Lagercrantz Group AB (publ)

Welcome to Lagercrantz Group Q1 Report 202627. 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 President and CEO Jorgen Wigg and CFO Karen Meligard-Jarf. Please go ahead.

Yes, thank you. Good morning everyone and welcome to our interim report for the Q1. As you know, we are starting our year 1st of April. So this is the quarter ending April through June then. Welcome everyone. A bit puzzled around to the reaction here this morning. We thought we posted a strong quarter, well in line where we have been before, or even a bit slightly stronger with some earnings per share growth of 20% and some six M&A deals over the last quarter, which is more than we've done before. But we will get into that as we move along here. Together with me here, I have Karin with us as well, our new CFO, since a few months ago. And we will go over the presentation in sort of three chapters or parts, where we will start with a short introduction to Lagerfrans Group for those that are new to us. And then we would jump right into the quarterly report. And then we will end up with some comments on where we are with the group going forward. So welcome everyone. I will start with an introduction to Lagerkrantz Group then. I mean, we are, you've seen this many times. We are a tech group building through M&A and development of the companies that we have, building leading positions in expansive niches. You can see over to the right where we have most of our companies. It's Northern Europe that we cover now. But we also have some really export-related businesses. So all the way to the right, you can also see where we have some foot tods all around over the world with some in North America with some in Asia as well. We have our scope where we would like to work is the B2B tech or B2B industrials where we offer value creating technology in expansive niches and we have organized ourselves into these five divisions that you can see and we will comment on how the developments are in these divisions as we move along. We are very keen on working in a decentralized fashion. So we have all our companies organized individually under their own brand name in their own market, addressing their own market and customers. And you can see where we have our profit units or companies as we'll call them here with 17 companies in Electrify, 17 in Control, 15 in TechSec, 21 in niche products and 16 in international. We have just surpassed 11 billion. It wasn't long ago since we went above 10 billion and now we also with this quarter surpassed 11 billion in sales or total revenues for the group and we have about 3,800 employees as of today. And as you all know, we are a buy and build or we are a serial acquirer, acquiring companies. So acquisitions is a very central part of our business model. We expect two thirds of our growth to come through M&A over the years. And that's where we were also in this quarter. And we were part of the Bergman & Behring Group up until 2001 when we were split out and have been listed as a separate unit, separate entity since 2001. So that's a bit of a background. So let's move into the quarterly report or the interim report. And here we can see that we posted another strong quarter, we think, in terms of growth and we are well on the way to towards the 2 billion goal and you can see that the trajectory has been very strong over the last three five years here and then we continue that with another strong quarter. You can see that the scales left to right here are proportional, meaning that you could also see that we have a strong growth also in terms of margins over the years. And we have continued that also here in the last quarter. And yeah, we'll get into the numbers in a while here, in just a bit. We also believe that we saw some improvements in terms of the business conditions during the quarter. On the aggregated level, we have a lot of different segments, so it varies between the segments. But on an aggregated level, we've seen a continued, positively stable activities during the quarter. And especially in the sectors where we are strong in terms of electrification, infrastructure, security and defense, also within marine and also some of the clusters that we're building within niche products have had a good development during the quarter and along the way here. We also see some uptick in the order intake as you can see here. While we still feel that the demand in the construction sector have remained sluggish, that is the sector lagging behind, even though we've seen some slight improvements also there, but from a very low level and small ones. The order intake then was very strong. We have posted some 6% or 5% or so in the last couple of quarters. But here during this quarter, the order intake was 10% higher than the invoice sales. And when sales are growing like it is, it's actually a very good number compared to previously. But we also saw that some of these orders that came in were more project related orders with longer lead times. Those are around sort of different types of sectors, construction, infrastructure projects with some lead times of six to 18 months or so. But still good that those projects orders are happening, which is also, I think, a sign of that we see some improvements in the market and the general business climate. Gross margins remain stable, but we also saw some signs or strong signs of cost inflation driven by higher raw materials and freight prices. And therefore, we are working also with compensation through price increases to customers in many of our companies. That I think we learned over the The years and especially during the pandemic where we've got used to really drive things through price increases and price adjustments as we see raw material prices and freight prices really change. And I think we have learned that over the years. I think we're pretty good at it. But now we're in a phase where we need to push that a little bit more even. We can also see that during the quarter here, we continued our good growth in terms of proprietary products. We're currently at the 80%. And we also see over the years that we are becoming more and more international over the years. So you can see that we are, especially when you see that Sweden is growing, but as part of the total group, the net revenues are currently at some 30%. Denmark is our second biggest market. and we have also been quite acquisitive and active in the United Kingdom and therefore that is currently our third biggest market in the same level as Norway but still at the nine percent it used to be much smaller so we are growing and becoming more international over the years but I don't think we're going to move in red into the numbers and I'll handle with you Karin to describe a little bit what happened during the quarter in terms of figures

Good, thank you. And as Jörgen already mentioned, we believe that we started our financial year with a really strong first quarter. As you can see, our revenues increased by some 18% with acquisitions contributing with 12% and the organic growth reached 6%. And this is the same level as in quarter four. We had no currency impact in this quarter. EBITDA increased by 15% and landed at 498 million SEK and the EBITDA margin ended up at 7.1% compared to 7.5 last year. The cash flow from operation was more or less in line with prior year and was relatively strong and ended up at 279. Profit of the financial items EBT increased with 18% to 405 million Swedish kronor and profit of the tax improved with some 20%. Earnings per share in the quarter improved with 20% and increased to 1.53 SEK per share. Enrolling 12 months, we reached 6.07 SEK per share. And as we have communicated earlier, the board proposes a dividend of 2.50 SEK per share. During the quarter, we have completed six acquisitions with approximately 400 million SEK in annual sales. Jörgen will talk more about these acquisitions later, but they are divided both between divisions and countries. Yeah, good. And then just very briefly on the outcome by divisions. If we take a look at the outcome per division in the first quarter, we can note that the strongest divisions are Electrify and Niche Products. Both continues to grow and maintain an EBITDA margin over 20% for another quarter. TechSec has improved the EBITDA margin compared with prior quarters, and International is in the quarter impacted by seasonality in two newly acquired companies that will be mentioned later. And Control is not on the level that we would like them to be, but Jörgen, you will tell us more about the divisions now.

Yeah, I think it's worth mentioning why we're on this when we have these numbers in front of us that you see the international division. I mean, we have also had some in seasonality to the business and we have commented on that earlier and you can see that here there is some sales been added in the international compared to last year, but you can see that the volumes are significantly lower than they were here during the winter time. So we have the Friggenåkers and the Epoch that is affecting the numbers in a negative way here in terms of how the quarter came out. They have a strong tendency towards the fall and the winter with a very slow season here during the summer, which we have commented on. And that's, of course, affecting the international numbers here, which we have communicated earlier to you guys. So a little bit more on what happened in each of the divisions. Well, we had some segments that were really strong for us during the quarter, and especially the electrify and electrification and infrastructure that they have their business related to. Here revenues were up some 13% and acquisitions were 3% and organically some 10% growth. So here we see some good organic growth in this. EBITDA was up 25% to 153 million and the EBITDA margin was for another quarter then above the 20% which is the target. So 20.1 as opposed to 18.3 last year. Here we saw some broad-based organic, positive organic development in these companies. Many of them performed very well. And particularly so for the company MAS system in Finland, Nordic Road Safety, Elfack and Elpress, four major companies within the division that had all posted good numbers and good development during the quarter. Here we also concluded one acquisition during the quarter, which is the Michael Smith Switchgear in the UK, a leading provider, which I'll come back to, of low-voltage switchgear solutions. I'll describe the company a little bit later here during the presentation. But a really good add-on straight into where we would like to be in the segments with what they're offering. And also where Electrify is being set up in the UK. They haven't been there before in that division. The control division increased their revenues by 14%, but most of that came from acquisitions, and the acquisitions have been landing very well. But we also have had some companies that have been lagging behind, so organically it was only 2%. The EBITDA stood still then at the 51 million, and the EBITDA margin fell slightly then to 14%. Some companies still are doing it very well in the division. Direktronik, Radanova and Stiegberg show good improvements. While other, especially smaller businesses related to the construction sector, which we have been discussing before, the 1P companies, especially in Norway, a couple of smaller companies have been struggling. And therefore, we are also taking some measures during the quarter here, which has also added some one-offs in terms of cost here during the quarter. And also, we have the presimeter, which has been performing very well for us over the years, reported a weaker quarter. And that is behind the somewhat disappointment in terms of EBITDA here in this division. And the newly acquired Danish company Haikon, which I will also introduce later on, made a strong start within the division. So good acquisitions and a good development and also dealing with some of the low performers in the division during the quarter here, which adds up to these numbers. In the tech sector division, had a positive development during the quarter. Revenues were up some 28%. and acquisition was 17% on Organity, 12%. So really good growth from both acquisitions and organically within the division. The beta was up 20% to 101 million as opposed to 84 last year, and the beta margin at 15.1%. Several of the division security business delivered improvements in a continuous sluggish market environment. We are still dealing with that, but somewhat better here. And especially the IDESCO in Finland and ISG Nordic, CW Lundberg and Archon, had good performance during the quarter. While others struggled a little bit more, PCP in Denmark and Northern Europe, with their great things, struggled, and also some construction-related UK businesses, with especially a couple of the door companies, Door & Joiner and Principal Doors, did not live up to last year's performance. On the other hand, we had the iHolland acquisition that was acquired in November, reported a strong result during the quarter. That is a significant acquisition for TechSec and for Lagerkrantz, and they've had a really, really good start. That is also bringing us to a new segment with MedTech businesses, and that has been very promising for us. So the iHolland we're very keen on. And during the quarter, we also landed another one, the second one within the medtech segment, which is the Marston acquisition, which has also come back to with some weighing solutions and weighing scales for NHS and other customers within, especially in the UK. The fourth division is then the niche products posted their revenues up with 16%. Most of that come through acquisitions, the 15%. So again, it was a bit slow. They're still struggling a bit with the companies related to the US, but maybe less so than before. So EBITDA was up 21% to 137 million, and the EBITDA margin improved slightly to almost 21%, which is a really good number for Lagerkrantz and for the companies that we have and where the normal niche products usually are. Posted a stable quarter with good profitability in several of the businesses, especially Truxor, Wapro and Thermod delivered clear improvements in earnings compared to last year. While we saw some weaker organic growth, especially in the more US-related businesses, the ASEP and the Tormek, which are really important and still are on a good level, but not living up to last year's very strong performance. And then more recently acquired Citrite and Enschede Hydrol had a good start within Lagerkrantz. And here we concluded two acquisitions during the quarter, Nevex Topsex and Stalon. And both of them have had a good start within the group. I'll come back to those as well. Last but not least is the international division. Revenues there were up for 16%. Acquisitions stood for 13%, organically 3%. And EBITDA was down then to 66 million, mostly down due to this seasonality effect that I already described. The market situation was stable overall and the division delivered a quarter worth of solid growth across many of its businesses. And especially the marine businesses, the Libra in Norway and the Bull in Finland, as well as also the companies that have been And also G9, a fairly small company, but still doing it really well for us in Denmark in the last year or so. We have a new management team on board there and they're doing a great job with that company. But the seasonality effects are the big factors here due to why the EBITDA was slightly down. Since we included them, their P&L first consolidated in July 2025, so we didn't have them last year this quarter. And that means that they're coming in with So that's comments by division and by that I think we should look look ahead. I think that we should come back to our vision and financial goals. And I mean, we continue building our group with all these really nice niche oriented businesses. And I think this quarter was no exception, a strong growth. And we also have been talking about that We should grow EBT long-term by more than 15%. I think the EBT grew by 18% now. And during the quarter, the earnings per share was up 20%. So it's actually been growing faster than our long-term goal. And we also talked about that at least one third of that should come organically and the rest through eight to 12 acquisitions per year. And that's where we've been also this quarter. We concluded some six acquisitions during the quarter. And the split between organic and inorganic was exactly one-third organic and two-thirds inorganic. So that also meets those targets and what we expect. Return on equity should be at least at 25%. And if I remember correctly, I think the figure was 29% now.

So it's been really good in terms of also return on equity.

So we're continuing and building our five divisions. I think that we have five really strong divisions that we've seen. And it's good to see that they're growing and taking on over responsibilities really driving like they were an individual log across all of them. becoming really sort of important both in terms of developing the companies that we have, but also adding some two to three acquisitions per division per year, which adds up to the number that we expect from the total group then. I think we have also very well positioned companies. We are within safety technology. We are within electrification and infrastructure. We are within defense. So I also see that the slight pickup in the market will be good for us as we move along here. So we are like to build these divisions in attractive segments with underlying structural growth, which has been the theme that we've been talking about for some time now. We will also continue with our strategic ambition of arriving the proprietary products to the 85%. We said that we will do that within five years. We are on that sort of level of improvement or gradually changing it. So we are currently at 80% halfway from the 75 we used to be. So we are well underway with also delivering on the 85% proprietary products. Looking a little bit at the acquisitions, I mean, that is really important. That is two thirds of our growth should come from acquisitions. And we have now, and I said eight to 12 companies per year or acquisitions per year. And currently we have a pace of 14 since April 2025, adding some 1.5 billion in annual business volume. which is more than there since we have 11 billion now in total. So it's more than the 10% that we expect. So it's on a good level. I think what we've seen, we've seen a good M&A market over the last year and we continue to see a good market. And here during the quarter, we posted some six acquisitions here. You can see them. A really good sort of level and I think we are up and running in terms of how the divisions are working with this and really closing more deals along the way and really drive things through M&A as well. And as you know, we try to illustrate what type of companies we are acquiring by having these type of fact sheets on all of them. And I'll just flip through a few of them. During the quarter, we acquired here Michael Smith Switchgear. And it's a UK company with the manufacturing of bespoke low voltage switchgear and electrical distribution assemblies. headquartered in Leicester and a really good company used to be family owned And we're working together with the management team and the family that are going forward as well. And it looks very promising in a sector where we really would like to be. And this is then for the Electrify, a very important step into the UK market. So this is the Electrify's first UK acquisition, which is also a bit of an achievement. Within the control division, we acquired Hykon, which is a Danish company based in Støvring in Denmark, which is a leading supplier of high performance hydraulic tools and power packs for cutting, drilling, and pumping in harsh environments. So you can see from the picture there. So in subsea, for instance, you need to use hydraulic as opposed to electronic electrical sort of tools. And that's where Hycon is positioned. And you can see a good development and also some high EBITDA margins down to the right there expected of that company. So really, a traditional good company with proprietary products in the Nordics, which I think would be a good add-on then within the control division. Within the niche products division, we acquire Nevex TopSafe, which will be a standalone business, but it is related also to the ProfSafe that we already own within this sector, within the segment, with safe storage products and other types of cabinets, fire cabinets and safe rooms that they're providing for especially the Nordic market. With also some good developments and some stable and good developments you can see there, but also some, yeah, in terms of purchasing, in terms of manufacturing, we're also looking into some synergies there together with the Profsafe business that we already own, which is of the same size as this one. So building a bit of a cluster here and strong market position with these two companies under the same owner. Another company we acquired within the niche products division is the Stallon Business, which is the manufacturer of silencers for hunting firearms. Another proprietary product type company, which, and you can see down there, it's not that big, but it is having really good numbers in terms of EBITDA and EBITDA margins. So it will be a good add-on for the niche products division going forward. It will be a standalone business. And last but not least, I will have to introduce the Marston business, which is another UK business. We talked about TechSec getting into the MedTech business as well with the iHolland acquisition here last November. And this is the second one coming into the Marston business. This is smaller than the iHolland, but still on a very good level in terms of EBITDA and EBITDA margin. A very appreciated a trusted company delivering to NHS and other sort of public type character of buyers or customers and doing it really well over many years. They've been around for more than 100 years and we can come in as a good next owner of this type of company. So a good example of how we would like to work with things. So to round off this, here we have the financial overview. As said, I think we think that we posted a very strong and just a quarter adding to what we've done before. We see that we had some good organic growth, 6% in the quarter, and also a book to build of more than 1.1, which is really good. On top of that strong growth in sales, we increased our earnings per share by 20%. Here it says, 18% which is on an annual base but in the quarter it was actually 20% and we concluded some six M&A deals which is more than we have done in any quarter I think before so and also entering some new sectors with the med tech along the way as well I think we are in a very good position and they're looking forward to the future. Given what's happening geopolitically, we would like to be a bit careful what we say going forward, but as of now, it looks good for the future. With that, I think we'll round off and open up for questions.

If you wish to ask a question, please dial pound key 5 on your telephone keypad. To enter the queue, if you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Zeno Englund Rikcudi from Handelsbanken. Please go ahead.

Yes. Good day, Jørgen and Karin. Thanks for taking our questions. First one on the international segment. We seem to not have captured the full seasonality in our estimates, but I'm wondering if we put Epoch and Frigge Råkers aside, is it possible to elaborate on how the margin developed year over year?

Year over year there were slight improvement margins. So the Frigge-Råkene poke effect is significant. Yes, it is.

Very clear. And regarding your outlook comments in the report, I think you've written for a while now that you've been cautiously optimistic and now you are entering the future with confidence, is how you're wording it. Would you say that this increase in confidence is Is it due to you now having seen organic growth for a while now or is it something in quarter that has made you more confident?

I think we've seen a gradual improvement of the last couple of two, three quarters, but that has materialized even further and gone and been slightly even stronger here during the quarter, which we indicate by saying that the book bill was 1.1 in the quarter or about slightly more than that. which is strong with about 6%, I think, before, so we're now at 10%, and that is giving us some increased confidence, yes.

Very clear. And just the last question from me, the higher cost inflation that you're seeing, you have a track record of handling that, but I'm wondering if there's any mismatch in the quarter we see now between cost and price.

I think that we have some growth and you could see that the gross margin on a group level is about the same as it has been. So I don't think there is a significant mismatch. But when I look down in certain companies, we could see that we We need to push pricing even further to get fully where we would like to be. And we also see some cost inflation in terms of our own overhead and things like that. And that we also need to be very careful with as we move along. So not significant, but still some things to work with there.

Very clear. Thank you. I'll get back in line.

The next question comes from Johan Lankvist Sundhien from DNB Carnegie. Please go ahead.

Johan Lankvist Sundhien, DNB Carnegie Hello, Jörgen and Karin. Thank you for taking my questions. Actually, a couple of questions that touch upon what Zinu just asked about. Is it possible to get some kind of quantitative figures on the quarter-by-quarter step-down on EBITDA due to a poke and free broker?

Well, I don't think it's fair to communicate that here. We should do that in a more, in another fashion then, or yeah, communicate that with the press release and stuff like that. So I think that's, but it is, as I said, it is, and we have talked about it ever since last, our last quarterly report, right? So we have talked about it. So it is a significant effect. Yes, it is.

Yeah. I just tried to get some more color there. Second one is also on cost side. Note that the admin cost in the P&L is ticking up quite a bit here in Q1 versus Q4. What is happening there? Is there anything worth flagging why admin cost is coming up, say, 30 million quarter of a quarter?

I don't think there is something worth flagging for now. I think there are always some sort of one-offs or things like that that we need to address in every quarter. So it will go up and down, but it's not like it's a structural change or anything.

Okay.

I don't know, Karin, if you have some color to that.

No, but I agree with what you say. It's kind of, you need to have a look at the more rolling 12 thing here. So it's nothing particular.

Fair enough. And on electrified, just curious to hear your thoughts about kind of pipeline coming quarters regarding specific kind of project deliveries that we should be aware of. If there's delays or big projects that ought to be delivered?

Yeah, I think we have a few of those in all divisions. I'm not sure it's more related to... We have the MOS system business, as most of you are aware of, it's project related. And that has been... Yeah, they have built and... gain some new orders as well along the way. So I think that business is picking up and becoming slightly less project-oriented along the way. But besides that, I don't think there is something specific within the Electrify. There are a couple of other divisions. Within the control, we gain some orders, and also within the niche products divisions.

and also with international.

So we have some project related business that's come in during the quarter that have slightly longer lead times, as we said. And that's behind the growth. That's how we explain the sort of extraordinary growth that we had during the quarter, which is a good thing. So it's a positive.

Yeah, for sure. My final question is on the balance sheet looking at inventories coming up a little bit here. Anything special there worth flagging, mentioning, why inventories is coming up?

I think what you see there is actually some of the seasonality that I talked about that we see for an NRS business, for instance, within the electrified division. That has some seasonality also when it comes to stock. And that also goes for the Polk & Frigge Walker business that we have within the international division. I mean, they're now preparing and building and working quite hard to put together their products to be sold here in the next couple of quarters. And therefore, we will have some increased seasonality when it comes to both sort of working capital build up, but also some when it comes to cash flows, where it will be slightly stronger during the winter and fall and winter as opposed to the summer.

And just one final, if I may, it's on the gross margin that also was down a little bit year-over-year. How much is it possible to kind of divide that into mixed effect regarding the free-growing epoch and potentially kind of squeeze from raw material inflation, etc.? ?

That is really hard to calculate for ourselves, so it's more of a gut feel. I think most of it is volume, but still some of it is price related. when it comes to, I mean, we had an organic growth of 12% during the quarter, right? No, sorry, sorry, 6%. And I think most of that is volume, but still some of it is price as well. So yeah, two and a half and yeah, three and a half or so maybe in terms of, but that's a rough estimate from my side because we can't calculate that with all the different businesses that we have, with all the different products that we have. So it's a lot of mixed effects as well that goes in there.

But at least the feeling is that you're keeping up with the cost inflation with your pricing and try to... We also highlighted that we need to do a little bit more to be totally satisfied, yes.

But that's what's happening, right? When we see cost inflation and freight prices and raw material prices pick up, then it takes a while before we need to adjust and we need to communicate with our customers and we need to sort of get it through. And it usually takes three to six months or so before we are through with that.

That's clear. Thanks a lot. I'll get back in line.

Yeah, thank you.

As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. The next question comes from Patrick Schwartz from Pareto Securities. Please go ahead.

Hello. I think most of my questions have already been answered, but I have two left actually. The first one is on the order intake here. So previous quarters you have communicated how The growth was in order intake organically, but I think in this quarter you just reported book to bill. I might have missed it, of course, but is this a change in what data you report? And can you comment on the organic order intake in the quarter?

As we are indicating with what we are communicating, it's slightly better than this quarter than it was last quarter. So it's moving in that direction. And what we communicated is the book to build. It's been more than 1.1, as it's already said. And given that we had good organic growth in the sales figure, the order intake was really very good in this quarter.

All right, that's great. And then on the second question, which is acquisition related. Since you closed quite a lot of acquisitions here during the last six months, I believe. How is your pipeline going forward? Have you closed several of the acquisitions you're planning on completing this year or how are the prospects?

I think we are working on, if you would like to call it all five cylinders with all our five divisions, are working quite intensely with finding new acquisitions. And I don't think we have, you shouldn't expect a slowdown or anything. I think we have a good pipeline and we have, yes, we have concluded some of the deals. I think that what we have seen in the last six deals that I already presented is that they are more of a typical sort of size and typical kind of the acquisitions that we made over many years. I think what we did before that was also closing some deals, but those were slightly bigger. And I think we will continue to look for bigger deals and smaller deals. But we expect to close at least 10% in terms of adding 10% of additional sales with good volume and a good margin and good profitability into the group every year. And that we have now communicated that we are above that target. So it's actually looking very good.

Okay, thank you. And actually, one final question on Frigid Autors and the poker in international. If I remember correctly, their seasonal downturn is always during the summer months where it's quite warm. I think it's suggesting that next quarter will be equally soft for those two companies, after which it will accelerate seasonally in your third quarter.

Yeah, to some extent that's true. I think that some of the orders are shipped already within the quarter that we have ahead of us. So there are Q2 then before the end of September, but most will happen between October and December. They're delivering these salt spreaders and sort of equipment for road or snow treatment on roads. And of course, that is related to the winter. But you can't buy one and expect it next week. So you need to place your orders early in order to get it for the next season. That's how the business works. So it will be something here during Q2, but most of it will happen in Q3 and Q4. There are no more questions at this time, so I hand the conference back to the speakers for any written questions and closing comments. Thank you everyone for listening in. I think we will be available here, both me and Karin, for some time. So if you would like to call us and have additional questions, feel free to. Otherwise, I wish for everyone to have a few weeks of summer holiday and then we'll get back to you soon. Keep up the good work and thank you very much for listening in.