Bergman & Beving AB (publ)

And welcome to the Q2 report of Bergman & Beving. This is Magnus Söderlin and I have beside me here Peter Schoen, our CFO. So let's begin then. Just to start with some highlights from the second quarter. So we are proud to announce that we increased earnings, we increased profitability and earnings per share this quarter. And the EBITDA increased 12%, and the profitability that we measure as profitable working capital increased six percentage units. And also, I'm very glad that we now, despite we had 19 consecutive quarters with increased profit, but not an increased earnings per share, that we now have reversed that trend and have a positive development of earnings per share with 12%. And that is, of course, due to that we have easier comparable financial net figures due to kind of the interest rate development, mainly, I would say. We are doing this despite a continued tough market, both within construction and in the industry sector. As communicated earlier, the most relevant KPI aggregated for Bermuda Beving is the number of employees within the construction and the industrial sector in the Nordics. And if you look at that development during the last year, we can see a decrease of 3.4% in number of employees. And I think you will see that later on is partly reflected in the organic development of our revenue. We have stated in the CEO words that diamonds are formed under pressure. We had some tough market conditions during the last quarters, but we have used that to kind of improve the efficiency of many of our companies and prepare them for a better market in the future. So we have continued to reduce cost in comparable units also in this quarter. We have maintained our strong gross margin. We have early communicate that we show that later that we have done a lot of phasing out low margin, high volume products. We are close to an end of that process and that is kind of reflected in the improvement in our gross margin. We have also continued to reduce the inventory. So we have in this quarter organically reduced that inventory level with 180 million SEC compared with previous year. And I'm also happy that all our three divisions is increasing the profit in this quarter. So it's not a single company or a single division that contributes to this profit growth. It's kind of all the activities and the performance we have across the group and across the divisions that have delivered on this profit increase. And as I said earlier, we now have 19 consecutive quarter with increased profit, despite the kind of COVID situation we had some years ago, and now the weaker markets. And we continue to deliver on our acquisition strategy, and I will go into the acquisition we made and what we aim for going forward later on. So let's look into the acquisitions. We have made three so far this year. It's actually one in the Q2 we left. It's Spraylat. It's a part now of the core solution division. And this is a highly niche, highly profitable company. And I can say that much is well, well above the hurdle of the 15% EBITDA margin that we have set for acquisitions. So even if it's quite a small company, it has, I would say, a good contribution to the EBTA growth in the company. And this company is actually having developed a very special fluid chemical that is used to protect windows mainly in construction and renovation projects. So you more or less spray this on the windows and then you peel it off when the construction is finished. And that is a way to make sure you don't damage window surfaces during building and construction. This kind of fluid is also used with a different recipe. to protect solar panels if there is a fire. And sorry, I don't have the time to get into details, but that is a very interesting and promising application area of this one of the products within the Spraylat portfolio. We also made one acquisition here the first day of the Q3 quarter, the 1st of October. It's a Finnish company called Levipynta. And they are doing hardcore laminates. It's really a niche, high-end area of this type of product category. And this is a kind of a little bit bigger company with a turnover of roughly 180 million SEC. And also in line with our acquisition criteria, they're quite a company with a profit margin above 15% and a profitability above 45%. So in total now we have acquired 255 million in turnover, but we still have the ambition to get into the 50 to 80 million earning capacity per year in acquisitions. We are on that route, I would say now, and we aim now to kind of close the gap we have to the 50 to 80 million acquisition earning per annum in the rest of the year. So I said it before, but we now have this 19 consecutive quarters with increased profit. And we also have an increase in the EBITDA margin, as you can see on this slide. And we also now have an increase also in EBIT with 11% and EBT of 14% this quarter. And if you look at this full year period, the full period on this graph, we had an EBTA cargo of 27% in profit improvement. And we are now, I will not say, we are now well above the 10%. So we are 10.5 compared with 9.8. So I'm very happy to announce we are now double digit on the EBTA margin. And that is something we expect to be kind of our new level going forward as well. If we look into the revenue development, you can see on this slide, we have an organic decrease of 3%. That is roughly in line with the KPI of number of employees development in the Nordics during this last, that is actually the Q2 figure, calendar Q2 figure KPI. And we have a small currency effect with a minus 1%. And then acquisition contribute with 9% to the top line, ending up with a total group level of 5%. And showed on the first slide, we have maintained the strong margin, gross margin we have worked on. You can see on this slide, we have a rolling 12, very positive development on the gross margin. as such, and also on each individual quarter. But as we now are more or less to the end of the phase-out, we, of course, expect to have a continued gross margin development over time, but not in the level we have had historically. And that will then mainly, going forward, be through the acquisition we make. with the aim of acquiring companies with very good gross margins and good profitability. We also set the target to reach the 75% of own products. That is part of the journey to continue to improve the gross margin. We are now at 73%. So we have some percent units to get to the 75%, but I think we are on track. to reach that target latest fiscal year 2025-2026, as communicated earlier. So, about targets we have communicated. We have communicated that we should read the profit of working capital of 45% latest fiscal year 2026-2027. We are now at 2029, rolling 12 figures, ending in Q2, September this year. So we are on the traction to get to the 45. We have this year and the next year and one more year to go. So it's two and a half years to reach to the 45. But we have activities and potential to reach the 45. So we still are heading for that target. We're also communicating data that we should reach 500 million latest fiscally at 25, 26. That's one and a half year from now. We are now rolling 12 in September at 391. And I still feel it's possible to reach the 500 million. And of course, that is partly dependent on that we get some better underlying market, of course, to get to the 500. But hopefully we will have that in the next coming quarter, a kind of a pickup in the market that will help us to get to the 500. And lastly, we have set the EBIT margin target to reach 10%. We are now rolling 12 in September at 8.1. So we have a continued improvement also in the EBIT margin. And what I can see today, we should be able to reach 10% in one and a half year time from now, based on that we make improvements in the companies that we already have in the group, in combination that we continue to acquire, as shown earlier, highly profitable companies. So with that, I will leave over to Peter.

Thank you, Magnus. And the next slide is the EPS. And just as Magnus said, we now have 19 quarters with increased EBITDA profits. But as you can see, the last two years, we have had a sideways development and even for some quarters a decreasing earnings per share. But now, due to a bit lower interest rates and also that we have had a really good cash flow. So the net debt is also under control. We see that we now have reached a turning point again for earnings per share. So we will stay on the course on increasing the earnings per share as well as the EBITDA going forward. And the inventory level? As you can see in the report, it's also a bit sideways. Organic inventory reduction since last year is 180 million. So we've done a lot of work, as you can see in this slide, since the beginning of 22-23. And as we have said earlier, we won't have the same development going forward. we do still have potential for reducing the inventory and increasing the inventory turnover. And normally in Q2, we have a seasonality that it's normally a bit higher, because now we're going into, call it the high season for a lot of companies within safety technology and some of the old companies within industrial equipment. such as Luna, for example. So yeah, we will reduce inventory going forward, but it will be in a slower pace than it has been the last year or two years. So cash flow from operating activities. And as we state here in line with expectations, it was in line with our expectations. And the reason for that was two things. One is that we have a seasonality effect. If you look at the same quarters going back, it's a bit lower cash flow than average. And also that we had really strong Q1. So we do have maybe a bit of effect from that as well. So I think one maybe new thing is that we have purchased the goods a bit earlier due to the logistic challenges from transportation from Asia. So we have paid some of the suppliers in this quarter. And also that the customers are really careful and not buying too much. So they buy more gradually. every month what they're needing. So for the winter products, it's not like large shipments, it's more gradually. And the net debt situation, as you all know, we've done a lot of acquisitions the last year, but been able to keep the net debt on the same level. And of course, now when we don't have same extremely high cash flow, we will increase the net debt. But I think the net debt EBITDA will be around maybe two and a half going forward. So between two and three, we've said that we will keep it long term. Good. And one important thing is that the acquisition target remains intact. We do have really good credit facilities and we do have the cash flow under control. So we'll just continue doing the acquisitions, as Magnus mentioned, the 50 to 80 million per annum. So, yeah.

So let's go into the different divisions then, starting with the core solution. And the core solution companies still facing a slow market, but managed to improve profit and profitability during the quarter. And the biggest company in this division is the SV, the fastening company. And they are now facing a weaker demand in the Nordic as well in the Eastern Europe countries where they are present. But despite this, SV in Sweden, which is one of the biggest markets for SV, is increasing the turnover. And that is due to the taking, have been taking new customer contracts. That is now rolled out in Q2 and will have a continued rollout here in the next two quarters. So we also acquired Spraylet as communicated and Levi Pinta into these divisions during this fiscal year. And as you can see now, the EBITDA present was a little bit down in Q1, but it's now picked up again, despite a weaker kind of revenue that you can see on the left slide here, the rolling 12 figures. And also the EBITDA in absolute terms is now picking up again. And hopefully we will see that trend going forward as well. So a little bit weaker demand, a little bit weaker revenue, the 3.4 compared with 3.46 last year. And as you can see, the EBITDA is increasing in 5% to 39 million this quarter. This is typically a weaker quarter for core solutions. And the EBITDA margin is steady above the 10% and increased with 1% compared with previous year, now at 11.7. And that is partly due to acquisition of highly profitable companies with good margins in combination with improvements in the companies within the division. Safety technology, they have improved profits by revenue increase, improved gross margins and lower costs. As you can see on the graph below here, this has really been kind of a division with weak performance, both in terms of EBITDA in absolute terms as well as EBITDA margins. Despite, as you can see on the left side, the revenue has been a little bit weak, some quarters, but not really a big decrease in revenues. And that has been due to that the gross margin kind of improvement hasn't been there as expected, and the cost has been too low. And that has now been addressed. And you can see that that has affected the profit and the profit margin as such. And that is putting also the division in a stronger position when the markets start to pick up here. And as communicated earlier, we have a new division head. He started here early in the Q1 quarter, Erik Persson. And Fredrik Valentin has now left the group. As said earlier, we have now a positive development in many companies. Five out of seven companies is showing increased profit in this quarter. And Skydda is one of the biggest companies within the efficiency. And here we have taken a lot of efficiency measurements along during the last two years. And that's still in continuations. And we have some, had a lot of product phase out of low margin, high volume project. And that has now had an impact. Both on the gross margin development, but also the profit development. But Skydda still has an underlying slow market. But those type of activities, lower cost and improved margin has helped the performance of Skydda. So on a division, we have a revenue increase, even if it's only 2%. That's positive at least. But here we have a really strong EBITDA improvement with 53%. We're ending up with 29 million in this quarter. And also a significant improvement in the EBITDA margin now at 8%. But this division should absolutely be about 10%. So this is hopefully a start of a journey getting back to the 10% profit margins. And lastly in the industrial equipment division, The profit continues to grow and in this division is mainly driven by acquired companies. As communicated and said earlier, the Nordic industry customer demand is stable, but on a lower level. We don't see any signals actually that that will improve in the next coming month. We still face a lot of uncertainties also within the industrial sector in the Nordics. And that is, I would say, relevant for all our divisions. And the Luna, we had made some major cost reductions during the last quarters in Luna and also made some product phase-outs here that had had a positive impact that outweighed actually the slower market that Luna now is facing. So it's kind of the same theme as on Skydda. Improving the gross margins and reducing the cost and by that compensating for a weaker top line. So here you have that best revenue increase with 13% and the EBITDA continue to increase here by in this division is 10% reaching the 55 million this quarter and the EBITDA margin is 12.1% compared with 12.4%. And I now see they are stable about the 10%. And I think this is more kind of a quarterly effect as such. And I expect them to be a kind of on this level or even improving over time. And as you can see on the graphs here, it has been a steady development, both in terms of the EBTA development. And also you can see this is the vision that Histodurica have had the best revenue development. And once again, that's mainly due to the acquisition we made. Here, Luna is a big company within the division, and they have had a declining revenue for many quarters, and that has then well been compensated by mainly acquisition made in this division. So to try to sum up what we are aiming to do going forward to reach the 510 and 45, that we have communicated. We will continue to do what we'll always be doing, focus more on profit than revenue to make sure we grow the profit over time, not so focused on growing top line. And we will continue to allocate capital according to our focus model, i.e., companies that in our model is in the red zone, then having a profit of working capital below 25%, we don't want them to grow top line. We want them to focus on reduced cost and improve the margins. So we don't allocate growth capital to those. Instead, we allocate the growth capital to companies in the green zone, and that is companies with having a profit of working capital above the 45%. Those companies who want to grow the top line And they can do that both through organic growth and invest in measurements to get that going, as well as doing add-on acquisitions. We will continue on that. And it's really company by company strategy based on where they are in the focus model. And we also make sure they have goals and activities aligned with our capital allocation models and where they are in that model. And of course, we add value to our companies through our BAB toolbox. It's different type of measurements we have to support our companies in the development, based on where they are in the focus model, of course. And we will continue to acquire companies in line with our acquisition strategies. And then we have some current themes in the group, and they haven't changed much since the last quarter. We will continue to work on strength for our cash flow. And that is mainly through improving the stock levels and mainly then the ITO levels as a first step to get back to the pre-corona levels. That is 2.5. And we are now at 2.1 on the group level. So we still have some work to be done there. And we are still very cautious on assets investment based on the kind of uncertain underlying markets that we are facing currently. And on the same theme, we still have a tight cost control and we have a lower kind of cost increase on the group level compared with a revenue increase. And that is kind of a balance I think is good and that we should continue to have going forward. And as communicated, we continue to kind of have a strong gross margin and really work company by company to make sure we protect that good gross margin that we have had during the last quarters. We still make some price increases in companies, but it's much, much tougher now to get them through at customers. And it's really a lot of things that need to be done to make sure we continue to protect and improve our gross margin going forward in the companies that we own in the group. And lastly, and that is maybe a new theme since the last quarter, we don't see many concrete signs that the underlying market is picking up. But based on kind of the interest rate development and the investment that is done, we hope at least maybe starting beginning 2025 that the market will pick up in To some degree at least. And we are now preparing to capitalize on that economical kind of pickup that we hope will materialize here earliest, I would say, beginning 2025 now, as we know today. So with that said, we now open up for 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 Zeno Engdalen Ritchuti from Handelsbanken. Please go ahead.

Yes, good morning Magnus and Peter and thanks for taking our questions. I would just like to start out in safety technology, of course a great improvement there. I would just like to hear about how you're feeling about the sustainability of the improvements when you were looking ahead in that segment.

I would say if you look at the comparable figure, I think they were too low. So I think it's more getting back safety technology to where they should be. So I think they were underperforming if you look at the Q2 quarter last year. So this year is more in kind of in line with what they should deliver. And I would say there should even be some improvement opportunities on the level they are today.

Yeah, if you look back two years, they made like 35 million... in this quarter and now it was 29. So still it's an improvement for sure for last year, but it was also a very weak quarter last year.

Very good. And going into the cost measures, which you're mentioning that you have implemented, but have not yet reached their full impact. Can you elaborate on what kind of, roughly on the proportions, which how much we're seeing in this quarter and how much we should expect when we're looking ahead.

I mean, we have been running efficiency activities across the group for, I would say, the last two years. In some companies, we have extended those activities or expanded those activities along the way. And there are many kind of cost elements that we have been working on. But of course, one of those is number of employees. And as you know, it takes time to get out that cost out of the system. So we still have some delay effects on the kind of decisions and activities we already implemented in that respect. But we don't communicate how much of that effect we will have in exact terms going forward. But there are several million still that we will get out of the systems in the next coming quarters.

Okay, thanks for the clarification. And last question from me, given that you might be a bit more, I don't know, pessimistic to the economy than before. And when you were seeing this, maybe this pickup earlier in 25, if we were looking at it from the context of acquisitions, does that make you more cautious when you're evaluating targets and being confident that you're paying the right multiples on sustainable earnings?

It's a very good question. I mean, given the economical situations in the companies that we have continuous dialogue, we face also in some of those companies weaker kind of trends. And we take different measurements in those types of situations, but one of the measurements is kind of that we delay or push the kind of discussion forward just to outweight and see if and when it picks up. So without saying too much, there are several cases that we have a little bit on hold currently based on uncertainties in the markets. But some of the companies still have good tractions and are still facing kind of good demands. So in those instances, we are willing to get to a closing. We have made three of those so far this year.

Okay, great. Very good. I'll get back in line.

The next question comes from Albin Nordmark from Nordia. Please go ahead.

Hello Magnus and Peter, thanks for taking my question. So first you mentioned some cost measures there as per the last question. But are you increasing costs as well in some areas in terms of capitalizing and improved economic situation as you mentioned there lastly in the presentation?

Yeah, I mean we have our focus model as I mentioned earlier. that is guiding how we allocate capital across the group. And the majority of our companies in the green zone, i.e. those are companies where we like them to grow top line. And in some of them, we now currently, of course, invest to grow those companies, especially in those companies that are facing a weaker market. We have those companies in the green zone as well. So yes, we are making growth investments in several of our companies currently.

That makes sense. And then for the M&A market, has anything changed in terms of activity and is there a difference between the countries in the Nordics?

I wouldn't say it's a big kind of change. I feel that there are... many processes and I guess that's also in other companies that is kind of delayed due to the uncertainties and the lower kind of trends they have currently due to the market conditions. So my general impression is that there are a lot of activities, but maybe that isn't reflecting the number of closings due to kind of the uncertainties that many companies are facing currently. My estimate is when the market starts to pick up, that the activity level actually will go up.

Any sense of when the market starts to pick up?

Yeah, it's very company by company once again. I mean, if you look at our company, we have some companies with having, you know, a great kind of increase in demand currently. And some companies really facing, you know, significant weaker demands. So it's really company by company. You cannot generalize. And that is dependent on where they are present in different markets, different geographies and different product categories as well.

Lastly, which market and product category is the most positive one?

I go back to our focus model. I mean, most of our companies in the green zone are actually having decent or good market conditions. And that's still the majority of our companies. Then the challenge we have is that some of our bigger companies like Luna and Skydda and also Estash mentioned on a kind of company level have weaker demands and that is of course affecting on a group level since they represent you know close to yeah it's more than half of the revenue on a group level so those three companies have an impact on the total as such

Great. That's very helpful all for me. Thank you.

Thank you.

The next question comes from Emanuel Jansen from Danske Bank. Please go ahead.

Good morning, Magnus and Peter. Thank you for taking my questions. Regarding the market here, can you see any change in activity from the resellers? I mean, looking at the development in the safety technology division.

Yes, we can see some kind of indications. One is that we have communicated earlier, I would say more or less all the resale in the Nordic has really worked on their stock. And maybe some of the effect is now that they need to kind of fill up part of the stock. They kind of run dry. At the same time, as Peter was indicating, they are really not building stock ahead of demand. So we see that they are much now cautious ordering lower order quantities and to get those deliverers more speedy. But generally speaking, we don't see any indications from the reseller that they see an increased demand in their markets.

Okay, perfect. That's very helpful. Thank you. And I think in general, looking at the recent years of acquisitions, at least my view of it is that you have focused or maybe increased the number of companies in the group which are more related to maybe the industry versus the versus the construction segment? And if you still see some uncertainties within the industry, how do you expect these new B2B companies in the group to handle a downturn? And would you also say that these new companies are as dependent on the number of employees as the older companies in the group is?

To answer your last question, yes. The correlation to number of employees in the new companies you acquire are less relevant, I would say, generally. I think if you look at the kind of old companies within safety technologies, it's very, I would say, directly related to number of employees. If you look at the LUNA, business is also very much related to number of employees as well as I would say partly SV even if it's more like to the construction sector as such. So if we look at the new companies I mean we made some acquisitions in the UK during the last week, last year so they are not kind of correlating and also if you look at For example, Levi Pynta that we acquired in Finland. If we look at Itab, this inner roof metal product company, and those are not related to number of leads to that degree. So I think that KPI over time will kind of lose in significance. If we then go to the kind of... what type of companies we have acquired and will acquire. I haven't made the count, but for me, it's not so overweighted to industrial-oriented companies. I mean, look at Levenpynta Spraylatt. That's more to the construction sector. We have Itab, Keylax, and some other companies we acquired last year that is related to the construction sector. Elkington as well, by the way. So... We have acquired companies within the construction sector mainly focused on infrastructure and the commercial building segments that hasn't had close to that kind of decrease in the underlying demand that the other parts of the construction sector have had. And many of those have had a very positive development during our ownership. I don't see that there will be a preferred type of focus on the industrial construction sector going forward in terms of acquisitions. I think it really, once again, will be company by company and making sure that the company are addressing sub-segment, sub-markets that we think have a positive development over time and that the company have a strong position in that niche. and can leverage that underlying growth in that specific market.

Perfect. That's a very good answer, Magnus. Thank you very much. Maybe a last question from my side regarding on trying to capitalize on the... When the market recovers here, do you think that there's any need of any significant growth investments that are required in order to capitalize on the market when it recovers, do you think?

No, not significant. My expectation is that the efficiencies measure we had taken during the last quarters, that we will kind of benefit from that when the market is picking up. So with that said, my expectation is that the revenue and the top line should increase and the gross margin and the cost base should be kind of more or less on the current level.

Okay, great. Thank you very much, Magnus and Peter. That was all from me for now. Thank you.

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

Yeah, so we have some additional written questions. What is the main reason for the decrease in revenue in other countries? I think that's more or less the business climate in certain geographies. I think that's the main reason for that. And regarding the gross margin, what are the key drivers going forward with respect to potential improvements? Is it mainly acquisition, for example?

Yeah, as I said, we have been working really to make sure our companies are focusing on the market segments and geographies with the best kind of business conditions. And we are getting to the end of that now. We have made a lot of efforts facing out low margin, high volume products. And same by that. That kind of organic improvement in the gross margin, you shouldn't have a high expectation on that improvement going forward, even if I still think there are some potentials. So the future growth in gross margin will be mainly driven by the acquisitions that we aim for going forward.

Good. And then the next question is, what share of revenues do LUNIA constitute now compared to two years ago in industrial equipment? I don't know. We don't really give that kind of numbers, but I would say it's, yeah, I think it's around 15%, I would say, percentage units difference without being more specific than that. Good and then the next question is what is the other operating income items and what is the impact on EBIT from these items? So and the other operating income items is generally changed of the exchange rate changes insurance contributions so Yeah, I guess the effect is is the amount that you see there, yeah Good Okay, we don't have any more written questions what I can see and nor no more in the in the queue for any

direct questions so if there are no further questions I thank you for participating in this is report presentation and the Q&A and looking forward for to talk to you again in the next quarter presentation thank you very much thank you very much