Lagercrantz Group AB (publ)

Welcome to the presentation of Lagerkrantz Group Q2 report for 2023-2024. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answers session, participants on the teleconference are able to ask questions by dialing star 5 on their telephone keypad. Participants following the webcast can write your questions in the chat below. Now I will hand the conference over to CEO Jorgen Wye and CFO Peter Theisel. Please go ahead.

Welcome everyone to this morning's conference around Logit Crowns Q2. Me speaking is Jorgen Wye and together with me here on the call this morning is Peter Theisel, our CFO. And we will jointly try to guide you through the report and the presentation that we have here up on the screen. And I hope you're all sort of prepared for that. We will do the presentation in sort of three sections. We will start off with giving everyone that are new to the group a little bit of a short introduction. Then we will jump right into the numbers and look at the Q2. And after that, we will talk quite a lot today around the new sort of, we are expecting to raise the bar and how we plan to move on with Lager Grants going forward. For those of you that have been with us for some years, we have always been trying to find growth and building the group with some 15% per year. And a couple of years back, we raised the bar to the 1 billion in profits that we reached here this summer. And now we'd like to talk a little bit about what comes next and raising the bar and doubling once again. That is the message that we have communicated here this morning as well in the report. So we'll jump right into it and go through these sections. We will then in the end have an open discussion and with some Q&A. So there's a queue that you can add on yourself too if you'd like to put some questions out later on. So we will start off with a short introduction then. I mean, we're building the group continuously around a tech group or an industrial group, trying to find niche-oriented, preferably product companies that we would like to have within our portfolio companies. You can see here on the slide that we have sort of put them into the five divisions that we have. Electrify, Control, TechSec, Niche Products, International, and you can see how many companies we have in each of these divisions. Each company are working autonomously, independently in their own market under their own brand name. So we keep the companies as they are when we acquire them and build them from the standpoint that they have. Finding new growth opportunities in terms of exports or new initiatives within the companies and thereby growing them along the way when we require them. Currently, we have some revenues of approaching 8 billion and some 2,600 employees. We are some 20 people or so, a little bit less really in the overhead. But otherwise, the rest of the employees that we have within the group are all working in the different subsidiaries that you can see over to the right here where we have our needles and where we are. You can see that it's Northern Europe, the map there. But you can also see all the way over to the right where we also have some footholds in other parts of the world, especially China, India, and the US, where we have some growth ambitions and some companies that have some footholds. And we try to help our companies get abroad with exports in many different new markets that we see over there. We are strong believers in running things in a decentralized way. So we have currently some 70 profit centers in the five divisions. So each company, as I said, is run independently to a large extent. And acquisitions is a very central part of our business model. We will today communicate the race of the bar in terms of the number of acquisitions that we have from the five to eight that we've been working with, the eight to 12. And that is also an initiative that is going on in the divisions more and more along the way. That we'll talk about a little bit later on. We have been on the stock exchange in 2001. Before that, we were part of the Bergman & Beele Group. So we've been on the stock exchange in one form or the other since 1976. And the group was founded already in 1906. So we have a long heritage. of doing what we're doing. I think we have a very strong platform today that has been built through a lot of business culture and philosophy around decentralization and working very sort of thoroughly with the companies along the way, building the group over the years. So that's an introduction to the group. We will communicate this morning then the Q2 figures. We have a year that's starting 1st of April. So this is our Q2 figures we communicated, which is up until the end of September then. And you can see the very good trend that we have here, the good trajectory we've had for some years now. And we surpassed the bar here of the 1 billion, you can see all over to the right here this summer. And now we added to that even more here in the last with a profit increase here in the quarter of some 20%. So it was a strong quarter and we feel that we have a very strong path to continue building the group along the way. We'll come back to that. You can also see that the scales are proportional from left to right here and thereby also you can see along the way that margins have improved. That has been very important to us along the way. We are more keen on driving profits and and margins and profitability rather than focusing too much on top line. We would like to have the bottom line preferably to work for us. And that's been sort of part of our inheritance since many years now. So that's an introduction to the group. We'll look further into the numbers and looking into the business conditions. The way we see it is that we feel that the market has held up better than expected. So we think it's been remained stable on a good level for most of our businesses. We see it's broad-based. We have actually been, as we have a community, also expecting some slowdown. And we see some of the slowdown, but not to the extent that we expected, really. So we feel that it's holding up in many parts of the business. And we see the industrial sort of related type businesses are doing very well. The electrification is holding up very well. and a number of other niches, the tech sec is also holding up better than expected. So we think the market has actually, we've been expecting sort of that we should work with our plan Bs and stuff for a year now, but so far we have not been working with those very much. It's been holding up better than expected. And we also saw the order intake for comparable units was actually slightly above the same previous year and in line with the revenues for the quarter. So I think it looks pretty promising. And we also feel, why is that then? Well, we feel that the broad focus that we have with many different companies in different end customer segments and different geographies is working very well for us. especially with the focus that we have within more related to the the green transition with electrification with the infrastructure building that is going on and and security and safety products and also some specialized products that we have other segments that we have especially within the niche division and also within international provide some good resilience for us And we see, of course, some type of slowdown in a couple of markets, but not worse than we've seen previously. And we also feel that it's holding up very well, generally speaking, across most markets. We will look further into the numbers here on the next slide. And Peter, can you take us through the numbers, please?

Yes. Thank you, Jörgen. Overall, as Jörgen mentioned, we are quite happy with our Q2. We feel it shows solid numbers with broad-based margin improvements. Our net revenues increased by 12%, and the organic growth was a little bit lower than previously, minus 1%. Contribution from acquisitions were 9%, and currency effects 5%. But maybe the strongest part of the report is our margin in improvement that took us to a record high level of 17.8%. And it was quite broad based where all five divisions contributed to improved EBITDA and EBITDA margins. Our cash flow was a rather normalized cash flow from operations at 219 million compared to 211 last year. And during the last 12 months, we've had close to 1.4 billion in positive cash flow. So that's quite strong, but now at more normalized levels. Our profit after financial items increased by 21%. And looking into the net financial items, we can see that they were more or less entirely driven by increased interest rates. And currency translation effects were not significant, didn't have any significant effect in this quarter. And profit after tax increased by 21%. If we look at accumulated numbers for the first six months, we had net revenues increased by 20% and the organic growth was at 2% and acquisitions contributed with 13%. And EBITDA margin was 17.6%. Cash flow increased by 137% to 505 million. And profit after financial items increased by 20%. So it's very, very stable. And it's the same in net financial items were driven by increased interest rates rather than anything else. And currency effects were not significant, didn't have any significant effect. We also noted that our profit after tax increased by 19% and our earnings per share increased to a record level of 4.01 sec in the last 12 months. Our return on equity was 30% and our equity ratio was at a very high level at 36%. And we completed four acquisitions during the first six months, contributing some 300 million in annual net sales. If we look at the outcome per division, we can note that most divisions have over the past 12 months improved their margins, except for the control division. And I will come back and take you through the outcome per division, where, for example, for electrify, we had a very stable and positive market situation driven by electrification and infrastructure investments. And most units within the division delivered strong results. although some entities were affected by lower volumes from the wind power industry, which is our biggest customer work, one of the biggest customer segments. One noteworthy thing is that within infrastructure, QD delivered a good quarter, but this time without any significant project deliveries. If you remember in our Q2 last year, we had some extra project deliveries in the order of 30 million with the high profitability that we didn't have in this quarter. So that explains some of them. You have to take that into consideration looking at the numbers. We also noted that our recent acquisition within Electrify Tycoflex had a very strong performance in the quarter and also the newest addition Letty had a strong start in the group. For the control division we have been focusing on improving the profitability and EBITDA improved by 24% and the EBITDA margin improved to 12.9 in the quarter compared to 10.4 in the same period last year. But we have a challenging market situation with a slowdown in demand for some businesses and seasonal effects for other business like for example Radenova with their radon measurement which is in a low season in the second quarter. We noted though we had a positive development for several businesses like Sterg Boys and Direktronik, Leteng and others. If we move on to TechSec, we noted, if you remember last year, we were quite acquisitive in this division, but not in these numbers. And we had a healthy improvement of EBITDA, some 20%. and the EBITDA margin improved to 18.5%. And we noted a very stable and favorable market situation for most business units, where ARKON and ISG Nordic and COBS performed quite well, but also our biggest acquisition ever, PCP and CWL also. had a good performance and made the greatest contribution to earnings. We also noted that there are recent acquisitions FICO and Doran Joiner in the UK delivered quite strong. Then for niche products, which is our, let's call it the broadest spectrum of products, had a very good performance. They had a good performance already last year, so quite tough comparables. And we noted an improvement of a bit of some 13%. close to record high EBITDA margin of 21.3%. And the market situation was in general quite stable. This is the division where we have noted maybe in the past three quarters some slowdown, but here it shows some growth once again. And we noted particularly good improvements for Asept, PST, Vapro, Westmatic and also Tormek. And last, international, but not the least, we had a very, very strong development for the international division, where the EBITDA improved by some 33%, and the beta margin improved to 16.6%. If you remember, this is the division that a few years back lagged behind the other divisions, but it's now closing in on the average performance. And it's particularly good performance in our marine businesses. The Libra in Norway, Tebul in Finland and ISG in Denmark, but also for Schmidt's Technik in Germany and E-Tech in the UK. So it's rather broad-based improvements. And also our recent acquisitions, Glova Rail in Denmark and SupplyPlus in the UK had a good development. and turning into the net sales per market segment we show here first the last year financial year but also the first six months and you can see that it's very stable in between the different market segments and I think I receive the question quite often about our exposure to the building and construction segment, particularly the residential, and it's between 1 and 2%. So it's very, very small and remains quite small. But I think the takeaway here is that it's very, very stable and rather broad exposure to very different market segments. So back to you, Jörgen.