Balco Group AB

Hello and welcome to today's webcast with Balco Group, where CEO Camilla Eakdal and CFO Mikla Grimborn will present the report for the first quarter of 2024. After the presentation, there will be a Q&A, so if you're calling in, please press star 9 to raise your hand and then star 6 to unmute your microphone when you're handed the word. And if you want to type in your question, please use the form to the right. And with that said, I hand over the word to you guys.

Hello all and welcome to the Barco Group quarter one report. It's me, Camilla Ekdahl, having this hearing together with Mikael Greenbaum, our CFO. First, for all new listeners, I will make a very short snapshot of Barco Group, who we are. Barker Group was founded in 1987 and consists today of several balcony and facade companies. We added two more companies to the group during quarter one. And I will, of course, come back to that later in the presentation. The head office is in Växjö and the group has approximately 700 employees now after the acquisitions. We are operating in two main segments, renovation and new build. The core expertise is to supply glazed balconies and balcony solutions primarily on the renovation market and to tenant-owned associations and also replacing the balconies with new glazed balconies according to what we call the Balco method. The Balco method means that they have an old slab which is damaged and then we cut down the old slab, we put up a new slab and we also make it with a glazing on. And if you do that with the glazing from the brand Balco, you have also 90 years lifetime for the balcony itself. But of course, we can offer also other balcony solution as other open balconies. And we also have passage renovation into our portfolio. Balco Group is a market leader in the Nordics, but we also have a strong challenger position on other Northern European markets. We want to take an active part in the green transformation, which is needed for the residential properties. And the reason for that is that all glazings of Balkone resorts in energy savings. Simple glazing can provide between 5 to 10 percent energy saving, while Balko's patented glazings can have a documented energy savings of 20 to 30 percent. And that is a trigger for doing more so that the customer could either get hold of the green loans or other subsidies that is existing in the different countries. So let us then go over to the quarter one and the highlights we have there. We had a significant increase in our order intake in the quarter. It increased by 44% to 352 million SEK. The increase comes from the new acquisitions we have made. The organic order intake was on the same level as the previous year. Our net sales was as expected weak, and that was depending on the lower order backlog we had at the start of the year. But also we had some projects that have been delayed during the long winter season here in the Nordic countries. We can see on the market that there's an increased willingness now to invest and also to discuss coming projects. And that is, of course, depending on the improved inflation situation. and also the discussions about expected interest rate cuts. But we also see that the trends we discussed already before, that the processes take longer times, that is still the reality. So we also know that there are some votings that has been postponed. And we also have the feeling now that it's really a need that we see that the disgust interest rates cuts are implemented and not only discussed any longer. During the quarter, we have made two acquisitions. We started the year with the largest acquisitions we have ever made. It was Ricky Group Oil, the Finnish glazing company. And here in March, we acquired Somen Ohutla Viacenos, which is a Finnish facade company. I will come back and have a little bit more about them. I talked about Ricky Group when we had the quarter four reporting. So I leave that for you to read in the report we had then. But these two acquisitions together means that we will take a leading market position now in Finland, where we actually before have been a little bit weaker. And they are both in line with our long-term strategy to be the balcony supplier in the Nordics and to also to be able to run larger turnkey projects for the green transformation. And talking about this with the green transformation, we have also in the quarter taken another large order in Norway, where we will install our unique solution with the air-to-air heat pumps. This project also includes solar panels. We see a big interest in this solution that we have taken, especially for the Norwegian market, where the residential buildings are heated up with electricity. This is actually our third project in Norway with this integrated solution. We are also really happy to see that we made another independent analysis just to make sure that we are keeping, so to say, what we are saying. So we made another independent analysis in Norway regarding the energy savings of the Balco glazings, and they confirmed the result we had before. We get between 20 to 30% energy savings if you are doing the glazing with the Balco brand. And of course, depending on the size of the balcony and the direction of the balcony. As you saw also, the results were not in line with what we had wanted. Of course, we continue to work on our reviewing of our costs on organization. And we have here during the quarter taken a decision to move some production between our different factories to get better synergies within the certain production processes. We have had some production processes in more or less all factories and We are concentrating some of them now to certain factories to get better synergies. So a little bit about our acquisition of Sormen Ohutla via Zenos. This was a company that was founded in 1984. And it is a Finnish for sale company, as I said, but they also work as a turnkey supplier. They're located in Turku and they had a turnover of about 11 million euro. and a higher operating margin than Balco Group. Before, I would say a couple of years ago, they worked more or less as the traditional sub supplier for the builders, But the recent years, they have changed a little bit more. They focus to focus more on renovation segment and also that they have reached a new customer group with the tenant owned associations. So they have been very successful now in obtaining and running larger facade renovation projects, especially to the tenant owned associations where they replace, they take away the older insulation, they put on the new insulation, a new facade and and replace the old balcony glazing. We have acquired 60% of the company and has an option to buy the remaining 40%. It will continue to be run by the co-owners Jukka Stam and Mikko Jokkonen. And together with the other acquisition we made in January, RIKU, we can see now, as we said, that we take a leading, we will be a leading player in Finland. And these two are really, so to say, matching each other because RIKU is already a major supplier to Somen Odla via Senus. So we are seeing now ahead with, we really think that the Finnish market will grow for us, or we know it will.

Yeah, and having a look at the quarterly result, as we mentioned, we've seen an increased order intake, but mostly from acquisitions. But net sales amounted to 326 million, same as last year, but acquired group was 31%, currency effect was plus 1%, and the organic group was 32% negative. Our adjusted EBITDA amounted to 16 million compared to 28 the year before, and it corresponds to an adjusted operating margin of 5% compared to 8.7 the year before. Order intake increased 44% to 352 million, and acquired growth here was 46%, and the organic order intake was minus 2%. Our order backlog has increased by 12% to 1.4 billion SEK. And of which 24% was acquired order backlog. So a big part was, of course, from the acquisitions from Ricoh and Swarm and Autolabia Senius also here. Earnings per share amounted to 0.10 SEK compared to 0.63 the year before. And we saw a little bit improvement in our operating cash flow. It amounted to 18 million compared to minus 10 million SEC last year. If we have a look at the two segments we have, the renovation segment saw an increased order intake from the acquisitions. Net sales in the quarter was quite weak. It was 222 million down from 299 via before. And it was just 68% of our total net sales. Normally it's been around 80 to 90%. Order intake in the quarter increased by 43% to 285 million compared to 199 the year before. And it corresponds to 81% of our total order intake. Adjusted EBITDA in the quarter amounted to 11 million compared to 26 the year before. And it corresponds to an adjusted operating margin of 4.8% compared to 8.6%. And the decrease here comes from lower occupancy in our both production and project organizations. And also was quite much affected by the longer winter with more snow and also colder winter in the all Nordic countries, also in the southern parts of Sweden and Denmark. All the backlog amount to 1,038,000,000 compared to 1,091,000,000 last year. And it corresponds to 75% of our total order backlog. The new build segment saw increased sales and order intake, especially from the Ricoh acquisition. Net sales in the quarter amounted to 104 million compared to just 26 million the year before, and it was 32% of our total net sales. Order intake in the quarter increased by 46% to 67 million compared to 46% the year before, and it was 19% of our total order intake. Adjusted EBITDA was 6 million compared to just 1 million the year before. And also our adjusted operating margin was 5.3%, slightly improvement from the year before, which was 5.2%. So here we have stable margins in the new build segment. Order backlog, 354 million. compared to 150 million we had before, and it corresponds to 25% of our total order backlog. Our financial position, we see, of course, increased debt from the two large acquisitions we have made. So at the end of the quarter, the group's equity was 801 million, and the equity ratio was 47%. Net debt divided by EBITDA, both including and excluding leasing, was 3.2. But if you include 12 months result from the acquired companies and add that to the EBITDA, you get the net debt in relation to adjusted EBITDA of 2.2. We have a banking agreement with Danske Bank, which is valid until October 2026. And it is a sustainability link, the revolving credit facility of 510 million SEK and an overdraft facility of 75 million SEK. Our financial targets for the group, we have a group target that Valko Schelling achieved a group of 10% per year during the business cycle. And if we look at the last 12 months and compare that to the 12 months before that, we see a negative group of 11%. We also have a profitability target that our earnings per share shall grow by 20% per year during a business cycle. And here, the last 12 months, we see a negative growth of 50%. Our capital structure should be that our interest-bearing debt, net debt, should not exceed 2.5 times adjusted EBITDA. other than temporarily, like just after an acquisition. And here, as we saw on the previous page, we are at 3.2. But if we add 12 months profit from the acquisitions, we are at 2.2. We also have a dividend policy that Balco shall distribute between 30% and 50% of profit after tax, taking into consideration needs of Balco's long-term growth and prevailing market conditions. And the board has proposed the new dividend to the annual meeting of this year, that will be now in 12 May. And it is to finance the recently completed strategic acquisitions. And some update from the sustainability side. As Camilla mentioned before, another independent analysis in Norway regarding the efficiency of energy savings when glazing a balcony with the Balco brand's glazing. The same results as before, that the glazing from the Balco brand provides an energy saving of between 20% and 30%. depending on the size of the balcony and also the direction of the balcony. Once again, this strengthens our market case that the glazing from the balcony is a trigger to be able to get further improvements from the property's energy consumption. We have also already in 2023 reached our goal in reducing our environmental impact in Scoop 1 and Scoop 2 by 35% compared to 2019. And this goal was set that it should be reached in 2025, but we reached it already in 2023. So, Balco Group has committed to develop new long-term and short-term targets for energy reduction, including a net zero target in line with science-based targets initiatives. And we think that that should be improved by the science-based targets initiative, either during this year or early next year.