Fasadgruppen Group AB (publ) (FG.ST) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Fasadgruppen's second quarter results presentation. And here in the room, we have our CEO, Martin Jacobsson; our CFO, Casper Tamm; and myself, Magnus Blomberg, Head of Investor Relations. Yes, with that being said, I hand over the word to Martin. So go ahead.

Thank you, Magnus, and good morning also from me. First of all, I would like to highlight that we had a tragic accident here during the summer, where a colleague actually passed away during the line of duty in one of our subsidiaries, tragic loss that has affected the entire organization. Our thoughts are, of course, with the deceased's family, his friends and colleagues. And we are actively working to minimize the risk of this ever happening again. With that said, I want to dive into today's presentation. So some highlights for the second quarter then. We saw a continued decline in the organic sales, which was mainly then continued affecting from new build. And we also saw here in Q2 that the results increased, the adjusted EBITA, to SEK 132 million, up from SEK 81 million the same quarter last year. The margin also increased by roughly 300 basis points up to 9.2% in the quarter. So we saw a rather flat organic development in the order backlog. We'll get back to this later. And in England, we saw some delays from something called the Building Safety Regulator. But at the same time, we saw an increase in the order backlog for Clear Line. We'll get back to this later in the presentation. Then looking on the important covenant fixtures, we saw that the net debt to adjusted EBITDA pro forma came in at 3.36x, up somewhat compared to Q1, still a continued focus to take leverage back down to 2.5x. We also updated our agreement with our banks here. So we have managed to push the covenant step down 2 quarters. We'll get back to that. Then looking on the net sales. In total, there was an increase of 10% compared to last year, was mainly on the positive side from acquisitions, roughly 18%. And organically, we saw a decrease of roughly 6%. It was mainly Sweden and Norway that stood out on the weak side. And Denmark and Finland stood out on the positive side. But in general, we saw continued low activity within new build, as I mentioned, especially in Sweden. Taking a look at our segments. The Total Solutions segment saw a decrease organically by roughly 12%. In total, it was down roughly 9%. Special Solutions actually saw a total increase of 7.4%, but a small negative organic drop here by roughly 1%. And Clear Line sales came in at roughly SEK 162 million, somewhat affected by the BSR, which I mentioned here initially. So the BSR is the Building Safety Regulator, which is an authority in England that you could say more or less gives out building permits. It's quite a new concept from 2022. And that authority has had extremely busy times and has affected project starts for Clear Line. Then looking on the adjusted EBITA. As I mentioned initially, we came in at SEK 132 million, strong development compared to last year. Margin was also up. So I'm very glad to see the positive development of the results. Taking a look at the various segments, we saw margin decrease here for Total Solutions down to 6.6% compared to 8.4% last year and a total adjusted EBITA for the quarter of SEK 48 million roughly. And for Special Solutions, we saw an adjusted EBITA of roughly SEK 51 million, but here we saw the different side where we saw an increase in the margin up to 9.4% compared to 6.4% last year. And Clear Line came in on an adjusted EBITA level of SEK 48 million roughly, a margin of close to 30%. In the quarter also, we had some adjustments of roughly SEK 11 million, which was mainly related to the earn-out revisions. On the order backlog side, we saw roughly a flat organic development. It was somewhat down then to 0.8%. We saw a continued healthy demand from housing associations and the public sector. The order backlog came in at all-time high, SEK 4.3 billion, following especially a strong development for Clear Line. In the various countries, we saw a strong development in Sweden and actually negative development for the rest of Norway, Denmark and Finland. But in Sweden, which we've had some struggles with during the last couple of quarters, I'm very glad to see that development. And it's a team effort into being able to land all of these orders, which I'm very glad to see. We've also seen some indirect effects of the Swedish tax authorities that had a tax reduction incentive program started here in May, which is going through the full year of 2025. And when I say indirect, it's mainly then because it's related to smaller villas, which is not our focus areas, but to some smaller competitors could focus more on that then leaving more for us, so to speak. We also saw that the order backlog margin increased compared to Q1 2025. That was especially then following the strong contribution from Clear Line. And going into our segments, we saw a decrease for Total Solutions, was down roughly 6.2% organically on the order backlog side, that is. And then on the Special Solutions side, we saw a different development that increased roughly 5.4% organically. And of course, a strong order backlog for Clear Line. Moving on to cash flow. We saw a strong cash flow following a negative Q1. And I would say that it's following the seasonal pattern, more or less, where we see usually a ramp-up from the start of the year until finalized at the end of the year. But we've also seen working capital improvements throughout the company, but especially in Sweden. So I'm very proud of the work that has been done in Sweden regarding working capital development. Then looking on the financial capacity and the net debt. We saw that our average interest rate here in the first 6 months of 2025 decreased somewhat compared to the same period last year. We still have an interest rate period of 1 to 3 months, which is nothing unusual. And then on the important covenant, we saw a somewhat uptick from 3.25x in Q1 up to 3.36x here in Q2. And as you can see on the bars in the bottom left corner here, you could see that the new orange dotted line is the new agreed level, meaning that the covenant level is then pushed 2 quarters compared to what it was before. Then I want to stress once more our priorities, and the focus for 2025 here is profitability and the leverage until we give the full focus to growth once again. So it's a reaffirmation of our priorities. Then moving on to some concluding remarks before we open up for questions. So we have an all-time high order backlog, but I want to stress once more that there are still issues in the market. And I am cautiously optimistic, but the Swedish market is still having some struggles. Yes, we can see that on the modernization side, it's improving. But on the new build side, still very low activity. Then I want to highlight that once again, we saw some delays from the Building Safety Regulator. There are still delays in the system going forward as well. This is not only for Clear Line, it's a systematic problem for the full sector in England, not only on renovation, but also on new build. But at the same time, we saw strong demand for Clear Line and the order backlog was clearly up. We had a covenant step-down pushed 2 quarters, as I mentioned. We are also focusing on profitability improvements and deleveraging, as I mentioned. So to sum it up, we have a lot to be proud of, but much left to prove. I think with that, we open up for questions.

[Operator Instructions] The next question comes from Max Bacco from SEB.

As very sad news this morning. I hope you are alright under the circumstances. With that said, a couple of questions from my side. Perhaps starting then with Clear Line and the bottlenecks, the regulatory bottlenecks. You alluded to this yourself, but do you have any indication from your side how long do you expect this to remain a bottleneck? And has it been more pronounced during the summer due to vacations and so on? Have you seen anything related to that?

Max, thank you for your kind words. Well, looking on to the BSR, it was actually on the last of June, the U.K. government sent out an announcement where they are doing, you could say, a fast lane to improve the activity. So that's a net positive for the full sector. And I would say that the most dangerous kind of facades are still on the top of the line of the queue. So the Clear Line project, which is all renovation is, of course, a high priority and top of the queue here. So we have seen some approvals of project starts. But it's been delays in the system, but the government has sent out an announcement where they are pushing this through. This is on very, I would say, prioritized agenda for the government in the U.K. So things are being done. I think they mentioned there that they are hiring another 100 people to improve, let's say, the BSR administration. So they are clearly focusing on this area. And henceforth, we are positive that this will play out, but it's hard to tell exactly when. And you can't expect it to be some kind of floodgates that open. But I think you can see that there will be some small improvements, hopefully, from the summer when they mentioned this. It's public information on the government side, you can see that on the last of June, they sent out this announcement.

Okay. Understood. And then looking on Clear Line, we have 3 quarters now where it has been part of the group, not all of Q4, but some of it. And we have seen that the profitability has come down each quarter somewhat. And of course, I suspect some seasonality into it and then, of course, also impacted by the regulatory bottlenecks. But going ahead, you did some 29%, 30% margin here in the quarter for Clear Line. Do you expect the profitability to stabilize at these levels? Or what are you seeing in the order backlog? I think you mentioned that the profitability for the group was up in the order backlog here in Q2 sequentially. And I guess that's much driven by Clear Line as well.

Yes. That's a correct statement that it's a strong margin for Clear Line's order backlog. But of course, the BSR delays is a factor that is affecting since, I mean, if you're planning to start a large project in April and you can't start until August, that's a big difference in our world. But I mean, I've said it before, we are confident within the margins for Clear Line. So I'm not worried in that instance, but we are still, let's say, focusing on the margin for Clear Line. It is a key focus area, of course, but I'm not worried regarding that it should be deteriorating from these levels, so to speak.

The next question comes from Elvin Rolder from DNB Carnegie.

I would just like to reiterate the message that Max said before me, really sad to hear. I have a couple of questions that have been answered during the call here, but maybe some -- if we begin maybe with the new or should I say, updated covenants, is it possible in any way to say how the discussion is now because -- I mean, or how firm these are? Or do you still have any leeway to push them again if the ever so changing world were to change in any sort of way? Or how firm would you say that these levels are now compared to previously when you've been able to push them?

Thank you also for your kind words. Well, if you take a look on our, let's put it like this, our dialogue with our banks, it's, of course, as I've mentioned historically, good dialogue. And everything is, you could say, a discussion. And of course, as we see it, this should be enough. But of course, we have this continuous dialogue. So of course, no one wants to end up a place where we don't want to be, so to speak. So I think with that said, we have very good dialogue still. So I'm confident with our banks. And obviously, with this agreement, they also have an understanding for our situation, if you put it like that. And yes, so continuous dialogue, and I have strong beliefs that they could assist should we need so.

Perfect. And then we talked a little bit about Clear Line and the Building Safety Regulator, but is it possible in any way to kind of isolate if there has been any significant impact during Q2 on both top line and, I guess, earnings? And how much of the backlog would you say is "at risk of not being able to execute on" if this situation were not to ease for the rest of the year at least?

Okay. We can start with the order backlog. I see no risk that, that should not be done, because it is still very high on the agenda to fix all of these dangerous facades. That's a big, big issue in England. And by the way, I mentioned that this is still only in England. Now there are talks that this should go to Scotland and Wales next. So there's plenty of -- they have not even started. So that's on a side note. But of course, there has been an effect on both on top line and on the results from these delays. I mean, you could say that if you're not able to start your projects, you have too large overhead at that time, if you understand what I mean. But since the job will be executed, I'm not worried in that instance, so to speak, but it is a government delay that is affecting us.

Okay. Perfect. And then just the final question that hasn't been asked yet. Relating to these working capital improvements, primarily in Sweden, can you comment a little bit more on what you have done to improve that compared to previously? And does that change the overall like cash flow profile of the company in any meaningful way? I mean you usually have a more backwards tilted cash flow generation profile, but now it was quite strong here in Q2, which it has been some years as well. But how should we think about cash flow as well for the rest of the year?

Yes. No. Well, you can put it like this, when we acquire a company, usually cash flow has not been the top of the agenda for the entrepreneurs. If they've been able to pay the salaries and maybe a dividend, they've been quite happy with that. So when they enter Fasadgruppen, we want to shift the mindset, and that's not done overnight. So what we do is we sit down, have talks around what could be improved, what are the payment terms to suppliers, how does the contract look to the customers? It's a long, long list of what you could improve. And then you could also learn from the rest of the group. And we also compare various companies, how could one company have this kind of cash conversion and the other one have the other cash conversion. So it's a long process to improve, but I think there's more to be done here in the future. Even though we've come some way now, but I think in order to reach the full potential, I think we want to continue this work where we compare, we learn from each other, have the best practices, focus on this, I mean, as soon as possible before you start a project, before you, I mean, even calculate on how could we improve on these kind of figures. It's a long process, but I think there's more to be done. So well, yes, you could say that, hopefully, you could tilt it into a better cash position in general for the company. We always want to strive for development and enhancement. So that's what we are doing, Elvin, and will continue to do.

[Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any written questions and closing comments.

All right. We have some written questions here for you, Martin. The first one, if you could elaborate a little bit on the covenant step down and if it has resulted in additional costs for the group?

Yes. Okay. Yes, of course, when you reach a new agreement with the banks, that's often connected to some additional costs. So yes, there have been some costs connected to this, but we saw it as necessary costs in this case.

All right. Thank you for that. Could you also please elaborate on the route, the tax authorities deduction that you talked about a bit earlier?

Absolutely. So that's in Sweden. I think as many people know, at least in Sweden, there's been, on the 12th of May, they introduced this new tax reduction where I think the labor cost was increased from 30% to 50% -- tax reduction on labor. So that has affected us, as I mentioned, indirectly positively because that's, let's say, to private individuals, that's tax reduction, not to businesses. We are mainly focusing on business-to-business, remember that. But as the small competitors that could focus on business-to-consumers or business-to-business, they are then tilting, of course, towards the most profitable thing. And as we see that this kind of new tax reduction incentive program is then clearly positive for the B2C market. So they have then tilted away from our main focus area of B2B and henceforth leaving also what we've seen an improvement in the order backlog. And there's been some media coverage around this as well. So it's a net positive for the whole sector actually.

Thank you for that. And the multiple development regarding acquisitions in the market? How have they developed in the last, let's say, 3 years?

Yes. So well, if you take it in a longer perspective, I think I mentioned it before, we started Fasadgruppen maybe multiples around closer to 3x. In the heydays around 2021, '22, we were around 5x to 6x. But we've seen a decrease in the multiples in the last couple of years here. So maybe around 3x to 5x, something like that. If that was the question, I think.

Thank you for that. I think we covered it all. We don't have any more written questions here. So with that being said, we finalize this call with maybe a few...

No more from the telephone conference, no questions there?

There are no more questions at this time.

Perfect. Okay. Then I'd like to thank you for your time and hope to see you again on the next quarterly call here in November. So thank you a lot, and have a nice day.