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

Welcome to the Fasadgruppen Q1 Report for 2023. [Operator Instructions] Now I will hand the conference over to the speakers CEO, Pal Warolin; and CFO, Casper Tamm. Please go ahead.

Welcome to this presentation of Fasadgruppen First Quarter '23. My name is Pal Warolin, I'm CEO of Fasadgruppen, and together with our CFO, Casper Tamm; and also our IR, Adrian Westman; and also our new CEO, starting tomorrow, Martin Jacobsson. We will guide you through this presentation. And after that, we're ready for some Q&A. Let's start as usual with Fasadgruppen in brief. Fasadgruppen is the market leader in Scandinavia within facade work. Facade work is a highly specialized and local market with a high level of craftsmanship. By facade, what we mean almost everything related to the shell of the building. So the service offering consists, for example, of masonry, plastering, installation, renovation of balconies, installation, renovation of windows, roof renovation, glazing, almost everything you need a scaffolding to do. Fasadgruppen, we are focused on midsized projects in the range of SEK 1 million to SEK 100 million with an average project size of SEK 3 million to SEK 4 million, at least 75% of projects relate to renovation. We have a target, we have an active M&A agenda with the aim to consolidate the highly fragmented Nordic facade industry. The group currently comprises approx 50 businesses across Sweden, Denmark, Norway and Finland in a very decentralized structure and has almost 2,000 employees. So take a look at some key financials last 12 months. First of all, net sales really close to SEK 5 billion. The adjusted EBITA is more than SEK 462 million, which gives an adjusted EBITA margin, 9.3%. We can also see the order backlog is close to SEK 2.9 billion. We really feel that demand is still very strong. First quarter in brief. This year started very well with a high activity for the quarter. Important to remember, the first quarter is always a quarter for Fasadgruppen with a little bit lower activity than the other quarters because of the weather. But this first quarter, a really strong start with high growth, increased earnings and clear margin improvement. We still have some cost inflation on material, but it's stabilized, and we got much better conditions from our suppliers. Even if some of them still need to increase the price, we got a little longer lead times. Net sales is up 55% compared to last year, of which 25.2% is organic. The adjusted EBITA is up almost 71% compared to last year. And the adjusted EBITA margin of 6.5% compared to last year's 6.9%. This is very positive is actually even better than 2021. We really see an increase in new project request during the spring. So I would say it's a very positive market sentiment. As I mentioned, the demand is still very strong on all our markets and especially, of course, on renovation, but also in new construction. Acquisitions. First of all, of course, M&A is key in our growth strategy, but it's all about timing. Sometimes, we suddenly agree in many negotiations and sometimes it takes a little bit longer time. That's how it's always been for us since the start. Right now, we have several ongoing dialogues with different potential acquisition on all our markets. It's actually pretty much as usual. So we continue to focus, as usual on profitable companies that are best-in-class and with good cash flow to fuel continued M&A execution. Daniel Bergman will join us as new Head of M&A in September. Next slide, we can see some examples of orders that we won in the first quarter. This is a small mix of different orders. As you can see, it's still a mix of both renovation and new construction. Just to give you an example here. First one, STARK Fasadrenovering, our Swedish subsidiary in Stockholm. The customer is MZ Bygg. And what we doing is facade and balcony innovation, a very typical Fasadgruppen project. The second one is in Norway, our subsidiary Mjondalen Mur & Puss in Oslo, the customer, JM Norge. And the project is brick facade on the new residential buildings. Also a typical Fasadgruppen project. And the third one is also in Norway, DVS also in the Oslo region, it's a renovation project. The customer is Boligbygg Oslo. And what we are doing there is window and door replacement, also very typical Fasadgruppen project. And the last example here is also in Sweden, Frillesas Mur & Puts, our subsidiaries in Vollebekk. They have a project in Varnamo, ByggDialog -- the customer is ByggDialog and it's brick facade on new school. So as I mentioned before, we will see an increase in new projects requests in both renovation, but also new construction during spring -- during the spring. And the renovation market characterized by long-term stability driven once again by ageing properties and increased requirements on energy performance. I would even say that facade renovation is a must-have. It's not nice to have. So of course, generally speaking, but general property owners avoid to postpone plan measures as it may cause damage and increase maintenance costs in the future. And also in an already stable market, continued progress in the revision of the energy performance of building directive in the first quarter. Buildings account for 40% of energy consumption and 36% of greenhouse gas emissions in the European Union. So in March, the European Union Parliament adopted draft measures to increase the rate of renovation and reduce energy consumption in the European building stock. Of course, the final shape of the bill to be negotiated between Parliament and Council. But I would say no matter how it ends, the bill will support renovation market growth for many years to come. And Fasadgruppen, we are in an excellent position with a wide range of services. This gives us a great possibility to improve even more. And just to understand how positive such a decision can be for us and what the difference we can make for our customer regarding energy savings. So if we take a look at the typical house there, energy efficiency at the core of our services. I mean much of what we do when we do facade renovation really improves energy savings. So just to give you some general examples. Facade installation, it can be like 20% to 25% improve energy savings. Window renovation, 10% to 20%, window replacement, 20% to 25% or even if you're using the SmartFront method, Fasadgruppen method, can be like 60% to 65%. Of course, normally, we may not do all those actions in every single project, but just 1 or 2 actions can really make a difference for our customers. So it's really important. And then we go to a case study within the first quarter. And this time, it's our subsidiaries in Oslo, DVS Entreprenor. It's a company founded in 1998. It was acquired in 2020 as Fasadgruppen's first entry to Norway. They are one of Norway's largest facade renovation companies with a really strong position in the Oslo area. They're serving a mix of private and public customers, including tenant-owner association, construction companies and also Boligbygg Oslo. Examples of ongoing project right now for DVS, I would say the major is right now for tenant-owner associations. The company is actually very typical Fasadgruppen company, with 100% renovation, and they have also successfully improved the margins since they entered the Fasadgruppen. I am very proud of this company. And then we are ready for some financials, so I will leave it over to Casper.

Thank you, Pal. Then I will take you through some highlights in the Q1 financials. So looking on the Q1 '23 figures. In summary here, we can see that we had clear margin improvements and strong organic growth, which characterized the first quarter. Revenues were up with 55% to SEK 1.14 billion with a record organic growth of 25%. We had 41 companies, which were comparable out of the total of approximately 50 for the organic growth. Adjusted EBITA was up with 71% to SEK 74 million, with an improved margin of 6.5%. And we see that cost inflation of materials is now starting to stabilize. Order backlog was up 9% to SEK 2.85 billion. And the rate of new project requests has gradually increased during the spring and is now at a high level. Profit for the period was SEK 29 million and basic earnings per share were at SEK 0.58. We had operating cash flow, which improved to SEK 77 million. And the assessment is that the working capital development during the current quarter has followed the normal seasonal pattern for the year. We will return to bulk figures in -- later in the presentation. Net sales and order backlog. Net sales had an acquired growth of nearly 30%. And between the periods, 11 new acquisitions has been made. And as already said, we saw a very strong organic growth here, which reached 25%. And this is the -- actually the highest organic growth in the period 2022-2023 here with an upgoing trend also over the quarters. Exchange rate changes had a positive impact on organic growth by 0.8 percentage points. Otherwise, the organic growth has primarily been affected by the impacts of cost inflation of materials. But we have also seen an actual volume growth that has added positively to the growth in the first quarter. The order backlog for comparable companies at the end of March [ 2022 ] dropped by 8.3%. The first quarter last year was characterized by the very strong development in the order backlog as an effect of the pandemic receding. The corresponding period this year can be described as a normal development that broadly follows the previous seasonal patterns. And then coming to the adjusted EBITA here. The quarter saw an adjusted EBITA increase of 71% on a year-on-year basis with an improved margin of 6.5%. Cost inflation of materials [ coned ] which meant that prices to the customer could be managed satisfactorily during the quarter with following positive effect on the margin compared to last year. The margin actually surpassed the comparative periods of both 2022 and 2021. Nonrecurring items amounted to SEK 2.1 million and included mainly other costs of SEK 1.7 million. And then some comments on the P&L. Here, we want to mention on the depreciation and amortization that depreciation on acquired intangible assets amounted to SEK 9 million in Q1 of SEK 40 million on a rolling 12-month basis. And also going down to the net financial cost. We can say that interest cost on our external debt was SEK 19 million in Q1 and SEK 47 million on a rolling 12-month basis. And then looking a bit on our balance sheet and leverage. So our total balance sheet now reached SEK 4.9 million with a healthy solidity of 43%. On the asset side, we saw increases in brand and especially goodwill due to the active acquisition agenda between the period. And here, we have no depreciation included. Going down to the equity side. During the period, we have seen offset [ various uses ] on acquisitions that added a further SEK 115 million in equity. We also saw a negative impact from the dividend in 2022 here with SEK 58 million. And the rest of the change is in the equity is attributable to the comprehensive income between the periods. Saying something about the debt here, interest-bearing debt from finance institutions was up with approximately SEK 300 million to SEK 1.5 billion. Net debt was SEK 1.3 billion for the period. Going over here to the leverage key indicators. The net debt through adjusted EBITDA has improved compared to last quarter and was down to 2.3x at the end of the quarter. Here, we could also add that net debt through adjusted EBITDA on pro forma basis was approximately 2.2x. Our covenant for leverage key indicator indicates a potential headroom for acquisitions financed via new debt in the range of approximately SEK 0.5 billion. Coming into cash flow and cash conversion. And as already said here, the operating cash flow increased with SEK 77 million, and we had a cash conversion of that reached 81%. The quarter was positively affected by the strong EBITDA paired with a normal weaker development for the working capital in the first quarter. The weaker development of the working capital during the current quarter can mainly be traced back to the strong working capital development during the fourth quarter of 2022. Looking on the comparison period here in the last year, the fourth quarter of 2021, respectively, we saw the reverse scenario. But the assessment is that the working capital development during the current quarter largely follows the normal seasonal pattern for the year. And then I'll leave it over for Pal here to make some concluding remarks together with Martin.

Thank you, Casper. Concluding remarks for the first quarter. First of all, a really strong start to '23, really strong. We really see a very strong demand, increased amount on new project requests during spring. It's more stable conditions on material prices compared to '22, which gives us better conditions to improve the margin. We have many ongoing M&A dialogues. We have continued focus on margins and cash flow. But absolutely, all in all, I have a very positive view on '23. Okay, to the fact that this is my last report before I'm leaving. And our new CEO, Martin Jacobsson, takes over, I would like to take the opportunity to thank all employees, customers, shareholders for a fantastic journey. With that said, I want to hand over to Martin.

Hi, everyone, Martin here. So a bit about myself. I was the first employee in Fasadgruppen. I started in 2018 as CFO, and I've had various roles along the way, and I've been the Deputy CEO and Head of M&A since 2019. During this time, I have been around and completed roughly more than 60 acquisitions. In short, have an engineering background. But looking ahead, what's important for me. Well, first of all, it's going to be business as usual. We will continue to strengthen our leadership within the market, and we will focus on profitable growth where margins and cash flow is going to be key. We will continue to consolidate the Nordic facade market, as we always had and potentially expand outside the Nordics in the midterm. We will also continue to improve our efficiency, which I feel is very important, and we will do that through digitalization and also through education. We will also continue to increase our services within energy efficiency and our sustainability offering. And what's not to be forgotten is that Fasadgruppen's main strength is our people, and I'm very proud of the development throughout the years and the fantastic journey that Fasadgruppen has been on. It still feels that it's just the beginning. And what's super important for me is that we will continue to keep the entrepreneurial spirit going forward. And with that, I would also like to thank Pal Warolin during his tenure. It's been a fantastic journey, and we wish you all the best going forward. And with that, I think we will open up for questions.

[Operator Instructions] The next question comes from Carl Ragnerstam from Nordea.

It's Carl here from Nordea. A few questions. Firstly, obviously, quite strong margin here in Q1 with the first positive [ delever year ] in a while. You mentioned raw material headwinds as one reason. Would you say that it's the sole reason for the positive year-over-year delta and should we also expect further improvements due to continuous fading raw material headwinds here in the coming quarters?

It's pretty hard to answer that question. What we can see right now is that conditions are better, so which gives us -- and it's easier for us to have the right price in our calculation. And from that point of view, better conditions to improve the margin. But it's still the situation of the market where some suppliers definitely try and need to increase the price. So -- but what we see right now, it's more stabilized. So it's looking -- right now, it's looking much better than a year ago.

That's very promising. And also, we heard from other companies in adjacent industries that sort of long Nordic winter impacted both sales as well as obviously efficiency. Did you experience that as well? I mean, working out or -- or was it business as usual for you?

I mean, it's pretty much business as usual. But it's -- we have this -- I mean we have seen an increased requests regarding energy savings and some of those projects, you can say that some energy savings projects there might be a little bit easier to take care of those projects even in winter time. Of course, it depends on exactly what it is, but absolutely, we can see a trend on that. But it's hard for me to say exactly what kind of effect it had on this first quarter.