Nordic Waterproofing Holding AB (publ) (NWG) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Nordic Waterproofing Q3 Report for 2020. Today, I am pleased to present CEO, Martin Ellis; and CFO, Per-Olof Schrewelius. [Operator Instructions] Speakers, please begin your meeting.

Okay. Thank you very much. Good morning, everyone. Thank you very much for participating. We'll go right into the seek of the matters, which had a good quarter, both in terms of our sales performance and especially in terms of our profitability and the cash flow leading to a strong balance sheet. So moving to Page 2, I just want to quickly update you on COVID-19. No big change there so far. We had a limited impact as you probably know in April, May time in the U.K. and Belgium. Since, there hasn't been any significant impact at all. And we are now obviously waiting to see what the second wave will mean. And as we mentioned before, if there is a GDP downturn or significant next year, then we will ultimately also be impacted. But it's too soon to say that this is going to happen. Next, Page 3. We've developed well, 5% organic growth, 3% negative currency effects from a stronger SEK. And we have an EBITDA increase of 19%. That's before taking out the one-off costs we've had linked to the redomiciliation of our group in Sweden. Same on the EBIT level, up 22%. Would have been up 34% if we take out this one-off cost linked to the redomiciliation. Strong cash flow SEK 250 million versus SEK 142 million and obviously, earnings per share increased. Next page. A few highlights here. Organic growth was good. And I would like to remember that last year was already quite strong. So we are reasonably happy with this performance. We have strong demand continuing. We also think we have taken slightly some market share. And our new companies, which we've recently acquired, are performing quite well. SealEco, it's been the synthetic rubber member is especially strong, and Distri Pond, acquired a year ago, grew more than 30%. We have had a slightly weaker quarter for our prefab elements, Helsinki and the Veg Tech business. But at this point, we are not concerned about the future sales development. Our profit improvement program concerning prefabricated elements continues. We've seen a slight improvement in EBIT, but we are still far from a satisfactory level. So we're obviously keeping up our intense efforts at that level. The EBIT margin is now 14.6% linked, obviously, to the increased volume and especially good cost control. Some cost avoidance, as you know, from reduced traveling and the impact of the SEK 12.7 million we had to spend to carry out our redomiciliation project. Page 5, a bit more detail about the redom operation. It's been approved on AGM on the 15th of October. And it's going to take place probably late -- this month, late November. We have not made any acquisitions during the quarter, but the pipeline is getting stronger. We have slightly a bigger number of targets. And we would expect to make 1 or 2 or 3 acquisitions in the coming 6 months, let's say. It's clear that the due diligence process are a bit more cumbersome with the travel restrictions, but we believe that we still might be able to make acquisitions. Page 6. Market situation remains favorable. And I would say the only area where we already feel there might be a little of a slowdown in Finland and especially the area outside Helsinki. But we continue to see strong demand there in all areas, basically, especially in the prefab versus other group elements in Denmark and Norway. Per-Olof, I'll pass it on to you now a little bit more color for financial results.

Okay. Thank you, Martin. So moving to Slide 7. I think as Martin said, you can underline, it was a really good quarter in sales, the best third quarter we've had in the group. On a rolling 12 basis, our sales are now up to SEK 3.3 billion. And what was driving the good development in the third quarter here was -- 5% was in particular, the roofing in Norway and Denmark, but also the SealEco business had another really good quarter here. EBITDA as well developed very well, to be the best third quarter we've had. On a rolling 12 basis, we are now at 13.7% in EBITDA. Again, as Martin said, driven by volume, good cost control and some cost avoidance here. We really haven't seen any negative impact from the COVID-19 pandemic. I would say, if anything, rather positive impact on our numbers. You could also say that we haven't really benefited from any governmental subsidizing units or very limited at least in -- on some of the subsidiaries here. I think it's worth noting -- to note that in numbers, we have a SEK 13 million for the redomiciling of the parent company from Denmark to Sweden. Now moving on to Slide 8. And we can see that our largest segment, the Product & Solutions, had an organic growth of 7% in the quarter. We can say that Finland had a negative development of 8%, but of that, was 3% related to currency and 5% was related to a larger order of traded goods that we have -- that comes and go, so to say, a bit between different quarters. So taking these out, then I think or the -- sorry, the development was basically flat in the quarter. Denmark had another strong quarter with 9% development, mainly driven by flat roofing here. The EBITDA for Products & Solutions was 20.8% in the quarter. So we could see a really good quarter there, again, driven by volume and good cost control. So now moving on to Slide 9 and then looking at Installation Services, the smaller segment, where we saw a development of minus 5% in the quarter, whereof currency was minus 3%. So organically, we saw a decline -- or decreased with 2% in the quarter. The sales in this segment is basically only coming from our activities in Finland. We also had activities in Denmark, but these are not consolidated on sales. There, we saw really good development actually that came out -- that comes out on EBITDA. We have an EBITDA of 15.3% in the quarter. And that is then partly developed from a good development in Denmark but also a very good successful turnaround in Finland with improved margins and good cost control. Moving on to Slide 10. I'm looking at the income statement. I'd like to point out that in the quarter, we have no impact from acquisitions. There was no acquisition in the last 12 months here. Distri Pond that was acquired last year has been consolidated from February 2019. We had a good gross margin in the quarter, 30.8% versus 27% the year before. And also the EBITDA had a good increase in the quarter on 17.9% versus 15.3% last year. So moving on to Slide 11, looking at the balance sheet. I would say that we have currently a very strong financial position. Our -- rose at 15.9% is about the long-term financial target, and this is very much driven by the strong operating profit the last 12 months here. Our net debt. If you look at the interest-bearing net debt at SEK 383 million. The ratio versus EBITDA is now below 1.0. So it's on a very favorable level, obviously. And then finally, moving on to Slide 12, where we look at the cash flow. We had a very good cash flow in the month. We also have an operating cash conversion that has developed very well from 2018, '19 and now into 2020. That is currently at 96% on a rolling 12 basis. In particular, also the cash flow was very strong in the quarter at SEK 250 million, if you look at cash flow from operating activities versus SEK 142 million same quarter last year. With that, I'll move it back to Martin on Slide 13.

Okay. Thank you very much, Per-Olof. So Page 13, you can see our financial targets, and we are basically in line with our objectives there, both in terms of sales growth and, of course, profitability and capital structure. We are now approaching 0 ratio of debt on EBITDA at the year-end. And it means that we're really ready to make acquisitions, of course, without jeopardizing our capital structure. In terms of the dividend, as you know, it's been decided for the company to delay the decision on making the dividend payment because of the pandemic. And we're still in that situation. And I guess as things go along, the Board will consider whether we should or should not and at what point in time distribute the dividend, which the Board is authorized to distribute since the last AGM. In terms of the outlook on Page 14, nothing really changed there. Very difficult to make predictions, of course, and we will have to see how the pandemic plays out and how big an effect it's going to happen in the next year, especially. But at this point in time, we don't have any major concern for that, but that obviously can change rapidly. So that's our presentation. Thanks very much, and we're looking forward to your questions.

[Operator Instructions]

We have not received any questions from the webcast, today.

[Operator Instructions] And our first question comes from the line of Erik Cassel of ABG.

So the organic growth for products continue to impress. And could you perhaps tell us if all of it was from volumes? Or was there any positive or negative effect of pricing as well compared to last year?

Yes. The short answer is all volume. Prices haven't moved to earlier. And it means really that we've been able to increase our profitability by somewhat reducing our cost position.

All right. And going forward, is the pricing still attractive? Or are you seeing some pressure for customers given that the raw material prices has decreased?

Yes. I would say that you always obviously have pressure in some areas, and we do have that also at this time. But the big picture, I would say, right now, and again that can change quite rapidly. The big picture right now is that there is no extraordinary price pressure. I think people have a lot of demand on their hands. Our customers, and they, I think, are focused on being able to deliver to do as much work as possible and to be able to get the goods they need from us.

All right. Excellent. And I just have to ask about the raw material effect on gross margins as well. And you had 2 great quarters now, and we're going into quarters where you have more hedging in place. And you do mention a lot of this is volumes. But I'm just wondering how much of it is stemming from raw material effects? And yes, basically some color on that on gross margins?