Fasadgruppen Group AB (publ)

Good morning everyone. Welcome to the presentation of Fasalgruppen's Q1 results for 2024. With us today here we have our CEO Martin Jakobsson who will present the results and also in the room we have our CFO Kasper Tamm and myself Adrian Westman. With that I hand over to you Martin for the presentation. Thank you Adrian.

So some highlights here for the first quarter of 2024. It's a clear low activity here in the first quarter. It is a typical low season for us. And this is then connected to our services, which is mainly produced on the outdoor of the buildings. And in a cold environment, this affects clearly the activity levels. I would also like to highlight here that new production levels were quite much lower this quarter than compared to last year. Moreover, I would like to highlight here that the competition in Sweden is still tangible, but I would not say that it has worsened compared to the latest couple of quarters here. I'm pleased to see that we've had a healthy organic order backlog growth. And in this environment, I would say that this is a clear positive that the demand is holding up so well for our kind of services and that the customers continue to trust us. In the quarter, we've also completed two acquisitions of Elenta and Alument, which we spoke of in the last conference call. So Moving over to net sales development, we have a clear negative organic development here of 12%. And that is mainly then due to the development in Sweden. I would like to highlight, as I mentioned in the start here, that we've had a low productivity, unfavorable weather conditions, and also an early Easter, which was in March this year compared to April last year. As I mentioned earlier as well, the new production levels is quite clear down, I would say in the portion of some 40% of our new production companies compared to last year. Looking at the EBITDA level, we have a weak margin here of 1.9% compared to 6.5% last year. Also here, the results are affected by the low activity levels. But in honesty, we could say that we are more seasonally affected than we were last year. This combined with a larger overhead in comparison to the project activity makes up for the weaker results but you can look in the chart in the bottom right here you can clearly see the darker blue bars indicating the first quarter of each year so I would still not say that I'm very worried about 24 in that sense the result due to the weak, I would say, seasonality effect here for the first quarter. Looking at the order backlog development, we have a positive organic development of some 4%. And the clear positives here are the markets in Denmark, Norway and Finland, which are all growing. somewhat muted growth here for Sweden. I would say that a positive here is that the order backlog margin is actually somewhat up in the quarter here, indicating at least that we are able to win orders at healthier margins. Moving over to cash flow, I would say that the cash flow follows our typical seasonal pattern. We see an improvement in the working capital of some 7 million compared to a negative of 7 million last year. I would also like to highlight here that the investment levels in CAPEX was some 35 million compared to 10 million in the first quarter of 23. So we are poised for future growth in that instance. That is then connected, of course, to what we see in the activity levels in the market and our positive world backlog developments. Looking at our financial capacity and our net debt, First of all, see that the interest rate here in the first quarter was around 6% compared to 4.6% in the last quarter. We have a very short interest rate period of one to three months. So in the case of a lower interest rate environment, we will adapt quickly. In terms of our net debt to adjusted EBTA, it was on a non-performer level 2.7 and on a performer level 2.6. I would say that I'm not worried about these debt levels. We are eager to continue to acquire companies and to continue our growth journey. Speaking of our growth journey, we are here presenting our two latest acquisitions, which I also mentioned in the last conference call. And what I would like to highlight here is the special setup for Elenta, which we only acquired 60% of the company with an option to acquire the rest, which is a new take, which we've not done before. which is another tool that we're adding to our work belt here in terms of acquisitions going forward. And I would say all in all there's still plenty of M&A opportunities out there. then an update on the energy performance of buildings directive which has been finalized which some of you may may have heard and i would say that this is a clear market trend they're positive for us and all in all i would like to highlight that the building stock by 2050 in the european union will be a zero emission and we are eager to to help our customers in achieving that we also see that there's coming stricter requirements from financing institutions and to take advantage of that we've also initiated a collaboration uh with uh feb the bank in a larger bank hearing in the nordics in order to to take advantage in order helping our customers in the tenant owner associations so that they can achieve both the financing and advice as well as the project execution from us and SEB. With that I would like to highlight here the concluding remarks. I would say that at first glance you could absolutely see a big difference here in the results of the q124 compared to last year then bear with us that the results last year was unusually strong i would say and it is clear that on a where when it's a lower new production level that is hindering us in in achieving greater results in the first quarter so i would say that There's plenty of disadvantages with new production per se, but the clear advantage is that it often is producing during Q1. Often it can be that if you have a deadline where you will move in, let's say in Q1 or Q2, where the customer wants that the building is finalized in this new production stage, then you make that so that you work even during Q1, even if it's cold outside. However, on the renovation side, that is not the case, I would say. Renovation is then more starting up during spring. So in this instance, I would say that our high season compared to low season is then, let's say, from April to December, depending then on weather. I'm also positive here with the order backlog growth indicating future healthy growth and also then that the margin in the backlog is stable to positive. So with that said, I would say that we are still positioned to capitalize on our long-term market drivers and eager to assist our customers in helping them. And with that said, I'd also like to highlight that we have a capital markets day here on the 2nd of September, 1 p.m. in Stockholm. So I hope to see you all at that stage. And with that, we open up for 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 5.

6 on your telephone keypad the next question comes from max back oh from SEB please go ahead good morning thank you for taking the questions so the first one on your comment there that the margins in the order backlog stable to slightly growing here in the quarter. Could you specify growing compared to what? Is it the margin in the order backlog last quarter or is it compared to the EBIT A margin that we have seen there in the last 12 months or something like that?

Good morning, Max. So to give some more flavor on that, it is then compared to the last quarter. and with that said i mean it's it's usually that the the order backlog is poised for growth in the first quarter and it was so this year but what was interesting was to see that the the margin development was also positive in that sense and where it stands out i would say that it's growing in sweden and that is a clear positive because we've had as you know, the competition pressure, especially in Sweden, I would say.

And is it possible to say, I mean, the margin in the order backlog, how does it compare to the actual EBITDA margin for the last 12 months or for 2023, perhaps? Is it stable compared to that, or is it also on that comparison base slightly up?

uh now i would say it's it's stable towards compared to the to the ebitda margin but but note here max as we usually say that when we get an order it usually grows by 20 30 percent in extra work and that is not then affected in the in the order backlog growth if it's i mean up until it's finalized and and approved by the customer And in a harsher environment compared to competition, then these kind of extra works going back a couple of years, I would say was better than it was in these latest quarters here. But hopefully that with an East competition, hopefully soon, and that would also mean better margins in the in the extra work so that is also in fact you have to to take into consideration so you cannot only look on the order background yeah understood and then on your comments that that i mean q1 is perhaps more tilted to towards new build and

the rest of the year? I mean, you normally say that you have a split of 8 to 20 between renovation and new build. Is it possible to specify how it usually looks during Q1, isolated?

Yeah, I mean, Q1 stands out that it's much, much more, of course. But in the ballpark, I would say maybe if you just take in the Q1 compared to full year so to speak maybe that's it's 40 percent the new build in q1 usually but i mean then of course it stands out this quarter and due to the low activity levels but but i would say i mean you have to go back here we'll go back to 2022 the market around new production was still uh okay for us if you if you understand what i mean and then you had lag effects going into then q1 of 23 which which we saw then in the activity levels remember that the organic growth in q123 was 25 percent and that also of course affected the results in a positive way in q123 yeah

And I mean, you mentioned this yourself that you are not worried about 2024 as a full year despite quite weak performance here in Q1. And I mean, as you highlighted yourself, the order backlog improved year over year organically. Hopefully we will have better weather going ahead in the common quarters and the ongoing quarter. We have more working days. And of course, then less dependency on new building in the following quarters. Should we expect that? And of course, the comparables are also easier for Q2 and forward. Should we expect adjusted for seasonality that Q1 was the low point and it will look better year over year for the coming quarters?

low point is always hard to tell exactly but i mean what we what we see is clearly this this uh weak performance in q1 i would say hopefully an outlier in the future that's our best take i would say yeah

And if I may, two very quick questions to perhaps Kasper relating to the financial details in the report. I mean, it was quite large deviation looking at net financial items of CEC 25 million in the profit and loss, and then in the cash flow analysis, you have interest paid of 52 million. What explains that deviation?

You mean between interest paid at 16.7 compared to the 52.2? Is that your question?

If I look at... I mean, in the... Yeah, exactly. I mean, interest paid 52, exactly. And then in the profit and loss, you have net financial items of 25 million.

I mean, that's the increasing interest rates that we have seen between quarter 2023 and first quarter 2024. I would say, Max, that we managed to pay later. I mean, some of those interest rates were... Oh, you mean cash flow-wise? Cash flow-wise. I mean, we've had, when you pay it, or if you pay it in December or in January. That is the combination, of course. I think you could see, I think we had the terms of the loans were between one to six months. And now we are down to between one to three months. So that's also... Remember, we made a new financial deal with the banks in the summer of 23. There were some new terms in these two quarters here, when the payment is due, so to speak.

Understood. On the same topic then, perhaps the same answer also, I mean, tax paid here when looking at the cash flow, 60 million, which is almost close to the full year tax pay during 2023. Is that also a timing effect?

I mean, it's mainly the difference between 2023 first quarter and 2023. uh this year is is mainly residual tax coming from from actually the income year 2022 here which was one of those years ever income-wise yes perfect understood uh that was all for me thank you very much thanks max the next question comes from carl ragnastam from nordia please go ahead

Good morning, it's Carl here from Nordia. A few questions. Firstly, looking at organic growth in the quarter, negative 11.5. I mean, you had pricing deflations in the past quarter. Could you give some flavor on what sort of deflation on raw material was in the quarter? Yeah, let's start there. Thanks.

Good morning, Carl. so if we took take a look at the raw material impact we've seen that the prices in general are going down um which is i mean it's a pass-through effect for us so then of course affecting us in in terms of negative organic growth um but but it differs compared i mean we have a wide variety of materials that we're using so it varies between between different materials here but but in general i would say a negative development for for the for the prices for the materials so on an aggregated level yes what did you say it's How much? I would say in the ballpark of five to ten percent.

Okay so volume wise it's maybe down low to mid single digit perhaps?

Yeah and I would say that especially the easter effect is something you should take into account which should affect April in a positive way.

And if you look at the margin in the quarter, I know that Q1 is seasonally low, but you mentioned a few effects here during the quarter, obviously the long and cold winter, the Easter effect, also I guess the fierce pricing environment, and also a bit of a sluggish market. Could you help us rank these effects in a way?

I mean, the rank number one, I would say, is the low new production activity in that sense. As I mentioned, it was down somewhat. If we take a look at our pure play new production players, the revenues for them was down somewhat in the ballpark of 40% in Q1. So that is, of course, affecting. And then I would say, I mean, unfavorable weather. Easter effect. If I rank them one, two, three in that sense.

Okay, very clear. And if you look at the start here in April demand wise, obviously you have a tailwind on from the working days, but how is it April looking so far? I guess the weather has clearly been at least better.

Yeah, absolutely. I mean, this is when the services start in the new renovation cycle to a large extent. So absolutely the high seasons have started well. I'm pleased with the development so far in April activity wise.

And also you mentioned the margin here in the backlog. I mean how do you ensure that that margins are sort of healthy and taking at the right level I guess the project margin often tend to look quite healthy once taken but then it's up to project execution and other factors that comes into play as well so have you done any changes in the way you price your projects is it more or less fixed price projects or is it yeah any other way you making you certain that the margin in the backlog will or look better I mean also when actually being delivered.

I mean of course we are working as you know with fixed prices that is our strategy where we see creating the most value but I would say that we have an internal matrix on I mean how large a contract one, let's say, project manager and then subsidiary CEO going up to various levels can approve. So more diligence there, I would say, and that's one effect from the new organizational structure that's from the 1st of November last year. So I would admit that we have to also be clear that the Or the backlog margin is, I mean, we have not followed that closely, what we've done now, let's say, before the IPO. So we have not a huge amount of data in that sense. But of course, it's obvious here that it's stable to positive in the development, which is all else equal healthy for us.

Okay, very clear. Also on the cash flow side, a bit soft here in Q1, leverage is trending upwards. But you also said that you're eager to continue to acquire companies. How does that square? Then you must have a pretty good outlook for the cash generation for the year 2024. Are you willing to take up leverage a bit further? given that it's maybe a trophy year or how do you look at the capital allocation here?

So it's a multitude of factors affecting that, of course. One factor is then, as I mentioned with the LN acquisition, you can be using your tools in a more efficient way where you don't have to acquire 100%, which we have done historically. And you can... I mean, enter into agreements with these acquisition targets in various, let's say, acquisition matters in that sense. So I'm comfortable around that. And we are also comfortable, of course, around cash flow generation in that sense. So, I mean, various amount of factors and also, of course, multiples paid. it's not to be forgotten there the price of the actual targets so I mean in in in 23 if we go back to that year I think we mentioned that before to you Carl that we were actively taking the multiples paid into into accounting, into that sense that we were more cautious around multiples paid. But I would say the start of the buyer's market, which I referred to earlier, was absolutely in 2023. And we see that ongoing as well. But of course, there's always a discussion with the sellers around price. So with that said, even though we have multiple opportunities, I would say that it takes two tango, if you understand what I mean. And I'm certain that we will reach agreements here with plenty of opportunities, acquisition opportunities going forward as well. And not worry in that instance around the current debt lens.

Okay, very clear. And the final question is around the cost levels or SG&A. You mentioned that you've taken out some costs here. Is that fully materialized during the quarter? Could you elaborate how many FTEs you've taken out, including perhaps both temp workers and subcontractors? And if you plan to do more here?

Yeah, so we... We mentioned last year that we've made some adjustments to the workforce in the ballpark of 100 people, which is then affected by these lower activity levels compared to our workforce of around 2,000. that that is in in terms of how many affected but i would say that um with the positive or the backlog development we have actually kept more than that were announced to to be affected in that sense they announced was more in the ballpark of 200 so that i mean all else equal that is a positive for us where we see that we can rehire people here during the spring due to the demand for our special and renovation services okay very clear thank you thanks the next question comes from sophia sorting from carnegie please go ahead

Yes, thank you. Hello, Martin. Hello, Kasper.

Hello, Sofia.

That's a great question from previous speakers. So I have an additional regarding the order book. Could you say something more about the order trend during the quarter in terms of January, February, and March, and in comparison to previous, not only last year, but previous Q1 quarters? That's my first question.

Yeah, so... I mean, if you take the larger trends for us, I would say that in the first half of a year, it's a positive where you build up the order back and you execute it more or less. And to say that Q1 was no exception, we saw strengthening in all three months here, actually in first quarter.

Yeah, and also can you give some more details around the different services and the demand regarding your different products and services during the quarter? Have you seen quite significant differences between them?

You mean in the order backlog?

Yes.

Yes, so what stands out is renovation is the positive. If you just take out renovation versus new production, it's the renovation orders that are growing fairly. Remember here then that Sweden is the country where we have the most new production and I would say that most affected the current market environment in the Nordics for us at least. And we also mentioned here that positive development are in the countries outside of Sweden for us.

All right. And no differences between the different type of services and products.

I mean, I would say no. In general, it's a healthy demand, whether it's masonry, plastering, roof or windows.

Okay. And you mentioned about the competition and that it's continued to be quite fierce during Q1. But should we interpret that this fierce competition will ease already in Q2? Or is this something that you see So continue all through Q2, Q3, or what is your expectation?

I would say it's too early to tell. And we are following things such as the amount of bankruptcies in Sweden, as an example, where we've seen... If you take that back, look at that historically. If you go back to the 90s crisis, then the amount of the construction companies that went bankrupt was in the ballpark, 94% of all the construction companies went bankrupt in the 94 in Sweden. Then that eased off, and it was around a low of 1% going between the years, let's say, 2005 to 2023, or 22. Then in 23, 24, it was doubling that. So let's say in the ballpark of 2% of all the production companies bankrupt here in 23. But with that said, there's so much more companies now compared to the 90s. That is, I would say, an interesting part of the puzzle here going forward where we go that closely and all as equal with a larger amount of bankruptcies and a fewer starts of new players in that sense would be positive for us in the competition-wise. But I would also say that if you take a look at all the backlog development, the customers are choosing us for a reason. They see us as a safer player and the quality of the customers in upgrading their buildings, which we are eager to do, of course.

All right. And pretty soon we will have a new decision about the interest rate from the central bank here in Sweden. So I'm curious about how is the discussion with your customers? Does this matter quite a lot for you? If they will keep it unchanged or decrease it or in the short term, positive, negative impact, would you say? No.

I wouldn't say that it has a super huge importance, because the renovation demand is there, whether the interest rate is high or low. In that sense, of course, if it can increase the sentiment, as I mentioned, around the new production levels, that is of course a positive. us on the renovation side it's not that important I would say but of course all positives are positive for us so we would we would welcome of course an interest lower interest rate from these levels all right okay thank you no thank you thanks there are no more questions at this time

So I hand the conference back to the speakers for any written questions and closing comments.

Yes, we have received a few written questions as well. I think we have covered some of them, but we can go through and see what there is here. So first off, I think we touched upon it, but is it possible to quantify the negative impact from seasonality compared to last year? Yeah, so...

I mean, last year was then, as I mentioned, clearly positively affected by the higher new production levels. I mentioned that earlier in the ballpark, we take our pure play, new production players, the sales development for them in Q124 was somewhere around 40% down compared to Q123. So that is a quantification around that, I would say. But of course, Easter is also a negative for Q1 in that sense. I would say that it was around four working days or somewhere around that. And that is then obviously especially negative for Norway and Denmark, I would say, where they have somewhat longer Easter holidays than in Sweden.

Do you expect a lower margin in coming quarters due to low levels of new construction slash new buildings?

So we don't give any guidance around the margin in that sense.

But of course, we are positive around the future. Great. And on somewhat the same theme, what do you expect in regards to personnel costs in the coming quarters?

Yeah.

So, I mean, personnel cost is, of course, this is a clear, I mean, seasonal thing for facade grouping. We have an overhead which is fixed in that sense around the year. and this has been the the factor for all facade companies for for a large amount of years so in q1 you can say that we have two large overhead it depends on how you see on things but but of course when the productions ramp up in the spring then i would say you're all almost undermanned in that sense. So that is a balancing act that we have to take into account each year. So this is not a new phenomenon in that sense around personnel costs. So I'm not worried around the personnel costs per se. That's just more of a fact that our seasonal company is affected by the Q1 due to

natural causes such as temperature. And then two more questions on the margin in the backlog. I think they are a bit on the same theme, so we'll go with one. Just to confirm, your adjusted EBITDA margin in the backlog is stable compared to the adjusted full year 2023 EBITDA margin?

I mentioned that in Mark's question here, and it was, I mean, if we refer to quarter over quarter in the backlog margin.

And then last one, does it exist any economical help by the government in order to achieve the objectives of reducing emissions?

Well, of course, it depends on which government you are referring to. We are acting on four different markets here. But I would say in Sweden, I would say it maybe stands out. There's not that many financial aids in that sense compared to say Denmark and Norway which have more of those but of course I think it's a combined package that the market needs to in order to reach the future emission targets and I think that the state is in all of our countries the states there are prone to assist in whatever way. So I think that the renovation wave that is coming will have two severe factors taking into account on how we can assist the customers in achieving all of these greater emissions, as I mentioned before. And that is the workforce. There will be a lack of workforce when the renovation wave truly sets in. And it also would be a question of capital who will pay for all these upgrades that are coming. And if you can get some financial aid from the States, that would of course be beneficial. And it varies between the States, but we would of course welcome more of those aids.

Excellent. So no more written questions. Any concluding comments?

Yeah, so I think we've given you the clear answers that we could here. And hope to see you again in the next conference call due in August. So thank you very much, everyone, for today. Have a great day.