Balco Group AB (BALCO) Earnings Call Transcript & Summary

Hello, and welcome to today's presentation with Balco Group. With us presenting today, we have the CEO, Camilla Ekdahl; and CFO, Michael Grindborn. [Operator Instructions] And with that said, please go ahead with your presentation.

Hello. Welcome all to our presentation. First of all, for all new listeners, just a very short snapshot of Balco Group. Balco Group was founded in 1987 and consists of several balcony and facade companies. We have the head office in Växjö. We are working in 2 main segments: Renovation and New Build. And our core expertise is to supply glazed balconies and balcony solutions, primarily for the renovation market and to tenant-owned associations. We are the market leader in the balcony business in the Nordics, but we also have a strong challenger position on other European markets. And over to the highlights for quarter 3. We actually more than doubled our order intake. The order intake increased by 111% to SEK 285 million versus SEK 135 million previous year. And here actually, the organic order intake was 49% higher than previous year. The net sales increased by 31% to SEK 331 million versus SEK 253 million. Here the increase comes from the acquisitions we made earlier this year. In January, we acquired the Finnish glazing company Riikku Group. They have earlier been focusing on the New Building segment. They also have had subsidiaries in Finland, Sweden and Norway. And as we announced and presented in our press release previous week, we will now make some structural changes and also some -- just for developing the business and also for some smaller cost savings, by closing down their subsidiaries. And this means that we, in Finland, will integrate their subsidiary, Koti, which have been working more -- mainly with the renovation projects. We'll integrate that to Riikku and start a new business area called renovation area. And there we will develop the Renovation segment even more. Of course, also Riikku will continue to work with New Building segment. In Sweden, their subsidiary, Riikku [ Sakkes ], will be integrated to RK Teknik. RK Teknik has been part of Balco Group since 2021, and RK has both historical and also now very good partnership with builders, especially in the Renovation segment. Now when we add Riikku more closer together with RK Teknik, they will -- RK can broaden their offer to the builders for renovation projects. But we will also together have a very good combination and a very good strength on the offer to the New Building segment, for the building here in Sweden. In Norway, we are -- they had a subsidiary called Glassy, and that is now sold to their minority owners. And then we come to this with -- that we have also a new inventive solution. As I have said to you several times before, glazings -- all glazings are giving energy savings, and doing a glazing with Balco, you can get up to 30% energy savings. And this has been a trigger all the time for us to integrate energy saving solutions -- more energy saving solutions in our projects. About 1 year ago, we implemented a solution where you could integrate RK heat pumps with the tubing of them in our glazings, and that we have had very good market response for it. We have received a couple of big good projects for it. And therefore now, we have also developed further our solution with the RK heat pumps, and have applied for new patent in this area. So we continue to be a turnkey supplier within the green transformation. Yes, going to the market update. We are noticing an increase in the activities. But we should, of course, remember that it is from a low level, but this is especially for our balcony companies working with Renovation. Here we can see that during the quarter, Balco AB received a major turnkey project in Borås with a value about SEK 60 million, where we will supply glazed balconies together with facade works, drainage, and we will also upgrade the green areas around. We can, however, see that some of our companies are exposed for greater price pressure. This is especially valid for our facade companies in Sweden. And we have also seen tendency on the balcony companies -- in our balcony company in Denmark. And also in Denmark, we see that the trend of the longer process time for decision-making is also remaining. I'm very glad to say that our newly acquired Finnish company, Suomen ohutlevyasennus, has received several major projects during the quarter and the first week after. And they are chosen as a turnkey supplier for 3 big projects with a total value of about EUR 8 million. EUR 1.9 million of these are included in the quarter 3 order intake figures. The entire Group continues, of course, to have a strong focus on the order intake because that is what we need to get -- continue to get. But we will be cautious about entering the price pressure projects that we can see, especially on the facade companies that is now up for discussions. So Michael, going over to the financial figures.

Yes, and some financial update. And start with the quarterly results for the Group. The net sales increased by 31%, up to SEK 331 million. Here, acquired group was 43%, currency effect was minus 4% in the quarter, and organic growth was minus 8%. Our adjusted operating profit amounted to SEK 16 million, compared to SEK 15 million last year, and it corresponds to adjusted operating margin of 5.0%. Our order intake increased by 111%, up to SEK 285 million. Here, acquired order intake was 62%. Our organic order intake increased by 49%. Our order backlog has increased by 25%, up to just about SEK 1.3 billion. Earnings per share amounted to minus SEK 0.03, and our operating cash flow in the quarter was minus SEK 1 million. If we go over to our 2 segments and start with the Renovation segment. Here net sales in the quarter increased by 10%, up to SEK 247 million, and it corresponds to 75% of the total net sales in the quarter. Order intake for Renovation segment more than tripled, up to SEK 250 million, and it corresponds to 88% of the total order intake. Adjusted operating profit for the Renovation segment amounted to SEK 15 million, and it corresponds to an adjusted operating margin of 6.0%. Order backlog has increased by 15% to be just above SEK 1 billion, and it corresponds to 78% of total order backlog. And over to our smaller segment, the New Build segment. Here, net sales in the quarter almost tripled, up to SEK 84 million, and it corresponds to 5% of the total net sales. All the increase more or less is coming from the acquisitions we are making, mostly from Riikku Group. Order intake in the quarter amounted to SEK 35 million. Here, it's down from SEK 53 million last year. The reason behind this is that we last year received a big order in Ireland in this quarter, and this year the organic order intake for New Build segment has been minus 8%, so the increase. Otherwise, we have the rest coming from the acquisition of Riikku. Adjusted operating profit amounted to SEK 3 million, and corresponds to an adjusted operating margin of 3.8%. And the order backlog has increased by 75%, up to SEK 294 million. So it's 22% of our total order backlog. And to have a look at our financial position. Here at the end of the quarter, the Group's equity amounted to SEK 799 million, with an equity ratio of 49%. Our interest-bearing net debt, excluding leasing debt in relation to adjusted EBITDA, pro forma, amounted to 2.8x, and it's up from 1.1x last year. And we have a banking agreement for another 2 years with Danske Bank until October 2026, and it's a sustainability-linked revolving credit facility of SEK 510 million with an overdraft facility of SEK 75 million. Back to you, Camilla.

Yes, acquisitions. Acquisitions are an important part of Balco Group's growth strategy, and we will, of course, have it locked up also ahead. However, of course, as you understand, with the debt situation we are in and a little bit weaker result right now, we will be a little bit more cautious. But if something interesting comes up, of course, we will take that up to discussion also ahead. So going to the concluding remarks. The net sales in quarter 3 was SEK 331 million, and we have an adjusted EBITDA margin of 5%. And as we said several times, the order intake was really good, increased -- it increased -- it more than doubled, so we have around SEK 285 million, plus 111%. If we look a little bit ahead, the outlook. As we said, the customer activity has continued to increase. You should remember that it comes from a little bit lower level of cost, but it continues to increase. The net sales and the profit will continue to be affected in the coming quarters depending on the lower order intake we have had before. And of course, all companies in the Group continues to have a strong focus on order intake, on the cash flow, and also the cost situation. So we hand over for some questions.

Thank you very much, Camilla and Michael for that presentation. And yes, like you said, now it's time for the Q&A. [Operator Instructions] And we've got several questions here, and we'll start with the first one. You've got 2 covenants, interest coverage ratio and net debt to adjusted EBITDA. Could you quantify this, please?

Yes. Of course, we have some bank covenants, and it's on this pro forma net debt to EBITDA. We can go up to 4.0 in a single quarter, but then we have to go down to 3.75 a quarter after that, and then down to 3.5 a quarter after that. So we think we are still on a stable level.

And how is the development progressing in different parts of Sweden? And could you give more details, especially for the Stockholm area?

No, I cannot give any more details regarding that, neither that we are better or worse, so to say, in the Stockholm area than in the rest of Sweden. From our perspective, it's more that we can see that it is an increase for the balcony companies all over Sweden. However, as I said, the facade companies are more under price pressure. And we have 1, as you know, we have 1 facade company in Västerås, which are located in, yes, you could say, Stockholm area or close to Stockholm area. But we also have 1 in the southwest of Sweden, and we see more or less the same situation for both of these companies with the price pressure.

How is the order pipeline developing in the U.K. and Ireland?

The order pipeline in U.K. is developing good. We have a lot of projects ongoing, and we also have a lot of quotations that we are calculating on. So we see that it's growing. It continues to grow. However, we have a little bit, so to say, dip in quarter 3, but that is mainly depending on when you have the decisions. As you know, quarter 3 can be a very special quarter. And as Mike had said, we had a really big order coming in previous year there, in Ireland. We have had a little bit slower, so to say. So we have not had so much order intake in Ireland after the big ones. So the main order intake in that area is coming from the U.K.

Okay. And which interest rate level is needed for the Swedish market to really pick up?

I would say that we are more or less coming into that level because now if you are looking on the longer interest rates, if you are taking, so to say, a loan of 2 to 5 years, then you can get a quite good interest rate level right now. And that you can see, so to say, it's going more or less it's on the bottom right now, so it is really right time. But I would not say that we should expect an increase like a hockey stick. We will see a slow progress here ahead because that will come, so to say, when you have had -- you have started to increase your rental cost and you come into more, so to say, on that right level in the tenants and the association for the cost levels and for the new rents. So I would say we will continue to see a slow increase all the time here. But I would not say -- of course, it's very difficult to say, to predict. But I would not dare to say that we will see a hockey stick.

And is the Riikku acquisition developing according to plan regarding sales and profitability?

The Riikku acquisition is developing according to what was expected, yes.

And is price pressure in the facade segment in Sweden getting better, or would you say it's getting worse?

We saw that -- I would say that we saw that it started up actually, yes, more or less 1 year ago. From our perspective, and we see it has actually been a little bit worse, you could say starting, yes, during springtime, and also right now.