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

Hello, everyone, and welcome to this interview with CEO of Nordic Waterproofing, Martin Ellis. We're going to talk a bit about giving an overview of Nordic Waterproofing, the current situation and perhaps a bit about the outlook ahead.

But I guess we can start off very basic for those who are a bit new to the company. And I guess you can give us a short rundown of your operations, the product offering and perhaps a bit about what your market position is within that.

Yes. Thank you very much. Great to be here. So what Nordic Waterproofing, we are really about sustainability in construction and building. We are climate passionate, you could say for -- and we've been that for many years. And what we do is we have 2 sides of our business. One is building materials production industrial. And the second one is contracting where we actually install product. And the products we install are basically protect buildings, they make sure that the insulation material keeps dry to have good thermal insulation, obviously, a good contribution to climate protection. And we have also recently diversified into sustainable building solutions, for example, wood-based facade elements, wood-based roofing elements. That's clearly a growing area, especially in the Nordics and Northern Europe, where people basically want to replace concrete, which is obviously a CO2 generator by wood, which is a CO2 absorber.

Okay. And these waterproofing products, obviously, the products themselves are highly standardized. So what you did sort of stand out, I guess, compared to competitors.

Right. One basic element, obviously, is quality. The longer our products last and typically a waterproofing on the roof can last 50 years plus, the less footprint you have, the less often, you have to redo it, refurbish it, repair it. So that's really basic. And what this contributes to the climate is really the protection of the building, the minimization of the CO2 footprint during the lifetime of the building. And we also produce and install green roofs, for example, green urban areas. We help to fight the impact of heavy rainfall by retaining water on the building and in urban areas.

And what was your position on the market, both on the sort of traditional side of the roofing products, but also perhaps on the new greener alternatives as well?

Yes. We are one of the major players in Scandinavia in our specific market segment. We sell through 2 channels, basically through builders merchants to some extent, but a lot directly to contractors people who install our products as we do ourselves also. And it's a market where you have established players in the new sustainable solutions, the market is usually a bit more fragmented. So there's more room for expansion basically.

Okay. And I guess anyone who's picked up a newspaper will know that the construction sector is in a quite tough situation at the moment. Can you just talk about what the impact from that is on your operations and perhaps what sort of actions that you can actually take to mitigate the effect of that?

Yes. So the key sector that's been hit hardest in the recent -- into high interest rate environment is residential building. And that is, for us, a relatively minor sector, our exposure there is quite limited. So our main demand areas are commercial new build big boxes for logistics centers, data centers, office space, et cetera. And that sector also in the new build has been relatively stable in Scandinavia. The other area we cover, which is almost half of our business is maintenance of existing buildings. And again, there, we haven't seen a very heavy downfall. So we've been relatively fortunate, I would say, given our exposure in the recent years.

Okay. Are there any aspects of the big business that have been hit sort of a bit more from this as well?

Yes. As I mentioned, residential housing clearly has come almost to a stop, but the impact is relatively small for us -- there's no for waterproofing.

Okay. Has this perhaps, I guess, presented an opportunity in a sense because you have a fairly active M&A agenda as well. Does this mean that you can pick up some cheaper acquisitions at this point as well?

Yes. We've had a pretty active acquisition policy over the last 6 years. I will say since 2016 when we are IPOed. And right now, we have higher interest rates, and it's a bit early days to profit from that because expectations from the seller's point of view are still relatively high. Multiples haven't come down dramatically. So we are more concerned about consolidating our position, developing the businesses we've acquired recently, especially the sustainable solutions and gain market share organically.

Okay. And I guess, talk a bit about the organic side, then what are the major avenues that you are looking to grow organically both I guess you've talked a bit about the product side. Are there any geographical preferences you have of where you want to grow?

Yes. I think geographically, we are quite stable. So it's more about cross fertilization. So for instance, we buy a specific new business in Finland where we have a very strong position. And then we sort of try to copy paste it into the 4 other Nordic countries and also into Benelux U.K. where we have significant presence. So that's really the key emphasis right now.

Okay. Can you give us perhaps an example of a successful sort of synergy story, an acquisition that you made that have -- where you've been able to realize these synergies?

Yes. One example, it's not a huge market, but one example is a synthetic rubber pond liners and swimming ponds, swimming pools, to some extent, leisure pools where people can keep fish, for example. So it's a bit of a decorative and private well-being concept, which we've started in Belgium through an acquisition and which we are now expanding into Holland, into the U.K. potentially into Germany.

Okay. Also, I guess, moving back to the traditional side of the business or the legacy side, if you will, because that is still a big chunk of it, given the very sort of volatile oil prices and everything, what has been the impact of that on you given that it is an oil-based product that you're selling?

Yes, that's obviously a really relevant question. And what has happened is we have been able to pass on this input cost inflation to our customers quite successfully. And one of the reasons is the consolidated nature of the market, I would say, even more important our reputation with customers. What we sell is not just a product. What we sell is a complete service package to our customers. It's on-time delivery excellence, it's reliability. In some cases, we help with marketing, legal questions, financial questions. So we have a very sticky relationship with our customers. That's certainly a main explanation for the situation for the success we've had.

Okay. And is that a general market phenomenon? Or is it that you have been able to increase price as well, perhaps competitors will not have the same success with that...

Yes, that's maybe difficult to say. But I would say, in terms of our customer relationships, the thing I just described, I think we are probably better than most of our competitors.

Okay. Have you perhaps even then been able to gain market share when the environment has been tougher?

Absolutely, absolutely, especially in our main countries, Sweden, Norway, Denmark, we've certainly gained market share. We're not talking about double-digit percentage per year, but we're talking about low single digit, but it adds up.

Okay. I guess I'd like to round off by looking a bit further into the future. If we just look perhaps, say, 5 years out, what's -- what would be your vision for the company if we look on a bit longer-term perspective? Are there any things that you would like to tweak to grow into new areas to increase profitability? What's the vision for -- on your end?

Yes. I think we are really very much focused and obviously, we'll continue to be on sustainable solutions. And there is still a wide scope, especially in terms of geographic growth fertilization open to us. So we don't necessarily need to go into completely new sectors to grow. So that's really the avenue we are going to pursue. And I mentioned a few of them wood-based construction is still a very good tailwind, photovoltaic installation, which we already do in Finland and Denmark. Green surfaces, water retention has a big scope for that in terms of our future development.

Okay. And I guess a quick follow-up on that. Within these new and more exciting spaces, what -- is your view that you are sort of a first mover here. How does your current offering within the more forward-leaning solutions stack up against your current competitors?

I think we are probably slightly unique in that we've put this emphasis on the sustainable construction aspect because we have a few local competitors in our legacy business, basically waterproofing material, production installation. And they have been slightly less active, I would say, in that respect.

Those were the main topics that I wanted to cover. I'd like to thank you for participating for being here.

Thank you very much, pleasure.

Thank you.