© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Hello, and welcome to today's webcast presentation where we have Balco Group presenting the Q3 report for 2023. With us presenting, we have the CEO, Camilla Ekdahl, and CFO, Michael Grindborn. [Operator Instructions] And with that, sir, please go ahead with your presentation.
Thank you. Thank you, and welcome to our presentation. First of all, to all new listeners, we take a short snapshot of Balco Group. Balco Group consists of balcony, facade and installation companies. We have several brands such as Balco, Balco Altaner, TBO-Haglinds, RK Teknik, Stora Fasad and Söderåsens Mur & Kakel. The head office is located in Växjö. Our core expertise is to replace old balconies with new larger glazed balconies. We are mainly working in the renovation segment, but also provide projects to new building sector.
Our main customer group are tenant-owned associations. We are the market leader in Scandinavia and the Balco glazed balcony can give up to 15% to 30% energy savings.
Going over to the quarter, we have had stable profitability despite lower sales. The net sales in the quarter was SEK 253 million versus SEK 311 million previous year, same period. The adjusted EBITA margin improved from 5.6% to 6%. If we look on the highlights for the quarter, it is that we have actually entered a new market, Ireland, where we have taken the first order worth just over EUR 3 million. We have had good sales in U.K. before with our product Levitate for the new building segment, and we now enter the Irish market with the same product. We see good potential in this market ahead. We can see that there are about 350 building projects already now going on in Dublin, including balconies.
We have also continued our sustainability focus and we have committed to develop short- and long-term targets for emission reduction, including net zero targets in line with the science-based targets initiative. We also know that there is and will be a great need to renovate not only balconies but also the entire surface layer of apartment buildings. And there, the balcony is often the trigger for starting these transformation projects. Therefore, we have signed a cooperation agreement with a Norwegian company, which works with the green transformation projects, and we see big potential also here in the cooperation ahead.
If we look back 1 year ago, the macroeconomic expectation was that the Swedish policy rate should top in 2023 on 2.25%. Now it is 4%, and it can be even higher. These have given us a lower order intake in the quarter than expected, even though that there's still a big interest in our products, it's also a little bit a matter of time because we actually received, as you have seen in our report, order of SEK 70 million here in the start of October. But we -- our assessment is that we will have a continued delay in the order intake until the central banks clearly communicate that the interest rate increases are over.
During this time, we continue to focus on cost to defend our profit margin, and we make adjustments to the organization, but we retain important competence so that the company is not damaged for the future, and we are prepared to take the projects in the future also.
Yes. And having a look on the financial figures, I'll start with the biggest for -- the total group, we had net sales, as Camilla mentioned, of SEK 253 million down from SEK 311 million last year. Here, we had acquired growth of 6%. We have also positive currency effects of 2%. So the organic growth was negative by 26%.
Adjusted operating profit, EBITA level was SEK 15 million compared to SEK 17 million last year, corresponding to an improved operating EBITA margin of 6% compared to 5.6% last year. Order intake in the quarter was SEK 135 million, down from SEK 265 million, and our order backlog at the end of September was SEK 1.067 billion, down from just above SEK 1.4 billion last year.
Earnings per share was SEK 0.26, down from SEK 0.48 last year and our operating cash flow amounted to SEK 20 million in the quarter compared to SEK 104 million last year. And if we go over to the Renovation segment, here, we saw improved profitability. The net sales was down from SEK 284 million down to SEK 225 million, which corresponds to 89% of the total net sales in the quarter.
Order intake was weak. It was just SEK 82 million, down from SEK 256 million last year. And -- but the operating profit was better, SEK 16 million compared to SEK 15 million last year, and it corresponds to an improved adjusted operating margin of 7.1% compared to 5.3% last year. Order backlog end of September was SEK 899 million, down from SEK 1.3 billion last year, and it's 84% of the total order backlog.
Our new build segment net sales was stable, SEK 28 million compared to SEK 27 million last year. Order intake was quite good. It was SEK 53 million, up from SEK 9 million just last year, same quarter. Also operating profit was stable, SEK 1.5 million, the same as last year with an operating margin of 5.1%. And the order backlog has, as a matter of fact, increased to SEK 168 million, and it corresponds to 16% of the total order backlog. And our financial position is still strong. We have an, at the end of the quarter, equity of SEK 758 million. It's SEK 30 million more than we had in the same period last year and also our equity ratio has improved to 57% compared to 51% last year.
Our net debt, including leasing divided by EBITDA was 1.5%. And if we exclude the effect of IFRS 16 leasing, it was 1.1%. We also have prolonged our agreement with Danske Bank for another 2 years. So now it's valid until October 12, 2026. And it's a sustainability-linked revolving credit facility of SEK 510 million, and we also have an overdraft facility of SEK 75 million.
And having a look at our financial targets, we have a group target that Balco should grow by 10% per year during the business cycle and here at the end of September, it was 3% growth. The profitability should be -- we have a target that our earnings per share shall grow by 20% per year also during business cycle. And here, it was minus 10% end of September. For our capital structure, the goal is that our net debt to EBITDA shouldn't exceed 2.5x more than temporarily. And here we are, as I mentioned, 1.5x, including leasing debt and 1.1x excluding leasing debt. We also have a dividend policy that Balco should distribute between 30% and 50% of the profit after tax to shareholders, and we decided dividend for 2022 was SEK 1.5 and it corresponds to 40% of the earnings after tax.
And heavily of the sustainability, as Camilla mentioned, we have made an important step in the quarter and committed to the science-based target that we should develop long- and short-term targets for emission reduction, also including net zero target. And this will be done together with the science-based targets group and should update the current targets we have today. And as a part of this, we have took one first step. We have a new car policy that we introduced now from October 1, allowing just electric cars during a short period until end of 2025, we will have some specific hybrid costs that also would be allowed. But from 2026, it will just be electric cars, but we have -- and this is, of course, to reduce the emissions from CO2. And some market update, Camilla?
Yes. Thank you, Michael. We now hear that there is still a demand for our products, and we see that activity inquiries and discussions about projects have actually increased during the third quarter. However, the decisions take longer time than before. There are longer decisions depending on the higher interest rate that we now have and also other cost increases that the tenant-owned associations have got, so therefore, there are longer discussions with the banks, they are longer discussions with potential advisors. We have -- here in Balco, we have a unique sales model where we can also support and help the associations in these kind of discussions. We have financial expertise to help them to see which kind of increases on the monthly rate they need to take to cover their investments for the balconies. We know that there is, as I said, and there will be a great need to renovate not only balconies but also the entire surface layer and we will be part of this necessary change by being able to run turnkey projects to our customers.
And as we said also here as a market update, we have had a good development in the U.K. market, and we have now entered the Irish market, which we judge to have good potential also for the future. And once more again, I will say here that the need for renovation will not go away, postponing the measures will not improve the balconies. And actually, there can be that -- if they postpone too long, it can actually also be a danger to both the residents as well as people moving around the balcony when parts of the concrete can fall down. And in worst cases, they can need to close access to the balconies. We have had these kind of projects from a historical point of view where they have waited too long. So of course, they can be postponed for a period, but there is a need and that needs to be taken care of longer.
If we look on our acquisition, acquisition are an important part of Balco Group strategy and is also in the future. We are looking for European balcony companies or companies with activities that can complement Balco's green transformation product offering. And we continue also to work with a decentralized business model where the company retains its own brand, identity and culture, but we are also looking on synergy effects, mainly in production, sourcing and operations. So if we make some concluding remarks for the quarter, the net sales, SEK 253 million and an adjusted EBITA margin of 6%. We have entered a new market, Ireland, where we have won the first order, and we have signed a cooperation agreement with the Norwegian company, which works with green transformation projects in Norway.
And the outlook ahead, renovation, as we said, the need still remains. About 90% of our turnover comes from renovation. But we can, of course, see that the lower order intake in the past year will affect the turnover and earnings in the coming year. But we continue to focus on cost to defend our profit margin and adjust the organization accordingly. We also have several ongoing acquisition discussions and will receive various prospects on an ongoing basis, which we evaluate. We focus on profitable companies, and we are very selective in our discussions on acquisitions ahead.
That's all from us. So questions?
[Operator Instructions] And we've got the first person calling in with a question. Please go ahead with your question.
So thanks for the call and the presentation so far. If I may just start with a couple of questions. I was wondering, first of all, could you give us an update on the progress in your 2 savings program, 1 and 2, that is hopefully going to impact your bottom line in this year and perhaps slightly in 2024 as well. How much of these savings have you actually achieved after 9 months 2023, please?
They have been fully achieved. So we took onetime costs for some people who left the company, but still have -- they have, of course, a negative impact still on our cash flow. But in our adjusted profit, it's all taking already.
On the big saving projects, but then we have -- as we said, we are continuously evaluating and making adjustments.
But the 2 big programs are fully implemented.
Okay. So I guess to conclude, you think you are well on par with expectations with regards to taking out costs, and these savings have benefited your EBIT so far this year according to your plans. Is that fair?
That's correct.
Okay. Excellent. Now turning focus to the cash flow, please. If we look at the first half of this year, you've had quite a significant working capital buildup impacting the operating cash flow negatively. And also in this quarter, despite a rather substantial sales decrease, et cetera, et cetera, the working capital is actually also affecting operating cash flow, not too much, but still anyway slightly negative way. Can you give us some sort of -- could you elaborate a little bit on sort of why working capital has developed the way it has after 9 months, so far, after 9 months in this year? And perhaps also if you could give some thoughts on what you expect in terms of working capital management in this current quarter of the year, please?
Yes. If we have a look at the different parts, we can see that the inventory is stable, more or less no change. We have the ratio between accounts receivable, accounts payables is also stable. It's been reasonable for them. So all working capital increased and what has negatively affected the cash flow is due to what we called project net what we had contract assets and contract liabilities. And here, it depends when we can invoice the customer. We have -- when we enter a project agreement predefined payment plans and certain gates, but we need to come to before we can send an invoice. And this is different in different projects, in different markets, and it can also be different -- would be in the market from different projects. These project phases you have to reach to be able to invest for customer this kind of gates.
And it's been so far this year, but we haven't -- we have had a period where we haven't reached all of these gates to be able to invoice as quickly as we normally do. And one big negative impact we have seen is in U.K., where we have had some projects quite big that have been stopped due to customer having financial problems. So we had to stop a project. We don't have any problems that we -- they will not be finished, but we had to stop this because the customer couldn't -- yes, finalize it right now, but -- so it's in a slower pace in these projects. That is the biggest impact. But then it's always up and down in the project business, you have to reach with gates. So far, we see it's been a negative impact, but it's much worse when we have -- last year, we had an extremely good one, especially the second half of last year.
Yes. Yes, indeed. So -- but would you say except for, say, a particular project, your are on top of things in terms of working capital management and perhaps we should be slightly more optimistic on sort of ending the year as opposed to the first 9 months in terms of working capital changes?
Yes. If we see -- normally, you should see our total and average over perhaps 2 or 3 years. And there, on average, we have 80% cash conversion, operating cash conversion. So I don't see any problem that we will reach that in the long run, in the future as well.
Excellent, Michael. Final question, if I may, and then maybe I can come back into the call. I was just wondering the reported order intake. To what extent that actually at least partly reflect perhaps timing rather than cancel projects, for example. I mean, is there any reason to believe that you could be slightly more optimistic on actually booking some of the orders that you didn't book in Q3, in this quarter instead?
Yes. As I said, we have actually received and written in the report, we actually received a big project here in start of October of SEK 70 million. And that was a pure timing between the quarters, so to say. We have not received any cancellations. So that has not been any problem for us in quarter 3. It's mainly delays either that there was a timing between September, October or that they have actually -- also some that they have postponed to the end of the year. And we can actually see that some will also be coming up in the start of next year. So it's more a timing problem, I would say.
Yes, we haven't seen any cancellations either of current orders or future prospects, obviously. It's just postponing and timing.
And now we'll take the next person calling in. Please go ahead with your question.
This is Sofia from Carnegie. Can you hear me?
Yes, Sofia.
So I have a couple of questions. So I will continue on the order intake. Could you give some more details on the trends during the quarter in terms of order intake? Could you see any like more significant drop later on? Or any other [indiscernible] from your -- from the typical seasonality during the quarter. Yes, that's my first question.
No, we cannot say that we have seen anything sort of special in the quarter versus before. It's actually more -- we have seen more request for quotations coming in and more discussions ongoing than we did just before summer. So it has been actually quite, so to say, quite a lot of discussions starting up after summer period, but we have not received the order intake. And as I said, it's -- the discussions take much, much longer time. We need to enroll more people both from our side in the operations side. And it's not only sales, it's a whole chain where we actually can see that we are working with the project. We try to make the projects appropriate to what the customer can afford. We are working a lot with that. And also, at the same time, working a lot with their finance and, together with Michael, looking on the financial situations for the customers. So it's more than that the discussions take longer time. That is what we can see if we go back. But that is used to, say, 1.5 years ago if we -- then it takes a longer time.
All right. And also, if you can give some logic of entering the Irish market and what your expectations are over there? And is it -- do you reach any other type of end market segment in Ireland?
In Ireland, we are reaching the same kind of segment as we have in U.K. So it's a new building segment. So we are working in Ireland very similar to what we -- the setup we have in U.K. But there is one big difference between Ireland and U.K., which we can see is very good for Balco's perspective, and that is that the fire rules, the fire protection rules are so to say, a little bit easier to handle in Ireland than in U.K. Because in U.K., it's very difficult to have a glazed balcony, that is easier in the Irish market. But in the start here, we continue with the same kind of product and with the same sort of processing the market as we do in U.K., but we see a potential also for glazing there, which we don't see in U.K.
All right. And then also my final question is about your financial targets. So when we see this quite significant order intake decline, significant decline in order intake if you compare to same period last year, and do you find it necessary to look at your financial targets in terms of like growth ahead? Or if you can comment on that.
Of course, we have had that discussion with our Board. We have decided to keep the targets because, of course, the growth target will be tough to reach organically next year. But as we mentioned, we also look at acquisitions, and we see that we have still a balance sheet that can afford acquisitions. So we think that together with acquisitions, the growth target is absolutely possible to reach. And also, that's why we have the growth target on earnings per share, but because if we acquire companies without taking up new shares, of course, improvement even if its -- the percentage in profit is the same or lower than Balco's, that should give a positive impact on the earnings per share. And we [indiscernible] more change as we say, but the goals are on a business cycle. And because every year, it will be tough to reach them, but we think still on -- over business cycle, it should be possible to reach our financial targets.
Okay. We'll take the next question here that we got in from the forum. You say that you're making adjustments to the organization. Can you elaborate on that? Are you going to reduce the staff?
We have already announced staff reduction in some of our companies. So that is an ongoing discussions right now.
Okay. Next question here, is it easy to find good companies to acquire outside the Nordics, for example, in the U.K. or in Ireland?
Yes, Michael, should you [indiscernible] on M&A?
Yes, we get different prospects in different markets, as a matter of fact. And we have looked at some companies in both U.K. and Ireland. So far, we haven't find anyone really interesting for us, but we get prospects from both in these areas where you get it in other markets where we are not present that we'll get it in markets where we are present. And we evaluate them,and we have a couple of ongoing discussions, but we think it's really interesting. But right now, we don't have any in U.K. or Ireland, but we get prospects, and we are still interesting to look, of course, if we find the right companies in these markets.
And given that the economic climate remains the same going into 2024, would you say that Balco Group is well prepared to perform next year?
Yes, we are well-prepared to perform, but we still need to focus as we have said, we need to focus on the cost and we need to focus on the order intake. These are the main things we are working on, of course. We are, of course, need -- we, of course, need the order intake. And we need the decisions to be taken. But we are also, at the same time, working with our costs to make sure that we remain the -- our profit margins.
Okay. That was all of the questions that we had today. Thank you very much for presenting today and answering all our questions. And a big thanks to everyone who follow along for today's webcast and presentation. Hope you have a great rest of the day and until next time, thank you very much, and goodbye.
Thank you.
Thank you.