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

Good morning, everyone, and welcome to this presentation of Bravida's First Quarter Report of 2025. My name is Mattias Johansson, CEO of Bravida. And on my side is…

Ã…sa Neving, CFO.

So then we…

Then we'll start.

Yes. Thank you, everyone, for joining. And as you know, Bravida is a partner company who makes your life a much lot easier. We make sure that your daily routines is working. We help you with systems regarding heating and plumbing, electricity, ventilation, security system, et cetera. So we actually want to create the experience of when it just works and make your life to a better place to be. Bravida, we are acting in a very tricky market for the moment. And still, we are able to show quite a stable performance, I would say. And the reason behind that is that we are in many different places. We work with a lot of different types of customers in different segments. And we are providing our services through our all 14,000 skilled employees, 84,000 customers, 350 branches in 40 regions in 4 countries. And when we sum this up, it's actually add up to close to SEK 30 billion in revenue. So -- and the highlights from the first quarter. As you all know, we are in a very tricky market and still or maybe because of a very selective way of working with new projects, customers, et cetera, and a high focus on cost control, we have been able to present an improved margin in all 4 countries. The net sales is down with 5%. The order intake decreased 1%. And there the reason behind that is because the only way to handle a market like this is to be very selective on the business we try to win. Growing this business is the same as we are exposing ourselves to high risk. So we are very selective. But we can see an increased order intake in Norway, Finland and Denmark. The order backlog increased in all countries compared to the previous quarter and all in all, with SEK 658 million. EBITA margin is up to 4.5% compared to 4% last year. And one of the reason is, of course, that we can see continued improvement in our Danish business. And you also should remember that we have some seasonality regarding the margin. The Q1 is always the lowest -- the quarter with the lowest margin. The cash flow is good. The operating cash flow, close to SEK 300 million, cash conversion above 100%, and we have a very strong balance sheet, low debt level and the debt compared to EBITDA is around 1, and that, of course, gives us opportunity to continue to develop Bravida going forward. We have really good scores on the sustainability KPIs like the injuries and CO2 emissions in our business. The net sales, the bridge from Q1 last year is that we have a negative organic growth with SEK 460 million. We are adding M&A, SEK 120 million plus, and then we have some currency effect around SEK 50 million, and that actually is taking us to the SEK 6.888 billion in sales. Organic growth is negative. We can still see a stable performance in the service business, which is good, and that is something that is one of the advantages of Bravida. Close to 0.5% of our sales revenue is service and the other part is installation. EBITA in Q1, despite the fact that revenue is down, we are able to increase our EBITA money-wise and also improve the margin. So the EBITA is SEK 307 million compared to SEK 294 million last year, and the margin is 4.5% compared to 4%. We see margin improvements in all countries. And Denmark is the country who's done the best improvement from 1% to 3.5%, and that is pretty much in line with what we have expected and what we have communicated from before as well. EBITA margin in Sweden and Finland is up 10 basis points and Norway, who has the highest margin in this quarter is 5.2% compared to 4.9%. The order intake and the backlog, we still are acting in a very tough market, but the order intake very much depending on the strong service business is up. It's up in Norway, Denmark and Finland. It decreased in Sweden, but you should remember that last year, we had a really big contract coming into the books in Q1 '24. That was the underground in Stockholm. And the order backlog increased in all countries. And the order backlog is only containing the business regarding the installation and not the service business. ESG, we want to be the market leader in this segment. And today, we have close to 40% of all our 8,800 vehicles electrical driven. And that, of course, give a really solid improvement in the CO2 emissions from vehicles, down 15% the last 12 months. And if we compare to 2020 as a base and also take into consideration the high growth we have had since that, the improvement is actually 38%. The injuries, LTIFR is close to our group target now at 5.5%. Sweden and Finland is improving a lot. Norway are already on low numbers. So we hope that we can improve this in Denmark in the coming quarters. So we, on group level, can reach our target because it's, of course, very important for us to have a safe environment for all our employees as well as the customers we are working together with. Acquisitions, it has been a slow quarter in Q1. But last year, we did 10 acquisitions, slightly less than we normally do in a normal year, but that is not depending on the low amount of opportunities we're having. We still have a really strong pipeline, but we are very thorough about what acquisitions we are doing. And we have started Q2 by doing one quite large acquisition, adding close to SEK 350 million in the second quarter. And we think that we can continue to use our balance sheet going forward because of the strong pipeline and the momentum we have due to our model of doing acquisitions as well because we see that our way of doing acquisition is seen as a more favorable one than some of the other players in the market are using. In Denmark, we haven't focused on acquisitions so far. We have focused on improving our own profitability, but now we are opening up for discussions starting to work in Denmark with acquisitions as well. And Norway have been a bit of blocked as well for internal reasons because of the integration of Thunestvedt, which is going due to plan in Q1, they actually were merged into our ERP system, and it is still in line with what we have expected. Opportunities are many. Pipeline is strong and we still see that the price levels are very stable. So, with that, I hand over to you Åsa and let you present the different…

Thank you. Then I will take you through the countries. And as usual, we will start with Sweden, where we had a decrease in sales of 6%, ending up at SEK 3.3 billion, and this is explained by the soft market that we have in the southern part of Sweden and also our strict project selection due to that. The southern part of Sweden had a volume decrease of SEK 250 million year-on-year. So we had a service sales that was down minus 10% and installation was down minus 3%. The organic growth was 8% negative, and we had some growth from acquisitions of 1%. EBITA was SEK 165 million versus SEK 172 million. But even though we had a soft market and the decreased sales, we managed to defend and also increase slightly our margin to 5.1% compared to 5.2% last year. The order intake was 10% minus year-on-year. And if you look at last year, we had 2 larger orders coming into the books in Q1. We had an order backlog that increased during the quarter in Sweden. Moving on to Norway. Net sales was down 12% to SEK 1.4 billion. This is due to decreasing sales in the installation business. And last year, we had a couple of projects, mainly hospitals with high production in the first quarter. So the comps were pretty tough. The organic growth was negative 10% and there was a negative effect of FX also on 2%. But I can say that installation growth was actually down 25% due to the high comps that we had last year. EBITA, SEK 74 million versus SEK 79 million. And also here, we managed to improve the EBITA margin despite the lower sales to 5.2% compared to 4.9% and the margin improvement is coming from the installation business. The order intake in Norway was plus 8% and the order intake is coming from installation that was up 37% in the quarter. And we’re happy to see that we are also happy to see that it's healthy projects that we are getting into the order backlog and the order backlog increased by SEK 173 million in the quarter. Denmark, happy to see that Denmark is continuing to improve as planned. And in Denmark, we have a growth in sales of 5%, so ending up at SEK 1.7 billion. And this is due to a strong growth in the service business, plus 5%. We also have organic growth in Denmark on 5%. EBITA is SEK 60 million versus SEK 16 million last year. So, I'm really happy to see that this improvement is continuing and the EBITA margin improved to 3.5% versus 1% last year, and it's due to a better performance in both installation and the service business. Order intake is up 4%. This is coming from the service business, and the order backlog increased by SEK 142 million in the quarter. Then Finland. Finland is a tough market. The sales growth was down 4%, and the growth in the installation business was minus 10% and the growth in service business was plus 11%. Net sales ended up at SEK 548 million. It was negative organic growth of minus 17%. We have done some acquisitions in Finland, so the growth from acquisitions was plus 13%. EBITA 8% versus 7% last year. And also here, the EBITA margin improved. We managed to defend the margin in this tough market also and the improved margin is coming from the installation business. Order intake increased by 20% year-on-year, and this is also a strong order intake from installation, which is improving by 43% in local currency. Order backlog increased by SEK 150 million in the quarter. So, that was the countries. And to summarize that, just to stress what Mattias said that we have -- even though that the sales is decreasing in all countries, except for Denmark, we have managed to defend the margin in this very tough market and also improve margin in all countries, and we have a growing order backlog with healthy projects. By that, we will move into the financial position, which is continuing to be strong. If you look at the chart in the middle, you see the operating cash flow. It's still on a strong level, SEK 280 million versus SEK 399 million last year. And the difference here is actually a what I call, supplementary tax payment that we did in Denmark this quarter. That's the main difference here between these quarters. Looking at the financial position on the left-hand side, you can see that we have a cash balance of SEK 608 million. We have a debt of SEK 1.3 billion, and we have a term loan, and we are using commercial papers. We're not drawing anything from the RCF right now. And the leasing according to IFRS 16 is 1.4. This leads to a net debt of SEK 2.2 billion. And with the LTM EBITDA also on SEK 2 million. We have a net debt LTM EBITDA ratio of 1. Cash conversion improved, as Mattias said, to 101% versus 90% last year. We still have 2 large unpaid receivables, one in Denmark, one in Norway that we expect to be resolved in end of this year, so last quarter. And then we still have one additional large unpaid receivable in Denmark that is not to be -- that hasn't changed anything since the last quarter. It will not -- we don't expect it to be resolved until 2028. But to summarize, low net debt, strong cash flow. By that, Mattias, I will hand it back to you.

Thank you. And I then get the opportunity to talk about the market. First, I think I want to say that the service activity continues to be very stable. And that is a big reason why we can be as stable as we are today, close to 50% of the revenue is service, as you know. The challenges in the installation business are probably going to continue for a while. There are big differences between different geographies. It is some areas where we have normal markets, some areas where we actually have a quite good market. And then we have areas where the market is really, really tough. So again, that is what you get when you invest in Bravida. We don't have low demand in all places at the same time. But we still see that there will be some challenges going forward. We saw in the end of Q4, beginning of Q1, there were positive discussions with customers, and they still are in some areas. We are actually a bit positive regarding the underlying demand in the market. But as I said in the report, it seems like some customers have paused the decision a bit because of the uncertainty in the global environment for the moment. So we are a bit positive at the same time as we really don't know when it starts to kicks in. But we can probably say that '25 will be a difficult year, not tougher. I think it has bottomed out definitely. We will have some easier comps going forward. But the orders we are winning now or the coming quarters won't start until '26. There are some areas where there are very favorable market conditions, and that is for example, in infrastructure, industry, defense facilities and civil engineering, and that gives us business opportunities. And Bravida is a solid, strong competent partner to our clients in those type of projects. So we think that we are in a good position to actually win these types of contracts. We have the knowledge. We have the financial stability. And we also hear from the organization now that we are not winning projects on price. We can-- and also said that we have -- the orders we have been winning is actually a decent or good margin in those projects. And that is because customers are very interesting in buying from a financial stable partner, and that's us. We will maintain our project selective strategy because that is the only way to go through this type of cycle in the market. We will focus on margin before volume. And I think we have proven that in the first quarter when the revenue is down 5%, and we still are improving the margin and have strong cash flows. And then on top of that, we still see an attractive pipeline of possible acquisitions to do, and we have a balance sheet that supports that action, and we will do acquisitions going forward. Shortly about the financial targets. You all know that we have a margin target at above 7%, which we won't reach this year. That is a target over the cycle. We will get closer to it for every year now. We have a strong cash conversion. We have reached that target for many, many years. Debt level is below target. Sales growth for the moment is not met. And the dividend, I think it's paid out tomorrow, and that is well above the target of 50%. So, if we should summarize the quarter, top line is down 5%, and that is mainly due to the installation business. Service business really, really stable. We are growing from acquisitions with 2%. We have increased order intake in Denmark, Norway and Finland year-on-year. We have increased order backlog with good margins in those contracts in all countries compared to last quarter. And we see improved margin in all countries. Stable cash conversion and good cash flow and the ESG KPIs like LTIFR and the CO2 emissions is improving a lot. So, before we take questions, just want to mention that we have the next report in beginning of July, and then we have the third quarter in 24th of October. It seems quite distance now because we have a lot of work to do before that. But with that, we open up for questions, please.

[Operator Instructions] The next question comes from Karl Norén from SEB.

A couple of questions from my side. And maybe if we start on Denmark. You stated that you still have a negative margin in the installation business, driven by that you still have production of low-margin projects. I was wondering how long do you think you will have to produce on these low-margin projects? Or when are they finished? And will we then see a more step-up change in the margin, you think? First question.

Should you start Ã…sa, yes.

I think -- I mean, there will be some projects that are from the sort of the old days. They will continuously get out from the books. There are also some provisions to take care of those. So I mean, they will fade out. There will may be some left in this quarter, but by the end of the year, they will be out of the books.

But it's not correct that we have negative margin in installation business. We are making money on installation business, but it's impacted to some part of a few projects, yes.

Okay. Yes. That's clear. Maybe I read it the wrong way there. That's good. And then I have a question on Sweden. I mean the market environment continue to look quite challenging, especially in the South of Sweden, as you mentioned. Despite this, your margins are quite stable. I'm just wondering, do you think you can expect to continue to protect the margins at similar levels compared to last year? Or is it possible to see kind of slightly improved margins year-over-year underlying, I mean, adjusted for the Northvolt write-downs and the one-offs you had last year. Do you think it's reasonable to expect continued margin resilience in Sweden?

I think we will be very stable. If that means that we are improving the margin or if we are a bit on the negative side, of course, that's very hard to answer. But we expect that the south part of Sweden will improve in '25 compared to '24 because we did some quite big measures last year, which was actually giving some cost and actually impacted the margin as well when we scale down the business. We have a flexible cost structure, as you know, but that costed something to take out all those resources in '24. So, we think that we can continue to improve our margin in the south part of Sweden, be stable in the central part of Sweden, Stockholm area. And then it's, I think, the key question is if the market keeps up in the North part, if it does, then I think we will have a stable margin in North, high margin in North. It might be a small risk that the market weakens a bit in the north part of Sweden, which automatically will impact our earnings. But all in all, I think that we will see stable margins in Sweden and hopefully a bit improved in '25, but that is to be proved.

Yes. Good. And then just a final one for me on your recent acquisition there in Borlange. I mean I'm just looking at it, it's quite big, but it has varied quite a lot in sales during the last couple of years. I'm just wondering what do you expect from that going forward in terms of sales? Should we think that the SEK 350 million level, is that reasonable? Or do you expect it to come down? Or how should we think?

No, we are very thorough in our due diligence work with due diligence. And I think that is why we have taken down the pace of acquisitions a bit. We think that they have a solid order backlog. Then it's always a question of timing. If you look at '25 specifically, then it might vary a bit. But if you're looking on the rolling 12, we think that we can keep the top line. And I guess that will be -- we think we can keep the revenue and top line for '25 and develop it. That is our ambition.

The next question comes from Johan Lönnqvist Sundén from Carnegie.

First question from my side is on the Swedish business. And I note your comment, Mattias, during the presentation that the service business is stable. But can you please give some more color? Because when I look at Page 17 in your report, it seems like the service revenue in Sweden is down some 10%. How come that?

It's actually -- there are some smaller projects in service also, and they have actually disappeared during this period, you can say. There are less smaller projects that are related to service.

Yes. Then I also think that we have closed down some poor performing branches throughout '24, which was in our books in Q1 '24, which are no longer there. So I think -- I don't know how you measure that or label that. If that is negative organic or actually business that we have taken out, of course, that impacts the organic growth. I think that is the reason as well.

So, you're not losing the market share on the service side.

No, we don't think so because if we do, for example, the investigation to public customers in the south part of Sweden, last time we looked, those have increased. So -- it can be that we are -- I would say like this, in the beginning of this phase where we are probably the first one now to scale down because we know what to do, then we're probably initially losing some market shares because many of our competitors are still trying to keep up the revenue. But in the end, we know that when they are forced to do the same, then we are ready to take the growth. So, all in all, we think we have done smart things, and we are not losing market shares because we are not good enough. What you see in the numbers is that we have closed down branches. And as you know, we have lost a lot of volume in that area throughout, from Q2 to Q4 because of closing down our branches. And I think that is what you see now when we compare to Q1 between '25 and '24.

Yes. But I tried to quickly look through the last 4 quarters. And it seems like there was a step down also here in Q1 in the year-over-year development. So that was why I was a little bit curious. And if we go to Norway, just curious to hear, we're now seeing the order backlog on the installation side improving. I know it's hard to assess, but given what you see and how the kind of timing of when you start to deliver on the projects, when do you believe the installation side in the Norwegian business should start growing again?

I think that's a tricky question because the Norwegian society as such, they are struggling with inflation. They have high pressure on salaries, which means that we won't see -- I guess, we can't expect any lowering of the interest rates in Norway, which is something our industry has been -- we think is in need of. So I think the installation business in Norway will be tough a couple of quarters before we can see it's going up. But again, we are focusing on margin in orders, quality orders when we are selling. And in Norway as well in some other countries, there are some positive signals in the industry related to NATO expansions, for example, the weapon industry but also some infrastructure projects. So, I don't think I can give you a better answer on that one. But optimal, we had wanted to have a slightly higher order backlog in Norway. But again, we are not stressed. We know what to do, and we want to do the right things.

So, when you say a couple of quarters, you're thinking Q4 '25 or Q1 '26?

Yes, I think that's guessing. Let's see what happens in the coming months, but it doesn't seems like there will be a dramatic pickup in the coming quarter at least. But still, Norway is also the country where we have the highest part of service revenue, which is around 60%, I think.

Yes. Perfect. And my last question is on Denmark. And I think Karl, he touched upon it before, but just to get a better sense of the seasonality in Denmark throughout 2025 and how we should view margins there. 3.5% beginning of -- or at least in Q1 should -- Q1 is often the kind of weakest quarter in a year. Do you think there's other kind of seasonalities that we should be aware of when doing our forecast?

I think there can probably be some different positives and negatives throughout the years. But we are still very confident that we will deliver on what we have said before that we will be closer to 5% this year. And if we are above 5%, I think we are very glad because we still see '25 as a year of transition, you can say. And I think that is something we stay to.

And then when you say -- just to be clear, when you say 5%, you mean that full year '25.

Yes. Full year. Somewhere between. I think we have said somewhere slightly better than 5%.

[Operator Instructions] The next question comes from Karl Norén from SEB.

Again, just a quick follow-up on Finland. I mean, you had a quite big negative organic growth there, but I also noticed that order intake was quite strong in the quarter. So I was wondering, is that related to projects that will come in the coming, let's say, already in Q2? Or should we expect quite weakish development also in the near term in Finland? Or how should we look upon that segment?

Finland is a tricky market, as we have said a couple of times. But on the other hand, we have won some projects recently. And I think it's more a question of when those come into production. And I don't have that answer here and now, Karl, but we have been quite successful in the last 2 months, I think, in Finland, but it takes some time before they start to produce, yes.

Okay. That's good. And then one on Sweden as well. I think you got a quite big data center ordering, was it in Q1, but you started to produce them in Q2 and throughout the year. I'm just wondering a little bit how that will impact the coming quarter or what is the comparison? How much did you produce from that in Q2 and Q3 last year, if you could provide that or if you have that would be helpful.

Yes, I think that will be produced throughout the year.

The one that we got last year, was that what your question?

Because we don’t have any…

Yes. I was wondering how much…

Yes, exactly. That was pretty short production time on that one. I think it was finished in -- there was some in Q4 also production on that.

But around SEK 200 million then maybe in Q2 and Q3 from that last year, so to say?

Yes. I think that would be at least, yes.

There are no more questions at this time. So, I hand the conference back to the speakers for any closing comments.

Okay. Thank you so much for the questions. It is a busy day for our analysts, I know, plenty of companies to cover. But with that, I say thank you so much for joining, and have a great day.

Thank you. Have a nice day.