Nordic Waterproofing Holding AB (publ)

So there it's 10 o'clock Swedish time, so welcome everybody to this WebEx following the Nordic waterproofing third quarter interim report. We're going to go through this presentation and after that there will be time for questions to be asked. I'll let you know the details about how to do that when we get there. But let me start with the presentation and introducing our president and CEO, Martin Ellis. So Martin, please go ahead and take us through the slides here.

Yeah, thank you very much, Palle. Welcome all. Thank you very much for participating. So we're happy to report on our third quarter, which showed improved profitability compared to last year on stable turnover.

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We have obviously, as you are aware, had a recent change in ownership late last week, a kick-span. announced the acquisition of further 26.5% of the shares of our company. And with the previously owned shares, Kingspan now has 62.6% at this point in time. I would like to say that we as management, we are very happy about this step because it obviously clarifies the situation and we very much look forward to being part of the Kingspan family in the hopefully near future. And we believe that this is very good news for Nordic Waterproofing and that there's a number of synergies which we both Kingspan and ourselves can benefit from. The increased ownership by Kingspan at this point doesn't trigger any obligation to make a mandatory public offer since that's been already done earlier this year. The change in ownership structure also doesn't affect our listing on Nasdaq Stockholm at this point, and we will continue to release it on the mid cap list. You can also see on the right hand side the present situation of the minority shareholders. And I think we won't go into the details of each line, but it is clear that there's a number of minority shareholders still remaining in our share ownership.

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So back to our third quarter, net sales slightly down, minus 2% organic development. and also a currency, negative currency effect, and a slight effect from acquisitions, but basically stable. EBITDA increased to 177 million from 159 last year. EBIT increased by a slightly high amount to 140 million SEC compared to 115 last year. Cash flow from operating activities was 101 million compared to 149. I may remind you that last year we had a very significant inventory decrease, which explains the difference. Net debt stands at 815 million and it was A year ago 985 and at the end of the last year it was 749. So in all likelihood we would expect to have a significantly lower debt level. At the end of this year.

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A few comments on the Q3 demand. Obviously the one of the key drivers of our results and is impacted by a slowdown in commercial new build, which is nothing new, but it persists. Renovation, we see a stable while residential new build continued weak in most of our geography. Bitumen-based waterproofing operations are stable in Sweden and Denmark with obviously good profitability. And the market situation is significantly more challenging in Finland and also to some extent in Norway. Sales for our EPDM products, synthetic rubber, are slightly below last year, but margins are slightly higher. Prefab elements, wood-based, which has an exposure, bigger exposure to residential new builds than the rest of our business, had a nevertheless positive development in sales on the Danish market, while it was negative in Norway. Profitability remains unsatisfactory, but we have accelerated our restructuring programs and we do believe that we might reach a break-even situation next year. Our green infrastructure business had a flat development in sales, but operating results clearly improved over last year. And installation services, last but not least, We had an unchanged sales level in Finland with a weaker margin, quite aggressive competition in the face of weaker demand. And the operating result from our franchise units in Denmark improved. So all in all, the result of this sector was at the same level as last year. All the books for business units within installation services are generally weaker. compared to the same time last year. Obviously, Finland being the main driver here.

Next. There we go.

So we continue to see flat or slightly deflated cost development for most of our input materials. We have a continued focus on our debt level, as I already mentioned, of course. And in a somewhat soft interest environment, we expect opportunities to emerge to further expand the group in accordance with our strategic plan through acquisitions. Our expectations for demand in commercial new build and renovation remain on current level for the rest of this year and I could say for the beginning of next year. Residential new builds will remain depressed in the very near future. Obviously, somewhat lower interest rates might help in that respect. And we also have an exception in Denmark, where we see no more demand. In 2025, we expect more favourable market conditions on our main markets, with again the exception of Finland, where all market conditions are expected to be unchanged. So over to you, Palle.

Yes. Thank you very much, Martin. And let's look a bit more into the numbers here. So as we said, net sales decreased to 1,167,000,000 SEK. Organic development, minus two. We had a bit of acquisitions with 1% and currency had a negative impact with the minus 2%. We had a record third quarter on EBITDA. It's actually the highest EBITDA we had in a third quarter at 177 million compared to 159 last year. And the EBITDA margin increased in the quarter with two percentage points to 15.1. And on a rolling 12 basis, we're at now 10.7 percentage points here. Looking a bit more at the income statement here, I think you recognize the net sales, but gross margin for the quarter was at 28% versus 25.3 last year. Net financial items at minus 18 in the quarter, where most of that is, of course, interest costs that we expect to continue to see go down. It was 2 million lower this quarter than it was last year, but both interest rates come down and our interest-bearing net debt as well is decreasing here. And EBIT margin for the quarter was then, of course, as well up to 12%. And on a rolling 12 basis, we're at 7% now. We continue to have a strong balance sheet when we look at this. It allows us to do selective acquisitions, of course, the interest-bearing net debt at 788 million. The third quarter is typically a seasonally strong quarter for us when it comes to cash flow as well what we expect in the fourth quarter here. We have an equity asset ratio of almost spot on 50% and the net debt DBJ ratio is at 1.8% currently. well below the covenant we have in our financing agreement. Moving on to look at rows that improved one percentage point in the quarter from 9.7 to 10.7 now, and also higher than it was when the year started at 10.2. And the improvement actually comes from both capital employed coming down as well, profitability increasing here. Cash flow from operations on a rolling 12 basis at 399 million and with the cash conversion at a high 89%, I would say. We continue to see the normal seasonal changes in working capital. But as Martin said last year, we had throughout the year a very good decrease in inventory that we, of course, cannot repeat this year. And considering the business climate generally for the construction industry, we of course continue to closely monitor our operating receivables very much. Good, looking into our two business areas and starting with products and solutions, where we saw a decrease of net sales of 2%, all related to currency. We have no acquisitions in this area in the most recent 12 months here. Positive development for sales in Finland and Denmark. Sweden on par with last year, while we see a tougher development in Norway with negative sales. And on a rolling 12 basis, we're just above 3.1 billion SEK. EBTA continues to develop positively, as it's done for a bit more than a year here. We have an EBITDA margin of 18.2% in the quarter for this business area compared to 15.6% last year. And generally, I would say all the different businesses have maintained or improved their margins. We still have some areas for improvement still, and in particular, the Tosling Group, where we continue to see an unsatisfactory profitability level and the restructuring initiatives we mentioned before are being accelerated as we speak, basically. For the latest 12 months, the BTA margin at 14.4%. And then installation services, where net sales decreased 8%. That was minus 8% organically as well, where impact from acquisition was plus 3%, and balance by currency being minus 3%. EBITDA in EBITDA, I think we can say, is basically on the same level as last year, whereas EBITDA margin increased slightly and for the latest 12 months, we're at 4.4% EBITDA margin. We do see a tougher development in Finland, tougher market and reduced profit levels generally in that market, while that is balanced with improved results from the Danish franchise network, where we where we have a minority stake and only consolidate our share of the net results. Yeah, then moving over to the financial targets and handing back to you, Martin.

Yeah, thank you very much, Palle. So as you can see, in terms of sales growth, we believe we have achieved our target since we are faced basically with a slower demand and actually probably very slightly increased our market shares. In terms of profitability, we are still lagging our threshold of 13% in ROSI. We are approaching 11%, so not very far, but obviously we would like to return to the 13% as fast as we can. And the capital structure, you've seen that our debt level is at not historic lows, but certainly at a relatively low level, so a very solid balance sheet. Thank you, and I guess we can now take questions, please. Yes, let's open up for questions.

Thank you very much, Martin. So if you want to ask a question, you can raise your hand in the meeting here, or you can send a question in the Q&A feed in the meeting, or send me an email and I'll pick it up here. If you're on the phone, you need to press star five to raise your hand for a question. So let me just shift the screen here if we have any questions coming in here. So again, let me just repeat, if you want to ask a question, please raise your hand in the WebEx Teams meeting here. Now I will unmute you so you can ask your question. Yes, so Sofia, you need to unmute yourself, but I've unmuted you on my side. So please, Sofia Sörling from Carnegie, please feel free to ask your questions.

Yes, thank you. Sofia here from Carnegie. Can you hear me?

Yes, very well.

Great. Okay, thank you for the presentation. So I have a first question regarding when you talk about Kingspan and you mentioned that you are happy about this new acquisition and you see that you can gain quite of synergies given this. Could you please give more details on what type of synergies you see that you can gain in the near and mid-term? And yeah, that's my first question.

Yeah, thank you very much. important question and I think basically one more all of our competitors offer package solutions where you have a one-stop shopping opportunity for our customer base and clearly the insulation material Kingspan provides in at least in some geographies will certainly be an integral part of that package and also I would say in terms of strategic synergies we could see a situation where with Kingspan's help, we can make further acquisitions in the Nordics where Kingspan has probably a slightly lesser presence than in most of the other geographies. So again, strategic synergies are also down the road an important factor.

Okay. And would you say this is given the current situation when they're holding roughly 60% of the shares? Or is this that they need to acquire more or?

Yeah, that would be after Kingspan takes full control. Because obviously, for the time being, we have to deal at arm's length, since there's still 38 odd percent of minority shareholders.

Yeah, okay. And then I have some questions on your margin improvement. So you mentioned actually that sales has coming down in both Steve Echo and also within the green infrastructure segment, but the margin has improved. What would you say is the main reason for the margin improvement here in both of those?

If you look, I mean, we are talking very slight effects. It's not sort of a brutal change. But in terms of Sileco, EPDM, we basically benefit from lower raw material costs. And we've made a number of cuts in our teams, which to sort of bright size compared to the amount picture. So those are the main factors. And in Bagtek, I think we probably have a slightly subnormal profitability last year, and we're just basically returning to normal levels. And we, I think, are very active there in terms of emphasizing the high end of our offer, which is city roof gardens, which are obviously more profitable than the run-of-the-mill sedum. So I think a good repositioning going on right now.

All right. And also, my last question is, of course, this is a seasonally strong quarter for you. But would you say that this margin improvement and this margin in Q3 of 12% on group level, is that now more sustainable? Or would you say it's more of a hiccup, positive hiccup, perhaps, during this quarter? Or is something that we could do?

No, it's certainly not a hiccup. Now, if you're thinking of Q4, as you know, that's a tricky quarter, so we can't make any sort of prediction on Q4. But I would say that there's no reason to believe that there should be, again, a significant drop in our results at this point in time.

Yeah. Okay, thank you.

Thank you very much. thank you sofia so and if there's anyone else wanting to ask a question please please raise your hand in the meeting here okay that doesn't it doesn't seem like there are any more questions so martin you want to wrap around thank you all very much for for listening in it's been a pleasure okay okay thank you thank you very much