U.S. Markets close in 48 mins

Edited Transcript of BALCO.ST earnings conference call or presentation 14-May-20 7:00am GMT

Q1 2020 Balco Group AB Earnings Call

Jun 4, 2020 (Thomson StreetEvents) -- Edited Transcript of Balco Group AB earnings conference call or presentation Thursday, May 14, 2020 at 7:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Kenneth Lundahl

Balco Group AB - President & CEO

* Michael Grindborn

Balco Group AB - CFO, Secretary of the Board and Head of IR & IT

================================================================================

Conference Call Participants

================================================================================

* Julius Rapeli

SEB, Research Division - Analyst

* Kenneth Toll Johansson

Carnegie Investment Bank AB, Research Division - Financial Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Today, I'm pleased to present CEO, Kenneth Lundahl. Please go ahead with your meeting.

--------------------------------------------------------------------------------

Kenneth Lundahl, Balco Group AB - President & CEO [2]

--------------------------------------------------------------------------------

Thank you. Welcome to this Q1 reporting. It's me, Kenneth Lundahl here, CEO; and Michael Grindborn, CFO of the company.

We start with Page 2. Balco is a company, helping customers which have problem with their old balconies. Our solution is to cut away the old balcony and put up a new bigger glazed balcony. Our focus is the renovation market. We have a unique selling process, helping the customer through all stages in the process, and we have a tremendous operation, production and logistics set up. And also, I think there are pretty many people sitting in a nice balcony with age over 70 years old with the sun in the face right now, and we are proud of having nice balcony solutions for these people.

Page 3. Order intake, 6% higher sales. Order backlog increased by SEK 20 million. Of course, now in corona times, we see that the big order stocked. We have an operation production running really, really good. We see that we can run really good the whole year actually. And of course, what is affecting us is order intake, the closing of orders. Not the work we do, meeting customers and this kind of thing, it's -- the affect has been mainly in the, how to say, when we close the order, that's the stigma when we take the Board decision of going ahead. And in those processes, all the -- most of the people have to come there physically and vote. That has affected us with our order intake in March, and it will affect a little bit in -- also in Q2, and that is most postponements of orders.

But the sales activity is still high. Our calculation department has a lot to do. But of course, now the first half year, we would see more -- we will look more at what is our turnover compared to order intake. And we think that we can have a pretty good order stock even after Q2.

Net sales was up 19%. Operating profit, 27%. If you look at COVID-19, the impact has been limited so far regarding production operation, but we have had some postponement as the orders in Q1, and also it will affect some in Q2. We believe that in the Renovation segment, there are more than EUR 5 million orders that has been postponed forward from Q1 going forward, and that will also be the same in Q2, I think that some orders that was postponed. But we look -- it looks pretty promising anyway in May and June, and of course, in Sweden, we have had solutions, so we have coped pretty well there. But Germany has been stone dead when you're only allowed to meet 2 people. But that is also changing step by step.

And of course, the effect of that short term is, yes -- in order intake, yes, some. Long term, I think it can have a positive effect because who doesn't want to have a balcony. After this kind of situation, people have been stuck in the flat for 7, 8, 9 weeks. We have done no short-term permits and have been implemented, and we have not applied for any grants from Tillväxtverket. We took -- the Board of Directors took a decision to withdraw the previous announced dividend proposal and due to uncertainty with COVID-19, those uncertainties is not actually regarding the performance of the company. The uncertainty is the valuation of the company. We see interesting acquisition possibilities this year that we would like to do and that will strengthen our business and so on. But of course, we don't want to pay with shares if we find the valuation of our company too low. That's the reason that we want to have free cash to be able to do what we want to do. It means all open doors. That's the reason why we didn't give out the dividend now.

Sustainability. We have new sustainability goals. We will reduce our negative climate footprint per balcony by 20% by the end of 2021. We are already implementing this now, can be that this will be done all around this year. And this means that we'll be carbon dioxide positive 5 to 10 years faster than with our existing solutions. Today, we are climate positive to 30 to 50 years, with these changes seeing the climate positive between 25 and 40 years. We have also appointed Johan Fälth as the Sustainability Manager for Balco Group to take a whole rack of our sustainability focus. Michael?

--------------------------------------------------------------------------------

Michael Grindborn, Balco Group AB - CFO, Secretary of the Board and Head of IR & IT [3]

--------------------------------------------------------------------------------

Yes. Turn over to Page 4 and look at the financial highlights for the quarter. And we are -- as mentioned, we have strong revenue and profit growth. Our net sales increased by 19% to SEK 321 million compared to SEK 270 million last year. The Renovation segment accounted for 88% of the sales and the New Build of 12%.

Our order intake was 6% higher than net sales and accounted for SEK 341 million, slightly down from last year's SEK 362 million. Renovation segment accounted for 78% of the order intake in the quarter. And in the New Build segment, we got the New Maritime order. So we have really been -- show that we are now strong also in the maritime segment.

Our order backlog increased by 2% to SEK 1.56 billion. Our net profit increased by 27% to SEK 34 million compared to SEK 27 million last year. And it's, of course, of the increased sales, but also a slightly better gross margin in the quarter. Our operating profit margin improved to 10.7% compared to 10% last year. Also, operating cash flow was a little bit better than last year, SEK 5 million this quarter, minus SEK 8 million last year. And our cash and cash equivalents at the quarter end was SEK 96 million.

Turn over to Page 5 and a quick summary of the quarter. Order intake of SEK 341 million, slightly down 6% from last year. But the order backlog increased still by 2% to SEK 1.56 billion. Our revenue increased 19% to SEK 321 million and the operating profit by 27%, up to SEK 34 million.

If we go over to Page 6 and look at the development per business segment and start with the Renovation segment, which is our biggest segment and most important. We had strong growth in revenue and profit in the quarter. Order intake was down by 19% to SEK 266 million. And here in the Renovation segment, we have been most affected in the order intake. And -- but especially with tenant groups have had problems to have these general meetings to take the decision, the final decision for the order. So it's mostly, as we say, the postponed order intake. But hopefully, we'll come back in the autumn with Johan Fälth. Order backlog was just down 3%. So it's still more than SEK 1.3 billion in order backlog for the Renovation segment and it's 86% of our total order backlog.

Revenue had a strong increase, 25% up to SEK 281 million, and it's 88% of our total revenue in the quarter. Also, operating profit for the Renovation segment increased strongly, 29% better than last year to SEK 32 million. Given an operating profit margin of 11.3% compared to 10.9% last year, so also there's an improvement.

If we turn over to Page 7 and look at the New Build segment. As mentioned, we got the New Maritime order. So that's why the order intake had a strong increase, up to SEK 75 million compared to SEK 34 million last year. Also, the order backlog increased by 54% to SEK 220 million. Revenue was slightly down to SEK 40 million compared to SEK 45 million last year. And operating profit, more or less at the same level, SEK 2.9 million this year, SEK 3.4 million last year. And the operating profit margin stable at 7.4% this year and 7.5% last year. So stable margins and slightly down in revenue, but at stable level.

We will go over to Page 8 and look at our financial position. It's still very strong. Our equity-to-asset ratio is at 46.1%. It's up from 43.4% last year. And it's driven by our increased profit and also quite low investments in the last year. Our net debt-to-EBITDA is still at very low level, 0.9 compared to 1.6 last year. And the reduction in debt is due to the improved profit and also the strong cash flow.

Net debt, if we take away the lease debt that is included in the first figure. The net debt-to-EBITDA is just 0.6 compared to 1.2 last year. If we look at net -- profit after tax, it improved by 27%, up to SEK 25 million, compared to SEK 20 million last year, and it corresponds to an earnings per share of SEK 1.23 compared to SEK 0.98 last year. And we are prepared for acquisitions. We have an acquisition headroom. We have a banking agreement until September 2022, and we also have an acquisition credit of SEK 100 million. We also have authorization to issue shares for finance acquisitions, but as Kenneth mentioned, one reason why the Board decided to withdraw the dividend or postponed it because we have the -- given the opening to have an extra general meeting in autumn is to have also cash if we need that for acquisitions.

If we turn to the next page, Page 9, and look at our financial targets. We have a growth target that we should achieve a growth of 10% per year. And that right now, the last 12 months, we are at 17%, so quite much ahead. Profitability goal and our long-term profitability goal is to have an operating profit margin of 13%. We are now at 11.6% last 12 months. So we're getting slightly better from the year-end figure last year. Our capital structure, we should have a net debt-to-EBITDA not more than 2.5 and other than temporary. And right now, we are at 0.9, so we have a good acquisition headroom also here. And our dividend policy that has not been changed is that we should distribute at least half of our profit after tax to our shareholders. We -- the Board took the decision yesterday to withdraw the dividend right now because of the uncertainty. And -- but we have opened up for a possible meeting also in the autumn period to have another decision on the dividend.

So now I'll leave over to Kenneth again on Page 10.

--------------------------------------------------------------------------------

Kenneth Lundahl, Balco Group AB - President & CEO [4]

--------------------------------------------------------------------------------

Excellent, Michael. If you look at our sustainability initiatives, our lifetime of products is more than 90 years. Material and construction last for at least 90 years and are fully recyclable afterwards. We only need 2 minor services during these 90 years with a very low cost. Our solutions use energy savings and reduced maintenance during the whole period. Energy savings is between 15% and 30%, depending on product and conditions, and we reduced the maintenance of facade and windows during the whole this 90 years period.

Our balcony solutions are climate positive after 30 to 50 years with Banco glazed balcony in Sweden. And we have set new goals to reduce this by another 5 to 10 years until end of 2021. And this is, of course, we have been working with this, and we have learned more about what kind of quick actions we can do. And of course, we thought at first that was a big part, but it was not, it was aluminum. So we're actually changing the kind of aluminum we are using and a little bit suppliers too.

And we have also increased sustainability focus of the whole company, not just by the products. And we have appointed Johan Fälth to be our Sustainability Manager. And we have also taken a decision that all purchases should be made from suppliers in Europe. So we do not buy anything from Asia a lot, whatever. I think that in the future, it can be that we can do rating of which countries you can buy from, which are following everything for sustainability protocol. That's my guess.

That was the end of this reporting. Please ask questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question comes from the line of Julius Rapeli from SEB.

--------------------------------------------------------------------------------

Julius Rapeli, SEB, Research Division - Analyst [2]

--------------------------------------------------------------------------------

Yes. Can you hear me?

--------------------------------------------------------------------------------

Kenneth Lundahl, Balco Group AB - President & CEO [3]

--------------------------------------------------------------------------------

Yes, absolutely.

--------------------------------------------------------------------------------

Julius Rapeli, SEB, Research Division - Analyst [4]

--------------------------------------------------------------------------------

Yes. Perfect. One question regarding the margin improvement year-over-year. You got quite a solid margin development. However, you mentioned some higher cost caused by the pandemic. Any chance giving some more color on how large of an impact did they have on the margins in Q1? And then maybe some guidance for Q2, what's your expectation thus far?

--------------------------------------------------------------------------------

Kenneth Lundahl, Balco Group AB - President & CEO [5]

--------------------------------------------------------------------------------

Last year, we had too little to do in the major unit bulk of [there]. Now we have, yes, pretty much to do in all kind of areas. Production units operating upon and that creates an efficiency that we should have had last year, yes. So it's -- our margins are pretty good, an improvement. If you look at costs, extra cost that we take, I will say, Q1, Q2 that is when we come and start the project, what are the pre-projects that are coming and nattering this on. Then before we have gone in with apartments, now they are not going into the apartments. And there are some extra costs regarding that, but it's not that many big millions. I'm not exactly sure what it is, SEK 1 million to SEK 2 million, perhaps.

--------------------------------------------------------------------------------

Michael Grindborn, Balco Group AB - CFO, Secretary of the Board and Head of IR & IT [6]

--------------------------------------------------------------------------------

Yes, in quarter 1, I would say, perhaps SEK 1 million, but it will be a little bit more in quarter 2, but must vary, but not very much.

--------------------------------------------------------------------------------

Kenneth Lundahl, Balco Group AB - President & CEO [7]

--------------------------------------------------------------------------------

And as I said, this is, of course, related to secure our people.

--------------------------------------------------------------------------------

Michael Grindborn, Balco Group AB - CFO, Secretary of the Board and Head of IR & IT [8]

--------------------------------------------------------------------------------

Yes. Both for our people and, of course, our customers.

--------------------------------------------------------------------------------

Kenneth Lundahl, Balco Group AB - President & CEO [9]

--------------------------------------------------------------------------------

Yes because we don't -- I mean in some buildings that in people sit, we don't want our people to be into this building. But our solutions, we can do everything from outside. That's -- there we have the extra costs. Otherwise, in this process, we have found out other interesting way of dealing with customers that I think we will see. I mean, 1 interesting positive is in the voting process, where we actually -- you can have -- at least you can vote and that you take in a lot of, I would say, full marks as when last year in this. It would be about how other creative solutions when the customer really wants, we want to have a close look, we want to product to run, we want to have order, then there are solutions also to solve the physical problems in some cases.

--------------------------------------------------------------------------------

Julius Rapeli, SEB, Research Division - Analyst [10]

--------------------------------------------------------------------------------

Yes, in some cases you also have had vote -- the meetings outdoor now when it's compared with spring and summer time it's possible to have the vote outdoors.

--------------------------------------------------------------------------------

Kenneth Lundahl, Balco Group AB - President & CEO [11]

--------------------------------------------------------------------------------

That will just -- that's helped Germany where you are looking to be too (inaudible).

--------------------------------------------------------------------------------

Julius Rapeli, SEB, Research Division - Analyst [12]

--------------------------------------------------------------------------------

All right. Maybe just a follow-up on the M&A side. So is there any particular area you would like to be stronger, perhaps any geographical focus at the moment where you are screening for acquisitions?

--------------------------------------------------------------------------------

Kenneth Lundahl, Balco Group AB - President & CEO [13]

--------------------------------------------------------------------------------

The Nordic countries in the Renovation segment I mean, if you look at we are -- in the Renovation segment, we are a total contractor working close to the customer. And there, we want to help the customer to, of course, increase value for the customer and of course, even more strengthening our organic growth possibilities. So yes, there are interesting acquisitions that we see, we work with, and there is more than one. And that's the reason why we want to have this open with the -- we want to be able to have a lot of cash, if needed.

--------------------------------------------------------------------------------

Michael Grindborn, Balco Group AB - CFO, Secretary of the Board and Head of IR & IT [14]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Operator [15]

--------------------------------------------------------------------------------

(Operator Instructions) Our next question comes from the line of Kenneth Toll from Carnegie.

--------------------------------------------------------------------------------

Kenneth Toll Johansson, Carnegie Investment Bank AB, Research Division - Financial Analyst [16]

--------------------------------------------------------------------------------

So I was wondering a little bit about the timing of sales and order intake. So it would probably be fair to assume that your order intake might be affected about the -- of the coronavirus now in coming quarters. Maybe Q2 is worse than Q1. And -- but still, you have a very good sort of order backlog. So if order intake is poor in Q2, would that affect already Q4? Or would that affect more next year's sales?

--------------------------------------------------------------------------------

Kenneth Lundahl, Balco Group AB - President & CEO [17]

--------------------------------------------------------------------------------

My answer to that is if that would happen, it would affect turnover next year. That's government uptakes. But we don't give guidance, Kenneth. But the only guidance we have given, now we don't follow the order intake compared to last year because that will cost a lot in the first half year. We are following more the order intake compared to turnover. I mean, we had a check. What should our order stake -- order stock be end of this year to follow our 3-year plan. That included that we had a check. But the only guidance we can give there is that we will -- what we see, turnover profit this year looks good. Order stock first half year, we think will be around [SEK 1.5 million]. So it means that even if our order intake would be a little bit lower, it will affect our order stock, perhaps 2% to 3%. But also to be [impressing] is that the activity of salespersons can work, activity is high. Our calculation department has a lot to do.

--------------------------------------------------------------------------------

Michael Grindborn, Balco Group AB - CFO, Secretary of the Board and Head of IR & IT [18]

--------------------------------------------------------------------------------

Yes. I mean, interest is really high.

--------------------------------------------------------------------------------

Kenneth Lundahl, Balco Group AB - President & CEO [19]

--------------------------------------------------------------------------------

Yes, but the postponement. We think that Q2 will be affected, yes. But we think that the stock of the -- if -- our order intake will be okay in Q2. But we think that a lot of this piling up of waiting with the -- that will be in September. You can see already now that, that -- it's piling up there but Germany at least on the -- we believe Germany that will be full blast from August, September.

--------------------------------------------------------------------------------

Kenneth Toll Johansson, Carnegie Investment Bank AB, Research Division - Financial Analyst [20]

--------------------------------------------------------------------------------

Yes. But -- and then also, maybe those tenant owned houses find it hard to have the general meetings to decide on large investments and so on. So could that delay your operations this year only, if that would be the case? Or would it rather be a next -- a problem for next year?

--------------------------------------------------------------------------------

Kenneth Lundahl, Balco Group AB - President & CEO [21]

--------------------------------------------------------------------------------

Turnovers in EBIT wise, it's next year, if that would help them. But we haven't seen the interest going down in any way, the -- wait, wait interest, this is interesting. Do you know what we are doing is that we work with the customer and we give that -- if you have a cooperation agreement, the customer wants to do it, everything is running, but they don't dare to have the voting. Then we suggest to them to start with the building permission anyway. Because what is decreasing the lead time, if you start with the building permission, even if you haven't had a vote and you are not decreasing the lead time. That is one of the tools we are working with.

--------------------------------------------------------------------------------

Kenneth Toll Johansson, Carnegie Investment Bank AB, Research Division - Financial Analyst [22]

--------------------------------------------------------------------------------

I mean yes. And maybe...

--------------------------------------------------------------------------------

Kenneth Lundahl, Balco Group AB - President & CEO [23]

--------------------------------------------------------------------------------

Yes, and Kenneth, Kenneth, but as you said I think, of course, corona is affecting us. We don't know our turnover last year, would have been 10% or 17%, we don't know. But turnover profit this year will not be so much affected. But the -- our turnover increase next year will be 10% or 17%, that -- we don't know that yet, but it will be close.

--------------------------------------------------------------------------------

Kenneth Toll Johansson, Carnegie Investment Bank AB, Research Division - Financial Analyst [24]

--------------------------------------------------------------------------------

Yes, sounds very much like the way I'm thinking. So yes. And also from a capacity -- yes, you commented before that you don't have any new problems really from a capacity point of view this year when it comes to manufacture the balconies and so on. Okay, great. That's all for me.

--------------------------------------------------------------------------------

Operator [25]

--------------------------------------------------------------------------------

(Operator Instructions) And as there are no further questions, I'll hand it back to the speakers again.

--------------------------------------------------------------------------------

Kenneth Lundahl, Balco Group AB - President & CEO [26]

--------------------------------------------------------------------------------

Okay. Thank you from us.

--------------------------------------------------------------------------------

Michael Grindborn, Balco Group AB - CFO, Secretary of the Board and Head of IR & IT [27]

--------------------------------------------------------------------------------

Yes, thank you very much.

--------------------------------------------------------------------------------

Kenneth Lundahl, Balco Group AB - President & CEO [28]

--------------------------------------------------------------------------------

Yes, thank you.

--------------------------------------------------------------------------------

Michael Grindborn, Balco Group AB - CFO, Secretary of the Board and Head of IR & IT [29]

--------------------------------------------------------------------------------

Bye.

--------------------------------------------------------------------------------

Kenneth Lundahl, Balco Group AB - President & CEO [30]

--------------------------------------------------------------------------------

Bye-bye.

--------------------------------------------------------------------------------

Operator [31]

--------------------------------------------------------------------------------

This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.