AB Fagerhult (publ.)

Welcome to Fagerholt Group Q1 Report 2025. During the presentation, you can queue up to ask questions by dialing pound key 5 on your telephone keypad. You can also write your question in the webcast. Now we'll hand the conference over to Magnus Hagemark, head of M&A. Please go ahead.

Thank you and hello everyone. Welcome to the presentation of Fagerholt Group's first quarter results for 2025. I am Magnus Hagemark, head of M&A here at Fagerholt Group. And on the call today, we have our president and CEO, Bodil Sonnason, and our CFO, Michael Wood. The presentation will start with Bodil giving us a brief update of our results for the first quarter. And Bodil will then continue to update us on some highlights. Today, focused on the professional business area, which will also be the business area for Trapto TAB. After that, Michael will follow with more details about the performance of the group And finally, Bodil will conclude with a recap and then we will open up for questions. First, we will take questions from the conference call and then we will open up for questions from the webcast. You can post questions in the chat window on your screen. I will read them up for Bodil and Michael here. Before we start, let me also remind you that today's session is recorded and we will be available on our website later today. With that, I hand over to you, Bodil. Please go ahead.

Thank you, Magnus, and welcome everyone to our Q1 2025 webcast. So I would like to start today with a positive organic order intake growth of 5.9% in the quarter. In absolute numbers, it was an all time high on order intake. And we also again delivered an all time high on gross profit margin. So we also start to see the impact of the hard work we've been doing on the cost reduction side, and the cost base has started to decrease compared to last year. As previously communicated, we expect to see further impact from these actions during 2025. As I've said many times before, our presence in many geographical markets and in many segments help us to spread the risk and that continues very much to be valid. And what we currently see in the market and that we continue to see is that the swings in order intake between the quarters and the business areas continues. The whole unstable global macroeconomic situation has, of course, as you all know, increased with the tariff uncertainty. We are also, however, as you know, very strong in Europe. So the direct consequences for us are limited. We have 5.7% of our revenue in the US. Having said that, we have already navigated the subdued construction market levels for the last few years, and the all-time high order intake this quarter is a sign that we remain good at securing big investment projects on the market. We see them more in big infrastructure projects than in traditional commercial buildings, and it's a wide range of solutions and strong capabilities in custom-oriented solution that helps us to win. We also start to see some more positive signs from the renovation market that is triggered by the fluorescent ban. And this is helping us to compensate for the lower new build activity. As you know, government starts to plan for the national legislation of the Europeans performance of building directive. that should be implemented by May 2026, so in a year from now. And if we take Sweden as an example, the Byverket in Swedish, which is the authority looking into this, has been done very concrete plans for the number of buildings that needs to be renovated by the latest in 2030 and 2033. And in Sweden only, the number of buildings that do not live up to the standards and needs to be renovated are above 30,000 buildings in professional segments. And also, as you know, the EPBD is also a key driver for smart lighting, as this is mandatory for large and non-residential buildings. I'm also, of course, very happy to speak about the intended acquisition of Charter Thierry Louis, where we signed an agreement on April the 4th. We've said in the last couple of quarters that we've been working hard on the M&A agenda, and it's nice to show you the results. And we believe that Charter GLV fits perfectly into our strategic agenda, and it gives us a very strong foothill in the French market. And France is the third biggest lighting market in Europe, and with this acquisition, we've become the second biggest player in France. So let's have a look at the numbers for the quarter. So as I said, order intake in Q1 was 2.227 billion Swedish crowns, which represents an organic growth of 5.9%, and that is an all-time high. The more disappointing net sales was at 1.94 billion Swedish crowns, and it showed an organic decline of 11%. And this net sales was a direct consequence of the lower order intake levels that we saw during the end of last year. And this unfortunately also has a negative impact on the EBIT results. So the EBIT before EAC was 145 million Swedish crowns with a 7.5 EBIT margin and the EPS before EAC was 0.43 Swedish crowns per share. So moving to the strategic key focus areas for this call, I want to give you a better understanding of our position in the market and why we stand out from other lighting providers. And last quarter, I gave you an overview of business area collection, and this was highly appreciated. So therefore, I will follow up by introducing you to our second of our business area professional. And when we did the new organization in 2020, the working name for business area professional was National Champions. And that already gives you an indication that all of the businesses are strong in their local markets. So very different from our global brands that I presented last time for collection. I will, as said, also give you some more information about Trotter TV. The intention is that the business will be part of business area professional, where it makes a perfect fit and brings new corporation opportunities for future growth. So if we dive into professional, it accounts for 12% of the group's revenue and focuses on local brands. You will hear the word local many times here, which makes them particularly strong on their home market. So they have local production, product development and extensive relationships on their markets. that enables them to develop and deliver bespoke solutions tailored to specific markets needs and with very short lead times so these brands they know their customers very well and they deliver complete solutions and they are seen as trusted partners in many local prestigious projects i'll give you a few examples which span over both private and public sector So this business area is interesting with the benefit from the current nearshoring and the deglobalization trend that we are experiencing. So we see an increasing interest in local brands where it is preferred of a global sourcing alternative. So the label of being either made in UK or in Australia or made in France is today a differentiator. So let's have a look at the three businesses that are part of the business area currently. First one is Arlight. They were founded in 1991 in Ankara. It has its roots in being a customer-oriented organization, creating solutions to meet demands tied to the Turkish markets and its neighboring countries. It joined the group in 2014, and it's known for its high-quality products, customization capabilities, and also has a fully accredited lighting laboratory for testing and certification. we moved to a brand new factory at the beginning of 2024 and the main focus that you will hear with all of the brands in business area professional is segments office education healthcare and our light also do selected outdoor applications they have delivered significant prestigious and large projects such as providing lighting for the turkish parliament Istanbul Airport and also Microsoft IT Academy in Baku. Arlight is also working on OEM sales to some of the other group brands, for examples, in delivering lead modules. Then moving down under, we have our Australian brand Eagle Lighting that was founded in 1972 in Melbourne. They became part of the group in 2007. And they have also benefited from being located in the same city as our smart lighting brand Organic Response, making them another of our leading brands in smart lighting. And Eagle is a strong brand, both in Australia and New Zealand. And of course, due to very long transportation lead times, local production has an advantage, as well as the knowledge of the specific Australian demands on lighting. And besides, again, developing the best solutions for office education and health care, they also presence with other group brands locally. So, for example, Design Plan, who has a focus on the custodial market. where they work very closely together. And here again, some examples of projects. We have Brisbane Commonwealth Law Courts, we have Melbourne City, and we also have the Volvo flagship showroom in Australia. Then we move to the UK. So and to Whitecroft that was founded in 1945 in Manchester and today is one of UK's largest manufacturer of commercial lighting solutions. So again, we come back to they working with the same segments, office, education and health care, where they are considered a strong market leader. And they joined the group in 2005. and it's also one of the brands that has integrated the furthest with regards to smart solution and they have successfully adapted our smart agenda throughout the business and is working very closely with key stakeholders to help them save energy and gain better insight of the utilization of their buildings so whitecroft is also particularly known for very large projects and we've mentioned many of them during the years and i'll give you a few example one is the nuclear power plant hinkley point They work very closely to the Department of Works and Pension. And I think you remember, I mentioned also in one webcast, the new project in London, in Bond Street. And then we also have the Manchester Heritage Town Hall. So to summarize, the business area professional and the companies in the business area have a strong position in their local market, which gives them an edge in renovation markets and dealing with complex local projects. They're also working closer to the construction companies than any other business area. And they all very, very strong in healthcare business as well in office and education. So that ends the current companies and business area professional, and we move over and take the opportunity to say a few words about the intended acquisition of Trato GLV that we announced in early April. We are working and progressing through the regulatory approvals, and I think we will know the decision by the end of the month. And if they are successful, this will be the first lighting acquisition we did since Egocene in 2019. And the strategy has been intentional from our side in order to make sure we take care of our brands, integrate them well into the group, and also reduce our depth ratio, which we now have done. So looking at Chartered CLV, you can see in this picture, you can see some examples of the luminos here for retail to the left for retail and industry application. And Trado is a well-known brand within retail in France, and it has high quality and cost-efficient productions. And its luminaires can be found in many different kinds of store, from large big box warehouses to the most common grocery chain, but also in luxury brand stores. And if you know France, you know that the northern part of France has a very high concentration of headquarters for retail companies. And to the right, you see the examples of products from TLV and Biolume arm of the business that is showing medical supply units and patient room interiors. You find medical supply units in almost all hospital care rooms today. And the role is to integrate power, gas supply and lighting necessary for conducting patient care. And also I think it's worth mentioning is that many of the healthcare products within EU require an MDR class 2b certification, hence pose a decent barrier of entry and TLV has such certifications. We see large opportunities for cross-selling both charter TLVs retail and healthcare products on other markets. And you can see that's a common denominator within business area professional. And well, we also see possibilities in offering our current brand portfolio through Trouto TLV's extensive network in France. So good mutual opportunities. Let's look a little bit more at the company. As I said, they're based in the Northern part of France in Lille and two major brands. Trouto founded in 1947 and that's the retail brand and TLV, which has added to Trouto in 1980. and they are specialized in healthcare applications. Both brands have the majority of sales in France and are considered clear market leaders. The Trato brand has a strong retail offering with innovative solutions, very customer-oriented with long-term relationships with large and small retail chains in France. And in addition to the retail business, they also have this product range for industry application, including transportation and infrastructure projects. And then TLV, as we said, specialists of highly customized healthcare solutions, working very close to architect on the specification side, including medical supply units and room interiors, often with integrated lighting. I want to highlight also what really caught our attention with Trout2TLV was not only their strong position in France, but their impressive customer-driven culture, something we find well aligned with our group core values. Although Trout2TLV's main market is France, we see a great potential for offering their healthcare and retail products on other markets, as well as benefit from their deep network in France to provide other group brand solutions. So we look forward to welcoming Chartered TLV and their teams to the group within the near future. And with that, time for some more numbers. So I will hand over to Michael and the financial summary.

Thank you, Bodo. And good morning to all of our guests from myself as well. Finally, we are delighted with the very high order intake in the first quarter. 2.227 billion Swedish crowns is an all-time high for Fargo Group. Less delighted do we find in the net sales decline that Bodal has already commented on, and this stems from the lower order intake levels towards the Q3, Q4 of 2024. Market conditions remain volatile with some external headwinds, and like many other businesses, we await the uplift from the returning markets. Meanwhile, we focus on gross profit development and cost-based reductions. The enhanced cost focus I spoke of last quarter, including the restructuring in three entities, remains. But as Bodal already mentions, we need to work harder at increased levels of cost reduction on a wider scale, as we are not pleased with the result so far. The increased focus on cost reduction initiated during the fourth quarter of last year is now beginning to have a positive impact, and we see this with the reduction in costs and expenses in the first quarter. I remain confident that there will be further impact from additional and increased cost based reductions during the first and second quarters of 2025. Operating cash flow was a little lower during the quarter, mainly due to the lower EBIT level and an increase in the accounts receivable. And that was driven by higher net sales towards the end of the first quarter. Let's have a look at the rolling 12 month sales development. And as a result of the frequently reported new build construction industry decline, I want to try and explain a point that's going on here. Now for 11 consecutive quarters is the new build construction industry decline. And the accumulated impact of this is seen in the chart. In the early days, our continued growth in the renovation market, which Bodo has mentioned, remains positive and this continues to remain positive today. But after 11 quarters of new build construction industry decline, the growth in renovation is difficult to overcome the new build reduction. There do remain many opportunities almost everywhere on the market and the mega trends remain favourable. And very importantly, our success in winning large orders demonstrated in the quarter by King Salman Park in Saudi Arabia and Vasta Lankan here in Gothenburg will be a key as we see more larger projects nearing the decision process. Turning to margin development. For the fourth quarter 2024 and the first quarter 2025, the margin has been impacted by the lower activity on the market. Clear to see over on the right hand side. Our ability to continue to improve the gross profit margin now combined with the positive impacts of the reducing cost base will help support the margin until the activity levels improve. As mentioned, I remain confident of increased positive impacts from the focus on cost-based reduction activities. As usual now, we'll take a quick run through each of the business area performances, starting as we normally do with collection. For the first quarter, the performance in collection is summarised by a record order intake. Lower net sales due to prior levels of lower order intake and the resulting impact on profitability. That's the summary for collection in Q1. During Q2, there will be a lower cost base reduction in collection where we see the plans from the businesses being initiated and this will improve the operating margins. During the quarter, VF, worthy of note, won the first part of the King Solomon Park project for 123 million Swedish crowns and deliveries start this very week. We look forward to VF securing the balanced parts of this high value project. Around the corner now to premium. In flat market conditions where order intake is only 0.4% variance from last year, business area premium continues to deliver very solid levels of profitability. The operating margin before IAC of 14.6, almost 15%. for the quarter is the second highest in the last four quarters. And this is very impressive in Q1, where traditionally it takes on a little bit of a lower volume contribution. The two businesses are working on cost reduction activities, both Fargo and LTS, and this will provide further benefit during the second and subsequent quarters. The project to close the UAE based operation for Fargo remains on track. And this will be completed by the end of this quarter, providing 18 million Swedish crowns of further cost-based reduction. The restructuring program at LCS in Germany continues to take a little longer to execute. Some of the savings have started to materialize from this program, but it will not be until the second half year before the majority are delivered. Let's go back to professional. So you've had the descriptions from Bodle about the businesses and the business area. Last quarter, I reported that business area professional closed out the year with a very strong order intake growth of plus 22%. And during the first quarter of 2025, the order intake growth was a further impressive plus 18%. The first quarter has been very tough from a net sales and resulting profitability perspective, however, and this is due to project delivery schedules being delayed. However, with the very high order intake growth for the last six months, we are confident that the high order backlog position that this trading result in the first quarter is a short-term temporary blip. All three businesses have now completed their cost reduction programs. with a total of approximately 20 to 25 million Swedish crowns annualized lower cost base as a result. The business area expects decent order intake in the current quarter as well. Finally, coming to infrastructure, in the business area infrastructure, order intake levels have remained flat. The order backlog is at a higher level due to recent, due to decent order intake levels in late Q, late 2024, but similar to professional, the delivery demand schedules are extended. We see a consistent level of net sales for each of the last four quarters and a steadily improving operating margin, which is thanks to the VACO cost reduction program that was initiated in Q3 and closed out in the back end of 2024. That's now positively impacting the operating margin in infrastructure. Cash flow, of course, is something very close to my heart. And on the cash flow side, we continue in a positive way. Now we're 12 quarters of generating a positive cash flow. I'll take even the slight 26 million Swedish crowns in the quarter as a positive. For the first quarter, the cash flow of 26 million was impacted, as I've said earlier, by lower profitability and an increase in working capital. Inventory levels did further reduce in the quarter and accounts receivables have given rise to the increase in net working capital. The debt continues to reduce, but this will take a temporary pause in net debt reduction during Q2 and Q3 due to dividends and the Trato acquisition, of course. Looking a little bit more at the net debt development. During the last three years, just picking up on what Bodil commented earlier on, purposeful action on the M&A side. During the last three to four years, our strategy of reducing the net debt has been very successful. It has reduced from between 3 to 3.5 billion Swedish crowns to now just over 2 billion Swedish crowns. And I keep saying this includes approximately 700 million SEC for IFRS 16 adjustments. So this is in new money, not going back 10 years ago to old money, excluding IFRS 16 adjustments. The net debt is the lowest the group has carried for over seven years. We repeat the message about not being pleased with the earnings per share level at 0.43 sec for the quarter. Cost savings are now delivering a positive impact and we expect this to increase and continue. The gross profit margin is a key performance indicator and when volumes return, the net margin will accelerate. Last quarter, I stated that the interest expense will reduce in future quarters, and this is now happening, and the tax rate has also fallen in the quarter compared to Q4 2024. Before handing back to Bodil for closing and Q&A, just a short summary message from myself. Whilst market conditions remain difficult, we do focus on gross profitability and cost-based reduction, and we see success on both topics. We further demonstrate our ability for winning large projects with more to come, and a balance sheet strength remains at a good level. Thank you for listening, and I hand back to Boadil.

So a short conclusion on my side as well, and I mean repeating a little bit what Michael was saying, that we don't see any major change in the start of 2025 with regards to the markets. But we are navigating through it and we're doing it with focus. And one of the focuses is our efforts and segments where we see investments decision happening. And we can see the result of that in our positive order intake for the quarter. We also know, all of us know in terms of the global trade situation is not good for the general investment climate. although direct consequences are limited on us. We are monitoring the effects of the tariffs and we're taking action where needed and within collection business area. So where we take actions on the sourcing side to minimize the effect in the short term. We saw the cost decreases compared to last year. So we've seen a start of it and we will continue to see actions and effects during 2025 as it's still a very high focus for us. And then we stay convinced that our decentralized organization with its strong local footprint today shared by what I was presenting in business area professional and also very strong customer focus is actually an even stronger advantage in the current market conditions. And also we see on the renovation market where we're working with many focus growth initiatives in new markets and segments, And I'm also seeing an increased collaboration between the brands, which I'm really positive about. And then, of course, good to see the work on the AM&A side is paying off and that we were able to sign the intention to acquire Charter TLB. And also, of course, the good strategic match will help us and give us a very strong position in France. And it also gives some very good energy to the organization. And with that, I'll hand over to Magnus and any questions you may have.

Thank you very much, Bodil and Michael. And with that, I ask the operator to open for questions from those on the telephone line.

Thanks. If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. The first question is from Nikola Kalanowski from ABG Sandal Collier. Please go ahead.

Hi, and thank you very much all for the presentation. Firstly, I just thought to ask regarding some of the larger orders that you won in the quarter, specifically the King Salman Park one in Saudi Arabia, as well as the Swedish one for West Lincoln. Could you perhaps provide us with some flavor on the upside that you indicate could be generated from additional wins related to those projects, please?

It's always difficult to speak about the future side of things. But if you look into, if you take West Lincoln, we have delivered a big part of that. And there is a second side to the West Lincoln, which is approximately the same that we will help happening here during the year. So it's a completely special project. They've been working hard in the factory during Q1 to deliver the majority part of it. so that I think we will see happening here during the year. For King Salomon Park, I would, I don't know if you have looked at the project, but for the curious ones, I would go in and have a look at the website of King Salomon Park, because what they're doing in Saudi Arabia currently is, I mean, they're trying to replicate what they've done in Dubai, but there is a much higher focus on the green side of it, so therefore a lot of parks. And you can see if you look at, that part that there is different parts of the park. And what Michael was saying, we're currently starting to deliver this week for the first part of it. And it's the smaller side of the park still. So there is potential, but it's always, and it's potential which is there for this year. But I don't think I want to say any more about it because it's a sensitive side of it as well. and they were still competitors on the market. So, but there is good potential into it if we are able to also win a bigger part of the park. And what we have done is it's a completely special project or product which is developed for the King Solomon Park. It looks very nice from a design perspective, but it's also, I would say, the pillar of the infrastructure in the park because you integrate everything else you have there. So the wireless infrastructure, but also cameras, for example. So it becomes a vital part of the infrastructure for the park. I don't know if that gave you some more flavors to it. I don't know if you want to add anything, Michael.

Yeah, I can just add a little bit around the edges of that regarding KSP, King Solomon Park, not the Gothenburg-Baster Lincoln project. I think it's safe to say that the part that we've received so far is the smaller part. We are still in competition for the remaining parts, but I would remain hopeful from our gaining the first part, then the park authorities decide to be common across the whole park is what I would hope for and go for a consistent look is my ambition there. So we're holding our fingers crossed, Nicola, that what we've done so far will remain for the remainder part of the project.

Yeah, I certainly appreciate that. Thank you very much. And I agree, Budhla, just Google the project looks very impressive. You mentioned also in the CEO highlights, Budhla, that you will continue to reduce the cost base, and you mentioned that during the the call here could you help clarify what this relates to and to what extent you aim to do this and moreover when do you know when to stop so to speak in order to have sufficient capacity for one construction activity uh inevitably improves I think when you when you look at it I mean we've been working on this uh for for some time as you know uh and and we are comparing in in

We're comparing back also to see in terms of volume where we were at the end of 2023. We have done some estimations. And if you look into that, the estimation is that compared to last year, on the full year, we will be 160 million Swedish crowns lower in 2025 compared to 2024. And that's not the entire full effect of that. because we still haven't reached the full effect. So somewhere around 180 million on the full effect if you would compare apples to apples. So it's consequential.

I appreciate that. Thank you. And then the final question is on the Trato TLV acquisition. There is this part of the business called TLV BioLoom that you mentioned that you say focuses on healthcare equipment. among other things. Could you please shed some light on how this is consistent with your main business and cross-selling opportunities, please?

If you look at it, we actually have a little bit of similar product ranges, but much smaller in the other businesses who work with healthcare, both in Fagold and in Wyckoff, what you call bedheads. And it's been used for us in the past more as a way to get into the healthcare sector as an entry level. as an entry point, as something catching the eye for the healthcare side of things. But what TLV Byhlym has done is they've been taking that much further. And I think that's also where we see the market going. So to more total complete solutions. And so they are much, much stronger in this area than we've ever been. And I think we see it as an advantage because we see it as an adjacent business that we could also do more with in the future. Maybe we can look for specific lighting solutions within the hospital sector into operation rooms, et cetera. That's a possibility for us, but also we see it very complimentary. So if we, just as an example, we go back to business area professional and you look at Whitecroft, which is very close geographically from, from Toronto. They are very strong in healthcare lighting, but they don't have this full offering for the patient room side of it. And Trato TLV doesn't have the healthcare lighting that Whitecroft have. So we see obvious possibilities for combining the two and being able for Whitecroft to sell the solutions in the UK. and for Trout2TLV, under the name of Trout2TLV, to sell the healthcare lighting in France. That will of course take some time, it doesn't happen overnight, but it will give us a more full, complete solution, and we can see that the market is going more towards that. So I think we see some good possibilities there. You heard me mentioning the word healthcare many times in the presentation of the business area professional. So I mean, it's very much in sync with the strong segment focus that we have. I think that gives you an overview.

Certainly. Certainly. Thank you very much. I think that was very clear. Thank you. That's all for me.

Just before you go, just to clarify a little bit, just going back onto the cost-based topic. so let's just be clear there we are targeting roughly 160 million swedish crowns lower this year than last year um and uh also we have to remember that when we've completed these programs in our businesses we should not see the the repeating instance of the items affecting comparability so if you look forward to 2026 it should be a double impact for us perfect thank you for the clarification michael thank you

And there are no more questions from the telco at this time, so I hand the word back to you, Magnus, Bodil and Michael for closing comments.

Thank you Einar. Yeah, and there are no more questions from the online webcast as well. So with that, we are done with questions for today. But before we end, Bodil, any last comments from you?

Yes, I would end saying, of course, we're not happy with the net sales and EBIT results at the start of the year. But it is also a clear positive sign in our record order intake, and also that we are capable of navigating in uncertain market conditions. And also the strong local footprint in the many markets is an asset both in current geopolitical conditions, and with a focus on renovation market, where the closeness to the customer is essential. And we can also see that the combination of sustainability and smart is a winning formula in renovation projects, and you know that is a strong focus from us, and where the customer is clearly looking for modern, future-proof solutions. And then I'd like to end by welcoming the Trato TLV team and all their customers into the group. And I will end by saying in French, bienvenue,

your fatherhood group and i think with that we'll say thank you for today no yes thank you everyone for joining today's conference call next we will publish our q2 results on july 18th 2025 and we will host a webcast on the same day have a nice day everyone this concludes today's call you may disconnect your lines have a nice day