This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

Balco Group AB
4/28/2025
Hello and welcome to today's presentation with the Balko Group. We have the CEO, Kami Rektor, and CEO, Mikael Grinborn, presenting the Q1 report for 2025. We'll do a Q&A after the presentation and if you're calling in or would like to ask a question, please press star 9 to raise your hand and star 6 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 the Q1 presentation for Balko Group. And first of all, I would like to make a very quick snapshot for the new listeners regarding Balko Group. Balko Group was founded in 1987 and consists of several balcony and facade companies. The head office is in Växjö and the group has today about 600 employees. We operate in two main segments, the renovation and new build, and the core expertise is to supply glazed balcony and balcony solutions. But we also have a broad portfolio of different kinds of balcony solutions. We are the market leader in the Nordic countries with the key markets, Sweden, Denmark, Norway, Finland, and a challenging position in the northern European markets. As saying so, we go over to Q1. And we had a weak result in the first quarter this year. The adjusted EBITDA margin amounted to minus .9% and there are several reasons for this weak result. The main one is that we have had delays in our processes. And by saying so, I mean both the permission processes we have in Sweden, but also delays on ongoing new build projects in UK and Finland. And this has done negatively both the revenue and our cash flow. This has also led to that we have had an overcapacity in our production, which we have not been able to compensate for in short term during the first quarter. On top of this, we have also had project deviation in one of our big projects in Sweden. We have taken actions during the quarter and we have made some major reductions of manning in Finland and Denmark. And we have taken a decision and also started up to close our production in Arboga and move this production to our existing plant in Växjö and Poland. This production will be taken in on existing manning. And we see also here that we can improve our production efficiency by concentrating the production to less production facilities. The move will be ready during quarter two. During the quarter, we have then taken the structural cost for both the planned and implemented actions of 31 million SEK. And we are estimating a yearly saving of roughly 60 million SEK due to the actions taken and planned. The net sales decreased by 3% to 360 million SEK. And that is also mainly connected to the delays we have had in the processes. The order intake was lower if we compare to the same period previous year, 275 versus 352. And it's always very difficult to match order intake quarter by quarter in a project business. And we could see that in 2021-24 we received some really big orders during the first quarter. And of course we have also big orders in our discussions right now, but we were not able to close them during the first quarter this year. But they are in our quotation portfolio for sure. But also I would like to emphasize that all Swedish balcony companies and also our Finnish balcony company Rikko had actually better order intake this year versus previous year. If we go and look a little bit on our market update, we can see that throughout the whole 2024 we saw an increase in the number of requests for quotations. And that trend also continues the first quarter this year. We are overall positive to the market in general, but we can also see that the recovery is slower than all economic forecasts indicated during the autumn 2024. And this is of course why we have taken all this needed action and why they were needed to be done. But there is an increased custom activity in the renovation segment for our balcony companies in Sweden and Norway. We can also see that the Finnish new build market has bottomed out. It's slightly improved, but we don't see a rapid return for any new construction of multi-family buildings in the Nordic countries. Even if there's a slight improvement, but not a rapid one. But we continue to have a good activity in the new build segment both in UK and Germany. And therefore we have also taken a decision here that we also invested in more local design resources. It is especially important in the new build segment to have local resources for design to be able to, in an early stage, affect the project. Both of course to be as cost-efficient as possible, but also to be able to our design into the project so they can only buy the project from us. The maritime segment has started up again, which is very, we are very happy to see after so say the pandemic has started up. And we can now see that new ships are actually ordered at the shipyards. And that is very positive for us for ongoing discussion with the shipyards. However, there continues to be a strange competitive situation for our Swedish facade companies and also our balcony company in Denmark. And giving a little bit more about the Danish situation, we can see there that the Danish consumers, there are more cautious in general. And we can also see that on also to say consumer driven products in general, that quite many companies that have sales in Denmark are having a struggling period right now in the Danish market. But that combined with what we see that we have a product, the main product that we have, the main project we have in Denmark, where we are actually adding a new balcony, but on an existing old building. That means that we are so to say, that is even more struggling for us because it's, if you have a balcony today, you want to renovate it. But if you don't have a balcony, it's a bigger jump to take to invest in a new balcony when you don't have one than to just renovate what you have. But in general, I would say that we have a lot of interesting ongoing discussions on all our different markets. And it's mainly, as I said, Swedish for safe companies and the balcony company in Denmark, where we still are struggling. Yes, Michael, handing over to the
figure. Some financial figures for the quarter. Net sales, as Camilla mentioned, amounted to 360 million down from 326. The required group was 8% and it's Omen Otlevias Enders, who was part of our group since March last year. So we have two months of bear sales, but we're still acquired. Currency effect was minus 1% and the organic growth was minus 10%. Adjusted EBITDA amounted to minus 3 million compared to 60 million last year, and it's corresponding to an adjusted EBITDA margin of minus 0.9%. The order intake amounted to 275 million down from 352, and our order backlog end of March was ,000,000. Adjusted earnings per share amounted to minus 0.24 sec compared to 0.11 last year, and earnings per share amounted to minus 1.31 sec compared to 0 last year. Our operating cash flow amounted to 1 million and it was 34 million last quarter one. If we look at the renovation segment, here we saw an increase in sales up to 236 million compared to 222 last year, and it corresponds to 75% of our total net sales. Board intake for renovation segment amounted to 208 million down from 285 last year, and it's 76% of the total order intake. Adjusted EBITDA in the renovation segment was minus 5 million compared to 11 last year, and it's here we have had this major deviation in a large project in one of our Swedish companies, and it corresponds to an operating margin of minus 1.9 million. Order backlog for the renovation segment is just south of 1 billion, it's 991.91 million this quarter, and it corresponds to 80% of our total order backlog. New build, here the sales amounted to 71 million down from 104 last year, while the order intake was 67 million, just exactly the same as we had last year in first quarter one. Adjusted EBITDA in the quarter amounted to 2 million down from 6 million last year, corresponding to an adjusted EBITDA margin of 2.8%. Order backlog for the new build segment is 247 million at the end of the quarter, and it's 20% of the total order backlog. If we look at our financial position at the end of the quarter, the group's equity amounted to 757 million, and the equity to asset ratio is the same as it was quarter one last year, of 47%. Interest bearing net debt excluding leasing debt in relation to adjusted EBITDA amounted to 4.0 up from 3.2. But we can also say the positive thing that we have extended our existing banking agreement with Danske Bank with a sustainability linked credit facility of 512 million and an overdraft facility of 75 million. It's been extended to March 31, 2028, and we also have an option for further extension of two years until the end of March 2013.
Okay, we go into a little bit outlook, and here again I would like to repeat a little bit what I said from the market position. Our assessment is that the overall market will gradually improve, and that remains as we have said before. But we can also see that when new unrest and uncertainty arise in our operating environment, as we know it has been doing now during quarter one, we get some setbacks sometimes in our discussions regarding the projects. But we know also that the need for the service and the products that we are offering remains, and therefore we continue to invest in sales, we continue to invest in our markets and also product development, at the same time as we also make these major structural changes in our operations to improve our profitability. We know that the coming quarter will be affected, but we aim to return to an earnings level in line with last year. There is an increase at custom activity in the renovation segment, and we can see that the Swedish balcony companies and our Finnish balcony company had a better order intake this year versus previous year. The Finnish new build market has bottomed out, and we see as I said a slight increase in the new build segment. And finally I would just like to say that also that regarding this with the big projects, we have ongoing discussion with big projects, we were not able to finalize them during quarter one. And I think that was all from our side, and I guess we will have a lot of questions now, and looking forward to be able to answer them.
Thank you very much for that presentation, and yes let's open up the Q&A section here. If you're calling in and would like to ask a question, please press star 9 to raise your hand, and star 6 to mute yourself. You can also type request using the form to the right. And we'll start with the first question here. In the report you mentioned a major project deviation in TBO Hauglands. Could you specify how much a particular project impacted EBITDA for the quarter? Thank you.
We don't give exact details for just the project, but I can say that that project and also the delays we had had in projects both in Sweden and also the new build segment in the UK and Finland. In total, if we haven't had these deviations, we would have an EBITDA, just the EBITDA level of between 4 and 0.5%.
And are all costs taken for that project in Q1, or should we expect further negative effects from that project in the coming quarters?
All costs that we expect as of today is taken in this quarter.
Okay, thank you for clarifying that. And what segments, renovation or new build did this project relate to?
Renovation.
Thank you. And adjusted gross margin drops significantly in both quarter on quarter and year on year to 10.6%. Could you explain what the main drivers of the weaker gross margins in Q1 are?
It's still here. This project of course affects a lot. And also, due to these delays in the processes, we have had overcapacity both in production and also some parts in the operations organization.
Thank you, Mikael, for clarifying that. Could you also elaborate a little bit more regarding the financial situation and the covenants? Thank you.
Yes, as you saw, we have been able to extend our banking agreement with Danske Bank. So, we have a current discussion with them ongoing all the time and also very good cooperation. So, we are just on our covenant right now, but we have very good cooperation with them. They have informed during this period. And as you saw, we extended another 18 months agreement and as we have another two years of the VAT as well.
Thank you. We'll move on to the next question here. Was the refinancing finalized with the current Q1 numbers and the current outlook for the remaining year disclosed? And have the covenants been amended compared to earlier?
Discussions with them started already autumn last year. So, it was finalized just last week. As a matter of fact, the agreement was signed two weeks ago. And then the exact figures were not ready. But they, as I mentioned, we have discussed and informed the bank when the figures were finalized.
And what specific steps are being taken to mitigate the delays caused by building permits and rental board processes in Sweden?
What we have done is that since, as we said here, we saw that we had a big effect on the result. And what we have done is to make the reduction actions. So, all actions we have taken is also linked to that we had delays in this building permission, which gave us an overcapacity here. It was mainly Balko, which was affected by the delays. And therefore, we have now been able to take down production and take it in on existing money.
Thank you, Camilla. Given the weaker order intake, what strategies are you implementing to secure more large projects for the coming quarters?
It's not a new strategy. It's the same strategy as we have had before. But it's mainly so to say that when you are discussing these big projects, it is very difficult to say if they will come quarter one or quarter two, or when they will take these decisions. So, we have a couple of these big projects that should be decided here now during quarter two. So, there are no changes in our strategy, because we know that our strategy is the right one, which we are working on to get the big projects. But it's always a match between quarter. So, therefore, it's important to see the order intake when it comes to a company like Balko Group. You must see it, so to say, over a longer period.
Thank you for that answer. How confident are you that the restructuring efforts and the cost savings of 60 million SEK annually will be fully realized as planned?
Yeah, of course we are confident, because that is why we implemented it. So, I don't know, to be honest, how to answer that. It's more than what we are confident that we will get it out. We know that we have already taken some of this action, and they are already implemented. And as we said, we know that we are closing down production in Arboga. We can take it in on existing manning. We are very secure by that one. And then we have some additional actions which will be taken that we are also confident on.
Thank you. And regarding comments on the outlook, and perhaps a needed clarification, are you saying you expect to have a full year results in line with 2024 on adjusted EBITDA? Or, alternately, are you saying that the rest of the year, for example Q2 to Q4, are likely to be on par with the same period last year?
We don't give exact forecast, but we expect it more to be becoming Q2 to be on par with last year's Q2. And it will be tough to reach exactly the same EBITDA last year. But we have some luck here. We are slightly below total.
When we say in the report outlook, it's mainly quarter by quarter.
Thank you for clarifying that. And we'll take one final question here. What is the timeline and expected impact of your strategic focus shift in the Netherlands towards open balcony solutions and new construction projects?
When we go to the timeline, when we expect to get the result, we expect to get the result during this year. And I think that was the question or the timeline or exactly. And we expect the result to come during this year.
Okay. Thank you very much, Kamilla and Mikael, for taking your time to present the report today and also answering all of our questions. And I wish you all great rest of the day. Thank you very much.
Thank you all for participating. Yeah, and for the questions. Thank
you.