Balco Group AB

Hello, and welcome to today's presentation with the Balco Group. With us presenting today, we have the CEO, Camille Ekdal, CFO, Mikael Grinborn, and Interim CFO, Karin Bengtsson. 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 star 6 on your cell phone when you get the word. 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 Balco Group Q3 report presentation. First of all, for all our new listeners, just a short snapshot about Balco Group. Balco Group was founded in 1987 and consists of several balcony and facade companies. The head office is in Växjö, and the group has approximately 550 employees. Balco operates in two main segments, renovation and new build. The core expertise is to supply glazed balconies and balcony solutions, primarily for the renovation market and the tenant-owned associations. Balko Group is a market leader in the Nordics, with the key markets being Sweden, Denmark, Norway and Finland. We have a strong challenger position also on other European markets. And by that, we go over to the quarter. The order intake in the quarter was 222 million SEK. This is lower than the same period previous year. But as I said several times before, you need to look over a longer period than one quarter within our business to see the trends. And we still can see the positive trend. The last two quarters together have shown an increase of 11%. We also can see that some of our projects in the pipeline were postponed for decisions in the quarter, but the projects are still active and we can see a good potential for these to make a positive contribution for the order intake by the end of this year or start of next one. If we look on some of the highlights that I would like to give to you for the order intake in the quarter was that we received the first orders in Germany with the glazing system from our Finnish company Ricoh. We can see that with the Ricoh glazings, we can reach market segments and take projects which we were not able to take before with our premium brand Balco. We sell it in a very cost-efficient way because we are using the Balco sales force. And they can use the Ricoh brand together with the Balco. And when Balco brand is not suitable, we primarily want to sell the Balco brand, the premium one. But if that's not suitable, then they can also sell now the Ricoh brand. And we see a good potential in this ahead. I also would like to highlight one of the orders we have taken for balconies to a social housing project in Netherlands. And it's not depending on that's a very big project or something like that, but it's a very interesting market for us still ahead with a Dutch market. This is a project where we will replace the old concrete balconies with aluminium balconies, but we will also add on new balconies. And we are discussing a couple of more similar projects where they want to improve the social housing areas. And you can imagine, so to say, when it comes to a social housing area and the balconies are bad, the facades are bad, and if they are making a refurbishing of the whole area, that also gives a big, so to say, extra for the people living there. And there we are contributing then with the balconies. We can see also that our lighter aluminium balconies are a very good solution for this market. And that is mainly connected to the building itself in the Netherlands. As some of you might know, the conditions of the houses in the Netherlands are really poor. And then to have a heavy concrete balcony on it, that is sometimes a problem. But there we can offer our aluminium balconies and that also gives us a potential market ahead. We are not satisfied with the profitability in the quarter. The delays in the start of the project still affects our sales, and this is especially in the Norway and Swedish market, but also in the UK market. The net sales amounted to 277 million SEK. The structural measurements we launched earlier in the year have been continued to be implemented according to our plan. We can see that costs are reduced, but we don't see the full effect on the profitability level due to the lower sales in the quarter. The work to streamline and optimize our operations of course continues. If we go to the market update, we can see that the trends to increase activity, especially in the Swedish and Norwegian renovation markets, continues. Customers are becoming more willing to make investment decisions, even though the processes still take a little bit longer time. But there are positive signals on the market. We can, for example, see the projects that have been put on hold for a couple of years now are up for discussions and planning again. We can also see that there are more big projects up for discussion than the past last year's. In the Danish market, that continues to be challenging for us. There are projects in the market and we also receive projects, but the timeline from decision to start up is very long regarding both from, so to say, the house associations, but also from authorities to give permissions. And this affects our profitability in the Danish market. We can also see that the Finnish market is recovering in a slower pace than in Sweden, and this affects our Finnish companies in both renovation and new construction. In the UK, the balcony market potential remains substantial, and here we are active on the UK market, and we have added local R&D resources to be able to take the next step in our growth for this market. The renovation market in Germany continues to demonstrate strong underlying demand. Valco have had a little bit lower order intake at the start of this year, but that has mainly been connected, as we see it, with the uncertainty for the election at the start of the year. uh so they postponed the projects now we have some good projects in our pipeline and usually there are good order intake in the german market both for the fourth quarter and the first quarter of the years we can there also see as i said this with the rico system that we can address new customer segments and increase our market penetration for the new construction in Germany. The balcony market remains large. We are working and we're quoting on projects there, but we are working with projects where we see potential for good profitability. In the Netherlands, the drivers in the markets are both for the new build and the renovation market. And here's also special projects coming up, which is transformation projects. And transformation projects are when you are transforming either an industrial building or an office building to house buildings. And as you understand, then the buildings doesn't have any balconies from the start, but they want to add balconies when they are transforming them. And the product portfolio that Balco can offer with different solutions and alternatives is very interesting for this market. There are some positive signals about the new-build segment, but the increase comes from a very low level, and it will take longer time before it is visible in an increased order intake for our facade and balcony companies in Sweden and Finland. And with that said, I hand over to Michael.

Yeah, and some quarterly figures start with the net sales, but in the quarter amounted to 277 million euros. down from 331 million last year. Here, the organic growth was negative by 13%, and the currency effect was minus 3%. The adjusted operating result on EBITDA level amounted to 3 million compared to 17 million last year, and it corresponds to an adjusted EBITDA margin of 1.1% compared to 5.0% last year. Board intake amounted to 222 million down from 285 last year and the order backlog though increased by four percent up to 1 billion 377 million. Both adjusted earnings per share and earnings per share amounted to minus 0.23 sec And our operating cash flow in the quarter amounted to 3 million compared to minus 1 million last year. So a small improvement here. If we go over to our two segments and start with the renovation segment, the net sales in the quarter amounted to 206 million down from 247 million last year. It corresponds to 75% of the total net sales in the quarter. The order intake amounted to 188 million down from 250 million, and it was 85% of the total order intake. The adjusted operating result EBITDA in the quarter amounted to 2 million compared to 15 million last year, and it corresponds to an adjusted operating margin of 1.2% compared to 6.0% last year. Order backlog in the renovation segment increased by 7%, up to 1,104,000,000. And our new build segment, here the net sales in the quarter amounted to 70,000,000 compared to 84,000,000 last year. Order intake was more or less in line with last year, 33,000,000 compared to 35,000,000 last year. Adjusted operating result in the quarter amounted to 1 million compared to 3 million last year, and it corresponds to an adjusted operating margin of 1.0% compared to 3.8% last year. Water backlog in the new built segment amounted to 269 million compared to 294 last year. And our financial position at the end of the quarter, the group's equity amounted to 744 million compared to 791 last year. The equity to asset ratio was at 44% compared to 49 last year. Our interest-bearing net debt, including leasing debt in relation to adjusted EBITDA, amounted to 6.8 compared to 2.8 last year. And as we mentioned in the last quarterly report, we got a waiver with our bank in June, and it's valid until year-end. And the covenants are within this agreement, in the waiver agreement. So back to you, Camilla.

So we take the concluding remarks and the outlook. We continue to be cautiously optimistic for the rest of the year regarding our order intake, especially for the renovation projects. As I said several times before, and you all know that, also that the renovation market remains there. It's a matter of timing when the orders will come in. For the new-build segment in the Nordic countries, we see that the recovery will take longer time. And it also continues to be a strained competitive situation for our Swedish facade companies, our balcony company in Denmark, and both with the renovation and new build market in Finland, where we see that the market recovery takes longer time than in Sweden. We continue to have a focus on profitability, improving measures and also cost savings. And here at the end of our presentation, I also want to present our changes in the group management. We have employed a director of business development and head of IT. It's Andreas Lindberg. He will start next week here on the 1st of November. This is a new position within Barco Group, and Andreas will work with the business development for all our companies and all our markets and brands. He will assist and drive the local managers together with me and also look for opportunities across the brands. We will investigate new markets and also in the future to look on possible M&As. As informed before, Michael Grimborn, our present CFO and head of IR, will leave here by the end of October. And I want to take the opportunity here in this hearing to thank him for his contribution during his year at Balco Group. And at the same time, who's also participating at this meeting is our interim CFO, Karin Bengtsson. She is already on board since September, and I'm also happy to say that we also have employed a new CFO and head of IR, Victor Arvidsson, who starts the 23rd of February. I also take the opportunity here to announce that Joakim Pettersson-Dygve, the CEO of Rikko Räkentät Oy, the Finnish company, ends his employment by end of November. Joakim has been a member of the group management. A successor has been recruited, but the successor will not initially take a part in the group management. And this was all from us in the presentation.

Thank you very much. Let's open up the Q&A section here. We'll start with the first one. Can you elaborate on the comment that you see positive order intake remains? And any positive order trend during Q3 and into Q4, since it's down 22% year-on-year, a quite significant decline, I would assume if it's still positive, it should at least stay at stabilizing levels, example in line with Q3 last year.

But it is, as we said, it is very difficult to say that you are comparing one quarter to another quarter when you look over the years. Quarter three previous year, we had one big order taken in from the Swedish Balcony Company. And we had one very big order, two actually big orders taken in in Sormenåg. And if you take out these very big orders, we are actually better this year. So when I say we have a positive trend, then it means that we need to look over a couple of quarters in row. And there, as I said, we can see if we look on quarter two and quarter three together, we still have an increase of 11%. And I'm also basing this on the quotation levels that we can see. And as I say, especially in the renovation market for Sweden and Norway, we can see that the quotations are increasing each quarter.

Thank you for that answer. The postponed project in your pipeline, can you give any details on the type of project and also size?

No, I will not do that. Sorry. I can say that there are some big projects. I will not go into any figures how big they are. And it is mainly on the Swedish market, but also some on the Norwegian. And that is what I can comment.

Okay, thank you. We'll move on to the next question here. Given the low EBITDA levels and low order intake in Q3, what is your view on leverage into 2026?

Yeah, we are not giving any forecast actually to 2026. We have never given any forecast, so to say, ahead. And we remain with that, that we don't give any forecast. What we are saying is that we see positive trends on the order intake. And of course, if we have a positive trend on the order intake and they will actually also take place, then we will also see an improved profitability forecast. But how much and when, that I will not forecast about here.

In Q1-25, you mentioned what the adjusted EBITDA margin would have been if it was not for the delayed projects. What is this figure for Q3-25?

That we have not actually calculated. Michael, have you any idea about it? No, we haven't calculated it.

Okay, thank you. You have reduced the staff with about 70 since the turn of the year. How much more will you reduce staff as part of the structural measures and when will all the measures be implemented?

We have a couple of more reductions to be made. I will not go into any detail figures there either. But the plan is that everything will be ready by the end of this year. But that's also said, as we say here in the report, of course, we continue to work. So if we see that we need to do more actions, of course, we will do more actions.

Should we be worried about the leverage and do you expect a further waiver on the covenants on the bank debt?

Regarding, so to say, when we come to this with a waiver, we have an agreement by the end of this year, which is so valid to the end of this year. And we are within the waiver for this on the quarter three report.

The backlog is up 4%, whereas organic revenue growth is down 13%. When should we expect the increased backlog to translate into revenue growth year on year?

Yeah, we expected to do it already in quarter four, but if everything goes according to plan, it will be some increase already in quarter four.

Thank you for that answer. In your balance sheet, you report 48 million in cash. And in the table here, you report 102 million. What's the difference?

As we are writing, it's cash and also interest-bearing assets. So that's the difference.

Thank you. We take one final question here before wrapping up the Q&A section. What are the key focus areas for the new business development and IT role?

I said during this meeting that the key focus for Andreas is, as I said, together with me, develop the cooperation between the different brands, how we can use the different brands. As we saw now in Ricoh brand, we can use it in Germany. to develop that further on and also to look for other business opportunities in more countries where we are not existing where we are not present today and also to really also work with the finnish market and there we go into deeper into the renovation segment. As you know, the Ricoh brand has been very much into the new build segment and we are working on the renovation segment, but we want to increase that efforts even more.

Thank you. We actually had some more questions here. Could you say anything about the quality of the order backlog and are there any risk for cancellations and have you had any cancellations during the quarter?

We have not had any cancellations during the quarter. And the evaluation of the order backlog is that it's fresh backlog.

Understood. Thank you. When should we expect the increased order intake to materialize in increased revenues? Example, how long does it normally take from order intake to revenues? And do you book revenues and margin as percentage of completion?

Yes, we book margins and revenue as a percentage of completion. And as Michael said before, we expect to see some of the order intake that we took in quarter two that will be affecting here quarter four.

Okay. Thank you very much for your presentation here today. And thank you everyone who tuned in to this FINWIRE webcast with Balco Group. And I wish you all a great rest of the day. Thank you very much. Thank you.