Fasadgruppen Group AB (publ)

results call with Fasadgruppen. We have announced our quarter three results earlier this morning. With me in the room, we have our CEO, Martin Jakobsson. We have our CFO, Kasper Tamm, and myself, Adrian Westman, Head of Communications. So we'll start off with the presentation as always, and then we will conclude with the Q&A. So please, Martin, go ahead.

Good morning, everyone. Welcome to this Q3 call. So, we already announced headline figures. This was Tuesday here. So, in this presentation, we will dive into some of the details that was not presented. but some highlights then to start off we don't see any large market changes since q2 here still see in a competitive situation in sweden and the recovery may take some time however if you look at the earnings side we see a positive development compared to the first half of 2024 In looking at the order backlog, we had a negative of 20% organic. But bear with us here that when you compare between new production and renovation, new production often have much longer lead times. So I wouldn't say that that gives the full picture of where we're heading looking at the organic order backlog. And some more details is also that if we look at the material prices, we've seen some of those also decreasing. And remember here that material prices is roughly one third of our costs. So that's a pass-through effect which affects the organic growth. And if the material prices goes down, that affects the organic growth negatively. In the quarter, we had two acquisitions, and I will get back to those later in the presentation. And then, of course, we announced our largest acquisition as of yet in terms of Clearline. We'll also note that. But I also recommend you to go to our web page where we have the conference call recorded from Tuesday. looking at the balance sheet is also could say in relative terms an improvement here with with the clear line but we'll get back to that so diving into our net sales total decrease of four and a half percent of which roughly ten percent was organically here also affected by decreasing material prices If we especially look at the Swedish operations, that is where the largest decline is. Remember here that our Swedish operations is also the one that the largest output of new build. And then both in Norway and in Finland, we had organic growth and then our Danish operations were slightly down. all in all i would say swedish market stands out the rest holding up fairly well looking on the adjusted beta levels we came in at the margin of 7.7 percent here in the quarter and we saw improvements both in norway and denmark and um I'm glad to see that the measures that we took earlier this year has given effect. Remember here that if you just look at the head counts, roughly 170 full-time employees have been redundant since Q3 2023. So we have adapted somewhat our total cost profile. But of course, it's important for us to keep key employees, key competences in the company so that we are ready for the future expansions when the market turns. Looking at the order backlog, there was a negative decrease of roughly 20%, as I mentioned. You could also point out here that in the Q3 of last year, we had quite high levels of the order backlog. There is I could say it's quite important to note here that in the order backlog margin, that's up against the same period last year, and I would say quite flat to Q2. But that also means that we are very selective around the projects that we enter into. And with that said, We believe we passed the bottom around the market here and ready to act when it turns. Just looking at Denmark and Finland, they exhibited growth there in the backlog organically, whereas the other two countries did not. Cash flow wise, I'm glad to see that the measures we've taken are giving effect here. We saw an improvement in working capital of roughly 39 million in the quarter. And just looking on the last 12 months, it's roughly up 139 million compared to, I could say, 124 million in the end of 2024, end of 23, I should say. I think it's there, but okay, maybe it's wrong there. But anyway, so in cash conversion wise, I'd say we're above our target of 100% looking at the last last four months. But with that said, I would also say that see that there's more to be done here in the cash flow remember still quite a young company in those terms and we're acquiring companies as we go and and implement implementing our measures going along and that's not done overnight Looking at financial capacity and net debt, first of all, average interest rate in the nine month period here was roughly 6% compared to 4.6% in the same period last year. But however, we've seen, of course, rates going down and going forward, we see that rates were also go down for us as where we have an interest period of one to three months that means also that decreases in the interest rate environment is gives a quite immediate effect for us looking and on the net debt to adjust the dbt a pro forma excluding clearline then obviously that was just below three and a half percent high as of last of september Looking at our credit facilities, we announced that also yesterday, that we now have sustainability linked those loans, which we're very glad to do. Then we announced two new acquisitions in the quarter. First, I can mention Brenden, which is a leading scaffolding company in Norway. second generation family business we acquired it from from the local entrepreneur local entrepreneurs still with us and continue to to add value and we have been working with brendan for many many years with our existing companies within norway so very glad to be welcoming them into the family now and It's noteworthy here that we also acquired 15% of a company called Prostylas, which is a software where you have the project management connected to these scaffolding companies with the option to acquire Prostylas 100%. And Bränden especially have seen huge effects when it comes to productivity and efficiency using this software. So we are very excited to be part of the Prostelast journey and hope to implement it in many more of our companies. The revenues of Bränden, roughly 185 million with an excellent EBITDA margin. looking at the next acquisition years and smeed smaller company of sales of roughly 30 million focusing on steel structures and building forging very specialized it's going to complement our existing subsidiary guy and it's actually guy that is acquiring the company so with guy and gea we have a very strong position now to to assist our customers in in getting these kind of services and products out in in especially in the mela dalen area of stockholm then we announced the clear line and acquisition earlier this week we went through it quite in in detail and on the last call which i referred to at the beginning of this session so i implore you to explore that conference call if you want to to dive deeper into the Clearline situation. But note here that next week we'll have a Capital Markets Day and we're glad to announce now that part of management from Clearline will be participating at the Capital Markets Day. So with that said, we can sum highlights, of course, regarding Clearline. It's, as I mentioned back then, milestone acquisition for Fasadgruppen. uh we see it is a unique player complementing us extremely well and maybe something that stands out of course is the profitability levels but it's important to note that clear line is is in one term a bit broader than the typical facade group and company where they provide a total solution from the design phase, the planning phase, the construction calculation phase, and then also doing the actual work. And with that said, all of the needed documentations for these quite complex projects. So that is also, I would say, key factors for the profitability level. Maybe one thing also that stands out is a few questions around this acquisition. after the announcement. And it is regarding the preference shares financing, which we announced. And it's important to note that is linked to the profitability levels of Clearline going forward. So with that said, the range of where the preference shares could be valued is in the range of roughly zero to 80 million pounds, depending on the performance of Clearline. So that's important to note. Just want to highlight that. then of course some ballpark figures here client clearline roughly 50 million in sales and then adjusted a bit there if you look at just the average three year last three years here of 18.4 million Some concluding remarks before we open up for questions. We saw an improved earning situation for us here in the third quarter compared to the first half year. We also saw a strong cash conversion, which I'm very glad to see. There is still a tough competitive situation, especially in Sweden, and I would say stable to positive development in our other markets. I would also like to highlight that there's still plenty of M&A opportunities out there. And with that said, we've said it quite a few times now, but please register to our Capital Market Day on the 7th of November. Link is below here.

Great. So with that, we'll go into the Q&A session and we'll start off with the people waiting on the phone.

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 Bako from SEB. Please go ahead.

Thank you, operator. Good morning, Martin, Kasper, Adrian. We meet again. Good morning. A couple of questions from my side, perhaps then focusing first on the quarter here and Assad group, and as we used to know it at least. I mean looking at your long-term EBITDA margin it has been been coming down basically since 2021 but as you said now I mean Q3 it's up compared to Q2 this year it's a clear improvement from Q1 but that's also quite in line with seasonality but would you say that that you feel that this is a stable level going ahead then of course adjusted for seasonality and given that nothing unexpected happens or is it stable or perhaps the trough so to say you mean the margin of 7.7 percent if that's stable yeah I mean yeah exactly yeah

I mean obviously we're not satisfied with the margin generally and we are a specialized company here and deserve over time to have a margin over 10% I would say and With that said, do we believe we've seen the worst? Yes. Are we looking to improve our margins from here? Absolutely. Do we still feel humble around the market situation? Yes, obviously. But I would say that the tide has turned in the number of positives compared to the number of negatives, meaning it's always hard to look into the future, of course, you know, Max. But we feel anyway that the... the number of data points pointing to an improved situation from here margin wise as well is tipping to our benefit here. So hopefully you've seen the trough margin wise.

Okay, perfect. And then as you mentioned yourself during the call that the drop in the organic water backlog perhaps not give the full picture of where we're heading ahead given that material prices also can have a quite large impact but I mean given that the order book was down 21% organically here year over year in Q3 when you look at 2025 do you see it as reasonable for you to deliver organic sales growth or will that be challenging

I mean, it depends on the material prices once more, and I don't have any big impact on those, of course. But maybe in terms of volume, yes, we see it. It would take the whole 2025 as plausible that we would have an organic, you could say, volume growth.

Okay, perfect. And then perhaps turning to a question on Clearline instead. We spoke about this a bit on the call earlier this week, but I mean, when you look at the cash flow generation of Clearline, do you expect that to be sufficient to cover both the dividends on the preference shares that you perhaps or might will have to pay, But also that it will cover tax payments, interest payments and leasing amortization for a clear line, if you understand the question.

I don't really follow. You mean if the cash flow is sufficient in clear line for the preference share, total valuation, total consideration?

No, just on the dividends and the preference share. Not on the put call option.

Yes, of course. But I mean, I think once more, Max, I think we spoke about it last time as well. The dividend is not paid annually. It's accumulated.

What you're really asking is the cash conversion rate.

Basically, do you expect the accumulated cash flow from Clearline during the next, well, until 2028 to exceed the accumulated dividends on the preference years?

Absolutely.

Okay, perfect. And then the final question, it's perhaps not, I mean, it's not really up to you, but I guess you have an opinion about it. But given that you will have in the coming couple of years, most likely quite sizable cash outflow, at least looking until 2028. And then you also pointed to that you still have an interesting M&A pipeline and so on. Don't you see it as reasonable perhaps to, when going into 2025, to scrap the dividend?

Yeah, you know Max, it's not up to me, but of course, when you have those reasonings as you have, yes, it could make sense.

Yeah, hopefully someone from the board is listening to the call as well then. That was all from me. Thank you very much and good job here in the quarter.

Thanks, Max.

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

Good morning. It's Carl here from Nordea. A few questions from my side as well. Firstly, you mentioned the improved tenders during and the summer what have you seen in terms of the tenders or quotations meaning early orders so far I mean so far into October as well I mean with rates coming down is it too early to see that that is giving a big effect or is do you think that rate cuts needs to trickle down the systems before it's it will sort of help you

I mean, it's in various customer segments. Maybe one customer segment that stands out on a positive note is, I could say, the, what's it called, tenant owner associations. maybe they are somewhat more, you could say, interest rate related to one extent, but fairly often looking at their maintenance plans and sticking to that plan. I mean, it's often layman's in the board of those kind of associations. And so there we've seen an improvement. You could also say looking at the public sector has also been very proactive around tenders for the coming periods. So those two stand out on a positive note, I would say. And regarding the interest rate question, obviously, this is the total sentiment is on a more positive note. So hopefully, of course, the interest rate environment will decrease even further. But I think that just the sentiment has turned already improving the situation.

Okay, very helpful. And maybe you touched upon it and I missed it. But what was the pricing? component in your organic sales growth and also in the backlog number?

We don't really give all those kind of numbers, you know, Carl, but what we could, I mean, highlight is, as we mentioned, the material prices, which are down maybe, just if you take a third quarter, not total level, in the range of 10 to 15% or something like that. So that's obviously quite a lot in our terms. And then you can take that into consideration if it's roughly one third of the costs, then you can do your own estimations from there.

Okay, very helpful. When prices are coming down, I mean, you have index clauses, but obviously the raw material inflation did hit you negatively when it was rising. To what extent would you say that your margins are not boosted but helped by the current situation, if anything?

On a positive note, absolutely. But I would like to highlight maybe that it's more a mix effect in terms of the projects that we are currently working on. course, as you know, when it comes to new build, that market is very much under stress. But we also have, I mean, our deepest knowledge is, of course, in the main terms here within renovation, and we can assist within the group for our companies to to expand within the renovation measures. So with that said, a greater portion of renovation projects, of course, and then if you know what you're doing, which not everyone does, but if you do that, then there is a possible higher profitability levels within those kind of projects, I would say in these times.

Okay, that is helpful. And on another note, I'm a bit curious to know more about your sort of, if you look at your subsidiaries as a portfolio thinking. I mean, obviously you had a tougher margin period as discussed before, but I guess if you divide your companies into buckets, let's say, I mean, in margin percentages, so how many of your companies would you say is currently loss-making LTM? many of your companies what percentage of companies would you say that make about 10 margins currently or i guess i guess you divide it in in in another way if you want yeah no excellent question carl if you can if you can if you can wait one week i think you will get some more uh

I think it's a good cliffhanger, I think.

And the final one from my side is on the recent refinancing of your loan, sustainability linked. Could you give any, maybe I missed it as well, but maybe could you give us sort of key highlights on the terms, I guess the margin, what happened with them in the loans?

course depending on the outcome I guess from the sustainability work but that's actually it is depending on the on the outcome on these different KPIs there are three of them that are measuring LTIF scope one and two scope three and then also actually we have a one that will measure the amount of suppliers that have verified science-based targets which actually is linked to our own target work where we soon hope to have approved science-based targets for the group. There are different weights on these KPIs. I don't think actually we have announced the exact weights in between them. But you could say that it's basically 50-50 between the social and the environmental KPIs. And then you have five basis points change on the interest rate depending on different sort of target levels and outcomes on these KPIs.

sure how helpful that would be that is for you but that's sort of the broad picture yeah but but if you look at your ambitions i guess you have a base base ambition for for the outcome what would what would the margin be how much lower would it be with your i guess your base outcome i guess could you help with that at least or even a ballpark so i mean ballpark figure carl remember that

so uh audio mentioned five basis points that is the maximum gain we could get okay okay very helpful thank you thanks the next question comes from elvin rolder from carnegie investment bank please go ahead

Good morning, guys. I hope you are well. Thank you for taking my questions. There is a con about being the third analyst to ask questions on the call because there's already been a lot of good questions asked. So I just have a few more on the detail side of things. I think that you mentioned about tenant associations being a bit stronger now, but in the order, like orders you receive now, or order book that you have, is there any other disparity between your customer groups in terms of strengths or weaknesses, or is it pretty broad based, you would say?

Because construction companies in general, many of them having a tougher time, obviously. But they've had a tough time for plenty of quarters now. So they stand out, of course. We have public, private property owners, which are also, I mean, some of them affected by the interest rate environment. And so, I mean, and they've had that for some time as well. I mean, quite a bit too early to tell regarding both construction companies and these other real estate owners. We have so many customers, Elvin, understand this, right? That it's hard to draw with a big picture, but that's as specific I can be regarding those. And yeah, already mentioned that we've seen it's regarding tenders, both for tenant owner associations and the public sector that we've seen an uptick.

Okay, perfect. Very clear. Then I just have a question on your leverage target of 2.5. Would you say that this is like a prudent target to have going forward now that you will have i mean so to say hidden hidden debt with the with the put call options on the preference shares related to the clear line acquisitions or do you see that there is uh there it makes sense to maybe change that target to include those those contingent preference liabilities or something like that what's your take on that yeah um good question uh helvin i mean uh

Of course, we want if you can use your leverage in the right manner, I think we can create a lot of value. And obviously, we have that target set out and believe that going forward, but of course i would put it like this regarding the you call it a hidden debt yes you you could call it that you could also call it that it's a sort of an earn out i was maybe put it it's easier to understand it in that way and when it comes to this two and a half I would say we've had a lot of discussion with the banks obviously regarding the financing going forward and as they see it I can only put it like that and as us as we see it the the debt is due the large i mean i'm talking about the preference shares tubes which is the largest part that is actually not payable until say second half of 2029 and obviously that's a very long term financing and it no one knows now exactly how much it will be but when we're closing in on let's say a year ahead then we have a better understanding of where we're heading around that and we will remember here helping we will we will have the valuation of the options put and call options will have will be on our balance sheet so it will be quite clear there so uh i mean i don't think it's hidden in that way but but so with that said uh will not affect the the covenant levels in in in how the the lenders see it until that at that time i'm talking once more i get that preference here too And of course, we don't want to hide anything. We want to be as transparent as possible. So, I mean, we will be quite transparent, I believe, in the balance sheet going forward. So you can include it or exclude it however you want. But at the end of the day, we feel it as an extremely good financing.

Very clear. Thank you. Then I just have one nitpicky question. You had 3 million items of affecting comparability that you labeled other. Can you give any color on what that entails?

Other liabilities? No, no, no.

You have had in your adjustments, in your items affecting comparability, you had 3.3 million that you labeled as other.

what does that entail too yeah do you have any flavor there in there when we we have as as Martin talked about before here we have made some redundancies for uh for CEOs here so that's that's what what it's covering perfect thank you so much for taking my questions have a good day thanks thanks Alvin

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad.

Okay.

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

Great, and we have received two questions in writing as well. For how long have you been in contact with Clearline and is it possible to be a bit more specific on what Clearline needs to reach in terms of sales and profit growth in order to reach the maximum purchase value of the preference shares, i.e. 80 million?

Yeah, so regarding first question, I'd say roughly a year and On the second question, I mean, obviously, much larger, much higher results than last 12 months, and much higher is in the portion of, I mean, in a range between, you could say, 20 to 40% or something like that.

Great. And that was actually the last question. So let's conclude the call then, Martin.

Yeah. Thank you for joining. We thank you a lot for your support and hope to see you soon at the Capital Markets Day Thursday next week. Thank you.