Balco Group AB (BALCO) Earnings Call Transcript & Summary

Hello, and welcome to this presentation with Balco Group. We have the CEO, Camilla Ekdahl; and CFO, Michael Grindborn presenting the Q1 report for 2025. [Operator Instructions]. And with that said, please go ahead with your presentation.

Thank you. Welcome to the quarter 1 presentation for Balco Group. And first of all, I would like to make a very quick snapshot for the new listeners regarding Balco Group. Balco Group was founded in 1987 and consists of several balcony and facade companies. The head office is in Växjö and the group has today about 600 employees. We operate in 2 main segments, the renovation and new build and the core expertise is to supply glazed balcony and balcony solutions, but we also have a broad portfolio of different kind of balcony solutions. We are the market leader in the Nordic countries with the key markets, Sweden, Denmark, Norway and Finland and a challenger position in Northern European markets. By saying so, we go over to quarter 1, and we had a weak result in the first quarter this year. The adjusted EBITA margin amounted to minus 0.9%, and there are several reasons for this weak result. The main one is that we have had delays in our processes. And by saying so, I mean both the permission processes we have had in Sweden, but also delays on ongoing newbuild projects in U.K. and Finland, and this has then affect negatively both the revenue and our cash flow. This has also led to that we have had an overcapacity in our production, which we have not been able to compensate for during -- in short term during the first quarter. On top of this, we have also had project deviation in one of our big projects in Sweden. We have taken actions during the quarter, and we have made some major reductions of manning in Finland and Denmark, and we have taken a decision and also started up to close our production in Arboga and move this production to our existing plants in Växjö and Poland. This production will be taken in on existing manning, and we see also here that we can improve our production efficiency by concentrating the production to less production facilities. The move will be ready during quarter 2. During the quarter, we have then taken the structural costs for both the planned and implemented actions of SEK 31 million, and we are estimating a yearly saving of roughly SEK 60 million due to the actions taken and planned. The net sales decreased by 3% to SEK 316 million, and that is also mainly connected to the delays we have had in the processes. The order intake was lower if we compare to the same period previous year, SEK 275 million versus SEK 352 million. And it's always very difficult to match order intake quarter-by-quarter in a project business, and we could see that 2024 -- quarter 1, 2024, we received some really big orders during the first quarter. And of course, we have also big orders in our discussions right now, but we were not able to close them during the first quarter this year, but there are in our quotation portfolio for sure. But also, I would like to emphasize that all Swedish balcony companies and also our Finnish balcony company, Riikku had actually better order intake this year versus previous year. If we go and look a little bit on our market update, we can see that throughout the whole 2024, we saw an increase in the number of requests for quotations. And that trend also continues the first quarter this year. We are overall positive to the markets in general, but we can also see that the recovery is slower than all economic forecast indicated during the autumn 2024. And this is, of course, why we have taken also this needed action and why they were needed to be done. But there is an increased customer activity in the renovation segment for our balcony companies in Sweden and Norway. We can also see that the finished newbuild market has bottomed out. It's slightly improved, but we don't see a rapid return for any new construction of multifamily buildings in the Nordic countries, even if there's a slight improvement, but not a rapid one. But we continue to have good activity in the New Build segment, both in U.K. and Germany. And therefore, we have also taken a decision here that we also invested in more local design resources. It is especially important in the New Build segment to have local resources for design to be able to, in an early stage affect the project. Both, of course, to be as cost efficient as possible, but also to be able to get our design into the project, so they can only buy the project from us. The maritime segment has started up again, which is where we are very happy to see after, so to say, the pandemic has started up, and we can now see that new ships are actually ordered at the shipyards, and that is very positive for us for ongoing discussion with the shipyards. However, there continues to be a strain competitive situation for our Swedish facade companies and also our balcony company in Denmark. And giving you a little bit more about the Danish situation, we can see there that Danish consumers, they are more cautious in general. And we can also see that on so to say, consumer-driven products, in general, that quite many companies that have sales in Denmark are having a struggling period right now in the Danish market. But that combined with what we see that we have a product, the main product that we have, the main project we have in Denmark where we are actually adding a new balcony, but on an existing old building. That means that we are, so to say, that is even more struggling for us because it's -- if you have a balcony today, you want to renovate it. But if you don't have a balcony, it's a bigger jump to take to invest in a new balcony when you don't have one, than to just renovate what you have. But in general, I would say that we have a lot of interesting ongoing discussions on all our different markets, and it's mainly, as I said, the Swedish facade companies and the balcony company Denmark, where we still are struggling. Yes, Michael, handing over to the -- yes, figure, numbers.

Some financial figures for the quarter. Net sales, as Camilla mentioned, amounted to SEK 316 million, down from SEK 326 million. Here, acquired group was 8%, and it's Suomen Ohutlevyasennus, who was part of our group since March last year. So we had 2 months of their sales that were still acquired. Currency effect was minus 1% and the organic growth was minus 10%. Adjusted EBITA amounted to minus SEK 3 million compared to SEK 16 million last year, and its corresponding to an adjusted EBITA margin of minus 0.9%. The order intake amounted to SEK 275 million, down from SEK 352 million, and our order backlog end of March was SEK 1.238 billion. Adjusted earnings per share amounted to minus SEK 0.24 compared to SEK 0.11 last year. And earnings per share amounted to minus SEK 1.31 compared to 0 last year. Our operating cash flow amounted to SEK 1 million, and it was SEK 34 million last quarter 1. If we look at the renovation segment. Here, we saw an increase in sales up to SEK 236 million compared to SEK 222 million last year, and it corresponds to 75% of our total net sales. Order intake for renovation segment amounted to SEK 208 million, down from SEK 285 million last year and it's 76% of the total order intake. Adjusted EBITA in the Renovation segment was minus SEK 5 million compared to SEK 11 million last year, and it's here we have had this major deviation in a large project in one of our Swedish companies. And it corresponds to an operating margin of minus SEK 1.9 million. Order backlog for the Renovation segment is just south of SEK 1 billion, it's SEK 991 million this year, this quarter, and it corresponds to 80% of our total order backlog. New build, here, the sales amounted to SEK 71 million (sic) [SEK 79 million], down from SEK 104 million last year. While the order intake was SEK 67 million, just exactly the same as we had last year in first -- quarter 1. Adjusted EBITA in quarter amounted to SEK 2 million, down from SEK 6 million last year with the corresponding to an adjusted EBITA margin of 2.8%. Order backlog for the New Build segment is SEK 247 million at the end of the quarter, and it's 20% of the total order backlog. If we look at our financial position, at the end of the quarter, the group's equity amounted to SEK 757 million and the equity-to-asset ratio is the same as it was quarter 1 last year of 47%. Interest-bearing net debt excluding leasing debt in relation to adjusted EBITDA amounted to 4.0, up from 3.2. But we can also say the positive thing that we have extended our existing banking agreement with Danske Bank with the sustainability-linked credit facility of SEK 510 million and an overdraft facility of SEK 75 million. It's been extended to March 31, 2028, and we also have an option for a further extension of 2 years until end of March 2030.

Okay. We go into a little bit outlook. And here again, I would like to repeat a little bit what I said from the market position. Our assessment is that the overall market will gradually improve, and that remains, as we have said before. But we can also see that when new unrest and uncertainty arise in our operating environment, as we know, it has been doing now during quarter 1. We get some setbacks sometimes in our discussions with -- regarding the projects. But we know also that the need for the service and the products that we are offering remains. And therefore, we continue to invest in sales. We continue to invest in our markets and also product development. At the same time, as we also make this major structural changes in our operations to improve our profitability. We know that the coming quarter will be affected, but we aim to return to an earnings level in line with last year. There is an increase customer activity in the renovation segment. And we can also see, as I said before, that all Swedish balcony companies and our Finnish balcony company had a better order intake this year versus previous year. The Finnish newbuild market has bottomed out and we see, as I said, a slight increase in the New Build segment. And finally, I would just like to say that also that regarding this with the big projects, we have ongoing discussion with big projects, but we were not able to finalize them during quarter 1. And I think that was all from our side. And I guess we will have a lot of questions now and looking forward to be able to answer them.

Thank you very much for that presentation. And yes, let's open up the Q&A section here. [Operator Instructions] And we'll start with the first question here. In the report, you mentioned a major project deviation in TBO-Haglinds. Could you classify how much that particular project impacted EBITDA for the quarter?

We don't give exact details for just a project, but I can say that, that project and also the delays we had in projects, both in Sweden and also the New Build segment in U.K. and Finland. In total, if we haven't had these deviations, we would have an EBITA -- adjusted EBITA level of between 4% and 4.5%.

And are all costs taken for that project in Q1? Or should we expect further negative effects from that project in the coming quarters?

All cost that we expect as of today is taken in this quarter.

Okay. Thank you for clarifying that. And what segments renovation or new build did this project relate to?

Renovation.

Renovation.

Renovation. And adjusted gross margin dropped significantly in both quarter-on-quarter and year-on-year to 10.6%. Could you explain what the main drivers of the weaker gross margins in Q1 are?

It's still there. This [project], of course, affects a lot and also due to this delays in the processes, we have had overcapacity both in production and also some parts in the operations organization.

Thank you, Michael, for clarifying that. Could you also elaborate a little bit more regarding the financial situation and the covenants?

Yes. As you saw, we have been able to extend our banking agreement with Danske Bank. So we have current discussion with them ongoing all the time and also very good cooperation. So we are just on our covenant right now but we have a very good cooperation with them. They have been informed during this period. And as you saw, we extended another 18 months agreement and with -- as we have another 2 years after that as well.

Thank you. We'll move on to the next question here. Was the refinancing finalized with the current Q1 numbers and the current outlook for the remaining year disclosed and have the covenants being amended compared to earlier?

The discussions with them started already autumn last year. So it was finalized just last week, as a matter of fact, signed the agreement or 2 weeks ago, exactly, end of 2 weeks ago. And then exact figures were not ready, but they -- as I mentioned, we have discussed and informed the bank when the figures were finalized.

And what specific steps are being taken to mitigate the delays caused by building permits and rental board processes in Sweden?

What we have done is that since -- as we said here, we saw that we had a big effect on, of course, the result and what we have done is to make the reduction, the actions. So all reductions were -- all actions we have taken is also linked, of course, to -- that we had delays in this building permission, which gave us an overcapacity here. It was mainly Balco, which was affected by the delays Balco [indiscernible] and therefore, we have now been able to take down production and take it in on existing money.

Thank you, Camilla. Given the weaker order intake, what strategies are you implementing to secure more large projects for the coming quarters?

It's not a new strategy. It's the same strategy as we have had before, but it's mainly, so of say that when you are discussing these big projects, it is very, so to say, very difficult to say if they will come quarter 1 or quarter 2 or when they will take these decisions. So we have a couple of these big projects that should be decided here now during quarter 2. So there are no change in our strategy because we know that our strategy is the right one, which we are working on to get the big projects. But it's always a match between quarter. So therefore, it's important to see the order intake when it comes to a company like Balco Group, you must see it, so to say, over a longer period.

Thank you for that answer. How confident are you that the restructuring efforts and the cost savings of SEK 60 million annually will be fully realized as planned?

Yes. We -- of course, we are confident because that is why we implement it. So I don't know, to be honest, how to answer that. It's more than what we are confident that we will get it out. We know that we have already taken some of this action, and they are already implemented. And as we said, we know that we are closing down production in Arboga, we can take it in on existing manning. So we are very secure by that one. And then we have some additional actions, which will be taken that we're also confident on.

And regarding comments on the outlook and perhaps immediate clarification. Are you saying you expect to have a full year results in line with the 2024 on adjusted EBITDA? Or alternatively, are you saying that the rest of the year, an example, Q2 to Q4 are likely to be on par with the same period last year?

We don't give exact forecast, but we expect it more to be the coming quarters to be on par with last year's quarters. And it will be tough to reach exactly the same EBITDA last year, but with some luck we could go there, but probably slightly below total.

When we say in the report outlook, it's mainly quarter-by-quarter, the coming quarter.

Yes.

Thank you for clarifying that. We'll take one final question here. What is the time line and expected impact of your strategic focus shift in the Netherlands towards open balcony solutions and new construction projects?

When we go to the time line when we expect to get the result there, this -- we expect to get the results during this year. And I think that was the question -- or the time line or -- yes, exactly. And we expect the result to come during this year.

Okay. Thank you very much. Camilla and Michael for taking your time to present the report today and also answering all of our questions. And I wish you all great rest of the day. Thank you very much.

Thank you all for participating.

Yes, and for the questions. Thank you.