Fagerhult Group AB

Hello everyone. Welcome to the presentation of Fagerlöf Group's first quarter results for 2024. My name is Magnus Hegemajt and I am the head of Mergers & Acquisitions here at Fagerlöf Group. On the call today we have our president and CEO Bodil Sonneson and our CFO Michael Wood. The presentation will start with Bodil giving us a brief update of our results for the first quarter. Bodil will then continue to update us on some strategic highlights and innovations launched during the quarter. After that, Michael will follow up with more details about the performance of the group and Bodell will conclude with a brief recap. And afterwards, we will open up for questions. We will first allow questions from the conference call. Then we will allow for questions from the webcast. You can post questions in the chat window on your screen and I will read them to Bodil and Michael. Before we start, let me also remind you that today's session is recorded and will be available on our website later today. With that, I hand over to you, Bodil. Please go ahead.

OK, thank you, Magnus, and welcome, everyone, to this Q1 2024 webcast. So the first quarter was a good quarter for us. and the third strongest in net sales that we have ever delivered. So we continue to see megatrends supporting our strategy with updated EU directives with regards to the so-called European Energy Performance of Buildings Directive, where an update was voted in Parliament in March. I'll give you a brief update of this. And of course, the main goal of all these directives is to renovate Europe. And this is very much in line with our focus on renovation and retrofit, where we see continued development and we expect that this will increase as awareness raises and legislation becomes national. New build activity remains subdued, although we see some positive signs and a big variation in geographic areas. Also confirming this is that we had a solid order intake growth in both collection and premium business areas. Professional infrastructure had tough comparative numbers from last year, where Q1 2023 was a combined 26% higher than the annual quarterly average. We also saw positive development of gross profit margin in all of our four business areas. The focus remained pricing management and now also turns to material cost reductions. Innovation activities with launch of circular products remains high, and I will present you an example today from Atelier Lichten called the SuperDuper tube, which is a truly sustainable product and even compostable. The base material in the product housing is hemp. We have also published our sustainability report during the quarter, and we continue to make progress And we reduced carbon emissions overall, including both Scope 1, 2, and 3 in 2023 with 24% compared to baseline year being 2021. And we have reduced Scope 1 and 2 since our baseline year with 39%. As an example, under Scope 1 and 2, we have increased our use of renewable energy to 75% in our own operations. We have increased the solar park at the Egizini factory in Reconati to 10,500 solar panels, and that cover approximately 55% of our own energy needs at the site. So let's have a brief look at the numbers. And order intake in Q1 was 2.1 billion Swedish crowners. which represents an organic decline of 3.3%. The two main reasons for the decline is related to that we had big projects in the same quarter last year and the Easter effect that slowed down the order intake at the end of the quarter. We've seen the levels coming back at the beginning of April in a good way. The net sales declined with 2.2% and in numbers we achieved 2,180,000,000 Swedish kronors. And in EBIT numbers, we delivered 220 million Swedish crowners with a 10.1 EBIT margin. And earnings per share was 0.78 Swedish crowners. And in the first quarter, still impacted by the financial costs. And we expect this being neutral going forward. So in our quarter reporting, every quarter, as you know, we give a flavor of our strategic group focus areas. And today's focus will be a different part of our sustainability agenda. And as you know, this is an integral part of our business strategy. When sustainability and business goes hand in hand, it becomes a win-win situation and gives a very clear direction for the group. So this time, I will give you an update how the regulation in Europe continues to evolve and is supportive to our strategic direction in the aspect of renovation and smart lighting. I will also give an understanding of how the EU taxonomy works with regards to the lighting industry. And I will mention a few of the renovation and refurbishment business models we work with in the different brands, with the goal of taking us towards circular business models. I will end by presenting another great example of sustainable innovation in the group, and this time from Atelier Lykta. And as you know, we have a global presence with our 12 lighting brands and two smart lighting brands. So we cover almost all professional lighting markets with sales into 10 professional customer segments or application areas, as we call them. Everything from office, critical infrastructure, urban spaces, hospitality, culture, et cetera. So we mentioned briefly in the last webcast call, the EU Energy Performance of Buildings Directive that was published in December 2023. And its goal is to promote improvement of the energy performance of buildings within the EU to reach net zero by 2050. And member states must incorporate these changes into their national legislation, not later than spring 2026. It's up to each EU country to make a national transition in line with the directive or sooner. And if we look at the buildings in Europe, it's the single largest energy consumer. And 85 of EU's non-residential buildings were built before year 2000. And that is around 220 million buildings. And among these, 75 have a poor energy performance. So acting on the energy efficiency of building is therefore key to saving energy and achieving ethereal emissions and a fully decarbonized building stock by 2050, particularly for the worst performing buildings in each country. And this time what is new in this directive that we haven't seen before is that EU is particularly pointing at smart lighting to be part of the solution. For example, the directive says light should communicate with relevant connected technical building system. And this was voted in the Parliament on the 12th of March. And that means it's both approved in Parliament and in the EU Council. And the updated mandate calculates and reports buildings' carbon footprint and is a significant expansion from the former directive. So it starts with buildings exceeding 1,000 square metres in 2028 and includes all buildings in 2030. So it includes zero emission targets for new buildings. And there is a lot of different initiatives in renovation as well. So the next step is publication in the official journal. And then it enters into force. And as I said, national legislation at the latest in spring 2026. So we have we've spoken about this before here. We mentioned a few. So we have launched several renovation and refurbishment concepts around the group. to develop our circular business model, and it's perfect in line with this new European legislation. So we renew, we reuse, and we build existing lighting solutions, and then we always add smart lighting to optimize energy efficiency, decrease carbon, and get use of the latest lighting technology. So we have an advantage with our local presence close to the customer, and we have an effective low-carbon footprint reduction which is experience to work with customer-specific solutions, which is crucial in renovation. So on the slide, you can see examples from four of the different brands. The first one is called Second Life from Atelier Liechten. They work with the outer frame, and most of the components are preserved, but the inside is filled with new technology. And in Whitecroft, the renovation concept is called Vitality Realized, And Whitecroft is focusing on the UK market and the numbers in the UK and legislation is very similar to Europe. And Fargo Halls, the concept is called refurbish. And when refurbishing, we always make sure that we install smart lighting from organic response to optimize the energy efficiency. In addition to renovation, we also do so-called retrofit, where we keep the housing and only change the electrical, electronic components inside. For example, Design Plan is learning a lot of this, as their customers often operate in an environment where renovation is time critical, like train stations or prisons. The different concept for us is also a way to educate the customer so that they know that it's possible to renovate their lighting solutions for better energy optimization and carbon footprint, and we can see that this is gaining traction. So let's look at the exciting topic of the EU taxonomy. So we have looked at the explanation behind our taxonomy numbers and what makes the revenue aligned or not. And we have a high part which is eligible, 86%, which is normal, being part of the energy sector. We can be aligned in two ways, either by being part of the highest energy classes A or B, or as a second alternative, using smart lighting. And in 2023, we were aligned to 7.2%, up from 5% the year before, which is mainly thanks to increase in our sales of smart lighting. So with regards to energy classes from A to G, we have an industry view as it's measured in what's called EPREL, which is a large database set up and operated by the European Commission, aimed at making information about the energy performance of the different models of household appliances. So the same mechanism as we all know from our dishwashers or our washing machines. And in the APREL database, the measure is not lighting solutions, but the light source. And just over 1% of all light sources are in the top two energy classes, A and B. That means that the share of sustainable or aligned turnover is low in the industry, which also applies to us. If you instead look at our split in the different energy classes, this is the picture you get. So Fargo Group has a favorable breakdown in the other energy classes, C to G, compared to the industry light source market, as you can see on the slide, which indicates that our solutions are generally more energy efficient than the market average. But integrated motion and daylight controls are one of the aligned criteria. So our interpretation here, as you know, is very simple and direct. We are aiming towards 100% implementation of sensors in all our luminaires by 2030, which will gradually drive our alignment in the taxonomy, and more importantly, drive towards smart lighting solutions that contribute to 90% energy efficiency. And we, of course, also work with improving the energy classes, but there are many factors to take into consideration when doing this. Solutions in energy class A and B are difficult to achieve with the technologies that are on the market today. And this is mainly because of the energy labeling is based on the light output from the lead chip itself. And it's simply a matter of amount of light. And to do good lighting quality, there are many other parameters that are important, like distribution of light, avoiding glare. In addition, we consider product lifetime. We consider color rendering and color temperature. And all of this together make an agreeable light quality for all of us. If we would use class A in our lighting, you'd get a very cold, white, bright light. If you want a better, more comfortable light for us as users, you lose a little bit in energy efficiency and therefore in energy class. So very few lead chips used by professional lighting manufacturers after the time being available in class A and B. So for us, taxonomy is in one aspect, but only one aspect. It does not consider all sustainability topics or, very importantly, the quality of light to the user. So I hope that gave you a little bit of the overview to understand taxonomy from the lighting industry, because I know you need to understand it in many different industries. So with that, I'll move to a sustainable product that I mentioned, and I'm very proud to present it. It's a new product called the SuperDuperTube, and you can see it on the picture. And I would call it, this is more than an evolution of our classic luminaires, which was called the SuperTube. The SuperDuperTube represents in many, many ways, our commitment to sustainable and material exploration. Just as the SuperTube in the 70s was groundbreaking for its time, the SuperDuperTube is a tool for navigating towards a circular economy. We've developed it together with the Norwegian architectural firm Snøhetta, and we have refined every aspect of the product from design to manufacturing to minimize its environmental footprint. And we have carefully considered every step in the life cycle, from moral materials to recycling. And the SuperDuper tube represents a collaboration between sustainability and technological innovation. The main profile and lead profile are made of extruded biobased polymer, where the gables, grids, and suspension are made of injection-melded biobased polymer. And the base material of the product is hemp. The luminaire housing has a 73% lower carbon footprint to compare to an equivalent in aluminium. And of course, it includes organic response sensors. For those of you who have a design interest, you'll find much more information and service in media. And on Atelier Ligtan websites, you can read about the discovery journey of finding the correct CO materials and much movie of the full process of the development process. So, with a picture, this time from the Philharmonie underground station in Essen, that has been renovated with lighting from Viet, I will hand over to Michael and his thorough financial input.

Good morning. Thank you, Bodil. And a very good morning to all our guests from me as well. The group closed out 2023 in a good way, and we have started 2024 also in a good and strong way confidence remains high across the fireball group the impact from the easter period was unfortunately early in the year as it disturbed the comparables with 2023 and those comparables as both as already mentioned were high to start off with despite the easter impact we were pleased with ordering organic order intake growth in our two largest business areas collection and premium and the value of large projects in the prior year Q1 in both professional and infrastructure proved difficult to overcome. Let us see what the second quarter brings without an impact from Easter in the current year. The high comparable numbers from Q1 last year included the final five to six weeks of the supply chain correction and or the backlog catch up. But on saying that, the net sales of almost 2.2 billion is a strong result and is the group's third highest ever quarter. It was only beaten in Q4 2022 and Q1 2023, which included the more than 500 million sec order back on catch up. We see a shortening of customer lead time expectations and therefore the impact on placement of orders. In a good way, the group has strong ability to deliver on shorter lead times to meet these customer expectations and our decentralized operating model performs well. The opportunities for growth and renovation and retrofit remain larger than the somewhat subdued new build activity. However, on a positive note, in the new build activity market, we do see some early positive signs. So perhaps the market has now passed the low point in this segment. The group's brands continue to respond very well to the previous reported cost pressures, in the supply chain, and we have continued gross margin development, as Birdle says, in all four business areas. Actions remain high and in focus on intelligent pricing, smart portfolio decisions, and product mix management. Looking forward, we shall continue our focus here. The operating profit of 220 million delivers a strong 10.1% margin, and is in fact the second highest Q1 operating margin in the last six years. Q1 2023 was obviously boosted by the higher net sales. The impact of higher interest expenses begins to neutralize and even reduce as the drop through to net profit improves versus 2023. On the interest expense side, we continue our focus on cash flow and net debt reduction, and so we expect the interest expense to be somewhat lower in 2024. Looking at the longer-term development of sales, it is clear here to see the order backlog catch-up period in the middle right-hand side of the chart, and we are pleased with the sales growth over the longer term as shown by the chart, looking from the very left-hand side to the very right-hand side. The rolling 12-month net sales remains above £8.5 billion, and we look to develop this further in coming years, both organically and through M&A. The margin development, the first quarter operating margin develops well, as commented above. In fact, 2024 is the first time here you see a double digit operating margin in the first quarter. And this is mainly as a result of intelligent pricing and portfolio management. The group is consistently delivering 10% or higher operating margin for more than the last three years. And as a reminder, this is a clean and unadjusted number. It shows the robustness of the group to adapt to change. It shows the decentralized operating model to be ideally suited to a world full of challenges. And it shows that we do move with speed. Coming to collection, business area collection has developed order intake well in the last nine months, with almost 3% organic growth in the first quarter, adding to the 8.3% growth in the second half of 2023. However, that is not the whole story I would like to report. We also see a record level operating margin in the first quarter at 10.7%. The gross profit margin continued to develop well with a positive impact at the operating margin. As you can see, we continue to demonstrate our portfolio reach by winning some great projects. Turning to premium, business area premium continues its steady growth trend. Organic order intake growth was also almost 3% in the quarter. Net sales dipped a little bit due to the Easter impact and a slightly less demand for deliveries from customers on some existing projects. And this dip had a little bit of an impact on the operating margin and we continue to invest. Remember, Business Area Premium hosts the organic response smart lighting technology business where smart lighting investments remain at a good level. At almost 13%, however, Margins remain at the high end of the performance level. The business area has the highest share of net sales in smart lighting, approaching almost 15%, and this grows well since last year. Coming to professional, in the first quarter of 2023, the business area secured over 100 million, 101 million tech, in fact, of three very large projects. So the comparables was always going to be tough. The business area is steadily returning to higher operating margins. And of course, seasonality plays a part in this business area where all of the three businesses operate almost entirely in their country of residence. The first quarter operating margin at 7.1% compares very favorably to the 3.7% from last year. And there is room for further development here. Our next factory relocation that we reported on last time has been completed. This had a little bit of an impact on the lower sales levels from our Turkish-based business in Q1, but the order intake is significantly ahead in Arlight, and the order backlog is at a good position, and we expect a much improved Q2 for Arlight. All three businesses are heavily engaged in winning projects with a strong energy renovation smart lighting theme, And the projects that you see mentioned here are just two examples of this in the quarter. Lastly, on the business area slide detail, we come to infrastructure and the business area infrastructure. We see a little softening of the demand in the distribution and warehousing segments at the moment. We do consider this a short term situation because the inquiry and quotation level does remain quite high. The work on specification activities in the German railway segment makes good progress with design plan. And here you can see the securing of the program for a large railway station roof rollout program converting to LED. At VACO, we do really look forward to the receipt of the orders and the delivery of 34 kilometers of lighting where we have been specified. Cash flow. During the quarter, the cash flow continued to be positive, making eight successive quarters of positive operating cash flow. We continue to carry a lower net debt, and the net debt EBITDA ratio is just over 1.8. Net debt development, including the impact of IR4S16, which is 735 million, we do report a lower net debt of 2467 million, and a net debt EBITDA ratio of 1.86. Adjusting for IFRS 16, the net debt is of course still lower at now 1.7 billion on an old money type of basis. The strong positive trend is clear to see and the good work and focus on working capital management and cash generator activities will continue and we do expect to put our cash to good use. The second quarter of course, we'll see the payout of the dividend. We're going to earnings per share. The EPS earnings per share continues to be impacted by the higher interest expense, but as previously commented, the impact is now becoming neutralised and we expect lower levels of interest expense in coming quarters with the lower net debt. We continue to take mitigation steps for 2024 and beyond with a strong focus on cash generation and loan portfolio management. Before handing back to Bodil for closing comments and Q&A session, just a short summary message from myself. For many reasons, we do and we continue with a good start to 2024, and we're in a good, strong position. The Ether impact was unfortunate, but we continued the order intake growth in our two largest business areas. Both growth and net margins continue to develop well, and we have a clear strategic focus. Thank you for listening. And with that, I hand back to Bodil.