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

Hello, and good morning, everyone, and welcome to this Q1 call. And here in the room we have our CEO, Martin Jacobsson; our CFO, Casper Tamm; and me, Magnus Blomberg, Head of IR. With that being said, I hand over the word to Martin. So please go ahead.

Thank you, Magnus, and good morning also from me to everyone. I am glad to present the Q1 results for Fasadgruppen today. So let's dive into the presentation. So first of all, we implemented a new organization here in Q1, to a more flatter organization and partly new group management team as well. And I'm pleased with the development so far with the organization in place and the new group management team. It's been well received throughout the organization. In the quarter, we saw a continued organic sales decline, roughly 10% down. And that was mainly due to the low new build activity we've seen in the market, well, pretty hesitant markets around the new build activity still. And pretty early to tell here where the new build market is going. But in the quarter, at least, we saw still muted activity. In Q1, we also achieved an adjusted EBITDA of roughly SEK 77 million compared to SEK 20 million in the same period last year, meaning a margin of roughly 6.5% compared to 1.9% a year ago. It was a strong contribution from Clear Line in the results. We'll get back to that. In the important order backlog, we saw an organic growth by roughly 4%, mainly driven by the Swedish entities. And that was the first organic improvement in order backlog in the Swedish entity since 2022. So that's quite positive, as we see it. Then for the first time we also present our new segments for transparency reasons mainly. And we've divided into 3 divisions or segments called Total Solutions. The Total Solutions segment, that's where we, you could say, mainly have the full ownership of the project. We coordinate various services on the building envelope, that's the main focus for the Total Solutions segment. Whereas in the Specialist Solutions segment we provide a niche service and mainly work as a subcontractor. In Clear Line, it's quite obvious, it's only Clear line. And we have it as a own segment due to large importance for Fasadgruppen. And then looking at our net debt to adjusted EBITDA pro forma that came in at 3.25x in the end of March, and that's down slightly from Q4, it's noteworthy. And still focus here on taking leverage back below 2.5x in accordance with our financial goals. So moving on to net sales. We saw a total increase of 12.2%. And as I mentioned, it was down roughly 10% organically. And some more flavor to that. If we divide it into various geographies. In Sweden, we saw double digits down. In Denmark, it was slightly up. Norway and Finland slightly down. And in Sweden, as I mentioned, especially when we saw continued low activity in new build. Remember here that back in -- go back to 2023 where was an okay new build activity. There were some spillovers into Q1 2024, and that affects these numbers. Then if we move on to our segments, our new segments. Total Solutions segment was down roughly 10%, of which then 14% was organically. And the Specialist Solutions was actually up 3.4% in total, but down 6% organically. Both of these segments were mainly affected by the lower activity in Britain. And then Clear Line had sales of SEK 174 million. We don't have a comparison number here since they were acquired in the last of October here last year. Yes, move on. Then looking on the results on an adjusted EBITA level. As I mentioned, a result of roughly 77%, margin of 6.5%. And all in all, you could say, of course, Clear Line is performing according to plan, which is important for us, obviously. And then of the SEK 77 million stood for roughly SEK 61 million of adjusted EBITA. Looking at the Total Solutions, we came in at an adjusted EBITA level of SEK 23 million roughly, a margin of roughly 4% compared to 5% a year ago. On Specialist Solutions, we saw an adjusted EBITA level of SEK 13.5 million, a margin of 3.2% compared to 1.3% a year ago. Then looking at the total adjustments of the Group, it was roughly SEK 2.5 million, so nothing out of -- nothing special there really. And I'm pretty glad to see that the EBITA, if we take a look at it on the last 12 months have improved here, if you compare -- if you take a look at the graph on the right-hand side, the trend is going in the right way. And then moving on, take a look at the order backlog. As I mentioned initially, we saw an organic increase in the organic order backlog of roughly 4%, and that was mainly driven by renovation demand. And if we take a look, once more, at the various geographies, it was quite flat development in Denmark. Norway was actually down significantly compared to last year, and Finland significantly up. Sweden was also a strong set of numbers compared to last year, if we take a look at the organic order backlog. Then obviously the strong increase in the total order backlog was heavily affected by the Clear Line acquisition, which was not part of the group a year ago. So now we reached an order backlog of roughly SEK 4 billion here. And when we take a look at the order backlog margin, that was pretty stable compared to the Q4 numbers here. So nothing really dramatically in the order backlog margin since Q4. If we take a look at our various segments. In Total Solutions, we saw an organic decrease of roughly 2.2% in the order backlog, but up somewhat on a sort of level. Specialist Solutions, we saw an organic increase actually by roughly 9%, and also then up on a total sort of level. Then Clear Line's order backlog came in at roughly SEK 800 million, somewhat affected by FX. And what you could say in general by the -- for Clear Line, we've seen a very strong demand throughout the quarter. And their kind of niche services is still very much in need going forward as well. Some general comments as well around the market. I would say, we've seen obviously lower interest rates. And all in all, that's net positive for us and our customers. And we've seen especially then in public tenders and housing associations, positive development around the demand situation. Then moving on to cash flow. Since we've seen now that the business is ramping up, that has had an effect on our cash flow. So we are, you can say, the net working capital is roughly minus SEK 127 million. And that's an unusually, you could say, strong number in one way because it's a net positive for us that the business is ramping up. But of course, it negatively affects our cash flow in that instance. Then we also have a one-off that is then in conjunction with the Clear Line acquisition of roughly GBP 3 million that was paid out here in the quarter. You could say a delayed payment in conjunction with the Clear Line acquisition. Yes, moving on. Okay. We take a look at the financial capacity and our net debt. We saw the interest rate was pretty stable. We continue with the interest period of 1 to 3 months. And as I mentioned initially, the net debt to adjusted EBITDA pro forma came in at 3.25, somewhat down compared to Q4. And this is obviously a focus area for us. We continue to monitor this going forward as well. Yes. Okay. Then we wanted to give also a deep dive in historical cash flow for Clear Line. As it's so big part of the Group, and we wanted to give some granularity and transparency for Clear Line. All in all, Clear Line delivers strong cash flow with low CapEx needs. And as you can see in the table on the right-hand side, if we take a look on the 3-year period that is closely similar to Fasadgruppen as a fiscal year, remember, Clear Line had a fiscal year-ending end of March. But then the 3-year average of the cash conversion is roughly similar, as you can see. So Clear Line had roughly 87% cash conversion similar to what Fasadgruppen had in roughly the same period. So we can expect similar pattern as Fasadgruppen in cash conversion-wise going forward. Hopefully, we can improve it somewhat. Then just to clarify, there is a line here called EOT contributions in the Clear Line statement. That is then connected to when Clear Line acquired, we can say, the employees and the management acquired the company from entrepreneur and repaid throughout these EOT contributions to the entrepreneur. It's just important to note that was a big, you say, distortion in the cash flow. If there were any questions about that, then we've shown this now what happened, so to speak. So nothing unusual there. And with that said, I want to reaffirm our priorities, now and forward. So still focus on profitability and leverage. Obviously, this is the same as we mentioned in our Capital Markets Day here last year. And of course, we want to ensure the continuous improvements in our subsidiaries. We want to still focus on our efficiency within the Group and the cooperation within the Group. And as I mentioned initially, with the new organization in place, I see this as going according to plan, and I'm pleased with the development so far. Then on the leverage side, we've talked about that. Of course, it's a focus area to decrease leverage. Okay. And then some concluding remarks before we open up for questions. So we've seen a stronger order backlog and some positive signs in the market with that, especially in the Swedish market. But also still a low activity within new build. So it's not -- it's too early to tell if it's -- how the year will pan out if we put it like that. Then if we look at what we've seen business-wise, it is really ramping up, and that's having a negative effect on our cash flow here in Q1. I'm also pleased to say that Clear Line is performing according to plan. And focus forward is still on profitability and our deleveraging as we've talked about. I think that sums it up pretty well. And with that, we open up for questions.

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

I just have a couple of questions here. If I begin maybe on the cash flow side. I can see that -- I mean, the working capital is quite negative here in Q1. But then also we have higher adjustments for noncash items. And you mentioned that there was GBP 3 million there from Clear Line affecting the working capital. Is that portion offset by the noncash adjustment items as that is not seemingly fully explained by D&A items and such? Or can you give a little bit of comments so we understand the dynamics of the working capital in Q1 and how we should think about that in Q2 and the coming quarters?

Yes. Well, mainly you can say that working capital that is such a big negative is, of course, in one way a positive, as I mentioned. Since when you start a lot of new projects, there can be some initial purchasing around materials, as an example. And I would more put it like with this kind of net working capital situation, you could more expect an increase in the business, as the business is ramping up in that instance. And I think it's too early to tell whether how this will pan out for the rest of the year, if that's the question. I think in Q1, there has been a lot of project starts. And it's more like you could see that this is start-up cost, you could initially say. But I don't know if that answers your questions, Elvin, or if you had any more thoughts about that.

Well, yes, partly. But just one question maybe so I understand because the adjustment for noncash items is, let's say, SEK 135 million here, whereas depreciation and amortizations and such were SEK 75 million, if I'm not remembering wrong here. Is the difference there explained by this GBP 3 million related to the Clear Line because what explains that difference? Because it seems that offset the negative.

Yes, it's Casper here. No, no. I think when you look on the adjustments for noncash items, the big difference there is the exchange rate differences, which we have had on the income statement. So that's the main reasoning because they are not cash flow driven, so to say. It's just recalculations, to say, of our loans and things like that. So that's the main reason why it's increasing here.

Okay. Perfect. And then I mean you talked about a little bit, I would say, more positive renovation side of the market, whereas new build continues to be quite low. Is it possible to give any comments on the margin for the projects that you're taking in now on the renovation side? Is it a similar kind of pattern as we've seen in the last couple of quarters here? Were still, I mean, lower prices than normal? Or have you seen any changes there, Q-over-Q or year-over-year that you can comment on?

Yes. So we mentioned regarding the order backlog margin was quite stable in Q1 compared to Q4. But it is, I can say, a mix of new kind of new orders, I would say, of course, in some geographies, if you put it like that, like Sweden. We've seen an increased demand and hence forth, we've also managed to raise prices, but somewhat an offset in other markets. But as I usually say, remember that the order backlog margin is not the true answer to what it will be at the end. You can say like this when you -- to write a contract is one thing with the customer, but that's when the project starts. And then you have a lot of work ahead of you, of course. And with that said, then the project will move forward in either in a better situation than we thought initially or worse. And there are various things that affects projects along the way. So it's not like the initial price is everything, but in total then, as I mentioned, it is on a stable sort of levels since Q4. But in various geographies, there are some positives, but also some negatives in other geographies. But at the end of the day, it does not give the full picture. Because as you remember, Elvin, we talked about this before but, usually, our project grows by roughly 20%, 30% along the way in various extra works, you could say.

Yes. Good. Then I just have one final comment here regarding, I mean, calendar basically in Q1. Has there been any help here in Q1 that we should take into account going into Q2 with the effects of Easter? Or how should one think about that coming into Q2?

Yes. Good question, Elvin. Yes, of course, Easter was -- since Easter is in April this year and last year was in March. So in March this year, of course, obviously, was somewhat helped by that. And then it will be somewhat negative for this year, absolutely. But that's, I would say, it's hard to tell exactly how much it will affect. But since it was in another quarter last year, that distorts the comparison figures, yes.

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

All right. So we have a few written questions here. The first one from [indiscernible] here. If you could elaborate a little bit on the Clear Line order book decline. And also what Clear Line the comparable numbers to Q1 2024?

Yes. Yes, absolutely. So yes, there was a decrease in Clear Line's order book. And that was somewhat, you could say, distorted by FX since the British pound was weakened here compared to the Swedish krona. And then we've also seen that it's more of a seasonal pattern in that instance. So it's nothing unusual that I'm worried about in the order backlog for Clear Line. And regarding the comparison figures for Clear Line, we write that in the report as well. But we say that for Q1 here in '25, the margin for Clear Line was somewhat better than the average margin in the same period in the last couple of years here. So that's a net positive on that side.

Right. Moving on. If you could elaborate on the, so to speak, old FG, I mean Nordic Fasadgruppen, which has margin in line with the comparison period. Do you see any improvement of profitability going forward?

Yes, the usual, let's say, outlook question. But I mean, obviously, there are positive signs in the market, but also, I mean, some negatives. So it's actually too early to tell here, Max. It's a mixed kind of set of numbers in that instance. And obviously, we've said it before that on the net side, '25 has the opportunities, if you put it like that, to be better than '24. And I think I can stand by that comment still.

And moving on, we have several questions, of course, related to our leverage. Could you elaborate a little bit on that part going forward to Q2 and Q3?

Yes. So of course, leverage, we spoke about that in the last quarter report as well regarding our covenant situation as well. So if you remember here towards our banks, we have an agreement in place that the cap on covenants should decrease during 2025, you could say. And obviously, a key focus area to be within agreed levels. And there are various, let's say, solutions to that. And we want to optimize Fasadgruppen in that way that we still run as efficiently and profitable as possible, but still have that, let's say, covenant level in regards to the situation. So of course, I'll put it like this. The net debt situation is, I stressed it enough, but a focus area. And of course, throughout the year, we usually put it like this. Usually, we have a large dividend or a dividend at least that is due to be paid here in Q2. We don't have that this year, so that helps. We've taken a lot of various actions around cash flow and leverage, which we see as good measures in order to be within our agreements.

And speaking of cash flow, big increase in the working capital? Do we see any credit loss risks here?

Not really. Of course, there were some bankruptcies, especially, in Sweden on large construction companies. And we've talked about those before, and we were affected back then. But we don't see any credit risks here at this moment, of course, continue to monitor that closely. And you can also be quite proactive in various projects, which we are -- I see it's also a focus area for us to don't not end up in a situation like that. And you can also ensure some credit, you can say, some invoices in that instance. So that can also affect positively in such regard if something like that would happen.

Okay. You mentioned that our orders typically grow at 20%. And we see, how was the sentiment among the extra work developing in the quarter?

No, this is also affected, you could say, by the competition landscape -- competitive landscape. So if we take Sweden once more, which was affected, especially in 2024, where we had, say, various competitors that were into this kind of extra works. Some actually went bust. There's been a lot of bankruptcies within the construction sector in Sweden, which is ultimately positive for us. And we've also seen, I don't know if people have read that, but there's a new, that says, government subsidy as well, meaning that it could be positively for these kind of smaller players to be more affected to, let's say, the smaller works side towards private individuals because they get a new kind of subsidy from the government. And that's also an indirect positive effect for us as we move towards those kind of projects instead. We are, as you remember, mainly a business-to-business company then, of course. And so I mean, with that said, the buildings that we work on are still in the same bad shape, if you put it like that. And usually, still the same amount of extra work that is needed on each of these older buildings that we renovate. So with that said, since Q1 is, remember here, the smallest kind of quarter for us as well. So now that the business is ramping up, this is something that we will monitor, of course, closely and be as proactive as we can in that instance to take full kind of advantage of the situation. And hopefully, we can see some dynamics going back to, let's say, the more normal pattern.

And another question. Are you planning to buy any more companies in Denmark since it's going quite well?

Denmark is going quite well, absolutely. And of course, we are looking into acquisitions in our various, let's say, geographies. But of course, as we mentioned, focus is now on profitability and leverage.

And if you could elaborate on the margin going forward? Do you have any comments on that, Martin?

The margin going forward. Well, not really.

All right. We have another question here on the line. So operator, if you could please connect us with Elvin.

Question comes from Elvin Rolder from Carnegie Investment Bank AB.

Sorry, I just have one more question regarding the timing of earn-out payments. I see you have -- is it SEK 88 million here that is expected to be paid out within 12 months. Can you give some comments on the timing of those cash flow outflows, so to say?

Yes. Well, it's not been finalized yet, Elvin. So it's too early to tell actually. But within 12 months, but not really any more comment than that.

All right. So no more questions for now. And I'll hand over the word back to you, Martin, if you have any concluding remarks.

Yes. Okay. Thank you, Magnus. Well, I'm pleased with the development for the organizational structure so far. And we are poised to take full advantage of the market situation here for 2025 going forward. So I am excited for 2025 and hope that you are too. And next week, we will have Annual General Meeting here. And if you have the possibility to attend, you're more than welcome the last day to notify your attendance is today. So I want to say you're more than welcome to attend as a shareholder. And with that, I'd like to wish you all a pleasant day and hope to see you again in the next quarter, which we will present in August. Okay. Thank you.