Fagerhult Group AB

Hello, everyone, and welcome to the presentation of Fogholt Group's second quarter results for 2024. On the call today, we have our president and the CEO, Bodil Sonnason, and myself. The presentation will start with Bodil giving us a brief update on our results for the second quarter, and then Bodil will then continue to update us on some strategic highlights, today-focused science-based targets, plus innovations launched during the quarter. After that, I will follow with more details about the financial performance of the group and Bodil will conclude with a brief recap and afterwards we will open 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 up for Bodil and Michael. Before we start, let me also remind you that today's session is being recorded. and will be available on our website later today. With that, I hand over to Bodil. Please go ahead.

Thank you, Michael, and welcome everyone to this Q2 2024 webcast. So in the second quarter, we saw a return to growth for us in both order intake and net sales on a group level. The market conditions remain the same, and we continue to focus on the renovation market, where, as you know, our solutions are well positioned and where we continue to secure projects. And we are contributing to renovating Europe's energy-inefficient buildings, and that is one of our ambitions. And our solutions and local footprint makes this possible. This is also balancing a new-build market that still is constrained by high interest rates, although there are regional variations and indications of a more positive outlook from next year. We're also heavily involved in outdoor projects for urban spaces, which is one of the focus customer segments in business area collection. We continue to see megatrends supporting and remaining favorable for our industry, providing a solid foundation for our strategy and future growth. And the gross profit margin has continued to improve, but the operating margin has been impacted by higher operating expenses in the quarter. We have started to address this, and we have seen some positive results at the end of the quarter and this will continue in Q3 and Q4. Product innovation activity continues to be high, and I will share two examples in my presentation today. One retrofit solution from BF and another truly innovative product from Iguzini that is playing with the boundaries of light. And as you know, sustainability is an integral part of our strategy and what we do. And later on in my presentation, we'll have a closer look at our science-based targets, the numbers behind, and what our focus is going forward. And part of sustainability is also new partnerships. And one example is what Fargo does together with Hydro to recycle extruded aluminium. But let's have a look at the numbers first. So order intake in Q2 was 2.1 billion Swedish crowns, which represent an organic increase of plus 0.8%. The organic net sales increased with 0.9%, and in numbers we achieved almost 2.2 billion Swedish crowns. At the EBIT level, we delivered 169 million Swedish crowns with a 9.1% EBIT margin. Earnings per share was 0.62 Swedish crowns, and as expected, we started to see a reduction in interest costs from the second quarter. If we then look at the year today, And the half-year result was very similar to prior year. And in numbers, it represents order intake of 4,233 million Swedish crowns compared to 4,286 million Swedish crowns in 2023. And net sales declined organically with 0.7% to 4,347 million Swedish crowns compared to 4371 million Swedish crowns last year. And operating profit is at 470 million Swedish crowns compared to 446 million Swedish crowns last year, which represents an operating margin of 9.6%. And earnings per share is at 1.40 Swedish crowns. And as always, Michael will give you more information when we come to the financial section. And first, I will show you some things that have happened in the quarter. So you know that in our quarterly report, we try to give you a flavor of our strategic group focus areas. And today's focus will be on our sustainability agenda. And you know, it's an integral part of our business strategy. And when sustainability and business goes hand in hand, it becomes a win-win situation and gives a very clear direction for the group. And this time, we will focus on our SPTI targets and what we have achieved so far, what our goals are, and in brief, our focus priorities to achieve the goals. And I will also present some selected innovations in the group that was launched in the quarter, and this time it's from Iguzini and VF. So let's jump to the sustainability agenda. And in the Q1 webcast, we spoke about what's happening on the market with regards to sustainability-related topics and legislation, and the European performance of buildings directive, and also explanation behind our taxonomy numbers. And all of these topics are, of course, driven from the need that our buildings in Europe have to be renovated, as they stand for almost 40% of the carbon footprint, And the majority of the buildings are energy inefficient. Without this, we have no chance of achieving the Paris Climate Goal or Fit for 55 to reduce emissions by at least 55% until 2030. And this time, I will focus on how sustainability agenda relates to our validated SPTI targets. And I'll just give you a quick recap with regards to the SPTI targets. You might remember they were validated in October 2023 for both scopes 1, 2 and 3, as well as for net zero in 2045. And we did an extensive mapping of all our factories and our complete footprint in 2021, and therefore we used 2021 as our comparator year for data our so-called base year. And on the slide, you can see the results for 2023, where we have reduced our total emissions combined in all scopes with 24% since 2021. And the meaning of that is, of course, that we are on a good way towards our FPTI goals for 2030. And in this slide, we see a full view of our carbon footprint. And this is, of course, coming from the research that we did in 2021. So when we look at our footprint, we can see that by far the biggest impact is in scope three and particularly the use phase that represents 88%. Of course, this is normal as lighting solutions have a long lifetime. And when light is on, energy is consumed. And we know that lighting is 15% of a building's energy consumption. The second biggest number is related to suppliers and material use in our products, accounting for 8%, where the highest part is coming from electronics. The footprint from our factories is a very small part. Only 1% pertains to direct emissions. So we have established short- and long-term targets to reduce direct and indirect emissions. And the short-term targets that apply from 2021 to 2030 are reducing scope 1 and 2 by 70% and scope 3 by 30%. And to reach this, we have defined and prioritized around 20 activities based on the insights we gained in 2021. So we call these our levers. So there's actually 24 projects that we're working on. And I will highlight two of the major ones today. And in scope one and two, the most important levers in our factories is our internal heating and paint plant that consumes a lot of gas and electricity and represents 50% of our direct emissions. And as you might remember, we're already on 75% of usage in renewable electricity in our own operations. The reduction of 30% in scope three is a very ambitious goal. And this is where sustainability and smart go hand in hand. And we have a vision to be 100% smart by 2030. This implies that by 2030, we need to have sensors in all our lighting solutions that go out of our factories. And that is a big undertaking from our side, both internally but also externally, to spread the understanding for the why and how of smart lighting. With a sensor in each light connected to the network or to the cloud, we can optimize the energy consumption for the user during the full lifecycle of our products. And our scope three is our customer's direct emission, meaning scope one and two. So that means that we are to a large extent in this together with our customers. And all this technology is in place today with the organic response and city grid solutions. So that is why it's so important to spread knowledge about smart lighting. If we go back to the basic assumptions, we know that lighting is 15% of the energy consumption and that the energy consumption already today can be reduced with up to 90%. with a combination of LED and smart lighting compared to a traditional installation. We should use the light where and when it's needed. And as we spoke about in the last webcast call, we will get help from legislation in the European Performance of Buildings Directive that will be implemented in local legislation by the latest in spring 2026. And that implies smart lighting and also implies higher renovation rates. This is only the first step in our journey towards net zero, where the usage of smart lighting will play a major impact together with a circular approach. So when developing new products and solutions, we strive for modular development. And this is to achieve standardization and, from a circular perspective, enable us to simplify renovations and upgrades. And we gave you some examples of these models at last time. But this also takes us to new partnerships. And I mentioned Hydro in my first slide. So this is an example where Fagerholt is cooperating with Hydro Extrusion in Sweden. And they together have made a pilot project to explore circular processes for the use of extruded aluminum. And this was done for Telenor's headquarter in Oslo. where a product of Fagerholt was installed in 2002 and now renovated with the goal of saving 50% energy. And in the pilot project for hydro extrusion, the goal was to preserve material properties and not downgrade the aluminium. And we want to be able to recycle extruded aluminium as it's a very common material in our light fittings. And that has so far not been possible. So therefore, this pilot project has been very important to us. So what we did was that we took back the light fitting to our factory, where they were taken apart and sorted. And then they were sent to hydro extrusion, where the aluminum was melted and then extruded again. So for us, this is a big step forward, because it enabled for a circular process when using aluminium in lighting solutions. So another step towards circular solutions. Then let's leave sustainability and go to the two innovations I promised you for the quarter. And the first one you see here is Trick E up to EM, which is from Igazzini. And I would say this solution really takes innovation in how you can play with light and push the boundaries to a completely different level. It showcases the group vision statement, a world enhanced by light, and it really gives lives to architectural buildings at night with a lot of possibilities to play and doing tricks, therefore the name of the product, with light both in indoor and outdoor application. And as you can see on the picture, if you look closely, you can see there is a diamond-like part of it, And that is one of Iguzini's core strengths, being optics. And this product is difficult to describe in words, so I would really recommend you to go onto the internet and have a look at the film, Trick EM, at theiguzini.com. The next product I want to share with you is an upgrade kit, or a so-called, we call them upgrade kit or retrofit kit from VF. which is in line with us helping renovating buildings and cities in an energy-efficient way. So this kit can be used on luminaires dating back to 2014, and it takes only five minutes to upgrade, thanks to pre-configuration done in the factory. So a very easy and sustainable way to enhance the lifetime of your solution, and also an example of what I said before, that modular thinking has been with us for quite a long time. So you can get 40% more light output with the new version and you can choose whether to get the higher output or decrease the power consumption and therefore reduce your energy cost. And this luminaire can of course also become smart by using the Saga-based smart controller from CityGit that we announced in Q1. And with this, I'm sure you're curious about the numbers. I will soon hand over to Michael. But I thought, you know, we have a lot of beautiful pictures and we are in the middle of the summer. So with this picture from Stockholm and Riddarholmen, where you can see the traditional beautiful lights that have been updated with LED modules from Atelier Lyktan. And with that, I hand over to Michael.

Okay, thank you, Bodil. And leave a note for the second time, a very good morning from me also. It's great, I think, Bodil, to see that we've got such a high rate of innovation and new products constantly coming through across the group. It's part, it's testament to our strong view of the future that we have. I think in many aspects, the second quarter was very similar to the comparable period from 2023. And in the report, we mentioned higher operating costs. I see some of you have already mentioned that in your updates. So I will try to deal with that now and give you a little bit more flavour around our commentary there. In the early part of the quarter, we did get ahead of ourselves when it came to revenue investments. We took immediate actions in the early part of June and these actions will continue during the third and fourth quarters and where they will enhance the operating margin in the second half of the year. It is a significant benefit to the group's decentralized operating model that we can react so quickly when the need arises. And we already noticed an improvement in the situation in the month of June. Let us see what the second quarter brings, was what I said to you guys at the end of Q1. Let us see what the second quarter brings. Well, the second quarter did bring growth. We returned to 1.1% overall order intake growth. And to me, this is a signal that perhaps we see the renovation growth and no longer a declining new build market because one is beginning to pass the other. So that, to me, is another positive sign for the Fargo Group. And with lead times now back to normal, it is expected that some of the order intake growth translates into net sales growth. and the group delivered another solid 2.2 billion, which was ahead of last year. Our ability to meet customer delivery expectations is good across all brands, and again, this is another strength of our operating model. Decentralized make product close to where our customers are. The growth in the second quarter was also delivered at an improved gross profit margin, and we shall remain active in portfolio management, pricing and cost management, support this in the future as mentioned the operating profit was short-term affected by higher operating costs and we are confident of a somewhat lower operating cost level in the second half of the year operating cash flow was was good almost sufficient to neutralize the dividend release that we did in early may and we expect that lower interest rates would come through in the second quarter this was our expectation and in the report we know that this was in excess of 10 million Swedish crowns in the second quarter. Unfortunately, the impact from currency movements are not controllable. We expect the net debt to further reduce in the rest of the year. Looking at year-to-date now for us, looking at year-to-date position, the second quarter order intake and net sales began to close the gap from the first quarter. So for us, it was a better second quarter as far as the activity level went. Order intake, net sales, the gross profit margin also improves compared to last year, and we have initiated actions where we have needed to in order to improve the operating margins in the coming two quarters. Operating cash flow for 2023, if you recall, was a record, and we also see a very good performance on the cash generation side during 2024. The net sales for H1 2024, January through to June, shows a 3.7% growth compared to the net sales for H2 2023. And this is why we begin to see the rolling 12 months no longer continue to slightly decline, but now more positively, it begins to improve a little bit. We look to continue this with the market opportunities that present themselves. Looking at the margin, I'm not going to dwell, no longer dwell on the operating margin. We've clearly now communicated in the report and in my earlier words, what actions have been taken and will continue to be taken in the second half year to address this. And we do expect a resurrection of improved operating margins as we go through July through to December. Collection. We reported quite an optimistic view of collection at the end of Q1, and that optimism continues for second quarter. Business area collection continues its strong overall start to the year that we reported in the first quarter. The year-to-date collection has delivered order intake growth, net sales growth, and the trends for operating margin and operating profit remain very positive. For us, this is critically important. It is our largest business area. The 11.1% operating margin is by a long way, not only 4.3% ahead of last year, but also raises the bar further with a new quarterly record for the businesses in collection. The steady migration from family-owned businesses, excepting Atelier Lipton, of course, takes time, as we have previously reported. And now we begin to see good progress in Igazzini, Lead Linear and VX. Once again, we continue to win some great projects. Coming to premium. For business area premium, I would like to clarify one point. You can see the slide for yourself. I'm not going to talk through each individual part, but I would like to clarify and explain a little bit. And that is the fact that the business area premium takes the full impact to EBIT of our growing investment levels in our smart lighting solution organic response. That has accelerated this year. The future lighting industry, we are convinced, will be shaped by smart lighting solutions. Of that, we are very, very sure. We continue to invest and we do not take the investment to the balance sheet, nor do we adjust the operating result. When we say EBIT, we mean EBIT. What you see is what you get from Fargo Group. I think this is important in the understanding of our results compared to our peer group in the industry. But just as an indication how we see things going in premium, looking at the 11.1% year-to-date operating margin that you see in the report, I can tell you that the operating margin for the two Luminaire brands in the business area combined is a very healthy 13.9%, almost 14%. Coming to professional, last quarter we reported a very high comparable order intake in period Q1. 2023. To Q4 2024, the professional business area has delivered strong order intake, almost 14% ahead of Q2 last year. The growth in net sales of 8.7% included the delivery of some of those large projects from Q1 last year. And that sometimes is an indication of how long the delivery programmes are. Some of you will remember the names Everton Football Club and Hinkley Point Power Station that happened in Q1 order intake last year. And now in Q2 2024, the deliveries have taken place. The business area has grown its order backlog position in recent months, and that provides confidence for the future. The two-and-a-half-year operating profit and operating margin trend, the line to the right-hand side, remains positive, and here we also see good projects for renovation and growth in smart lighting solutions. In business area infrastructure, I have less good news to report, although the order intake in the second quarter did show growth compared to last year. However, we clearly see the impact of the weak Q1 order intake, which was 21% adverse year on year, and the year-to-date order intake in business area infrastructure lags last year by 11%. The softer market conditions that we reported last quarter do continue, particularly for VACO business in Holland, where we take a full business structure and strategy review during the current quarter. The long-term design plan investment in the German transport and custodial segments begins to make a more significant difference and we see higher and increasing levels of order intake for design plan in their German operation. We will come back to the VACO situation in the Q3 report. But for now, we will take a full review as we go through July, August into September. Cash flow. On the cash flow side, we continue in a very positive way. The chart remains positive. Now with nine quarters of generating a positive cash flow, it will, as previously reported, be difficult to match the 1.2 billion from last year, but we still see room for improvement in some of our businesses. As you can see, the net debt increased in the quarter due only to the dividend release. The operating cash flow was, as reported, very strong. We do report a net debt of 2579 million adjusted to 1842 million for IFRS 16 and the net debt EBITDA ratio of 1.9 means we are in strong position for our new M&A opportunities with the recruitment of the head of M&A from last September. Before handing back to Bodil for closing and Q&A, I'd like to end as traditional with a quite short summary message from myself. The group for ourselves, we are in good control and we're in a strong market position with healthy margins and a strong balance sheet. We see increasing traction of the mega trends, Bodil's talked about these earlier on this morning, and with tailwinds for growth from the ban on fluorescent lighting anticipated pickup in the construction market and through M&A further consolidation activities in the industry. There is no reason for us to lack confidence in what we see in the next one to two years. Thank you and with that I hand back to Odin.