Fagerhult Group CEO Bodil Sonesson wasn’t kidding a quarter ago when she said supply chain challenges would persist. Ongoing difficulties cost the company more than expected in the fourth quarter, yet sales still rose, margins looked healthy, and the company sees a post-recovery mode on the horizon barring a long Russian war.
For the fourth quarter ending Dec. 31, sales tallied 1.8 billion Swedish Krona (US$188.4 million ) for the Habo, Sweden–based lighting outfit, up 7% from 1.7 billion SEK ($177.9 million) a year earlier. They could have risen by 13% if not for the supply difficulties, where the biggest challenge currently is in electronics procurement.
“The negative part is the impact of the supply chain continues,” Sonesson said on a web call with analysts late last week. “We have not seen the end of it yet. The fourth quarter impact of the these challenges were higher than anticipated, and we determined that we had 107 million Swedish crowns that could not be delivered in the quarter, which is 40 million more than the last quarter. That shows that the challenges are getting a bit bigger in the supply chain. The situation will continue to be unpredictable.”
Sonesson’s words echoed her own remarks during the company’s third-quarter results call, when she described the supply chain situation as “unpredictable” and noted that improvements will be “more slow and steady” rather than in “big movements.”
Net profit for the quarter was effectively up, although it depends on the slicing method. On its income statement, Fagerhult showed a 78% plunge to SEK 108.1 million, from SEK 485.1 million in the same quarter a year earlier.
But chief financial officer Michael Wood explained that the 2020 figure reflects a general Italian tax break that benefited profits in that year- earlier period.
In the company’s presentation to analysts, Fagerhult said that removing the positive Italian tax effect would reflect a fourth-quarter 2020 net profit of SEK 49 million, or only about a tenth of the reported SEK 485.1 million. From that perspective, the fourth-quarter 2021 net profit of SEK 108.1 million more than doubled from the 2020 quarter.
For the year, sales rose 4% to SEK 7.1 billion ($742 million) from SEK 6.8 billion ($711 million). Net profit fell to SEK 469.6 million ($49 million) from SEK 572.4 million ($59.8 million) without adjusting for the 2020 Italian tax benefit. In a separate calculation that removes the 2020 positive Italian effect, the 2021 SEK 469.6 million net profit reflects a more than tripling over SEK 136 million ($14.2 million) in 2020.
Fagerhult’s Italian operations include iGuzzini, the Recanati, Italy–based lighting firm it acquired in March 2019.
Like many companies during the COVID-19 pandemic, Fagerhult managed its margins via close attention to cost controls and by raising prices. It has also been able to leverage buying power across its 13 different brands. The increase in sales also contributed.
Operating margins for the fourth quarter were 8.9%, up from 7.9% from a year earlier. As with the sales increase, the supply issues limited that growth.
“The quarterly operating margin would have been in excess of 11 percentage points but for the… supply chain challenges,” Wood said. The operating margin for the entire year was 10%, up from 6.5% in 2020.
The supply delays combined with a generally reviving market to create what CEO Sonesson described as “an all-time-high order backlog of 1.89 Swedish crowns” at year end.
That puts Fagerhult in a seemingly good business position for the next quarter, although, as Sonesson noted, the supply constraints won’t ease quickly.
Still, Sonesson and Wood said the company’s mindset has now moved beyond the “recovery” mode associated with the two-year old pandemic.
“During 2022, we shall no longer use the word ‘recovery’ in our description,” Wood said. In a move away from the negative connotation, Fagerhult will instead refer to “continued growth and development” with “COVID slowly ebbing away,” he noted.
Sonesson pointed out that with the recent easing by many countries of social and travel restrictions, Fagerhult can resume pushing into certain areas such as North America, where Fagerhult had picked up Sistemalux operations via its pre-COVID acquisition of iGuzzini. Last August it purchased the remaining shares of Montreal-based Sistemalux that it did not already own.
Of course one uncertainty that Fagerhult — like any company — now faces is the global impact of Russia’s invasion of Ukraine, which started last Thursday, the same day that Fagerhult announced its fourth-quarter results.
“Before I start, I want to make a very quick comment with regard to today’s very sad news from Ukraine and also the impact it has on us,” Sonesson said at the beginning of last week’s analyst call. “To give you an overview, we have no local presence in Ukraine. We have two businesses in Russia — one sales office for Fagerhult, and one for iGuzzini. For the group we have less than 2% of our sales in Russia. But having said that, it’s minor from a sales perspective to us but of course we think about our employees and of course we care about them, so our thoughts go to them. We are already, and have been for quite a few weeks, of course, closely following the situation and we will follow Swedish and European guidelines for how to deal with the situation.”
Echoing those remarks, Wood noted, “We operate in difficult times which are made more difficult from many external events, from COVID and supply chain to geopolitical aspects, none more true than where we are today.”
During the analyst call, Sonesson and Wood elaborated on different aspects of the Fagerhult business, including the growth of IoT lighting. LEDs Magazine will report more in a separate article.
Fagerhult’s 13 brands, if you count Sistemalux, are ateljé Lyktan, LED Linear, iGuzzini, WE-EF, Fagerhult, Whitecroft, LTS, Arlight, Eagle Lighting, Designplan Lighting, i-Valo, and Veko, plus Sistemalux.
MARK HALPER is a contributing editor for LEDs Magazine, and an energy, technology, and business journalist ([email protected]).
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