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

All right. Welcome, everyone, to this conference call regarding the third quarter results of Fasadgruppen. In the room, we have our -- well, myself, Magnus Blomberg, and we have our CFO, Casper Tamm; and of course, our CEO, Martin Jacobsson. And with that being said, I hand over to you, Martin.

Thank you, Magnus. So good morning, everyone, also from me. Very glad to present the Q3 results for you today. So let's dive into the highlights. We saw an organic growth of 2.2% in the third quarter, actually first time with an organic growth since Q2 2023. And the organic growth was actually mainly driven by our strong Danish entities. I will get back to that. In the quarter, we also saw an adjusted EBITA of SEK 136 million compared to roughly SEK 93 million a year ago, corresponding to a margin of 9.9% compared to 7.7% a year ago. And I would say that this is a confirmation that we are on the right path. And if we take a look on the order backlog, we also saw a total order backlog of SEK 4.1 billion, which means a more or less flat organic development. We are still affected from delays from the building safety regulator, which I mentioned before, affecting our subsidiary, Clear Line in England. On the net debt to adjusted EBITDA pro forma level, we came in at 3.76x (sic) [ 3.36x ]. And we received a covenant here from our banks, which we believe we have a strong dialogue with, which is then the waiver value for Q3. After Q3, we also announced a divestment of Alnova. We'll get back to that. So moving into the sales. There was a total increase of roughly 15%, and as I mentioned here, we saw an organic increase, where the Danish entities, as I mentioned, was very, very strong. And we also saw positive numbers in our Finnish and Swedish entities, but softer in the Norwegian market. And generally, I would also say -- I'd like to say that it's still a continued low activity within new build for us in all our markets. In the Total Solutions segment, we saw sales of roughly SEK 731 million compared to SEK 751 million a year ago, meaning it's down roughly 3%. Moving on to the Specialist Solutions. We saw sales increasing up to SEK 508 million compared to SEK 452 million a year ago, roughly up 13%. And then for Clear Line, we saw sales of roughly SEK 142 million, but these sales are also impacted by the BSR. Can we move on, please? On the adjusted EBITA level, as I mentioned, we saw strong figures here an increase compared to last year. And it's also on the similar pattern, as I mentioned, Sweden, Denmark and Finland are all on the right path, whereas we see the Norwegian entities and markets challenging. And moving on to the segments. We saw that the Total Solutions segment came in at an adjusted EBITA level of roughly SEK 51 million compared to SEK 78 million a year ago, meaning a drop in the margin from 10.4% down to 6.9%. On the Specialty Solutions side, we saw an increase from SEK 28 million last year up to roughly SEK 61 million this year, corresponding to a margin of almost 12% compared to 6% a year ago. So very glad to see this development. Regarding Clear Line, we saw an adjusted EBITA level of SEK 47 million in the quarter, corresponding to a margin of roughly 33%. However, we estimate that the BSR effects have had a significant impact for us on Clear Line in the area of roughly SEK 20 million to SEK 30 million on the adjusted EBITDA level. We saw some adjustments in the quarter of roughly SEK 13.4 million, which is mainly related to the earn-out revisions. And just noteworthy is here, if you take a look on the top right table, we see an increase of roughly 53% on the adjusted EBITA from the rolling 12 months compared to 2024 and the margin going up from 5.7% up to 8.1% on a rolling 12-month basis here as you see per Q3. So glad to see that development. Moving on to the order backlog. We saw a more or less flat organic development, as I mentioned here initially. And that also corresponds to, as I mentioned, the SEK 4.1 billion in total order backlog. And in -- if you take a look at the geographies, we saw a strong organic order backlog growth in the Swedish entities, and that's actually for the third consecutive quarter. But the other geographies, excluding then England because that's not included in the organic comparisons, they were a bit softer. On the total solutions side, we saw a decrease from SEK 1.8 billion down to roughly SEK 1.6. And on the Specialty Solutions side, we saw an increase from roughly SEK 1 billion up to SEK 1.1 billion. And I'm very glad to see that Clear Line's order backlog is at an all-time high level of roughly SEK 1.3 billion at the end of Q3. Moving on to our cash flow, following the seasonal pattern, we came in at an operating cash flow of SEK 148 million in Q3 compared to SEK 126 million a year ago. And that corresponds to a cash conversion level of roughly 93% compared to 109% a year ago. And I would say that this continues to be on a strong level. And if you take a look at the net working capital, we still see positive numbers there, however, a bit lower than last year. Okay. Moving on to the financial capacity and net debt. We saw here that the average interest rate level is down somewhat for the first 9 months, down to 5.8% compared to 6% a year ago. Remember here, we have interest rate periods of 1 to 3 months. And as I mentioned initially, the net debt to adjusted EBITDA pro forma came in at 3.76x (sic) [ 3.36x ]. And we still, as I mentioned, also a continued constructive dialogue with our banks. Can we move on, please. On the divestment of Alnova, we are optimizing our portfolio structure here in the segment Specialist Solutions. And we've seen that we could not really extract all the synergies as we wanted. Remember, we acquired this company back in 2022. And after a strategic review, we deem this as the best solution going forward. We see that this is a limited impact on the cash flow. However, there will be a write-down of goodwill. We have an earn-out structure in place, which is linked to the coming years. And this strengthens our financial position, which will improve the important covenant, which we mentioned here by roughly somewhere between 0.15 to 0.2x. The expected close of this divestment is here in December. So we also want to reaffirm these priorities that we mentioned here since the Capital Markets Day last year, still focus on profitability and taking leverage down. Just as a reflection for the first 9 months here on the profitability side, we came in at an adjusted EBITA level of SEK 345 million with an 8.7% margin. We can compare that to the same period last year, for the first 9 months of 2024, we came in on an adjusted EBITA level of SEK 194 million. So that's an increase of roughly SEK 150 million. And the margin last year was roughly 5.5%. So that's also an increase of roughly 3.2 percentage points. Then some concluding remarks before we open up for questions. So we saw organic growth for the first time since Q2 2023. Very, very glad to see that we're on a positive trend here. We see also that we are still affected by the delays of the Building Safety Regulator. We are not alone in this. You could say this is a massive problem in England, but we know that the regulators are doing a lot to improve the situation. We are still maintaining, as I try to say, a close bank dialogue and have been doing so for quite some time, which is very positive to see that we have strong bank dialogues. And then we could say that the focus is still on profitability improvements and deleveraging. And we're also with our new kind of management method, we're optimizing the portfolio structure. And Alnova is an example of that. So I feel that, in general, we're on the right path. With that said, we open up for questions.

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

So basically, 2 questions from my side. If we could start with Clear Line and the BSR effect. Do you have any comments on the impact going ahead? Do you see any improvements already in the end of 2025? Or is it something more that will gradually appear in 2026? What's your thoughts on that?

Yes. So the BSR situation is, of course, a special one. We -- it's hard to tell exactly when this situation will be resolved. I don't think it will be kind of an explosion where they just hand out, let's say, permits. But I recognize that this is, as I mentioned, a massive problem in England, and I would be surprised if there wouldn't be improvements already in 2026 because it's so high on the agenda on the government side in England. And we could say that also from our side, what we've seen in the last couple of months here is that there's an improved dialogue. So there's more response in general from the BSR than it has been in, let's say, the first half of the year. So that's actually some improvements that we've seen at least that the dialogue is there, more or less, which was not there in the first half year, so to speak. So we've seen some improvements on that side. And remember, I also mentioned that in the last call here that on the last of June, they came out with this official statement regarding how they are hiring new inspectors and moving on with this fast track, which hopefully can be positive for players as us. And remember also, that they mentioned that their priority is on the renovation side. So you need these kind of approvals, both for new build and renovation, but they mentioned that renovation, which is the only place where we are affected, and that's a top priority. So we're at the top of the queue, you could say, which is also positive in that instance.

Okay. Understood. And then on to the next question. Nice to see some positive impact from the divestment of Alnova [ bond ] on the leverage. On that topic, what's your expectations here on Q4? I mean Q4 tends to be a very strong cash flow quarter due to net working capital. Do you expect to see the same seasonality this year as well? And what's your thought on the leverage given that covenants decreased quite drastically in Q4?

Yes. So we -- there's nothing that is saying that Q4 shouldn't be on a similar pattern as it has been on the last couple of years here. So that's positive on that side. And thoughts on leverage, yes, of course. I mean, usually, as you still -- as you say -- as you mentioned, that Q4 usually strong cash flow. We have a strong bank dialogue and we've been very, let's say, understanding for these times. And as we see it, they will be in the future as well. So I think that sums it up pretty well.

The next question comes from Elvin Rolder from DNB Carnegie.

Some of which have already been asked by Max. So -- but maybe I begin on something that hasn't been answered. I'm wondering a little bit more about the portfolio that you currently possess given that you've now divested Alnova. Can you give us some comment on the rest of the portfolio? Are you -- would you be willing to be continued sellers if the price is right, if you feel that the strategic fit is perhaps not 100% or how would you say your general feeling is towards that?

Yes. My general feeling is that we have a strong portfolio. Absolutely, this Alnova case was maybe a bit of a special case in that instance. And we shouldn't expect any divestments, if that's the question in that regard going forward. But of course, we are also looking into the optimization of the portfolio structure, as always, if we put it like that. So -- but you shouldn't expect any massive divestments or anything like that. That's not the case.

Yes. Okay. Perfect. Very clear. And then we've touched upon it, of course. But I mean, given that the world is an ever-changing place I should say, and given how the development was in Q4 last year when there was a lot of project standstills, I guess, in December, which kind of impacted the earnings for legacy Fasadgruppen and given there's still quite a tight bandwidth towards the covenant level in Q4, how forgiving would you say that the banks are -- I mean, they were willing to amend the covenant during Q3, would you expect them to be as lenient in Q4 if any like external shocks or any other currently unforeseen reasons kind of impact earnings in Q4 if we pretend it, it's the same as what happened in Q4 last year. Could you give some commentary on how we should actually view the kind of covenants given that my feeling is that the banks have been quite lenient so far?

Yes. I wish I could read the minds of the banks, Elvin, but unfortunately, I cannot -- I can just state that they have been lenient, as you're saying. And we have a constructive dialogue going forward as well. So I think that sums it up pretty well in that regard. And of course, Q4 last year was mainly connected to the Swedish entities, if you put it like the weak result in that regard. And as we mentioned here, we're seeing very positive numbers on the, say, organic order backlog in Sweden. We see an organic growth in Sweden. So I think we mentioned that earlier in the year, but there's a lot of things pointing that we've seen the worst from the Swedish market in that regard. But of course, we're very humble regarding the situation. But as some of the more senior entrepreneurs in this constellation puts it 2024, the last time we had that kind of market was as they see it in the beginning of the '90s. So that puts some perspective on things. And I would say that we are coming out of that with a strong Fasadgruppen is an achievement in my world.

The next question comes from Linus Alentun from Nordea.

Just a quick couple of questions here from me. The organic positive print here seems to be primarily driven by Sweden. What are your expectations for organic growth in Q4, especially given the flat organic order backlog here in the quarter?

Well, actually, I would say that it's mainly due to the Danish entities, as I mentioned here initially that they were very strong in the quarter. And we've mentioned that some quarters now where we've seen positive numbers for Denmark. And we've also said this throughout the years that the order backlog -- the organic order backlog is, of course, one part of the puzzle. But for a lot of our entities, the lead time from an order to sales can be quite quick. So it doesn't have to mean that that's the truth, just looking at the organic order backlog, what the organic growth will be in the, let's say, coming quarters or so. There's more to it than that. And unfortunately, we can't predict the future. But what we can state is also that we've seen the organic growth been on a positive trend for some time now. And we've seen some improvements throughout the year. I think we spoke about that at the Capital Markets Day as well last year that things would be tending to -- without stating any, let's say, estimates for the future, but things would be heading towards maybe a weaker first half year and then a stronger second half year. That's maybe in those terms that we mentioned with the market. But yes, hopefully, that gives some point for you for the Q4 estimates.

Yes. Yes, of course. Just continuing on the Q4, given the slow new build market or rather the smaller new build share of the sales, can we expect a stronger seasonal pattern here in Q4 as well?

Yes. So well, we could say that new build was weak last year as well. So -- but of course, in general, what's a good thing about new build is that it usually is more projects during the winter time, often maybe you have a moving in date in the spring or something like that. And then there's full steam ahead on those projects even during winter time, which could be beneficial for, let's say, maintaining the seasonal effects. Renovation is more seasonal in that regard, where it's often then due in the warmer months. So that's one thing when you have -- especially in the, let's say, we have to remember here that it's a bit different between where you are in the world. I mean, if you're in the north of Sweden, then, of course, there's more seasonality or winter effects than Southern England. But with that said, new build is often stronger during the winter months. But I wouldn't put it like that it's a stronger effect this year because new build was weak already Q4 last year, if you put it like that. But I would also say that the organization have maybe adapted a bit better compared to -- especially then back to the Swedish situation in 2024, where we've learned from that situation, so to speak, into this year. Hopefully, that answers your question.

Yes. Yes, super. It does. And just one last thing here. On the write-down related to the Alnova divestment, do you have any -- or regarding the size, can you say anything about that?

I mean it's not -- closing has not been done yet. So it's too soon to say anything about that. But we can get back to you regarding that after the close.

The next question comes from Max Bacco from SEB.

Just one more from my side. On the topic of seasonality, could you remind us how we should think about Clear Line and their Q4? If I remember correctly, their seasonality should be less pronounced. But if we compare Q4 to Q3, any major difference normally?

Well, not really. It's -- just remember that they have larger projects. And I would say that in this instance, the BSR effect is more present than the seasonality effects in that regard. I wouldn't say that the winter time is affecting Clear Line that much in that regard. It's -- remember here that what's usually in play why winter is important or why it affects kind of our systems is that especially like render and mortar are water-based in their essence. And if you combine those during the wrong, let's say, wrong temperatures, it could be a serious effect on, let's say, the facade. So that's one of the main reasons why you don't do a render or mortar and bricks during winter time. But if you take, for instance, Clear Line then, it's -- the main kind of facades that we're working on is not, let's say, water-based or render or bricks and -- but still -- of course, they can do that as well, and they are doing it. But I would say, in general, that's not the most kind of facades that they are working on. So yes, I think, of course, then it's a bit colder in December in England than it is in August or September, of course. So that's still the case. But I wouldn't put it like that there's any significant impact in an ordinary market, which BSR is affecting that in that compared to Q4 to Q3.

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

All right. So moving on to the written questions here. We have a question for you, Martin. Do you see any signs of earlier mentioned extra works reappearing again in the existing contracts?

It's a good question. I would say that, well, the amount of extra work has always been, let's say, more or less the same. The facades are still in as bad shape as it was 5 or 10 or 15 years ago, if you put it like that. And I mean, we follow also, let's say, bankruptcy statistics and stuff like that. So it is in that regard, some, let's say, unfortunate news in that way, but positive for us because there's a bit -- some improvements and then I'm talking mainly about the Swedish market regarding that situation. So it's -- we could say, in summary, seeing some positive signs, yes, in that regard.

Thank you. Moving on. We see a strong recovery in Special Solutions. Do we see the segment as fully recovered?

I wouldn't say that no. There are still subsidiaries that are having a tough time in Specialist Solutions. And so we're pleased to see the improvement, but we are not content.

Thank you. Regarding Clear Line, cladding companies are going bankrupt because of the huge delays. What is your average permit delay right now?

Good question. So remember, BSR mentioned that the time from what you send the application until you get an approval, that should be 8 weeks for renovation cases and 12 weeks for new build. And we've seen, in some instances, 60-plus weeks for our renovation cases. But our average, I would say, is still around maybe 30 to 40 weeks. So -- but it varies a lot. So -- but if you're just taking an average, I would put it like that.

Great. Thank you for that. Another question here. Is the difference in sales and profitability development between Total Solutions and the Specialist Solutions related to the stage of the cycle in any way? Or is it more related to the company specifics?

Yes. So regarding -- if we put it like this, the total solutions are -- we write that also in the report, but total solutions are affected by the Norwegian entities a lot. We have -- if you compare, let's say, the Norwegian and Swedish entities, the Norwegian entities are a bit larger and a lot of them are within the Total Solutions segment. So in that regard, I would say that it's more market specific in that instance because we've been quite clear around that, but the Norwegian market is weaker this year than, for instance, last year. So I would say that, that is more the answer to it regarding total solutions. I think that answers the question.

Thank you for that. And of course, we have some questions regarding the net debt. The focus is supposed to be 100% on deleveraging, but the net debt is now higher than in Q4 compared to last year. And there was no meaningful reduction since Q2 despite the cash flows. Could you elaborate?

Okay. That is now higher than in Q4 '24, and there was no meaningful reduction since Q2 despite the cash flows. Well, of course, it's a top priority for us, but it's also a balancing act between continuing to improve the profitability side. So it's -- in deleveraging that you have both the net debt on the top, but you also have the profitability in the bottom. You can work with both sides, so to speak, to deleverage. So I think we're -- what we're doing is a balancing act between both of them. But remember here that the cash flow is usually seasonally affected. So I think we've been quite clear around that as well that Q4 is absolutely the strongest cash flow quarter usually. So it's nothing unusual that was -- as we mentioned, it was a weak cash flow in Q1 because we saw there was plenty of projects ramping up. We mentioned that also during Q1. So that is also affecting the net debt situation. If you just compare to Q4 2024, we saw a weaker Q1. But then we've seen strong cash flows, I would put it in Q2 and Q3, leading up to Q4 now. So that's the balancing act leading up to the deleveraging priority.

And another -- or a follow-up question, how is the deleveraging plan looking like? So for example -- or let's put it like this, how will Fasadgruppen lower the net debt going forward?

Yes. So it's connected, as I tried to say, towards the cash flow. Fasadgruppen is a profitable company. I think that's step one. So in that instance, of course, as the cash pours into the company, especially then in Q4, as it usually does, will assist in the deleveraging. But of course, we've been a very acquisitive company throughout the years. Of course, as one can see, there's been very little acquisitions throughout the year. That's also one factor on how to handle the leverage situation in that regard. And one could also see that interest rates are going down meaning at the end of the day, there's more cash left for shareholders and ultimately also the net debt to EBITDA will improve.

And another question on the topic. You are mentioning a more restrained acquisition agenda. Why is that prioritized now we are on the topic?

Yes. So it's connected to, of course, the leverage situation. I think that sums it up pretty well.

Back to Clear Line. Will Clear Line U.K. cash reserve be enough? Or do you need some injection of capital? Is the ownership structure a problem? Do you see it like that?

U.K. Clear Line's cash reserve is enough?

Yes.

Okay. Well, I would put it like this, yes. And we don't see any need to inject capital there. I think extremely strong profitability at Clear Line and strong cash flows. But the ownership structure, I would not say that it is a problem. It's actually a very strong structure in my world where we are in this together. And remember that if you take the excellent team at Clear Line and pull them together, they're actually the second largest owner in Fasadgruppen. So we are in this together.

We have a question regarding the new owners, the Hauser Group. Could you elaborate on this?

Well, of course, I'm glad to see new shareholders as always. I just got the news as everyone else on this Friday. We got a very pleasant correspondence from them. And they are, as they mentioned, improved and are impressed by what we have done so far and are eager to join this journey together with us. That's basically what I know and we replied and hopefully, we can have a strong dialogue going forward. So I'm very glad to see that entry by the Hauser Brothers.

Great. No more questions for now. And yes, with that being said, I hand over the word back to you, Martin, for some final remarks.

Okay. Thank you, Magnus. A lot of questions. We like that. Good dialogue, hopefully. I'm very glad to see this Q3 report out, and I'm looking forward to be hearing from you again when we present the Q4 report back in February of 2026. Until then, have a great time.