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

Ladies and gentlemen, welcome to the Nordic Waterproofing Q4 Report. Today, I'm pleased to present CEO, Martin Ellis; and CFO, Per-Olof Schrewelius. [Operator Instructions] Speakers, please begin.

Okay. Thank you very much. Welcome, everybody. Thanks for calling in to our webcast. We're happy to have you. And we'll move straight on to our presentation. You've seen we have a solid financial position at the end of the year after a strong fourth quarter in terms of sales and earnings. I'll start off on Page 2 with a quick reminder on the COVID situation. Obviously, the health of our employees, customers, suppliers is paramount, and we've been very careful to manage our contacts as best we could. And as a result, we have a very limited impact on our operations and business so far. We have a strong focus on customer credit risk, of course. But again, no significant impact there. Cost control and cash preservation also has been on the top of our list, and I think we've been successful there. We have seen an increased spread in Europe, as you know. And there is a number of restrictions, which countries have taken, which have had, again, a limited effect, fortunately, so far on our business. The future impact of the pandemic obviously is very difficult to assess. And if there was to be a significant drop in GDP, then there would be an impact on our business, of course. Moving on to Page 3. You can see that we've had good organic growth, 5%. We've had a negative currency impact. So the net sales net-net have increased by 1%. EBITDA increased slightly. Operating profit increased by 4%. Cash flow was very strong due to a reduction in working capital, basically, which is normal at the end of the year, but we've had a stronger reduction than last year. Earnings per share come out at SEK 2.30 for the quarter. And the Board of Directors is going to suggest a dividend distribution to the AGM of SEK 5.5 for the year, which is slightly more than 50% of our net result, and also to catch up with the dividend payment of the previous year, which was suspended due to the pandemic. So suggesting the SEK 4.5, which was previously announced by the company. So a total distribution of SEK 10 per share is adjusted to the AGM. Moving on to Page 4. Some comments on the quarter and the year. We've had good organic growth as we just said, and that is true for most of our business segments, especially the Roofing business in the Nordic and in particular, Norway, we have been able to catch up on the competition and the increase of sales significantly. In SealEco, the synthetic rubber products, we had a strong development in most markets and especially, Distri Pond, which was our last significant acquisition in '19, had a strong quarter again. Veg Tech had a weaker quarter. And we've mentioned that before, I think there's an increased competition in that segment and we had a slightly more challenging competitive environment there. Installation Services decreased compared to the previous year with, I would say, a normal winter. Having an impact in the previous years, winters have been extremely mild for the last 3 years. So now we've had a sort of normal weather conditions, which has had a negative impact on our Installation Service activity. But no concern about the general business demand level. In prefab elements, we've had a very strong development in sales, and we've also seen an improvement in our EBIT due to the profit improvement program, which we've launched a bit more than a year ago. So all in all, EBIT slightly above the quarter of 2019. Moving on to Page 5. The re-dom project has been completed now. So the holding company is now a Swedish company, which is listed on the NASDAQ Stockholm. We have also renewed our acquisition drive. We talked about that last time. This was our intention, and we've actually made 2 acquisitions early this year. Norwegian Byggpartner is a waterproofing contractor in the South of Norway. It's good we have acquired 70% of the shares there and the management as an investment. And we think there will be a minor positive effect on our earnings in 2021 from this acquisition. The second acquisition is a Dutch company in the SealEco business, a synthetic rubber business. And the idea here is to use a very dynamic team within Gauris to expand the Distri Pond business model from Belgium into the Netherlands to increase the business there with a similar concept of pond lining. We don't expect this company to have a material effect on our earnings, but we think it's a good step in the direction of the geographic expansion of the Distri Pond concept. Moving on to Page 6, how do we see the general market demand situation. We see a stable situation at historically quite high level. So we believe the flat booking market in the Nordics remains strong with demand overall at healthy levels. And we have somewhat more cautious expectations in Finland, in particular outside the Helsinki area. But we can say we haven't seen any significant impact of that. But there is an expectation, I would say, in general, that demand in Finland might taper off somewhat this year. We see continued strong growth in the prefab facade and roof elements in Denmark and Norway, the markets we serve at this time. We would like to make a comment about the winter conditions regarding the first quarter of this year. So in the beginning of '21, we've seen more severe winter conditions on our main Nordic markets, which means we have a -- we expect a somewhat slower start for some of our businesses in the first quarter of this year compared to the previous year where, well, winter was extremely mild. The future COVID impact, of course, is difficult to evaluate. But as I said, we haven't had any significant impact so far. Per-Olof, I'll pass it on to you for some more detailed information on the financials.

Yes. Thank you, Martin. Then I continue on Slide 7 here. And as we said, we had a net sales growth in the quarter of 1%, organically 5%. So again, we had another all-time high fourth quarter here on SEK 769 million. On a rolling 12 basis for the full 2020, we were just above SEK 3.3 billion in sales here. The EBITDA increased in the quarter as well as the EBIT. It was our best fourth quarter on this line as well here, mainly driven -- or I will say, driven by the increase in margins. And just taking that so far, we have not seen any material negative impact in our numbers from the COVID-19 pandemic. Moving on to Slide 8 and looking into the Products & Solutions segment, where we saw a growth in sales of 6% organically, actually 10% where currency effects had an impact of minus 4%. We had a strong growth in Finland due to a few new customers coming in -- having effect in the fourth quarter, but it's worth noting that the fourth quarter is typically a lower sales number than most other quarters. So index get a high-impact from small changes there. In Denmark, we saw an increase of 9%, mainly driven by the prefabricated wooden elements. And in Sweden, I would say, it was a flat development in the quarter versus last year. And in Norway, as we said, we had a strong development in local currency with 12%, both for builders merchant and flatroofing. And in Other Europe, it was 9%. It's worth noting that the latest major acquisitions with Distri Pond from 2019 had a real good year with an increase of 30% in the quarter and on the same level for the full year. EBITDA for Products & Solutions actually decreased SEK 2 million. And here, I'd like to point out that the margins for Products & Solutions, the gross margin actually had the same development as for the group went up about 0.6%. Here, the decrease in EBITDA is more explained by several smaller items on the cost sides and spread out over several companies. I think we have good control of our expenses, but several smaller items coincided in the fourth quarter here and triggered a bit higher cost. Then moving on to Slide 9 on Installation Services, where net sales decreased 11%; organically, 8%. This is our sales in installation. So it's coming from Finland. And there, we saw a harder winter weather in December mainly that held back the sales number. So again, it's worth noting that we had the same order book in 2020 as we had in 2019. So the decrease in sales is more coming from the weather conditions than the business as such. The gross margin was basically unchanged and -- which led to a slight decrease in EBITDA here from SEK 25 million to SEK 24 million with the -- so the lower volumes that led to a lower profit was somewhat compensated by a higher profit in our Danish franchise companies. Good. Then moving on to Slide 10 and the income statement. The main change from acquisitions between 2019 and 2020 is Distri Pond was consolidated 11 months in 2019. So it's not a large change there. The gross margin in the quarter, up from 26.2% last year to 26.9% this year. EBITDA increased -- EBITDA percentage, 1% -- 0.1% from 12.0% to 12.1% here. And I'd also like to just underline that the effective tax rate went up for the full year from 15.9% to 21.0%. The change from 2019 to 2020 is that, last year, we had losses forward that we could utilize in our profitable Finnish business that we don't have this year. Then moving on to Slide 11 and the balance sheet. I think the main point here is that our ROCE is -- continues to be above our long-term financial target of 13%, ending the year on 15.6%. Then, as you can see, the interest-bearing net debt has decreased significantly during the year. We had no major CapEx, no larger acquisitions, and we have not distributed any dividend during 2020. So all the ratios basically related to our balance sheet has decreased -- also increased very strongly during the year here. So we end the year with, I would say, a very good cash position and a very strong balance sheet. And if I move to Slide 12, and you can see this comes from good cash flow from our operating activities. We actually ended the year with a cash conversion above 100% at 102% comparing with 83% previous year. And we have the cash flow from operating activities in the fourth quarter that amounted to SEK 183 million versus SEK 154 million last year, basically coming from a strong development in our working capital. So with that, we move over to Slide 13, and back to you, Martin.

Yes. Thank you very much, Per-Olof. So the last slide just sums up our financial targets. And as you can see, we, again, managed to tick all the boxes. In terms of the sales growth, we believe we continue to take some market share. And in terms of profitability, we are now significantly above the ROCE target, which we've established at 13%. Also, in terms of the capital structure, of course, we have a very low debt on EBITDA level of 0.6%, where our target is 3x at the year-end. The Board has suggested a dividend, which also is in line with the dividend policy. We have established or distributed more than 50% of net profit. So I think the conclusion from that is that we are really ready to make a number of acquisitions again. We've had a relatively quiet here in terms of acquisitions last year, and we have now started off the new year with 2 acquisitions already. And we do expect to make further acquisitions during the year, and we can obviously do that without jeopardizing our capital structure. So that was our presentation, and we are now very much looking forward to your questions.

[Operator Instructions] The first question comes from Kenneth Toll from Carenegie.

So first on Veg Tech, could you elaborate a little bit about what you're seeing there? You say it's more challenging, more competition. Is it all over Sweden or it's in other countries as well where you try to make inroads? Or is it local in Sweden? Or is it in certain product areas? Or can we have some more flavor on that, please?

Yes, absolutely. So we see this situation basically in all countries where we're active. Obviously, we are biggest in Sweden and -- but Norway and Denmark, also are markets where we are serving. So it's, I would say, a general phenomenon. The underlying demand remains -- so the good news really is underlying demand remains strong where we don't have any concerns about that. But we do have a business, which is very profitable. And obviously, that attracts competition, and there has been some pricing aggression, I would say, some more aggressive pricing from our competitors. So I would say it's not really a surprising situation, and I think we need to keep in mind that the underlying demand remains strong, which is really important. So we don't have any major concern about it. But obviously, we have come down a bit in the pretty high profitability levels we have seen in the past.

Okay. And then we have seen the only price go up here lately. And you have discussed before that the bitumen prices affect your cost levels and -- could you elaborate a little bit around that, if you see also higher bitumen prices and if you have hedge bitumen prices for 2021? Or what's happening on that side, please?

Yes. So absolutely, bitumen prices have come up a bit compared to the first half of last year, let's say, which was at the low point. We do have hedges in place until the end of the first half this year. I would say the effect is not dramatic, and we won't have a dramatic effect in the first half because of the hedges. We also don't see -- but obviously, we don't have a crystal ball, but we don't see oil prices going through the roof this year. So right now, we don't have any major concern. We do have some price increases in Denmark, which has been announced recently, not very big percentages, but we are starting to try to pass on any raw material increase, which we might have to our customers, and I think that has been reasonably well received. So I would say all in all, we don't have any major concern. Well, as you know, we have diversified our supply bases also in the bitumen arena, diversifying out of Nynas, which used to be an exclusive supplier for us, and we now have qualified 4 -- all in all, 4 suppliers. So that should give us some negotiation leverage also compared to the previous situation.

Great. And then the -- you talked about acquisitions. First, this Norwegian acquisition, is it a risk that you start competing with other customers, I mean, that buy your products there?