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Welcome to the Balco Audiocast with Teleconference Q4 2021. [Operator Instructions] Today, I am pleased to present CEO, Kenneth Lundahl; and CFO, Michael Grindborn. Please begin your meeting.
Excellent. Thank you. Welcome to this Balco presentation. Michael, Page 2?
Yes.
Q4 more than doubled order intake in the quarter. The order intake increased by 111% to SEK 484 million compared to SEK 230 million last quarter -- year quarter, and it was 38% higher than in the fourth quarter 2019. The order intake was 49% higher than the revenue in the quarter. So the order intake is really working well, and it looks good going forward in the next quarters. We have some new financial targets. We have a new profitability target. Earnings per share should grow by 20% per year. And we have also a new sustainability target: more than 30% of the group's sales shall be within the EU taxonomy and provide at least 30% energy savings for our customers. And this is what we call the Green Transformation of estates. I will come back to that later more in detail what it is. Green Transformation of estates. We had an order -- Green Transformation order in December of SEK 103 million, as you will have seen. Of course, we had also other order intake in the Green Transformation that is also a little bit bigger. We had signed also 2 cooperation agreements. That was also 2 Green Transformation projects together with total of SEK 250 million and expect these to be orders in, I would say, first half of '22. Balco Living. I would say that in this presentation, the most important that has happened, this is actually the Balco Living product segment. It's the most important thing that has happened in Balco the last 20 years. If you look at Green Transformation of estates, I think that will be 30% of our business pretty quick. Balco Living will be an even bigger product segment than the Green Transformation of estates. Therefore, significant development resources, we have invested in that over a period of 1.5 years to develop this product segment. We are the first in Europe to offer this product segment. It's a unique product segment to solve the cramped living space. Of course, there, you could say the marketing is in 2 areas. One is, of course, [ Almedalen ] Brf Sweden where you have some political focus, of course; but I would say the quickest orders we could get are the Brf Norway and private owners of buildings. This new living space has a very low construction cost, and it gives an additional square meter price on the new space, will be extremely attractive. And it can be a way to lift vulnerable areas and make them more attractive. This product segment should be able to provide major positive social effects. Yes. Michael, please go on.
Yes. Turning to Page 3 and have a look at the Q4 financial highlights. Let's start with the net sales. Net sales increased by 20%, up to SEK 324 million. And of this, 8% was organic growth and 12% was acquired growth from our 2 acquisitions this year. Renovation segment accounted for 83% of the sales and the new build segment for 17%. Our order intake, as Kenneth mentioned, really strong, 49% higher than the net sales and increased by 111%, up to SEK 484 million. And of this, 103% was organic growth. The order intake was also 38% higher than in quarter 4 2019, before the pandemic. The renovation segment accounted for 87% of order intake, new build segment for 13%. Our order backlog has increased 43% during the year, up to SEK 1.557 billion. Our adjusted operating profit for the quarter was SEK 38 million compared to SEK 22 million the year before with a net adjusted operating profit margin of 11.8% compared to 8.3% the year before. We also had a really strong cash flow in the fourth quarter of SEK 125 million. And our Board of Directors proposes a dividend of SEK 2 per share for this year, divided into 2 payments, SEK 1 in May and SEK 1 in November. Turn to Page 4 and have a look at our 2 business segments and start with the renovation segment. The renovation segment then has also really strong order intake, an increase of 106% compared to 2020, up to SEK 420 million. And the order backlog for the renovation segment has increased by 56%, up to SEK 1.379 billion. The revenue increased in the fourth quarter by 9%, up to SEK 268 million. And the operating profit margin also improved by 38%, up to SEK 33 million, with an adjusted operating profit margin of 12.4% compared to 9.9% in 2020. And we turn to Page 5 and have a look at the new build segment. Also here, good order intake, increased by 150%, up to SEK 64 million. The order backlog for the new build segment has decreased by 13%, down to SEK 178 million, and that's due to we had one maritime order that was canceled by our customer in December last year. So it's now SEK 178 million. Revenue increased also strongly, 148% up, up to SEK 56 million. And the operating profit was SEK 4 million with an operating margin of 8.1% and a big improvement compared to 2.5% that we had in 2020. We go on to Page 6 and have a look at the full year figures for this -- for the year of 2021. Our net sales amounted to SEK 1.12 billion compared to SEK 1.2 billion the year before. The renovation segment accounted for 84% of sales in the full year, new build segment for 16%. Order intake was really strong, 16% higher than net sales and increased by 67% in the full year, up to SEK 1.558 billion. Renovation segment accounted for 92% of order intake, new build segment for 8%. Our adjusted operating profit was SEK 120 million with an adjusted operating profit margin of 10.7%. And our operating cash flow for the full year was SEK 96 million. We come to Page 7 and have a look at the 2 business segments full year of 2021. The renovation segment, a slight decrease in revenue, down 14% to SEK 946 million, with an operating profit of SEK 106 million and then operating profit margin of 11.2%. The order intake for the renovation segment has been really strong, 78% higher than 2020, up to SEK 1.446 billion (sic) [ SEK 1.436 billion ] When we go to the new build segment, good increase in the net sales, 67% up to SEK 174 million. Also improved operating profit, up to SEK 14 million with an operating margin of 8.1% compared to 6.5% in 2020, and a stable order intake of SEK 122 million. We turn to Page 8, and I will have a look at our financial position, which is still really strong. Our equity-to-asset ratio is at 56%, an improvement compared to 49% the year before. Our net debt compared to EBITDA is 0.6 if you include leasing debt. If you exclude leasing debt, it's just 0.3. Profit after tax improved to SEK 90 million compared to SEK 78 million the full year of 2020, and it's corresponding to an earnings per share of SEK 4.12. And we all prepared for further acquisitions. We have an acquisition headroom. We extended our banking agreement with Danske Bank. So it's valid until 12th of October 2024, with a sustainability-linked revolving credit facility of SEK 510 million and we also have an overdraft facility of SEK 75 million, where the Board have also an authorization to issue shares to finance acquisitions if that should be necessary. And we turn to Page 9 and have a look at our updated financial targets that we communicated in January 10 this year. We still have our growth targets as before that we should achieve 10% growth per year. 2021 was really -- depending on the pandemic and with bad order intake in 2020, we had a negative growth of 7% in 2021. Earnings per share shall grow by 20% per year. We had 15% growth in 2021. Our net debt compared to EBITDA should not exceed 2.5, more of a temporarily after an acquisition, and it's currently at 0.6 including leasing debt. Our dividend policy is that we should distribute between 30% and 50% of our profit after tax to our shareholders, and the proposed dividend of SEK 2 per share corresponds to 49% of the profit after tax. And we also have this new sustainability target that more of 30% of the group's sales should be within the EU taxonomy and provide at least 30% energy savings for our customers. And the order intake of 2021, we have 12% as we've provided at least 12% energy savings for the customers. So I -- we turn to Page 10, and back to you, Kenneth.
Excellent. Well done, Michael. Of all the figures that Michael mentioned, I think one that's really interesting to look at, that's the order increase in the renovation segment during the year at plus 78%. That's really good. Now we talk about Green Transformation. During the years, when we are helping customers with the solving with balcony issues, is there -- and this process is, of course, a lot of work involving with meetings, votings, financing, building permission, applying for approvals, et cetera, et cetera. And many, many times, the customers have asked us to do more and more. And step by step, we have done that. In Holland, we have an energy consulting helping to transform the building, to see a renovation building. In Germany, we had a resource, also energy consulting, helping the customer transform a building. And in all these cases, it's always started with the balcony because the balcony, when you change that and you do it correctly in our way, it has energy saving effect of between 15% and 30% depending on solution and building. So a cleaner wall, covering the whole wall in the south, that will give an energy saving of 30%. So what we have said and taken decision now is that always when we go to customer find a building, we will also look at the building and see, do they need to do something else? If we can see that they have to do the facade within 5 weeks, we should absolutely do the balcony and facade at the same time. If they haven't sold the roof insulation or if they haven't sold the, how to say, the mechanical ventilation and then, how do you say, handle the energy solutions there, then we shall offer them really to look at this. And this will happen together where we sign the cooperator agreement that we have -- cooperation agreement, then we will look through the energy declaration they have really to try to improve it from E, D to B, C. And here, we will have -- we have an energy consultant that is helping us with this. And of course, the combination of balcony and facade, roof insulation, heat recovery, solar panels, this is the solution where we pretty easily can, how to say, make an energy saving more than 30%. And of course, importantly, is that the combination of energy saving, helping with the building permission, voting and the financing and also that we are total contactor, this is really the key for success. And we find it really our obligation to tell the customer the possibility to have because if they only do one thing in the solar panel, the roof insulation, I mean with some years in between, you can never do this big transformation of the building and also solve the green financing. If you look at the objective is that we shall have at least 30% of business. During the year now, it was with an energy saving of more than 30%. During the year, it was 12%. In the quarter, you see now that it was 25% in Q4. And this means that 25% of the order intake was in the EU taxonomy. And we see that we have a very good interest in this. And we -- already now, we have sold pretty much, you see that in Q4. And I think that this year, it will probably sell for between EUR 30 million to EUR 50 million in the Green Transformation segment. Okay, we change page to Page 11. Balco Living, this is a totally new segment. And it's simply said like this: if you have an old facade, old balcony and you really need to do something, instead of building a cleaner wall, you can actually build a living area with the opening functions that we have for glazing. And this -- there are major advantage of doing this, of course, the value of the property, you get more space. This project, you can do combine with the Green Transformation project. So if you do a Green Transformation project for the whole building, combined with extending your space, say, up to 20%, we can do -- extend the space at up to 20% without increasing your total energy cost. So the extra space, the energy cost for that will be theoretically 0. And of course, if we look at what kind of customer, what segments will this be, and you can say that there are 2 parallel levels here: in Norway, it is Brf tenant-owned, absolutely; in Sweden, private owners and it can be hotel, a hotel that has a nice area to the lake that can easily, on one side, at least at 10 levels, put up 5 levels of these and we'd have an extra space. So there will be some quick projects. But in the other areas like [ Almedalen ] or in Brf tenant-owner in Sweden, every time when we work with glazings, there is a process regarding building permission and also a [ byggnadstillstånd ]. And here, we will have the same issue. It will not be more difficult, but it is the same issues that we have in the glazings when we are seeking building permission here. And in this marketing area, we will, of course, go a little bit the political way because this is really one way to solve that people have too little living area. This segment here, we have worked with this, say, 1.5 years. It's owner, us doing this. And the only area I've seen someone using the space like this, that's in Spain. And Spain have glazing, but they are uninsulated, but they live in this area anyway because they have so little space. So this is a new segment. And there are, of course, a lot of patents here already now. But step by step, there will be even more patents going forward further here because we will able to introduce 75% of all the patents we have in the existing systems. And there will be also new patents, especially when you assemble and you produce these and also regarding the floor. And also, already now in the last 2 weeks, we have found out that we can, if we want to, build this space here, but we can also have open sliding doors in the front and put in open balcony levitate extended on this. So they're adding more and more opportunities all the time. And if you can summarize this, I would say this is the biggest thing that has happened in Balco in the last 20 years. We will have 3 development resources working with this all the time because these would be able to develop, find new ideas, and we're really happy to be able to do this. And of course, we have -- like some person asked me that this is a lot of education of the customer here, but who have -- who are meeting all these customers today in the renovation segment. Balco is meeting them. And this -- the key combination here of product, patents, knowledge, the sales organization we have, meeting the customer, total contractor, Green Transformation and financing. If you don't have the correct product here with any of the saving, the lifetime of them and the financing, then you cannot do this. So there is a lot of -- and also general contract. There's a lot of -- this is not just about the product. It's a lot of combination that makes this really strong for Balco.Okay. Anything to add, Michael?
No. I think we can head over to Q&A.
Yes.
[Operator Instructions] Our first question comes from the line of Nick Fhärm from SEB Equities.
So I would like to start this Q&A session by asking you a little bit about the gross margin and the SG&A cost situation as you believe it is right now. First of all, could you walk us through the main parts of the gross margin change year-on-year, which I think is quite good? And also my second question is, do you expect to be able to extract additional cost leverage? I think the SG&A cost of sales ratio is also moving in the right direction at this point in time. Or should we expect these levels to be base case going into 2022, please?
Michael, it's your ballpark.
Yes, I can start. Yes, our gross margin, we have seen improvements during the year. And this is really despite that we had, especially in the beginning of the first quarter, have had a little bit too little to do in operations and in production. Main reason is that the biggest part of our sales have come from our higher gross margin market with Sweden and Norway having a big part of the total sales. But despite the material increases that has been really high in some -- especially in aluminum, we have been able to increase our prices at the same level, and we also have indexes in our order backlog. So we are confident that we can keep a good gross margin on this level going forward. When it comes to sales and administration costs, they have been quite, I would say, stable. Especially the administration cost sales, we have increased some resources and also been more active now in the marketing area, being able to travel more and meet our customers. But I would say when sales are growing, the ratio of sales and admin costs should decrease. So we should see a positive impact of our EBIT margin when net sales are increasing.
Excellent. Very clear. My second question is, if you would, if you put any range or any number of what a continuing good order intake actually means in current trading? And my second question is the 2 agreements that you landed towards the end of last year, when -- best guess, when do you expect that to be in your order book in 2022, please, the SEK 250 million, that is?
I think that if we look 2 quarters in front, order intake, more than 40% or 50%. I would say, up 50% then perhaps. And then these 2 cooperation agreements, the best guess is the first half year. But there will be more cooperation agreement coming, but it was really a lot to happen in Q4 last year. But I would say the first half year.
Very much appreciated. And just for the record, the SEK 250 million, whenever they land in your order book, is that included in the, say, 40% to 50% growth you expect for the first half in the order intake?
Perhaps half of it. You should know that there are so many orders. So I mean depending on when they land, it's a big hit. So I would say that if one of them landing, you will still have a very good order intake.
Right, right. Got you. All right. My -- and then final question, then I may come back into the call later on, but that would be just for the record, I was also a bit surprised on the lower tax rate in full year and implicitly in Q4. Is there any reason for why we should not expect a more sort of tax cost in line with the standard tax, corporate tax rates going forward, please?
Yes. We had some good opportunities with our 2 acquisitions that they have not -- maybe excessive depreciations also before. So that's the main reason coming from 2 acquisitions. Going forward, as you said, we should be more on the standard tax level of a Swedish tax. I can also just mention that we changed our profitability target we had before, but we should have a profitability of 13%. But we -- the reason that -- one reason that we changed it to earnings per share is that we see that the acquisitions and the companies we are looking to acquire, they -- more or less, all of them have lower profitability than us. And without the 2 acquisitions, really, our operating profit margin would have been 1 percentage higher in the full year of this year. So that one impact that we changed the profitability goal on earnings per share that they add SEK 2 earnings per share, but they decreased really the margin, more or less all acquisitions we will do.
[Operator Instructions] Our next question comes from the line of Sofia Sörling from Carnegie.
So great question from the previous speaker. But my first question now, do you see that you will need to increase your workforce during 2022 to meet the demand for these large orders, including the said renovation and the bulk of new renovation?
Yes. But that, we started with that already in Q4. So I would say that going forward, we can hire people in all areas. So far, of course, it's a little bit more difficult in different countries, I would say, a little bit, yes. But we get people and we are in advance. I will say that our order intake will be really good first half year. Turnover profit, yes, of course. But I think our issue now is not people. We are hiring people all the time. It's building permission. I mean we increased order intake in the renovation segment with 78%. So everything is about when do you get the building permission for each of one of these projects. And of course, if you get 3, 4 building permissions in the same week, wow, then, of course. But we have a long history of this. We know a little bit what happened, but this is always what the operations side is working with, where shall we have the result. The operations, of course, are really flexible. So I mean we can -- we'll resource the product leaders, some leaders to different companies depending on which situation they have. And I mean already now, we can see that if all the building permissions lands in TBO and RK Teknik, what they have sold, then after the vacation, they will not have a chance to do all this work itself. So already now, Balco AB is preparing and thinking how can they help them if these building permissions come in.
All right. And the building permission, then you mainly mean the Swedish market? Or is it the same in other markets as well?
No, it's the same in other markets, but it's very different depending on how they are working with it. You can say that Norway is very quick; Germany, extremely quick; Stock -- Sweden, okay; Stockholm, disaster. I would say the new thing that has happened now in Stockholm, you have seen that for the first time, is that the waiting time for [ byggnadstillstånd ] is 2 years. And now some of the big 10 Brf, they are actually taking the decision to not go to the [ byggnadstillstånd ] because in 99.9% when they go to the [ byggnadstillstånd ], they get yes anyway. So this is just, I'd say, delay stupid issues. So when a tenant on there in Stockholm now feels secure that they don't -- will not have the problem of the [ byggnadstillstånd ]. They don't even apply for it. They go directly after the building permission. So this is -- so the answer to your question is very different depending on which country you have and if you try to build something in Stockholm, that's the longest time.
Understand. All right. And a question about the price index that you mentioned. How much of your order backlog is tied to this price index? I think you mentioned before like 80%. Is that still the case?
Yes. And I would say this is why Michael feels strong about -- I would say, comfortable about the gross margin. And I would say if we wouldn't have material index, as we have, then we would have had stomach pain. But our calculations, how we calculate the orders in the order stock, if you look at the material price that we have had, the material price that we have booked or the materials prices we are going to get, this is the key issues first. And of course, here, we are prudent. And then material index. If you have a material index, this is many, many millions. This -- I would say that, Michael, I think it's EUR 3 million, EUR 4 million in the order stock. These, you don't take in, in the beginning of the project. You never do that. The project leader would never do that. The first 3 months, he will not touch it. Perhaps after 6 months, he will be taking some of it. And of course, there have been a negotiation with the customer. But you will only get out the material index when the project is ready, when you invoice the last invoice. But here, I will say that we are really having control of this, which kind of index we are using then the offering in the different companies and in different countries. And once thing we actually changed now is that one of the companies we have, what we call a [ Smedes ] Index, that's a lot correlated to steel, that we changed now to the building index is that because we think that steel is flat now going down. Steel price is going down, okay, good. Aluminum prices from December went up, not a problem for us, but probably will go down later on. But we use index now where you have more workforce involved because we think that the next coming years, you will have to lead a bit higher wage inflation. So it's important to have a, let's say, modified index depending on what's happening.
All right. And the new build division, is the sales for this mainly driven still by the maritime projects? Or has -- it seems to be it has increased due to your acquisitions in 2021. Or what is driving the, perhaps, both the order intake for new build and the sales in new build?
What is driving -- the new building area going forward will look pretty nice because of a patent product called Levitate. And that's a real product we are selling initially now in U.K., and we have done really good work here, getting down the cost, made it more efficient and so on. And so here, I would say in U.K. this year, I think we will sell perhaps EUR 8 million, EUR 10 million of this product patent, and that's only in the new building area. And this is interesting. This is, as I said before, patent product, customer like it where you actually can earn more than 10% in the new building area that we like. This product, when you have sold it to customer, you send some of the steel beam that they put in, in the building. Then later on, when the building is ready, we come there and we can put up 50 balconies in 1 day at once, and then we are done. And we can go from the building area, and that we like. Because being at the building areas at the same time as build, that never works good. So we like this product and this product is unique, and I think it will also sell in other countries than Germany. It can sell in Holland, Germany and also in Finland.
All right. And my last question, the order intake, can you give us the split between the organic and how much is structural-driven in the quarter?
Michael?
Yes. In the quarter, we had organic order intake increase of 103%. And yes, the remaining 8% was from our 2 acquisitions.
Our final question comes from the line of Nick Fhärm from SEB Equities.
Just some more details on the financials. I was just noting the quite significant improvement in working cap in the quarter and especially the plus 100 item in there. Could you give us an idea what's happening in the working capital development, please? And I guess the question is really whether there's any structural change that we should be aware of going forward or if it's more a year-on-year outcome?
Yes. It's more of, I would say, quarter-to-quarter outcome. It really depends, as we say, where we are in our projects when we have a possibility to invoice customers. And we have, in general, very good paying customers. So 30 days after we send the [ name ] was we get paid. So it's more when -- where we are in the different phases of building different projects. So if we have big projects that are in a phase that we can invoice, we get good receivables and then [ paid ] 30 days after.
Right. So you don't make -- you don't expect a bit -- yes?
So you should really see, when you look at our cash flow and operating cash conversion, operating cash flow, you should see it with a 2-, 3-year trend. And then it's very quite stable, I would say, our operating cash conversion is 70%, 75%.
Very clear. My final question, if I may. Could you just give us an update on sort of your M&A strategy? Last year, you acquired sales of SEK 145-ish million in revenue. What would be the sort of the average or typical acquisition targets on your list? And could you also perhaps voice what you actually think? Given your current balance sheet, given your new financial targets, what is your acquisition capacity going into 2022, please?
I can answer the first question, Michael. We think we will do between 1 to 3 acquisitions this year, and that will be mainly in the balcony segment in the Nordic countries where we can see that it can support organic growth. But we can also add companies supporting the Green Transformation part. Solar panels companies now, we don't see that we need to buy something with a big cooperation agreement. Roof insulation, yes, that would fit us perfectly. So that's the answer to the first question. Michael?
Yes. And when it comes to acquisition headroom, we have done some simulations on that, and we have financial muscles to handle these kind of acquisitions without any problem.
Yes. I just noted your proposed dividend is also at the upper end of the range. So that's my question. Very clear.
Yes. The main reason for that is that we didn't give any dividend last year, so that's why we thought of it, but it should a little bit cover not giving a dividend last year.
I'm sure it's well received.
Thank you. We currently have no further questions. I'll hand back to the speakers for any final remarks.
Okay. Excellent. Thank you, and we wish you all a really good day.
Thank you very much.