Inwido AB (publ) (INWI) Earnings Call Transcript & Summary

Good morning to you all. Thank you and welcome to this webcast and telephone conference covering Inwido's first quarter of 2025. My name is Fredrik Meuller, President and CEO of Inwido. And I'm joined here in sunny Stockholm today by Peter Welin, our group CFO and Deputy CEO. We will start off with a run-through of the financial, operational and strategic highlights from the past 3 months, followed by an in-depth review of group and business area financials, before concluding our key messages, outlook and opening up for Q&A. And as usual, this presentation material is already available on Inwido's website. Many of you are, of course, familiar with Inwido already and our unique features. One year into the CEO role, I'm still taken back by, for example, the shareholder value track record since our 2014 IPO or the fact that our 35 business units collectively form a #1 position in the Nordics and a strong #2 in the U.K. Our well-known brands are synonymous with genuine craftsmanship and high-quality. Our windows and doors improve energy efficiency, safety and aesthetics of any property. I'm proud to conclude that Inwido is off to a good start to 2025. Performance improved gradually throughout the first 3 months, and we continued on the growth trajectory from last year. Our net sales grew by 10% organically. Order intake increased as well for the fourth consecutive quarter, now up by 13%. Our order backlog ended up at plus 19%, i.e., offering lots of comfort for the seasonally important months and quarters ahead. Profitability followed suit with operating EBITA edging higher in all business areas, except e-commerce. Our consolidated figure was a massive 22% higher than in Q1 last year at SEK 111 million, equaling a margin of 5.5%, i.e., 50 basis points above Q1 2024. This improvement should be seen in the light of continued tough market conditions with fierce price pressure and in the seasonally softest part of the year. Manufacturers have added to these figures from pricing and purchasing to productivity-enhancing investments beginning to kick in. The latter bodes well for the future as volumes at many entities are currently far from normalized. And let me also stress that in a world where tariffs are the talk of the town, Inwido has no direct exposure to the U.S.A. We can still be affected indirectly though, through a general deferral of project starts or consumer purchases or via supply chain disturbances. In this past quarter, we did see an improvement in market sentiment across a few key geographies, albeit from very low levels. Scandinavia did really well with several entities reporting higher sales and margins. Renovation is picking up speed and higher ROT incentive in Sweden, of course, makes a positive difference. Denmark is very solid and Norway seems to be about to bottom out, at least for us. Eastern Europe in turn bounced back in a nice way, driven by the consumer market and housing unions in Finland. New build, however, remains quite. Poland, where our exposure is limited, is rather stable. Business area e-commerce was hampered by somewhat sudden and surprising general decline in consumer spending online as evidenced also by fewer Google searches for windows. Geographically, Germany was particularly demanding. Western Europe performed well given the circumstances where England remains sluggish and fiercely competitive. And furthermore, muti-budget cuts and severe weather resulted in certain project deliveries being pushed out in time. Green is good. Lots of arrows pointing in the right direction, which, in this case, is downward. Q1 marked another solid performance across all key sustainability parameters, most notably energy use, waste, as well as health and safety. This doesn't happen just like that. No, sir, I see this hard work myself across all our sites and offices on a daily basis. When I joined Inwido 1 year ago, I clearly stated transparency as being 1 cornerstone in my leadership philosophy and so here you see an honest summary of where we are on the so-called vital few priorities, the what and the how that will make a difference on our strategic journey. With the exception of M&A, which is covered on my next slide, I won't go through this in any detail, but I will say that I'm pleased about our progress made across the line here. And particularly on number four, where I witnessed a bit of a cultural revolution of synergy exploiting collaboration in the horizontal dimension. Okay. Let's talk about M&A. This is a key building block on our road towards doubling the size of Inwido by year 2030. No, we did not announce any transaction in Q1, but it was not for lack of trying. We have been and still are active in this field. Rather, we have taken a healthy stance and decided to disembark from a few processes as one or several of our selection criteria have simply not been met. We will not compromise on asset or transaction quality just for the sake of growing top line, not on my watch. Now the market is quite healthy. Inwido is perceived as an attractive buyer, and we are involved in several promising discussions, so I definitely remain optimistic. On this slide, we display a snapshot of our Q1 2025 key financials relative to the same quarter last year. And I can proudly conclude that I have a strong set of numbers. Order intake grew by 13% in both absolute and organic terms, and our order backlog grew further to almost SEK 2.7 billion, up by 19%. Net sales in turn increased organically by 10% quarter-on-quarter. Operating EBITA gain SEK 20 million from last year, reaching SEK 111 million, which equates to a margin of 5.5%, up from 5.0% in 2024. The main positive delta came from BA Scandinavia and Eastern Europe. Net debt in relation to operating EBITDA decreased from 1.4x last year to 1.1x now or from 1.1x to 0.8x, if not applying IFRS 16 accounting. In these turbulent times, it is highly comforting to have such a strong balance sheet that also offers substantial firepower for M&A. And now for more flavor on Inwido's consolidated Q1 financials, I hand over to you, Peter. Please.

Thank you so much, Fredrik. And I'll start with this page. This page is showing the income statement for Q1. On the right, you can see the latest 12 months as well as last year. Starting with the quarter, sales was plus 10%. Reported as well as organic sales was plus 10%. The gross margin was improved from 22.5% to 22.9%, mainly due to volume. And we have a better capacity utilization this quarter compared to last year. We have improved gross margins in Scandinavia as well as Eastern Europe, whereas e-commerce was slightly down compared to last year, and Western Europe were also down mainly due to mix. Operating EBITDA was plus 16% and operating EBITA was plus 22%, meaning the operating EBITA margin was improved from 5% last year to 5.5% this year, an improvement by 50 basis points. We have restructuring costs in the quarter of SEK 7 million, same level as last year. This year is mainly related to e-commerce and close down of showrooms. And we have an improvement on EBITA of 24% and the EPS is plus 78% compared to last year. Looking at the latest 12 months, we have sales just above SEK 9 billion, SEK 9.026 billion, and operating EBITA of SEK 973 million equal to 10.8% operating EBITA margin, same level as full year 2024, and we have an EPS of SEK 9.58 today. This page is showing the sales as well as operating EBITA development in Q1 from last year to this year. To the left, you can see, the development of sales from SEK 1.8 billion to just below SEK 2 billion. And to the right, you can see the operating EBITA development from SEK 91 million to SEK 111 million. Starting with Scandinavia. Scandinavia grew by SEK 111 million, and operating EBITA was improved by SEK 18 million in the quarter. Eastern Europe had a growth of SEK 58 million, and operating EBITA was improved by SEK 8 million. In e-commerce, we have planned and expected higher sales in the beginning of the year compared to the outcome, meaning we had too high capacity and too high costs in the beginning of the year in relation to sales. And thereby, we have also lower sales as well as lower profitability within e-commerce compared to last year. Western Europe as well as group-wide eliminations and other were more or less on the same level as last year looking at operating EBITA. And thereby, we went from SEK 91 million to SEK 111 million. And looking more on historic performance of the quarter. This page is showing sales as well as operating EBITA margin from 2020 to 2025 for the Q1. And looking more in historic performance, we can say that pre-pandemic, the operating EBITA was between 2% and 4%. And then during the pandemic, we had higher margins because we had low seasonality. We have a seasonality business, and we are right now in the low season in Q1. But during the pandemic, we had higher sales in Q1, especially on the consumer sales in the first quarter and thereby higher margins. So the operating EBITA margin of 5.5% this year is 50 basis points above last year and also above the level of pre-pandemic. Looking at the cash flows. We also have a seasonality when it comes to our cash flow. We are always negative cash flow in the first quarter. Our best quarter looking at the cash flow position is always in Q4. This year is less negative compared to last year. We have an improved cash flow this year as compared to last year, but still negative cash flow. Looking at our cash flow from operating activities, they are an improvement of SEK 78 million compared to last year. We have a higher net results as well as we have paid lower taxes. We pay lower taxes beginning of this year because of the result 2024 was less compared to 2023, and thereby, the tax payment was lower this year, beginning of the year compared to beginning of 2024. Then we have a change in working capital. There, we have an improvement compared to last year of SEK 85 million. We had less increase in inventory compared to last year. We also had less increase in accounts receivables compared to last year because they were a little bit higher in December '24 compared to December '23. And looking at accounts payable and other short-term liabilities, there we had less decrease compared to last year, so in total improvement of SEK 85 million. If you calculate and see the working capital in relation to sales, you take the average working capital in relation to sales, there we see a small improvement in Q1 compared to Q4. Then we have CapEx. We have lower CapEx this year compared to last year. And last year, we had a CapEx of SEK 84 million in the first quarter. This year, it's only SEK 42 million. So it's more or less a half compared to last year. This shall be seen as a temporary deviations. It will increase in the coming quarters and the full year of '25 will more or less be in the same level as last year looking at percent of sales. So it's a temporary deviation just looking at Q1 when it comes to CapEx level. So with a higher cash flow of less negative working capital -- cash flow in Q1 compared to last year, the net debt has increased less this year compared to last year. This page is showing net debt as well as net debt EBITDA, including as well as excluding IFRS 16. And as I said before, we always have negative cash flows in Q1. This year is less negative, meaning the net debt always increases in Q1. But this year, the increase was lower compared to last year. Looking at Q1 this year, we had IFRS 16 debt of SEK 492 million, and our net debt versus EBITDA is 1.1x, including IFRS 16 was 1.4x last year and excluding IFRS 16 is 0.8x and it was 1.1x last year, meaning we have a quite ahead -- compared to a target of a maximum of 2.5x, meaning we have headroom for future growth. Another positive development is return on operating capital. This page is showing the return on operating capital. Return on operating capital is defined as EBITA rolling 12 months in relation to average operating capital with the average calculated the latest 4 quarters. And there, we can see an improvement. We have higher results this year in Q1 compared to last year, that is a positive for the KPI. We have also lower operating capital due to less increase in working capital and also due to less CapEx, and thereby, we are 13.2% compared to a target of 15%. This page is showing the order intake as well as the backlog. To the left, you can see the graph on the backlog development, from Q1 2023 until Q1 2025. And to the right, you can see the table how the order intake has developed. Starting with the backlog. The backlog is plus 19% compared to last year, equal to SEK 424 million. Here, of course, we have a negative impact from stronger SEK, the currency SEK, so adjusted for the SEK, the backlog is plus 24%. Project is plus 31% compared to last year, and consumer is minus 4% compared to last year. However, just for SEK, it's more or less the same backlog in consumer compared to last year. Looking at the order intake, the total order intake as well as the organic order intake is plus 13%, consumer is plus 3% and organically is plus 2%, and the project is plus 33% or plus 32% organically. We have growth in Scandinavia of 13%, East is up 18%, West is plus 14% and then e-commerce is negative by 4% in the quarter.

Thank you, Peter. And let's now look into our 4 business areas, and let's start with Scandinavia. Mads and the team did a really good job. We're getting used to being spoiled by the red and white Danish dynamite, but also many of the entities in Sweden and Norway performed well in Q1. Elitfönster is one key example here in Sweden. Stronger market tailwind added to order intake growing by 16% and then almost SEK 1 billion of sales flow through a well-oiled machinery to raise the BA's operating EBITA margin from 7.4% last year to 8.5% now. Moving eastwards, activity levels began to bounce back in the quarter, particularly for our large Pihla Group and within housing unions. Antti and his team generated healthy growth in sales, order intake and order backlog, which bodes well for what's to come. Albeit still in the red, operating EBITA and margin improved substantially to minus SEK 7 million and minus 1.8%, respectively. Turning our focus to BA e-commerce. We saw a dent in the positive trend curve from last year at the beginning of 2025 as general e-trade demand was suddenly lower. Still, Bo and the team did a good job of recovering lost ground towards the end of Q1. They have also taken additional restructuring measures to improve the BA's future cost efficiency and competitiveness. Somewhat lower sales meant that operating EBITA decreased to SEK 6 million with a corresponding margin of 2.3%. We head back to the U.K. and to Ireland, where Storm Éowyn as well as short-term budget cuts for a few municipalities meant that some project deliveries had to be put on hold for Q2 and beyond. Given that lost top line and fierce price pressure in England, in particular, Jonna and her team did a great job more or less maintaining the profit level from last year. Both order intake and backlog grew in a healthy fashion and our assessment is that we have gained market share. It is time to summarize our key messages of today's Q1 report. In a macroeconomic roller coaster of historical proportions, Inwido stands firm. Organic growth rates in the high-teens for organic sales, order intake and backlog are clear testimony to this. Profitability is up with earnings per share, almost doubling. And furthermore, a strong cash flow strengthened our solid balance sheet even further. Accordingly, we remain cautiously enthusiastic about the remainder of the year, particularly since we are also making progress on our strategic priorities. I'm content and would like to take this opportunity to thank all of Inwido's fabulous employees that have once again gone above and beyond to produce a strong performance, really well done guys. And now, Peter and I will be delighted to answer any of the questions that you may have, please.

[Operator Instructions]. The next question comes from Jonny Jin from SEB.

Yes. I want to start off a little bit on the cost side of things. I mean look at the operating expense, it seems like they are up some 9% year-over-year, and you already touched up on the e-commerce business a little bit here, but I also assume that you are preparing to meet higher demand going forward as well. So how should we think about the cost base on the group going forward here? Would you say that you are ready to meet higher demand in the coming quarters with the current personnel and cost base so that the, so to speak, operating cost base in Q1 is that representable for the coming quarters as well? Of course, there's some seasonality here, but any comments here would be helpful.

Peter here. Yes, there is an increase in the -- this quarter compared to last year. Last year, we had quite a tough situation in the market. We took extra cost cuts in Q1. We have had some temporary layoffs. We had some people working less and was paid less. So some people went in -- white collar went down to 80% in some countries and was underpaid for 80%, et cetera. Now this year, we have a little bit more positive view on the future, and thereby, we are planning for the future. And you can also see that in order take. The order intake is plus 30%. And looking at our cost, the main cost when we look at overhead cost is sales costs. So first, we have to take a cost and then we get the benefit, meaning higher order intake. So we have improved the order intake more than the sales has improved in the quarter. And this is due to we have taken some extra costs also planning for the future. How to interpret that for the coming quarters? Yes, you should calculate with some higher increase in overhead costs compared to last year, especially Q2. And then in Q3 and Q4 will look like then we have to always react and adjust ourselves for the market situations.

Just maybe to add to what Peter said, I think we are generally trying to review the cost base and particularly the overhead on a regular basis, particularly when we stand in front of decisions to replace certain vacant positions, et cetera. It always gives an opportunity to rethink the organizational structure and so forth. And in the case of e-commerce, I think they've taken a healthy restructuring stance towards making the business even more competitive now. They were taken a little bit by surprise early in the quarter by the softer demand, but really recovered the ground towards the end of the quarter.

Okay. And then just following up what you said there at the end, Fredrik, on the e-commerce side. I mean should we interpret that, likely the demand pick up in the e-commerce segment during the end of the quarter and the adjustments that you talk about on capacity and cost in the e-commerce segment and we expect that showing already in Q2 and onwards?

Yes. To answer your first question, yes, the situation did improve towards the end of the quarter. We are trying to follow some market statistics here as well. And I think we are quite aligned with what we have seen in terms of e-trade KPIs for at least Sweden. It seems we've done an even better job than the market, but it's very difficult to tell. But again, overall, it turned for the better towards the end of the quarter. When it comes to the cost I'm not saying it will kick in from day 1, but at least we're taking the measures. There's always a bit of a lag in the system and in the process before we see the full effect. But these measures are and should be seen more as a long-term measures to improve our competitors -- competitiveness in the long run rather than a drastic cut right here right now to compensate for lower demand in Q1. I think it's more of a healthy strategic decision where we looked at to be very concrete. We looked at 2 showrooms in Denmark that were simply not profitable because they were in the wrong location. So this is a business, the nature of which forces you to be super-efficient, not only in your production day-to-day work, but also on the overhead side. And that's exactly what Bo and the team are working on.

Okay. And then just shifting focus a bit here to Western Europe segment. It looks like the gross margin there took a little step down here year-over-year. So could you may be shed some more elaborating comments there. What happened here? And also, how should we read this onwards? How is the margin profile in the backlog? And also, did you say that some sales in Western Europe were pushed into Q2 and if it's possible to quantify the magnitude of that will be helpful?

Yes, we start with the latter part of your question. Yes, we did see a few projects, particularly in Scotland, that were moved out in time because of no access being granted to the sites, primarily because of weather where we and the whole country of Scotland had to shut down for a few days, but also in terms of some budget cuts for a few municipalities where they have the year-end being end of March. So we always see some volatility towards the end of March or towards the end of Q1 as they prepare for the next budget year, so to speak. But I want to underline that these projects are not being -- and which is not typically the nature of the business either. They have not been canceled in any way. So it's more of a deferral and a delay than anything else. Some will happen in Q2, some will come later this year. When it comes to profitability, it was more of a mix change, I would say. And again, I think comparing to last year, we had -- yes, it varies a bit from project to project. And this year, we had a somewhat other deliveries than compared to last year.

Okay. So if I read you correctly, the pushed orders we shouldn't read too much interest since it sounds like it's recurring every year, so in some extent, due to the budget. Is that correct?

Yes, again. I think it's more the nature of Q1 to some extent where we are also more dependent on the weather situation. We have no reason to be less secure about this business going forward for the remainder of the year, on the contrary, I would say.

Okay. That's clear. And then just one final. I mean, it's following up on your M&A comment. I mean, as you say, you need to increase the M&A pace here. It will be necessary to reach your 2030 targets that you are committed to. And you are mentioning that activity is high, but I think that, that comment have been seen for soon 1 year almost. So maybe could you give some indications of what we can expect when in time this should happen? I understand you cannot give any guidance, but maybe on how the pipeline is developing is helpful, especially tying that to your comment when you said that you have terminated some discussions and like how should we read out with the pipeline? And also, I think the comment there on the building competition on the acquisitions is somewhat new, so who are you meeting and how has that changed? That would be helpful.

Yes. I mean -- yes, I'm fully aware that I've stuck my chin out on this one. And it just goes to show that the nature of M&A is binary, to say the least. I would be frustrated if we hadn't had enough activity or a structured approach in the work that we're doing, but that is really not the case. I would say, I'm more actually proud of us leaving 1 or 2 discussions because the -- I mean, the stars were really not aligned in a good way where we saw too much risk, to be honest. And this was risk, good for example, were related to environmental matters that if you don't get security or comfort around that, it can be a huge negative surprise blowing up in your face, and we don't want that, and we don't want to destroy the rather nice performance track record we have within M&A. So I won't really promise provide any particular timing on M&A in our case. We have also seen the nature of privately held companies where the owners are considering an exit is just very emotional and psychologically tough to push the button right there and then. So we've seen some of that going back and forth a little bit. And we've, of course, the current uncertainty in the market in general, from a macroeconomic perspective doesn't really help where buyers and sellers need to agree on where the business is coming from and where the business is heading from here. I remain overall optimistic. So even though we've jumped out of 1 or 2 processes, it doesn't mean that we have nothing else to work on, on the contrary. And again, the firepower we have on our balance sheet is, of course, very useful in these times as well.

Yes. I understand that. But the comment around the bidding competition on the acquisitions, please say -- for me, that's a little bit new. Who are you meeting? And would you say that the -- I mean, activity is still high, I understand that, but would you say that the M&A climate, should I read that as the -- it has become more cautious since the start of the year or how should we read that?

Yes, it's -- yes, maybe that's a good summary, actually. It's -- of course, it depends on when and where we see structured auction processes, then for sure, we will meet some competition depending on the nature of that particular transaction. So it could be PE firms, but it could also be larger competitors and there is an abundance of capital still out there. So of course, for the more attractive targets, I think it's fair to say that we need to be prepared for a little bit more competition and in some cases, bid levels going up. That's fine. I think we are quite comfortable with the processes as such. And with the synergies that we typically can exploit when we do the transactions.

The next question comes from Albin Nordmark from Nordea.

Albin from Nordea. Just some questions, just to continue here, firstly, on Western Europe to understand the underlying operations here. The EBITA margin was down some 30 bps year-over-year. And -- like can you put some numbers on the FX from the storm, mainly affecting -- would the EBITA margin still be down without the storm, so to say?

With that, it's very hard to say exactly what it will be, but in general, I will say we will be more or less the same level as last year.

All right. That's clear. And then if you could comment on the consumer versus project order intake for Scandinavia, Eastern and Western Europe, would be helpful?

We don't disclose that information, and we're just showing for the entire group, but it's more or less the same less for the group that we had a little bit lower order intake in consumer compared to the project. So it's the project business have been driving in Scandinavia, Western as well as Eastern, but we have some [indiscernible] in the consumer as well.

So the consumer order intake is a positive for the 3 of those or...

Yes. Slightly positive, yes. And then we have a high growth on project sales on all these 3.

Yes, exactly. That's clear. And then just finally, you mentioned some entities in Eastern lost some 60% of volumes, I think you mentioned that Fredrik. And how much would you say Eastern or, let's say, Finland as a whole in volume upside to, let's say, normal levels? How much upside is there?

That's a tricky question. It varies quite a lot from entity and entity. Pihla Group that we mentioned is larger and covering a broader base of the market and even geographically, I would say. And then we have a couple of smaller and more sensitive entities, some of which are exposed more to, for example, a premium, premium niche of the whole market. So there, of course, the volatility in demand can be higher compared to the midsize, the medium segment of the market.

All right. But let's say in 2 or 3 years, you're back to normal levels, like how much volume is up from here than in Eastern. Just to answer maybe.

The total is -- we are loss between 20% and 30% in volume during the last 2 or 3 years.

There are no more phone questions at this time, so I hand the conference back to the speakers for any written questions and closing comments.

We have received 1 question from Jonny, and the question is, what is the time frame between order intake and sales? It depends between consumer and projects. Consumer orders, in some companies, we can -- we have speed deliveries, we can deliver in 2 weeks. But in general, the consumer orders have delivery time between 6 and 8 weeks. So for consumers between 6 and 8 between order intake and sales. When it comes to product sales, there is a bit longer. It can be between even more than 1 quarter up to 1 year, but the average is around 2 quarters-plus. So a little in 1 or 2 quarters when it comes to product sales. And then we don't have any further questions. So I hand over to Fredrik for some closing remarks.

Okay. Thank you, Peter, and thanks, everyone, out there for attending. Wish you all a very nice day, have an Inwido day. Thank you very much. Bye-bye.