Beijer Ref Q3 2020
Net sales decreased by 2.9% in the third quarter compared to the same period last year and amounted to SEK 3,837M (3,953). Acquisition effects amounted to 3.3% (1.7%). Currency effects amounted to -4.5% (2.7%). Organic growth was -1.7% (5.2%), mainly due to lower refrigerant prices. Covid-19 has also had a negative impact, but the end of the quarter shows sales on a par with the previous year. The company's product area in HVAC business shows organic growth of 8.5%.
The operating profit for the quarter amounted to SEK 342M (358), a decrease of 4.5% compared with the same period last year, which was mainly due to lower refrigerant prices. The operating margin amounted to 8.9% (9.1%).
Profit before tax was SEK 329M (344). Net financial items are better than in the previous year, mainly due to improved cash flow and lower net liabilities.
Profit per share before and after dilution amounted to SEK 1.92 (2.00) and SEK 1.91 (1.99) respectively, which is a decrease of 4%.
Cash flow from current activities was positive during the quarter and amounts to SEK 381M (371). Unused credit amounts to SEK 1,484M (1,480). During the quarter, Beijer Ref has performed refinancing of SEK 2.9 billion of the granted credit facilities, originally maturing in November 2020. The refinancing is distributed among four different banking partners and with average maturity of three years and eight months.
During the third quarter, Beijer Ref signed a new exclusive agreement with Carrier International Corporation until 2023 regarding the continued sale and distribution of Carrier's comfort cooling product lines on the European market.
Nine-month period 2020
Net sales decreased by 6.4% during the period compared to the same period last year and amounted to SEK 10,654M (11,383). Acquisition effects amounted to 3.0% (8.5%). Currency effects amounted to -1.6% (3.0%). Organic growth was -7.8% (5.6%).
The operating profit for the period amounted to SEK 780M (975), a decrease of 20% compared with the previous year. The operating margin amounted to 7.3% (8.6%). The reason is mainly lower net sales due to Covid-19 and lower prices of refrigerants. The operating profit includes net savings of approximately SEK 230M.
Profit before tax was SEK 738M (932). Net financial items are better than in the previous year, mainly due to improved cash flow and lower net liabilities.
Profit per share before and after dilution amounted to SEK 4.29 (5.41) and SEK 4.26 (5.37) respectively, which is a decrease of 21%.
The acquisition of the wholesale company ACD Trade in Australia was completed in the first quarter of 2020. The company has annual sales of SEK 540M with 60 employees across 9 branches. The company is included in the group's financial statements with effect from 1 February 2020 and it has contributed SEK 346M to sales.
The first nine months of the year have been greatly marked by the Covid-19 pandemic and its effects. Measures have been taken in all parts of the business to fend off some of the effects.
Comments by the CEO
The second quarter of the year was largely marked by closed markets with gradual recovery, a trend that has continued in the third quarter.
Organic growth was -1.7% in the quarter. This is an acceptable figure in view of the ongoing Covid-19 pandemic and the continued fall in the price of refrigerants. It must also be taken into account that we have a challenging comparison with the previous year's heat wave in July. We regard August and September as normal months in terms of organic growth.
The refrigeration segment shows negative organic growth of 8.5%, most of which can be explained by lower prices of refrigerants. Towards the end of the period, we have seen signs of some stabilisation in prices and a cautious assessment is that refrigerant prices will not have as great an impact on future quarters. The next reduction in the permitted amount of f-gases will take place in January 2021 when the permissible volume is reduced by a further 29% in Europe, which can affect the market.
One cause for celebration is the HVAC business, which shows organic sales growth of 8.5%. Sales development has been strong in all geographical regions except Africa.
In general, the OEM business is in a positive phase, even though organic growth was negative by 5% in the third quarter. This is an effect of temporarily deferred investment decisions by end customers due to the Covid-19 crisis. During the third quarter, orders received have gradually increased and are now at a relatively high level.
The cost-cutting program launched at the end of March has reduced costs during the period by approximately SEK 80 million. The majority of the savings are from reduced personnel costs and consist of permanent as well as temporary reductions.
We continue to work according to our global digitalisation strategy and during the period the business in Australia has implemented the same cloud-based platform as our companies in New Zealand. Europe is next and work on further implementations is already underway. Experience from the installations in Australia and New Zealand contributes to a smooth process. In parallel, e-commerce is being developed and this is constantly growing stronger.
Despite an expanded security system, our operations in France suffered a cyber attack, which led to a shutdown of computer systems for a week. We estimate that the total effect of the outage amounts to approximately SEK 25 million in lower sales and approximately SEK 8 million in lower profits. We are now further reviewing operational security to avoid this type of attack in the future.
A strong cash flow and a strong balance sheet make us well prepared for new acquisitions. There are a number of possibilities that we are analysing at the moment.
In September, the largest shareholder Carrier sold approximately 9 million shares in one placement, which corresponds to 7.9% of the total number of shares. The offer was quickly oversubscribed, which we see as proof that the market has confidence in our business and our share and sees potential for further development. Carrier remains the largest shareholder and, as in the past, will be an important trading partner for us. It is important to point out that the transaction does not affect our good business relations.
Although the outside world is currently uneasy, we have a positive outlook for the future. Megatrends benefit us, a decentralised organisation with motivated employees gives power for growth and a strong balance sheet opens up business opportunities for acquisitions.
Per Bertland, CEO
Third quarter of 2020
Beijer Ref net sales decreased by 2.9 per cent to SEK 3,837 million (3,953) in the third quarter of 2020. Adjusted for exchange rate changes and acquisitions, organic change in net sales was -1.7 per cent (5.2). The main reason is lower prices of refrigerants. Covid-19 has also had a negative impact. The decrease in sales has affected all geographical segments but had the greatest impact in southern Europe and Africa and the least impact in Asia Pacific. Air conditioning has developed strongly in 2020 and has grown organically by 8.5%, largely thanks to good cooperation with Toshiba, Mitsubishi Heavy, Carrier and Gree. Sales development within HVAC has been strong in all regions except Africa. It has been particularly strong in the Nordic countries and Eastern Europe.
A stronger Swedish krona resulted in currency effects of SEK -182 million (91), corresponding to -4.5 per cent (2.7), since most sales are in currencies other than Swedish kronor.
The group’s operating profit totalled SEK 342 million (358) during the third quarter, which is a decrease of 4.5 per cent. Exchange rate effects of SEK -14.1 million (9.7) are included in the operating profit figures. The operating margin amounted to 8.9 per cent (9.1). The reduction in profit is due to the effects of Covid-19, lower prices of refrigerants and a shift in the mix to a higher proportion of air conditioning. This is offset by net savings of approx. SEK 80 million. Operating profit also includes positive acquisition effects of SEK 7.5 million for the quarter. Profit before tax was SEK 329 million (344) and profit for the period was SEK 246 million (256). Profit per share before dilution amounted to SEK 1.92 (2.00).
Cash flow from current operations before changes in working capital during the third quarter was similar to previous years at SEK 381 million (371). Working capital decreased by SEK 73 million during the quarter compared with SEK 212 million during the corresponding period of the previous year. Normally, the Group binds capital during the first half of the year and frees up capital in the second half of the year, but during the current pandemic, cash flow has been positive in previous quarters. The change in working capital between the years is due primarily to a decrease in capital tied up in stock. Altogether, this gives cash flow from current operations after changes in working capital of SEK 455 million (583).
Cash flow from current operations for the first nine months of the year before changes in working capital amounted to SEK 903 million in 2020, compared with SEK 1,030 million for the corresponding period in 2019. The change is mainly due to lower profit during the quarter. Working capital decreased by SEK 77 million during the first nine-month period compared with an increase of SEK 256 million the previous year. The change in working capital between the years is due primarily to improved supplier conditions. Altogether, this gives cash flow from current operations after changes in working capital of SEK 979 million (774).
At the end of the period, credit facilities amounted to SEK 4,356 million (4,100), of which unutilised credits amounted to SEK 1,484 million (1,480). In total, net liabilities decreased from SEK 3,362 million to SEK 2,942 million. Refinancing of SEK 2.9 billion of the company's granted credit facilities occurred, divided over four different banking partners and with average maturity of three years and eight months.
Cash flow from investment activities during the third quarter amounted to SEK -31 million (-36), which relates primarily to investments in fixed assets.
Cash flow from investment activities during the period amounted to SEK -298 million (-103), which relates primarily to business combinations and investments in fixed assets. During the first quarter, the company acquired ACD Trade.
During the third quarter of 2020 no acquisitions were made, but the company continuously evaluates different acquisition candidates in order to increase its range and consolidate the market. Acquisition activity has naturally been hampered by the ongoing pandemic and travel restrictions, but the company has intensified its acquisition discussions.
SIGNIFICANT EVENTS DURING AND AFTER THE QUARTER
The first nine months of the year have been greatly marked by the Covid-19 pandemic and its effects, although effects in the third quarter were less marked. Measures to counter the effects of the pandemic were taken quickly in the first quarter to mitigate the effects.
Beijer Ref estimates that net savings of SEK 80 million have been effected during the quarter, including support measures of SEK 6 million. For the nine-month period, the net savings amount to SEK 230 million, including support measures of SEK 50 million, which have been reported as a reduction in costs.
Beijer Ref is relatively insensitive to economic cycles, but the general economic situation is having an effect, not least in our main markets in southern Europe. However, a possible decline is offset by the need for the food industry to switch to environmentally friendly systems, which increases the demand for our products. This, together with an increased standard of living, is driving our sales development forward. The company’s assessment is that Covid-19 will have a smaller effect on earnings for the remainder of 2020.
During the third quarter, Beijer Ref signed a new exclusive agreement with Carrier International Corporation until 2023 regarding the continued sale and distribution of Carrier's comfort cooling product lines on the European market. The agreement has been drawn up on market terms.
Carrier sold approximately 9 million shares in Beijer Ref in September, representing 7.9% of the total number of shares, but remains the largest shareholder and the distribution agreement with them is not affected by the sale.
In early September, the company's subsidiary in France was the subject of a cyber attack caused by a computer virus. This meant that the subsidiary could not deliver any products for a week. The total effect of the interruption is estimated to amount to approximately SEK 25 million in reduced sales and SEK 8 million in reduced profit. Beijer Ref is now further reviewing operational security to avoid this type of intrusion in the future.
Due to the increasing spread of Covid-19, there is still uncertainty about how the markets will develop and the Board's previous ambition to call shareholders to an extraordinary general meeting in 2020 to decide on an extra dividend has therefore been reconsidered. The board considers that, under the circumstances, liquidity should remain in the company, thereby strengthening the company's scope for carrying out acquisitions. The Board will not call for an extraordinary general meeting.
Since 2 January 2019, Beijer Ref’s B share has been listed on Nasdaq OMX Stockholm's Large Cap list. The share capital in Beijer Ref totals SEK 371,684,513, made up of 127,434,690 shares, each with a quota value of SEK 2.92. There are two types of share, A shares and B shares, which represent ten and one votes respectively. Beijer Ref had 10,434 shareholders on 30 September 2020 (7,716). The proportion of foreign shareholders amounts to 4.5% (4.4), with a capital shareholding of 56.6% (57.6). As of 30 September 2020, there were 9,918,720 class A shares and 117,515,970 class B shares. The company's ten largest shareholders hold 77.1% (79.6) of the votes and 61.9% (66) of the capital. Average sales of the Beijer share in the quarter amounted to 177,558 shares (153,440) per day at an average purchase price of SEK 325 (217). The closing price on 30 September 2020 was SEK 296 (224). As of 30 September 2020, the market value was SEK 37.7 billion (28.5).
Beijer Ref group's operations are affected by a number of external factors whose effects on the group's operating profit can be monitored to varying degrees. The group's operations depend on general economic developments in Europe in particular, which govern demand for Beijer Ref's products and services.
Like other global companies, Beijer Ref is affected by pandemics and in 2020 the Group is affected by Covid-19. The company is taking the necessary steps to reduce its impact and is following the WHO recommendations.
Acquisitions are normally associated with risks, such as loss of key personnel. Other operating risks, such as agency and supplier agreements, product liability and delivery commitments, technical development, guarantees, dependence on individuals etc., are continuously analysed. If necessary, measures are taken to reduce the group's risk exposure. In its operations, Beijer Ref is exposed to financial risks such as foreign exchange risk, interest rate risk and liquidity risk. The parent company's risk pattern is the same as that of the group. For further information, see the group's annual report.
This interim report was prepared in accordance with IAS 34, the Swedish Annual Accounts Act and RFR 2. Beijer Ref continues to apply the same accounting policies and valuation methods as described in the most recent annual report. Information pursuant to IAS 34.16A, in addition to disclosure in the financial reports and their associated notes, also appears in other parts of the interim report.
Financial assets and liabilities by category and level of valuation
The group's financial assets and liabilities consist of financial assets measured at fair value through other comprehensive income and financial assets and liabilities valued at accrued acquisition value.
Financial assets valued at fair value through other comprehensive income consist of two holdings, one of which (SEK 10M) refers to listed shares and is valued at market value on the balance sheet date (valuation level 1). The second holding (SEK 25M) is an unlisted holding and is valued at estimated fair value (valuation level 3). Financial assets valued at accrued acquisition value, such as trade receivables and other receivables, as well as cash and cash equivalents, amount to SEK 4,193M on the balance sheet date and financial liabilities valued at accrued acquisition value such as accounts payable, leasing liabilities and borrowings, as well as other long-term liabilities, amount to SEK 6,747M.
Financial interest-bearing liabilities such as loans linked to financing are entered at accrued acquisition value and are considered to constitute a good estimate of fair value taking into account the fixed terms and the setting of interest rates.
TELEPHONE CONFERENCE Q3 2020
The company invites investors, analysts and the media to attend a telephone conference at which CEO Per Bertland and CFO Maria Rydén will present the interim report for the third quarter of 2020. The presentation is held in English and lasts about 20 minutes. The meeting is on 20 October at 10.00 CET.
Follow the link: https://financialhearings.com/event/12923.
Teleconference: Dial-in number
SE: +46 8 566 427 04
UK: +44 33 330 092 71
US: +1 833 823 05 90
The presentation will also be available on the company's website www.beijerref.com from 08.40 on 20 October.
This interim report for Beijer Ref AB (publ) has been submitted following approval by the Board of Directors.
Malmö, 20 October 2020
Beijer Ref AB (publ)
Per Bertland, CEO & President
For more information on this report:
Per Bertland, CEO – switchboard, +46 (0)40-35 89 00
Maria Rydén, CFO – switchboard, +46 (0)40-35 89 00
This information is information that Beijer Ref AB is obliged to make public pursuant to the EU Market Abuse Regulation and the Securities Markets Act. The information was submitted for publication, through the agency of the contact person set out above, at 08.30 CET on 20 October 2020.
Beijer Ref AB (publ), corp. reg. no. 556040-8113
We have reviewed the condensed interim financial information (interim report) of Beijer Ref AB (publ) as of 30 September 2020 and the nine-month period then ended. The board of directors and the CEO are responsible for the preparation and presentation of the interim financial information in accordance with IAS 34 and the Swedish Annual Accounts Act. Our responsibility is to express a conclusion on this interim report based on our review.
SCOPE OF REVIEW
We conducted our review in accordance with the International Standard on Review Engagements ISRE 2410, Review of Interim Report Performed by the Independent Auditor of the Entity. A review consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing, ISA, and other generally accepted auditing standards in Sweden. The procedures performed in a review do not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Based on our review, nothing has come to our attention that causes us to believe that the interim report is not prepared, in all material respects, in accordance with IAS 34 and the Swedish Annual Accounts Act, regarding the Group, and with the Swedish Annual Accounts Act, regarding the Parent Company.
Malmö, 20 October 2020
Authorized Public Accountant
Beijer Ref in short
The Beijer Ref Group is focused on trading and distribution operations within refrigeration products, air conditioning and heat pumps. The product programme consists mainly of agency products from leading international manufacturers and, in addition, some manufacture of own products, combined with service and support for the products. The Group creates added value by contributing: technical competence to the products; accounting for knowledge and experience about the market; and by providing efficient logistics and warehousing.
Operations are carried out by region within the Beijer Ref, which comprises Beijer Ref ARW (Air conditioning, refrigeration, wholesale) and Toshiba’s distribution operation within air conditioning and heating. The Beijer Ref Group is a leading operator within the refrigeration sector in Europe and has a significant position within air conditioning in Europe. The operation is split into six geographic segments: Nordic countries, Southern Europe, Central Europe, Eastern Europe, Africa and Asia Pacific. Growth is achieved both organically and through the acquisition of companies which supplement existing operations.
Beijer Ref’s sales are seasonally dependent as demand for refrigeration and air conditioning is at its peak during the warm months of the year. It means that demand in the northern hemisphere is at its peak during the second and third quarters whilst demand in the southern hemisphere is at its peak during the first and fourth quarters.
The Interim Report for the fourth quarter 2020 will be published on 28 January 2021.
Annual Report 2020 will be published in March 2021.
AGM will be held in Malmö in April 2021.