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

Hi, everyone, and welcome to the presentation of the Q2 report of Bravida. Thank you so much for that. Welcome again to the Q2 Interim Report for Bravida. And as always, it's myself, Mattias CEO, who will present this together with...

Petra Vranjes, the CFO.

And we will do our best to make sure that you understand this quarter in detail. So with that, we start with presenting a very strong quarter. Net sales, SEK 7.6 billion approximately. Organic growth, high 9%. We were a bit positive surprised where we had 1% organic growth in Q1 and we are following up that with 9% organic growth in this quarter, which is impressive, I would say. EBITDA margin up to 7.5% compared to 5.4%. And the order intake, up 44%, and even if we have some strong sales numbers from last year as well. And then it's also adjusted, the order backlog is adjusted for the sales of ABEKA as well. And the order backlog is up 21%. And net debt still on very good low levels at 1.3. Organic growth, I think it's Important to say and also happy to say that we have organic growth in all countries. So the 9% is coming from organic growth in Denmark, Sweden, Finland and Norway. And especially a bit surprised about Norwegian business that are struggling. And so far, they haven't produced anything on the big data center that we won a couple of weeks ago. We have 0% in contribution from acquisitions. We have some positives, but that is actually taken out of the sales of ABEKA. So all in all, it's 0 organic growth and the currency is 0 as well. We see a very good balance between small size, average size contracts. Again, the big data center wins hasn't impacted the quarter a lot. We see a good demand from defense industry, normal industry as well as what we call core business. So really strong numbers all over the line. EBITDA is growing 51% to SEK 570 million, and the margin of 7.5%, as I said. The EBITDA was impacted by nonrecurring items of net SEK 118 million. And that is because of the sale of ABEKA, but also that we have some restructuring costs taken in the quarter in Sweden. If we look at the last 12 months, we have a margin of 6.5%. And except for the organic growth in all countries, we also see an underlying improved margin in all countries as well. So really, really nice to see. Society's transformation benefit Bravida's business, absolutely. Let's see what happens with energy savings. It's getting more and more interesting, I think, because of what's happening in between Iran and U.S. I don't think anyone to be dependent on any oil today. So working with different kinds of other energy sources is good, which we, in Bravida, are doing. We see continued growth in hospitals and maintaining those buildings. Reliable security system is getting more and more interesting as well. Industrial projects, defense industry, as I said, and maybe the icing on the cake is for now data center, and we have a really long history of doing that. So that is -- we are in a good position for now. If we look at the order intake and order backlog, you should see these numbers as, first, the order backlog in Sweden is lower because of or its impact. There was an impact that is still higher, impacted for the sale of ABEKA, SEK 500 million plus. And then last year in Q2 in Denmark, we had a big order into the books as well, where we announced an DKK 800 million contract with Novo Nordisk, approximately SEK 1.2 billion. So the ABEKA impact in combination with the one big order last year in Denmark is in total SEK 1.7 billion approximately. So with that in hand sight, the order intake increase of 44% is even more impressive, and the order backlog increased with 21% is also something that will help us to continue to grow the coming quarters. You see at the bars that the order intake at SEK 11 billion, close to SEK 12 billion in the quarter as well as the order backlog, above SEK 20 billion in the quarter from now is the highest ever, previously have said that I've been very relaxed with an order backlog around SEK 16 billion and have been so. Now I would say I'm really excited about the new orders that have come in, and that will, of course, support the growth going forward. Good orders with balanced risks. And as always, when we're discussing large projects in Bravida, we are pricing risk. We also think that should benefit to a higher margin than normal or the core business is actually contributing with. We don't -- we are not only selling to data center customers. This is a selection of new customer assignments during the quarter. First, to the left, we have been partnership with Hitachi in Ludvika in Sweden, an industry building where we're helping them with electrics, HVAC and sprinkler system and also making sure that they are meeting the requirements for lead rating. In Denmark, we have won new office building to Novo Nordisk Foundation, all different disciplines. And in Finland, we have been helping faster with the new production facility in Lahti in Finland. All 3 contracts are evidence that we are seeing as a very strong supplier and reliant supplier to customers who is market leader in their different segments. With that said, we have done data centers. We will continue to build data centers. Since 2009, we have been part of billing data centers on approximately 200 megawatts. If we look back in the mirror, the data centers have been a bit smaller than they are today. But still, we have the knowledge, we have the experience, we know what to do. So this is 4 new data centers that we have won in the past month. First, the biggest one in Norway to Green Mountain, an order at SEK 4.3 billion. It's planned to start -- be executed in end of Q3, beginning of Q4 of the summer, and it will be finalized somewhere end '28 or beginning of '29. Then last quarter as well down to the left where we can't disclose the size of the contract, but we continue to work together with the XTX Markets in Kajaani in Finland. And that is pretty similar to the case up to the right where we have been building to EcoDataCenter in Borlänge, Sweden, or Kvarnsveden in Borlänge in Sweden for many, many years. So that is a trend as well, where we are looking for partners in our customers and -- but also the customers, they are looking for partners to secure their competence, resources to build what should bring -- give them some more earnings going forward as well. And then recently, another data center to atNorth in Finland in Kouvola, SEK 2.2 billion. It was addressed as EUR 200 million in contract value, also an exciting contract that will be helping our Finnish business going forward with growth as well as margin expansion. But again, we are doing more than data centers. This is a slide showing data centers or other advanced technology projects. We are building to Lantmännen in Sweden. We are working with a hospital in Denmark. Hitachi Energy park in Finland. We are doing maintenance and service at Great Belt in [indiscernible]. And we are doing a converter that is called Viking Link in Denmark, and then we are working with airports. Then to the left, you see group of data centers, which is a bit smaller. We are not only working with a big hyperscale data center. We are also doing what should or might be considered as small data centers, but still important and important customers for us in Bravida. Acquisitions, still a bit slow and a bit tricky to find different ways to actually get the signature on the contract. We still think that the targets we are looking at is not good enough. And the one we really want to buy is a bit hesitating because they have been handling the downturn in the market in a really, really good way. So they want to wait until their earnings have picked up again. But the activity is high, and it's always on our agenda. And I hope, and I think that there will be some more activities in the fall after the summer. But still a bit to come, I would say, but we know we have the balance sheet. We are willing to do acquisitions. We think it's a good idea to do it. And meanwhile, we don't find enough of acquisitions. We are continuing to focus on other restructuring measures within Bravida, but also use some of the money, for example, to a buyback program. And I guess when I hand over to Petra now, she will say something about that later.

Yes. Thank you, Mattias. And great insight in some of the businesses that you share. So now we will go into the countries and the segments, as usual, and I will start with Sweden. So Sweden's net sales landed on SEK 3.6 billion, which is, as Mattias was mentioning, all the segments are up, and Sweden is up 7% year-over-year compared to the SEK 3.4 billion last year. In Sweden, the organic growth is 8%, and this is because we are adjusting for acquisitions and divestments in the same bucket. So in this case, we have a divestment with ABEKA. We also have an acquisition which is still reporting in Sweden, that's Contub for the last quarter this time, they are reporting in acquisitions as well. But all in all, acquisitions is down 1%, bringing the overall organic growth to 8%. Looking at the market and the business, we have solid demand in the northern part of Sweden. And the southern part of Sweden is picking up on the demand side as well. So slowly, gradually starting to pick up there. Installation and service ratio is 53% installation, 47% to service in this quarter. And with these numbers, we are landing on an EBITDA margin of 5.7% in the quarter. When we compare that to last year's 6.1%, we should remember that there is a restructuring charge going in, which is SEK 40 million in this quarter, and we have guided on SEK 70 million to SEK 90 million in restructuring. We have now, during the first half year, reported SEK 60 million and are expected to report another -- on the lower end of the SEK 70 million to SEK 90 million into Q3. On the EBITDA margin, when we adjust for the onetime effects, Sweden is reporting 6.8% in the isolated quarter. Looking at the order intake, as you can see, we have taken in orders for SEK 3.6 billion, close to. And that brings us to total backlog of SEK 7.7 billion. In the backlog, we have the ABEKA divestment. So that is reduced in the backlog with SEK 560 million approximately in the quarter and in the backlog. So you will see that for the year as well. And I think Mattias also mentioned that. So that's Sweden. If you look at what we have done then with the divestment of ABEKA, so you get the full picture of the transaction. The full transaction went through on April 1. And it has generated SEK 158 million of capital gain for the company. That capital gain is reported in the income statement as other income, and it's also reported on the group segment. So it's not reported in segment Sweden, but in group segment. Net cash flow proceeds that are impacting the second quarter are SEK 208 million. They are reported as within the investment activities. So they are not affecting the operational cash flow nor the cash conversion rates. And then the order backlog that I was just talking about, the SEK 560 million, which we have reduced, they are impacting the segment Sweden since ABEKA was selling in segment Sweden, so that's reduced in that segment. And why we are selling ABEKA. Well, we have already gone through this. It is not one of our core business. It is also not part of our strategy plan. So it's not a perfect fit, okay? ABEKA revenues was reported with SEK 470 million approximately on a yearly basis and SEK 36 million in margin, and we will adjust that within the acquisitions and divestments for the coming quarters as we do with acquisitions as well. So going to Denmark. For this quarter, Denmark has reported a net sales of SEK 1.9 billion, and that is up 10%, and Denmark is now showing a growth of 11% organically since they have an impact on currency with negative 1%. With this, Denmark is having a double-digit growth for the first half year 2026. The split, 55%, 45% on installation and services generating then an EBITDA margin of 5.1%. And Denmark is executing on the transformation and recovery plan, and they are doing it according to plan, margins are landing as we were expecting. And this is done by selective projects and work on the cost side. In Denmark, we have a decreasing order intake. So we have negative 33%, landing on SEK 1.9 billion for the isolated quarter. Last year's second quarter, we had a large industrial order, and Mattias mentioned that also to which customers. So that's approximately SEK 1.2 billion that came in last year, and that will skew the numbers a little bit on the year-over-year comparison. But if you see that Denmark is still having an order backlog of SEK 4.6 billion, which is a stable and good order backlog. And looking at Norway, where we have the reported net sales of SEK 1.5 billion compared to SEK 1.3 billion same quarter last year. And Norway is up 11%, with an organic growth of 5%. And we are also having a positive impact on the currency exchange rate and a small impact on the Norwegian acquisition, which we will be reporting until Q4 this year. Split on the business, 40%, 60% on installation and service, and that brings us to a margin of 6.1%. And as you can see in Norway has improved the margin with 30 basis points -- sorry, 20 basis points over the year. Also on the first half year, you can see the improvement in the margin. And we are expecting Norway to continue improving somewhat with the higher sales. In Norway, we have reported the Green Mountain contracts of SEK 4.3 billion -- a bit over SEK 4.3 billion in order intake this quarter. So with that, we are landing on SEK 5.8 billion in order intake and SEK 6.6 billion backlog. And as Mattias was mentioning, this order is expected to execute on from end of this year and throughout '27, '28, and a bit into '29. Finland, SEK 650 million in revenue, up from SEK 552 million, brings Finland up 18%, and it is also 18% in organic growth since the currency impact and acquisitions are approximately the same, but with the -- in the different directions. In Finland, we are reporting an acquisition, which will be continuing to report until end of this year, also into Q4. Finland is also on double-digit growth on the first half year this year. In Finland, we are seeing a gradually improved market as an underlying market. The data center market, I'm sure you have all noticed, is very good and improving, but there's also an improving underlying market. And we have a 70-30 split on the installation and services. With the increase in net sales and with focus on cost, Finland is now improving the EBITDA margin and is landing on 3.2%, which is a good improvement from the 2.7% where Finland has been reporting last year. On the order intake, we are seeing a flat order intake in the isolated quarter. However, the backlog has increased with the most recent orders taken that we have reported in Q1 and before. And the last -- the latest news on the Finnish data center is not included in this report because that was after Q2 closing. Okay. If we then go to the financial positions, we are having a cash conversion of 77% compared to the 80% last year. And with that, you can see that we are also reporting a 1.3x net debt-to-EBITDA ratio. In our loans and papers, we do have approximately SEK 5.3 billion of potential loans that we can take. But they are utilized to SEK 2.5 billion, with the leasing SEK 1.5 billion, as mentioned, and 1.3 in the net [ debt ] to EBITDA ratio. If we exclude the leasing, we are on 0.9 net debt to EBITDA ratio. We also have a cash position, which we are talking about a lot. So that is our disputes and outstanding payments, receivables. And with that, we have a ruling in the Norwegian dispute with the Stavanger University Hospital. The ruling came in, in June of this year, and it was to the large extent, into Bravida's favor, and the ruling is obliging SUS to pay SEK 320 million for installation work and SEK 145 million in interest and legal costs. The ruling can though be appealed until beginning of September '26. And finally, Mattias mentioned a little bit about the share buyback program. And as you can -- as you have seen, we have had a share buyback program running in Q2 where we have concluded. The program was running until July 9, and we have repurchased 863,100 shares to the average price of SEK 115.85 and the total amount amounted to SEK 100 million, as we stated in the beginning that we would utilize for buying back shares. The Board has also decided today to carry out an additional buyback program during this third quarter of the year, and we are going in with SEK 100 million for buyback -- for that buyback program, which will be conducted August 13 and concluded before the Q3 report is released. So that's with the buyback. And if you look at the sustainability reporting, we have the LTIFR of 5.3 compared to 5.2 in the last year's second quarter. We have a target of 5.5, and we are working proactively to decrease the rate. Proportion of vehicles, electrical vehicles is 50% compared to 40% a year ago, and the target there is 57% until the year 2029. So we are well in the reach. Change in CO2 emissions Scope 1, 36%, also improving quite nicely to the 22% last year, and the target there is 42% reduction until 2029. And the change in tons is, of course, following the earlier targets. So 35% there. And with that, I invite you back in.

Thank you, Petra. We have improvement in close to all KPIs. That's good. Just a reminder, strong second quarter in -- yes, in general, overall, I would say, 9% organic growth is not too bad.

Not too bad.

7.5% margin.

It's also decent.

Yes. In EPS to Krona then earlier, I think that is up 60%, which is good as well. Cash conversion. We know it's a bit weak for the moment, but we also know that we -- the reason why we are not worried. We know that, that will be improving, becoming...

We are not worried, we know it will be improving, yes.

Yes. And then we have a very strong balance sheet, 1.3x the net debt. And then the LTIFR, a bit higher, but we are on quite good levels now. We're not happy or satisfied with that, but it is getting more and more trickier to improve that number. But we do our best. Solid and exciting platform for long-term value creation is the headline of this slide, and I agree to that. Strong organic growth, improved margin. We have a significant increase in order intake and order backlog that will help us continue to develop Bravida going forward. We see that we are very attractive from both other customers and partners as well as existing and future employees, which is good. We are now entering into a new mode for many quarters, a couple of years now, we have actually taken out resources. Our -- my ambition and the whole management group's ambition has always been to create a stronger company in this downturn. So we can lead the downturn as a better company than we were when we entered it. And I think we are on our way to doing that. We have a transformation in society that gives us some tailwind. High customer trust, as I said, and attractiveness, both to new as well as existing employers, employees. We are seen as an attractive employer, and that is good. Financial position, as Petra just told you about, is good, close to fantastic, and we are ready to invest that in future growth. And our market position gives us the opportunity to have a balanced portfolio of large, small, medium-sized contracts as well as a very high service revenue. So this is a really solid and exciting platform for long-term value creation, as we say on this slide. So with that, before we open up for questions. Next report is coming out in the 23rd of October. Yes. Are we looking forward to that already? We have a lot of things that we should do before that, but...

We are looking forward.

Yes. And then you have the year-end report in February. But I think we open up for questions. The rest of the date, you can find on our website. So some questions, I guess.

[Operator Instructions] The next question comes from Oscar Ronnkvist from SEB.

So I wanted to start off with the data center orders, which you seeming you have quite a good momentum on. Could you share any thoughts on the margin here? I know you talked about more complex projects being a little bit higher in margin in general. Can you steer us in sort of any direction here or comment anything of the sort of magnitude when you have this large backlog, how that will affect the margin on a product level?

First of all, I think this is, as you say, an exciting market, an opportunity for us. And that's also why we are a bit cautious about what we should or will want to disclose or not because there is some competition in the market. We think we are ahead of the rest of the competition. So we are, for competitive reason, a bit more cautious in what we are telling the market in this segment. But as always, when Bravida is doing and looking at large projects, we have slightly, slightly different types of risk. It's not always the risk is higher. The size as such gives another perspective on the risk. But we are always pricing the risk. And it's not only what we are doing. It's also the contracts we are signing. And I think many -- that's the reason why we're not letting our branches work with this because there are complex contracts, taking our own lawyers many weeks to actually agree upon what should be said in the contracts. But in general terms, you can expect a higher margin in those contracts that we have in the rest of the business. And I think we are -- that is what we will say. And yes, I think I'll stop there. Balance the risk and reward, I would say. The contracts, we are very -- it's a couple of things. It's the pricing and the margin, as you asked about, but it's also the terms in the contracts we are agreeing upon. That is important as well.

Got it. And then I just want to hear about any sort of cannibalization potential from this? I mean I assume that there could be some bottlenecks and maybe filling up the capacity that you have with these very large orders. Can you expand anything on how the sort of underlying business is developing during a contract as such? Do you see significant cannibalization? Or I mean you have obviously talked about using subcontractors, et cetera. Any quantification would be helpful.

Yes. I think it's a good question. There is a risk of cannibalization, as you say. But our main focus is to do this as well, not instead of. And then if we take the Stavanger area where we are working to Green Mountain, our local resources, they are supposed to continue service, the existing customers that they have had for the last 25, 30 years. So we are not leaving the old partners, the loyal partners to us. We will continue to do that. Then on the other hand, of course, a lot of people in Bravida, they want to be part of this project. So it's a fantastic opportunities for us to foster new talents, give talents throughout the whole group, give them the opportunity to travel to Finland, Norway, whatever, to learn how to run large contract projects. So we will give them that opportunity, of course. But the main part of resources in the Stavanger area as well as in the Finnish area where we are going to build atNorth. They are supposed to continue to work with existing customers. And then we will use some to the data centers and then we solve the rest with new hire or subcontractors.

Perfect. I just have one more question regarding Sweden. Looking at you have taken some restructuring costs, just wondered about the underlying run rate here. So if we adjust for the restructuring costs and look at the margins, is there more to do, you think, in terms of the underlying margin development on the cost side of things? Or should we see that the underlying margin now reflects the run rate that you're supposed to have, excluding any sort of project ramp-ups in data centers that could expand the margin, et cetera?

No, it's a good question, and we are doing the transformation in Sweden. And as I said, we are going to finalize that exact transformation here now in Q3. Is there anything else we can do or more? Well, there's always things we can do. And I think there's always things we are doing. So we are focused on securing that we are delivering in the best ways that we have the best setups and that we have as little, for instance, administrative burden as possible on top of that we're doing an efficient setup and know how to deliver. We're not really looking at any new transformative piece. But as an everyday business and all the time on execution, we're absolutely looking at, and Sweden is looking at the organization there. Norway, Denmark, Finland as well. What they can do more efficiently and how they can maximize the benefits for Bravida. So we don't see that as a transformative. Will that always impact the margins? While we do think that we want to -- that we are working on the margins, so we want to keep working on the margins, but not everything will impact the margins when we do more efficiencies because we also do investments in new contracts, new sales opportunities. So I think you should think that the underlying margin in Sweden is probably where it should be when you take away the restructuring cost at this moment. Then, of course, everything depends on what type of contracts we bring in and how the business looks like the underlying business. So it can fluctuate a little bit up and down. But I think you should view it as where it should really be approximately.

The next question comes from Simon Jonsson from ABG Sundal Collier.

Congratulations on the strong numbers here. First off, I want to -- or I wonder if you can expand a bit on the strength in Sweden, especially the acceleration compared to recent quarters, both in terms of the stronger sales growth and also the surprising -- a bit surprising strength in the margin here adjusted for the one-off. If you can sort of say if there were any specific one-offs here in this quarter? Or where the underlying drivers came from? I think you wrote about Northern Sweden being a big driver here, but if you can expand a bit more on that would be great.

Yes. But I think sometimes we try to simplify the world too much maybe, but we have been working -- I'm very proud of all the different countries, actually. We have been working for a couple of years now of taking out cost, adjusting the sizes of branches where the demand is a bit lower. So the management, yes, the things they have done locally has been fantastic. And when the market comes back a bit, then you have some support from the growth you get plus, plus, plus, and then the margin goes up. So I think this is not just luck and created by better markets. There's also a lot of management people in Bravida who's been struggling and done a lot of good things for a couple of years, and now it's paying off. So I'm so happy for them. And it's, of course, good for us to see that it's working. So in combination of hard work, smart things that they have been doing and then you have some tailwind from the growth in the market as well and then the margin comes up. Do you want to add something, Petra?

I fully agree, yes. No one-offs. Yes, exactly, except the one that we are lifting the restructuring, but no other one-offs.

Great. That makes a lot of sense. And that also takes us to my next question here. I think it was impressive that you delivered this growth, the sales growth with continuing to reduce the head count on a sequential basis. I know you have said that you have kept some slack in the system here through the downturn to be able to deliver here once growth in the market comes back. And it looks like this is what we see right now. And I wonder if you have sort of closed that slack now you think? Or are you more on full capacity and need to start to recruit more now to deliver further growth? Or where are you in that kind of -- if you have slack in the system?

Yes, I think we still have slack in the system because we still don't see a very good market in the south part of Sweden. Sweden, in total, is good, but we still see some differences. So there is still some slack, absolutely. And what was the other part of the question?

Do we need to -- yes, exactly.

Hire, absolutely. Yes, and I'm really, really happy to say that we want to hire new people in some areas, of course. And yes, you said something about the growth as well, Simon, that yes, you can say, if I should give you something, we have the strong growth in the quarter, but it was actually even better in the end of the quarter than it was in the beginning of the quarter.

Great. Just as a follow-up on that. I think you also stated that you need to recruit some new personnel for this larger data center orders. But you also think that you will start to recruit more broader?

Yes. In some places, absolutely. I see more and more when I'm out in the social media and looking at it, I see several branches within Bravida who is now hiring. And I think this is a fantastic opportunity for talents in the industry or in adjacent industries that want to be part of a historical moment to build new exciting things that can help the society to develop. So if you know someone who wants to do a career change to a market leader in an industry, they are welcome to Bravida.

Agree.

I will look around. Just lastly here, timing on the latest data center project, the Kouvola, if I pronounced it correctly. Have you anything to say about that?

No, it will actually start in -- it's not an exact date, but in the, let's say, it will start and ramp up a bit in the third quarter, and then it will be ramping up throughout September, October, November. And I think then, it will be full steam ahead until it's finished.

All right. When finished, have you said anything about?

Yes, I think we said from '28, '29. So it's not decided to 100%, but in the beginning of '29, I guess.

The next question comes from Anders Akerblom from Nordea.

Just a few questions from my end. Firstly, it would be interesting to hear you elaborate a bit on sort of how the competitive landscape is sort of reacting now that the market is improving and returning to growth, sort of the contracts that you're signing now and maybe some of these larger projects in the pipeline. How do you see that developing from a competitive standpoint, from a margin standpoint would be interesting to hear.