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

So good morning, everybody, and welcome to the Nordic Waterproofing Earnings Conference Call for the Fourth Quarter 2022. My name is Palle Schrewelius. I'm CFO for Nordic Waterproofing. But please note that this call is being recorded and will be posted on our web page later on today after the call. We're not going to use video to optimize the quality during the call and also please be aware that the participant names are visible from this meeting. [Operator Instructions] Let us start with the presentation. And for that, let me introduce our CEO, Martin Ellis and Martin, I'll hand it over to you to take us through the presentation.

Yes. Thank you very much, Palle, and a warm welcome to everyone. Thanks for participating in our fourth quarter call. As you see, we've had a good finish to 2022. Next slide shows us that net sales have been SEK 1.45 billion, an increase of 17% over the quarter -- fourth quarter 2021, 6% of that is due to organic growth, where volume was slightly negative 7%, but prices have increased by 13%. Another 6% come from acquisitions and 6% from the weak SEK compared to the euro. Euro is our dominant currency actually in the group. EBITDA increased to SEK 114 million against SEK 97 million the year before, 17% increase. Operating profit increased by 12% and cash flow from operating activities was SEK 93 million, in line with the fourth quarter '21, and earnings per share increased to SEK 1.96 compared to SEK 1.81 the year before. A few highlights and comments. Demand is slightly impacted by the slowdown in residential new build while a new build for other buildings in residential and renovation remains stable. So we are still on a, historically, a good level for the roofing business on the Nordic markets. We have slightly weaker demand for our EPDM products, which we sell throughout Europe. Our order book for Installation Services continues to be on a high level. And we see a weaker demand from residential new build to impact 2023 to some extent, it's difficult to forecast. But in countries like Denmark, especially, there has been a relatively strong stop to residential new build and this might continue during the coming months in 2023. Our Prefab Element business, all in all, has been slightly down in sales due to a reduction in Denmark, while we increased our business in both Norway and Finland. In our Green infrastructure business, where we now basically serve all of the Nordic countries, we have had a very strong development in the quarter. In Installation Services, contracting, where our sales are mainly generated in Finland. We have increased organically by 6% compared to the same period in the year before. Input costs, as you know, have slightly deflated now, especially the oil price has come down, which is an impact on bitumen prices, but also the other main input materials for our roofing, waterproofing roles. Transportation and energy still remain on a high level. We've had good cash flow from operations in the quarter. We've continued to have a strong focus on operating receivables, and we've also managed to reduce our inventory, which all in all has given us a positive cash flow. We maintain a strong focus on sustainability throughout the group and remain on track to reach our emission reduction targets. The group has driven improved data collection and CO2 footprint reduction initiatives. Our units have completed and published 7 EPDs and vital protection -- Environmental Product Declaration, sorry. In a higher interest environment, we have sharpened the focus on our debt level and adjusted multiples, we are prepared to pay for acquisitions. But as you've seen, we've nevertheless made 3 acquisitions in the quarter. So we don't plan to reduce the acquisition drive, but we are slightly more sharp on the multiples we are preparing to pay. The Board proposes a dividend of SEK 7 per share, which is an increase compared to the previous year and which amounts to 51% of our net profit. The acquisitions are, as I mentioned, 3 on third of October, acquired 70% of the shares in EG Trading, a company headquartered in Tammisaari in Southern Finland, growing sedum and offering a wide variety of different landscaping products. The acquisition extends our geographic presence in the green infrastructure solutions which continues to be an attractive segment and in which we continue to look for further acquisition opportunities. On December 1, we acquired 100% of the shares in Hagmans Tak Öst AB, a company that provides roofing and waterproofing services in Sweden. The acquisition expands our offering to customers in Sweden is part of our ambition to integrate downstream in the Swedish market. You might recall that we have contracting activities in Finland, Denmark and Norway, but relatively little in Sweden, and we have strategy to downstream integrate also in Sweden. On December 7, we acquired an additional 31% of the shares in Playgreen Oy, a Finnish company, mainly active in the design, sales and installation of solar energy solutions. So we install basically solar panels and roofs. And now a total of 64% of the shares in the company with an option to acquire the remaining 36%. Playgreen has performed very well in the quarter. Over to you, Palle, for some more figures on the two operating segments.

Yes. Okay. Thank you very much, Martin. As we said, the net sales came up to SEK 1.45 billion in the quarter, up 17%. Organic growth, 6%, whereof price increase is 13% and volume down 7%. Acquisitions and currency both on 6% and on a rolling 12 basis, we are now about SEK 4.3 billion. EBITDA increased to SEK 114 million versus SEK 97 million last year and EBIT increased from SEK 59 million to SEK 66 million. EBITDA margin unchanged at 10.9% in the fourth quarter and we can see the differences in the 2 segments we have with Products & Solutions, not matching the high margins, historically high margins from last year, whereas installation services saw a significant profit improvements in basically one areas here. In the income stated, we go a bit more into the details. The gross margin for the quarter was 24.1% versus 26.1% last year. And for the full year, we're at 27.3% versus 28.4% last year. EBIT margin for the quarter, 6.3% versus 6.6%. And on the last -- for the full year, we were at 9.9%. We do see that the increased interest rate starts to have a negative impact on our net financial items now quarter-by-quarter. At the balance sheet, we still have a strong balance sheet here. The net debt-to-EBITDA ratio is at 1.6x versus 1.5x, a year ago, but it's well below the covenants for our financing agreement. Also the interest-bearing net debt decreased in the quarter to SEK 844 million. Looking at our roles. We are well above our threshold of 13%. We are now at 16.1% versus 16.6% a year ago. We do see increase in our capital employed from both higher cost and prices but also, of course, activity and acquisitions in particular. Cash flow from operations for the full year increased to SEK 360 million versus SEK 220 million, and cash conversion increased from the rather low we had a year ago, 43% up to 62% now. This is, to a large extent, helped by improved working capital where we reduced inventory and operating receivables in the quarter. If we look at the segment Products & Solutions, we had an increase of 15% in net sales from SEK 658 million to SEK 756 million. Organic growth was 6%, whereof price 15% and volume down 10%. Acquisitions contributed with 4% and the impact from currency was 5% in the quarter. In Finland, we saw a strong growth, partly from acquisitions, with 49%, but organically 15%. Denmark was unchanged in the quarter, but there we could see a significant difference with waterproofing membranes growing and the Prefabricated Elements having a negative development in the quarter. In Sweden, we had a 22% up in net sales with a strong development for, in particular, our Green infrastructure business. And in Norway, we saw growth of 31% whereof organic was 26%. For the full year, Products & Solutions had a sales of almost SEK 3.4 billion. EBITDA in the quarter decreased to SEK 72 million from SEK 100 million the year before and operating profit decreased to SEK 35 versus SEK 72. Margin decreased to 9.6% from (sic) [ 15.2% ], and we are now on -- for the full year at 15.7%. The change in the quarter was to a large extent from high margins we had previous year, historically high margins for some areas in the fourth quarter last year, but also low volumes and low margins for our Prefabricated Element business that eroded the margin in the fourth quarter here. If we move over to Installation Services, where we saw an increase of 30% from SEK 249 million to SEK 325 million in the quarter, an organic development of 13% whereof price, an impact of 6% and volume of 7%. The acquisitions contributed with 9% and currency with 8% in this segment. EBITDA had a strong increase from SEK 1 million last year to SEK 45 million, and EBIT turned from negative last year to SEK 36 million this year. And our EBITDA margin increased to 13.9%. And for the last 12 months, for the full year 2022, we are at 8.2% for this. But basically, we had a good development in all areas, but we should also remember that we had a weak fourth quarter a year ago with, in particular, 2 entities having a bit of one-off negative results then. We also see some one-off effects this year with the acquisition of Playgreen. We get an accounting net capital gain here, and that helped us, of course, a bit. But also, we can see that, I mean Finland, Norway and the share of profit we get from associated companies all increased in the quarter. And with that, I pass it back to you, Martin.

Yes. Thank you very much, Palle. So that's the usual wrap up about our financial targets. And again, we could say that we've checked all the boxes. Sales growth obviously is slightly more toned down because volumes in -- especially in Products & Solutions have been slightly down, compensated by significantly higher prices. But we believe that we have maintained our market share and even increased it in many areas. The only area where we had maybe a slight loss of market share is EPDM, the SealEco products in Europe where there is some -- in some segments, there is some price competition where we chose to not sacrifice our margins, but it's a very slight effect. Profitability, as you have seen, we are significantly above the 13% threshold in ROCE. Capital structure, you have seen that, again, we are way below the 3x debt on EBITDA ratio, which we keep. In terms of dividend policy, we are going to propose a 51% distribution compared to net profit, and that gives us a significant increase to SEK 7 per share. So that is our presentation, and we now very much look forward to your questions.

And that -- with that I see I have 2 persons. So if I start with -- now I'm unmuting Adrian Gilani from ABG. Adrian you are now unmuted on my side, I think you have to unmute yourself as well to ask your questions.

Okay. Perfect. Can you hear me okay?

Yes. I hear you very well.

A few questions on my end. First of all, regarding the volume development. We saw the sort of negative development slow a bit during the quarter from negative 9% last quarter and 7% down this one. Should we read anything into that? Or is your previous statement that you expect 10% lower volumes next year 2023? Is that still what we should expect?

Yes. I think we are maybe slightly more optimistic now. We have seen, as I mentioned, quite dramatic stop to residential new build in some countries. But everything else is looking quite stable right now. And with a bit of market share gains, again, which we do expect, we believe that we can probably do slightly better than the 10% mentioned previously.

Okay. And regarding the pricing components, can you just tell us if there have been any sort of price increases during Q4 or if the entire pricing effect are prior increases? And also perhaps if you have had any price increases during Q1 as well?

Yes, almost no price increases in both Q4 and Q1. So it's basically carryover effects. But we might still see a small carryover effect in Q1 from price increases made throughout the '22.

Okay. And looking at the sort of margin or earnings development in Products & Solutions first. Can you quantify how much of the sort of year-on-year EBIT decline was due to the prefab business? And if there are any other major factors, what were those as well?

Yes. I think it's difficult for us to quantify that effect. But it's fair to say it's been a significant effect, I would say. So any improvement in that area will show basically in this year.

Okay. Would you say it's the majority of the effect? Or is that impossible to say?