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

Welcome to the Fasadgruppen H1 2023 Results Presentation. [Operator Instructions]. Now I will hand the conference over to the speakers, CEO, Martin Jacobsson; and CFO, Casper Tamm. Please go ahead.

Good morning, everyone. Martin here. A warm welcome to our H1 2023 results. With me in the room, I have our CFO, Casper Tamm; and also our Head of Investor Relations, Adrian Westman. After the presentation, we open up for questions. So H1 in brief. We ended the period with a record high order backlog, and we saw a significant cash flow improvement year-over-year. The net sales came in at roughly 25% increase year-over-year, of which 9% was organic. The organic growth came down in Q2 compared to Q1, which was mainly due to the falling material prices. But we still saw some volume increase in Q2. Looking at the results, the adjusted EBITDA increased by 21% year-over-year, corresponding to a margin of 8.2% for the first half of the year, which is a decrease of some 30 basis points year-over-year. The cash conversion was pretty good at 86.1% here in the period, and looking on the last 12 months, we had a cash conversion of 98.6%, very close to our target of 100%. The order backlog came in roughly 13% year-over-year better, and we saw several large products won during this period. Can also mention here that we saw increased competition in the metropolitan areas of Stockholm and Copenhagen, which had a negative effect on the margin. Next slide, please. So looking at our M&A agenda. The latest acquisition was Weldmatic, which we signed here in June and completed in July. As of today, we have 5 letters of intent signed with various acquisition targets throughout the Nordics in various segments. And we, just the other week here, entered a new financing agreement of some SEK 2.7 billion, which is roughly SEK 600 million more than before and also meaning that we have roughly SEK 1.1 billion unutilized credit facilities at this moment. This ensures us having a high financial flexibility going forward. Looking into Weldmatic, this is a balcony manufacturer with local production in Denmark, had revenues of some DKK 27 million in '22. And their niche is within the traditional craftsmanship within welding, but they have complemented that with our robotics technology, meaning a high productivity for these balconies, producing these balconies in a cost-efficient way. Some of the customers for Weldmatic is one of our current subsidiary, Altana, which we acquired last year. We see several opportunities here to grow our balcony business, as Weldmatic is a complement or, you could say, a pretty similar company to our company called Alnova, which lies in Gothenburg. So we see synergies within these companies to learn from each other and also within purchasing. Yes, move forward. And I'm pleased to see that there is a strong demand for energy-efficient facade measures here, which we've seen during H1 and believe we will see going forward as well. Our product, SmartFront, had an organic growth of roughly 200% here in the first half of 2023. And you could say that the customers are becoming more and more aware of the legal requirements around energy-efficient buildings, not to say the least here in the European Union. And there are measures here stating that the renovation rate needs to at least to be doubled to become net-zero in the European Union by 2050. All in all, very positive for us. Going forward here, we -- last week, we committed to set a near- and long-term company-wide emission reductions in line with the science based net-zero targets. That will be done within 24 months, it's a true step forward here for us in our green agenda. So we will develop these targets and submit them to Science Based Targets initiative here. And also our new credit facility, which I mentioned earlier, will be linked in line with these new targets. In the last couple of months here, we've announced several large orders. And just to mention a few, Byens, our company in Copenhagen, has announced two orders of a total DKK 220 million. Please note that one of those orders of DKK 155 million was after the period ended here in June. DVS Entreprenor, our company in Norway, announced a large order within the tenant-owner association renovation. STARK Fasadrenovering, our company here in Stockholm, announced two orders where they will renovate schools. And FRONT, which have a headquarter in Eskilstuna, Sweden, announced a large order of SEK 160 million renovation in Link ping. And to sum up our order backlog, we have roughly 2,000 projects ongoing, and we see that's a fairly okay number of projects going forward as well, the same amount. And the average order value here is roughly SEK 3 million. But please note that these large orders are spanning through over several years. If we look -- take a look at the whole, we still have quite small projects in the range of SEK 3 million. With that, I'll leave it over to our CFO, Casper Tamm, that will guide us through some financials.

Thank you, Martin. Then I will take you through some highlights in the first year financials. Organic growth and good order backlog with improved cash flow characterized the first half year. Revenues were up 25% to SEK 2.45 billion with an organic growth of 9%. We had 44 companies that were comparable out of a total of approximately 50. Adjusted EBITDA was up with 21% to SEK 202 million with a margin of 8.2%. Customer pricing could be managed satisfactorily during the first quarter but was negatively affected by the slightly increased competition during the second quarter. Order backlog was up 13% to SEK 3.53 billion. The order backlog developed strongly during the second quarter, particularly towards the end of the quarter. And profit for the period was SEK 85 million and basic earnings per share were SEK 1.72. We had a strong operating cash flow, which improved to SEK 193 million. And the strong development of working capital during the half -- first half year is partly the result of the measures implemented since the turn of the year to improve tied up capital within the group. We will return to more figures later in the presentation. Coming back to net sales, first half year. So we had an acquired growth of 16%, and between the periods we have four new acquisitions that has been made. Organic growth reached 9%. We had exchange rate changes had a positive impact on organic growth with 0.4 percentage points. The considerable impact on organic growth from cost inflation on materials in the first quarter quickly wore off during the second quarter. Still, falling material prices during the period points to a healthy volume growth in relation to the comparison period in 2022. Going to order backlog. The order backlog for comparable companies in -- at the end of June 2022 was slightly up with 1% in spite of very strong comparison figures due to cost inflation for materials. The order backlog developed strongly during the second quarter, particularly towards the end of the quarter, and increased by 18%, plus SEK 445 million compared with year-end 2022. The quarter saw an adjusted EBITDA increase of 21% on a year-on-year basis with a margin of 8.2%. Customer pricing could be managed satisfactory during the first quarter, with a positive effect on the margin, but was negatively affected by the increased competition in the metropolitan regions in particular during the second quarter. Looking on the nonrecurring items, they amounted to SEK 26 million and included mainly revaluation of earnouts with SEK 18 million. Some comments on the P&L. Looking on other revenues in second quarter 2023, we have done a reclassification between other operating income and net sales for subsidiary covering the first half of [ 2023 ], with a negative impact on other operating income in quarter 2 amounting to SEK 5.5 million. Going down to depreciation and amortization, the depreciation on acquired intangible assets amounted to SEK 15.2 million in the first half of 2023. And some comments on the other operating expenses. Here we find the negative nonrecurring items like earnouts. The negative effect from revaluation of earnouts amounted to SEK 18 million in the first half of this year. And some comments on the net financial costs. And we had interest costs and external debt which amounted to SEK 38 million in the first half. Increased cost on external debt with approximately SEK 30 million between the period is the main reason for the negative development of the EPS, which was SEK 2.09 in the comparison periods and EPS 1.72 in the first half of 2023. And then some comments on the balance sheet here. We have now a total balance sheet of SEK 5.2 billion, with a healthy solidity of 41%. On the asset side, the increase in brands and especially goodwill mainly due to our active acquisition agenda between the periods and has no depreciation included. Between the periods we had four new acquisitions. On the equities side, between the periods we have seen [ upside ] share issues on acquisitions that added a further SEK 91 million of equity and some [ warrant ] payments also up to SEK 3.6 million. We had a negative impact of the dividend in May here with SEK 85 million. The rest of the change in equity is attributable to comprehensive income between the periods. Looking on the debt side, increased interest-bearing debt from finance institutions was up with approximately SEK 0.4 billion, to SEK 1.6 billion, with a net debt of approximately SEK 1.4 billion. And going to the right-hand side here, our leverage key indicator, net debt through adjusted EBITDA compared to last quarter was slightly up to 2.4x at the end of the period. And net debt to adjusted EBITDA pro forma was approximately 2.4x as well then, so on the same level. 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 for 2023 here with normal multiples. And I'll go on the next slide, yes. And some comments on the cash flow and cash conversion. The operating cash flow increased strongly to SEK 193 million and cash conversion up to 86% for the first half of 2023, really strong figures. Main reason was the strong improvement in net working capital change between the periods, and this in spite of the major one-off investment in scaffolding during the second quarter which totaled SEK 22 million. Improvement in net working capital is due partly to us not purchasing materials early as was done last year to lock in lower purchase prices and partly due to the measures that we have implemented to improve the working capital since year-end. With this, I'll leave it over for Martin to do some concluding remarks.

Thank you, Casper. Yes. So actually, here in H1, there was -- if we're looking at the last 12 months, it was the first time that we surpassed a revenue of SEK 5 billion. And as you know, we have a growth target of growing 15% annually over business cycle. And as a clarification, if we should continue to grow on that path, then we will reach SEK 10 billion by 2028. And I like to keep it simple, so this is a clarification around the organization, and now also to you here, that we aim to have a revenue of at least SEK 10 billion by 2028 and a margin of 10% by then. In this first half year, we saw a record high order backlog, and many of our companies are actually fully booked this year. We saw tougher competition here in Stockholm and Copenhagen, and we will continue to focus on the project margin, but we can also mention here that in our other markets, except in Stockholm and Copenhagen, we have not seen that increase in competition in that sense. And we also saw the strong cash flow improvement, which was very pleasing to see. So all in all, we have solid conditions now for continued M&A delivery and profitable growth. So with that, we open up for questions.

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

Two questions from me if that's all right?

Yes. Sure.

Perfect. So just first off, starting with the EBITDA margin. During Q2, we saw a slight decline year-over-year with some 0.5 percentage points. What should we expect for the second half of the year here? Is it possible for you to increase the margins year-over-year? Or should we expect some pressure on the margin given the heightened price competition in Stockholm and Copenhagen.

Yes. I mean, what we said before, 2023, so that we had better conditions now, with more -- for improved margin during 2023. We did not count with this with an increased competition in this sense. But I mean, in general, a lower material price environment could be beneficial for us. The customers feel that they can buy our services cheaper, so to speak, and also, remember we have a lower margin on just the pass-through on material. So if you just take our, let's say, personnel expenses in a margin in that sense, that's higher. So that should be beneficial, but then you have the competition situation as well. So you have both the sweet and the sour in that sense. But we remain positive and we have our target of margin above 10%, and that's what we're aiming for, absolutely.

Okay. Perfect. Could you perhaps remind us how much Stockholm and Copenhagen together accounts for share of sales in terms of [ revenue ], if you have a rough number on that?

How much of the revenues come from Stockholm and Copenhagen?

Yes. Yes. Yes.

I mean, I would say some 30% -- 30%, 40%, around there.

Okay. And then in terms of the organic growth, as you highlighted yourself, quite a notable -- the acceleration compared to Q1 here in Q2 with your sales organic growth. Could you [indiscernible] rough number also, the split between price and volume? Is it correct in terms of that the price component in Q2 was negative?

We can mention here that in Q2 it was a trend that was broken, because the last 10 quarters before that, the material prices had grown faster than the revenues, so to speak. But this was the first quarter for the last 10 quarters or so that the material prices actually grew slower than the sales, indicating that, yes, the material prices are falling in that sense. And it's quite easy, if you look at -- you can look at maybe natural gas prices or lumber prices or something like that, you can see it's a dramatic drop here in '23 and -- compared to the last couple of years, which has been -- which we have stated several times now, very dramatic increases, but also very dramatic now on the downside.

And for -- I mean, I expect this effect to remain here in the second half of 2023. Should we expect negative organic growth during Q3 already for you, with the price component taking out this [ still ] longer [ healthy ] organic growth?

Yes. It's actually quite hard to tell, since we have this strong order backlog now with -- I mean, as I mentioned, several companies fully booked. You have the material price component of course. We can't see into the future where the material prices are heading, but should they continue decreasing in this way, that's absolutely having a negative effect on the organic growth in that sense, so to speak, but it could have a beneficial impact on the margin. But yes, so sweet and sour there once again.

The next question comes from Carl Ragnerstam from Nordea. There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Okay. Yes. Thank you very much for taking the time, and we hope to see you again in the third quarter results. Thank you very much.