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

Ladies and gentlemen, welcome to the Green Landscaping Group Audiocast Teleconference for Q4 2021. [Operator Instructions] Today, I am pleased to present CEO, Johan Nordstrom; and CFO, Carl-Fredrik Meijer. Please go ahead.

Thank you very much. And as mentioned, welcome to our fourth quarter presentation. It's myself, Johan Nordstrom. And together with me here today, we have our CFO, as mentioned, Carl-Fredrik Meijer. So let's start with the presentation and move into Page 2, please. And as can be seen, we had a very strong quarter where we reached SEK 957 million in sales, representing a growth of 46%. So it was a fairly good growth, I would say. Profit-wise, EBITA, we came in at SEK 83.5 million, and that is also a significant improvement compared to previous year of 153%. Earnings per share in the quarter amounted to SEK 0.61. That is also an increase of close to 50%. Cash flow, not that strong, really. The reason being that we had a very high activity in terms of sales, and that means that we have a high accounts receivables. In terms of leverage, that one went down to 2.4x. So that is moving in the right direction. And also, in the quarter, we were joined by four great companies who are acquired and is now part of the group. And also, we have -- since the ending of the report, we have been increased by 2 additional companies. So in total, we have grown by 6 companies. So all in all, strong development, in particular, Norway, and the newly acquired companies are moving in the right direction. And also, as can be seen, the difficulties we have had in some of the entities in the Stockholm region are also improving, and those are the reasons behind the very strong performance of the group. Next slide, please. Taking a somewhat longer look, we're talking about the CAGR for the last 3 years in terms of sales. They were growing by 39%. So it's still a fairly high pace. The mainstay of the growth comes from acquired companies, and that means that we reached sales for the last 12 months of SEK 3.1 billion. Profit-wise again EBITA, we are growing quite rapidly by 135% for the last 3 years, and that also meant that we reached SEK 232 million by the full year of '21. Yes. Next slide, please. And here, we can see the organic part and also the acquired part that is behind the development of the company. And just a note on the organic growth there that last year, if I recall correctly, we had about -- I think it was a negative 5%. So there is a seasonality in terms of how the winter and the weather conditions. And we are working outdoors. So of course, there is some dependency on the weather. But over time, as we can see here, the trend is moving in the right direction. So even if we have a variation over the quarters, the trend per se is that we are growing very nicely organically with the markets. In terms of acquired growth, that is 32% -- 32.7%. And I have to say, I'm very happy with the new companies coming in and also those who has been with the group for quite some time, that they are developing and moving in the right direction. Meaning that our strategy of decentralization is effective and working for us. Next slide, please. Now we have a short presentation of the companies that came into the group during the quarter. So let's start by Håkonsen og Sukke. It's a Norwegian-based company founded back in 2008, led by 3 very skilled entrepreneurs that fits really nicely into the group, I would say, the sweet spot. As can be mentioned, the company was not really for sale, but we knew about the company. They knew about, in particular, Akershusgartneren, bought another few companies in Norway. And then, of course, we had discussions with them over time. And then eventually, they became a part of the group. And we are quite happy to have them as a company inside the group. So it's a good example of really a sweet spot company. Revenue-wise, SEK 170 million, 90 employees and again, led by three, I believe, are skilled entrepreneurs. Next slide, please. Following the previous acquisition we did, we came to talk to Hermansen Maskin AB, also a Norwegian-based company. That is Oslo region and Southwest of Oslo, where they're operating in. It's led by a gentleman by the name of Arild Hermansen, who is a very skilled entrepreneur and also fits very nicely into the group. Annual revenue of about SEK 75 million. Great addition to the group, both geographically and as well as the type of work he's doing. Next slide, please. And now we are moving to Finland. Here, we have Viherpojat, and that is, I would say, a very stable company. It was founded back in 1992. It's led by a gentleman by the name of Anssi, who is also well known by our colleagues in Finland. He fits very well into the group as well. So we are happy to see that we have the momentum going in Finland and that we have a critical mass of companies coming into the group in the Helsinki area. So it's a good addition to the group, and we do welcome those companies. Next slide, please. In Q4, we acquired Markbygg Anläggning Väst AB, who was founded in 2000 by Stefan Lundh and a companion. It operates in Västra Götaland in Gothenburg, and it's based in Uddevalla. This is a company specializing in water and the sewage segment. We are very impressed by its bidding skills and operation skills. And this is a very good cultural fit with the other companies we have in the group. The annual sales is about SEK 280 million. There are 60 employees, and we closed the deal in 2022 -- in January 2022. So we're quite excited about having Markbygg on board. Next slide, please. Another company acquired, a smaller one, it's Utemiljö Skellefteå, which is the first acquisition in Region North. It was founded back in 2003 by Mats Boström and Rickard Linder, operate in Skellefteå. And this is a landscaping and winter services type of company, 6 employees. So a very welcome to the group. Next slide, please. So now we will give you example of some of the projects that we are doing to show you the breadth of services we provide. We do, as you know, thousands of projects each year. So this is only a small selection. And this is -- the first one is from winter and Christmas decorations, which seemed a long time ago now. But this is an example of how we create value in our society. So many of our companies put up this type of lightning shows around the countries we operate in. Next slide, please. This is an example of development of residential areas, and this is from our new company, Hermansen. It's in the Southwest of Oslo, [ Sunne ]. And this a bit more light construction work or light infrastructure where we actually prepare the ground before the housing is built. And then in the end, we do landscaping work. And this is quite large contract, and it will continue for years. Next slide, please. The third example is a new ground maintenance agreement in South of Sweden, Green Landscaping Malmö. And it's for the housing company -- a municipal housing company in Vellinge. So this is a SEK 3 million contract, which will go on for 6 years. And this is the type of -- kind of the backbone type of contract that we deliver in our ground maintenance business. Next slide, please. The fourth example is of a project delivered to the church, which is a large customer to the group. It's this type of -- one it's an ash burial site in Falun, and this is delivered by Svensk Markservice via Lund. So it's a bit of a smaller size type of -- or normal size project for us of SEK 1.5 million. Next slide, please. So looking at the order backlog, it has increased by 16% to just above SEK 5 billion. We had no large renewals in Q4, but the order backlog is strong anyways. It's worth mentioning here that we have lately acquired more landscaping type of companies, which have an order book of 3 to 6 months normally. So it will not grow in the same pace as if you -- when we acquire the maintenance companies with 3- to 5-year long contracts. But we see -- we are happy with the order backlog we have at the moment. Next slide, please. Performance per segment. So we saw strong growth in segments mid-North and Norway in the quarter. We had a positive margin development in Region South, Stockholm and Norway. And I want to highlight three of these and comment on them. The first one is that we see a positive trend in Region Stockholm. This is the second quarter where we see profitability increase. So we believe -- yes, we consider that to be a trend and look forward to the future. Next one is that we had a very strong performance in Norway during the fourth quarter. And this is -- yes, I mean, great companies are delivering great results. And we did have some winter in Q4, which also improved sales and profitability. Looking at Region Mid, it was a very weak quarter. And it was part or mainly impacted by restructuring costs in 2 months, which was a defensive acquisition we made back in 2020. So that's why we see a negative margin development in this quarter in Region Mid. And then lastly, we can also comment that we had a somewhat higher M&A costs and some onetime costs for decentralizing our shared service center as well as creating new subsidiaries from old Green Landscaping and Svensk Markservice. Next slide, please. Looking at the financial position. As Johan mentioned, we had a cash flow of SEK 40 million, down from SEK 100 million last quarter. And this was impacted negatively by higher net working capital as we have very high accounts receivables outstanding, which is driven by the strong revenue growth. We had cash flow from operations of SEK 174.5 million during the year. Leverage is 2.4%, which creates room for acquisitions. Liquidity was good. We secured a new financing facility of nearly SEK 2 billion to refinance the current debt or the older debt and to be able to anticipate further growth. Solidity was 28%. Next slide, please. Okay, a few words on the financial targets here. We have four of them. And the first one is, of course, that we have a 10% growth target, including both organic as well as acquired growth. And for the year of 2021, we achieved a 46% growth. So we are clearly meeting that target. In terms of profitability, and that's the one I think the most exciting one, there, we have a target of 8%. And right now, we are at 7.3% and increasing profit-wise. So it's -- we are getting closer to the 8% target, and that is very good. In terms of leverage, we did mention that one. So we are at 2.4 against a target of 2.5. So we are moving in the right direction there as well and, of course, as we should be and as the profit is increasing. In terms of dividend, we have a target of 40% of the year's results. And to date, we have not made any dividend. And we use the cash flow in order to improve the company and acquiring new businesses instead. So for the year of 2021, there will not be any dividend. Next slide, please. And this is just to sum it up, the fourth quarter. And as we have mentioned, we are quite happy with the quarter where we saw a significant growth in terms of revenue, profitability and as well as earnings per share. And also, as I did mention that the EBITA margin increased by 3.6 units of a percent to 8.7% in the quarter alone. And that we actually made four acquisitions in the quarter, and that we have done additional two acquisitions after the end of the reporting period. So all in all, I'm happy with both the quarter as well as the full year performance of the business and quite confident looking into the year of 2022. And I believe that concludes the presentation part. And by that, I hand it over to the administrators in order to open up for the Q&A session. Thank you.

[Operator Instructions] Our first question comes from Dan Johansson with SEB.

A few questions from my side. Maybe I'll start a bit on organic growth in the quarter. It looks quite strong. Is it possible to quantify how much of that is due to slightly better weather and more snow compared to Q4 last year? How much is sort of underlying development? What is sort of the boost from better weather this year compared to last year? And how does it also different -- differ between the your different markets? Norway, I guess, you mentioned there was a boost. Is there anything in particular for Sweden example compared to last year?

As I did mention that we grew by 60% year-over-year. I believe we had a negative 5% for the full year. As we mentioned previously, there are weather dependency. And the market, as we see it, is growing by 3%, 4%. And our goal, I would say, is to grow organically with the market and that means we should grow organically by 3% to 4%. In the industry, which we are in, if you seek to grow significantly faster organically than the market, the likelihood of the profitability coming down is a bit too high. So that's why we like the strategy we have where we are able to acquire or being joined by great entrepreneurs who have great companies. So the market is stable. As I mentioned, the year 2020 was, from a winter perspective, quite challenging, and that impacted the financial performance for the full year of 2020. And now we are recovering. In terms of the weather conditions for the fourth quarter, it varies because we have operations both in all of Sweden. We have it in Finland, and we have it in Norway. So I would say we had like a normal winter condition, nothing like what we had in 2020. So in some cases, it was up. In some cases, it was lower than expectation. But on the average, I would say, it was a normal winter season for us in the fourth quarter. Is that answered your question, Johansson?

Yes, yes, yes. It did. It did. So basically a normal season, as you consider. It's not like a super good season in that respect. It's more like normal.

No. Exactly. I think that's the key point. It wasn't a bad weather for us, but it wasn't particularly good either. Sorry, it was like a normal season.

Perfect. Maybe a bit more detailed question on the restructuring costs related to Thormans in Region Mid. Is it possible to specify the earnings impact for that from the region? Is it something like SEK 5 million? Or is it below or above that level?

As you see, I mean, the gap versus last year is quite large, and the main part of this is related to Thormans.

Okay. Perfect. And maybe also a question on sick leave. We have some other companies, especially service companies complaining about that. You didn't have a high impact in this quarter? Do you perhaps see a higher impact in Q1 due to Omicron in January? Or does it remain manageable here in the beginning of the first quarter here?

We haven't received that question. So we didn't make a, I won't say, thorough investigation of it, but we did look upon the data. And we don't see that we had that greater impact financial-wise on the sick leaves. I believe it goes back to that we have a fairly stable business model, as same as we did have the logistic challenges from China, for instance, the spring -- or the spring of 2021. And right now, we have inflation and fuel prices that are, of course, a great concern to us. And what we saw happening with the logistic challenge in China as well as on the sick leave is that we have a fairly resilient business model. There could be, in the short time frame, some type of temporary impact. But in the long run, it seems like the business model is resilient, and we can recover our margins.

Sounds good. Then perhaps touching a bit on that topic in terms of wage inflation. Also, inflation of fuels. How quick can you shift that out to customers having this indexation in some of your larger contracts, if you can manage that potential impact?

Yes, it's -- to some extent, it requires quite some calculation in order to estimate what's going on. But on the average, absolutely the mainstay of all our long-term contracts. There, we have index clauses, then there could be different index clauses in the different contracts. But as a general rule, it takes account for salary increases as well as fuel prices and such. So it's a basket index that we're working with. And if you have a very sharp increase in the index, it should reflect that one. And subsequently, you will see that in increased prices on those contracts. For the landscaping business, there, we have short contracts of this project base, and you quoted and are being awarded the contract. And that means that for the short time frame, meaning business you already have quoted and then comes to cost increase, there, we do have some difficulties on recovering. But beyond, let's say, 4 to 6 months, then you calculate within your prices. And when you are being awarded those contracts, they are in the contract. So it's -- in the near-time future, there could be some impact. But historically, looking again upon what happened with the logistic cost increases in China, I believe we handled that in a very good way. So I do not foresee any major negative impact due to interest or fuel prices.

Good. Sounds good. So more of a timing issue, if anything, then.

Yes.

Yes. So maybe a final question, if I may, perhaps on the acquisition agenda now into the new year. You've done quite a lot of deals here, and you've done deals in all three countries. So you utilized the full platform. Also, done quite a lot in Sweden. Do you expect M&A to be rather spread across all countries also now in 2022? Or do you have a bit more focus now, perhaps on Finland, Norway to get a better scale there like you have in Sweden? Or what's your thoughts here into the new year?

Well, we are in three markets, and we are quite prudent in terms of what type of companies that should join the group. So we are really trying hard to pick the very best entrepreneurs with the right culture that would blend in nicely to the group. I know that there are other companies out there who have a higher pace than we have. I'm quite confident that we are making the right choices in this area. Being able to do acquisitions in three markets have opened up the universe so we can really work with the great companies. We don't -- we are not forced to buy companies or depend our growth position, if you understand what I'm meaning here. That, right now, we are in Sweden, we are in Norway, we are in Finland. We have a healthy pipeline in each one of those markets. And we can make sure -- we're trying to make sure that we really go for the quality players here.

Perfect. Sounds encouraging.

Our next question comes from Fredrik Moregard with Pareto Securities.

So you discussed the weather conditions in the fourth quarter to some extent. And I was just hoping you could give us some comments when it comes to the start of the first quarter here also in comparison to last year, which was strong, but also sort of growing on a weak comp from the first quarter in 2020. So it's sort of difficult to gauge out what is sort of a normal quarter here when it comes to Q1. So maybe you can shed some lights on what you think about the comparable from last year and what you're seeing on the weather conditions so far this year?

Yes. Thank you for the question. There are a couple of things going on here. That 2020 was, I would say, a very odd year when you look upon statistics. It's kind of 1 in every 10 -- 20 years. So in terms of the first quarter this year, of course, one can allude to say that it's somewhat warmer in this year compared to what it was in 2021. No question about it. It's not all about the snow. It's also about ice removal and that type of thing. So it's still, I would say, a fairly high activity in that area. And also, as we learned from what happened in 2020, and that means that the landscaping companies should have better readiness and did not prepare to be active in doing other work. But also, we have -- I would say, as you know, we have grown significantly. And we have, by purpose, grow with companies who are stronger and more resilient and have a less dependency on the winter situation in the first quarter. So the landscaping businesses we have today are actually being favored because they can do the excavation work, they can do some construction work and such in the first quarter. And that was by design. And to what I learned so far is on mid and February here, but it seems like that it's working because they show signs of high activity. Why? Of course, the service companies are, to some extent, suffering from the lack of winter. But all in all, I see that part of the strategy is growing. Also, we have added, I would say, road maintenance companies, in particular in the Oslo region, which have high activity with or without snow because they are carrying out the service of the roads for the full year. So all in all, our exposure for winter has been significantly reduced compared to the situation we had 2 years ago. So we learned from what happened in the year of 2020 and acted accordingly. And again, the winter situation in the year of 2020 was quite abnormal wide. Now it -- yes, it could be good or bad, but it's not -- I don't foresee that having such a big impact. So we have less dependency on the weather today than we had 2 years ago.

All right. And when it comes to the winter business versus the landscaping companies that could benefit from a bit warmer weather, how do you see that impacting your mix when it comes to margins?

Good question again. I really don't have a good answer on that one because -- let me put it this way, the landscaping business in terms of margins are more stable and more foreseeable business because there could be a high variation in how the winter contracts were written. So that meant, in some cases, when you had x amount of centimeters of snow and you had to remove the snow, that could be a very good contract or, in some cases, that was included. So it was a very bad contract because we had to take the cost for it. So in terms of forecasting and stability, I think the situation is improving by the landscaping companies compared to the winter contracts that we had in the past for the service companies alone.

Yes. And I mean, we do have the portfolio effect here, which will even out the margins between -- I mean, maybe the different segments will vary somewhat. But what we see is that when 1 or 2 segments has a strong winter or performance, we see that 1 or 2 of the other ones balance on the other side.

And also, we have to keep in mind that we're close to 40 companies in the group right now. So the portfolio there, again, is working in our favor. So we do expect much greater stability in terms of both revenue as well as the margin moving forward.

All right. That sounds healthy to me. Then when it comes to the balance sheet, you mentioned that you had some refinancing during the quarter, new credit facilities. Could you share some information on conditions when it comes to that? Any covenants, interest rates that are either improving or getting a bit higher? Any more information on that would be helpful.

Yes. So we started the repaying process early this year and closed it in Q4. Yes, as we have grown into a larger group, we have been able to lower the interest rates somewhat. And yes, we do have covenants in the contract, which is similar to what we had earlier. We haven't disclosed the exact details of the contract in that respect, but there's a healthy and good headroom to covenants being reached.

Okay. Perfect.

And the main reason for refinancing, except the old contract being reaching its end date, was to increase the facility to be able to kind of support our acquisition strategy going forward.

All right. And then just lastly, when it comes to management turnover, maybe not just isolated to the fourth quarter but over the past year or so, what have you seen in the group when it comes to management turnover? And how have you been able to handle that when it comes to succession planning and so on?

We have -- as I mentioned, we have a decentralized business model, meaning that each and one of our companies is led by their own CEOs, and we have a Board of Directors. And this is just like normal business for us that each and every year, there will be a few replacements. Some will move into retirement, some resign and some perhaps a more successful elsewhere. So each and one of the Boards are working actively on the succession planning for the subsidiaries, and it's not a great concern from that perspective. I think we have a process that is working. To some extent, it's a risk, but I believe we have probably had 4 or 5 replacements on the CEO level, on the subsidiary level for -- during the year 2021. And I would say the average outcome of that one looks good. One perhaps wasn't that good, but the remaining was very good. So then we also have to redo it if we are not happy with the performance. So it's a normal course of business, I would say, given that we have this business model.

[Operator Instructions] Our next question comes from Johan Dahl with Danske Bank.

Just a couple of question on the comparing sort of the order book growth compared to revenue growth. You talked about going more into landscaping. But my question is basically in terms of the risk in the operations, how big is the shift there in terms of going from sort of order book, good visibility to shorter order books and also from sort of public procurement contracts more to private sector, smaller contracts? Can you just describe the shift in your business there and if it has an impact on how you sort of procure vehicles, make leases for new vehicles, et cetera?

So thank you for the question. First of all, we haven't seen a shift in the mix between private and public. So the shift is still somewhere around 2/3 public sector and 1/3 private.

Yes, Johan, just to clarify that one. Even though you do landscaping services, that could still be to the public sector.

And in terms of the mix, there is a shift in terms of companies with the multiyear contracts and having kind of -- yes, 1 month to 12 or 24 months type of contracts. I don't have the exact numbers, but I'd say that, that impacts the order book. So the order book in terms of our revenue -- annual revenue, is smaller than before.

Yes.

But do you think -- well, visibility obviously has decreased, but does it impact how you sort of operate the business? Or do you leave that in total decentralized manner to the local company?

No, no. It's still decentralized and operated by our CEOs in the companies. And also, it's worth mentioning that even though we have a 3 to 6 months backlog in these type of companies, we have long-standing customer relationships, and the customers tend to be budget-driven. So there's no shift in that sense.

And just also on Norway, how sustainable is that margin? You talked about a lot of snow, et cetera, in the fourth quarter. But just looking at the full year and going forward, are there any other things we should be aware of in Norway?

Then perhaps you misunderstood me that there was a lot of snow in the fourth quarter. That was not really what I was referring to, to begin with. There is a variation on profit margins in the different geographical areas in Norway. Our understanding and belief is that the profit levels we have in each and one of the companies because they do vary in Norway as well, even though they are average higher than what we have in Sweden that for each and one of the individual companies, we believe that the good level is sustainable.

At this time, we have no further questions. I will now hand back to the speakers for a final remark.

Okay. Thank you very much for calling in, and thank you very much for the questions. And I believe that concludes today's presentation from Green Landscaping. Thank you very much, everybody.

Thank you.