Fasadgruppen Group AB (publ)

Good morning everyone and welcome to the presentation of Fasadgruppen's second quarter 2024 results. In the room today we have our CEO Martin Jakobsson, our CFO Kasper Tam and myself, head of comms and sustainability Adrian Westman. I will hand over to Martin for the presentation and then we will conclude with a Q&A.

Martin. Okay, good morning, everyone.

So I'm pleased to announce our Q2 results this morning. Some of the headlines that we'll go through more in detail later are then that we see tough competition still, especially in Sweden. However, we've seen some glimpses of hope here, especially in the Stockholm area. We'll get back to that more in detail later. We have taken measures now, depending on the results that we announced this morning. And there we have changed some of our CEOs, and we've also taken our cooperation between the subsidiaries to another level in order to stem the results here. And we've also, for the first time in Fasaljubes, the help of great entrepreneurs. And that is also a strategy that we will delve deeper into in the coming slides here. In the Q2 results, we've also seen an increase of our important covenant of net debt to EBITDA, which is above our current target of 2.5. We are working then in order to enhance that in the coming quarters here to back to our goal and during the quarter we've also signed a lot of letters in tents which is great in in the coming quarters we also hopefully see a lot of these acquisitions being signed we'll get back to that later in the But looking then first at sales, we had a total decrease here of half a percent in the quarter compared to the same quarter last year. Organically, we saw some revenue down of 4.2%, which is then mainly then from the Swedish operation, or actually only from the Swedish operation, as Norway, Denmark and Finland are all growing organically. Looking on the adjusted EBITDA level, we saw a margin here at 6.2% in the quarter compared to 9.7% in the same period last year. And the main reason for the drop here is, as we've spoken about now for at least a year, is the increased competition situation, which is then stemming from, we say that new build sector is heavily affected in Sweden. And with that comes a lot of, you could say, market entry participants from the new sector going into our main market, which is the renovation market. And just to give some perspective here is that we've seen at least a doubling of the amount of tenders given from new companies, so to speak, in certain areas. So that's just to give some flavor to how very pressured the market is at the moment. And yeah, with that said, I mean, the new-build sector is not something that is new for that it's heavily affected. But there are a lot of positive signs in the market with the interest rate environment and several other of our customers stating that there is an opening in the coming, let's say, quarters. It's too early to tell exactly when.

in terms of the market.

Looking at the order backlog, it was a 16% decrease organically. And there we saw actually a drop in Sweden, Norway and Finland, but an increase then in Denmark. And I mean, there are some timing issues also on the order backlog. That's to be remembered. You could also remember that the renovation market often have shorter lead times than the new build and so if the when the new builds start going more active again hopefully that will have a positive impact on our backlog And with that said, I think we have pretty good foresight for the coming, say, six to nine months in our orders. And also remember here, as we've spoken about a few times, that some of the smaller orders or the oral orders are not included in this order backlog or not have any extra work in the order backlog either so that's not included here so remember with that and we what we also can conclude regarding the order backlog is that the order backlog margin strengthens once more as it did in q1 so it's this time it's better compared to q1 20 to 2024 as well as the same period last year, that is Q2 2023. Looking at cash flow, we have a decrease in our operating cash flow, which is then mainly stemming from our weaker earnings compared to the comparison quarter. And we have, as we've spoken about, let's say six to eight quarters in a row here, improved our cash flow. And it's a continuous work here. So we are not, of course, happy with this level. I see that it's more to be done here to improve the cash flow even further.

And so we are working with that continuously.

Then looking at our financial capacity and our net debt, as I spoke about in the introduction that we'll get back to, you can see that our average interest rate in the first six months of this year was 6.1%. We've seen interest rate cuts, so hopefully we could see some improvements in the interest rate for us going forward. Please remember that we have very short durations here. Interest period rates of one to three months is the duration of our loans. But with that said, we can conclude that the net debt to adjusted EBITDA is 3.2, and it's the same, actually, 3.2 on a pro forma level. And of course, that is... still below the bank loan agreement, which is in 3.5, which we said earlier. And as I mentioned in the start, we're working then to get that back to a more normalized level around 2.5, which is within our goal levels. And so still not satisfied with the cash flow situation in general we are working with working capital improvements and are looking forward to see some improvements in the coming quarters here so as i mentioned we had in this quarter our first startup which is then in a collaboration, you could say, with us and the entrepreneurs of Elenta Solar Sverige. And for those of you who remember, we have actually a company called Elenta in Norway as well. So we are broadening that brand with more solar cell solutions. This time it's more than connected to the Stockholm and Mälardalen area in Sweden. So it's actually both coming from our, let's say, from Fasalgruppen, but also from the subsidiaries that is then looking for a professional partner because they're seeing a lot of tenders coming around solar cell solutions. And with this solution, we can now provide this service internally. We're very grateful for that opportunity. And with that said, I mean, startups can be a great way for us, as we see, to complete our M&A strategy when the opportunity arises. Hopefully, you can see more of these kind of startups in the future. During the quarter, we also announced two acquisitions. The first one is called Brenden & Co., which is one of Norway's largest scaffolding service providers. And we are, say, what we like about Bränden is that they are the only, you could say, focusing on the renovation sector. We have been working with Bränden for many, many years with our current Norwegian subsidiaries. We know them well. And they have actually developed themselves and digital system that follows up this logistics exercise, which is a scaffolding, a larger scaffolding company comprises of. They have developed that themselves, and we have actually acquired a part of that system called Clostylos. We acquired 15% of that, and we have an option to acquire Clostylos with 100%. And we see the system as an opportunity to be used within our other subsidiaries within scaffolding and hopefully some other of our subsidiaries in the future in order to improve efficiency. This is a very, very efficient system in order to maximize utilization rates for scaffolding and other services that we provide. impressed by that solution actually. And Bränden is a very, you could say, a high margin company. And with that, we actually are looking forward to enjoy the collaboration with Bränden going forward. So we welcome them. And the second acquisition is called J.J. Svets och Smide, which is located in Saltsjöbo in Sweden. and they are focusing on steel structures and forging, complementing our other subsidiary called Gaj Stålkonstruktioner, located in Eskilstuna, Sweden. And it's actually Gaj that acquired the company, so they are a subsidiary of our company then, and very expertised within their niche. And I've also enjoyed some good results. We're looking forward to improve them even further within the Fasadio Open families. Welcome, J. Svetson Smede. With a warm welcome into Fasadio Open. And as I mentioned, we also had several, we have several new signed letters of intent in the quarter. And with that, it's actually across the whole Nordic spectrum that we have these new letters of intent. And I have some very interesting companies that we are looking forward to taking to the next level and hopefully be part of Fasal Group soon. So M&A, as you all remember, is part of our DNA. Just to reflect, you could say that when small group of two companies and now it's more than 50 companies in the group since 2016. So it's been a very hectic year since the inception and we're looking forward to welcoming more of these kind of great companies into our home. so with that said before we open up for questions i would like to highlight them that the tough competition remains but we see some improvements especially then in the stockholm area and uh well to just dive a bit deeper on that actually is that the number of tenders that we've gotten from from the the stockholm area is is actually better year over year which is a great indicator for us actually so that's hopefully we can enjoy the the better results in the coming quarters from that and just to just to remember here also that when the price pressure started it was actually in stockholm area that it all started so hopefully that would be also the way it returns first We have taken structural measures within the group and are looking forward to enjoy the results from that. We are focusing to decrease our net debt to EBITDA back to the target level and within the coming quarters. And as I mentioned, several ongoing M&A dialogues, a lot of new letters of intent signed. Well, I would say that we are very well positioned to capitalize on our long-term market drivers, especially within energy efficiency, which we have spoken about a lot of times. And with that said, I would also like to highlight our Capital Markets Day, which is now set on the 7th of November, 1 p.m. here in Stockholm. We will dive deeper into the acquisition journey and the latest market trends and where we'll be heading in the coming years. Remember our 2028 targets with 10 billion in sales with at least 10% margin still stands.

Great. And then I think it's time to move into the Q&A session.

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 Max Baco from SEB.

Please go ahead.

Good morning. Thank you, operator.

This is Max Bakko at SED. Just perhaps starting with your balance sheet and the leverage, which is now, as you said, at 3.2. I mean, you don't seem too stressed with approaching the bank confidence at 3.5, given that you have signed several letters of intent here regarding M&A. So just could you elaborate a bit on your view on the balance sheet and your financial position. Should one be worried about that?

Good morning, Max. I mean, one should not be worried about that. As we see it, Basolgruppen is a very light asset company with strong cash flows. And remember that the cash flow situation is seasonally adjusted. Remember our quarter is usually the strongest in terms of cash flow. And I would say in Q2, yes, it was an increase up to 3.2. But we had actually, I could say, some headwinds in timing measures from the cash flow working capital wise. And I would say that, of course, the result is um it's actually i mean hard to tell the future i wish i could but but as we see the tenders going up some very strong market drivers around the interest rate uh we also see the the what our subsidiaries are saying so to speak so i'm not worried around that i'm actually I'm looking forward to get past this, let's say, first half year of 2024 in order to enjoy better times ahead. So, no, to conclude, not worried around the balance sheet, but of course, sober enough to understand that this is a focus area for us.

Okay, understood. And then on the order backlog, which was some 16% organically here in the quarter. I mean, if we look back a couple of quarters since Q1 2023, the order backlog has been fairly stable up or down a few percentage points organically. So this stands out. Is it something special in the quarter that explains the 16% drop or is it

Yeah, you could say that in Q2 2023 there were actually some large orders that could easily have been signed in July rather than June or so. So there are some timing issues. It's the same here in this quarter. Some of our orders could have been signed in June or July. So, I mean, there are always some timing issues regarding the order backlog. But with that said, I'm not worried about that kind of, say, 16% organic drop in the order backlog.

Okay, understood. And then on the profitability, I mean, quite significant drop here year over year in the quarter. But at the same time, you mentioned that total order backlog margin continued to show a slight increase compared with last year. And you also said, I think, the same thing here in the previous quarter in Q1. I mean, how should we think about the dynamic that profitability in the order book is going in the right direction, but in the P&L in the wrong direction?

Yeah, I mean, hopefully that the, let's say, trough around the margin drop is pretty close by in those terms. So, of course, it's hard to tell exactly when the trough has been in terms of, let's say, year-over-year improvements once more. But that's our best take, is that it's very close by, if not already past.

So, I mean, to follow up on that, do you see, I mean, entering here H2, Q3, Q4, I mean, do you see the foundation perhaps for a better profitability at least compared to the Q2 levels 2024?

I mean, absolutely in those terms of margin wise, you could say, but I would say that Usually the second half of our financial year is of course the strongest. Remember that Q1 this year was also pretty weak in that terms, but we see a more normalized level in the second half of the year in those terms. If you just compare, will H2 be better than H1? Yes, that's our best take as of today, of course.

Better than... Okay, yeah, understood. And then finally, the last one. I mean, when we now enter H2 2024 and look at the price levels in the market and then perhaps mainly then in Stockholm, Sweden, how... Does those compare to the price levels that you saw in H2 last year? Is it the same level or is it slightly below?

You mean if the price pressure, so to speak, has deteriorated or not? I wouldn't say. I mean, same level as in Q1, so to speak. but it's not any deterioration.

But compared to the second half of last year, I mean, the price pressure, is it worse or is it also on the same level?

On the same level, I would say, actually.

Okay, understood. That was all for me. Thank you for taking the questions.

Thank you, Max.

The next question comes from Carl Ragnestam from Nordea. Please go ahead.

Good morning, it's Carl here from Nordea. A few questions, maybe coming back to the leverage situation as alluded to quite close to the covenants now. Maybe if you could give any idea of the combined sales from the signed LOI, perhaps also

timing wise when you expect to close them and also how do you plan to finance them if it's cash or perhaps with shares or yeah yeah I mean too early to tell regarding any indication of the sales unfortunately Carl but what I can say is that I mean regarding financing of course I mentioned that we have an improved cash flow situation usually in the second half of the year and we see that this year as well and in terms of you could say we've already proven that our new toolbox where we don't that one can use during these times where the leverage situation is around these levels, if you understand what I mean. And so with that said, it's a combined effort regarding how we can welcome these new subsidiaries. Timing wise, I would say if you just take historically when we have an a letter of intent signed usually takes between could be three to nine months before we see an assigning so that's that's still the the same level as historically so that's the timing wise around those and taking a step back a little bit to just to know your

your view and it is that we saw a good M&A pace a couple of years back then we saw you sort of more or less stop doing M&A in order to take down leverage then we saw you using another capital allocation measure in terms of share buybacks which weren't fully materialized I think and now you're accelerating M&A again when the balance sheet is quite stretched I mean and also looking at I mean, net financials currently are paying 110 million. I mean, it's eaten out from free cash flow currently. So how do you look at capital allocation? Because we've seen so many changes, I think. So, yeah, what is the strategy more or less around it? And what is the most creative measure, you think?

Yeah. No, but of course, we are a very acquisitive company in the foundation card. And I wouldn't say that If you go back, you alluded to the 2021-2022 situation where we annually acquired more than one billion sales. And of course, that was not the level of in 2023. But I wouldn't say that it was only due to leverage reasons. It was also a good time to integrate into our organization and good for for the company that they took the time to after these hectic years of 21 and 22 to to welcome them let's say properly in that and of course with that said the strategy is of course to continue with our acquisitive journey and in in terms of The allocation strategy of course depends on the situation. As we see it now, we see very favourable market trends. For every acquisition we do, we become just a small step better than we were before. and with that said i mean we're looking for these new companies to be welcomed into the group and of course to to have that in in in a way where where the financial let's say situation is under control as well so of course we see these companies being welcomed into a professional and structured organization where we can increase the value of these companies so we're looking forward to do that with these as well and of course the share buybacks as you also alluded to was in the autumn of last year when we had an all-time low situation on the share price And it is also a tool that we can use, but it's up to the board to engage that once more at these levels if needed. And so we have the mandate from the AGM. But of course, at the end of the day, we are an acquisitive company. We continue to why the best companies within our niche in the Nordics, hopefully some other market as well coming in the coming years. And in order to reach our goal of 1 billion in EBITDA and by at least 1 billion by 2028, say 10 million sales and at least 10% margin. So that is still valid, that goal and what we are striving to achieve.

And coming back a bit to the cash flow then, I mean, for a second half, let's say you will probably pay for Branden, GE, Svets, right, in the next quarter, which is not shown in the net financial. What is that, 100 million? Then you will have 50 million in net financial, heating up further free cash flow, negative organic EBITDA growth. So where do you think the leverage ratio could end up year-end? Because I struggle a bit, especially since you plan to do more M&A, depending, of course, on the timing of that. How do you plan to get down the leverage ratio with that in mind?

But, of course, I mean, it's unfortunately impossible for me to predict the future here. But, of course, as we see the results as is the most essential part of of the, you could say, the covenant there, as they, as we see it, have the conditions to improve. From there, of course, that's the foundation of the acquisition journey, which we've proven throughout the years. With that said, I would say that we will still be within our covenant level at year end, if that's an indication at least. But of course, hard for me to tell the future, but we see we have the possibilities to further grow, and that's what we are aiming to do, and we see that we have the opportunity to do so within, say, a market environment, which is, of course, yes, under pressure, but the long-term drivers are as valid as ever. And that could be a great opportunity timing-wise to do these acquisitions.

Okay, very clear. And you also said that you made changes for CEOs in plural. How many CEOs are we talking about that you made changes? And do you have an idea what the extraordinary cost would be, I guess, here in Q3 or Q4 when it's executed?

Yeah, I mean, in terms, it's low single digits, you could say. But I would say that we have not included those kind of costs before in adjustments. So it's too early to tell regarding that.

But a couple of million, I guess, is realistic.

Yeah, obviously.

Okay. And you have found new CEOs internally to these subsidiaries, or is it still ongoing?

Yeah, some of the solutions have done that, some externally. So it's a mix, I would say.

Okay, very clear. Thank you so much.

The next question comes from Sophia Sawling from Carnegie. Please go ahead.

Yes, hi. Sophia Sawling here from Carnegie. I just have one last question too. It's also about cash flow. expect for the more preferable seasonal effect ahead in Q3 and Q4? How will you improve cash flow even further?

Yeah, OK, I think it was a pretty bad line, actually, Sofia, but I think your question was around cash flow and working capital improvements. Is that correct?

Yes.

Yeah. OK, thank you. So, I mean, So we have seen working capital improvements, let's say, during the last 18 to 24 months. And it's a mix of how we're working with our suppliers in terms of, remember, we have centralized purchasing units where we are improving the number of, let's say, days outstanding for the payments. And so that's a continuous improvement around that. And so we're still looking to improve that even further. And of course, working with our customers and we'd also say choosing the right project is very important around cash flow wise. tougher market environment that is even tougher to choose the right projects. But remember that a lot of our companies are actually making, say, all-time highs around these levels. So with that said, they can also see some – it's not every company that's seen an increase in the competition. So some are actually seeing a decrease due to, let's say, various reasons, and bankruptcies could be one explanation, and fewer market participants. So with that said, they are also in the opportunity to enjoy an even better situation than not only on the sale or results-wise but also in the cash flow situation, where if you could become the most preferred partner for your customer, where you deliver excellent results, which we are aiming always to do, of course, then you can also improve the cash flow situation. So that's one of the areas where we improve the companies that come into Fasol Group in order to improve this very important aspect of the game situation.

Okay. Thank you.

Thank you, Sophia.

There are no more phone questions at this time, so I hand the conference back to the speakers for any written questions and closing comments.

Thank you. And we have received a few written questions as well. The first one on the leverage. Do you see your debt to EBITDA ratio going down from the 3.2 already in Q3 2024, which is your planned timeline to be back to the desired leverage of 2.5?

Yeah, we can start with that. Yeah, on the first one, of course, it's hard to tell exactly when uh we see that the improvements remember that it's usually in the q4 22 of let's say q4 seasonally that is the best cash flow wise um but but very hard to answer that question now around the future it's improved already in q3 2024 Plan timeline regarding the desired leverage of 2.5 goal level, I would say in the coming couple of quarters. Can't be more explicit than that, unfortunately.

Okay, and then what does the backlog decrease experience in the first half of 2024 minus 15% mean for the evolution of sales looking at the second half of 2024?

Yeah.

i would say that it's it's actually or the backlog is not the the entire answer to the solutions easily to to stare at that number so to speak but remember a lot of this is a renovation project which is at the core of our business could have very short lead times it could be that It's raining in through the roof, a classic example. And the customer wants help next week or in the coming, say, couple of months. And then if it's that short lead times, it's never shown in the order backlog. And with that said, it is often where we see a lot of those kind of projects going into our sales. So I wouldn't stare too much on the order backlog in that sense. But I wouldn't say that that's the full indication for the half year that it should be down 15%. That's not a correct statement in my view.

Great. And then one final written question. What is your view on share buyback? versus M&A versus dividend? I know this is also a question for the board, but it would be interesting to hear your view. Yeah.

But of course, my view is it depends. I mean, if you have your share price at certain levels, it could be beneficial to do buybacks. It could also be, in terms of M&A-wise, if the share price is, say, very high, depending on what your view is on that, to use your stocks as a payment method. And the same is if, I would say, generally a dividend is it could be a healthy indicator for a company but of course that's as an acquisitive company we have in my view a pretty small dividend in terms of let's say net results 30 which is the board's view so the dividend is is a say a healthy indicator, but that capital could also be used in terms of M&A or buybacks in another sense. So it depends is the diplomatic answer, of course. But we want to be using all of those kind of tools in our toolbox in order to optimize shareholder value.

Excellent.

But then maybe we can conclude. Yeah, so one concluding remark is that you could already now actually engage into our capital market state through an entry on our web page where you can register. And so it's easy to find that link. We actually have a new investor site. Hopefully some of you have seen that. And there you can sign up and hopefully we will see you at the Capital Markets Day. So with that said, as it is no further questions, I would like to conclude by thanking all the participants, all of the employees, all of our shareholders and all of the ones that are collaborating with us. presentation or at the Capital Market.