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Hello, and welcome to today's webcast with Balco Group, where CEO, Camilla Ekdahl; and CFO, Michael Grindborn will present the report for the first quarter of 2024. [Operator Instructions] And with that said, I hand over the word to you guys.
Hello all, and welcome to the Balco Group Quarter 1 Report. It's me, Camilla Ekdahl having this hearing together with Michael Grindborn, our CFO. First, for all new listeners, I will make a very short snapshot of Balco Group, who we are. Balco Group was founded in 1987 and consist today of several balcony and facade companies. We added 2 more companies to the group during quarter 1, and I will, of course, come back to that later in the presentation. The head office is in Växjö, and the Group has approximately 700 employees now after the acquisitions. We are operating in 2 main segments: renovation and new build.
The core expertise is to supply glazed balconies and balcony solutions, primarily on the renovation market and to tenant-owned associations and also replacing the balconies with new glazed balconies, according to what we call the Balco method, and the Balco method means that they have an old slab, which is damaged, and then we cut down the old slab, we put up a new slab, and we also make it with glazing on. And if you do that with the glazing from the brand Balco, you have also 90 years lifetime for the balcony itself.
But of course, we can offer also other balcony solution, as other open balconies, and we also have facade renovation into our portfolio. Balco Group is a market leader in the Nordics, but we also have a strong challenger position on other Northern European markets. We want to take an active part in the green transformation, which is needed for the residential properties. And the reason for that is that all glazings of balcony results in energy savings. Simply glazing can provide between 5% to 10% energy saving, while Balco's patented glazings can have a documented energy savings of 20% to 30%. And that is a trigger for doing more so that the customer could either get hold of the green loans or other subsidies that is existing in the different countries.
So let us then go over to the quarter 1 and the highlights we have there. We had a significant increase in our order intake in the quarter. It increased by 44% to SEK 352 million, the increase comes from the new acquisitions we have made. The organic order intake was on the same level as the previous year. Our net sales was as expected, weak and that was depending on the lower order backlog we had at the start of the year. But also, we had some projects that have been delayed during the long winter season here in the Nordic countries.
We can see on the market that there's an increased willingness now to invest and also to discuss coming projects, and that is, of course, depending on the improved inflation situation and also the discussions about expected interest rate cuts, but we also see that the trends we discussed already before that the processes take longer time, that is still the reality. So we also know that there are some [indiscernible] that has been postponed. And we also have the feeling now that it's really a need that we see that the discussed interest rate cuts are implemented and not only discussed any longer.
During the quarter, we have made 2 acquisitions. We started the year with the largest acquisitions we have ever made. It was Riikku Group Oy, the Finnish glazing company. And here in March, we acquired Suomen ohutlevysasennus, which is a Finnish facade company. I will come back and have a little bit more about them. I talked about Riikku Group when we had the quarter 4 reporting. So I'll leave that for you to read in the report we had then. But to these 2 acquisitions together means that we will take a leading market position now in Finland, where we actually before, have been a little bit weaker. And they are both in line with our long-term strategy to be the balcony supplier in the Nordics and also to be able to run larger turnkey projects for the green transformation.
And talking about this with the green transformation, we have also in the quarter taken another large order in Norway where we will install our unique solution with the air-to-air heat pumps. This project also includes solar panels. So we see a big interest in this solution that we have taken, and especially for the Norwegian market, where the residential buildings are heated up with electricity. And this is actually our third project in Norway with this integrated solution. We are also really happy to see that we made another independent analysis just to make sure that we are keeping, so to say, what we are saying. So we made another independent analysis in Norway regarding the energy savings of the bulk of glazings and they confirm the result we had before. We get between 20% to 30% energy savings if you are doing the glazing with the Balco brand, and of course, depending on the size of the balcony and the direction of the balcony.
As you saw also, the results were not in line with what we had wanted, so, of course, we continue to work on our reviewing of our cost and organization, and we have, here, during the quarter, taking a decision to move some production between our different factories to get better synergies within the certain production processes. We have had some production processes in more or less all factories, and we are concentrating some of them now to certain factories to get better synergies.
So a little bit about our acquisition of Suomen ohutlevysasennus. This was a company that was founded in 1984. And it is a Finnish facade company, as I said, but they also work as a turnkey supplier. They are located in Turku, and they had a turnover of about EUR 11 million, and a higher operating margin than Balco Group. Before, I would say a couple of years ago, they worked more or less as the traditional subsupplier for the builders, but in the recent years, they have changed a little bit more the focus to focus more on renovation segment and also that they have reached a new customer group with the tenant-owned associations. So they have been very successful now in obtaining and running larger facade renovation projects, especially to the tenant-owned association where they replace -- they take away the older insulation, they put on the new insulation and new facade and replace the old balcony glazing. We have acquired 60% of the company and have an option to buy the remaining 40%. It will continue to be run by the co-owners, Jukka Stam and Mikko Jokinen.
And together with the other acquisition we made in January, Riikku, we can see now, as we said, that we take a leading -- we will be a leading player in Finland, and these two are really, so to say, matching each other, because Riikku is already a major supplier to Suomen ohutlevysasennus. So we are seeing now ahead with -- we really think that the Finnish market will grow for us or we know it will.
Yes. And having a look at the quarterly results. As we mentioned, we've seen an increased order intake, but mostly from acquisitions. But net sales amounted to SEK 326 million, same as last year, but acquired group was 31%. Currency effect was plus 1%, and the organic growth was 32% negative. Our adjusted EBITDA amounted to SEK 16 million, compared to SEK 28 million a year before. And it corresponds to an adjusted operating margin of 5%, compared to 8.7% year before. Order intake increased 44% to SEK 352 million, and acquired growth here was 46%, and the organic order intake was minus 2%. Our order backlog has increased by 12% to SEK 1.4 billion, of which 24% was acquired order backlog. So big part was, of course, from the acquisitions from Riikku and Suomen ohutlevysasennus also here. Earnings per share amounted to SEK 0.10 compared to SEK 0.63 year before. And we saw a little bit improvement in our operating cash flow. It amounted to SEK 18 million compared to minus SEK 10 million last year. If we have a look at the 2 segments we have, the renovation segment saw an increased order intake from the acquisitions. Net sales in the quarter was quite weak. It was SEK 222 million, down from SEK 299 million the year before, and it was just 68% of our total net sales. Normally, it's been around 80% to 90%. Order intake in the quarter increased by 43% to SEK 285 million, compared to SEK 199 million year before. And it corresponds to 81% of our total order intake. Adjusted EBITDA in the quarter amounted to SEK 11 million compared to SEK 26 million year before. And it corresponds to an adjusted operating margin of 4.8% compared to 8.6%. And the decrease here comes from lower occupancy in our both, production and project organizations, and also was quite much affected by the longer winter with more snow and also colder winter in all Nordic countries, also in the southern parts of Sweden and Denmark. Order backlog amount led to SEK 1.038 billion compared to SEK 1.091 billion last year, and it corresponds to 75% of our total order backlog.
The new build segment saw increased sales and order intake from mostly -- especially from the Riikku acquisition. Net sales in the quarter amounted to SEK 104 million compared to just SEK 26 million a year before, and it was 32% of our total net sales. Order intake in the quarter increased by 46% to SEK 67 million, compared to SEK 46 million year before, and it was 19% of our total order intake. Adjusted EBITDA was SEK 6 million compared to just SEK 1 million a year before, and also our adjusted operating margin was 5.3%, slightly improvement from year before, which was 5.2%. So here, we have stable margins in the new build segment. Order backlog, SEK 354 million, compared to SEK 150 million a year before, and it corresponds to 25% of our total order backlog.
Our financial position, we see, of course, increased debt from the two large Finnish acquisitions we have made. So at the end of the quarter, the group's equity was SEK 801 million, and the equity ratio was 47%. Net debt divided by EBITDA, both including and excluding leasing, was 3.2x. But if you include 12 months results from the acquired companies, and add that to the EBITDA, you get the net debt in relation to adjusted EBITDA of 2.2x. We have a banking agreement with Danske Bank, which is valid till October 2026. And it is sustainability-linked the revolving credit facility of SEK 510 million and an overdraft facility of SEK 75 million.
Our financial targets for the group. We have a group target that Balco shall achieve growth of 10% per year during business cycle. And if we look at the last 12 months and compare that to the 12 months before that, we see a negative growth of 11%. We also have a profitability target that our earnings per share should grow by 20% per year during the business cycle. And here, over the last 12 months, we see a negative growth of 50%. Our capital structure should be that our interest-bearing debt -- net debt should not exceed 2.5x adjusted EBITDA, other than temporarily like just after an acquisition. And here, we -- as we said in the last previous page, we are at 3.2x, but if we add 12 months profit from the acquisitions, we are at 2.2x. We also have a dividend policy, but Balco shall distribute between 30% and 50% of profit after tax, taking into consideration needs of Balco's long-term growth and prevailing market conditions. And the Board has proposed no dividend to the annual meeting of this year, that will be now on 12th of May, and it is to finance the recently completed strategic acquisitions.
And some update from the sustainability side, as Camilla mentioned before, another independent analysis in Norway, regarding the efficiency of energy savings when glazing with balcony with the Balco brands glazing. So the same results as before that the glazing from the Balco brand provides an energy saving of between 20% and 30%, depending of the size of balcony and also direction of the balcony. And once again, this strengthens our market case that the glazing from Balco is a trigger to be able to get further improvements from the properties energy consumption. We have also, already in 2023, reached our goal in reducing our environmental impact in Scope 1 and Scope 2 by 35% compared to 2019. And this goal was said that it should be reached in 2025, but we reached it already in 2023.
So Balco Group has committed to develop a new long-term and short-term targets for energy reduction, including a net zero target in line with Science Based Targets initiative. And we think that, that should be [ approved ] by the Science Based Targets initiative, either during this year or early next year.
Yes, going a little bit again, a little bit deeper maybe to the market update. It is, as we say, the market is improving. The inflation situation and the discussion about expected interest rate cuts are increasing their willingness to invest. But we see there is still a challenging market because processes takes longer time and decisions are postponed, so we see that the discussed interest rate cuts must be implemented to really see that it's increasing again. We continue, of course, to support our customers with the financial expertise in the dialogues and we are helping the customers through the whole process.
And as I said, the discussions are ongoing, so it's not [ quiet ] on the market, but we need more decisions to get the order intake really to lift. And therefore, I also would like to say that we have seen the increased willingness, but we have not seen a strong -- I would not say that we see a very strong recovery in the market. So our previous assessment that we will have an impact on the sales and the results in the coming quarter is remaining. But we know that the need to renovate balconies remains also, and we know that it's not the need just to renovate the balcony. It's also a need to take the entire surface layer of apartment buildings. And think about the energy savings that can be done. And Balco will be a part of this necessary change, and we are able to carry out the important turnkey projects for this.
If we look on the acquisitions, as we said, we have made 2 big acquisitions during quarter 1, and acquisitions are an important part of the Balco Group's growth strategy. And we are looking for companies, European balcony companies or companies with activities that can complement Balco's green transformation product offering. The 2 acquisitions we have made is really focusing on this. We made the acquisition for Riikku Group, which was a good European -- good Finnish balcony company, which was strong position in the niche market, in the new building market in Finland. And Suomen ohutlevysasennus Oy, which is also complementing for the green transformation and offering with insulation and turnkey supplier. So therefore, [indiscernible] our acquisition strategy and our long-term strategy.
Concluding remarks, the net sales in quarter 1, SEK 326 million, the same level as previous year, with a lower adjusted EBITDA margin of 5%. But as we said, the demand is still there, but we don't have a strong recovery yet. We will continue to have an impact. But we also see that our investment in being able to run projects for aim to be a more comprehensive energy savings on the property continues to meet with great interest. We see this solution we have with air-to-air heat pumps that has a great interest in Norway. And we also see that we are good on including installation of solar panels into our projects.
And once more again, the 2 acquisitions will make us take a leading market position in Finland, where we previously had a little bit weaker position.
So that was all in our presentation. Looking forward to answer some questions.
[Operator Instructions] But we will start here with a question have been written to us. Did you experience any growth within sales to construction companies? Or was all of the growth M&A driven?
No. What we have seen is a growth within the U.K. business, which is to the builders [ accelerate ] there. We have had a very good development in the U.K. markets.
After the Finnish acquisition, what is sales split between the balcony and the facade renovation/other segments? .
It's still mostly balcony. We haven't more -- still more than 90% who is balcony side. And facade is between 5% and 10%.
How is the acquired business evolving? .
So far, it's evolving according to plan. We are very pleased with the acquisition so far.
That's been a very good start, I would say. We have had a very good first start-up integration meetings. We are working really closely together with the Riikku Group, both regarding product development, and also development of the business in Finland. And Suomen ohutlevysasennus have also been here, and they are also being able to sell the Balco product for the Finnish market ahead. So we are really satisfied with the start-up and the start-up integration. Then of course, we have a lot of work to be done, but it has been a good start. .
What drives the sequential improvement in the gross margin compared to Q4 2023?
No, it's -- one part is, Suomen ohutlevyasennus is very strong. We have also seen very good stable business in the new build side. That has been very positive. Both stable as planned for the Riikku Group and then good development in U.K. So I would say mostly from the new build side, it's been improvements.
Improvement.
Would you say a new normal level for the gross margin is 20% to 21% after the acquisitions?
Could be a quite stable margin. We think it should be an in that, yes, more or less in that level.
[Operator Instructions] And we move on with another question here. Could you talk a bit more about the differences in various markets and countries, a quite dramatic decrease in Sweden in the quarter, renovation, how much of the SEK 80 million -- SEK 86 million increase year-on-year in order intake is related to the acquisitions? Did you get the question there?
No, to be honest, no. Could you repeat it? Was it, how much of the order intake that was in the increase? Because as we said, more or less the full -- the increase is coming from the acquisition. If you compare it to previous year, if that was the question.
Yes. And also, can you talk a bit more about the difference in various markets and countries?
We usually don't give up too much, so to say, about the development in the different countries, but I can make a very short overview of it. And as we said, we can see that we have a good development in the U.K. market, developing really fine. We have had a little bit more, so to say, a challenging situation in the Nordic market. But if you compare to previous year, actually, Norway have performed better, and Sweden is a little bit lower than previous year.
In terms of current trading and current demand, what do you see strongest versus weakest demand per region? You mentioned longer process in general, but is that for all Nordic countries?
Yes, I would say it is for all Nordic countries, and it's actually -- it's coming in, both in Sweden and in Norway, and that is to the tenant-owned associations of course. And we also actually see it in Denmark where also the processes --even if you are chosen as a supplier in the processes in Denmark, it takes a really, really long time now before they have finalized how many people should have, because there we are doing [indiscernible] balconies and there it takes a long time for them to decide how many should really go into the project and have a new balcony. So that is really change in the market that we have seen for -- since actually 1.5 years ago, and that continues.
[Operator Instructions] So it seems like nobody wants to ask a question anymore here. So I will hand over the word to you for some concluding remarks.
Yes, concluding my remarks, I would say that, as I said before, we still have a challenging market, but the market remains. It's not -- the demand for the renovation for the balcony or for the facade is not disappearing. And with the new regulations that will come on the energy savings demand, we see that there will be a good market for us ahead both with the glazed balconies, but also, of course, with the facade renovations and to be able to take these turnkey projects. We know that our products are really valid for the coming market, and we really believe in our products that we have seen, especially with the new products where we introduced now to the Norwegian market. But as I said, we will have an effect, both on the sales and results for the coming quarters also.
Thank you so much for the presentation here today, and thank you all for tuning in. I wish you a pleasant day.
Thank you all.
Thank you.