Balco Group AB (BALCO) Earnings Call Transcript & Summary

Hi, and welcome to Balco Group's Second Quarter Report for 2025. With us to present, we have President and CEO, Camilla Ekdahl; as well as CFO, Michael Grindborn. [Operator Instructions] And with that said, I give the word to you in the forum to your right. And with that said, I give the word to you, Camilla.

Thank you, and welcome all to our quarter 2 presentation. First of all, for all new listeners, a short snapshot of 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 approximately 600 employees. Balco operates in 2 main segments: renovations and new build. The core expertise is to supply glazed balconies and balcony solutions primarily on the renovation market and the tenant-owned associations. The group has a broad offering of balcony solutions and the complementary offerings such as facade renovation, and it can also act as a turnkey supplier in renovation projects. The key markets are Sweden, Denmark, Norway and Finland. We also have a strong challenger position on other Northern European markets. So let's go over to the quarter. And I'm very glad to say that the order intake in the quarter is the highest historical order intake for Balco Group and amounted to SEK 519 million, which is an increase of 37% compared to previous year. The increase comes from mainly 3 areas. First of all, a restart in the Maritime segment, where we received an order worth about SEK 80 million to the French shipyard Chantiers de l'Atlantique. This is our first order to both this shipyard and also to France. And on this order, we will also deliver doors together with the balconies. So this is also a new product, which we implemented to our Maritime assortment. The second area is Norway, where we received orders of about NOK 180 million during the quarter, and this is also we have communicated during -- with press releases during the quarter. And the third area is also very glad to see that we have an increase in the order intake for the Swedish balcony companies with about 47% in the quarter. However, the profitability in the quarter is not satisfactory. We are still suffering from delays in the start-up of projects during the first half year, and the value of this is about SEK 100 million. This affects both sales, cash flow and also earnings. The net sales decreased by 12% to SEK 338 million versus SEK 374 million, 5% is coming from negative currency effect. The structural measures we announced in quarter 1 proceed as planned. The production move from TBO Haglind in Arboga to Balco factories in Växjö and Poland has been completed and the previously planned staff reductions have been implemented at our glazing company in Finland. And all these structural costs are taken in the first quarter. If we go and talk a little bit about the market in general, we can see that the trend of increased activity, especially in the Swedish and Norwegian renovation market is continuing, as I said on the previous quarters. Customers are becoming more willing to make investment decisions, but the process continues to be long. We can also see that the recovery in the market continues to be affected by uncertainty in the outside world. And therefore, we always look on the order intake over a longer period. But if we look on the first half year, we can see that there's still a very positive trend there where we have an increase of 9% for the first half year in the order intake. We can see that there are some smaller positive signals in the new build segment in the Nordic countries, but the increase comes from a very low level, and it will take a while before we see it visible in the increased order intake, both for our facade and balcony companies in Sweden and Finland. Since mid of previous year, the order bookings for the cruise ships to the shipyards have picked up, and this has also resulted in the increase of request for quotations to Balco. There are a limited number of companies who are able to deliver balcony solutions to the shipyard, and Balco is one of them. Balco is also a very interesting partner for the shipyards, not only for balconies, but also for other products within the steel, aluminum and glass material as now when we have implemented the doors into our Maritime segment, this is an example of that. We can see on the market that we have had some problems before with the strain competitive situation that continues, and this is especially for the Swedish facade companies and the balcony company in Denmark. And we also see a trend of increased competitive situation in Finland, both within the renovation and the new build segment. So hand over to you, Michael, and the figures.

Yes. And start with the quarter for the group and the quarterly result. Net sales amounted to SEK 331 million, down from SEK 374 million last year. Here, the organic growth was minus 7% and currency effect was minus 5%. Our adjusted operating result on EBITA level amounted to SEK 6 million, down from SEK 19 million last year, and it corresponds to an adjusted EBITA margin of 1.9%. Order intake was, as Camilla mentioned, record high and increased by 37% up to SEK 519 million compared to SEK 380 million last year. Our order backlog has increased by 4% to SEK 1.439 billion. The adjusted earnings per share amounted to SEK 0.01 compared to SEK 0.36 last year. And our operating cash flow was negative in the quarter by minus SEK 30 million compared to plus SEK 48 million last year. And if we look at our segments and start with the Renovation segment, here, the sales was more or less in par compared to last year, SEK 253 million compared to SEK 251 million last year, and it corresponds to 76% of the total sales of the group. Order intake in the quarter increased by 52% up to SEK 386 million, and it corresponds to 74% of the total order intake. The adjusted operating result, EBITA in the quarter amounted to SEK 6 million compared to SEK 11 million last year, and it corresponds to adjusted operating margin of 2.4%. Order backlog increased by 10%, up to SEK 1.134 billion and corresponds to 79% of the total order backlog. And our new build segment, here, sales decreased down to SEK 78 million compared to SEK 123 million last year, and it corresponds to 24% of the total sales. Order intake though increased by 6%, up to SEK 133 million compared to SEK 126 million last year. The adjusted operating result, EBITA in the quarter amounted to SEK 1 million compared to SEK 7 million last year and an adjusted operating margin of 0.8%. Order backlog for the new build segment decreased slightly to SEK 305 million compared to SEK 355 million last year, and it's 25% of the total order backlog. And a look at our financial position at the end of the quarter, the group's equity amounted to SEK 753 million, down from SEK 798 million last year. The equity to asset ratio was 45% compared to 47% last year. Our interest-bearing net debt, including leasing debt in relation to adjusted EBITDA amounted to 7.6 compared to 3.3 last year. And we have obtained a waiver with the bank, which is valid until the end of the year. And our covenants with the bank is well within this agreement. And the banking agreement we have with Danske Bank is valid until end of March 2028, and we have an option for a further 2-year extension.

Thank you, Michael. So if we look a little bit on the outlook, we say that we are cautiously optimistic for the rest of the year regarding the order intake for the renovation project. For the new build segment, especially in the Nordic countries, we see that the recovery will take longer. And the recovery in the market continues to be affected by the uncertainty in the outside world. There continues to be a strained competitive situation for our Swedish facade companies, our balcony company in Denmark, and we also see within the renovation and new build market now in Finland. The assessment is that the coming quarters will be affected in the terms of sales and earnings. And therefore, we continue to focus on our profitability improving measures and work on structural measures and cost savings, which is ongoing. Yes. So that's all from us. So questions?

Thanks for the presentation. [Operator Instructions] The first question here is, is it possible to say anything on the expected margin of your order intake?

If it's possible to say anything on the order intake we have taken, I guess, let me. And we can say that on the order intake we have taken, the margins are within the levels where it should be, both in the Swedish market and the Maritime market and Norwegian market.

Thanks for that answer. Now we have Sofia Sörling from Carnegie on the call.

Okay. I have a first question, maybe a follow-up on the previous question. So this maritime order, is that -- should we expect a similar margin as the normalized Balco Group margin? Or is it a lower margin in these type of orders or a higher one? That's my first question.

If we see at the Maritime segment, the last 2 ships that we delivered to, it was more or less the same level as the standard Balco Group margin. It was a very good margin on the last 2 boats, and this one is [indiscernible] on the same level.

Okay. And if we continue on the Maritime segment, what is your expectations here ahead? Do you expect any more orders from this segment? Or is this good enough at the moment? Or what is your expectation?

As we said in the report, we have received more request for quotations, so we are working on quotations within the segment.

Okay. And then you mentioned profitability somewhat dampened by this -- the delays in project starts is that, in particular, in Sweden, the problem? Or do you see this in other countries as well? And also, when do you expect this to -- when do you expect this type of products to start again or when the problem will be solved in your view?

It's for a couple of different markets, as a matter of fact, we have it both in Sweden. We have it in Norway, more or less the same level in both countries, also Denmark also quite more or less the same level. Also in Finland in the new build segment and also some delay in the new build in U.K. Some of them have already started up and -- but otherwise, it's quite difficult to say exactly when they will start, but we expect that it will be better in quarter 4 of this year as it looks now.

Okay. And what would you say is the main reason? I mean, it seems like it's different countries now, but what would you say is the main reason for these delays?

When it comes to the -- where we have the new build segment, there is delays from the builders. And this is usually, so to say, that you get these kind of delays, but we've got a little bit more now than we are used to get. So that's why we see that as an increase. When we look on the renovation segment, that is mainly linked to either building permissions or discussions as in Sweden with [indiscernible].

Okay. Yes. And regarding cost measures, do you think you can do -- implement any more cost measures ahead in second half of '25 or into '26? Or is it fully implemented now and you really need volumes in order to improve profitability?

We have a couple of areas where we're still working on with the cost factor, so to say. But mainly, so to say, to get the profitability up, we need to get the sales up. Revenue needs to increase.

And then last question.

Very happy to see that we now got such a good order intake this quarter.

Yes. And just a detailed question on the Danish market. Do you think this market is different? Do you see a different customer behavior on the Danish market compared to the other Nordic countries in your view?

Yes. In the Danish market, the product we have there, that's a very specific product. It is a product that you are -- the majority of the projects they are within the renovation segment, but they are actually -- that you are getting a new balcony on an old building where you don't have a balcony today. So that's the main difference if you compare to the other markets where we are working with the renovation, where -- in the majority of the projects, you're replacing an existing balcony. If you're replacing a balcony and you have a need, then you have a -- that's much more a demand of doing something. You are more hesitating and you have even longer processes and it takes longer time before you take the investment if you don't have a balcony and it's something nice to have. So there, you see the big difference between the Danish market and the other renovation markets.

Thank you for those questions. Now for a last question here. What should we expect regarding working capital development, the coming quarter?

We expect it to get better, I would say, especially in quarter 4, slight improvement, I expect in quarter 3, but mainly -- yes, quite big improvement in the fourth quarter of this year.

Thank you for that answer. That was the end of the Q&A. Now for some closing remarks, Camilla?

Yes. Thank you all for listening to our presentation, even though that is 14 of July and some of you have, so to say, summer vacation coming up. And so thank you all, and I wish you all a really good summer. Thank you.