Balco Group AB

Hello and welcome to today's presentation with Mako Group. With us presenting today, we have the CEO Camille Ekdahl and CFO Mikael Grünborn. 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 get to write if you would like to type in your questions. And 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 Balko Group. Balko 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 to tenant 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. And 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. And 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 Ricky Group, 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 just for developing the business and also for some smaller cost savings by closing down their subsidiaries. and this means that we in finland will integrate their subsidiary quality which have been working more mainly with the renovation projects we'll integrate that to rico and start a new business area called renovation area and there we will develop the renovation segment even more of course also rico will continue to work with new building segments In Sweden, the subsidiary Rik i Sverige will be integrated to Erko Teknik. Erko Teknik has been part of Balco 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 RICO closer together with Erko Teknik, 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 glazings are giving energy savings. And doing a glazing with Balco, 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 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 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 the renovation. Here we can see that during the quarter, Barco AB received a major turnkey project in Borås with a 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 and 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, Suomen 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 ordering tape, 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 percent up to 331 million uh here acquired group was 43 percent uh currency effect was minus four percent in the quarter and organic growth was minus eight percent uh 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 SEK. Earnings per share amounted to minus 0.03 SEK and our operating cash flow in the quarter was minus 1 million SEK. 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 tripled, up to 250 million, and it corresponds to 88% of the total order intake. Adjusted operating profit for the renovation segment amounted to 15 million and corresponds to an adjusted operating volume of 6.0%. Order backlog has increased by 15% to just about 1 billion and it corresponds to 78% of 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 increased mortgages coming from the acquisitions we have made mostly from the weekly 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 we last year received a big order in Ireland in this quarter and this year. The organic order intake for new business has been minus 8%, so the increase. Otherwise, we have a risk coming from the acquisition of Rickel. Adjusted operating profit amounted to 3 million and it corresponds to an adjusted operating value 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 percent. Our interest-bearing net debt excluding leasing debt in relation to adjusted EBITDA pro forma amounted to 2.8 and it's up from 1.1 last year. And we have a banking agreement for another two years with Danske Bank until revolving credit facility of 510 million with an overdraft facility of 75 million and back to you

Yeah, acquisitions are an important part of the battle group strategy and we will of course have it like that also ahead. However, of course, as you understand with the debt situation we are in and a little bit weaker resort 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 uh the net sales in 43 was 331 million sec and we have an adjusted ebitda margin of five percent and as we said several times the order intake was really good increase it increased it more than doubled so we are on 285 million sec plus 111 percent 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, Camilla and Mikael, for that presentation. And yes, like I said, now it's time for the Q&A. If you're calling in and would like to ask a question, you can press star nine to raise your hand and then star six to turn on your microphone. You can also use the form that's located to the right. And we've got several questions here, and we'll start with the first one. You got two covenants, interest coverage ratio and depth to adjusted EBITDA. Could you quantify this, please?

Yeah, of course, we have some monthly cover-ups, and it's on this pro forma neted to EBT. We can go up to 4.0 in a single quarter, but then we have to go down to 3.75 a quarter after that, and then down to 3.5 a quarter after that. 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, neither that we are better or worse, 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 in Västerås, 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 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 here ahead because that will come, so to say, when 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 Ricoh acquisition developing according to plan regarding sales and profitability?

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

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. From our perspective, we see that it has actually been a little bit worse if you say starting during springtime and also right now.

Regarding sales cost 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 that 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 last year.

Okay, thank you. You touched upon this, but could you talk a bit about Riku 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 Riku and seasonality because Ricoh has previously been working mainly in the new building segment. So their sales and organ 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 Ricoh. 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 margin of 5%. What concrete measures are you taking 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 a center of excellence to be focused on certain kind of production in certain areas. But the main volume will be the part to really increase both cross profit and operating profits is to get a higher volume because we still have Especially production that is not utilised. We're running at just about 50% of capacity in production. And also in our product organisation operations, we have some excess capacity for a moment. So it's for you, but it's needed.

And we need order intake to increase just as it's made now. Maybe not as much because this was really a high increase, but we need a good order. We take 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 Riku's operations in Finland and in Sweden. Can you explain how these changes are expected to impact efficiency and profitability in the long term?

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 turnkey supplier. And when they are now integrated into the bigger company, Riku, they will start there to really drive the renovation segment within Riku. So 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, Erko Teknik, 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, which is also working with builders, but only for the new building segment. Adding these two together, we strengthen both Erko Teknik, when they talk to the renovation projects, getting in the competence from the Ricoh Glazings. 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, when we closed on the subsidiaries, we take out warehouses, we take out offices. There are a couple of people made redundant. But these are not, the subsidiaries has 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 costs in administration when we merge the companies together.

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?

uh what we are doing is of course that to give we are working very closely together with 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 salespeople to help the customers to understand the monthly fees they will get, how they should finance their 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 searching for 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, yeah, 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, Camilla and Mikael, for presenting and also answering all of our questions. And I want to say a big thank you to everyone who followed this presentation with Valko Group today. And I wish you all a great rest of the day. And until next time, thank you very much and goodbye.