Kreate Group Oyj (KREATE) Earnings Call Transcript & Summary

Dear friends, welcome to join us to conclude the year 2020 for Kreate, the year, actually, where we met the expectations set earlier last year and the year which actually creates a good basis for the current year 2021. We got listed in Helsinki stock exchange market late February this year. We made some kind of, I would say, record in the number of listed persons and organizations over there. We received over 18,600 new shareholders during that time. I have to thank you. I need to thank you all for your trust in Kreate, and I welcome you all on board. Over there, you can -- sorry. Kreate, 2020, like I said, we delivered on the promises given during the IPO process. We gave out the intention to float release late January this year by giving out the guidance for 2020. Over there, we said that Kreate will reach a turnover of EUR 235 million, that we actually did. We also said that we will reach the EBITDA level of EUR 10.5 million. That already, like I said, happened as promised, with the margin of 4.5%. We also gave out long-term financial targets at the same [ day of ] release with the targets that we will reach the turnover of EUR 300 million by the end of '24. At the same time, we are in interest of increasing the margin of EBITDA, up to over 5% and the net debt ratio below 2. At the same time, we gave the guidance for '21, where we actually said that we will face a decrease in turnover for the current year. Kreate in numbers, 2020, like I said, revenue a little bit over EUR 235 million. We again reached the growth in turnover with more than 6%. The same has actually happened during the last 4 years. We have been growing more than the market itself has been growing with a steady growth of 1%. There are over 400 employees in our payroll, close to 500, if you add up the joint venture company, KFS Finland, after that number. We reached the EBITDA level of 6%, which is higher than you can actually see in construction cluster in average. We started the year with the order backlog of EUR 135 million, which is a little bit less than the level of what we had a year ago, but more than we had 2 years ago. And the biggest reason for the decline in backlog at the end of the last year was due to COVID-19. So, what we faced late spring last year, we saw a decline in the number of invitations to tender. That was regarding both the public sector and also the private customers. That continued up to end of Q3 last year. And after that, we have seen, I would say, a normalized level of new tendering competitions over there. During the winter, the same positive trend in the number of invitations to tender has been increasing, and we are quite satisfied with the level and the number of those. At the same time, even if we face this year a small decline in total infrastructure volume with the latest estimate, minus 1.5%, down from the EUR 7 billion whole market, we see that the addressable market for Kreate isn't declining at all. So let's say, the focus and the forecast for this year in Kreate's businesses is looking quite good. The decline in turnover, you can see over there -- sorry, in order backlog, you can see over there. So, we went down to EUR 135 million from EUR 177 million. And for the current year, we had, at the end of the year, is EUR 111 million. Normally, we actually materialize new tenders, new turnover from new projects in a level of EUR 107 million. So if you add up that to the EUR 111 million what we had at the end of the year, you can actually say or see some number, which are presenting, I would say, a normal level of turnover seen from the past. We had a growth in turnover in revenue. We had, let's say, a small change in our customer segmentation. The private sector went down from 40%, down to 35%. And this is following pretty well, I would say, let's say, the general market change from the demand. So the public sector is raising their volumes, and that you can see at the same time in Kreate's figures. Structural engineering, which is Kreate's biggest division, I would say, is presenting 65% of our turnover. That is concluding or consisting of bridge construction and repairs from ground engineering, from rock engineering and from circular economy. The black part of the pie, 35%, that is coming from the traffic routes, including roads and streets and railways. Our project profitability remained on a normal level. We know pretty well from a historical perspective, how the project, how they are developing in a way of, let's say, from the profitability perspective. We concluded EUR 10.5 million in EBITA last year. We did this work, I would say, in a normal project profitability level. We are starting the year '21 from an excellent position. So let's say, the scope and the tactics for Kreate for the coming years, as also in the past, has been that we are seeking for demanding projects. That means that you need to have higher technical skills compared to, let's say, I would say, normal and average infrastructure projects. You need to have, let's say, more talented and more skillful person than normally weighted in the branch. And this part of the market is proceeding really well. So, those projects which present the ones that Kreate is building are looking quite positive. The EUR 7 billion mentioned earlier, we will face a small decline, but the addressable market for Kreate will be increasing, let's say, the share. In 2020, we made some tactical investments for the railway construction business. We did the same for the bridge construction business, both for the machinery, for the fleet and also for the personnel. So, we are even strengthening, let's say, the leading position of what we have on many in our business areas. Due to the listing, our balance sheet is strong in addition to the, let's say, the really good profitability, what we have had a strong cash flow, what we have had. When we are educating people and we are, I would say, the industry average excelling people in skills that gives us a really, really good basis for the year '21. Antti, please, you can go on with the financial review.

Okay. So a few words about our cash flow and our financial position at the end of 2020. As you can see, the return of capital employed, it's good. The free cash flow from operating activities, EUR 9.7 million, very good as well. Net working capital well in hand. Net debt, little bit decreased for year-on-year. I'll come on the details for reasons that later on. And equity ratio, a little bit lower, but I'll come back to that also. Earnings per share for 2020 was EUR 0.88 per share. And Board's proposal for Annual General Meeting is that we will pay dividend per share, EUR 0.44 per share. So at the end of the year, we weren't listed after the -- sorry, the February '21, we have IPO and we get, as a company, proceeds of EUR 10 million out of that IPO. And when we adjust the year-end numbers with the impact of IPO, we began with equity ratio of around 36%, net debt around 18% and net debt-to-EBITDA level 1.3x. Those all reflects strong balance sheet, what we have in Kreate. And that's what we aim in the future as well, having a project company with technical capabilities with a good cash flow and strong balance sheet. Guidance for 2021, we expect that its revenue -- our revenue will decline compared to 2021 -- sorry, will decline in '21 compared to 2020. And the reason why we expect the revenue to decline, we heard earlier, our order backlog at the end of 2020 is lower than end of 2019. And we historically expect around EUR 110 million of new additional revenue on top of that year-end order backlog. We do expect our profitability and our order backlog to be a normal level. So, we expect a reasonable profitability. Kreate's long-term targets, they are unchanged. The growth of up to EUR 300 million at the end of 2024. The profitability in the medium term, more than 5% and leverage, net debt to EBITDA below 2.0. Our dividend policy, we target to distribute at least half of our annual net result as a dividend. Of course, we consider our financial position, the cash flows and different M&A and other growth opportunities when making that decision. And as I said, distribution of the result of the period, we have distributable funds in Kreate, EUR 17.6 million. The Board of Directors now proposes to the Annual General Meeting that a dividend of EUR 0.44 per share will be paid to shares outside the company. And as it stands today, we are roughly 8.9 million shares outstanding. That means that the total dividend will be around EUR 3.9 million if Annual General Meeting will decide that way. I think that was the short summary of our financial position and whole year 2020.

Yes. Okay. Thank you. And thank you for joining us.

Thank you very much.