Bravida Holding AB (publ)

Good morning, everyone, and welcome to this presentation of Bravida's Q4 Report 2023. And as usual, it's myself, Mattias Johansson, CEO, and... Åsa Neving, CFO.

Good morning.

who will take you through this presentation so welcome very much and we start immediately so Bravida is the nordic leader with a broad diversified footprint we have a lot of different customers in a lot of different places in a lot of different segments And actually, Climate Smart Solutions is already in Bravida above one billion in sales, and that is mainly energy services and building automation. And in turbulent time like this, it could be worth recapping why Bravida is an attractive investment and a safe haven for you as investors. First, we have shown that we have stable and profitable growth with strong cash flows over the years. We are leader in the Nordic region, well positioned for the future, and we can capitalize on the climate and energy megatrends that are in the society. We have stable sales with good risk diversification, which I just told you about. Highly diversified business model and a footprint. And we have approved bolt-on value creation regarding M&A. So a lot of shareholder value creation is possible, and that's why we also, in challenging times, can improve the cash flow with 29%, present an increased order intake with 25%, And also for the eighth year in a row, increased the dividend to 3,50 kronor. And since we did the IPO, we have more than doubled the EBITDA and more than tripled the dividend. And I think this is the proof of the resilient business model we have regarding growth. profitability and cash generation. So into the Q4 highlights. We see strong performance in Norway and Sweden due to both organic growth as well as margin. We are minus two organically due to that the installation business is shrinking a bit, but we are growing the service business with six percent. We also see another four percent added from acquisitions. We have a margin at 7.4% impacted by the challenges we have in Denmark for the moment. We are conducting a thorough review of the Danish business and have implemented management changes and other mitigated actions to turn this around. We have an increased and a strong cash flow at 1.4 billion in the quarter. And it's very great to see that we are soon back to normal levels again. And we have seen an improved KPI regarding the cash flows. And also, of course, we are happy to see that the actions we have been taking is supporting the cash flow. If we look at the full year of 2023, the highlight is of course 12% growth. We are growing the service business. We have 4% in total from acquisitions. We have a very strong order backlog at 17 billion. We have done 17 acquisitions. And we have an LTIFR that is down with 3%, which is of course very good. And that cash flow has improved in the last period of the year. Looking at the beta, I have already spoken about the Danish turnaround and you know that we have successfully used the same playbook in 2019 when we turned around the division Stockholm at that time. So we know what to do, we are doing the same thing here. Other impact on EBITDA margin is non-recurring OPEX from IT and digital investment for sustained profitable growth. We also see that the peak of this investment has passed and we will benefit from this in the end of this year. We have also identified some other savings opportunity or cost efficiency of some central functions that will support the margin going forward as well. So the order intake and the backlog. It's quite interesting to see when we are discussing about a tricky market that we can continue to increase the order intake and also create a very stable order backlog. The order backlog is growing in the quarter with more than 500 million. We have a stable order backlog year on year and the order intake increased by 25% mainly in Sweden and in Denmark and that is because of three large infrastructure orders in total of 1.6 billion. The trend with big investments in infrastructure projects is of course very good for a company like Bravida. We are one of the few who have the competencies, the knowledge, the historical track record of delivering on this. And the customer is a type of customer that is looking for competence more than the price. So we see that the order backlog is stable and will give us good support for the coming quarters and years as well. Going into the sustainability, as I mentioned, LTIFR on group level is down with 3%. It's significantly lower and improved in Finland and Norway, but higher in Denmark. Norway is well below our target on five and a half, and they are showing the way. They are doing a really great work and the rest of the group has to learn from Norway regarding this and this is an important KPI going forward as well. Today we have 25% of all our 8,700 vehicles that are electrical driven. And this, of course, leads to a lower CO2 emission as well. I'm really proud about the work our organization has done in this. It's not a very easy thing to do, but we have actually lowered the CO2 emissions with 9% compared to the net sales now. And I think that is fantastic. We have a target that is higher, but we are well on our way to reach that target. And this will, of course, defend our position as the market driver and market leader in this segment. And this will, of course, be seen by our customers and that will also support the business going forward. So acquisitions. In 2023, we have done 17 acquisitions, adding close to 1.4 billion in sales. We still see a strong pipeline and good acquisition opportunities. You normally ask about the prices. It hasn't been very big changes, but we see that the price is going down a bit. We have a strong pipeline. We will continue to use our balance sheet in this challenging time for many others. We see opportunities and we will take the opportunities when we think it is the right timing to do it. Maybe a bit more selective due to the fact that the market condition is a bit different. So we really need to be sure and do the due diligence in a more thorough way to be sure to doing the right deals. But the pipeline is strong and we know how to do it. And this will of course be a support to our organic growth going forward as well. a good way to continue to develop shareholder value. And that is something we will be able to continue to do. So with that, I hand over to Åsa, who will take you through the different countries.

Thank you, Mattias. So as always, let's start with our largest country, Sweden. where we have grown the top line with 4% in the quarter to 4 billion, and the growth is coming from installation. The organic growth was 2%, and then we had growth from acquisition on another 2%. Had a very strong and robust EBITDA margin in Sweden, same level as last year, so 11.3% in the quarter and 7.7%. percent for the full year. Order intake was plus 47 percent. This is mainly due to two large contracts that we got on the extension of one of the subway lines in Stockholm. These two countries are amounting to one point three billion. And that gives us also an order backlog that is plus five percent year on year. So good and stable business in Sweden. Then if we look at Norway, we also had a growth in sales of 4%, so growing to 1.7 billion and 5.9 billion for the full year. The organic growth was 7% and the growth from acquisition 4%. And then we had a negative FX impact. We also included one large acquisition. It was included in our December figures. That's the Tunaset Group that has a yearly turnover of around 500-600 million NOK. We included in December with roughly 50 million in turnover and a flat zero margin. The EBITDA margin in Norway improved to 5.9%. compared to 4.8% last year's fourth quarter, and also improving for the full year to 5.4%. Order intake minus 1%. If you look at it in local currency, it was plus 5%, but negative minus 5% on installation. And that is according to our strategy where we actually want to take down the volume on installation somewhat. Order backlog then was declining with minus 25% year-on-year. So then moving to Denmark, where we had a negative growth in sales, minus 5%, and that is related to the installation business that went down minus 25%. And this is very much in line with the strategy where we want to take down the installation volumes. Organic growth was minus 12%, and we were growing from acquisitions by 1%. And FX effect had also a positive impact of 6%. The EBITDA margin decreased to 0.1% compared to 6%. And this is, as Mattias said, due to the challenges that we have had in three regions out of our eight regions that we have in Denmark and the resulting write-downs there. The order intake was plus 29% and the backlog was plus 30% year on year. And the strong order intake is mainly due to this, or it is due to this contract that we have gotten with Nordhavn Tunnel. which is a 300 million contract and this will be managed by the Danish organization together with our PMO, special project organization that we have in Stockholm that is running also the large Stockholm Bypass project. And as Mattias said, we are not happy with the performance in Denmark, of course, but we are doing a thorough assessment of Denmark. And Mattias is now also interim acting head of Denmark until we will get the new manager in place 1st of May. So we're doing an assessment. We have identified the issues and we are now addressing and taking actions. And we believe that we will have softer Q1 and Q2, but still positive figures. And then we will be back on normal margins in Q4. So we are positive about that outlook going forward. Then moving on to Finland. Finland had a growth in sales of 3% and the growth was coming from service. The organic growth was negative 14%. And if you look at our Nordic countries, Finland has the weakest market outlook going forward. Growth and acquisition was plus 11% and FX plus 6%. The EBITDA margin declined to 6.1% compared to 6.9% last quarter and 3.9% for the full year. And this is mainly explained by one project. And we talked about that before. It's a school project that has affected the margin both in the quarter and for the full year. And that is ending now in the first part of 2024. And we don't believe that it will have any more impact on the P&L. So order intake decreased by 35% and the order backlog was plus 11. Then, moving on to net debt and cash flow. I'm very happy that our efforts and our focus on net working capital is paying off. As you can see on the chart in the middle, we have had a strong cash flow improvement, and this is to 1.4 billion in the quarter compared to 1.1. and this is driven by a strong improvement in working capital. And the cash conversion improved also in the quarter to 73. That is the highest level in 2023. Net debt on the left-hand side remains low, so we will be able to continue to do M&As going forward. As you can see, we have a net debt EBITDA ratio on 0.9. We still have, as we have talked about before, these three unpaid receivables on our balance sheet. There are two in Denmark and one in Norway, and they are amounting to roughly 1.1 billion. We believe that we have a strong case. It will be resolved in 2025 in arbitration, probably all of them. We have a strong case, it will have a neutral impact on our P&L and it will have a positive cash flow impact. We are also happy to announce that we have refinanced, so we have a new RCF in place on 2.5 billion, same level as before, with the same banks as before, so it's Danske, SEB and DNB. The majority on this RCF is in 2027, with an option of another 1 plus 1 year. Our current RCF is linked to sustainability KPIs, and this new one is not linked to that. to begin with, but we are working with setting up science-based targets. Targets. So those KPIs will then be linked to our RCF when we have gotten those into place. Yeah, that's it. We have a commercial paper program, also 1.5 billion and Swedish and the 50 million euro and the three-year loan of 500 million that is maturing in 2025. And by that, Mattias, very happy with a strong improvement in cash flow, I will hand over to you.

To talk about the market. I will do my best. Thank you, Åsa. And the market outlook is, of course, a tricky part to discuss, but what we see is an overall stable demand for service activities there are some challenges in installation of course that continues but we also see some positive areas in those regarding installation as well there are some differences between different geographies for example in sweden the north part is better than the south part also mentioned finland norway are some variations within the country as well So there are variations, meaning that we need to adjust our working force and our organization due to the fact if it's good demand, strong demand, or if it's slightly lower. And that is something we do continuously. But what is very clear is that we see very favorable conditions for projects in, for example, infrastructure. industry, defense facilities and civil engineering. And that is, of course, providing business opportunities for a company like Bravida with the competencies we have, as well as the geographical footprint and the knowledge and the references we have in those type of projects from before. But said that, we will definitely maintain our project selective strategy with continued focus on cost control and margin over volume. That is important. And I think it's shown in Denmark how important it is to actually be very thorough on what type of customers you are choosing, what type of projects, how you execute on these projects. So that is something we will continue to do, of course. Over to the financial targets. No changes. And we are... confident that we will reach those over a medium term as well. Cash conversion, we want to be back at 100%. The net debt is something we already deliver upon. Sales growth 5%. Of course, it can vary from one quarter to another, but over a longer cycle, we will be able to continue to deliver a stable growth, a combination of organic growth and acquired growth. That is something we have shown for Yeah, for the whole period since 2015. And that also in combination with a strong cash flow, the cash generative business model we have gives us the opportunity to pay out some dividend to you and the ambition is more than 50% of the net profit. And as we mentioned in the beginning of this presentation, we have been able to increase the dividend for the eighth year in a row. That is the suggestion for the annual meeting. And then the margin, of course, I think we need to be honest and say that we need to probably have a more stable market all over the group to be able to deliver upon those 7%. But both myself, Åsa and the whole management team are confident that we are able to meet this in medium term. So by that, we have another slide that might show just the upcoming events. Next report is in May. We have the annual AGM at the same day, and then we have the interim report in July and October. So by that, I think we can open up for some questions.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Karl Ragnastam from Nordea. Please go ahead. Good morning.

It's Karl here from Nordea. A couple of questions. from my side. Looking first into Denmark, inevitably, as I said, they were not super happy with the margin. Project write-downs, one reason. I know that, I mean, the smaller project write-downs is sort of part of recurring business. But is it possible to quantify them in the quarter to see what the sort of underlying level really is? So we're putting them into context to Q3 or year-over-year. And the second part of that question is a bit on what Åsa said. You said that the margin recovery path in Denmark is to see positive, what you said, positive, soft but still positive margin in Q1 or Q2 with the normalization in Q4. So should we interpret that as Q1, Q2 sequentially unchanged? And what is also a normalized level in Denmark?

Yeah. Okay, that's a tricky question to start with. But if we start with the quantification of the downright, I think you can do the math yourself and see what we had in Q4 last year. We also have one poor acquisition that is adding some losses in the 23 and in the quarter as well. Regarding the margin, I think if I take the operational part, then also you may add something in later. But I've now been actively working together with the Danish organization since Christmas. We are doing a change in the management. I think that is really good to see what we can do together with the new head of Denmark when he arrives in May. Until then, I'm preparing to onboard him as efficiently as possible. But I already have seen, due to my experience from 25 years in this industry and companies, that we have We have quite many low-hanging fruits that we can do better to make sure that we are improving the margin operationally. But I also think that we are now doing an assessment of the underperformance units. That is something ongoing. We really don't have the full picture yet, but we are confident that we will have black numbers in Q1 and Q2, as Åsa said. We think that it will take until Q4 before we are back at normal margin in Denmark again. And I think normal margin is definitely at the same level as we had in Q4 22 then. But customer selective, be very selective about what customers we're working with. Make sure that we are executing in a better way. Easy said, use our processes Bravida way and focus more on margin and on volume. Could be some more challenges, but black number is definitely Q1, Q2 back at normal level again in Q4.

So also do... No, I think you described it well. I agree.

Okay, that's very clear. And Mattias, in your review of Denmark, is it I mean should we expect maybe discontinuation of these three regions out of eight or is it maybe just a downsizing or where are you in those discussions currently?

First I want to say that and actually underline that we have many regions that are performing strongly, well or strongly, they are really good. So we are doing a lot of good things in Denmark. The other ones has been growing a bit too quick. And then at the same time, I think the inflations maybe impacted Denmark more. So we are double down on the margin in that perspective. So shrink to quality is one way to say it. And it's about choosing the right type of customers and execute in the way we are supposed to execute. That is the solution. And Carl, I don't remember when you started to follow us, but in 2019, we did the same with Stockholm and they were back at normal margins again the year after.

Yeah, sure. It's impressive for sure. uh but looking at the order intake a little bit in this context i mean quite strong orders obviously driven by a few larger projects as well but but you say that the market for installation might be down somewhere nine percent in the nordics right uh you're pretty prioritizing margin for volume but orders are trending massively upwards meaning that you're gaining market shares probably underlying as well when i try to adjust uh How certain are you that these projects you're taking now today are also in the right sort of pricing, given that when we talk to companies in the industry, it's still quite a fierce pricing sentiment, right? Should we be worried about the new ones as well?

No, I don't think so. And one important difference is that when we are talking about the market, the numbers are down 9%. The infrastructure industry is not included in that number. So that is another market. That's more referring to housing, offices, etc. And I think that is... maybe the thing that we have difficulty to explain for you all you analysts that for example we have 800 million less residentials in turnover last year i think and we are still growing the business so we have replaced a small residential that's an example that is a small part of our business but taking out that on the business and we have been able to replace it with other things for example the infrastructure projects in in Sweden and Denmark and Norway. I think we are building the 10th hospital, for example, in Norway or something. So it depends what you consider as the market. But I'm not worried about that we are winning projects with too low margin. Not what we can see today. Definitely not.

Okay, very good. And also a final one from my side. If I look at sales by competence area, we saw that installation grew 6%. Could you say something about the margin mix in the quarter? Historically it should be at least on the favorable side with higher sales of installation but on the other hand we also have lower alteration and additional works which might hamper margins as well. Is it relevant to talk about the mix between service and installation nowadays?

That is not a number we normally disclose, but I think you can also see that due to the fact that we are having a big part service, we are able to deliver a very stable margin. If you allow me to adjust for Denmark for the moment, we are very stable on the margin, and I think we have some headwinds in the installation business, but we have some positive margin mix due to the fact that service is growing, and I think that is balancing for the moment if you exclude Denmark.

Okay, very clear. Thank you so much. Thanks.

The next question comes from Carl Noren from SEB. Please go ahead.

Hello and good morning, Mattias and Åsa. A couple of questions from my side as well. Maybe if we start off with Denmark. I don't think you fully quantified maybe the write-down impact, but is it fair to assume that somewhere around half of the margin decline year-over-year comes from write-downs?

I would say that a bit more, actually. If you look at the margin that we had the year before and then you do the math and see that a lot of it is write downs and also coming from a poor acquisition or a result in a poor acquisition. I think, yeah, we don't want to quantify it, but it's more than half.

Yeah, I see. And then also on the digital investment here, quite high here in the quarter. and you're saying they have peaked right now. Can you give us some kind of indication of where this figure should land for 2024, the digital investments in the IT platform?

We will take down the investment pace this year. The strategy is now to focus on what we have invested and to harvest and take out the benefits from those investments. So we forecast another 45 million for the full year in the investment portfolio for 2024.

So quite heavily down there from 40 million, I think it was in Q4. Yes. Yes. Okay. That's good. And then it's a question on Sweden. I mean, very, very strong development as I see it. And it's mainly driven by the installation where services relatively fast, if I saw it right in your report. Can you just give us a view on the update, the view on the market? I mean, it seems like orders are still at good levels for you. Is it for BFART Stockholm or the bypass of Stockholm that is you know, show a good or impacting the installation in the quarter or what is really driving the strong installation sales in Sweden in Q4.

Interesting question, and I think we are... You can say that the overall demand in the south part of Sweden is lower, and we shouldn't only see that Bypass Stockholm is adding sales on the rest, because there is a lot of other investments in many other places in Sweden as well. Of course, Bypass Stockholm has started to add, but not a lot in the fourth quarter. The production has recently started and some of you were actually down in the tunnel and visited the project. But I would say it's many small average sized projects in combination with a handful of slightly bigger projects that are supporting the installation business for the moment. I think it's important to understand it's not only one or two projects, it's in many places and I think that is also showing some kind of diversification and that goes to the order backlog as well and now we won two contracts in the subway in Stockholm for example and that production will probably start uh in the end of this year or in the beginning of 25 or something so that is something we are um will support uh us in in uh yeah the coming years not only in 24. yeah now i was just a bit surprised i think you grew nine percent installation in sweden which i must say it's very strong in this tough market uh but yes just the last question from my side here on the receivables outstanding or the over the receivables uh

You said you expect to collect them in the coming 12 to 24 months. Is it possible to give any more kind of guidance on when you see this coming into the cash flow?

It's very difficult to say. You know, these two Danish ones are really old. They were taken before 2019 and 2016, one of them. And so they should have been sold already. We thought they should have been into arbitration, you know, in 2022 and then in 2023 and then it has been postponed and so now it's up in 2025. So hopefully it will be then there. On the Norwegian one we're more confident that that will that that will be resolved in the end of 2024, 2025. So that will at least, at least we are confident that that will come in. So it's a timing, it's a timing question, but we will, there will definitely be a strong cash flow impact.

Yeah. And in the result, I think instead of cash, cash flow trend should continue to improve here. So we should see a relatively strong cash flow also in the first half of 2024. Is that how we should interpret your communication?

Yes, that's what we expect.

Yeah. Okay. That's all for me. Thank you. Thank you.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. The next question comes from Carl Johan Bonnevier from DNB Markets. Please go ahead.

Yes, good morning, Mattias and Åsa. I always feel good, Mattias, when I hear that you are going in and taking day-to-day responsibility for a unit that doesn't seem to be working for the moment as you're doing in Denmark. But could you just allude to why do you think you ended up in this kind of situation in Denmark and to be forced to do these kinds of more extreme measures, if you put it that way? What went wrong in the model?

No, but I think I've said it before in many different occasions. Growing in this industry is very easy. It's just to lower the prices. That is not what we have been doing in Denmark. That's important to understand. But when you are winning too many projects at the same time, and are supposed to deliver projects in a very structured way, and you have to hire and onboard a lot of people, then you struggle with execution. Handing this correctly, Denmark should have been winning fewer projects and instead increase the prices. That is the Bravada way, and that's what they should have been doing. When we saw this, we have acted decisively and we have taken actions and done some mitigation, mitigation, what do you say? Mitigations, mitigated actions. Yeah, sorry. And that is what we're doing. We are changing the leadership in Denmark. I'm going in to support the Danish organization. And as I said before, being in this industry for very long, it's quite clear what we should have done differently and what we will do differently going forward. And yeah.

I guess the acquisition that you are struggling slightly with in Denmark is that electrical installer that you acquired that was quite big in size spread out of the whole country but then also when you already took it over was struggling a little on the profitability and What went wrong in that analysis and that acquisition?

Yeah, but you can say the same. The organization in that case hasn't followed the processes and principles. And if they have done that, we haven't ended up in this situation. So it's very clear. We need to stay to our strategy. We need to follow the playbook, as we say, and follow Bravida way. And if we have done that in this case, it will never happen.

Sounds good. And just on looking at the 2023 development, could you allude to how it's gone with your in your priority areas looking at building automation, building up that franchise and, and the hard FM portfolio?

Yeah, we can say that it has been some positives development and some more weak development. I think if we start with the weak part first, I think the energy services that market has when the interest rates has gone up, the energy prices has gone down a bit. I think the interest and the willingness to invest in slightly bigger energy savings projects is not as big as we expected it to be. So that part had been growing least. On the other hand, we see that smaller energy services that we are delivering in all our local branches is growing. We don't have the ability to measure that, but that's my clear view that we are doing a lot of that type of services, small contracts, small orders that we really can't follow. That is part of our daily business now. But then slightly bigger ones that we thought should to be honest, explode when we had the high energy prices and the willingness to invest hasn't really came out as expected. So that is something we adjust now. On the other hand, we see that the technical facility management part is around half a billion. close to 500 million in sales. And the really good thing is the building automation part that is around a billion in sales. And that is something that we are really happy to see and that is supporting all the other segments as well. And that is driving the service business going forward as well. So we have the energy part that has been a bit a negative development. yeah if we exclude the fact that we're delivering the local branches a lot more today then we have the technical fm that are in an okay space and then we have the building automation that has developed really really well good mixture one final from me as well looking at the acquisitions you've done over the last 12 months or so a lot of industrial piping operations

How big is that part of your operation today and how do you see that as an opportunity for the future?

I don't think we have disclosed that numbers, but of course that is growing and I think that is a smart thing to do. That is because of the investment trends in the Nordic area and that is growing positively and that has a good margin as well. So we're looking forward to continue that development.

I'll have to come back and ask more questions about that. Thank you very much and all the best out there.

Thank you, Carl. Interesting to see that it seems like the name Carl is something that you need to have if you're an analyst in Bravira. Yes, exactly. It helps. It helps, yeah. Thank you.

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Okay. Thank you so much, everyone, for listening in. And I guess we'll meet some of you during the day. Looking forward to that. And I think that we have a lot of interesting topics to discuss. But I think, yeah, maybe increased dividend and improved cash flow is something that I want you to take away from this presentation. So thank you very much for listening.

Thank you.