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

Good morning, everyone, and welcome to this results call with Fasadgruppen. We have announced our quarter 3 results earlier this morning. With me in the room, we have our CEO, Martin Jacobsson. We have our CFO, Casper Tamm; and myself, Adrian Westman, Head of Communications. So we'll start off with the presentation, as always, and then we will conclude with the Q&A. So please, Martin, go ahead.

Good morning, everyone. Welcome to this Q3 call. So we already announced headline figures this last Tuesday here. So in this presentation, we will dive into some of the details that was not presented. But some highlights then to start off. We don't see any large market changes since Q2 here. Still see a competitive situation in Sweden, and the recovery may take some time. However, if you look at the earnings side, we see a positive development compared to the first half of 2024. In looking at the order backlog, we had a negative of 20% organic. But bear with us here that when you compare between new production and renovation, new production often have much longer lead times. So I wouldn't say that, that sort of gives the full picture of where we're heading, looking at the organic order backlog. And some more details is also that if we look at the material prices, we've seen some of those also decreasing. And remember here that material prices is roughly 1/3 of our costs. So that's a pass-through effect, which affects the organic growth. And if the material prices goes down, that affects the organic growth negatively. In the quarter, we had 2 acquisitions, and I will get back to those later in the presentation. And then, of course, we announced our largest acquisition as of yet in terms of Clear Line. We also note that, but I also recommend you to go to our web page where we have the conference call recorded from Tuesday. Then looking at the balance sheet is also, I could say, in relative terms, an improvement here with Clear Line, but we'll get back to that. So diving into our net sales, total decrease of 4.5%, of which roughly 10% was organically. Here also affected by decreasing material prices. If we especially look at the Swedish operations, that is where the largest decline is. Remember here that our Swedish operations is also the one that has the largest output of new build. And then in both in Norway and in Finland, we had organic growth and then our Danish operations were slightly down. But all in all, I would say Swedish market stands out, the rest holding up fairly well. Looking on the adjusted EBITDA levels, we came in at a margin of 7.7% here in the quarter, and we saw improvements both in Norway and Denmark. And I'm glad to see that the measures that we took earlier this year has given effect. Remember here that if we just look at the head count, roughly 170 full-time employees have been redundant since Q3 2023. So we have adapted somewhat our, you could say, total cost profile. But of course, it's important for us to keep key employees, key competencies in the company so that we are ready for the future expansions when the market turns. Looking at the order backlog, there was a negative decrease of roughly 20%, as I mentioned. And you could also point out here that in the Q3 of last year, we had quite high levels of the order backlog. There is, I could say, it's quite important to note here that in the order backlog margin, that's up against the same period last year, and I would say, quite flat to Q2. But that also means that we are very selective around the projects that we enter into. And with that said, we believe we've passed the bottom around the market here and ready to act when it turns. Just looking at Denmark and Finland, they exhibited growth there in the backlog organically, whereas the other 2 countries did not. Cash flow-wise, I'm glad to see that the measures we've taken are giving effect here. We saw an improvement in working capital of roughly SEK 39 million in the quarter. And just looking on the last 12 months, it's roughly up SEK 139 million compared to, I could say, SEK 124 million in the end of 2024, end of '23, I should say, I think it's there. But okay, maybe it's wrong there. But anyway, so in cash conversion-wise, I'd say we're above our target of 100% looking at the last 12 months. But with that said, I would also say that I see that there's more to be done here in the cash flow. Remember, still quite a young company in those terms, and we're acquiring companies as we go and implementing our measures going along. And that's not done overnight. Looking at financial capacity and net debt. First of all, average interest rate in the 9-month period here was roughly 6% compared to 4.6% in the same period last year. But however, we've seen, of course, rates going down. And going forward, we see that rates will also go down for us as where we have an interest period of 1 to 3 months. That means also that decreases in the interest rate environment. It gives a quite immediate effect for us. Looking on the net debt to adjusted EBITDA pro forma, excluding Clear Line then obviously, that was just below 3.5% as of last of September. Looking at our credit facilities, we announced that also yesterday that we now have sustainability linked to those loans, which we're very glad to do. Yes. Then we announced 2 new acquisitions in the quarter. First, I can mention Brenden, which is a leading scaffolding company in Norway. Second-generation family business, we acquired it from the local entrepreneur, local entrepreneurs still with us and continue to add value. And we have been working with Brenden for many, many years with our existing companies within Norway. So very glad to be welcoming them into the family now. And -- which noteworthy here that we also acquired 15% of a company called ProStillas, which is, I can say, a software where you have the project management connected to the scaffolding companies with the option to acquire ProStillas 100%. And Brenden especially have seen huge effects when it comes to productivity and efficiency using this software. So we are very excited to be part of the ProStillas journey and hope to implement it in many more of our companies. The revenues of Brenden roughly SEK 185 million with an excellent EBITDA margin. Looking at next acquisition, JE:s Svets & Smide, it's a smaller company of sales of roughly SEK 30 million, focusing on steel structures and building forging, very specialized. It's going to complement our existing subsidiary, GAJ, and it's actually GAJ that is acquiring the company. So with GAJ and JE, we have a very strong position now to assist our customers in getting these kind of services and products out in -- especially then in the Mälardalen area of Stockholm. Then we announced Clear Line acquisition earlier this week. We went through it quite in detail on the last call, which I referred to at the beginning of this session. So I implore you to explore that conference call if you want to dive deeper into the Clear Line situation. But note here that in next week, we'll have a Capital Markets Day, and we are glad to announce now that part of management from Clear Line will be participating at the Capital Markets Day. So with that said, we can some highlights, of course, regarding Clear Line. It's, as I mentioned back then, a milestone acquisition for Fasadgruppen. We see it as a unique player complementing us extremely well. And maybe something that stands out, of course, is the profitability levels. But it's important to note that Clear Line is, in one term, a bit broader than the typical Fasadgruppen company, where they provide a total solution from the design phase, the planning phase, the construction calculation phase and then also doing the actual work. And with that said, all of the needed documentations for the quite complex projects. So that is also, I would say, key factors for the profitability level. Maybe one thing also that stands out is we've got a few questions around this acquisition, after the announcement. And it is regarding the preference shares financing, which we announced. And it's important to note that is linked to the profitability levels of Clear Line going forward. So with that said, the range of where the preference shares could be valued is in the range of roughly GBP 0 to 80 million, depending on the performance of Clear Line. So that's important to note. I just want to highlight that. Then, of course, some ballpark figures here, Clear Line roughly GBP 50 million in sales and then adjusted EBITDA, here, if you look at just the average 3 year -- last 3 years here of GBP 18.4 million. Some concluding remarks before we open up for questions. We saw an improved earnings situation for us here in the third quarter compared to the first half year. We also saw a strong cash conversion, which I'm very glad to see. There is still a tough competitive situation, especially in Sweden, and I would say, stable to positive development in our other markets. I would also like to highlight that there's still plenty of M&A opportunities out there. And with that said, we've said it quite a few times now, but please register to our Capital Markets Day on the 7th of November. Link is below here.

Great. So with that, we'll go into the Q&A session, and we'll start off with the people waiting online, on the phone. [Operator Instructions]. The next question comes from Max Bacco from SEB.

A couple of questions from my side, perhaps then focusing first on the quarter here and Fasadgruppen as we used to know it at least. I mean, looking at your long-term EBITDA margin, it has been coming down basically since 2021. But as you said now, I mean, Q3, its up compared to Q2 this year. It's a clear improvement from Q1, but also quite in line with seasonality. But would you say that you feel that this is a stable level going ahead then, of course, adjusted for seasonality and given that nothing unexpected happens? Or is it stable or perhaps the trough, so to say?

You mean the margin of 7.7%, if that's stable.

Yes. I mean, yes, exactly. Yes.

I mean, obviously, we're not satisfied with the margin in general. And I mean, we are a specialized company here and deserve over time to have a margin over 10%, I would say. And with that said, do we believe we've seen the worst? Yes. Are we looking to improve our margins from here? Absolutely. And do we still feel humble around the market situation? Yes, obviously. But there are -- I would say that the tide has turned in the number of positives compared to the number of negatives, meaning it's always hard to look into the future, of course, you know Max. But that's -- we feel anyway that the number of data points pointing to an improved situation from here margin wise as well is tipping to our benefit here. So hopefully, we've seen the trough margin wise.

Okay. Perfect. And then as you mentioned yourself during the call that the drop in the organic order backlog perhaps not give the full picture of where we're heading ahead given that material prices also can have a quite large impact. But I mean, given that the order book was down 21% organically here year-over-year in Q3, when you look at 2025, do you see it as reasonable for you to deliver organic sales growth? Or will that be challenging?

I mean it depends on the material prices once more, and I don't have any big impact on those, of course. But maybe in terms of volume, yes, we see it if we look -- take the whole 2025 as plausible that we would have an organic, you could say, volume growth.

Okay. Perfect. And then perhaps turning to a question on Clear Line instead. We spoke about this a bit on the call earlier this week. But I mean, when you look at the cash flow generation of Clear Line, do you expect that to be sufficient to cover both the dividends on the preference shares that you perhaps or might have to pay, but also that it will cover tax payments, interest payments and leasing amortization for Clear Line, if you understand the question.

I don't really follow. You mean if the cash flow is sufficient in Clear Line for the preference share, total valuation, total consideration or...

No. Just on the dividends, just on the dividends on the preference share. Not on the put call option.

Yes, yes. Yes, of course. But I mean, I think once more, Max, I think we spoke about it last time as well, but the dividend is not paid annually. It's accumulated. So what you're really asking is the cash conversion. If Clear Line is...

Well, yes. Basically, do you expect the accumulated cash flow from Clear Line during the next -- well, until 2028 to exceed the accumulated dividends on the preference shares?

Absolutely.

Okay. Perfect. And then the final question, it's perhaps not -- I mean, it's not really up to you, but I guess you have an opinion about it. But given that you will have in the coming couple of years, most likely quite sizable cash outflow, at least looking until 2028. And then you also pointed to that you still have an interesting M&A pipeline and so on. Don't you see it as reasonable perhaps to when going into 2025 to scrap the dividend?

Yes. Exactly. But of course, when you have those reasonings as you have, yes, it could make sense.

Yes. Hopefully, someone from the Board is listening to the call as well.

The next question comes from Carl Ragnerstam from Nordea.

Good morning. It's Carl here from Nordea. A few questions from my side as well. Firstly, you mentioned the improved tenders during the summer. What have you seen in terms of the tenders or quotations, meaning early orders so far -- I mean, so far into October as well? I mean, with rates coming down, is it too early to see that, that is giving a big effect? Or do you think that rate cuts needs to trickle down the systems before it's -- it will sort of help you?

I mean it's in various customer segments. Maybe one customer segment that stands out on a positive note is I could say the -- what we call tenant-owner associations. And maybe they are somewhat more, you could say, interest rate related to one extent, but fairly often looking at their maintenance plans and sticking to that plan. I mean, often layman in the Board of those kinds of associations. And so there, we've seen an improvement. You could also say looking at the public sector has also been very proactive around tenders for the coming periods. So they -- those 2 stands out on a positive note, I would say. And I mean, regarding the interest rate question, obviously, the total sentiment is on a more positive note. So hopefully, of course, the interest rate environment will decrease even further. But I think that just the sentiment has turned already, improving the situation.

Okay. Very helpful. And maybe you touched upon it and I missed it, but what was the pricing component in your organic sales growth and also in the backlog number?

I mean, so we don't really give all those kind of numbers, Carl. But what we could, I mean, highlight is, as we mentioned, the material prices, which are down maybe just if you take the third quarter total level in the range of 10% to 15% or somewhere like that. So that's obviously quite a lot in our terms. And then you could take that into consideration if it's roughly 1/3 of the costs, then you can do your own estimations from there, I think.