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 2024 here. Let me start by pointing out that this meeting is being recorded and that the participants names are visible for everyone. But having said that, let me then introduce our CEO and President, Martin Ellis, to start the presentation. Welcome, Martin.

Thank you very much, Palle. Can you hear me okay?

Yes, I hear it loud and clear. Very good. Thanks.

So welcome all. Thanks for participating maybe our last quarterly conference call, but who knows. So the headline is soft markets continue basically, and we've had a bit of a profit erosion as a consequence of that. But we have also managed to keep our return on capital employed stable. So moving on to the next page. We can see that, as you probably noticed, Kingspan this morning announced a cash offer to the shareholders of our company and the price is SEK 182.5 per share. Our Board has evaluated the offer and unanimously recommends that shareholders accept the offer. We have -- the Board has also obtained a fairness opinion from Evli according to which the offer from a financial perspective is fair to the shareholders of Nordic Waterproofing. That's obviously the reason the Board recommends accepting it. The offer period ends on March 6 and presently, Kingspan holds 87.4% of our shares already. Moving on, talking about our quarterly results and business development. Net sales decreased by 12% compared to the previous year in the quarter, and all of that is organic. No exchange effect, no acquisition effect. EBITDA decreased also to SEK 71 million compared to SEK 89 million last year. Operating profit, a similar decrease. Cash flow from operating activities was positive, as is quite normal in the quarter, but less so than last year. Last year, we had a very aggressive reduction of our working capital, which we obviously can't repeat every year. And the result of that is that we reduced net debt again to SEK 716 million compared to SEK 749 million previously. And the Board will propose a SEK 4 per share dividend. Moving on, a few comments on our business environment. Demand is still impacted by a slowdown in commercial new build, leading to higher interest rates. Renovation remained stable and residential new build continues weak in almost the entire geography we cover. Bitumen-based waterproofing solutions are stable in Sweden, Norway and Denmark. And the market situation continues to remain more challenging in Finland compared to the other countries. Sales of our EPDM products, which is basically the European market, are slightly below last year, but we have been able to improve our margins there. Prefab elements, which has a high exposure to residential new build, obviously, is badly impacted by the demand situation and had negative development in sales. Profitability is still unsatisfactory, but we've put into place a number of turnaround options and plans, which are, I would say, starting to show results, especially in our Norwegian operation, and which we are confident will improve the situation throughout the year '25. Green infrastructure had a somewhat negative development in sales and operating results, but we don't believe that we've lost any market share. So this is really demand related. Installation Services, for especially in roofing in Finland, has decreased sales and weaker margins as a consequence. But our operating results from the franchise units in Denmark, where we usually own about 40%, are on the same level. So very, very strong results there and also a good outlook. Order books for business units within Installation are generally weaker compared to the same time last year, and again, Finland is the bigger factor in that business. A few more comments. We have had a good control, obviously, of our cost situation and we have slightly deflated cost/price developments in most of our input materials. We have focused on our debt level, and as you have seen, we've been able to improve that. We obviously expect acquisition opportunities, especially now and in partnership with Kingspan in the future. The expectation for demand remain at the current level for the beginning of the year. And we don't see any significant pickup in residential new build with the exception of Denmark. We think that '25 might see an improvement in our main markets. But in Finland, so far, no signs of any improvement. So the situation will probably remain unchanged in that country. With that, Palle, I turn it over to you.

Yes. Thank you very much, Martin. Then let me go through some of the numbers here, where we -- as we said, the net sales decreased in the quarter from SEK 1.048 billion to SEK 925 million with an organic development of minus 12%. No impact from acquisitions or currency. On a yearly basis, we stand at SEK 4.1 billion in turnover here. EBITDA decreased to SEK 71 million from SEK 89 million, and operating profit from SEK 47 million to SEK 28 million. The EBITDA margin decreased to 7.6% from 8.5% and the full year EBITDA margin is now at 10.6% versus 10.4% a year ago. Moving on to the next slide here and looking at the income statement. We can see the gross margin for the quarter was 24.2% versus 24.6% a year ago, mainly impacted, I think, with the decrease from structural changes within the prefabricated elements business. Net financial items were minus SEK 1 million where interest was minus SEK 12 million. And then we had, I would say, a positive impact from revaluation of outstanding options for buying remaining shares in acquisitions. And our EBIT margin for the quarter was 3.1% versus 4.5% a year ago. And on the full year, we are at 6.8% currently. Looking then at the balance sheet on the next slide. I will say we have a continued solid balance sheet that allows us to do selective acquisitions. The interest-bearing net debt decreased from SEK 724 million to SEK 695 million (sic) [ SEK 697 million ]. And the equity asset ratio now stands at almost 54%. Net debt-to-EBITDA ratio at 1.7 is well below the covenants we have in our financing agreement. And yes, as you can see on the interest-bearing net debt graph at the bottom right here, we have a seasonal pattern here, of course, on our net debt and cash flow. Moving then on to the next slide with ROCE. ROCE stands now at 10.1%. So that's been basically unchanged since a year ago. And we can see the capital employed development has decreased in recent quarters here. Cash flow from operations on a rolling 12 basis was at SEK 288 million versus SEK 503 million a year ago. And as Martin said, we had very good changes in the working capital last year with, among others, the significant decrease in our inventories. That's hard to repeat. Cash conversion at 67% versus 108% a year ago. And then we have our normal seasonal changes, as we mentioned, where we can see the -- how the capital moves between the different quarters here. Again, in the environment we have, we, of course, closely monitor our operating receivables. Then looking a bit deeper into our segment Products & Solutions, where we could see a decrease of 8% in sales from SEK 718 million to SEK 662 million. It's all related to organic development. No currency or acquisition impact. We can see in Denmark that the sales increased, while we saw a decrease in the other 3 Nordic markets here. And on a rolling 12 basis or a full year basis, we are at just above SEK 3 billion currently on sales. EBITDA decreased from SEK 57 million from SEK 78 million, and operating profit from SEK 47 million to SEK 26 million. As well as EBITDA, the margin then decreased, the EBITDA margin from 10.9% to 8.7%. So generally, the businesses maintained or improved margins with the exception of the prefabricated elements business, where the restructuring initiatives had a significant impact in the quarter. For full year, EBITDA margin stands at 14% versus 13.1% a year ago. Installation Services, we saw a decrease in net sales of 20% and this is mainly related to Finland where the largest chunk of this business is located. No impact from acquisitions or currency here either. And then the EBITDA decreased from SEK 25 million to SEK 18 million and operating profit from SEK 16 million to SEK 9 million. We can say for the full year, the margin is 4.1% on EBITDA level versus 6% a year ago. Challenging for the Finnish operations and somewhat improvement from the Norwegian entity, however, still unsatisfactory. And in Denmark, where we consolidate our share of the net result in our franchise network, we don't consolidate sales there, they maintained the result on a good level. Having said that, I mean, for the financial targets, I move it back to you, Martin.

Yes. Thank you very much, Palle. And that basically wraps up our presentation. So we think that we've definitely kept our market shares. In terms of sales growth, we don't have any regrets. Profitability, as you have seen, is below -- albeit stable, but below our 13% ROCE threshold in a challenging market situation. Capital structure is solid, as Palle described, and the dividend policy with a SEK 4 proposal, obviously, is above 50% of net profit as usual. So now we're looking forward to any questions.

Yes. Thank you, Martin. Yes. [Operator Instructions] Okay. It seems that there are no questions from the audience here, and I don't have any questions in my email either. So I think that's that. Martin, do you want to wrap up the meeting?

Yes. Thank you all for participating. And yes, we'll see what happens. It's quite likely that this is our last call. And for those of you who've been here for a while, thank you very much for your interest.