Green Landscaping Group AB (publ)

My name is Johan Åström and today I'm joined by our head of Investoration, Magnus Larsson. So welcome to him, the first time he's participating. He will cover the financials today as we are in transition between CFO as we have previously communicated. So without any further ado, let's move into the report. From my perspective, we are closing yet another successful quarter. We were surpassed our financial targets, we came in strong in sales and we also had strong margins. Cash flow was somewhat weaker and we'll come back to the reasons why that one was weak so to say. We have a stable order book and we are also very happy to welcome four new companies into the group. We had one in April and we had another three after the end of the period coming in in the month of July. So given the market conditions, it's a strong performance for the company and we are on track to become the premier player in Europe. Looking upon just a few words about Green Landscaping Group, we are a leading company in the ground maintenance and the landscaping industry in Europe. We believe our market is quite attractive as it's a large and stable market. We can see for the last few years where we have had disturbances, so to say, with interest rates and the coronavirus and stuff, while we continue to deliver at a good pace and with a good performance. And that is to a large extent due to the market characteristics. Also, we have a very nice or effective business model where we have very skilled entrepreneurs who are close to the market. They're close to the customers, the employees, and they are navigating the environment in a very good way. And of course, we are an M&A driven company where we invest in the best companies in Europe. And we have a great experience in doing so as we are about 55 companies today. And we really know what we are looking for. So those three items, I would say, are the pillars for the successful company we are running today. Next slide, please. So to sum up the road in 12 months, we actually surpassed 6 billion SDK in revenue, and that is something of a milestone to us. That's really good. And then, of course, we are quite profitable as we have a profit margin of 8.5%. So given the asset-light company we are and the industry we're in, we're quite happy with that result, and that's a very strong performance, and we are on track. Looking upon the second quarter more specifically, we can see that we grew by 11%. And where are the 5% organic? I think that's, again, given the market, it's a very strong performance. We like when we see that our subsidiaries are growing with the market, and that is typically 3-4% organic growth. That's what I'm looking for. And I do want our companies to be above industry average in profitability. And again, looking upon the EVA margin for the second quarter, we came in at a very strong 8.7%. That is somewhat weaker than the previous quarter we are comparing with, which were at 9.2, but that's more of a product mix than anything else. We also did some chair back in order to minimize the delusion effect for our shareholders, In terms of financial discipline, the net debt to EBITDA, we are right now at 2.7, and that is mainly due to the cash flow that was weak in the quarter. We came in to some extent late in the invoicing period, but that meant that we did the invoicing in the month of June, and then we're getting paid in the month of July. And so that has already happened, so to say. And then, of course, as I did mention, we did one M&A in April, one company joining us in April and another three companies joining us in the month of July. Next slide, please. We are a growing company and we are investing in new companies coming into the group. And of course, that can be seen in the numbers there that we are growing. For the last, I would say, 12 months, we have had a focus on Germany, and we've built a platform in Germany, and that's the main focus area where we are looking for growth in the future. Profit-wise, we are at 8.5% EBITDA, and that is our main focus. As I mentioned, I like when the companies are growing by 3% to 5%, and I would like to have clearly above the industry average in terms of profitability. And of course, that generates a very strong cash flow that we can reinvest into the business by investing in new companies. Next slide, please. Looking upon the segments and going down to Sweden, there we can see that we basically had a flat or a slight decrease in terms of revenue for the last 12 months. We have been focusing heavily in Sweden for the last three, four, five years, I would say. on improving the profitability there. And even though the profit margin has come down from 7% to 6.2%, I would actually say that we are improving in Sweden and we are happy talking about the one contract we had that we have been suffering with for the last 12 months. And that contract expires by the end of the third quarter. So for all practical purposes, it's one month to go on that contract. And then I would actually expect to see an uptake in the profitability in the Swedish markets. Looking upon the quarter, we can see that there was a slight decrease in revenue, but we did increase in the profit margin in the quarter per se. But I would more look upon the rolling 12 months figure there and that we leave that particular contract. Then I do expect that the Sweden as a segment will start to show margin. Next slide, please. Norway, we are continuing to grow in Norway. So again, we grew by 9% for the row in 12 months. And that quite a large growth in the second quarter by 12%. And then of course, the EBITDA are quite high. For the quarter, they are 8.9, so it's a 9% EBITDA margin. That's a product mix between the previous quarter and what we are looking upon here. But I would say it's a solid performance from Norway where they are. They are growing and they are showing healthy profit margins. Next slide, please. And then we have, of course, rest of Europe. Kind of a broad definition, but anyway, if we look upon the road in 12 months, we can see that we're growing by 110%. And of course, that's given the situation where we are in. So they have a healthy organic growth of 11%. New companies coming into the group, they grew by 95%. And of course, EVTA is growing by 151%. So that's very high numbers, but that segment, so to say, is becoming quite large. So I think it's, or I believe it's very good margins and we are on a very good track, both in the Baltics as well as in Germany, because that's where we are focusing. And right now, we are eight companies in Germany. We had our headquarters in Germany based in Munich. We have local employees working in Germany at this point in time. So I'm pleased with the development we can see in Germany. And I also note that Germany is important to us as we are aiming to become the premier player in Europe and our entry into the European market that is through Germany and that is clearly one of the biggest countries in Europe. So by being the number one player in Germany, we will use that as a platform for further expansion into other regions in Europe. So all in all, it's a strong quarter and we are well on track on becoming the number one player in Europe. So by that, that's the data. Then I'm presenting the following for companies. So we have gotten it in Kusloff, who came in to our family in the month of April. They are based north of Munich in Ingolstadt. It's a very stable, quite old company, very skilled employees, broad customer base, providing landscaping and maintenance, and as well as services in the outdoor environment. They fit extremely well into the group, both from a quality perspective, but also in the type of work they are doing. And they have about 14 million euros in annual revenue with 100 employees. Next slide, please. And then we have another company up in the northern part of Norway. So now we're quite far up north. And that is Makkasen, a very well established company with great leadership and as well as employees founded back in 1978. And it's a full range of services they are providing in that region. They have an annual revenue of 130 million NOK. So it's a very suitable size. We like companies who have that size. And they have 45 employees who are performing that work. So we do welcome them to the group as well. And then, of course, we have the next company, and that is Stange. This is about one hour north of Berlin. So it's a northeastern part of Germany founded back in 2009. The absolute mainstay of their business is officials. It goes into the city of Neubrandenburg. So it's a local company serving local customers. They have several contracts, even though it's one main customer, so to say, there are several contracts that is part of their business. They have an annual revenue of about 4 million euros and 15 employees taking care of the city. So we do welcome that company into the group. And then the last company, but not the least, this is Book Garden Couture based in Munich, founded by Mr. Book back in 2011, operates in and around Munich. And the customer base is basically private customers. but very high end so they are like small businesses if you like. Very stable business working with architects and high-end customers. Annual revenue of about 8.5 million euros and 30 employees and we do welcome them into the group as well. So by that I hand it over to Magnus Larsson to go through the financials.

Thank you, Johan. Let's have a deep dive into the financials. Obviously, this being a summary page, and I think we've mentioned most of it, I'd like to just emphasize the solid order backlog that we have. It varies over time. So just as a reminder, it should not be regarded as a lead indicator in the short term, but rather sort of a good insurance for us in the long term. Now, cash flow, which is of particular interest, perhaps in this quarter. If you look at the graph on the right hand side, you see that Q2 and Q3 are the seasonally weaker quarters for us. whereas Q4 and Q1 are the strong ones. Now, as Johan mentioned also, this year we were a bit back-end heavy with the invoicing, which made the trend a bit more pronounced. And if we double-click on the quarterly cash flow, There are three things that I'd like to bring to your attention. The first being to your far left, the EBITDA, which of course for every company is the backbone and for us too. And for us, it is particularly reliable. This is something that we can lean on and it goes back to the stability of both the company as such, but also the market, of course. So it's always there. The second part, is the change in networking capital. It's the purple pillar in the middle. It varies up and down. In Q1, this was bright green, indicating a release. And this quarter, obviously, the AR increased, particularly which is obvious here that this brings down the cash flow. The third part that I'd like to emphasize is the capex and other investing activities at the center of the chart. It's minus 14 only, it's small. In fact, it always is. We are asset light. So it always looks pretty much like this as well. So the moving parts for us are really the working capital and of course the acquisitions of which we can control. And I think that's important to emphasize in a court like this. The financial leverage, obviously, We're moving around our target. We were slightly above it now. Mind though that it's okay for us to be above the target for a shorter period of time. We stated in the financial targets already. So it's not an issue to us. And to mention as well, it leaves us with significant headroom to the financial covenant. And that's the only covenant that we have. loan maturity profile and nothing to say really and nothing new to report it's it's there same as as last quarter and the financial targets as well they are the same too so and we're trending on or about them which just brings us back to the summary and over to you again you want okay thank you

Just to make a quick summary then, we are quite pleased with the quarter per se. So given the market conditions, when we see that we are growing both by inviting new companies coming into the group, as well as we have a healthy organic growth, the margins that we are showing are quite strong margins. So I'm pleased with those margins as well. The order book and let's say the workload on the individual companies I won't say pleasant, but a satisfactory situation. So all in all, we are performing pretty much according to plan and I'm happy to see the development of the company. And as I did mention, we have made a good entry into the German market and our ambition or goal is to become the premier player in our industry in Europe. And I think this is just another step on the road of becoming the number one player in Europe. So by that we end the presentation of the quarterly report and open up for questions.

Operator please help us out.

If you wish to ask a question please dial pound key five 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 Carl Bockvist from ABG Sundal Collier. Please go ahead. Carl Bockwist, ABG Sundial Collier, your line is now unmuted. Please go ahead. The next question comes from Mads Brinkman-Andersen from DNB Markets. Please go ahead.

Yeah, good morning, gentlemen. Can you hear me? Yes, good morning, Martin. Thank you very much. Yeah, good morning. Good morning, both of you. Just a few questions from my side. If we could start, and I'm sorry, I missed the very first minute of the call, so I'm sorry if you already mentioned this, but please, we could talk a little bit about the competition in Sweden. It seems like it's pretty rough out there. It seems like there's still a prolonged, sort of intensified competition in that region. And Martin, I guess, implicitly adjusting for your provision last year has taken quite a hit. And I guess maybe just you mentioned a little bit about the competitive dynamics and you expected Sweden to start trending better on the margin. But I'm just wondering, first of all, in this quarter in itself, has the contract that you took provisions for last year, has that been sort of performing even worse this quarter so that there's actually still a net negative in this quarter from that contract? Or is it just purely sort of intensified competition elsewhere on the Swedish margin? And then if you could help me a little bit understand how we should think about the margin in Q3 and Q4 in Sweden. And I think if I could ask you about the rest of Europe as well, I mean, that region continues to surprise me. Margin very strong again. And I guess the question really is, you mentioned Cebula, the Lithuanian business is quite strong, but I mean, It's been strong for a long time, and I guess a lot of folks, including myself, have expected margins to come down. So how should we think about the margin for the remainder of the year in that business, and how sort of stable is the Stibule earnings, really? Because it seems to be, yeah, it seems just to be going one quarter after another. Sorry, I'll start with those two.

Yeah, kind of big questions there, but nonetheless. From the competitive situation, if you look at the industry per se, I would say that Finland and Norway are the markets that are suffering the worst when I look upon what's going on in industry. So I don't see that Sweden actually have a worsening situation compared to what I see in Finland and Norway. So it's more of the one contract we have because the majority of the companies we have in Sweden are actually performing. They are showing positive trends on profitability. quite positive what will happen. We have the third quarter, we have full effect of the one contract that we have been talking about. And then that contract will cease by the end of the quarter. Then of course there might be some minor costs associated with ending that contract and so forth that will spill over to the fourth quarter. But I do expect to see a pickup in the profit margin in Sweden by the fourth quarter. And then we will see a gradual improvement in the Swedish market for the following two, three quarters. That's my expectation of what's going to happen in Sweden. So the market isn't that bad. Of course, there are competition in the marketplace in Sweden, so I'm not saying everything is rose in China here. But I think the companies we have are coping with the competitive environment in a good way and also given the type of customers, the type of contracts we have, It's a stable market and the majority of the companies are improving. And I'm quite eager or looking forward to be able to show the good work that the majority of the companies actually are doing. And to some extent that is being hampered by, for practical purposes, one or two contracts that is not performing at this point in time. And as that is ending, then the margins should be positive in terms of development. The rest of Europe. I'm also very happy to see what's going on in Stävle and to some extent, I'm surprised we didn't see that one coming. So that's a positive side. And on the average, I would say that we have quite good companies. And we saw this trend when we entered Norway as well, that we had the first companies that came into the group. were quite successful, they still are, but then as we are growing, then the profit margins are being normalized, but they are still being normalized. In Norway, for instance, we are about 10% EBITDA margin. So it's quite strong performance and we see what's going to happen in Europe as we grow in that region. But we should see a margin for a bit of coming into the future where the profit margins are above our goal, which is currently at 8%. That's clearly the case in the rest of Europe.

Cool. Thank you very much. And if I can just ask a few more. So I think previously you said on M&A that You were looking to buy, I mean, ideally, an ideal year with between 8 to 10 companies. And I think the total tally this year is around 6. I mean, how confident are you that you can get to the between 8 to 10? And I guess also considering Magnus touched upon it, but leverage is 2.7 times. Can you just please confirm that you're not hampered by that and that you can still do acquisitions for the remainder of the year? And then I think maybe just on that as well I mean I think you've mentioned in the past and you also did on the call that obviously Germany is number one priority but it seems like if you I know that Lithuanian business is probably a once in a lifetime opportunity and I guess you were skilled and lucky that you got that one but if profitability is as good in that one then chances are there's probably a few out a few others in Lithuania that looks quite good I mean what are the plans for M&A in Lithuania please?

We are on track, and as you rightly pointed out, we have communicated that we are looking for eight to ten acquisitions this year on an annual basis. And as the company grows, then that number will grow as well. And we have made investments in infrastructure in order to facilitate an increased pace as we move into the future. Because if I want to grow at the same pace, then of course, this company is becoming bigger, then I either have to make more acquisitions or I have to buy bigger companies in order to keep the growth pace. And that means you have to have the infrastructure in place. And that's one of the reasons why we have an increased M&A capacity. So we have almost doubled the number of employees. That's not a big number anyway, because we only have a handful of people. But nonetheless, we basically have two people in Germany. doing M&A and we have another person coming in in Sweden as well in order to facilitate an increased activity in M&A moving into the future. But the plan for this year was 8 to 10 at a net depth level of 2.5 and we are on track on delivering that plan. So for more practical purposes our promise or ambition or whatever you like to call it, that is make something like 8 to 10 acquisitions. And that actually means when we're talking about the number, then, of course, that should be converted into revenue. And we are looking at the standard company we're looking for typically have 100 million annual revenue. So eight companies at 100 million, that's the target we have. And we are on track on delivering on that number.

Cool, thank you very much. I'm sorry, just to Lithuania. Is there any opportunity for further M&A in Lithuania?

We like to... You made the comment that there should be other companies at the same situation as Steppe. That is kind of an acceptance to the rule, I would say. But we like to build clusters because our business model with being decentralized also means that you should have colleagues close to you with whom you can change best practice. You have a colleague that you can contact if something, what is going on in the marketplace and so forth. So we do like to build clusters. We have two or three companies in the vicinity of each other. It kind of gives a safety net to the decentralized business model. So we are looking in that area. We have met with several companies. But at this point in time, we have not yet made any other investment in that area. But I would pretty much like to see that happening. And the sooner the better that will happen. But also we are kind of picky when it comes to what type of companies we invite into the group. So it should be really good players. It should be We like the ethos we have about decent people making a decent return. And that's what we are looking for. We are looking for entrepreneurs who really fit culturally well into our group of companies. So we are picky when we are all selective in the companies we invite coming into the group. And we just haven't found the right players yet, but they will come. I'm quite convinced. So I'm looking forward to the day when we have three companies in the Baltics.

Sounds good. Thank you very much. Thank you.

The next question comes from Carl Bockvist from ABG Sundal Collier. Please go ahead.

Good morning. Can you hear me now?

Yes, now we hear you.

Welcome. Okay, perfect. Apologies. The first one, and I apologize if the question already was asked, but In Sweden here, and the margin decline year over year, even when we take into account the provision last year, is it due to even more challenges in this particular contract or a more broadening kind of margin pressure from intensified competition or anything else?

No, the majority of the companies in Sweden are actually improving their profit margins. So it's more of exiting uh that particular contract per se so so so the the majority of the companies are on a positive trend in sweden and i'm kind of eager to show what's going on once we we basically when we're reporting the fourth quarter then i i expect to see improved profit margins in sweden

Understood. And in Norway, you made a fairly sizable acquisition recently that, to my understanding at least, had pretty good profitability and margins are down this quarter. So my focus is more about this normalization that you've talked about before. Is this more or less complete now?

That's a tricky question. But given the information... Frankly yes, I think they are at the level where I expect them to deliver moving into the future.

Okay understood. And then on the rest of Europe, a follow-up on the previous question. Profitability continues to be very very good here. Is there any kind of particular, I mean, I understand you may not be able to disclose it, but just in terms of the visibility that you have, there aren't any kind of special contracts that are really supporting margins there. It's a broad level of good margins, right?

Yes and no. I would say that there are a dependency on a few contracts or a few companies. that are very profitable, and then you have more normal companies profit-wise. And of course, can they sustain that profit level? I hope they can do it, but my experience tells me that they will probably come down in profit, because the profit levels they have are quite significant. But as we are adding more companies into the group, then you're going to see a normalization of the profit margin, the same development. So the development on a broader perspective, I expect the profitability in segment Sweden to increase and actually surpass the 8%. I expect Norway, as I did mention, or as you forced me to disclose, that if they can hover around 9-10%, I think that is, at this point of time, a sustainable margin. And I do expect the rest of Europe to, now moving to three years into the future, that they should be at a similar profit margin, unless we make any other announcement in terms of what type of profit margins we are expecting for the group as a whole. Because right now our target is 8%. We are between 8% and 9%. And if we make any disclosures, we're going to change that target. And of course, that should be an indication of what we expect of those segments.

Understood. That's very helpful. My final one is on the cash flows. And I believe you both addressed that topic. But what you wrote in the report in terms of timing of invoices and holidays or just you know non-working days so to say. Could we expect that parts of these invoices will be recouped in Q3 then?

Yes they are already recouped. So what happened in the quarter was basically that we had cold weather coming in in the month of April meaning that the landscaping businesses couldn't start as they had intention with their project-based business, while the maintenance couldn't really do the additional work either. It was kind of, we're waiting for the snow and ice or frost to disappear. And once that disappeared, then I would say the activity almost exploded within the companies in a positive way, because you still had to finish those contracts by end of June. So that meant that it was a very slow start. We lost a couple of weeks, like two, three weeks. And then all of a sudden you have to do everything on a shorter timeframe. So it was a very high activity level. And that meant that we fell behind on the invoicing scheduling. So we did recover the invoicing. So we did send the invoicing to the customers and that is important in our business. Because in majority of the cases, an invoice has to be pre-approved by the customer before you can send it. And once they have approved the invoice, you send the invoice, and then the customer typically pays the invoice as they already have approved it. That's the process we have. And that meant that as we fell behind in the month of April, we were kind of recovering the invoicing in the month of May and June. And then those fell to payment and were paid in the month of July. So from what you're saying is that you should see a positive effect in the third quarter, unless I'm falling behind schedule again in the third quarter, but otherwise you should have an upside in the third quarter. That's what I'm expecting

Yeah, I could just add to that. The first time in a year, the quarter will not end on a weekend or a holiday. So that's obviously positive. But again, just to remind you that Q2 and Q3 are seasonally weaker cash flow quarters for us, whereas Q4 and Q1 are the strong ones.

Understood. That's all from my side. Thank you. Thank you.

The next question comes from Alexander Siljestrom from Pareto Securities. Please go ahead.

Good morning, guys. Good morning. Follow up here on the strong organic growth. And I guess the majority here should be driven by new contracts, giving that price increases should be relatively minor. And then especially alluding to Norway, If you could talk a bit about what's driving the strong growth. Is it the defaults that you mentioned in the report? And also, if you're having price pressure to win those contracts.

Yes. The primary driver behind the growth in Norway was actually the landscaping business side. So that means it was the project-based business in Norway that was behind the growth, or the mainstay of the growth was behind that one. And they tended to have a somewhat weaker profit margins. And that's what's happened in the second quarter in Norway this year.

Okay, that's clear. And then just heading in here to H2, you previously have alluded to somewhat easier comps and also improved business conditions. So do you still see that and do you expect the strong organic performance to continue here in H2 as well?

Again a tough question because I don't have a crystal ball, but if I see what I have seen for the last few years, I do expect a positive development in the quarters. And as I did mention or talk about the situation in Sweden, yes, I do expect the segment Sweden to improve in the fourth quarter. That should be the signs where we see that one coming back or actually increasing their profit margins. The market situation in Finland is, I would say, still cumbersome. So those companies will still be struggling. Norway, again, they had a tough market situation and that will continue from that perspective, but still Norway have a good performance for us. So taking everything into account and what we're doing at this point in time, I would say that we probably going to continue to develop as you have seen on the first half year this year.

Perfect. That's very helpful. And just one last housekeeping question. Central costs were up to 17 million. Is that something we should expect also going forward?

Well, in that vicinity, at least higher than last year, and it might move down a little bit as they usually do but higher than last year for the same reasons as we state in the report also going forward yeah yeah perfect thank you very much that's all for me thank you the next question comes from dan johansen from seb please go ahead yes good morning you on a minus

think most of my questions will be answered but just just following up a bit more more on perhaps sweden and the comments on that you see a slight increase in number of tenders here and for projects by late this year or maybe early 25. uh i suppose that comment refers to landscaping projects right uh and from a customer perspective is it mainly the public side that starts to come back potentially done or you see similar tendencies among your private customers is there the difference between the public and private side.

Thank you. The majority of the business we have in Sweden, to begin with, is public customers. It's a maintenance contract. That's the bread and butter, if you like, in Sweden. That's a stable market and we have stable profit margins. We have done those contracts for several years. So we do have a good visibility on what will happen in the Swedish market. So the dependency on the landscaping or the project side business in Sweden is compared to the other regions who have significantly less. So Sweden per se is a stable business, a lot of public customers, long-term contracts, and we are working on the profit margins on improving that one. So I would say it's a great stability in the Swedish market. So the dependency on project-based business is significantly less.

If that answered your question, Dan.

Yeah, I think so. But I was just curious when you say that there's coming in a bit more projects maybe for the latter part of the year. And typically, I guess there's not that much landscaping in the winter months. I was wondering if it's more on the ground maintenance part in Sweden, you see a little bit more sanders or if it's landscaping projects.

Yeah, well, we're right that there's more customer activity, meaning that there are more concrete discussions and more discussions. It's not that the competition has moved back to their own home. Again, it's more on the customer activity Pretty much as we saw last year, only the other way around, if you know what I mean. So if this will materialize into more projects, yeah, hopefully so, but let's see about that. And if so, it would then happen towards the end of the year and beginning of next year, but not before that.

Okay, that makes sense. Thank you so much. I think that's all from my side now. Thank you. Okay, thank you.

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

Okay, so as you all can tell, I'm very happy with the performance of the company when we are growing by 11%, we have organic growth, we have healthy profit margins given the market conditions, and we are pretty much on track on the acquisition or the investment side as well. So all in all, it's a solid quarter on a good step towards becoming the premier player in our business in europe so by that i actually closed the conference so thank you all for visiting and see you in three months thank you