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 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 above 192,000 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 and EBITDA sorry 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 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 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 a 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 a number of large offers we are 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 effects on margin some positive effects on margin especially in the BDM 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 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 we can as we saw net sales decreased close to 100 million and seven percent 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. EBTA slight decrease to 168 million and EBIT the same to 131. EBTA margin down a few points here 14.0 versus 14.4 and on a rolling 12 basis EBTA margin now stands at 10.2%. Moving to the next slide looking at more the numbers in the income statement looking at gross margin for the quarter it was .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 cost and then there's also an impact from revaluation of debt 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're 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 field here. Interest bearing net debt at 854 million and as Martin said is seasonally moving between the quarters and we start there 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 .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 the next slide with Rose now stands at .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 is in Rose is driven by the somewhat lower operating result. Cash flow from operations continued 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 continued to be high now at 103% versus 108 last year so we have a good cash flow from operations in the quarter and 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. 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 solution segment is just about 3.1 billion seconds turnover here. EBTA decreased a few million here from 165 to 158 but however the EBTA margin increased half a percentage point from 16.5 to 17%. EBIT followed the same development as EBTA. Generally looking at the different business units within this products and solution we see maintained or improved margins however we continue to see that the profitability for our prefabricated elements group Telsinget and there are several restructuring initiatives being implemented in both Denmark and Norway to take care of that. Over the latest 12 months EBTA margin is at .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 two percentage points. It's a little bit different here where you see that the second quarter is not the strongest one in the year that is actually the third and the fourth quarter that is typically the highest sales quarters during the year. EBTA decreased from 32 to 20 million and EBIT followed 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 see for the latest 12 months the margin is currently at .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 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 buddy. 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 are not happy with the present level. We are below the 13% Rosi threshold but in terms of capital structure as Parly explained we are 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 write 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 and 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 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 yeah okay again it's a bit early to say this demand situation is really changing because it's very much depends in our view on the central bank interest rate policy but in all likelihood yeah there would be a reduction in these rates which then should give the dynamic which you just described.

Yeah but just to be clear you can already today say with fairly high certainty that beginning 25 is not going to be you know a significant uplift for you.

Yeah that's probably if you have 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 here on here 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 are 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 our core business capability to that extent so but that does mean like you say that we've accepted somewhat lower profitability to to maintain critical resources in our 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 brief history of elements Denmark and Norway and that's really where we focus our efforts and where we've recently made some again some changes to 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 in that case that's all for me so thank you.

Yeah thank you very much.

Yeah thank you very much Adrian and then I invite Sofia Zroling from Carnegie to ask your question and you've been unmuted and yeah

you need to unmute yourself. Yes okay Sofia I'm

sure you can hear me so you need to unmute whatever

device you have on.

Okay 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 thank you.

Yes okay thank you and let's see so maybe I can follow up on Adrian's question there on prices and what is your expectation on price increases or decreases for the second half of 2024 and also your expectation on the 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 window 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 a 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 this on 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 continued 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 order books?

No we clearly need higher volumes and as I mentioned there are some signs but it's obviously too early to apply victory 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 that's going to impact us only next year then we could see a

significant uptake.

Okay okay and

then I have a question on this pre-fabricated wood element business so you mentioned a restructuring plan here and new management in both Norway and in Denmark and so the margin profile now within this business and what is it 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 midterm 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 internal organizational and I would say production control issues which we are we're 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 that will help and there's an underlying trend which continues to be very strong in favor of wood-based construction so that's that's quite realistic to expect but also what we will have in the coming quarters and again most of the impact in 25 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 in renovation as you know where we haven't seen a significant downturn so where 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 overhang 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 their 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 Sophia if there 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 thank you very much for calling in and look forward to talk to you again in October.

Thank you. Thank you very much everyone. Thank you.

All the best.