Lagercrantz Group AB (publ)

Thank you and welcome everyone to the quarterly call from us. Great to have you with us all. As normal we try to have this as a 45 minute or roughly plus minus five minutes or so session where we go over sort of give a brief introduction to the group and then go over the numbers and then look a little bit ahead at the end and also look at the acquisitions, the most recent one we've done. So welcome everyone and we'll get going. Together with me here is Peter as well, of course. So we're two of us here. So as a short introduction to the group, well, for those of you that are new to us, we are a tech group or a buy and build company. There are buying and acquiring sort of niche businesses, which we will highlight along the way more as we go along. We have organized ourselves into the five divisions you can see there, but we all run the companies very autonomously and independent companies running under their own brand name, addressing their own markets. And currently we are some 85 companies within the group. Our revenues are now exceeding 10 billion on the moving 12 months for the first time. That was like a milestone with this quarter. And we're currently some 3,600 employees growing with some around 15 to 20% per year. We run, as I said already, in a very decentralized fashion with 85 profit centers organized into the five divisions. You could see over to the right here where we have our companies. Most of it is in Northern Europe, but you can also see that we have some footholds and smaller operations addressing especially export market activities in North America, but also in China and India and a couple of other places. You can see those footholds all the way to the right here on this slide. And M&A is, of course, a very central part of what we're doing, of our business model. And we have been listed on the Stock Exchange since 2001 as a separate company. We were part of the Bergman & Bieling Group before that. So we're one of the companies coming out of that environment and have that type of philosophy and culture within our group. So that was a short introduction. Yeah, well, getting into the interviewing report then. We posted what we think is a very solid and strong quarter, another one, adding to our fine trajectory here as you can see. We are heading towards the 2 billion as planned and you can see that we're close to 1.5 billion here now in terms of profits and we have then surpassed the 10 billion in terms of sales. It's quite satisfying to see. I just realized myself that I posted my 81st quarterly report now with this one. And it's great to see where we started. We started with some 400 million in sales in the quarter we're comparing with now. And we had an earnings of 13 million in terms of EBITDA in that quarter. And currently we're at the 513. So it's been quite a journey. And back then we had some 3.1% EBITDA margin and now it surpassed the sort of 18 or at 18 with the quarter that we just posted. So it's been a tremendous journey and quite satisfying to have another good quarter behind us here. We communicated in the report also the business conditions that we have on the next one then. We feel that the market situation has generally been stable and slightly along the way better, gradually better. Maybe not at the improvement pace that we had hoped for, but still on a good trajectory here in the last few months or in the quarter as opposed to earlier. It's been gradually improving. Especially we feel that we have some differences in between the segments we're working with. So the electrification and the infrastructure and the defense showed strong development, which we see in especially the electrified divisions sort of outcome there. But we also saw the Nordics slightly improving along the way. While the US is hampered and held back a little bit when you're exporting there. That's only 5% of sales, but it's affected by a geopolitical situation and all the tariffs and the different things happening there. but also with the strong the differences in the currency the currency effects has also been been against us in some companies especially affected the niche products division as we will see later on but it's satisfying to see that the the the order intake increased organically with some seven percent uh compared to the same quarter last year and uh and that was then after adjustment for the currency effects uh impacted negatively by four percent So a good market, slightly better than before, but no dramatic improvement, but slightly better than before is what we communicated here this morning. With that, I think we should go in and look at the numbers. Maybe, Peter, you can go over the numbers here.

Yes, thank you, Jörgen. And as Jörgen said, we think that this is a very solid quarter. with the strong order intake first and also quite high net revenues growth that increased by some 16%. 18% came from acquisitions, but we also had 2% organic growth and then currency headwinds of 4%. The EBITDA grew by 20% and the EBITDA margin improved to 18%. The cash flow was strong. It was up 12%. But it was strong also in the same quarter last year. So we are quite happy with that. And as you can see, the conversion ratio is quite high. Profit after financial items were up 19%. If we look into the accumulated numbers, We see similar numbers with net revenues up by 13%. Most came from acquisitions, but we also had 2% organic growth and the currency headwind was 3% in the first nine months. EBITDA grew 16% and the EBITDA margin is also improving on the nine month period to 17.8%. And similar cash flow is and cash conversion is quite high also in the nine month period. This was probably the area that we were not entirely happy in the last quarter, but now it has been improved. The return on equity is 29% and the equity ratio is 32%. The profit over working capital, one of our key ratios, is 80%. It's on the same level as last year. Earnings per share also increased to 5.53 Swedish krona in the last 12 months. Jörgen will come back and present some of the acquisitions that we did in the last quarter, but so far we've completed 12 acquisitions in the last 12 months. And this has added 1.4 billion Swedish Krone in business volume. And this corresponds to an acquisition pace of some 15%. So we are upholding a rather good pace of acquisitions. If we looked very briefly into the primarily the beta margins per division, we are happy to see that electrified division are now another quarter above 20%, so 21%. Jörgen will come back and tell you the reason for this, but we also see that the control division and also the international division have good margin in improvements. We see on the other side, tech sec and to some extent also niche products with slightly lower EBITDA margin in this quarter compared to one year ago. But maybe Jörgen, I will hand back to you.

Yeah, but before we leave that one, I think it's good to see that we have really five strong divisions. You can see that we are very happy with what's happening in like three of them at the moment, the electrified control and international division. while we're lagging behind a little bit in the tech stack in the niche products. But it's very satisfying to see now. We communicated the beta goal of 20%, and you can see down there we actually have two divisions that are basically already there. And then we need to work with the rest ones to get there as well. So it's satisfying to see the levels of performance in all divisions, but especially then within the electrifying and margin wise in these products as well. Some comments on the outcome by division. Electrify posted a really strong quarter. Revenues were up 17% and acquisitions was 10% out of that and organically some 9%. So a very strong quarter from the Electrify division. They have had a very strong market, especially both within electrification and infrastructure. So they also posted a very strong EBITDA growth of 55% here during the quarter and an EBITDA margin of 21.2 as opposed to 16 last year. So it's a very, very strong quarter posted by Electrify. We saw improvements in most businesses, but particularly in Nordic Road Safety, EL Capsuling and a few others, as you see mentioned here. But really strong broad-based improvement within Electrify. And also very happy to see that mast system that we acquired a little bit more than a year ago, reported good earnings and also some continuous strong order intake during the quarter. That is a very good company that we acquired some year in Finland that we acquired about a year ago and they had a very strong quarter here and both in terms of earnings and deliveries but also in more order intake along the way. which is very important for the division. The second division, a few comments there is the control division also posted a strong quarter with 8% and acquisitions was then 16%. Here we have deliberately been working quite a lot with acquisitions because we would like to grow this, but organically they're still struggling with the construction sector, especially in Norway and in Denmark that we have highlighted before. But they also along the way through the acquisitions or the more recent acquisitions, they have increased their exposure towards the defense sector. And especially companies like the CP cases in the UK and the US and also Leateng in Norway had a strong quarter here due to good order intake and market development within the defense. Also highlighting is Radanova with the Radon measurement business. They had a very strong season this year. They have a peak season during the winter and it's been especially strong this year. And also Presymeter and The Egg Boys posted a really strong outcome through the quarter. And the newly acquired companies, the He-Man in the UK and ORAX in Sweden, contributed with good results also within the division. So we're very happy with also the outcome within the control division. Within the tech sector vision, that is the one struggling the most. Their revenues increased by 10%. And all of that came, sort of, most of that came from acquisitions, but also some organic growth, especially within the order intake. So it is within the tech sector with some good order intake along the way. But EBITDA then amounted to 90 million as opposed to 92 last year. So we're slightly down. and also the EBITDA margin came down a little bit. And that is for the same reasons as before, that the market situation has not yet improved within the construction sector. And the companies with that exposure are suffering a bit here or not delivering to last year, really. They're doing quite okay, but not living up to what they have been doing in the last few years. Happy here also around the iHolland acquisition that we made here in the UK in November. That is sort of a new area that we're taking TechSec into, more on MedTech and other types of exposures where we see some stability and also some underlying structural growth in that area. And that is a significant acquisition for the TechSec division with iHolland, adding some 335 million Swedish on an annual base. So that will be an important acquisition along the way. And that is also, yeah, it's affected the numbers only in November and December, but came in quite okay with the first couple of months here. We move on to a couple of comments on the niche products division. Their revenues grew with 17%. And acquisitions, there were some 23%. So organic, it was actually down 2%. And here we are, we have a number of very nice companies within the niche products division. So Matsamos was hampered by the development, especially related to the US. They have some volumes going into the US with some exports going there and due to tariffs and sort of effects and currency effects that they are struggling a bit more than they used to last year. So that is affecting those companies and affecting the whole division. On the other hand, Frida, which is a Swedish company, had a very strong quarter, continued to do very well. And also the Van Leeuwen in the Netherlands showed also continued good development. And a couple of others with waterproof Sias and a few others there as well showed clear profit improvements. And here we also made some acquisitions during the quarter. I'll come back to that with the citrite and the ink and the hydral were required and we'll add along the way as well, very good to the niche products division. Last but not least is the international division. Their revenues grew by 28%. They posted a strong quarter as well. And the acquisitions were 30%, but organically they grew by 5%, sort of long-term target in terms of organic growth. But FX was against them a little bit with minus 7%. So top line, it grew 28%. EBITDA then grew by 30% to 90 million. and the beta margin picked up slightly to 17.3%. So good development and a strong quarter there as well. Here we have acquired Epoch and Frigate Walkers here during the summer. and that those had, yeah, they have this strong sort of season here and ended very well here during the quarter. So that is affecting numbers somewhat, but also other companies like the Libra and DP Seals and G9 in Denmark continue their strong development. And also important to highlight was the Unitronic in Germany. It's a company we've had for many, many years and been struggling a bit over the years, but it's now doing a lot better here as of this quarter, but also in the last year or so, the Unitronic's performance has picked up significantly with some new volumes and some new sort of supply lines and doing it very well for us at the moment. So yeah, that was good to see as well. So good development in many companies. So with that, I think we leave a little bit of the quarterly report. Let's talk a little bit of where we're heading and our new goals then. Well, I'd like to reiterate where we are. I mean, we are still sort of very keen on building our group with these really strong niche oriented, primarily product companies, where we have our own product rights. And we have that as a strategic aim as well to improve that share along the way. And we are strong believers in our business model. The business concept that we're running is really strong, has been that for many years. And for many years, we've also had the target of growing the EBT with some 15% per year, i.e. doubling the group every five years. We have done that for many years, for many decades, really, and we continue to see that as a good opportunity going forward as well. There are also increased competition in the market along the way, but we still feel that we are able to deliver on our profit targets here. We've also highlighted along the way that we would like to see at least one third of that come organically and the rest through eight to 12 acquisitions per year. And the bar of eight to 12 has been increased over the years, we would like it to be 10% of ourselves basically that comes in through acquisitions. And that profit growth of two thirds should come through M&A and one third organically is the way we think about it, even though the overall target of 15% is where we would like to be measured. So in periods where we have a slower organic growth, we might sort of compensate that with more M&A, which has been the case now for a year or two. So that you've seen also from the numbers that most of our growth in the couple of recent years have come through acquisitions. And we would like to do this in a very profitable way with our return on equity target has been 25%. We struggled to get there for some years. We started out, as I said, some 20 years ago, then we were at 10% or so. and currently we're running at 29% or so. That has picked up quite significantly over the years as well. And that translate then to the profitable working capital. So what we communicated here this morning as well, we have been discussing this internally for a while, is that we should clarify where we would like to be. So we are reiterating some profit growth target of the 15% and that we also would like them to continue on our journey towards the 2 billion in EBT within five years. That was communicated in October of 2023. So we are basically two years down the road and we are well underway to deliver on that target as well. But we also see that along the way that our performance have picked up. We have been growing our EBITDA margin over the years with basically a little bit every year up to percentage point or so. And we feel that we have the opportunity to really push for the 20%. So we will have now highlighted that that will be a target for our companies. That will be a target for the existing companies that we have, but it will also be a target for the companies that we acquire. Not everyone will be there to start with and not everyone will get there. But on an average base, we should be at 20% on the divisional and group level at least. So we are now discussing how to get there with each individual business. We have also over the years really been pushing our profitable working capital target. And as for those of you that have been following these type of companies and us and us for many years, you know, it's been 45% for many, many years. But we feel that we have sort of been well above that for many years. Maybe we felt that sometimes that was maybe sort of, yeah, the promise too much to get it to have it like very high for many years. But now we have really been delivering on that and we feel that we have basically the opportunity to have everyone at 60%. And that is also now a target for all our existing and acquired businesses along the way. So we set a new target and increasing the 45 to 60. And then reiterating the return on equity target of 25%, which is the one we use externally. We would also like to highlight that we also would like to yeah, position ourselves as someone that is really buying good companies and making them great. So we're buying and building niche businesses. That's sort of the tagline and where we would like to be seen. The old word technique, how this concern was used some 20 years ago and they're still used in some areas, but maybe we feel that buying and building niche businesses is sort of a stronger wording or where we actually would like to be highlighting where we would like to be with the companies, highlighting to our organization, but also highlighted to you guys in the stock market where we would like to be and how we would like to be seen. So we also put it there alongside our logo going forward. So a little bit of the financial targets there. And we will then continue to scale Lagerkrans. I think that we really feel when we're doing our modeling that we could, with the setup we have, sustainably deliver more than 15% EBT growth annually over a long period of time. We will be very occupied with along the way really driving our organization and culture to sort of bring everyone on board and make sure that everyone is working out under our freedom and accountability and simplicity and different types of words connecting to our culture and make sure that everyone is on board with that and that is a key area in order to be able to sustainably deliver the 15%. Then of course it's also about finding the M&A opportunities and also making sure that we free up enough cash flow from operations. We have always had the idea that we should finance our growth the growth ourselves so we don't do capital raisings and stuff like that we would like to finance our growth with our free cash flows from our operations so that that is what we will be occupied with going forward so we will continue if you move to the next one please we will continue to build our five divisions We feel that they have a very good positioning. We did this reorganization some five years ago, and we are now adding more companies to each of the divisions, growing each division along the way. We have sort of made sure that we have the right resources on board and are working with growing these five divisions with the separate companies into the segments where we see some underlying structural growth. So we will continue building the divisions as they are. And we move to the next one, please. And we will also have a strategic ambition to grow their share of proprietary products. We are now at on the moving 12 months, we're at 79%. But we are aiming for the 85%, which goes hand in hand with delivering the 20%, but also hand in hand with delivering the 2 billion in in a couple of years time so it's a it's a it's a good gradual development also in this in this metric i will round off with some acquisitions yeah acquisitions are very important we will continue doing them as i said we have raised the bar to 8 to 12 companies per year um and and posted some 90 acquisitions since 2006 and here you can see how it's developed and And compared to many others, we have been quite acquisitive here in the last year. So posting some 12 acquisition with the 1440 in an annual business volume, which corresponds then to 15%, roughly 15% of the volume we had when we entered this period. So it's been a nice sort of add on with acquisitions we made. We are happy with the acquisition we made as well. it's been of great good quality and they've added to the group yeah all of them or yeah yeah all of them and no exceptions really and just to look at the ones we acquired here in the last quarter and what from the same sellers we acquired the citrite and include the hydron a company that's located in Sweden or two companies really doing a little bit of different things. So Setride develops and manufactures proprietary products including leveling systems under the Setride brand and also grapples under the Dala Gripen brand. So you can see the price over to the right there related to the forestry and construction machinery within the forestry. So it's a quite nice business where we have some niches within in Northern Europe or in Scandinavia where we usually are very strong. And these companies come in very nicely here. And then we have the Enschede Hydraul is more of a spare parts business. for the forestry machineries aftermarket as well. And you can see, we also tried to post sort of some highlights in terms of numbers. And you can see down to the right there, there's a very sort of good, nice growing and successful business with some EBIT margin of 19%. So very good add on to the niche products division. But the bigger one in the corner was the iHolland then that I touched upon already earlier. Company founded in 1946 and making these types of punches and dyes and other critical products for tablet producers. So within healthcare or pharmaceutical companies or their customers all over the world really. So they are very global, based in Nottingham in England, serving customers in over 100 countries. And you can see this is more significant acquisitions, acquisition both for Logicron, so it's 27 million pounds in sales, and in Evita, roughly 4 million. So an Evita margin of almost 15%. And this, of course, we would like to develop further in order to also be supporting the 20% goal eventually. Part of the TechSec division from November 2025. So it's a fairly new one as well. It will come in nicely here in the coming quarter and years ahead of us. So very nice in that sense. I will round off with a financial overview. Yeah, we're very happy with it with a quarter. As said, we are on sales with about 10 billion. Our EBITDA is at 17.8%. So a new all time high, or 18% for the quarter, as we said early on. And the EBT growth is 19%. And the earnings per share growth, which is maybe the most important metrics, is increased by 20%. And the return on equity almost 30% of 29, as you can see there. So a very strong quarter and happy to be able to present that to you guys today. Very much good work being done by the organization. So, thank you. Then we will open up for Q&A, I think.