Lagercrantz Group AB (publ)

Welcome to Lagercrantz Group Q2 Report 2025-26. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing pound key 5 on their telephone keypad. Now I will hand the conference over to CEO Jorgen Wigg and CFO Peter Teisel. Please go ahead. Welcome to Lagercrantz Group Q2 Report 2025-26. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing pound key 5 on their telephone keypad. Now I will hand the conference over to CEO Jorgen Wigg and CFO Peter Theisel. Please go ahead.

Thank you and welcome everyone to our interim report. We do this every quarter, so this is our Q2 report. As you know, we are starting our year 1st of April, so we are concluding the numbers at the end of September as of today. Together with me here, myself, Jörgen Wig speaking, and also Peter Tissot right beside me here. When we get to the numbers, we'll let him do that part as well. So welcome, everyone. I would like to start off with just a short introduction to the group for those of you that are new to the group. And then carry on with the report soon in a couple of slides. Well, Lager Krause is the tech group or an industrial group where we are working with a buy and build model. building a group around a number of subsidiaries, currently some 85 subsidiaries or profit centers as we call them, building leading positioning, expansive niches is where we are. All companies are working autonomously, but we are gathering them into our five divisions, as you can see here, the electrified control, tech sec, niche products and international divisions. You can see the number of profit centers or companies within each of these divisions. We have been on the stock exchange since 2001. And before that, we were part of the Bergman & Dehling Group, but under our separate name since 2001. We are currently just going through the bar of 10 billion in terms of sales or revenues, and we are some 3,400 employees within the All what we're doing in the companies are B2B. So we're selling hardware and all types of industrial products in niches to other companies. So it's B2B all of it. And we are firm believers in running it in a very decentralized way with a decentralized organization with some 85 profit centers gathered in these five divisions. You can see over to the right where we have our locations. We are Northern European today, with a number of footholds around in Europe, and you can see some 30% or so is in Sweden. Denmark is our second biggest market, but then Finland, Norway, and the UK are of similar size, as you can see from one of them, if you look into it. You can also see that most of what we're doing in the businesses are also, to some extent, export related. So you can see all over to the right where we also have some footholds who are subsidiaries in a number of places around the world. So it's in the US, in China, and in India as well, where we have some footholds where we try to sort of establish ourselves and drive exports through those hubs, as we call them, in different parts of the world. So that's an introduction to the group. We are coming into the interim report then. Yeah, I think we could close another strong quarter. We could see here that we have had a strong trajectory with our profits picking up every quarter for a number of quarters now. And this was in line with before tax with around 15% and the figure now was 17% so slightly above where we have our profit targets and a strong really sort of solid report we think it was. So you can see where we have our where we've been over the years. And you can see that we have also increased our margins a little bit along the way. And that was the case also this quarter. So a strong quarter and approaching the 1.4 billion in terms of profits. we communicated a 2 billion goal some about it about two years ago and we should reach the 2 billion within within five years that we said and we are well in line with that with that pace here now as we as you can see so yeah we move to the next one I think Talking about the interim report and the Q2 and the business conditions, we noted that the market situation was generally stable and slightly better during the second quarter compared to the same period previous year and earlier on. So it's slightly better. This quarter is always very sort of affected by the summer. So it's actually not until September where we see where things are actually, where things are turning out and it looks fairly good in September. So a strong end to the quarter as well. Of course, demand continued to vary across companies and segments, but we saw some strong demand, especially within the electrified electrification and the infrastructure. within the international division and within the tech sector division that had all good order intake while demand was weaker in control in niche products divisions. We also concluded that the order intake was comparable for comparable units was slightly above invoice sales and increased organically with five percent compared to the same quarter previous year and that was also then adjusted for the currency effects with that have impacted some negative by two percent. So stronger water intake than the organic growth that we had in sales, that was only 1% really in the quarter. But we see that as more of an effect of sort of how much we managed to invoice during the quarter. So that's why we also highlighted here the percentage in water intake. can see down to the further down here the slide that we also have the net revenues by business type and it's good to see that we're also in line with our proprietary products target of reaching the 85 and we are currently here on road moving 12 months at 79 but in the quarter it was 80 so we crossed that sort of limit as well or that that bar as well now here during this quarter And you can see also that we from the far right there, you can see that we are over the years getting more and more international with the share of Sweden is growing, but as a percentage of the total, it's actually declining a little bit. But as we become more international. Peter, maybe we should hand over and look at the numbers a little bit.

Yes, thank you, Jörgen. As mentioned before, we are quite pleased to report another strong quarter with the earnings before tax up by some 17%. Net sales increased by 13% with acquisitions contributing with 14%. The organic growth in sales were 1% and the currency effects were negative 2%. The EBITDA increased 14% and the EBITDA margin improved to 17.9%. We're not entirely happy with the cash flow in the quarter, but we feel it remained quite robust. If we turn to the six-month period, the net revenues increased by 11% with, again, the acquisitions contributing with the majority of 12%. The organic growth was slightly higher at 2% and the currency effects were negative 3%. And the EBITDA increased 13% and the beta margins also improved to 17.7%. And as Jörgen mentioned before, we're well on track towards our long-term target with our earnings before tax improving by 15% in the first half year. And as you can see, cash flows in the little bit longer period increased by 11%. Return on equity was at 30% and the equity ratio was 31%. Our internal measure, the profit of working capital was at 73% compared to 75, a little bit stronger last year. And So far this year, we have completed five acquisitions, but the pace is 10 acquisitions in the past 12 months, contributing with some 12% growth in net revenues. If we look at divisions, we notice that we have a solid growth in four out of five divisions and especially strong in the international and electrified divisions. We also saw strong EBITDA growth. and margins in improvements in three out of our five divisions, that is in the electrify, control and international divisions. But we also saw some headwind in the quarter, especially for tech sec that we have seen in a couple of quarters, but this quarter also for niche products. And maybe Jörgen, you can comment by division.

Yeah, let's make some comments on each of the divisions. We'll start with Electrify. Electrify posted a very strong quarter, I would say. Revenue is up 17% and 9% coming from acquisitions. So again, it's a 9%, a really good quarter for them. And FX was minus 1%. The EBITDA rose by 23% to 132 million. And a strong EBITDA margin. They haven't been used to really having it above 20%, but here we are. And that's a goal we've had. And now they posted their first quarter at 21.2%, which is really good compared to 18.8% last year. Electrify is working in a favorable market within both electrification and infrastructure segments they're addressing. And that completed with a strong second quarter with good growth and improved margins. We noticed especially that we had good performance in companies like Nordic Road Safety had a really strong quarter, but also Elcaps, Elphag, EFC, Encom, Cape Row and Norvesco, a number of companies there. We'd like to highlight the companies here to you guys. And of course, they have their own web pages to understand what they're really doing, what they're all about. You can go to their web pages and see if you're interested. But the Nordic Road Safety Company stood out here during the quarter. But also the more traditional companies like Elpress posted a good quarter, even though they're not mentioned here, but also Elcapsling and other ones mentioned here. The small but still very good company PPV, newly acquired, reported good earnings, and Mast System, which was a major acquisition Wille made last year, had a strong order intake during the quarter, which is promising for the future. It looks promising for the future. We move to the control division. Their revenues grew by 13%, and acquisitions then was the whole thing. So 13% through acquisitions, but also organically 3%, but FX minus 3%. So EBITDA picked up nicely with 43% to 48 million, and the EBITDA margin at 15.1%. A strong EBITDA margin, control for those that have been with us has been usually having a very strong Q3 and Q4. But have also done through some acquisition balance that out over the years. So now the EBITDA margin was really strong here also during the summer with the 15.1%. A stable market with some successful acquisitions, especially in CP cases in the UK and the US continue to have a positive development. But also companies in Norway like Leting, MH Modules in Sweden, Stegborgs in Sweden and Pressmeter in Sweden, but also working very well internationally, should show good earnings improvements. But meanwhile, we in this division also have a number of smaller businesses with still reliant on the construction market and that market we still see has been very sluggish and slow with some real major headwinds there in that market. But that is affecting some of the smaller companies here, not the major ones. The newly acquired Heman posted a good start to the year and also this quarter. And during the quarter, they also made an acquisition, a Bolton acquisition to Direct Unique with the Quintus acquisition. I'll come back to that later on. So two really strong divisions there. What we're struggling more with is the tech sec division. Here we saw revenues fall back a little bit, 4%, and organically minus one. And no acquisitions here. They're still looking at acquisitions and like everyone else. So nothing new there really. But they have been looking at some interesting things going forward. But during the quarter here lately, it's not been very much of acquisitions within the tech sector vision. The EBITDA amounted to 68 million and the EBITDA margin fell to 13.8% as opposed to 17% last year. Many of the companies still perform very well in the continuous stable market like Arasc, Hobbs, Fricktape and Invesco. But some of the bigger ones struggled more with the ISG NOID and Swarming Diesel Voima They reported a good order intake, but slightly weaker earnings in the quarter. But some of the larger units, the PCP, Arcon, and Dorian Joyner, and Principal Dorsets, and CW Lundberg, remained affected by the weak market situation within the construction sector. And that has affected the tech sec development here organically in the quarter and so far this year. Within the niche products divisions and comments there, revenues rose by 10% and out of that came 17% organically, sorry, through acquisitions and organically was minus 5. So a bit of a sluggish quarter with some headwinds. Niche products have a very broad portfolio of companies dependent on a number of segments and markets. But here, some of the really major ones had some headwinds at the same time. And therefore, we are not entirely happy with the performance of the niche products division in the quarter. EBITDA still on a good level at $102 million and an EBITDA margin of 19.2%. So strong still, but not entirely living up to last year, which was a really strong quarter and period for some of the companies. And tough comparables then for ToolMaker and ASEP, for instance, but also Truxel and Westmatic performed below last year. And some of these companies also have a dependency up in the US, where we have seen some headwinds, partly due to the tariffs and the trade discussions going on, but then also due to that they had really strong performances with some project-related businesses last year that they had difficulties meeting this year. But still, a couple of other companies really standing out, so very strong. Credo is one. continue to perform very well. And also the VLT or Van Leeuwen test group in the Netherlands has been a really good acquisition coming in very well for the for the niche products division. And some of the older ones, Profsafe, Sib, Thermal and Waterproof delivered some good improvement as well. so and the international division then the last one and there we are very happy the revenues were up 35 percent to 500 million so a strong growth there where but most of it came from acquisitions then so organic there was zero and some fx minus four the beta was up 47 percent within the in within the division and the beta margin at 19.2 percent a really strong quarter. International has been the division that has been behind the others in terms of EBITDA margin, but they have picked up here lately and in the last few years it's been a gradual improvement, a structural improvement within the international division. They are having some seasonality to their business now going forward. So we'll see what happens during the full year. But so far, it looks very good with the newcomers here, the Frigge Rokers and the Polk coming in very nicely here, have a strong period at this part of the year. But also the marine business, the Libra in Norway, DPCs in the UK and G9 in Denmark continue to develop strongly. So a number of companies doing it very well also within the international division. That's a strong quarter from the international division. So three divisions we're really very happy with. The tech sec and the niche products have a lot to work with or a few things to work with. But we'll probably pick up here going forward, I think. So temporarily weaker periods. So that was the quarterly report. Let's move on to where we would like to be with the group. Well, to start with, I mean, we're really sort of focused on delivering on the Lager Grants towards the 2 billion goal. And we, as we said many times, we would like our annual profits to get there. We would like our annual profits to grow by 15% per year. So we will double our profits every five years. And we've said that one third of that should come organic and the rest through 8 to 12 acquisitions per year. And as we said already earlier, we posted some 10 acquisitions here in the last 12 months. So we're basically on that pace as we are now. The return on equity, we should do this in a very profitable way. So we say that return on equity should exceed 25%. And as you saw from the numbers, we're currently at 30%. So we're ahead on that target as well as we move forward. Building a very strong group of niche-oriented B2B tech and industrial companies. And building in these five divisions. So we have since now three years three and a half years building around these five divisions, building positions in what we feel is segments with some underlying structural growth. The electrification, the safety type products, a number of areas within the niche products area, but also within the international with the marine businesses, the water cluster that we have within the niche products division. We're really finding trying to find areas where we see some underlying structural growth. Most of our companies should be growing between five to 10% per year. So it's not dramatic growth, but still high Syngent Digit is the ambition that we have for most or all of our companies building around these five divisions. one strategic ambition which is also very important to us is the aim for increasing the share of proprietary products and we have that as a key KPI for us so and here you can see how that's evolved since 2006-7 where we made acquisition of Eelpress which one of the early ones in terms of having now we go back And you saw that in 2006-2007, the 13% there. But we have been growing. And now when we surpassed the 1 billion goal, we said that we will move from 75% to 85%. And we are currently then on the moving 12 months at 79%. But in the report, you can also read that in the quarter, we were at 80%. So we are approaching the 80% halfway. And that is so we are basically on the right pace there as well as we move forward. With the model, we are also looking quite a lot at acquisitions, 8 to 12 per year. And again, we posted some 10 acquisitions since October 2024. And you can see which ones those are here on this slide. We have gradually been putting more emphasis on our divisions to do more of the acquisitions, and they're really picking that up. So I think we're looking at a very good pipeline at the moment. And we have also then gone more international with our M&A ambitions. So we have since a couple of three, four years now been really present in the UK market, but we're also now looking into the Netherlands and other markets as well, Germany, Switzerland, other sort of northern European markets, gradually increasing our emphasis there. So it looks really very well and I think we're growing and scaling log-in crunch in a very good way. uh so uh so let's look into some to give you an idea of what we've been acquiring the just a few ones the empty milieu technique is is a company in denmark that is a bolt onto the water cluster that we're building within the niche products division around the vapor group not a very big company but still very good And they're very niche oriented in their market, strong in their market and delivering, as you can see, good EBITDA margins and good growth as well over the last few years. So it's a nice bolt on and that's how we normally work with things. We'd like to do this in a decentralized way and would like to see a lot of bolt-ons to the companies that we have already. So that was one example. Another, which is more of a platform investment is within the control division, thank you, where we acquired a company called ORAX, which is a leading Swedish supplier of products for handling and maintenance within the funeral and cemetery sectors. So it's a company we've been looking at for many years really, but now it came up for sale in the right way. And it's based in the west part of Sweden, close to Gothenburg. And you can see down there, it's around 50 million in terms of sales and an EBITDA margin of, yeah, close to or slightly below 20% as you can see there. So it's a very niche oriented, a strong company within that specific niche where they're working. A couple of more acquisitions, the Epoch is another one, a slightly bigger one that we made in Denmark, which is a leading manufacturer of equipment for winter road maintenance and road safety, especially for spreading sand and salt. A strong player, a clear market leader in Denmark. Strong also in Norway and in Germany and in the Netherlands, based out of Denmark. And slightly bigger than what we've done, slightly bigger than the average, so to say. And related to that, to some extent at least, is the Frigge Råk i Sverkstedt, with a brand named Fahlköping, which is a very strong player in the Swedish market. A market leader in Sweden and Norway with the salt spreaders that they're providing. You see them in the wintertime and have some annual profits or annual revenue of 110 million Swedish. and some beta margin of close to 20 to 25 as you can see here so a strong company and both of these companies are then joining the the international division or have been here for since summer and last but not least we have another bolt-on which is a bolt-on also within the control division now to connected to the direct unique that have acquired some 800% of the shares. A smaller acquisition, but still, as you can see, there is a strong EBITDA margin down there to the right. Some manufacturing supplies of instrument for measuring temperature and pressure is their niche that they're working in. and Direktronik has other adjacent assortments and this will add to that so it will be working in close relationship with Direktronik which is a an online sort of provider of different types of yeah more IT and network related products but this will fit right in with what they're doing there So to round off, well, thank you. I think we posted yet another good quarter. You can see that net sales are approaching the 10 billion. Probably we'll get there in a quarter or two. And then we see the EBITDA and EBITDA margin picking up along the way. You can see the EBT growing, going towards the 2 billion, as we have said. And then return on equity should be 25%. You see that's been about 25% for quite some time now. And the EPS growth has also been very good for the last few years. We continue now with a pace of 21% here. We had a stronger period last year, but still doing it to 17% here in the quarter, as you saw from earlier. So with that, I think we will round off and open up for questions.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Jakob Markin from Danske Bank. Please go ahead.

Hello, thanks for taking my question. I have two, but I can start with one of them. So I'm just wondering if you can help us a bit on the M&A contribution in international. Quite a lot here in the quarter, and I guess that myself and my self-taught colleagues had expected the summer months to be a bit weaker for Epoch and for Gorkes, but that does not seem to be the case. So if you can help us with the seasonality of those acquisitions, it would be great.

Yeah, I think the seasonality is that they're building and working quite a lot with their projects. I mean, it's a winter related products they're selling, right? So they're selling most of what they're doing in the fall. I think they will have a strong sort of the October, November, September, October, November is usually a really strong period of the year. I think they're delivering quite a lot during that, and then it will take another couple of months before they get the cash flows out of that. But the seasonality in those companies are strong, and we will need to deal with that along the way.

Okay, perfect. That's good. Thank you. And the second one, I'm just wondering if you can help us a bit on the organic order growth. Would you say that they are similar to the sales performance in the different segments or are there any segment that sticks out, both on the positive or the negative side on the order growth?

Yeah, I think we have some project related orders that is also to be delivered here going forward. So if you look into it, you could see that we've highlighted that TechSec actually had a good order intake, but it's not delivering in terms of sort of the quarter here. I think they have picked up with a number of good more long-term related orders. I also see that we have that within the electrified division. We also see the mass system picking up with some good order intake that is also sort of behind the strong order intake. I think it's generally speaking is very related as you're suggesting, but with some sort of things that we've also highlighted in the report that especially within the tech sec and also within the electrify, we've had some strong water intake.

actually also in the international division has been strong while it has been slightly weaker in in the last quarter in in control and niche products divisions okay perfect thanks uh that was also mr i'll get back in line thank you

The next question comes from Christian Binder from Redeye. Please go ahead.

Hi, and thanks so much for taking my questions. One would be whether you could clarify around cash flow. You mentioned that you're not entirely satisfied with this quarter's performance. Can you just talk a little bit more about underlying reasons and potential measures, how that's going to improve in coming quarters?

Yeah, I mean, we've seen some seasonality coming into the group, right, with the NRS business in the Nordic Road Safety that we talked about. I mean, they're delivering most of what they're doing during the summer, and then they're getting sort of a better cash flow or they're getting paid during the fall. And that we see happening, and it has been so for their, they've been with the group now for two years or something. And then on the Polk and Freaky Walker, we have a similar seasonality, but it's more delayed, leading towards the fall rather than the summer. And then we see sort of good cash flows. We expect good cash flows to come in here in Q3 and Q4. We'll see.

I can add to that that we have seen some improvements in the working capital also related to, for example, inventory and things like that, that we are working with and not entirely happy in the quarter.

All right, perfect. That was clear. And then just one follow up on order intake. If I understood correctly, you know, niche products was a little bit weak this quarter, and it seems like comparables for organic growth will remain a little bit tough. So should we kind of expect this quarter's performance to continue for the next quarter too?

Yeah, we're working on it, but there was some sort of strong sales in some of them, so really strong comparables in a couple of companies last year, and that will probably continue for another quarter or so. Yes, that's probably correct.

Perfect. Thank you. That was all from us.

The next question comes from Zeno Englund-Ricciutti from Handelsbanken. Please go ahead.

Yes, good day. Thanks for taking my question as well, two of them on the margin. Firstly, a follow-up on international. Yeah, big improvement which you attribute to M&A, and I would just like to understand that a bit more, especially with the slide on APOC, which is the larger one which you showed, which at least on a yearly basis is margin dilutive, but yeah, they boosted it in what seems to be a seasonally relatively weak quarter, if you could nuance that a little bit.

Well, there is a seasonality also to the margin, right? What you see there on the POKE slide is for the full year, right? But we are not, and we are expecting, and POKE should, as most of our companies, we have definitely the ambition to drive margins in these type of businesses, especially the new ones. And we expect that to pick up. Maybe it's not done overnight, but that is definitely the ambition going forward, that it should live up to the expectation and basically the average or so of the group. So we have the ambition to always buy companies that have an excess of a beta margin of more than 15%. and Epoch has been in that neighborhood, but we would like to establish them on about 15% more, so they're on the stable continuously. So we have that as an ambition for that company, yes.

Understood. And secondly, on the margin in Electrify, which continues to be quite strong, Are there any effect in this quarter we should take into consideration so we don't extrapolate something that's maybe a bit better than it should?

I think many other companies are doing very well within the electrified division and we have some really strong companies there. I think what stood out here during the quarter as we mentioned is the NRS business that had a strong seasonality but also had a strong sort of performance here during the quarter. So whether that will be sustainable, well, let's see what happens. But there is a seasonality in there as well.

Understood. Thank you.

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

Do we have any questions before we round off? We have one question also around declining interest rates in Sweden. Maybe you should take that one, Peter.

The question is also if we can see more competition triggered by this cheaper financing and more competition in M&A. And I think we have repeated this message a number of times that over time, our multiples in M&A has been very, very stable. And as we have mentioned in the report, we see a very, very good M&A pipeline and we haven't seen any material effect of more competition on the acquisitions lately. So I think we're very, very stable and solid M&A situation.

Yeah, we see interest is coming down a little bit and that of course is making our financing a bit cheaper. But we don't see that effect in M&A to a large extent. We don't know. It's a short answer. Okay. Good. Thank you everyone for listening in. Me and Peter are available here during the day. If you have additional questions you would like to ask us. And if not, have a good day. Thank you for listening in. I think it's a strong, solid quarter from us. And we look into the future with bright eyes. So thank you very much.