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

Good morning, everyone. Welcome to this presentation of Fasadgruppen's Q4 results. We released the year-end report this morning. In the room today, we have Martin Jacobsson, CEO; Casper Tamm, CFO; and myself, Adrian Westman, Head of Corporate Communications and Investor Relations. We'll start off with the presentation. Martin will take you through the slides, and then we will conclude with a Q&A session. So please, Martin, go ahead.

Thank you, Adrian, and good morning also from me. I'm glad to present this report for you today. We have a comprehensive report to go through today. And first of all, just like to highlight that we have a stable development in Denmark, Norway and Finland. But what stands out today is clearly the Swedish operations. And it has been a weak, unusually weak, fourth quarter for us, especially in Sweden. And with that said, we have also implemented a new organizational structure from today. And we are looking into improving the Swedish situation from here. I will get back to that further in the presentation. Another thing that stands out is the implementation, the integration of Clear Line, which has gone well. They have been in this report with us 2 months and have clearly affected results positively. And I would like to highlight that there's plenty of projects to calculate on the Clear Line facilities. So there's plenty to do for them, which is very positive. And that affects also the order backlog, which has increased here, even if we exclude Clear Line and the project margin or the order backlog margin has also increased from Q3. However, with the weak results, we have seen an increase on our important covenant net debt to adjusted EBITDA pro forma, which is around 3.3x. Then the Board also proposed to have no dividend for 2024 and removed the dividend policy. And hence, we are very focused on taking that leverage back below 2.5x. So some further details on the net sales. First of all, it was a total decrease of roughly 1.6%. However, organically, it was down sharply by roughly 15.6%, where the Swedish operations, as I mentioned, continued to decline. It was a very low activity, unusually low, and it was a combination then of low demand in new construction and also some, say, seasonality effects in December here, especially with less working days. And we have also experienced a continued tough competition throughout the quarter. However, as I mentioned, pretty stable development in the rest of the Nordics. The organic growth for -- it was organic growth in 2024 for all of the other countries, except for Sweden. Then looking at Clear Line, they were part of the group for 2 months, as I mentioned, and managed to have net sales of roughly SEK 126 million. Then looking at the adjusted EBITA margin came in at 6.4%, a decline versus last year, which was at 9.1%. It was once more the Swedish operations that stood out. We took a hit in conjunction with the bankruptcy of Serneke of roughly SEK 10 million. However, there are some possibilities that we can maybe start up on those projects again, but that's not included in our books. But we have been working closely with bankruptcy lawyers there. Then as I mentioned, December was very unfavorable for us. It's usually quite a good month, but we once again had a disappointing end to a quarter, and that spills over then to the results clearly. Then we've had some subsidiary-specific challenges such as the low demand on the new construction, as I mentioned, with very weak activity. We've had some extra works that usually have pretty high margins, as I've spoken about historically, which did not have quite as good margins as usual. And some, let's say, minor customers have also had problems with paying up. And with that said, it is a super tough situation in Sweden. We're very humble about that. And with that said, it is back to what we said, I think, in Q2, Q3 that we took, I could say, a diversification path where we chose to grow into the other Nordic countries, which we were very glad for today and, of course, into the U.K. market, diversifying our portfolio and adapting to the various markets that is throughout Northern Europe. And Clear Line came in a bit stronger than historical figures, around SEK 57 million on these 2 months in EBITA. Then looking at the order backlog, as I mentioned, it's on historical all-time high. However, there was some drop organically of roughly 8%, then you can say the Clear Line acquisition also had an increase here of the order backlog of some roughly SEK 1 billion. And as I mentioned also, we've seen an increase in prices that is affecting the order backlog margin. We've seen roughly 1 percentage point increase in the order backlog margin compared to Q3 of '24, excluding Clear Line then, which have obviously a much higher order backlog margin. And with that said, since we are mainly focusing on renovation, as you know, it is also some variances on when exactly the projects will start, it can be some delays when they start. But usually, with the order backlog, it starts roughly some maybe 6 to 9 months ahead, from when you sign the order. So with that said, it's very hard here to see exactly when the increase will come. But clearly positive that the order backlog margin is growing. Then on the cash flow side, we had a decrease here in the operating cash flow, mainly then due to the lower earnings. However, it was a much lower decrease, mainly affected by the working capital improvements. And that I would like to highlight that's been a continued focus for us. We've seen longer payment terms, as an example, from our suppliers, which is clearly affecting us positively here in the cash conversions, and we are roughly at 119% cash conversion for the full year, 220% in the fourth quarter. Then looking at important numbers here on the financial capacity and net debt. The average interest rate was around 6.1% here for 2024. We still have a very short interest rate period, 1 to 3 months. Then our key covenant here is, as I mentioned initially, around 3.3x, which we're monitoring very closely and focusing to decrease, of course. And then we've also converted our credit facilities into a sustainability-linked loan. Then we've added lately 2 new acquisitions. First of all, Clear Line, which I'd like to highlight once more, very strong foundation for this company located in United Kingdom and performs then services on façade focusing on the often-complex high-rise buildings, plenty of façade fire remediation projects, but also more classic façade renovation projects. The thing with Clear Line is that it's a total solution company, which provides design, pre-contract service agreements, delivery and execution to the customers from start to finish, which also stands out, due to the fact that they have all of the competencies in-house. With Clear Line, they also have a very established customer base and a great network in the U.K. and also outside the U.K. But the focus is now, of course, in the U.K. for Clear Line since mainly due to -- remember the Grenfell Tower fire disaster, which was in 2017, which then led to, you can say, a new focus on façades in United Kingdom from the government, not to say the least. And it is a huge problem in the U.K., where these kinds of façades, are dangerous. And Clear Line is one of the experts that are assisting the United Kingdom with implementing new better façades. I would like to stress that this has led to a more professional market in the United Kingdom and ultimately leading them to better, let's say, margin possibilities in the U.K. for our kind of work. Then roughly, we mentioned when we acquired Clear Line that they had revenues of approximately GBP 49 million. Then I'd also like to highlight a new acquisition we made in Q1, which is called Liab Plåtbyggarna and a fantastic company situated in Södertälje, focusing on sheet metal forging assembly work for steel halls throughout Mälardalen and Stockholm area. And they have plenty of industrial customers and various, say, military sector also, customer groups. So we acquired 80% of the company, existing management then holds the rest of the shares, which we think is creating a strong incentive. They had revenues of approximately SEK 80 million in '24, and this has been also a minimal impact on our net debt/EBITDA pro forma. We've spoken to Liab, I would say, more or less first contact maybe 3 years ago. So it's been a long process for us, ultimately leading to this great acquisition. Then, of course, I would like to highlight that we are implementing a new flatter organization as of today in order to create a more efficient governance. So we have removed one level between group management and the subsidiaries and each subsidiary will report to a Chair of the Board. Also to further optimize our governance, we've also then taken a small number of subsidiaries that would be a part of the larger subsidiaries in order to optimize and make the governance as efficient as possible. So that will lead to a decrease in the number of units roughly 10% -- sorry, 10 units. Then looking at the cost side with this setup, we've also seen that there's possibility here and an opportunity to reduce cost and profitability over time with this new setup. So I'm also very glad to be able to present our new group management team, which will then be included myself, Casper Tamm, CFO; Daniél Bergman, Jan Erik Pedersen, Peter Andersen, Johan Fägerlind, Dave Higgins and Petri Mahanen. So we are then, as I mentioned, creating a flatter organization and this group management is also then directly -- some of them are directly from our subsidiaries and representing all of our nationalities within the group in form of where the companies are situated. So with this setup, I'm certain that we will work in a more efficient way and closer to our subsidiaries, which is the key to our success. Then looking at our financial targets and how we have been faring. I mean, '24, I think we will go down to history as one of the toughest years, at least, in our history, if not the toughest. As you remember here, we have a net sales growth target to grow of at least 15% per year over a business cycle. We managed then in '24 to decrease by 3.6%. On the profitability side, we have a target of at least 10% per year over a business cycle, we managed 5.7%. Cash conversion stood out, of course, as I mentioned, on a good level. Capital structure-wise, we have our targets not to exceed 2.5x, and it's currently at 3.3x on a pro forma level. Then we've had a dividend policy, as I mentioned, which has then been removed by the Board yesterday evening. And just to focus on that a bit more then, I think it's clear that we want to create shareholder value mainly then through our previously announced strategy where we focus on taking down debt, improving profitability and then growing mainly through acquisitions, but also organically. And so with that said, we clarified the dividend policy here, meaning that as of now, will not pay any dividend. Okay. So priorities '25 to '28. This is, as you may recall, a slide from the Capital Markets Day, which we held last year, where we had profitability and leverage in the top focus areas. And now we're stressing that once more. It is truly our focus areas now. And we want to focus on ensuring continuous improvements in our subsidiaries, our efficiency in operations and cooperation within the group. And with that, I think we will lead also to a more healthy leverage levels than we are at currently. So with that said, before we open up for questions, I would like to do some concluding remarks. So we see 2025 as it is now, would be a year of deleveraging and the profitability measures. To conclude '24, it was disappointing, even though it was a very, very tough market situation, especially in Sweden. We made a strategic acquisition in Clear Line back in on the 29th of October, which I think is clearly stands out for Fasadgruppen's history, the largest acquisition as of yet and have been welcomed very warmly into the group, and we feel very glad to have welcome such a fantastic company into the group. We have seen some positive signs in the order backlog, as I mentioned, both in, let's say, quarter-over-quarter, but also margin-wise. So some positive signs also on the pricing side. We have created a new flatter organization with more efficient governance. I would like to stress here also that the Chair of the Board of our subsidiaries will be working very closely to the companies and have plenty of experience of running companies themselves. On the profitability improvements and the deleveraging, that's our top priorities now for '25. With that said, we will also be introducing segment reporting in the first quarter of 2025, which will reflect more closely with more granularity on how the group is faring, which I'm very glad to announce today that we will be doing. But we'll get back to that in the next quarter. And with that, we would like to open up for questions.

[Operator Instructions] The next question comes from Elvin Rolder from Carnegie Investment Bank AB.

I have a couple of questions here initially from my side. If we begin a little bit about the organizational measures that you're taking, especially in Sweden. Can you give a little bit more color on why you take these measures now? I mean the margin trend in Sweden and the competitive landscape has been troublesome for quite a couple of quarters now. Is there anything specifically that happened in Q4 and now in Q1 that makes you want to take these measures now? Or can you just comment a little bit more about that?

Martin here. Well, I would like to say that what stands out is, of course, Q4 was not what we planned for. And, of course, we aim to be as close to the subsidiaries as possible. We implemented a new structure in November '23, as you may recall. And our purpose was to work even closer to the subsidiaries with these operations units, and that was not -- I mean, it's impossible to know if those measures that were taken then led to worse results or better results. It's hard to tell. But with that said, what we are doing now is implementing a structure where we are getting even closer to subsidiaries. And I think that is what we are seeing as the most efficient way at the current times. And I think we are very humble about the market situation still. We've seen some positive signs, yes, but there is, let's say, all hands-on deck at this moment because the subsidiaries are Fasadgruppen's total operations, and we want to come as close to the operations as possible at this time, especially, and that's why we are implementing these kind of measures now.

Okay. Perfect. And I mean, roughly what type of cost savings could one expect from this? And is it beginning now like entering Q1? Or will there be some delay before we can see those measures take action, so to say? If you can comment a bit on that.

Yes. I mean, not really quantify that. But I mean, it's, let's say, in the range of SEK 10 million to SEK 20 million. But full effect is maybe a year from now or something like that because it's also hard to tell on how much it will affect on the, let's say, efficiency side where we are working even closer to the companies. But that is yet to come, but we will get back to that regarding how the new organization will fare.

Okay. Perfect. And then a little bit of a question regarding the acquisition of Liab, which you announced a week or so ago. I mean, because I understand that you now want to focus on getting the profitability right for the existing subsidiaries and that you focus on efficiency and trying to navigate this market. But was there any specific reason why you went ahead with the acquisition of Liab anyway? Was it a unique asset in that sense? Or, because I mean, the picture from someone looking on the outside is a bit bifurcated when an acquisition was announced last week and then we see that; you want to stop or not stop but pause it for a while to get the efficiency out of the existing companies. Could you comment a bit on that?

Yes, absolutely. And as I mentioned, we've spoken to Liab for several years. It is a unique asset in that sense where we feel that this opportunity is too good to pass on. And we mentioned also that's minimal impact on the important covenant figures here. So of course, I can see that it can look like that from the outside, but we have been discussing with them for several years and wanting to do this acquisition badly. And it is a unique asset in that sense, and we're very glad to have Liab on board and welcoming them to the group. They also have a very strong order backlog, which we are happy to take part of, so to speak.

Perfect. And then just the final question for me. While we're on the topic of the order backlog. You mentioned, I didn't hear you, I had quite a bad line in the beginning, but you said that the order backlog margin was up 100 basis points or something like that. Is that like a year-over-year sense or a Q-on-Q sense? I mean, how should we think about the increased margin within the order backlog? Because I want to recall that you, during the beginning of last year, also mentioned that, that the margin within the backlog was strengthened. But then I mean, with the picture we've seen during the second half of the year has been, I mean it's obviously quite a weak margin in Sweden regardless, so if you just can comment a bit on how we should think about when that margin is executed and just some more color on that.

Yes. So what I said, Elvin, was that, yes, if we exclude Clear Line, the order backlog margin is up roughly 100 basis points quarter-over-quarter, Q3 '24 compared to now then Q4 '24. And yes, we've also seen some strengthening during '24. But remember here that the order backlog margin does not give the full picture. Usually, a project that we get, grows by roughly 20% to 30% on extra work. There's still the same amount of extra work in properties, but the customers are more price-sensitive in a sense. So with that said, it is hard to determine where these kinds of extra work are going. But what we've seen historically is when, let's say, in better times, there is plenty to do for all players, meaning that once you have a project, you are kind of inside the loop. But in tougher times, there are, let's say, more players and more competition are also around extra work where the customers have the possibility to make contact with several competitors to bring the pricing around this kind of extra work down, which leads to ultimately weaker profitability for players. So with that said, we've mentioned that on a new build basis, yes, we are renovation, but the total market is still affected by the weak activity on the new build side, meaning plenty of players are still in the loop for this kind of work. However, we've seen some easing, yes, but obviously, then not enough to distort the kind of, current numbers.

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

Thank you. So we have received 2 written questions. It sounds like you have closed the line of Elvin maybe, but we'll continue. So they are on the same theme. What was Clear Line's EBITDA contribution and adjusted EBITA contribution from Clear Line in the quarter? So 2 questions.

Yes. So EBITA for Clear Line is quite close to EBITDA. They have very little depreciation. And on an adjusted EBITDA contribution, it was on the same level. There were no adjustments for Clear Line in the quarter. You can find the performance for the fourth quarter for Clear Line in Note 8: Business Acquisitions.

We have also received another question here. Well, actually 2 questions. So we can take them both at the same time. So first, when do you expect to see an uplift in the Swedish market? And the other one is on a bit different theme. Can you give some more details on the tax expense in the quarter?

Yes. As you have seen probably, we had quite a high tax in the fourth quarter here and also on the full year. And this is then -- the reason is the non -- the tax deductible cost that we have. And that makes up mainly of our write-down of goodwill and trademarks which was approximately SEK 35 million, and then also acquisition costs that we have had during both the quarter and the full year. So that's the main reason. And then the comparison between these costs and the weak result before tax, then that's the reason that we have this abnormal motive.

Yes. And then the other one then on the Swedish market, Martin, maybe you want to comment on that.

Yes. So we are humble about when we see an uplift in the Swedish market, of course. I mean if we should, let's say, look into some kind of directions where we see customers uptick and more demand, I would say, in the second half of '25, we see some improvements, but it's too early to tell.

And then actually, we are receiving a few more questions now in writing, so I will continue. So there are quite a lot of one-offs, SEK 35 million for M&A, and SEK 10 million from the Serneke bankruptcy. Would net profit be positive without them?

Maybe we have to double-check that, but I think on the net-net, yes, probably.

And then looking at the interest rates, Q1 2025, how much will they decrease?

Yes. I would say on the interest rate level, of course, the STIBOR, which we are connected to is on a lower level than a year ago. But at the same time, it is, let's say, we have a range where we see, let's say, a range between how our leverage covenant is compared to the underlying STIBOR 180 days. So with that said, it's a bit too early to tell exactly how much it will decrease. But we can double check that if you want to write us to our Investor Relations mail.

Okay. Then I think we have reached the end of the Q&A session. So Martin, if you want to make any concluding remarks once more.

Yes. I think we've gone through it all. Of course, super tough '24, all in all. When I've spoken to, let's say, entrepreneurs who have been with us for a very long time, they also bring some memories back to the situation in Sweden, which was at the beginning of the '90s compared to the '24 levels. So that says something about the tough situation as I would like to say. But with that said, we are positive on the future. We are full of confidence that we will get through this even stronger. And I will also take the opportunity to thank all our employees for their outstanding work. I know it's tough out there. But together, we will make this a fantastic company. So thank you for that.