Balco Group AB

Hello, and welcome to today's presentation with Balco Group. With us presenting, we have the CEO, Camille Ekdal, and CFO, Mikael Grindborg. 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 nine to raise your hand and then star six to mute yourself. You can also type in your questions using the form to the right. And with that said, please go ahead with your presentation.

Thank you. Welcome to Barco Group quarter four presentation. First of all, for some maybe new listeners, a very short snapshot about Barco Group. Barco Group was founded in 1987 and consists of several balcony and facade companies. Barco operates in two main segments, renovation and new build, and our core expertise is to supply glazed balcony solutions on the renovation market to tenant-owned associations. Barker Group is a market leader in the Nordics with key markets, Sweden, Denmark, Norway and Finland. And we also have a strong challenging position on other northern European markets. And if you have a look on the chart where we show the revenue per market there, maybe then for old listeners, you can see that if we see the revenue per market on 2024 versus 2023, we have an increase there on the part belonging to other Nordics countries. where we go from 25% to 45%, and then it's a decrease for the Swedish market, and the rest of Europe is on the same level, 13%, compared to 2023. So let's go over to our fourth quarter. We had a very strong cash flow, both in the quarter and also for the full year, where the operating cash flow amounted to 58 million SEK for the quarter and 139 million SEK for the full year. The order intake increased by 22% to 360 million SEK in the quarter and by 41% for the full year to 1,377 million SEK. Here I can say that the organic order intake was unchanged for the full year, but we had an increase in the second half of the year by 6%. And that shows that our impression is that the market has actually bottomed out now. The net sales increased by 33% to 386 million SEK. And here the increase comes from the acquisition we made previous year. Organic increase for the quarter was 1%. We have had a very good development in Norway, both in the quarter and for the full year. And during the fourth quarter, Balko AB received a major project in Norway with an order value of about 50 million NOK. And we can see here that our solution to integrate air-to-air heat pumps into our Balko projects have been successful in the Norwegian market. During the quarter, we also finalized the integration of the Riku subsidiaries into the other companies in Barco Group. And the cost for this has been taken in the fourth quarter. Here we received very positive feedback both from our internal organization and also from the customer side on these integrations. I'm also very happy to say that our sustainability KPIs have developed good in the positive direction for the full year. We have shown lower sickness rate, lower employee turnover and also lower carbon dioxide emission for the full year. And we also have here that the board of directors proposed that the annual general meeting resolve that no dividend shall be paid out for the financial year. If we go over a little bit more to the market, I would say that the market situation has more or less been unchanged since previous quarter. We have said before that we have seen an increase in activities and we continue to see that increase. And especially if we talk about the renovation segment for the balcony companies in Sweden and Norway, here we have a positive direction for sure. And as I said, the order intake and sales have developed well in Norway during the full year and here both regarding the major turnkey contracts that we can do with the air-to-air heat pumps and also single balcony projects. However, we see that it continues to be a strained competitive situation for our Swedish facade companies. And we also have a strained competitive situation for our balcony company in Denmark. In Denmark, our main product is city balconies. And a city balcony is more or less what you see on the picture there. It's a smaller open balcony, and we are putting them on to older houses. And if you look, so to say, on the renovation market, where they already have a balcony, that is developing accordingly as in the other countries, also in Denmark. But quite a large amount of our sales in Denmark is connected to that. We put new balconies on existing old houses. And here we can see that the markets are more cautious and the decision time continues, as we said before, to take longer time. If we look at the Finnish market, we can see that the new build market has bottomed out, but we can't see any rapid return for new construction of multifamily buildings in any Nordic countries yet. But in Finland, there is a support system for the construction and renovation of multifamily housing. So that can be a positive impact during the year. And they're especially promoting that they should have an early start. So the longer you have come into the project, the more it's easier for you to get the support. So we hope that that could have a positive effect on the new building business in Finland. However, the renewable segment in the UK and Germany continues to develop well, as well as the Finnish renovation market. So, if you go a little bit over to more of the figures, Michael.

Yeah, and have a look at the quarterly figures and also the full year figures. Net sales in the quarter increased by 33% to 386 million. Here, a quiet group was 34%. We had a negative Currency effect of 2% and organic growth was 1%. For the full year, net sales increased by 17% to 1,418,000,000. Adjusted operating profit, the DITA, amounted to 18 million in the quarter, corresponding to an adjusted operating margin of 4.7%. For the full year, adjusted operating profit was 70 million with an adjusted operating margin of 4.9%. Water intake increased by 22% in the quarter to 360 million, and for the full year it decreased by 41% to 1,377,000,000. Our water backlog has increased by 22% to 1,309,000,000. For the earnings per share, it was negative in the quarter, and if we look at the full year, earnings per share was 0.05 SEC, and adjusted earnings per share for the full year was 0.89 SEC. We had a very strong operating cash flow that amounted to 58 million in the quarter, and for the full year, 139 million. Have a look at the two segments and start with the renovation segment. Here, net sales in the quarter increased by 16% to 281 million, which corresponds to 73% of the total net sales. And for the full year, net sales per renovation segment was exactly 1 billion. Order intake in the quarter increased by 6% to 285 million, which corresponds to 79% of the total order intake. And for the full year, order intake has increased by 28% to 1,074,000,000. Adjusted operating profit in the quarter amounted to 20,000,000, corresponding to an adjusted operating margin of 7.0%. For the full year, the operating profit was 56,000,000 with an operating margin of 5.6%. Order backlog has increased by 13% to 1,044,000,000. And it corresponds to 80% of the total order backlog. And our new build segment, the smaller segment, which has increased during the year, with our acquisition of Riku and also strong development in UK. Here net sales in the quarter increased to 106,000,000. And for the full year, it has increased to 418,000,000. Order intake in the quarter increased to 75 million, and for the full year, the order intake was 303 million. Adjusted operating profit in the quarter amounted to 3 million, with an adjusted operating margin of 2.8%. While for the full year, operating profit was 19 million, with an adjusted operating margin of 4.5%. Or the backlog for the new build segment has increased by 79% to 265 million. And our financial position at year end, we had equity of 801 million SEK. And our equity to asset ratio was 49%. Our interest bearing net debt, excluding leasing debt, in relation to adjusted EBITDA pro forma amounted to 2.7, and it was a small decrease since quarter three when it was 2.8. And some update on the sustainability side. And now we have full year figures. Our risk rating according to Sustainalytics was lowered or improved to 17.2. And it means that we are among the 6% with the lowest risk rating in our industry, which is building products. And if we look at all companies, we are among the 20% with the lowest risk rating. Sickness absence in 2004 decreased to 3.6% from 3.7%. Employee turnover decreased also to 7.9%. If we look at the accident frequency and for ruling three years, it continued to decrease. But for the actual year 2024, it increased to 11.4. And here the increase comes from the acquired companies, which have a little bit different way they report it. So here we have also started a training program to increase safety on construction sites and also reduce number of accidents. Our carbon dioxide emissions, according to scoop one, and we measure it per work hour, it decreased to 957 gram per work hour compared to 1,200 last year. And for Scoop 2, it decreased to 460 gram per work hour, compared to 509 the year before. Also, recycled waste increased to 80% compared to 76% last year.

Thank you, Michael. Let's have a very short discussion and talk about the acquisition. Of course, acquisitions are still an important part of Parker Group's growth strategy, and we continue to work with possible acquisitions. But as you understand, we are a little bit cautious considering our profitability situation versus our net debt. So when we are looking on it, we are very much looking on the strong position in a niche market and profitable, well-managed companies. But we have for sure continued to work with acquisitions also. Some concluding remarks, then. The net sales, as you have seen, 2024, was about 1.4 billion SEK, and adjusted EBITDA margin 4.9%. This is, of course, not a margin that we are satisfied with. Therefore, we continue to work with our profitability. We have been working with our profitability during the whole year, the cost situation, but also, of course, to increase the order intake. And we continue to do so also 2025. The order intake was also nearly 1.4 billion SEK. And as I said before here, on the full year, the organic order intake was more or less unchanged. But we can see an increase in the second half year on the organic ordering take. And as I said before, we see an increase of the customer activity, especially for our balcony companies that works with renovation market. And we have also, as I said, a good development both in UK and Germany. But there are some challenges still, so to say, on the new building sectors in the Nordic countries, and also on the facade side. Our assessment is that the overall market will continue to improve gradually, but it looks like that we will not have a V-turn, but we will have a gradual improvement all the time here. But we continue to work with our profitability and to adapt both the organization and all companies for the existing sales and order intake. And I can assure you that all companies in the group have a very strong focus on order intake. And we also continue to work with cash flow and costs. When we talk about how we do this to work with our profitability, of course, Integration of Riku Group is one part that we have made. And we have also integrated, so to say, we have moved production from units to better utilize the capacity we have. And this is continued work also for 2025. That was all from us today. So please, questions?

Thank you very much, Camilla Mikkel, for that presentation. And yes, let's dive into the Q&A section here. We'll start with the first one. How would you evaluate the acquisition of Ricoh Group? And will it create value for shareholders?

Yeah, we can say like this for Ricco Group that Ricco was a strategic acquisition. And I can understand that sometimes people question, I sort of say, the timing for it, depending on that they were focusing so much on the new building segment before and new building segments have gone down in the whole Nordic countries. So, of course, also for them. But Ricoh is having a product that is suitable for both new building and also renovation segment in both the Nordic countries and also in other European countries. So what we have actually doing is that we have also been coating some of the Ricoh glazing also into new building projects in Germany, for example. As we said, we have taken the Ricoh glazing into the renovation market in Sweden by Erko Teknik. And Erko Teknik have also integrated the total new building segment in them. And I would say the Ricoh acquisition, you have not seen the result or the positive result we will have from the Ricoh acquisition. during 2024 you will see it coming years because that is a strategic important acquisition where we have both got the product and we have also got the position on the finnish market so when market turns then you we will get it back to the shareholders

Thank you for that answer. What are the reasons for the lower gross margins in 2024? Are there any one-time effects involved or is it a temporary situation?

I would say a little bit both. Both that we have a different cost structure in the companies. Both Ricoh and Soloman have quite a lot different cost structure with a lower gross margin than the old Balco companies. It's also a difference between the markets in Sweden and Norway, especially the Balco companies have the highest, strongest gross margin, while in countries like the UK and Germany, we have also a different cost structure with a lower gross margin. It will not come back to the old levels that we had before pandemic, that's for sure. But then it's also that we have not full, we have too much capacity for the moment in production and in some companies also slightly too high capacity in the operations side while we have Competence, for example, as small project managers that we want to keep in the company and have not been working 100% with just projects this year. We have also helped with sales.

And for the Nordics, if possible, could you talk a bit about the competitive situation in various sub-segments, like customer group, project size, etc. And also your exposure, your typical share of revenue within the various sub-segments.

I can give a little bit overview, so to say, of the competitive situation. If we look, so to say, on different markets, there's a different competitive situation. If we look from the Nordic countries, because that was the question, I think, there we have a strong competitive situation, I would say, both in Sweden and Denmark, depending on, so to say... quite a lot of companies are doing the same kind of concept. Balko AB is a little bit unique in Sweden with the glazings, very special glazes there. So there, Balko AB has a unique situation. But otherwise, so to say, most of the companies are offering the same kind of products and the same kind of projects as everybody else. So there's quite strong competitions both in Sweden and in Denmark. And that is valid both for the balcony companies and for the facade companies. If we look on the Finnish markets, there are competitions for sure on the new building segment. If we look on the renovation segment where our company is working, not so many companies are doing exactly the same as they are doing there. It's mostly that there are other kind of companies. Then you come to more the building companies that are the competitors, not the same facade companies that are doing these turnkey projects. So there we are having a very good situation. In Norway, I would also say we have a good situation with what we are doing there. There you can...

see that either you come into a project from the building side or we come from a balcony side and we come from a balcony side and there we have some competitors but we have a very we have a good situation there also the danish market remains cautious with strong competition how do you plan to navigate this and are there any strategic shifts to mitigate risks in denmark

We are working with the Danish market all the time how to do it. And I can't say so to say exactly how we should do it. That will be announced when we are ready with it.

Okay, thank you. And with inflation and interest rates declining, when do you expect to see a positive impact on order intake and overall financial performance?

Yeah, we see it's coming part by part, but as we said, it will not be a quick turn. We hope to see slight improvements all year, but I would say for the financial side to see better profitability, it probably will be at the second half of 2025, hopefully. Latest, I would say, in quarter four, 2025, but It will take until the second half of the year anyway, because of the lower order intake we still have in 2023-2024.

But we see the... What is very good, so to say, on the market right now is at least that the interest rates are more or less what we could expect them to be. We can see here that in Sweden, a tenant association, which is quite good financial situation, they can get alone now for between 3% actually below 3% and I think so the interest rate we have now now it's more that the consumers need to start to dare also to invest and we can see it coming in on other things so to say so that will come also on the balconies and we have seen the activity on the market and when we see that When we get the order intake, then we get, so to say, we get it down to the bottom line also, because we are prepared really for an increase in the order intake and then it will come down directly to the bottom line.

Thank you for that answer. And when do you believe Balco will be able to distribute dividends again?

Yeah, hopefully for the next year. That's our plan, at least.

Thank you. And given the improvements in sustainability KPIs and the lower risk rating from Sustainalytics, how do you plan to leverage ESG performance for competitive advantage and also potential cost savings?

Of course, we have it as an important part in our presentation to customers. And we see that A lot of customers think it's an important part that you are good at working with ESG ratings, but still price is the most important.

It would be very, very good. We are looking forward to that. It gets more into when you got to this point, official quotations that they are requesting in more information from the companies regarding the sustainability work that they are doing if they do so and we are promoting it all the time but it is as michael is saying quite often unfortunately still so to say also on on so to say officials so to say they they come into the price discussion instead of taking care of about the sustainability targets ahead but you can see sometimes they ask for it and then we for sure have a advantage

Okay, we'll take one final question here. With a slower market recovery expected, what is your long-term strategy to ensure sustained growth, particularly in the new-built segment and also in international markets?

If we talk about the new-built segment, we are doing as we did. If we talk about Sweden, here we integrated the new build segment as we had with Ricoh. We integrated that into the same organization as are working with the renovation. It's different markets, so to say, segments, but it's still in the same company, Erko Teknik. So what we are doing is that the company that are working, that have been working 100% with new building, that is actually It is actually Ricoh, the only company that has been doing so. We are making sure that they are together, either as we did in Sweden, we integrate them with Erko Teknik that has the renovation also, so we can split the risks. And in Finland, we are adding on renovation to the new build organization to make sure that they also can split the risks. When we talk about other markets, in Germany, we are working with both new-built and renovation already. And in the UK, so far, we can see that the product we have there, that is, so to say, so focused on the new-built segment, and that is growing so fast. So there we are actually still focusing on the new-built segment in the UK. I don't know if that was the answer or...

And also product development. We have developed product, as you said, in the UK, that is especially for the new build side. And also in Germany, we have products that is very suited for the new build segment.

Yeah. But just to, because I think the question was how to take care of the risks in the new build segment, if I understand the question correctly. Yeah, yeah. And that we do by integrating them, so to say, so they are not working 100% with new build. We are working with both.

Thank you very much, Camilla and Mikael, for that presentation, but also answering all of our questions. And thank you everyone who followed this presentation with Balco Group. And I wish you all a great rest of the day. And thank you very much.

Thank you.