Green Landscaping Group AB (publ) (GREEN) Earnings Call Transcript & Summary

Hello, and welcome to the Green Landscaping Group AB conference call. [Operator Instructions] Today, I'm pleased to present the CEO, Johan Nordstrom; and CFO, Carl-Fredrik Meijer. Please go ahead with your meeting.

Thank you very much, [ Acquasi ], and welcome to the fourth quarter of 2020 report. As mentioned, my name is Johan Nordstrom. And together with me here today is our CFO, Carl-Fredrik Meijer. And with this short introduction, I suggest we dive into our report. So next slide, please. Now a short introduction to Green Landscaping. Green Landscaping is the leading Nordic landscaping provider. We consist today of 27 subsidiaries located both in Norway as well as in Sweden. And we firmly believe in our decentralized operating structure. This enables us to be close to our customers and have a local decision-making process. We have a large and extensive customer portfolio with very diversified contracts. And we have become the leading consolidator in the Nordic landscaping market. And we just did 7 acquisitions in the year of 2020. Next slide, please. So for the key financial for the last 12 months of the year of 2020, we have a net sales of SEK 2.1 billion. We landed an EBITA of SEK 101 million. And that gives us an EBITA margin of 4.7%. Order backlog has grown significantly and amounts to SEK 4.4 billion. And last year's acquired company had together an annual sales volume of SEK 650 million. And today, we are 1,357 employees. Next slide, please. Now for the fourth quarter alone, we grew by -- or sales grew by 29%. So that's a very high growth. The organic growth was a negative 0.5%. And as we've mentioned previously, we had a discontinued unit in the Stockholm area. And as we adjust for that one, the organic growth amounted to 1% for the fourth quarter. EBITA amounted to SEK 33.3 million compared to SEK 15 million previous quarter -- the previous year. And that amounts to an increase of 120.4%. And that gives us an EBITA margin of the fourth quarter to 5.1% compared to 3%. We had a very strong cash flow in the quarter of SEK 100 million. And net debt grew from SEK 690 million to SEK 796 million. And that is primarily due to that we are acquiring businesses. And subsequently, 3 companies were acquired during the quarter. And that was Oveland Utemiljø in Norway, Bengtssons Trädgårdsanläggningar in southern part of Sweden as well as Thormans Entreprenad in the mid of Sweden. Next slide, please. So if we take a somewhat longer view on what's going on here with the revenue as well as the profitability, we can see that we have a very positive development of both revenue and margin over the years. For the year of 2020, we are not -- I'm not overly happy with the financial development. It was a very challenging year. We had, in the first quarter, a very mild winter that, to some extent, hampered the development. We have also had some integration costs during the year. And as we all know, COVID-19 has been slow for the business and had a negative impact. So taking those challenges into account, I still believe that we had a very strong performance, given the challenges. Next slide, please.

The order backlog amounted to SEK 4.4 billion end of 2020, which is up 24% compared to Q4 last year or 2019, when it was SEK 3.5 billion. And this is primarily driven by the orders or the contracts stemming from the acquired companies, especially the companies operating in ground maintenance, which often typically have long contracts. And I mean, this is a reminder again that this is a quite diverse customer base. And our 27 business units each have many contracts, up to 100 contracts each, building up to this total order backlog. Next slide, please.

Okay. Just to give you a flavor of what type of work we are doing and how it looks in our business. We have one example here from the fit of Linköping, where we have previously one company, Green Östergötland, and then we acquired Thormans in the same city. And they have a municipality with Lejonfastigheter, and they had a tender process with 3 contracts and we were able to win 2 out of 3. And what was significant in this tender process that the evaluation was -- we're seeing a focus and lean towards the quality aspect of it. And if we look upon the competition compared to our companies, we saw clearly that out of 200 possible points that the bidders could achieve, we had 161 and 154 while the average was 89. So when it comes to quality and the companies we have, we see that we have an advantage over the competition. And mostly, that's how we operate that we have 2 companies in 1 area and they are bidding for the contracts in competition, both with other competitors but also among themselves. So that was a good example of how we operate on a local basis. Another example would like to -- next slide, please. Another example we would like to show that the JE Mark in Stockholm. And it's a typical stone-laying business, where you have natural stone in, I would say, a high-profile building and it's a quality work. So that's the type of work we are doing. And this is just the end result you can see on the picture. Next slide, please. The following example is from Norway, where we have GAST Entreprenør who is doing the work. And it's an upgrade of a preschool area of 2,000 square meters. And we basically do anything from surface water drainage to the different equipment for the playgrounds and bicycle parts and that type of thing. So that's a great example of the type of work that we perform. And in this case, it was GAST Entreprenør in Oslo who had done the work here. Next slide, please.

So the fourth example is something that is close to our hearts. And this is to increase the biodiversity in our cities. So this is our subsidiary, Jacksons Trädvård, who have created something called mulm boxes, which is basically a hotel for insects. So you can see, you place these in the nature and these are also used as seating benches. But they're quite beautiful and looks nice in our opinion. Next slide, please. When we look at our segments, it's more or less the same story that we had last quarter, which is that if you look at the year-to-date or 2020 numbers, you can see that the margins are quite healthy in 4 out of 5 regions. And we have North in the top followed by the others. Like Johan said, we are not happy with these margins. And we have had some headwind during 2020. What happens from the 1st of January 2020 is that Norway will become its own region or segment and Region Mid and North will merge into one. And then we will make some small adjustments to the names of the regions as well. So we'll come back to that when we start reporting 2021. Next slide, please. Financial position. The net debt in relation to EBITA was 2.8. And we believe that there is room for continued acquisitions with this leverage. We had a very strong cash flow from operations after leasing payments of SEK 82 million in the quarter and SEK 116 million in the year. And it's worth to mention that SEK 48 million of these came from reducing working capital in the quarter, which is something that we always work very hard to do. Like we mentioned before, we did a rights issue to, let's say, fuel the acquisition pace. And I think we delivered definitely on that, which Johan will come back to in a minute. And we used SEK 364 million for acquisitions during 2020 for acquiring these 7 companies. Next slide, please. Over to you, Johan.

Okay. Thank you. So we talk about acquisition here, and acquisition is a vital part of our strategy. And really, it's about buying profitable companies led by great entrepreneurs. And in the year of -- or the last year, I would say, we have been able to acquire 7 companies. And it started out with GAST Entreprenør in Norway. I believe it was in February, together then with Park i Syd in Malmö, also in February. And that's 2 quality companies that joined our group. Then right before the summer, we had TH Anlegg, who came aboard and had become a part of GAST Entreprenør. And then after the summer, we made another company who came aboard. That was Hadeland Maskindrift in Norway. It's a fairly big company with an annual revenue of SEK 240 million. And that was followed then by Bengtssons, which is a well-established company in the southern part of Sweden, subsequently followed by Oveland and Thormans Entreprenad by the end of the year. So the grand total was SEK 650 million annual revenue and 7 companies. So focusing in on the last acquisitions we made, that was Bengtssons Trädgårdsanläggningar. It's a very well-known company in the southern part of Sweden. It's managed by Bo Bengtsson. And he has been in the business for 35 years. And this is truly a high-quality company with, I would say, an extremely strong company culture. So it was a great fit to our decentralized model. And they really know what they are doing and they are quite profitable. So it was a nice -- very nice addition to the group. Then this was followed by Oveland Utemiljø. Oveland...

Sorry, Johan, this is Page 15 now, Page 15. Just flip slides in the presentation to 15.

Okay.

Yes. I'm just telling the operator. Go on, Johan, sorry.

Okay. So are we talking about Oveland now?

Yes.

Okay. Great. So Oveland is located in the southern part of Norway and came aboard by the end of the year and is managed by 2 very skilled entrepreneurs. And we are quite happy with them coming aboard as a part of Green Landscaping. They have an annual sales of about SEK 50 million, they are making profit and they have 50 employees. And then the last one was Thormans Entreprenad. It was founded back in 2003, also led by, I would say, 2 skilled entrepreneurs. It's a quite big company. They have an annual sales of SEK 100 million with 100 employees. And we are happy to have them aboard as well. Then we are moving to next slide. It seems we have some disconnected -- financial targets, Page 17, right?

Yes.

Okay. Great. So to our financial targets, we have a target of growing by 10%. And for the year 2020, we managed 7.1%. So that's slightly below our target. However, we have a CAGR of 23% in growth in 2015. So we are still a fast-growing company, even though 2020 was a bit of a slow year. We have the goal of EBIT margin of 8%. And right now, we are at 4.7%. And as we mentioned, we are not that happy with the financial performance of the year 2020, even though it was a challenging year, so we have several companies who have done extremely well. But the winter was tough both in the first quarter as well as in the fourth quarter of 2020. We had the headwinds in the COVID-19, and we have had some integration costs in -- which we have taken over the result and not adjusted for it. So overall, the financial level, so to say, could have been better. But the performance of the entities was quite strong given the circumstances. In terms of leverage, we have a goal of not exceeding 2.5. And right now, we are in 2.8. And we are actively acquiring companies. And that is, I would say, hugely value-accretive for the shareholders. So we are a little bit on the high side. But as we move on into the future here, I believe that we will stay at this level and subsequently come down. Then we have a goal of dividend that is at 40%. And as we are building up the market and building up the company, we have not historically had any dividend at this point of time. Next slide, please. So to sum it up then, we had a quarter with, I would say, very strong growth of 29%. We improved the EBITA margin by 2.1% to 5.1%. And we completed 7 acquisitions during the full year. So all in all, we are on track with the company, and I believe we have a very strong performance. And in particular, it's looking very good into the future. I believe that was the end of the presentation here. And by that, we hand it over for -- to [ Acquasi ] for questions. Thank you.

[Operator Instructions] Our first question comes from Fredrik Moregard from Pareto Securities.

First off, a question on M&A because, obviously, we had a very vivid year, especially towards the end of 2020 with several acquisitions coming on board, several of those with strong full year margins. I was hoping you could give us some indication of how much acquired companies contributed to EBITA growth in the fourth quarter.

We are not -- sorry, Johan here. We are not disclosing that -- those numbers at this point of time.

Okay. Is it possible to say something about how those margins compare to, so to speak, the organic margins that you have within the group?