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

Ladies and gentlemen, welcome to the Nordic Waterproofing Q1 Report 2021. Today, I am pleased to present CEO, Martin Ellis; and CFO, Per-Olof Schrewelius. [Operator Instructions] Speakers, please begin.

Thank you very much. Welcome, everyone. I'm very happy to present our first quarter results to you. Thanks for calling in. We've had a strong quarter on the -- both the top and the bottom line. It started out quite soft because of weather conditions. We had sort of a normal winter, whereas the last 3 winters were unusually mild. But there has been an acceleration in March. And we also were able to make 4 acquisitions. So we're again on the acquisition trail to start the year. Moving to Page 2, a few details about our top and bottom line development. Our net sales increased by 5% all in all, 2% organic growth in local currency, 7% came from the acquisitions and a 4% negative currency effect because of the strong SEK. As before, we are happy to report that the pandemic has not had any significant effect on our operations and our business. Obviously, we keep a very strong focus on the development of the pandemic, and we take a lot of care to got to make sure that our employees don't get sick, but also we make a lot of efforts to keep them in the loop and to make sure that working from home is not a negative experience for them. Our EBITDA increased to SEK 50 million, 56% up compared to last year's quarter. EBIT increased from SEK 2 million to SEK 22 million this year, and the cash flow was stable compared to last year. Reason for that is basically that we had a lot of sales at the end of the period and the accounts payable are at high level. Earnings per share at SEK 0.47 versus SEK 0.37 last year. Well, our AGM will be held shortly on 29th of April, but it will be through postal voting only. Moving on to Page 3. As I mentioned, we had a negative weather impact compared to previous 3 years, but the underlying demand remains strong basically in all of our countries. I would say the most stable, slightly weak outlook is still in Finland. As we've said before, there are no change there. We have strong growth, especially in the Norway from our roofing, water proofing business. We had, all in all, negative impact from the weather in Denmark, Finland and Sweden. Installation Services, which is mainly our Finnish operation, also decreased because of the weather. But we don't have any concerns about the order book and the outlook in the business. SealEco, our synthetic rubber business, had a very strong development, double-digit growth in almost all of its markets. Veg Tech, our green infrastructure business, had a weak quarter, also down compared to last year quite significantly. And the weather impact obviously has been significant there. But we also, as we've said before, we faced competition, quite aggressive competition. On the upside, of course, we've made the acquisition of Urban Green, which increases our footprint significantly, which gives us a very good portfolio in terms of the product offering in that sector. Prefab Elements. Wood-based elements in Denmark and Norway has a very strong development both in sales and in profitability. EBIT made a significant jump compared to last year's quarter as a result of the profit improvement program, which we've been driving for the last year or so. So very good success in that field. EBIT, as a result, SEK 22 million, 3.1% margin on sales. And significant part of that stems from the profit improvement effect in the prefab element business. Turning to next, Page 4. Four acquisitions. First one is a waterproofing contract in Norway. We -- it's the first time we entered that sector in Norway. Traditionally, we've been in Finland and Denmark. And we've been able to do so because the contract is active in an area where we don't have any significant customer base. So we're not competing with our existing customers. The second acquisition we made in Holland is the ponds and landscaping business. You might recall, we entered that business 2 years ago in Belgium, and we have now copy pasted, you could say, the business into the Netherlands, which is something which we have plans about from the start and we will try to continue that also in other countries. In the prefab wooden elements business, we acquired -- we increased our footprint into Finland with a small acquisition. And last but not least, Urban Green in Sweden, which is a very renowned operator in the green infrastructure business, especially in the urban area. So a very nice complement to Veg Tech. So you can see that we've increased basically 3 of our fairly recently acquired platforms geographically and in terms of the product offering we have. We do have, as you know, as most operator -- industrial operators these days significant input cost increases, we've announced sales price increases, which ultimately should cover these increases. We have a slight risk of margin compression in case raw material prices further increased. That's not obviously a done deal. But obviously, there could be a situation where we see further increases and we would then have to react on that. So there might be a slight effect on our full year results from that. Moving on to the market demand suggestion, Page 5. As I mentioned, strong demand remaining. Finland is somewhere on the lower side in that respect. We see continued strong growth in the prefab for facade and roof elements in Denmark and Norway. We have a very strong order book. We have, obviously, as I said, a slower start in most of our businesses, but March activity levels were up and back to a normal level. And I might add, we have again been able to take a bit of market share in our legacy business in the Waterproofing business. I'll turn it over to you, Per-Olof, for more details on the financial front.

Yes. Okay. Thank you, Martin. Then we move to Slide 6 here. And as you know, I mean, the first quarter is traditionally seasonally our weakest quarter, but at this first quarter is -- well strongest we've had so far and with the best sales ever at SEK 704 million, up 2% as we -- compared to last year, also organically up 2%, in total, up 5%, driven -- the positive development is driven by the activity in roofing in Norway in the SealEco business generally and in the prefabricated wooden elements. We have structural effects with 7%, mainly coming from the acquisition of Byggpartner in Norway, and currency had a negative impact of 4% here. The EBITDA increased, as we said, to SEK 50 million versus SEK 32 million last year. And also the best quarter -- the best first quarter we've had ever. The rolling 12 EBITDA is currently at 14.2% here. And as we said, we have so far seen no material negative impact on the COVID-19 pandemic in our numbers. Moving on to Slide 7, where we look more into the Product & Solutions segment, where we were up 4% in sales in the quarter, organic growth of 8%. I would say the acquisitions did not have a significant contribution in the quarter, whereas currency impact was minus 4%. As commented before, we saw a negative impact from mainly the weather in England and in Sweden, and so we had a slow start of the year there. Whereas in Denmark, we had a strong development in the prefabricated wooden elements business that drove the number to positive change, plus 11%. In Norway, we saw good development in both prefabricated wood element and the procurement based waterproofing business and then in the Mainland, Europe and in U.K., we had a good development as well, plus 12%. EBITDA increased to SEK 72 million compared to SEK 46 million last year. And on a rolling 12 basis now, we are at 16.9% for EBITDA in the Products & Solutions segment. The good quarter is, to a large extent, explained by the good turnaround in the prefabricated wood elements business. Moving on to Slide 8 then, looking more into the Installation services, where we saw an increase in sales with 1%. We have quite big changes where the organic development was minus 23%. And this is the traditional Installation Service businesses in Finland, where they had lower sales due to the weather condition and also some lower demand in the rural areas of Finland. In the Installation services segment, this is where we then consolidate Byggpartner, and the impact from that was 28% in the quarter, and currency effects were minus 4% for this segment. EBITDA decreased slightly down from -- to minus SEK 11 million from minus SEK 4 million last year. And on a rolling 12 basis, the EBITDA is now still on a good 9.5% for this segment. Moving on to Slide 9 here and looking at the total income statement there. And just for your information then is that the acquisition of Byggpartner in Norway is consolidated from 1st of January, and Gauris on the 1st of February and then the other 2 acquisitions, Urban Green and Seikat in Finland, they will be consolidated from 1st of April here. Gross margin for the quarter, good for first quarter at 26.1% compared to 23.7% last year. And EBITDA for the quarter was 7.1% compared to 4.8% last year. I think we -- moving on to Slide 10 and looking at the balance sheet here, where we traditionally tie in and build the capital in the first quarter for the businesses to come in, in the second and the third quarter. Our ROCE is well above the long-term financial target, that is 13%. We're currently at 15.9%. We still have a strong balance sheet with a net debt to EBITDA ratio at 1.1. It increased from the 0.6 where it ended in 2020 due to the normal seasonal variation in the first quarter, but also due to the acquisitions done in the quarter. Our interest-bearing net debt is at SEK 463 million. So still a good cash position for further investments and to manage the dividend that's expected to come in next week. Moving then to Slide 11 and looking at the cash flow, where we can see that cash flow from operating activities on a rolling 12 basis is currently at SEK 460 million, and the rolling 12 cash conversion is at 97%, which is, I think, still a very good value here. The cash flow from operations in the first quarter was very similar to last year, minus SEK 86 million and minus SEK 88 million. With that, I hand it back to you, Martin, for Slide 12.

Thank you very much, Per-Olof. So Page 12, our key financial targets and basically to say that we've ticked all the boxes in terms of our sales growth. We believe that we have made progress in terms of our market share. Profitability, clearly beyond the 13%, which is ROCE threshold. And the capital structure, it's 1x the EBITDA, very strong and leaving room for additional acquisitions. And dividend policy, as you probably noted, we will propose to distribute SEK 10 per share for the 2 last years. So we are above the 30% -- 50% of the net profit ratio, which we have defined. So that is our presentation, and we are very much looking forward to your questions.

[Operator Instructions] Currently, we don't have any questions on the phone. So I'll hand back to our speakers for the e-mailed questions.

No, I have not received any e-mailed questions either.

[Operator Instructions] Okay. There still seems to be no questions from the phone lines at this point.

Okay. I guess our presentation has been clear. And we would like to thank all who called in for the interest. And so we're looking forward to -- for our next call in 3 months' time.