Bravida Holding AB (publ) (BRAV) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Bravida's Q4 report 2022. Today we are presenting from the Bravida GreenHub in the City Center of Stockholm. And it's myself, Mattias Johansson, who will take you through this presentation together with…

Åsa Neving, CFO of Bravida.

And we're, of course, very happy to have you listening into this report, which we think is a quite…

Strong report actually.

Yes, definitely.

We are a bit proud, I would say.

Yes. Proud, but not happy. That's what we say in Bravida. So welcome to this report and let's kick it off. And the agenda today is, yes, as we usually do, to take you through our position in the Nordics, something about the Q4 numbers. And then we will show you a film about what is -- what Bravida GreenHubs really, really is, to give you a feeling of the offer, the sustainable offer to our customers. And then Åsa will take you through the performance of our 4 countries, and then we'll have a summary and a Q&A in the end of the presentation. So again, welcome to this presentation. Bravida GreenHub in the City Center of Stockholm. I'm very happy to have this presentation today. And if you have time, if you are close to one of our hubs, please pop in and discuss with our people, our personnel, so you can learn more and maybe order some great services from Bravida as well. At Bravida, we have now when we are summarizing the 2022 year, we have total sales above SEK 26 billion. We have been growing more than SEK 4 billion in 2022, which is quite fantastic. And we are a partner for all our customers throughout the whole lifecycle of the property, of the building. We want to help them design, we want to help them do the installation as well as do the service and maintaining afterwards. So partner throughout the lifecycle and we are a sustainable partner, and we help our customers to improve their own sustainability as well as we are providing more and more services in a sustainable way. And we are offering all the different kinds of disciplines you need in the building. The biggest is electrical, heating and plumbing and ventilation but we also have sprinkler, cooling, fire and safety, security, solar panel, EV chargers, you name it. All the systems you need in a building is something we can offer to all our customers. Thirteen-thousand employees, and we are 325 branches, acting in different local markets. So when the demand in the market is changing, it changes differently in all those local markets. So that gives us an extremely stability in the business model. SEK 26 billion in sales, SEK 26.3 million, 91% recurring customers and 85% of net sales comes from project of net value below SEK 50 million. So this is a fantastic slide. And I want to say thank you to all our great people in Bravida because we have been able to continue the great development throughout 3 years of pandemic challenges regarding supply, material, inflation, et cetera. So all the staff functions, all the people who are delivering this great service to the customers have helped us [indiscernible] to deliver an increased value every year. We have a CAGR in the last 8 years at 9% on the sales level and 10% regarding the earnings. And we have a cash conversion on an average of 100% as well in this period. Fantastic business model, and this is, of course, depending on many great employees as well as good relations with all our existing customers, but also our increased ability to attract new customers and new employees. Today, I see Bravida as a very attractive employer, not only in our core business that I mentioned before, but also people who wants to join Bravida because we have a vision regarding building automation, energy, management, saving energy, change energy sources to our customers as well as other segments that we are building up and creating and have been creating in the last year. So quite positive situation for the moment. We are the Nordic leader regarding sustainable technical solution, as we say. And we want to stay in that position. I think the GreenHub we are presenting from today is one way of proving that we are leading the industry. And every customers have access to all our different kinds of offerings. Today we have a great potential in letting more customers buying more segments from us. And the truth is actually that 80% of our customers is only buying one segment. But the last year, we have seen a clear trend regarding customers who's buying 2 or more segments. They are increasing quite a lot. We have a lifecycle perspective for every building. We can improve that even more, of course. But today we are focusing more and more on the lifecycle of the customers' building. So we are and want to stay as the industry leader in sustainable services. Okay. Let's go into the Q4 numbers then. And the market, I think you all are quite interested in what we will say about the market. But here now, we see a growing demand for sustainable and energy-efficient solutions. The trend is clear, and that will be a structural driver going forward in the coming years. On the other hand, we see some decline in demand for new build and residentials, which is not a strategic segment for Bravida. It has never been and it will never be, but there is a low demand for residential in the industry. But we can see a good demand for service and installation. And that is actually really good for the moment. Let's see what happens going forward. We, of course, understand that there are some uncertain times, increasing interest, et cetera, which will lead to a lower willingness to invest. There can be some delays in some of the investments. But overall, a strong solid demand. And when we come to the residentials and the housing industry, it is driven by higher cost and then higher interest because the underlying demand is still quite high in the Nordics. So let's see what happens. But as for now, a really strong demand for our services. And the Q4 highlights. Net sales up 28%, a combination of 16% organic growth, 16%, 1-6, which is extremely high, maybe a little bit too high to be able to defend the margin to 100% because when we have low fixed costs as part of the business model, that also means that we don't have the same leverage when we are growing. On the other hand, that creates a stability if the market goes the other way. But still, a good performance, 16% organic growth, 9% coming from M&A, which is fantastic, I would say. Order backlog still at impressing close to SEK 17 billion, margin 8.4%, slightly lower than last year if we adjust for the insurance money we got back from the system last year, but being able to create this stable margin at close to 8.5%, while we are growing 28% is extremely strong, I would say. Cash conversion, close to 90%, earnings per share is last year up 10% and order intake is improving in Sweden, Denmark and Finland. It's going down in Norway. But let's see what the reason behind that is because it's -- I don't think that's very strange because we are growing 37% in Norway. We have had a little much -- too much to do. So we have been more careful about what kind of business we have been trying to win down in Norway and meaning, in total, down 6% in the group. Cash flow, SEK 1.1 billion, and we see 19% decrease regarding the injuries in Bravida, which is, of course, extremely good. We are improving that sustainability KPI every year for now. So really good. Dividend proposal from the Board is an increase with 8% to SEK 3.25, which is an increase from 3%. Group, another way to slice the numbers is that we are growing in the quarter on net sales to close to SEK 8 billion. The order intake is close to SEK 7 billion. All in all, order backlog is SEK 16.8 billion. And in Q4, we can see that EBITA is increasing to close to SEK 1.7 billion compared to SEK 1.5 billion last year. Maybe you hear a sound in the background now, that's something that happens when you are on the field and our broadcasting from a site in our business. But that's something we have to live with. That's a truck outside that we are not using because all our suppliers are delivering fossil-free as well. Net sales performance in Q4, organic growth close to SEK 1 billion up in the quarter. M&A close to SEK 600 million, then we have some currency effects as well, adding up to close to SEK 8 billion in the quarter. EBITA 8.4% compared to the 10.1% last year, in the 10.1%, remember, we got some insurance money back from the system. If we adjust for that one-off, we are 8.4% compared to 8.5%, extremely stable margin with the inflation we have had in the industry with big growth we have had and also some impacts from the COVID in the beginning of the year, extremely strong performance, I was said. And in this number as well, we have been taking SEK 26 million in the quarter and SEK 76 million in 2022 that we have invested in the business to be able to continue to improve our business going forward. The cost is investment in new system. It's also investments in new people that hasn't been paid off yet because they are working with new segments that we are looking forward to see, and we are forecasting or expecting that some of those initiatives will pay off in the later part of 2023. And this is another slide that explains this. Of course, driving the business plan forward increases some of the costs, but it also will, in the future, enable us to improve the margin and the growth. And regarding the recurring cost, we see a strengthening on the IT platform. It's the platform as such, but it's also making sure that the platform was more secure. IT security is something we're focusing on. Digital development capabilities, increased sustainability focus, not only our internal sustainability focus, but also improve our way to present our sustainable offer to all our customers and the taxonomy for many of our customers will be a driver for our industry in the coming years as well. Now we have an improved HR support. And of course, that's one of the reason why we have been able to track these many people, hiring a lot of people, supporting the organic growth and that one of the reason is that we are strengthening the HR support. So together with all the other staff function, the HR has done an incredibly great job in the last year. Then we have some cost that is more of a one-off type and -- not one-off type, but it's impacted the cost now and we don't have increased sales yet. It's technical facility management, it's automation, energy management. And as I said, those are expected to add positively in the end of '23. Order intake and backlog. The backlog is decreasing with SEK 1 billion. I will say that that is not correlated today with the lower demand in the market. It's because we have a really strong order backlog and the production has been very high. It's up 2% year-on-year. As I said in the beginning of the presentation, the order intake is up in 3 out of 4 countries. And in the last country, in Norway, the growth was very high. So I don't see any reasons why we should have been stressed to try to win more business. So a solid order backlog, a solid demand in the market and, yes, looking forward to the coming months as well. Earnings per share. An increased dividend is something we present today, proposed SEK 3.25 per share in dividend, and that is an increase with 8.3% compared to last year. And as you can see to the right on this slide, we have been able to increase the dividend with 18% on average since we did the IPO in 2015. And again, 3 years with pandemic, inflation, challenges regarding logistics, et cetera, and still we have been able to improve both earnings, sales, as well as dividend to you as a shareholder. I think that is fantastic. Sustainability. Happy to see that injuries is going down with 19%. We are improving in all countries. Norway is well below target, and they are the one everyone else try to compete with. They are the one who is, yes, telling the rest of the group what to do, how to do it, in many cases, but we definitely have a really strong positive trend in this. And regarding our own CO2 emissions. Today, as is, we have 11% of our car fleet is 100% electrical. This will improve the coming year because 73% of all ordered cars last year was 100% -- were 100% electrical, and that means that the 11% will increase every quarter going forward when we get those cars delivered. 8% change in CO2 emissions from vehicles in relation to net sales, it is minus 14%. So we are growing. We are buying new companies. When we are buying new companies, we are also changing the car fleet. So in terms -- in relation to the net sales, we are lowering our emissions. So we can see a positive trend, not good enough yet, but we are definitely moving in the way we want to move. Acquisitions. In 2022 we did impressing 21 acquisitions, adding SEK 1.6 billion. We still see a strong pipeline. We still can do acquisitions at attractive multiples. And so far, in 2023, we have added 4 acquisitions, which adding SEK 150 million in sales. So we still have a strong balance sheet. Our strategy is continued acquisitive and we create a lot of value for these acquisitions. We also see that we are a buyer that offers synergies, offer systems, offer a structure that not many of the other acquiring companies in the Nordics actually do. So by that, we will now show you a film, what Bravida GreenHub actually is, so you can get some more color on what we mean when we say that we are delivering fossil-free services to all our customers. And after the film, Åsa, my CFO, our CFO, will take you through the different segments. So here is the film. [Presentation]

I hope that you all agree with me that the GreenHub concept is really great and it's a fantastic opportunity for us to deliver fossil free services in the city centers. Well, I will take you through the performance of our countries, and we will start, as usual, with Sweden and the great performance that we had there in the quarter and during the year. In Sweden, we grew the topline in the quarter with 15% to SEK 3.9 billion year-to-date or the full year growth was 10% and adding up to SEK 13 billion in sales. The growth is coming from both installation and sales, sorry, from installation and services, but mainly from services. And the organic growth is 7%. Sweden had, and I can say that the growth is especially strong in the mid-northern part of Sweden. The EBITA was -- and the EBITA margin was very strong during the quarter. EBITA was SEK 439 million, and the EBITA margin was 11.4%, and that is compared to 9.6% last year. If you exclude the one-off repayment from the insurance, sickness insurance that we got. We had a strong performance in all divisions in Sweden. And the year-to-date EBITA margin was 7.8% compared to 7.2%, also excluding this repayment from last year. Order intake was plus 1%, and the order backlog was minus 2% year-on-year. But we have a very high order backlog at SEK 9 billion to begin with. Moving to Norway. Norway has been growing a lot this quarter. Growth was 37%, so ending up at SEK 1.6 billion in the quarter. The year-on-year growth was also on the same level. They were growing in both installation and services, but the growth in installation was really high in the quarter. Organic growth was 27%, and the growth from acquisition was 4%. EBITA in the quarter was SEK 78 million, and the EBITA margin was expected -- we had a lower margin as expected at 4.8% compared to 7.8% last year. And this is mainly -- it's partly due to the change in sales mix from services to installation, but it's mainly that Norway has been struggling with some projects in a few regions that we have talked about in previous quarters as well, and then they have done some write-downs in these projects. But we hope that we have -- they have taken actions and are taking actions. So we hope that Norway will be up on higher margins soon again. The order intake in Norway was minus 40% in the quarter. And this is explained to really high comparative figures from last year. Last year in the fourth quarter, Norway had 6 hospitals getting into the order intake amounting to about SEK 800 million. So order backlog decreased with minus 7%, but it is still on a high level of SEK 3.4 billion. So we are not that concerned that the order intake is going down a bit, still a high backlog, and we think that Norway has maybe grown a little bit too fast to be able to keep the margin up. Then Denmark has been growing even more than Norway. So growth in the quarter was 61%, adding up to SEK 1.9 billion or SEK 2 billion. The year-to-date growth or the full year growth was 38%, adding up to SEK 6 billion in the full year. And the growth was both in service and installation, but has been very high in installation. Organic growth was 34%, and the growth from acquisitions was 17%. EBITA SEK 117 million in the quarter, and the EBITA margin improved to 6.8%, actually a little bit more than we expected from 5.8% last year's fourth quarter. This is mainly explained by higher margin in the installation business. And we've had a strong performance in the quarter from mainly the region that deals with infrastructure projects. So they do work on the high-voltage grid on the railway, on the -- for the district heating and so on and also a strong performance from the southern part of Jutland, mainly in Odense. Order intake in Denmark, plus 13%, in local currency 5% and this order intake comes from installation. Order backlog, strong 16%, plus 16%, ending up at 3.2% in the quarter. And then Finland. Finland has been growing this quarter with 17% to SEK 581 million. They've also had an organic growth in this quarter of 4% and the growth from acquisition was 6%. Growth comes from both service and installation, but mainly from services. EBITA, SEK 14 million, and the EBITA margin declined in the quarter to 6.9%, but they had a strong margin last year's fourth quarter on 8.6%. So it was a bit lower, but if you look at the full year, the margin was 5.3% compared to 5.0% the year before. So Finland is still continuing to improving the business and we are very happy with that. They had a strong order intake in the quarter on plus 110%, a little bit less, but still 96% in local currency. And the order intakes come from installation projects. So they have been building their order backlog with 43%, and that was needed in Finland. So that was -- we're very happy with that. That was our countries. Let's look a bit at our finance position. If you look at the mid graph, you can see the operating cash flow. And as you can see, it's on the same level in the quarter as it was last year, and it is on SEK 1.6 billion compared to SEK 1.4 billion if you look at the full year figures. And the increase is mainly coming from the higher result that we had this year. So a strong, stable cash flow and a cash conversion that has increased to 87% from 83%. If you look at the right-hand side on this slide, you can see our financing. So what we may -- what we have is that we have a revolving credit facility of SEK 2.5 billion, and this is a sustainable linked RCF. So it's linked to our safety target and the numbers of ordered cars. We had drawn SEK 400 million on that facility at the end of the year. We also have a commercial paper program of SEK 1.5 billion and EUR 50 million. And we are, at the end of the year, using or we have commercial papers for SEK 663 million. We also have a 3-year term loan that we signed in August in '22, and that is amounting to SEK 500 million. So on the left-hand side, then you see the financial position at the end of the year. So we had a cash balance of SEK 1.3 billion. We had commercial -- we had financing. So the term loan of SEK 500 million and the RCF, withdrawing SEK 400 million on, and commercial papers on SEK 660 million, and that added up to SEK 1.6 billion. And then we had a leasing according to IFRS 16 on SEK 1 billion. That ends up to a net debt of SEK 1.3 billion. And with LTM EBITA of SEK 2.1 billion, we get a net debt to EBITA ratio of 0.6%. That is compared to 0.5% last year. So still on a low leverage. Yes, I think that brings me to the financial targets. And as you know, we have a financial EBITA margin target of more than 7%. We are on 6.5%. I think we are very proud of that in a year like this with lots of challenges that Mattias talked about. And also we have been able to grow the business with 20%, so exceeded our sales growth target with a big margin. Cash conversion improved this year compared to last year. So it's on 87%, not fully 100%. But if you look at an average for a couple of years, we are in 100% on the cash conversion. Net debt, as I just told you, is a lot lower than our target on 0.6%. And then we had a proposal for dividend payout of SEK 3.25 per share, and that will bring us to 52% on the net profit as a payout. So by that, Mattias, I think I will hand over to you.

Thank you. Stable balance sheet. Is that…

Yes, stable balance sheet, good performance from all countries I would say, yes.

Yes. Great. So let's summarize this then. As Åsa told you about, we have an increased dividend. Earnings per share is up 10% last year. Sales up 28%, organic 16%. We are growing in all countries. We are growing organically in all countries. Acquisition is continuing to adding to the sales, 9% in '22, slightly lower margin on the EBITA, if we adjust for the positive one-offs last year, but very stable level at 8.4%. Of course we need to mention all the investments we are doing. And if we have been in the old private equity environment, we have probably adjusted for that and present in a higher margin, but we are not, we're taking the cost in the profit and loss, P&L. And I think, therefore, it's even more impressive to present the stable margin at the same time as we are growing the business as much as we are doing. Dividend proposal, SEK 3.25 per share, and that is an increase. And as I told you earlier, we have increased the dividend on average with 18% every year. And injury, last but not least, the accidents, injuries is down with 19%, which is, of course, something we are very happy about. So let's open up for some questions. I think there are at least some of you who wants to ask some questions about different things. So please.

[Operator Instructions] Your first question comes from Karl Norén from SEB.

Yes. Congrats on a strong quarter here. First question is related to the Swedish business, and the strong margin you've seen there in the fourth quarter. Could you give any sort of explanation or color on the strong margin [indiscernible] maybe a good mix with more service contributing to the strong margin in the Swedish business in Q4?

Thank you so much. I would say that it's quite strong performance all over. If we take the south part, maybe slightly weaker than last year. On the other hand, really high level, strong performance. Stockholm continues to increasing their margin and then extremely stable in the north part of Sweden, increasing and improving their margins. So good performance all over, I would say. I don't see the mix adding extremely much positive thing. It's just good all over, I would say.

And then a question on the pricing side, I guess you got some help on the price increases here in Q4. But can you say anything maybe on the price increases going into 2023? Because I guess you should see some positive impact on maybe service sales from CPI clauses, while the installation business is more on a project-by-project basis. So any kind of comments there would be helpful.

Let's see if -- we have been handling the price inflation, the increases in material prices, et cetera, are quite good so far. But I -- we have full -- a lot of respect for this topic still, and we are discussing internally a lot of what kind of increases we get both on the material side as well as on the salaries. My concern is not maybe about how we're handling it internally within Bravida. My concern is more about the industry as such is handling it because I think there is come way of thinking in the industry when the demand might go down, the material prices and wages also will go down. This time, I've said it before, and I take the chance to say it again, this time, it can be the opposite. So the demand can be slightly weaker, which we don't see it yet. But at the same time, material -- the inflation, cost for material and wages continue increasing, which is reason why they should buy us because we are stable, we are pricing the risk, but maybe the price pressure can be a bit unstructured in the industry. So a lot of respect for the topic. We are discussing it a lot internally. I don't want to mention how high price increases we get, but I get the market will get definitely above 10% in some and close to 20% regarding some type of materials, which is important that all the competitors actually put in their calculation. But let's see, we have handled it in a very good way so far. And we -- our plan is to continue to do the same.

And then just the last one on the order intake here in Q4, it increased 6% year-over-year. But I mean taking into account that we grew over 40% in Q4 last year. I would say this is still quite solid. But can I say anything regarding like any signs of weaker demand that are in the order intake as of Q4? Or is it still strong demand out even in, let's say, like the residential segment for Q4?

It varies, of course, where you are because 350 branches, 350 local markets with different type of demand conditions, et cetera. But I would say that a solid strong demand in all segments, except for the residential so far. And that is a small part of our business and not the place we actually want to be in, so. Yes.

Yes. And when do you expect that the weaker residential market to let's be seen in the weaker net sales? Is that expected to be during the second half of 2023 already or…

Yes, I think for some companies already has been visible. But if you're exposed to residentials in another way that we are, I think they have already noticed it. But when you have that small partners we have, it is a different -- have a different impact. On the other hand, the residential project that started last year, they are still in production. So I think the one that is stopped now or in Q4, I think that will be noticed after the summer, I guess, for those companies.

The next question is from Carl Ragnerstam from Nordea Equity Research.

It's Carl here from Nordea. A few questions. Firstly, in Norway. Could you perhaps give us some flavor on what portion of the margin drop would you say is related to the mix effect with a quite strong installation market, quite evident in the numbers? And also, if you could quantify sort of the project write-downs in Norway, are they related also to just 1, 2 projects? Or is it more broad-based? Yes, we'll start there.

Yes. But I think what is depending on what is quite tough to see, but when you are growing close to 40%, you have some project, you have planned and then some delayed projects from the pandemic is coming on top of that. You need to find more resources. You don't find enough resources and good enough resources. You have to maybe buy subcontractors to maybe slightly higher prices. You don't have time to do the purchase of material in a very -- in the same way that you can if you have a normal growth, that cost you a lot, and I think that will also impact the margin. When it comes to the write-downs, I think you have some examples in 3 different places where you have had an annual sales at let's say, SEK 80 million. And then last year, it went up to SEK 160 million. And of course, that will impact your margin because you don't have resources, capabilities to handle that big sales growth locally in a cost-efficient way. And that is also the reason why we want to grow this company in a more stable structured pace because if you're growing too fast, that means that you are allocating or exposing yourself to high risk. And that is what has happened in those branches. Having a good order backlog and then delayed projects are coming on top of that and then you can't handle the and manage all the costs, which cost you too much which impacts your margin locally. So I think that is what happened.

And would you say that the Q4 margin in Norway was sort of the cross margin and that it should get better from here that now that you've taken some project write-downs, maybe some slight improvement on the mix as well? Or should we serve and your -- a couple of more, sort of weakish quarter here as project tends to, I guess, I mean, lingering for 9 months or so?

But I think if we start in the end that both Åsa, myself and also to and the whole Norwegian team think they are more a 7% division than a 5% division. If you start there, I think you have the answer. We expect Norway to improve the margin because they are better than this. Norway has probably been the country where the impact from the COVID, the pandemic, the closedown will have been the biggest. And also the effects after the pandemic with delayed projects coming on top of the existing production, as I mentioned before, that has been quite difficult. So the order intake going down in Q4, like [indiscernible] said, he's happy for that because they have more structure to choose and the project service business going forward as well as the type of projects they have been trying to win. They have been more, what you say, cautious about the next project that was supposed to produce. So I think we can expect an improved margin in Norway, yes.

And also, I mean, a bit curious, in the market section in the report, you're right that, that external assessment, it's a 5% drop in installation market in 2023. I mean given your backlog, the Bypass Stockholm project starting after the summer, what are your thoughts on sort of your performance versus the market that's out there?

But I think it's tough for you, it's tough for us to know what happens, of course, no one really knows. But what we know is that we have a strong order backlog. We have clear visibility, not only on group level. We know the order backlog in all branches. We know where to act and went to act in the 325 branches. But I also think that down -- the decrease of 5%, as you mentioned, is connected to the residential. We still have an underlying demand for housing, et cetera, in the Nordic. Residential is going down for the moment. But we also see some segments growing. We are -- have been investing in building automation, energy management, et cetera. And those segments are definitely growing. We see the service side is very stable. We also see quite big investments on the infrastructure side increasing as well. And Bravida, the beauty with Bravida is that we are a partner for the small projects, the of all service tasks as well as we have a competence and the skill set to be a partner for the big investments like Bypass Stockholm or other interesting industry projects in the north of Sweden, in Denmark, in Norway, Finland, et cetera. So I think resi going down. But on the other hand, there are some other markets that are increasing. So we know what to do. We know how to act. We have done it before, but not all the thing is very negative in the market, I would say. The transformation, what kind of energy sources you want to use, the electrification that you want to use less energy, that is -- that means business for Bravida.

And the final one from my side. Is -- I mean, typically, group-wide expenses are positive in the Q4, I guess, partly due to supplier bonuses or kickbacks or similar. Why is it negative in this Q4?