Bergman & Beving AB (publ)

to the Bergman & Beving Interim Report for the quarter ending December 2023. My name is Magnus Söderlind and I'm also here online with our CFO Peter Schoen. So I will start with some highlights from the third quarter. Our positive earning trend continues. We have now 16 consecutive quarters with improving operating profits. And this is despite we are facing a deteriorating market condition, both within the construction sector, but we also felt a kind of declining demand in the industrial sector during the last quarter, last calendar year. And we have a very strong development, profit development in two or three divisions. Building material and tools and consumables are performing very, very well, I would say. But the workplace safety division is not performing according to expectations. And I will come back later in this presentation specifically on the three divisions. We acquired actually eight companies during the calendar year 2023, and we made two acquisitions in the last quarter. Ateco is a Swedish company leading within fire security solutions, and the English company Orbital Fabrication in December. that is a leading product company making systems for gas management, especially within production facilities. So getting into the financials, we have a revenue ending up at 1.187 million SEK, and that is a decline of 4% compared with last year quarter. And this is an effect of our continuous work in phasing out low margin, high volume products. And you can see that the gross margin has had a great development with close to 4% units improvement in the quarter. And that is actually mainly coming from the organic work we have done with the businesses, but also partly improved by the acquisition we made of high margin businesses. But on a total, we had an organic decrease of the revenue that was a two-digit figure. And that is partly explained by the phase out of low margin, high volume products, but also that we're facing tougher market conditions in this quarter. And due to this, we have made a lot of efficiency measurement and lower cost in many of our companies, especially with that doesn't perform according to our expectations. And that we also see that the cost level is coming down on a group level. And we have still costs coming down going forward as all the cost is not out of the system yet. So all this together made us improving the EBITDA by 7% compared with last fiscal year. And the EBIT margin continued with 1% units. We're now up to 9.3 in this quarter. And the EBITDA ended up at 7 compared with 7.1. And that is due to that we have increased financial costs due to the interest rates increase that we had. We continue to work with improving our cash flows, mainly by reducing inventory. That was kind of residual from the corona situation where we, by purpose, build extra stock. So we have a factor of four increased in cash flow compared with previous year. We made two acquisitions, as I said in the last quarter, the calendar year 2023. But we made so far this fiscal year six acquisitions, two acquisitions per quarter. And as communicated earlier, we are focusing on buying, you know, product companies that have a leading position in the niche with good financial ratios already. So all acquisitions we made had an EBITDA margin above the 15% that we had set a hurdle for acquisitions and also have our profitability measure, profitable working capital, above 45%, that is our group target and such. So we continue to build the group with market leading product companies with very good financial figures. And in total, this adapts with 450 million SEK so far this fiscal year in acquisition add-on revenues. You can also see that we have started to acquire companies in Scandinavia again. Five of the six acquisitions we made in this fiscal year has been in Sweden and in Norway. And some years back, we didn't buy any companies in Scandinavia due to the we thought that the pricing level was too high. So during that period, we were more focused on Finland and the UK. But now we see the prices is coming down in the Scandinavian countries, and that has enabled us to close some very good deals in the Scandinavian region this fiscal year. So I said initially we continue the positive EBTA trend and that is something we have aim of to continue to do over time. So we have also as you said here both in absolute terms we increase the EBTA quarter on quarter but also the margin has a very positive trend. And I don't think we have seen the end of this improvement in the companies that we have already today. On this slide, you see the revenue by quarter. And if you compare the revenue this Q3 quarter compared with previous Q3 quarter, you can see this decline of 12%. We didn't have any currency effect in this quarter. But we had a positive effect on the acquisition we made, 8%, and then ending up with an actual of 4%. So once again, we have an organically declining revenue, partly due to the phase out of low margin, high volume products, but also that we're facing tougher market conditions. And I would say the majority of this minus 12% is due to the market conditions. But still, we're able to produce a profit increase. And once again, that's due to that we have a very positive trend in the gross margin. And we see the effect of the cost reductions and lowering cost activities were done across the group, even if we haven't seen all the effects yet in the numbers. And as earlier said also, we are focusing both organically, but also in terms of acquisition to acquire high margin businesses. And that's translated typically into own product companies, proprietary product companies. And you can also see in the figures on the right here that we have an increasing part of our total business is related to our product companies. So we have a steady increase, even if it takes time. And we have set the target to reach the 75% here over time in portion of the own proprietary products on a group level. So I will now leave over to our CFO, Peter Sjön.

Okay, thank you, Magnus. We'll start out with the earnings per share, maybe the not so positive thing in the report. As Magnus mentioned earlier, we had a decrease in earnings per share. And of course, that's the higher interest rate affecting the quarter and has done so the last four quarters, I would say. Hopefully, going forward, we'll see stabilizing interest rates so we can continue increasing our earnings per share and also the interest rate. going down a bit. So let's move on to the inventory, where we've done a lot of good work. Organically, the inventory has been reduced with the 260 million since last year, Q3, and the acquisitions has added 80 million. So we are continuing with our three main themes, decreasing safety stock, decreasing high volume, low margin businesses, and improving product mix and streamlining assortment. So we've been working with that. But as you can see in the last quarter, the decrease has not been as great as before. So a bit slower rate in destocking. And that is, of course, due to a bit lower, weaker sales. But we will continue working on that and the inventory will come down as well. So we expect that to continue the good trend. The lower sales also impacted, of course, the inventory turnover negatively. But that is, of course, the reason why we use inventory turnover. So if we reduce sales, our companies should reduce the inventory accordingly. And then to the positive thing in the report, cash flow from operating activities. Very strong cash flow in the quarter, and we have had that the last year. And the main reason, of course, is improved profitability and Reduced inventory levels. In this quarter, we had an extra boost, I would say, of normalizing, almost normalizing accounts payable. As I mentioned last quarter, we had a really low accounts payable because we stopped buying products. And we have slightly starting to buy a bit in the companies. So that has come up a bit. So that was a boost. But then, of course, the lower sales also gave a positive cash flow, and that's maybe not so positive. If we move to net debt, here you can see that we had a decreased net debt, and I think that's a really good strong position as well we made acquisitions of 133 million and still we managed to reduce debt and over the last year in the period we did 300 million in acquisitions and the debt is really stable so we feel very confident in that and we do have a very strong acquisition pipeline so we will continue doing acquisitions one thing that i want to i come back to that good oh no yeah good i just want to say that the next quarter's cash flow is normally a week quarter so i should have mentioned that so Let's go back here. As you can see, the normal Q4 cash flow is a bit weaker. And I think you should expect a bit weaker cash flow next quarter due to seasonality. But then we should continue our strong cash flow.

So getting into our three divisions then, building material had a profit increase of 55% despite the construction industry exposure. You read a lot of things about residential new buildings. That is very low in the Nordic regions, but our companies are not so affected of that specific segment of the construction sector. It's more related to renovation. of residential building and then more into commercial buildings and infrastructure projects. So we cannot say that we will have a big effect on the underlying demand in the construction sector that would affect building materials in a negative way going forward. And I think this figure in this quarter shows the strength of the resistance of the building material divisions. despite the market conditions that we face on a roval level in the construction sector. So we also have a revenue increase of 8% and an EBTA margin improvement of 1.5% compared with previous comparable quarter. And all the units within this division improved the results compared with the same quarter last year. So it's not a single company that generates this great profit increase. It's actually all over this division. And it's a combination that we improve efficiency in some of the companies and added on some acquisition that has been the driver behind these improvements. Getting into the workplace safety divisions. And here, as mentioned in the introduction, we are not happy with the results. Here we actually see a revenue decline and also a operating profit decline. And we also see that the margin is going down in this division. And we have made cost reductions before this quarter. We made additional cost reductions during this quarter. and we have initiated during the last quarter additional cost effects reductions that will affect quarters going forward but but we need to see this workplace safety division back on track and perform a profit growth over time and we need to make that happen very soon because this is not satisfactionary Lastly, the tools and consumer division had an all time high results and had a double digit margin in this quarter. And this despite that this is a division very exposed to the industry segment. And as I said before, we faced a weakening market during the quarter. And you can see on the revenue figure that it's actually going down with more than 60 million, more than 10%. But the EBITDA increased by 27%. So very strong profit increase and also very strong margin increase, as you can see on this picture, close to 3% units. And this is a combination of mainly two activities. The one is that we have made profit and margin improvements in, for example, Luna Group, where we had take some major cost reductions already in previous quarter that we now see the effect and also facing out low margin, high volume products. So the Luna actually had a result almost on par with the previous year, despite that we have an additional 5 million extra profit previous year due to the backlog we had from the external logistic partner since they had an IT attack that didn't enable Lumna to deliver in the Q2 quarter last year and then had an extra backlog in the previous Q3 quarter. So we had a very positive development. The acquisition has developed in a very good way. So, this is a very satisfactory result that we had in the tools and consumers divisions. During the last quarter also, we announced some additional financial targets. We had earlier communicate the target to reach EBIT 500 million SEC, latest fiscal year 25-26. We have now added during this quarter an EBIT margin target that the same period reach at least 10% EBIT margin. We also set the target to reach our profitability measure, profit of working capital, of 45% one year later. And we have this as an internal target. We call it 510.45. We summarized those three targets internally as well. And we have not changed the dividend share. That is 30 to 50% of the net profit. But we also added targets around acquisitions. And we are now communicated that we will acquire going forward 50 to 80 million SEC in combined annual earnings per year. That is in line with what we did last fiscal year. and that we should reach 75 percent own product as a percent of the total group level latest fiscal year 25-26 again. So how will we reach the 50-10-45 targets? We will continue what we always do, prioritize profit expansion over revenue expansion. We have, as earlier communicated, our capital allocation model, the BB focus model, that we have been in use now in the group for two and a half years. And we will even follow that even stricter going forward, i.e., we will allocate the capital for growing companies that have a profit of working capital above the 45%, and have a profit growth potential. And actually, we will continue to focus on profitability, margin improvement, cost reductions in companies that is way below those target level. And that could also include a top-line decrease to get a better focus on better margin business. As we also communicated, we have 29 companies in the group now, and they are all separately run. They are a separate entity having different products addressing different customers in different geographies. So it's really company by company strategy. But we have goals and activity in all those companies that ensure that they keep the eye on the path without losing sight of the summits to get above the 45% and make priorities and actions according to where they are in our capital allocation model. We also have supporting our companies in the development. So we have the BNB toolbox that we will continue to offer and apply in the group to help the companies to make good progress on the activities and the goals that they have. And we will continue, as Peter was saying, we have a good net debt EBITDA ratio. we have the capacity to continue to acquire and we continue to acquire highly profitable b2b companies with leading position in expansive niches we also have some specific current group teams based on kind of where we are today and one is to to continue to increase the cash flow and the major lever for that is to continue to reduce the stock improve the inventory turnover and to get back to the pre-corona level. We are still not there, so we still have work to be done. We have made some good progress, but we are not happy yet. And based on the kind of uncertainty in the market conditions, we are very cautious in investments and we have a tight cost control and we really follow the cost of goods sold percentage very closely in all our group companies. and really make sure that we have a tight cost control and many companies also have cost reduction programs going on currently. We also showed the great gross margin development we have, but that we can't take for granted that that will remain on that level. So we have activities in all our companies to make sure we protect the good gross margin development and position that we have. in our companies. So, that were our presentations for the quarter report and we now open up for questions.