Balco Group AB

Hello and welcome to today's presentation with Mako Group. With us presenting today we have the CEO, Kamil Ekdal and CFO, Mikael Grinborn. We'll do a Q&A after the presentation and if you're calling in and would like to ask a question, please press star 9 to raise your hand and then star 6 to turn on your microphone. You can also use the form that I still have to write if you would like to type in your questions. With that said, please go ahead with your presentation.

Hello, welcome all to our presentation. First of all, for all new listeners, just a very short snapshot of Baco Group. Baco Group was founded in 1987 and consists of several balcony and facade companies. We have the head office in Växjö. We are working in two main segments, renovation and new build and our core expertise is to supply glazed balconies and balcony solutions, primarily for the renovation market and the tenant and associations. We are the market leader in the balcony business in the Nordics but we also have a strong challenger position on other European markets. Over to the highlights for quarter three, we actually more than doubled our order intake. The order intake increased by 111% to 285 million SEK versus 135 previous year. Here actually the organic order intake was 49% higher than previous year. The net sales increased by 31% to 331 million SEK versus 253. Here the increase comes from the acquisitions we made earlier this year. In January, we acquired the Finnish glazing company Rikigroup and they have earlier been focusing on the new building segment and they also have had subsidiaries in Finland, Sweden and Norway. As we announced and presented in our press release previous week, we will now make some structural changes and also some just for developing the business and also for some smaller cost savings by closing down their subsidiaries. This means that we in Finland will integrate their subsidiary Kodi, which have been working more mainly with the renovation projects. We integrate that to Rikko and start a new business area called renovation area and there we will develop the renovation segment even more. Of course also Rikko will continue to work with new building segments. In Sweden, their subsidiary Rikki Sverige will be integrated to Erkoteknik. Erkoteknik has been part of Balko Group since 2021 and Erko has both historical and also now very good partnership with builders, especially in the renovation segment. Now when we add Rikko more closer together with Erkoteknik, Erko can broaden the offer to the builders for renovation projects, but we will also together have a very good combination and a very good strength on the offer to the new building segment for the building here in Sweden. In Norway, they had a subsidiary called Glassy and that is now sold to the minority owners. And then we come to this with that we have also a new innovative solution. As I have said to you several times before, all glazing are giving energy savings and doing glazing with Balko, you can get up to 30% energy savings. And these have been a trigger all the time for us to integrate energy saving solutions, more energy saving solutions in our projects. And about one year ago, we implemented a solution where you could integrate air to air heat pumps with the tubing of them in our glazing and that we have had very good market response for it. We have received a couple of big good projects for it and therefore now we have also developed further our solution with the air to air heat pumps and have been applied for new patent in this area. So we continue to be a turnkey supplier within the green transformation. Yes, going to the market update. We are noticing an increase in the activities, but we should of course remember that it is from a low level, but this is especially for our balcony companies working with renovation. Here we can see that during the quarter, Balko AB received a major turnkey project in Borås with the value of about 60 million SEK, where we will supply glazed balconies together with facade works drainage and we will also upgrade the green areas around. We can however see that some of our companies are exposed for greater price pressure. This is especially valid for our facade companies in Sweden. We have also seen tendency on the balcony companies in our balcony company in Denmark. And also in Denmark we see that the trend of the longer process time for decision making is also remaining. I'm very glad to say that our newly acquired Finnish company Svomen Odla VSNS has received several major projects during the quarter and the first week after. And they are choosing as a turnkey supplier for three big projects with a total value of about 8 million euro. 1.9 million of these are included in the 43 order intake figures. And the entire group continues of course to have a strong focus on the order intake, because that is what we need to get and continue to get. But we will be cautious about entering the price pressure projects that we can see especially on the facade companies that is now up for discussions. So Michael, going over to the financial figures.

Yeah and some financial update and start with the quarterly result for the group. The net sales increased by 31% up to 331 million. Here acquired group was 43%. Carrier CETEC was minus 4% in the quarter and organic growth was minus 8%. Our adjusted operating profit amounted to 16 million compared to 15 million last year. And it corresponds to an adjusted operating margin of 5.0%. Our order intake increased by 111% up to 285 million. Here acquired order intake was 62% and our organic order intake increased by 49%. Our order backlog has increased by 25% up to just about 1.3 billion SEC. earnings per share amounted to minus 0.03 SEC and our operating cash flow in the quarter was minus 1 million. If we go over to our two segments and start with the renovation segment. Here net sales in the quarter increased by 10% up to 247 million. And it corresponds to 75% of the total net sales in the quarter. Order intake for renovation segment more than triple up to 250 million. And it corresponds to 88% of the total order intake. Adjusted operating profit for renovation segment amounted to 15 million. And it corresponds to an adjusted operating margin of 6.0%. Order backlog has increased by 15% to just about 1 billion. And it corresponds to 78% of the total order backlog. And go over to our smaller segment, the new build segment. Here net sales in the quarter almost tripled up to 84 million. And it corresponds to 25% of the total net sales. And all increase more or less is coming from the acquisitions we are making mostly from the weaker group. Order intake in the quarter amounted to 35 million. Here it's down from 53 million last year. The reason behind this is that last year we received a big order in Ireland in this quarter. And this year the organic order intake for new build segment has been minus 8%. So the increase otherwise we have a rest coming from the acquisition of Rikko. Adjusted operating profit amounted to 3 million. And it corresponds to an adjusted operating margin of 3.8%. And the order backlog has increased by 75% up to 294 million. So it's 22% of our total order backlog. And to have a look at our financial position here at the end of the quarter. The group's equity amounted to 799 million. With an equity ratio of 49%. Our interest bearing net debt excluding leasing debt in relation to adjusted EBITDA reform amounted to 2.8 and it's up from 1.1 last year. And we have been making agreement for another two years with Danske Bank until October 2026. And it's a sustainability linked reward and credit facility of 510 million. With an overdraft facility of 75 million. Back to you, Kimilla.

Yeah, acquisitions are an important part of the group's strategy. And we will of course have it like that also ahead. However, as you understand with the debt situation we are in and a little bit with the result right now, we will be a little bit more cautious. But if something interesting comes up, of course we will take that up to discussion also ahead. So going to the concluding remarks, the net sales in 43 was 331 million SEK. And we have an adjusted EBITDA margin of 5%. And as we said several times, the order intake was really good. Increase, it increased more than doubled. So we are on 285 million SEK plus 111%. If we look a little bit ahead, the outlook, as we said, the customer activity has continued to increase. We should remember that it comes from a little bit lower level of cost, but it continues to increase. The net sales and the profit will continue to be affected in the coming quarters, depending on the lower order intake we have had before. And of course, all companies in the group continues to have a strong focus on order intake on the cash flow and also the cost situation. So we hand over for some questions.

Thank you very much, Kamila and Mikael, for that presentation. And yes, like I said, now it's time for the Q&A. If you're calling in and like to ask a question, you can press star 9 to raise your hand and then star 6 to turn on your microphone. You can also use the form located to the right. And we've got several questions here. And we'll start with the first one. You got to covenants, interest coverage ratio and net debt to adjusted EBITDA. Could you quantify this, please?

Yeah, of course, we have some partly covenants and it's on this pro forma, net debt to EBITDA. And we can go up to 4.0 in a single quarter, but then we have to go down to 3.75 and then down to 3.5. So we think we are still on a stable level.

Thank you. And how is the development progressing in different parts of Sweden? And could you give more details, especially for the Stockholm area?

No, I cannot give any more details regarding that, that neither that we are better or worse, so to say, in the Stockholm area than in the rest of Sweden. From our perspective, it's more that we can see that it is an increase for the balcony companies all over Sweden. However, as I said, the facade companies are more under price pressure. And we have one, as you know, we have one facade company, Investoros, which are located in Stockholm area or close to Stockholm area. But we also have one in the south of Sweden. And we see more or less the same situation for both of these companies with the price pressure.

How is the order pipeline developing in the UK and Ireland?

The order pipeline in the UK is developing good. We have a lot of projects ongoing, and we also have a lot of quotations that we are calculating on. So we see that it's growing, it continues to grow. However, we have a little bit, so to say, dip in quarter three, but that is mainly depending on when you have the decisions. As you know, quarter three can be a very special quarter. And as Michael said, we had a really big order coming in previous year there. In Ireland, we have had a little bit slower, so to say, so we have not had so much order intake in Ireland after the big ones. So the main order intake in that area is coming from the UK.

Okay. And which interest rate level is needed for the Swedish market to really pick up?

I would say that we are more or less coming into that level because now if you are looking on the longer interest rate, if you are taking, so to say, a loan of two to five years, then you can get a quite good interest rate level right now. And that you can see, so to say, it's going more or less, it's on the bottom right now. So it is really right time. But I would not say that we should expect an increase like a hockey stick. We will see a slow progress. Because that will come, so to say, when you have had, you have started to increase your rental cost and you have come into more, so to say, on the right level in the tenant association for the cost levels and for the new rents. So I would say we will continue to see a slow increase all the time here. But I would not say, of course, it's very difficult to say, to predict. But I would not dare to say that we will see a hockey stick.

Okay, thank you. And is the RICO acquisition developing according to plan regarding sales and profitability?

The RICO acquisition is developing according to what was expected, yes.

And is price pressure in the facade segment in Sweden getting better? Or would you say it's getting worse?

I would say that we saw that it started up actually more or less one year ago. And we, from our perspective, and we see it has actually been a little bit worse, if you say starting during springtime and also right now.

Okay, regarding sales costs and administrative costs, they're quite low given the acquisition. Is the Q3 level also representative for Q4?

Q3 is always a little bit lower due to the summer period, but we have vacations and so on. But you shouldn't expect a big increase compared to last year. The increase is more or less the same compared to Q4 next year.

Okay, thank you. You touched upon this, but could you talk a bit about RICO and seasonality in order for us to better understand the Q3 quarter and perhaps also the coming quarters?

I don't know exactly what you mean with RICO and seasonality, because RICO has previously been working mainly in the new building segment. So their sales and order intake have been more connected to the building industry. And as you know, the building industry has gone down. The new building segment has gone down. But at the same time, we are doing more and more within the renovation area within RICO. So we're compensating for it. Of course, it can be that you take smaller renovation projects. That could be a little bit more seasonality that they want them to be done during springtime before the summer holidays. But if you come to bigger renovation projects, that continues all the way during the year.

Net sales increased by 31%. But profitability remains below target with an adjusted EBITDA of margin of 5%. What concrete measures are taken to improve margins? And when do you expect to reach your long term EBITDA margin targets?

We are taking some measures as we have mentioned before. For example, production. We have moved some production to as we have centered excellence to be focused on certain kind of production in certain areas. But the main volume will be the part to really increase the cross-profit and operating profits is to get the higher volume because we still have especially production that is not utilized. I would say perhaps just we're running at just about 50% perhaps of capacity in production. And also in our public organization operations, we have some excess capacity for a moment. So it's volume that is needed.

We need order intake to increase just as it has made now. Maybe not as much because this was really a high increase. But we need a good order intake, a couple of quarters so to say. So we build up order backlog. That is what is needed to get even more efficiency and then we get a better result. You should also remember that from taking in an order until it's delivered and give also revenue, that also takes a while because we are in the project business and we need building permission and things like that.

Okay, thank you for clarifying that. You mentioned structural changes within Rikus operations in Finland and in Sweden. Can you explain how these changes are expected to impact efficiency and profitability in the long term?

Yeah, regarding efficiency, it is that in Finland we had their subsidiary Koti that has been working mainly with the renovation segment and they have been working also a little bit as a smaller, I would say turnkey supplier. When they are now integrated into the bigger company Riku, they will start there to really drive the renovation segment within the Riku. We are adding on competence into the main Riku company with the renovation components and also to make turnkey projects. So there we see that as a development and when we come to Sweden, there we have this company Erkoteknik as I said, which have been working a long, long time, all the time with builders and have very, very good partnership with builders and at the same time we have had Rikus Sverige, who is also working with builders but only for the new building segment. Adding these two together, we strengthen both Erkoteknik when they talk to the renovation projects, getting in the competence from the Rikus glacings and at the same time these two together will also be a very good offer to the new building area for builders. So we see really now that these structural things will give a better, so to say, effect on the market, we will have a stronger offer to the market and also more focus areas. When we come, as I said, when we come to the result effect, when we come, of course, the result will come from where we see the business development as so, but when we come to cost savings, as we said, there are smaller cost savings connected to this one because of course, we take out warehouses, we take out offices, there are a couple of people made redundant, but these are not, the subsidiaries have not been so big, so you will not see big jumps in the result figures for Balco Group depending on this.

And we also save some cost in administration as well when we merge the companies together. Yeah.

Okay, and we'll take one final question here. There is a noted trend of longer decision times from clients despite increased customer activity. How are you working to manage these longer lead times and what strategies are you employing to accelerate project starts?

What we are doing is, of course, that to give, we are working very closely together with the customers mainly, I would say, because the longer lead times we have mainly seen that in the Nordic countries and here what we are doing is that we are adding on this as what I said before, the finance expertise by Mikael that he is closely working together with the sales people to help help the customers to understand the monthly fees that we get, how they should finance the projects. So we are helping them, so to say, in the projects that they dare to take the decisions. So that is, of course, one thing we are doing. And then, of course, if we can, we are also working ahead in the projects with social building permissions. And so when they come to the decision, we can start up the project directly. That is also one of our activities we have. And also, to work very close with the customers so that they feel confident about the project. So they will not get any big surprises in the projects and that they feel confident about what it will cost for them.

Okay, thank you very much, Kamilla and Mikael, for presenting and also answering all of questions. And I want to say a big thank you to everyone who followed this presentation with the Balka Group today. And I wish you all a great rest of the day and until next time. Thank you very much and goodbye.