Nordic Waterproofing Holding AB (publ)

So welcome everyone to this Nordic Waterproofing Earnings Conference call after our second quarter 2024. May I remind everybody that this webinar is being recorded and also that the participant names are disclosed on the screen here. With that, may I introduce our president and CEO, Martin Ellis. And Martin, hand over to you for starting the presentation here.

Yeah, thank you very much, Paul. Welcome all. Thank you for participating. So let's jump right into it. The second quarter was in line with expectations in the sense that we've seen a continuation of the demand trends of the most recent previous quarters. And we have a mixed bag in terms of demand and performance, strong performance, in Denmark and Sweden, but continued very weak demand in Finland, which as you know, is our biggest country. So that explains the results you're going to see in a second. Moving on to the next page, we can see that we've had a decrease in net sales from 492,000 SEC to 1.96 billion. No significant impact from acquisitions, just 1%, no currency effects either, and an 8% organic reduction. EBITDA also decreased slightly from 186 million to 168. EBIT decreased from 143 million to 131. And cash flow from operating activities was also slightly lower from 157 last year to 126 this year due to different inventory moves between the two quarters. Net debt stands at 881 million SEC. down from the same period of last year and slightly up compared to the year end, obviously because of seasonal inventory positions. Moving on, a few comments. The demand is impacted by a slowdown in commercial new build, which we've seen in the previous quarters. Renovation continues stable and residential new build continues depressed. And at this point, it's too early to see any uptick. As you know, that's very much related to the level of interest rates, and they haven't moved that much yet. Bitumen-based waterproofing operations, our legacy business, are stable in Sweden and Denmark and continue, as I mentioned, challenging in Finland and also to some extent in Norway. Our EPDM synthetic rubber products are slightly below last year, but we believe that we have seen the bottom here in terms of demand and we've been able to improve margins somewhat over the same quarter last year. Prefab element has a high exposure to residential new build and has been hit by the low demand. Nevertheless, we had a positive development sales on the Danish market, but negative development in Norway. Profitability levels are still unsatisfactory, and we are executing restructuring programs both in Denmark and Norway. In Finland, the same business is doing quite well. The green infrastructure business had decreased sales, especially due to less roof park projects, but improved profitability over last year. Installation services had lower sales. Obviously, there we have the biggest impact from a very low demand in Finland. And margins also slightly decreased. The order books for installation services continue to be on par with the previous year in Finland and Denmark, slightly weaker in Norway. And especially in Finland, we're working on a number of large offers where we're making currently. Obviously, it's too soon to say that this is going to translate into firm orders.

But definitely a lot of

requests right now we're working on. Moving on to the next page, contingency measures are being continued to be implemented in most operations to adjust to the lower demand level. And we've seen some effect on margins, some positive effect on margins, especially in the PDM. area we continue to see flat or slightly deflated cost development for our input materials right now pretty stable situation we have continued focus on that level as you've seen where we've been able to keep it at a relatively low level and we do expect opportunities to emerge to further expand the group in accordance with our strategic plan through acquisitions Moving on, I pass it over to you, Palle.

Yes, thank you very much, Martin. Then looking a bit more into the numbers, as we saw, net sales decreased close to 100 million, 7% in the quarter versus same quarter last year. Currently on a rolling 12 basis, we're just below 4.3 billion SEC. Acquisitions limited impact as currency as well. EBITDA slight decrease to 168 million and EBIT the same to 131. EBITDA margin down a few points here 14.0 versus 14.4 and on a rolling 12 basis EBITDA margin now stands at 10.2 percent. Moving to the next slide looking at more the numbers in the income statement look Looking at gross margin for the quarter, it was 28.2% versus 27% for the same quarter last year. So we're improving margins. And as you will see, that's coming from areas within products and solutions. Net financial items in the quarter, minus 16 million versus minus nine last year. Most of this is interest costs. And then there's also an impact from revaluation of debts for outstanding shares in subsidiaries. EBIT margin for the quarter, basically the same as last year, 10.9 versus 11.0. And on a rolling 12 basis, we are at 6.4%. Moving on to the balance sheet, and we can just overall looking at it, we continue to have a solid balance sheet that allows us to do selective acquisitions in the fields here. interest-bearing net debt at 854 million. And as Martin said, this is seasonally moving between the quarters, and we start there at 724. But it's worth noting that a year ago, we were at almost 1.1 billion in interest-bearing net debt. We continue to have a solid equity asset ratio at 46.5%, and our net debt over EBTA ratio that's also one of our covenants is 2.0 and it's well below the thresholds in our financing agreement. Then moving on to next slide with ROSE now stands at 9.7% versus 10.0 as it was last quarter and 10.2 at the beginning of the year. What we can see here is that capital employed is flattening out and even decreasing actually in recent quarter here. But the decline in rows is driven by the somewhat lower operating result. Cash flow from operations continue to be on a good level at 447 million for the latest 12 months versus basically the same number for a year ago. Cash conversion continues to be high, now at 103% versus 108% last year. So we have a good cash flow from operations in the quarter. Then we have a seasonal increase in inventories in the second quarter here, where inventories increased this year versus last year when we didn't have the same seasonal impact due to we started the year with a high inventory and then reduced it from there. And then we, of course, in the current business climate, continue to closely monitor our operating receivables in all markets, I would say. Moving on to looking into our two segments, products and solution, we saw a decrease in sales with 7%. And as you can see, the second quarter is typically our highest quarter during the year here. All development is organic, no impact from currency or acquisitions in this quarter. Sales in Sweden and Denmark basically on par with last year, while the development in Norway and Finland was negative. And on a rolling 12 basis, the products and solutions segment is just above 3.1 billion SEC in turnover here. EBITDA decreased a few million here from 165 to 158. But however, the EBITDA margin increased half a percentage point from 16.5 to 17%. EBIT followed the same development as EBITDA. Generally, looking at the different business units within this products and solution, we see maintained or improved margins. However, we continue to see unsatisfactory profitability for our prefabricated elements group, Telsinge. And there are several restructuring initiatives being implemented in both Denmark and Norway to take care of that. The latest 12 months EBTA margin is at 13.8%, which is about one percentage point higher than a year ago. Then moving on to installation services, where we see that net sales decreased by 10%, organically 12%, and the acquisitions had an impact of plus 2 percentage points. It's a little bit different here where you see that the second quarter is not the strongest one in the year, but it's actually the third and the fourth quarter that is typically the the highest sales quarters during the year. EBITDA decreased from 32 to 20 million and EBIT follow the same pattern with 22 to 12. The majority of the decrease we see here is coming from Finland, obviously where we have the largest operation. You can see for the latest 12 months, the margin is currently at 4.4% for this area versus 8.2 a year ago. We could also say that apart from Finland, we also have an operation in Norwegian that somewhat improved the result versus last year, but also here is still at an unsatisfactory level. And our contribution from the Danish franchise network continues to be strong, almost on level with last year. Then moving on to financial charges and handing back to you, Martin.

Yeah, thank you very much, Pate. So these are traditional targets. Sales growth, I think it's fair to say that we've been in line with the market. We've, again, probably taken market share and the legacy business, especially in Sweden. Profitability, obviously, we're not happy with the present level. We are below the 13% ROSI threshold. But in terms of capital structure, as Parley explained, we're in a solid position in terms of our balance sheet and the different ratios our banks are looking at. And of course, we will continue to follow our dividend policy of distributing at least 50% of net profit when the time comes. So that's our presentation. Thank you very much and looking forward to your questions.

Yes, thank you very much, Martin. And with that, I open up for questions. And there's a couple of ways to ask a question. And it's either you raise your hand in the meeting. You can send a question in the Q&A feed or email me. Or if you're on the phone, press star five to ask a question. And the first question we have here is coming from Adrian Gilani of ABG. And Adrian, I have opened up your microphones and you need to unmute yourself.

Yes, thank you, Palle. I would like to start off with a question on the outlook statement. You're right that you expect improvements in all main markets in 2025, except for Finland. So just to follow up, what's the special dynamic there? How come Finland is not expected to get better in 2025?

Yeah, that's a tricky one. I'm not sure we have the answer. Finland has been impacted maybe to some extent by the Ukraine-Russian situation. And that might maybe explain why it's behaving slightly different from the rest of Scandinavia. But that's about all I think we know for sure.

Okay, sure. And also, I mean, you typically talk about there being a lead time of roughly two to three quarters between a new build process starting and then that hitting your P&L. So just to sort of understand the outlook statement better, would you say that you are expecting more new build starts from the beginning of 25 and that that will hit your P&L around mid 25 or, you know, is that a fair way to look at it?

Yeah, absolutely. Absolutely. Again, it's a bit early to say this demand situation is really changing because it very much depends in our view on the central bank interest rate policy. But in all likelihood, there will be a reduction in interest rates, which then should give the dynamic which you just described.

But just to be clear, you can already today say with fairly high certainty that beginning 2025 is not going to be a significant uplift for you.

Yeah, that's probably fair to say. Okay.

And then on the cost saving side, you've talked now for several quarters about cost savings programs. But frankly, looking at the numbers, you're flat on operating costs year on year and even up slightly on a rolling 12 month basis. Can you talk a bit about the measures you've taken so far and what you can do from here to bring down costs?

Yeah, I think what we've done is we've tried to adapt to the present demand level. But we haven't cut more than that. So we're not in a situation where we are anticipating further downturns and sort of trying to anticipate those in our cost structure. We don't want to hurt our core business capability to that extent. But that does mean, like you say, that we've accepted somewhat lower profitability to maintain critical resources in our business. in our teams that's been the policy and it has a certain cost yeah but you did say that some of them are still ongoing so I guess how much more is left how much more ground can you gain from the cost cutting ahead I think it's fairly limited if we continue the policy I just described but we do have these pockets of loss making businesses especially in the prefab elements Denmark and Norway and that's really where we focus our efforts and where we've recently made some again some changes to reduce our cost position.

Okay I understand and a final one for me a bit of a housekeeping question can you split out the price and volume and the organic growth number so minus eight total how much of that was price and volume?

Yeah I think it's probably

a stable price situation so really mostly volume okay perfect and I guess that's all for me so thank you yeah thank you very much yeah thank you very much Adrian and then I invite Sofia Soling from Carnegie to ask your question and you've been unmuted and yeah you need to unmute yourself

Yes, OK, Sofia.

I'm sure you can hear me, so you need to unmute whatever device you run or come in.

OK, let's see. It seems like we have. Some kind of. Technical problems, Sofia. So are you okay to unmute?

Yes, Sofia here. Can you hear me now?

Perfect.

Perfect. Thank you. Welcome. Thank you. Yes. Okay. Thank you. Let's see. So maybe I can follow up on Adrian's question there on prices. What is your expectation on price increases or decreases for the second half of 2024? And also your expectation on price increases into 2025?

Yeah, I think we don't expect any significant price increase. We do have situations where with builders merchants, we need to use basically a yearly win to change our prices. And in some cases, we intend to increase our prices for some of those customers. But I would say in terms of the direct sales to contractors, we don't anticipate any significant price increase at this point. As you remember, we haven't decreased our prices very much during this downturn, which you could argue is good performance and we don't intend to increase our prices correspondingly as long as our raw material price levels don't increase dramatically.

All right, I understand. So I have a question. You mentioned within the installation services segment that you actually have positive order books, at least in Denmark, and then maybe more on par with last year for the other regions, if I understood it correctly. But sales and margins are continuing at quite low levels. So what do you think? needs to happen here or what is your action plan in order actually to at least have somewhat of a stable margin profile ahead on current order books?

No, we clearly need higher volumes. And as I mentioned, there are some signs, but it's obviously too early to agree. There are some signs that there's significant inquiries coming our ways for significant large projects. of the type we've seen before, logistics, data centers, that sort of thing. And if and when some of those happen, and that's going to impact us only next year, then we could see a significant uptick.

Okay. Okay.

And then I have a question on this prefabricated wood element business. So you mentioned a restructuring plan here and new management in both Norway and in Denmark. So the margin profile now within this business, could you give us some details more of the margin profile, the current margin profile, and what you expect it will be in the short term, perhaps second half of 24, and also more on mid-term, long-term margin profile within this business?

Yeah. There's a double effect. First of all, obviously, volumes are not that high because of general demand, but we also have internal, organizational, and I would say production control issues, which we are trying to deal with, where we have insufficient control of the material flow, where we need to put in and we're in the process of putting in a proper ERP system. So that's really what will improve profitability in the longer term. It's basically if volume increase, obviously that will help and there's an underlying trend which continues to be very strong in favor of wood-based construction. So that's quite realistic to expect. But also what we will have in the coming quarters, and again, most of the impact in 2025, will be better control of material flow, better understanding of the profitability of each job we take on in these businesses.

Okay.

And then I have a final question. So you mentioned a little bit about this with the interest rate cuts. Of course, it can have a positive impact on housing starts and the new build market. But have you seen any historically within your business that it can have like a significant impact positive already in the renovation market? Or what is your expectation, given that we will see, if we see interest rates cuts in the second half?

Yeah, yeah. In renovation, as you know, we haven't seen a significant downturn. So we are mainly concerned with the development of a new build. And I think, yeah, we have seen that historically. And I think we have a demand backlog, which is quite overhanging. So the potential demand, especially in terms of housing, which continues to be quite big. So as soon as... People accept the interest rate and the return on investment, which they can calculate from lower interest rates. It's quite certain that the housing deficit, which exists really in most of our geography, will start to be reduced.

Which means, obviously, new demand for us.

Okay, thank you. That was all my question.

Thank you very much.

Thank you very much, Sofia. If there are any more questions, please raise your hand or follow any of the other alternatives here. Just checking. If not, then I think I just hand back to you, Martin, for rounding off.

Yeah, yeah. Thank you very much for calling in and Look forward to talk to you again in October.

Thank you very much everyone.

Thank you all the best.