate gets more stable. And if we move into the balance sheet, Magnus talked a bit about inventory, and this graph shows both inventory value quarterly and rolling 12, and also the inventory turnover, that's the black line, and that we focus a lot on since the price increases, increase the stock as well, but also the cost of goods sold. So a lot of focus in this area. And the main reason for the reduction from last year, organically, this is 300 million. And the main reason is, of course, destocking and lowering the safety stock, as Magnus told you before. But we have also worked a lot with this since Magnus came aboard as well, improving product mix, streamlining assortment in all companies. And that also has started to pay off. But still, we're not yet back on the pre-COVID levels of ITO, so the work continues. and then another strong point coming from the same source so to say is the cash flow from operating activities that was really strong in this quarter amounting to 176 million compared to 50 last year's quarter and here of course the improved profitability is a big big factor in this, but the main one is the improvement in inventory levels. Still, we do have some lower accounts payable because we stopped to purchase goods. And as we increase our purchases, we expect that to also add to an improved cash flow when we get the suppliers to finance some of the stock. And then We move on to net debt. On this slide, we have the operational net debt, and that's the green ones. And they are then excluding leasing and pensions. But when it comes to net debt through EVTA, we included the leasing since the depreciation is included in the EVTA. But here you can see that the net debt EBITDA is fairly stable, has been fairly stable, even though the debt has increased. So still we are not... We could add on more debt short term in order to make more acquisitions. And we will continue to make acquisitions, as Magnus said before. We do have a strong acquisition pipeline and

ability to to add on more debt so getting in to the different divisions we have three divisions in the group today so building material this is the division with the greatest exposure to the construction industry But they deliver an all time high result in a double digit profit margin in this quarter. And they also increased the revenue with 12%. That is partly due to some of the acquisitions that is brought on to these divisions. But we have a very strong EBITDA profit growth here of 42% and also very strong EBITDA margin. We are now about 10% here in this division with 10.7% margins. That's a 2.3% increase compared with last year. And the positive thing is that all units within this division improved results compared with the same quarter last year. So this is not kind of one of the companies doing very well. It's kind of improvement across all the group companies in these divisions. And also, as said before, we are running different programs in different companies, and some of them are running improvement efficiency programs. And that has been also a major driver behind the improvements in this division, in a sense. And as you can see here on the lower end, you see the sales development as well as the EBTA and the EBTA margin rolling 12 figures. And this is not an improvement just for this specific quarter. We have a positive trend over several quarters in this edition. So that's very, very good to see. And it's showing the strength of the companies within this group. The second division we have is the workplace safety. This is division in the group that has the highest dependency on Nordic retailers. I mean, most of the volumes for all those companies in this division is run through the Nordic reseller chains. And we have seen some patterns that affect this division during the quarter. One is that they're still working down their stocks. They also build some safety stocks during the COVID period. And they're also a little bit more cautious due to the uncertainty in the business climate. So they postponed some orders that normally we see in the Q2 quarter. So it's very uncertain what we could expect going forward. The upside here is that, you know, the volume started to work down the safety stock and the start order. So we get some momentum here. But still, it's very uncertain. We don't have, you know, weak kind of order backlogs here. It's really order coming in and order delivered in some few days. So it's very difficult to have perspective on what we can expect here going forward. So here we actually have a revenue decrease. We have a profit decrease, both in terms of EBTA, but also the margin is going down. That's mainly due to then the volume. And due to the uncertainties, we have made some cost optimization activities before that we have added during the quarter, some additional measurements here. to adapt the companies to a lower demand going forward. So this is the division that NOT is delivering according to our expectations and here we need to take some actions to make sure they get back on track. The tools and consumption recipients also had an all-time high result and a double-digit margin. So they are also above the 10% for the first time. And here we have a very strong EBITDA growth of 108%, despite the revenue is more in line with the last year. So this is mainly due to improved gross margins in combination with lowering costs in the companies in this group. And the major effect on this profit improvement is related to LUNA. We have been running, as communicated earlier, a kind of a larger, you know, restructuring or cost efficiency project here that now is paying off. So now LUNA has improved the profit margin significantly, despite they have a much lower volume. So this is a very positive effect on Luna and we expect now Luna to be on this level going forward for the rest of the fiscal year. So you can see here the sales within this division has been flat or even down and this is mainly due to Luna and that we are facing out the low margin high volume products. But you can see on the margin and the EBITDA we have a good rising curves in both of aspects and that is something we're very proud and happy of and we can see that this is not a single quarter that tools and consumers had these improvements, but still you should be aware of and that has been communicated. Last year Q2, Luna external logistics supplier had an IT attack that stopped their ability to deliver Luna products. And we communicated in the last year Q2 that they have a negative effect of 10 million on the result of this division. So that is an adjustment you should make to the profit improvement. But still, it's a significant profit improvement in this division, despite that adjustment. So to sum up, we see a good potential to continue to improve earnings. We have a tougher business climate. We had a tougher business climate in Q2 as well. But we see that we can compensate for a lower demand by improving the companies that we have and also add on acquisitions along the way. So what we see today, we still have the ambition to deliver the 500 million EBITDA or latest by 2025-2026. We are on track on that. And we continue what we always have been doing. It's to prioritize profit growth over revenue expansion. And we work is not about, you know, making good strategies is really to be down to earth and have concrete short and long-term goals and activities in all the companies to ensure that the company keeps the eyes on the path without losing the sites on the summits. And we really have a company by company strategy. We have our capital allocation model, the BB focus model. that stipulates the priorities for the different companies dependent on how efficient they are in capital. So that is also a model that has had a great impact on the company's agendas and the strategies going forward. And we as a group have the B&B toolbox that we assist and help our companies in realizing the plans and the activities and the goals that they have. So this is kind of what we always do, but we also have some group themes across the group based on the kind of the business climate and the position we are as a group. So we will continue to increase the focus to improve liquidity. And that's mainly as Peter was showing here. We are not back on the pre-COVID levels in terms of stock and ITO. So we'll continue to work on that, and we still have some potential to improve that. And we have taken the position to be very cautious on asset investment, given the business climate and uncertainties. So that will help to sanction the liquidity as well. And we also have several cost reduction programs running in the different group companies. But we continue to have a tight cost control across the group to make sure the cost isn't running away and not being in line with the revenue development. And last but not least, we had had a very good gross margin development, but it needs a lot of work to protect that development. And that has to be done in different ways. So that is something that we continue to focus on and really make sure that the company have the eyes on the ball on the gross margin and to make sure that they maintain or even improve that going forward. So that was our presentations and we will have the next session for the Q3 quarter on February 9. But we are now ready to open up for questions.

If you wish to ask a question please dial star 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star 5 again on your telephone keypad. The next question comes from Emanuel Janssen from Danske Bank. Please go ahead.

Good morning, Magnus and Peter. I hope you can hear me.

Yes, good morning. Good morning.

Great, good morning. I'm starting off with congratulating you on a strong report, I think, on given these difficult circumstances with both the construction and the industrial market for sure. So I have a couple of questions from my side here. I think like most people or investors, there is a concern about the development in your end markets. And if we look at the historical performance of the major units such as Luna, SVM, Skydda, they have been relatively sensitive to economic downturns historically. And you mentioned, I think this was in slide three or so, that you have acquired units that have the potential to continue to grow despite weaker markets. I just wonder, is it possible to quantify the percentage of group sales which you think can continue to grow despite weaker end markets? if you understand my question.

Yeah. I mean, we haven't made any kind of detailed calculation or all of that, but as you're saying, we have some biggest units within the group. We have typically the focus on improving the profit rather than improving revenues. You saw the . You know, the major part of... We have a very positive development in that. So even in SV, the focus is on profit. It's also the same in Skydda and in Luna. If you add those three up, you end up with about 50 million SEK today. And of course, if they are focusing on profit rather than revenue expansion, that will have some indication of the organic top-line growth going forward.

Sorry Magnus, I'm losing you a bit on the conference call there. Can you say something about the other units and what you think of how they will be able to perform despite weaker markets? I mean you mentioned that they are very niched in and with high profitability, so maybe they are able to perform quite well compared to the other bigger units, for example.

Yeah, as we can see, as you mentioned and also said it before, we see a weaker demand in the construction sector. We see a weaker demand in the Nordic retailers than on customer base. We see some in the industrial sector in the Nordic as well, but still we have to live with this result. And that is of course partly due to that a lot of our companies have a good profit development during the course. That is strengthened by the acquisitions we have been doing. But really, you know, if we look at our 27 companies, you need to go into each specific company to look into their range, their market, their customer base. And they are very different. It's very difficult to give kind of a general answer on that question.

Sorry to say. No worries. I completely understand. If we move on, I think previously it hasn't been stated or maybe not stated, but with the ongoing phase out of low margin products, it has been said, I think roughly that this transformation or ongoing process will be done by the end of 2023. Is that still the case? And

and after that what can you continue to do in order to increase the profitability in-house or like for like yeah it's a very good question i mean we also need to take into the the business climate development into that question If we have a weak requirement going forward and a weak demand, generally speaking, that will also have an effect on the turnover. But the structure facing out the low margin is difficult to say, but I think we have some few quarters left.

Okay, perfect. That's clear. Thank you. And so, I mean, both internal efficiency improvements with phasing out low margin products are important in order to continue to see the profit development. And I think that is also important for you to add acquisitions, which seems to have a very strong impact on the market. in this quarter on earnings. Can you describe the current acquisition market and also how you think it will develop in the short term here if we continue to see weak markets within construction and manufacturing?

As I said, I think I said it in the last quarter report, I mean, one year ago, two years ago, we didn't require any company in Scandinavia. We required companies, for example, in the UK and in Finland. Since before, it's a bit overheated in terms of valuation expectations. And the market was quite crowded with buyers. The market is... It's much fewer buyers. And we think that's the reason why it acquired in Scandinavia recently is that the valuation expectation is coming down. We see quite a good market currently for us. Fewer buyers and the valuation expectation has come down on the seller part. And we think we have a strong offering to companies to be part of our group and help them to develop and grow and still be an independent company, keeping their name, keeping typically the management and not making a lot of integration in the business. So as Peter you were saying, we have a strong pipeline. and we can be selective in order to acquire. So we are very positive on the acquisition market as such currently.

Yeah that sounds good and you think it's fair to expect around five to six acquisitions per year going forward?

Yeah we have said four to six. We have made four so far this year, but as I said before, we don't exclude to make more acquisitions this fiscal year.

Well, perfect. Thank you very much, Magnus and Peter. That was all for me at the moment. Thank you.

The next question comes from Rasmus Engberg from SHB. Please go ahead.

Yes, hi guys. Can you hear me?

Yeah.

Very good. Very good. I had I had two questions. You, you mentioned in workplace safety that you were considering more actions. You know, this seems to be a business which is very volume driven and so on. So I'm just trying to figure out what exactly would you what are you hinting at that you might might do there? That's the first question.

Yeah, once again, when we are approaching activities and so forth, it's really company by company. So it's really a different approach to different companies in the group. But one of the major themes is cost reductions in those companies to kind of adjust to a lower demand. But it's also, you know, you can work with many dimensions. You can improve, you know, your purchasing. You can improve, you know, the way the assortment you are bringing out to the market. It's many things that you can do to improve your efficiency. So we have different type of activities across the group. But one common theme is actually to reduce costs. Additionally to that, we have other activities in the different companies.

So you're not hinting at something very kind of large scale, but it's more that you're continuing to take out unprofitable products, reduce costs, etc. It's not on a kind of a structural scale of things that you're talking about here.

No, no, no. It's more company by company doing, you know, improving

their development. Very good, thank you. And the second question relates to the comments about Q2 being the weakest in revenue. One would have thought that given that you have lower volumes also is weakest in terms of margins. Is that something that still holds true given the changing composition of the group that Q2 has both the weakest sales and typically the weakest margins as well.

Yeah, I would say so.

Very clear, thanks.

The next question comes from Carl Johan Bonnevier from DNB Markets. Please go ahead.

Yes, good morning Magnus and Peter. Congratulations to fantastic profit margin development in the quarter, no doubt about it. It would be good to hear if you could maybe bridge the gross margin improvements likely for us and looking at what you think is your own internal kind of efforts there, what are coming from the acquisitions and still what kind of pricing element you see coming through there compared to the cost. Is this a catch-up, so to say, from a delayed perspective there?

Yeah, I would say that when it comes to the gross margin improvement this quarter compared to last year, it's mainly organic driven, actually, even though the acquisitions add on to that. But it has a lot to do with this project with reducing unprofitable business, large volume business. But also, of course, there's a pricing effect. in that as well. And I don't have an exact number on the pricing, how much the pricing is on that.

Yeah. But listening to your comment, Peter and Magnus, it sounded like you're still enacting, say, pricing moves out there, even though maybe both the FX side and I guess the input cost side might have rolled over for you.

Yeah, it's also company by company, but in some companies we continue to face increasing prices that we need to compensate for price increases out in the market. And in some companies we have a more kind of a stable situation. But I would say it's very few companies where we now face cost reductions still. So, I mean, it's a continuous battle to be able to compensate.

And I'm not sure if we can get you to take the assortment streamlining maybe a step further in indicating of the organic decline of 7% in the quarter, how much might have come out of your active work there, so to say, rather than, say, the other components you discussed.

I would say the majority is from our active work.

Excellent. Good to know. And you said you still feel confident that the majority of, say, the active work is going to be completed basically during this year.

What I was saying is that we're working with phasing out this low margin, high volume products for several quarters now. And that is something that will not come to an end yet. And that will continue for some quarters. But that is just one element of this mix. It's really, as Pete was saying, optimizing assortment. It doesn't have to be low margin assortment. It could be you get some effect, you concentrate some categories to make it... higher volumes, you get lower purchasing prices. You can type of pricing your products in different ways. So by phasing out this low margin products, that will come to an end, but there are still things to do improving the margins in the companies as such. So it's not only dependent and will not only be dependent on this phase out. It's a lot of things you can do in addition with the assortment and the products we will keep over time.

Excellent. And just pick your brain a little on good move on the working capital side in the quarter, obviously, and you indicating that you could get inventory back to pre-COVID level. taking out these kinds of low margin, high turnover products. Isn't that a little counterintuitive or do you need to do a lot of extra things to really realize that kind of inventory term?

Yeah, you have a point. Typically, you have a higher inventory turnover rate on high volume, low margin products. But I would say We also, and that is part, and we have been working well for several quarters and we will continue to work on that to improve the processes in the companies related to manage stock levels. And it has to do, you know, buying points and buying volumes. It's a lot of things you can work on, on top of this phase out.

Yeah, even if you look at pre-COVID levels, there were some potential in improving that in the current business then. So, yeah.

Excellent. And on workplace safety, looking at, say, the headwind you have with the resellers taking down their inventory points for the moment, if you're looking at your positions with these resellers, the listings and the number of SDGs you sell into them, Has there been any major change that might make this more of a challenge to regain your old positions? Because I know a couple of them are talking about, say, creating own brands in your space in workplace safety and so on.

Yeah, it's really a rolling material this with the retailers. Still continuously ongoing different type of activities and themes. And some are going in the positive way for our companies and some are going in the negative way. And we have some new agreement with some major Nordic resellers that will help us to build some volumes that we see in some of our companies. actually gain new you know outlets in the retailer network we haven't actually lost any major but then of course we have this trend as you say some retailer chose to build some own brands and and that has some effect on some of our companies and will have effects and i understand you also indicated that there might have been a delay in their

them buying, say, the high value add products that you normally have in your inventory for the second half. Is that something you would expect to be shorter cycle this time around? And is it possible for you to cater for that volume maybe in a better way than they can do themselves with their own brand?

That is one option. And if we talk to the retailers, the feedback we get is that they are really focus on working down there, working capital levels and stock levels. And of course, if we can help them to bridge that with faster deliveries and lower stock, that is a positive element that we can contribute.

So a good weather effect in Q4, that would definitely be helpful also for you, I guess, in that respect. Yes, it will.

And as I said earlier, we kind of precede the retailers to be a little bit cautious now. The business climate is uncertain, so they don't want to take any risk, you know, buying products now to stock up and then hope for the best. So they choose to really push that forward as long as possible to add additional stock.

It makes sense, but it sounds like you have an interesting opportunity in the next quarter anyway from refilling that within the quarter rather than having it as pre-orders, I guess.

It could be, but it's not something we know for sure.

Obviously. Just one housekeeping question as well, Peter. The IFRS 16 impact on operating cash flow, if you could detail.

It's 140.

140 year-to-date. Perfect, thank you very much and all the best out there. Thank you. Thank you.

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

Yes, so we have one written question from Huvel Franklin at Mirabaud. Do you see scope for multiples to fall further in the M&A market with the economic backdrop? Or would you expect them to be stable? And I would say we are only buying, you know, well-run companies with a proven track record of generating good profit and profit margins and cash flow. And my experience tells me, you know, the multiples doesn't get much lower if the economy is a little bit weaker. So I think the market was a little bit overheated some years ago, but it's more like now normalized, what I experienced during the last decades. So I don't expect the multiples to fall any further. I think now they are more in a normal level, historically wise, and that is the level I expect it to be going forward as well. So we don't seem to have any further questions or more questions. So we thank you for participating in this Q2 report presentation and hope you listen in on February 9 when we present the Q3 quarter. Thank you very much.