© 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.
Ladies and gentlemen, welcome to the Nordic Waterproofing Q1 Report 2020. Today, I am pleased to present CEO, Martin Ellis; and CFO, Per-Olof Schrewelius. [Operator Instructions] Speakers, please begin.
Okay. Thank you very much. First of all, good morning, everybody. Thank you so much for participating. Very pleased to have you. Before we start, I also want to extend a warm welcome to Per-Olof, our new CFO and Head of Investor Relations who succeeds Jonas Olin.
Okay. Thank you. So...
Yes. Let's get to the presentation. Before we start speaking about the results, I wanted to give you an update about the COVID-19 status in terms of our operations. It is clear that the absolute first priority is the health and well-being of our employees and customers and suppliers. So we have put in place a number of measures like a lot of other companies, I'm sure, to protect our employees 100%. And as a result, we have seen a very low number of cases in -- among our colleagues. We're happy about that. We have been able to operate close to normal in the Nordics and in most European countries, with the exception of the U.K. and Belgium where there were relatively strict measures and where some of our customers have stopped ordering in the very short term. But we're obviously optimistic that there will be some opening in the future and the total effect has been absolutely marginal. During this crisis, we, of course, focused on our customer credit risk, but we haven't seen any incidents there. Cost control, of course, especially in case that the situation worsens, we are ready to react to that if that should happen. And we are focused on preserving cash as much as possible. The future impact of the crisis is impossible to assess, of course, but we right now would consider that some form of slowdown might hit us if the general GDP development is negative, which certainly in some European countries will be the case. Then obviously, on a 6- to 18-month horizon, that will also impact our business. Turning to the quarter on Page 3. You can see that we've had a strong start. We have net sales up 18%, most of that's organic. 14% organic growth in local currencies, 3% from acquisition of Distri Pond in Belgium last year and 1% from the weaker SEK. EBITDA increased significantly, SEK 32 million after SEK 18 million last year, so an 80% increase. Operating profit, which was slightly negative in a slow quarter last year, has actually turned slightly positive, SEK 2 million. Cash flow from operating activities was SEK 86 million down compared to SEK 61 million last year. The reason for that is mainly that we've been very careful to build inventory to be absolutely sure to be able to deliver to our customers in case of any supply chain issues, and we have been obviously successful in that so far. And we hope that we won't need that additional inventory, but we are ready in case some supply chain elements should fail in the coming weeks and months. Earnings per share, SEK 0.37 compared to SEK 0.44 negative last year. It's also an improvement. The AGM, as you probably know, was delayed to be able to have a better picture of the COVID impact and is now planned for the 15th of June. The Board has just now to suspend the SEK 4.50 dividend that was initially planned to be proposed to the AGM and to ask the AGM to authorize the Board to pay up to that amount at the later stage once we know more about the impact of the COVID crisis on our results and our balance sheet. Moving on to Page 4. As I've said, we had a strong sales development in the industrial part and manufacturing part, 21% increase over last year's quarter. We see strong demand in all segments. And the only exception I already mentioned is U.K. and Belgium for our EPDM business, the SealEco business, but a very small share of the total. Our profit improvement program in the prefab elements business is ongoing, but we can't show material effect so far in our results. The bitumen supply situation obviously has been a bit unusual in the sense that our main supplier Nynas is restructuring, is trying to get rid of the U.S. sanctions which are linked to the fact that half of the shareholders of the Venezuelan PDVSA oil company. This process is ongoing. It seems to go into the -- in the right direction. The restructuring of the company has been extended until the 15th of June. So this is positive. But it has meant for us as a customer that we want to be absolutely sure that we can also live without Nynas, and we have qualified other suppliers to be able to supply 100% of our needs and that obviously entails some costs and some production testing. So the end effect is that the oil price, I would say, has not totally benefited us in terms of our costs, and that we have a bitumen cost situation which is comparable to last year. The last item is very positive in our view. The Danish Competition and Consumer Authority has finally, after 5 years of investigation, decided that we are -- has not done anything wrong in the Danish roofing felt market. Obviously, we've insisted since the start of this investigation that this is our position and we have been proven right now by the final decision of the authority. Moving on to Page 5. We have no change basically, I would say, in the competitive environment, active competition, but we again believe that we have been able to slightly increase our market share in the Nordics. Demand, as we mentioned, very strong. And I would say Finland is maybe the only area where we have some expectation that new projects might not be kicked off as aggressively as previously. But in all other countries, there's no reason so far to see a slowdown. The COVID general GDP impact obviously would change that in the future. But we are sort of late in the cycle, and we're going to be one of sectors which sees that effect later than most other players. We also have continued strong demand in the prefabricated business, both in Denmark and in Norway. Moving to Page 6, you see our footprint. No change there since we haven't made any acquisition in the quarter. So still a footprint which is mainly centered on not only Scandinavia, with some obviously Western Europe presence. And our presence in prefabricated elements in Lithuania, which is increasing in production since we tried to move production from Denmark to -- sorry, Latvia -- to Latvia as much as we can. Regarding acquisitions, our present position is that we have frozen most projects, but we have a number of conversations ongoing. And we don't have an absolute freeze. So we might make small acquisitions even during this period if we see an interesting case. So that's the summary. And now I'll pass it over to Per-Olof for the financial details of our report.
Okay. Thank you, Martin. And then I start on Slide 7, and as Martin pointed out, we had a very good start of the year here. This first quarter was our first -- our best first quarter ever, actually. And if you see -- if you follow the presentation, you can see in the -- to the right the rolling 12 sales number is there is a continuous growth over this period we have in the graph here. The organic growth was 14%, and it's mainly driven by high activity in the Nordic countries. And I particularly want to point out that in Sweden, we grew 40% and in Denmark 26%. If I move down to the EBITDA, we could -- as we see that we grew from SEK 18 million last year to SEK 32 million this year. And I would say it's mainly driven by the volume, the increase in EBITDA. And again, if you check the graph to the right, you see the rolling 12. As a percentage, it's unchanged 11.9% compared to previous quarter here. When it comes to raw material pricing year-over-year, it basically had no material impact on our results. I then move to Slide 8 and look at the segment Products & Solutions. And here, we also had a very strong first quarter, growing 21% and basically growing strongly in all the Nordic markets. And also the EBITDA increased from SEK 31 million in the first quarter last year to SEK 46 million this year. And as you can see in the graph to the right, the rolling 12 is slightly increasing from 14.1% a quarter ago to 14.2% after this quarter. Moving to Slide 9 and Installation Services, where we also had a strong start of 2020 with a growth of 9%. And the EBITDA is negative, it's in line with previous year minus SEK 4 million versus minus SEK 5 million. But the rolling 12 value you can see to the right, it changed at 8.6%. And I would also just like to point out that we had a very strong start of -- for the Danish franchise companies that's included in this segment. Then moving to Slide 10 and the income statement. I would like to point out that Distri Pond was consolidated from February 2019. So we have one additional month in the first quarter this year compared to that last year. And also, you can see that the net financial items increased to about minus SEK 13 million versus minus SEK 7 million a year ago. And the difference here is mainly explained by negative exchange rate variances. Then moving to Slide 11 and the balance sheet, where we can see the, among others, the current assets increase from SEK 964 million a year ago to SEK 1.036 billion this year. This is, as Martin pointed out, mainly coming from us increasing our inventories to have safety inventory in case there's a hiccup in the supply chain. But it's also coming from having a better quarter with more sales and more accounts receivables obviously at the end of the quarter here. On the ROCE, you can see that we are currently at 13.2% at the end of the first quarter, which is above the long-term financial target that we have of 13%. And this is a consequence of us having very strong operating result the last 12 months here. And as we said before, the dividend, the original proposal was to do a dividend of SEK 4.50, but now the Board asks to be authorized to take this position at a later stage. And moving on to Slide 12 and the cash flow, where I think -- we are a very seasonal business and the fourth quarter and the first quarter, they are a low season for us typically and this can also be seen in the cash flow. So this follows normal seasonal variation when we have a negative cash flow in the first quarter. And on top of that, we then also have increased accounts receivable and the inventories to secure supply. But still I will say that we have a strong cash conversion at 75% on a rolling 12-month basis. Okay. With that, I will hand back to you, Martin, on Slide 13.
Okay. Thank you very much, Per-Olof. Our financial targets are unchanged, and we have been able to stay in line with our targets on sales growth, profitability and capital structure. As you've heard, the dividend policy obviously is still in force, but has been suspended temporarily to take account of the COVID situation. Our output -- sorry, outlook at Page 14. As we mentioned, we are not in a position right now to make a prediction for this year. But again, I think to sum up, I would like to insist on the fact that so far, we have had only a very small impact from the crisis, and we are still on that page right now. When we look at the April activity, there is no change compared to that. But again, the second -- the third and fourth quarter might obviously be impacted by lower demand in general. Thank you very much. That was our presentation, and we are looking forward to your questions now.
[Operator Instructions] Our first question comes from the line of Kenneth Toll of Carnegie.
So a couple of questions. First, I was surprised about -- of the good sales you had and you talk about taking market shares a bit. But do you think also that your customers are building inventory to sort of secure operations in these uncertain times?
Yes, that's obviously an excellent question. We can't really confirm that. I mean it will make sense. It would be common sense, of course. But we can't definitely confirm that. But it is likely, but we are unable to quantify it. So what we hear is obviously that customers are happy that we can supply. They mentioned that to us. But it's difficult to put the figure on that.
Yes, so it might be some effect.
Yes, yes. But I would speculate, it's not a huge effect. I think we're just seeing the continuation of the very strong demand we've seen last year. There might be a small weather effect. I mean weather has been quite okay. And also there is one smallish effect, which we hadn't mentioned, is that we have some resale business in Finland which is a special project where we resell insulating, waterproofing materials for a gold mine. So that Finland has -- when you see the Finnish increase in sales, part of that is linked to this special project which will continue until second quarter but not any longer.
Okay. Also, you mentioned that you see an active competition in the Nordics. Is it in all the Nordic countries or it's expanded to the Pacific country? And also, is it new players coming in or it's the old players?
Yes, I think it's pretty much -- I mean what we've seen last year, there's nothing special and new, and it's the same players as before clearly. You could argue that some of the European players have stopped their production, so that allowed us in some cases to take on new customers, at least for the time being because of that situation. It's not a huge effect. And I would say the low-cost players have continued to be aggressive, TechnoNICOL. And again, no radical change, but they are clearly continuing the push they've had for the last year.
Okay. And then I remember in the last call, you said that you have hedged if it was half of your expected bitumen need for 2020. And now the oil price have really gone down. So would you expect -- and I would expect that you had hedged your bitumen prices on a higher level than where the current oil price is indicating for bitumen. So can you talk a little bit about negative or the effect on earnings going forward from that?
Yes. So we have hedged quarter 3 and 4 of this year and quarter 1 and 2 of next year. And you're right, it's a level which is currently higher than the spot level. On the other hand, you could say it's a level which is pretty much in line with what we had last year. So it's still historically quite favorable. So we don't see a huge impact from that.
Okay. So you could or -- sorry, you should maybe experience some positive effects in Q2, or is it too early for the bitumen prices to go down?
Yes, that's correct. And we'll see it in the accounts of Q3 because it stays obviously in inventory for a little while. And we usually have 2 to -- I guess, 2 to 4 months' lag in that. But in Q3, we should see an impact. But still, I would say that historically, it's a quite mild -- yes, nothing unusual. I would say, basically, pretty much in line with last year.
Yes. And it's about half of your sales that is related to bitumen prices, if I remember it correctly.
Yes, correct. And again, it's only 1 of the 3 raw materials, and it's probably now slightly less than 1/3 of our total raw material costs in the bitumen-related products. So it's not a huge factor.
Okay. Great. And then finally, if you can say something on building elements. You write in the report that the cost-out program continues. And last year, you had very uneven demand and postponed orders that made it difficult for you. So can you talk a bit on what's happening at the moment?
Yes. So we have a good order -- a very good order situation, and we see the segment demand in general expanding, which was really the key rationale when we entered this sector where we saw sort of a secular trend, and that hasn't been invalidated so far. In terms of our profitability, we have challenges in -- especially in Norway, but also to some extent in Denmark, where we need to optimize our cost structure, we need to -- and we've started to do that, decreased our overhead and continued to shift volume from Denmark to Latvia. And we maybe haven't done that as fast as we decided and as we thought we might be able. And there has been a significant increase in the volume we've produced in Latvia. But obviously, in an ideal world, this could be even more. So we are working on that. We are making progress on the buying. We had a very focused effort on reviewing all of our buying prices and that started to reduce those. But so far, we haven't seen the impact. Obviously, when you restructure, when you reduce overhead cost, for example, there's some cost to that, which comes into the account immediately without getting the benefits so far. So we believe we are on the right track but we can't declare victory so far.
Our next question comes from the line of Karl Bokvist of ABG Sundal Collier.
I would like to, first of all, follow up a bit on the raw material side here. So the first question, when you say that you have hedged 55% of expected volume in 2020 and 46% for '21, I'm just curious about the -- if you could provide an indication of the hedged price level. Was it a level that we, perhaps, would have seen at the beginning of this year or more towards the end of this quarter, given the fact that the raw material prices have -- well, they've been quite volatile during the quarter as well?
Yes, I think to sum it up, it's a level which is maybe very slightly below last year's actual level, which means that historically, it's -- maybe I could say it's relatively low but it's not extreme. I mean when we hedge, we obviously hedge linked to historically what HSFO index, now it's Brent. But we also have a fixed element. So we pay the suppliers a fixed amount for the refinings, yes, which means that the hedging effects, depending on the absolute price, maybe 60%, 70% or even 50%, in some case, of the total price we're paying. So it's not a 100% impact. So I would say that the whole picture is that it's quite marginal changes really compared to what we've seen last year.
All right. And then you mentioned the situation with Nynas and that you've had some additional logistics costs in terms of securing supply. If you perhaps can you just play out 2 different scenarios here, one scenario where Nynas returns to operations as they did perhaps last year and one scenario where Nynas will be unable to continue to deliver to you. What should we expect?
Yes. I think as it looks now, Nynas will continue as before. Basically they will have obviously different oil resources. They will, I think, predominantly use Russian oil, which is very well-suited also for roofing bitumen as opposed to Venezuelan, which they used historically but probably less and less already last year. I think the picture is quite positive because we have qualified additional suppliers, which means that, in principle, we have a better chance to get good prices overall since we have a large choice, in fact, than we used to have before. So I'm quite optimistic, but I do expect right now Nynas to continue operating normally.
All right. And just a follow-up on that. If we -- for how long do you expect that you will have incremental or additional costs related to logistics because of the current situation?
Yes. But that's basically over, I think, we have now established suppliers. The cost is related to the fact that you have to test the product. So yes, you have to make special production runs for that, et cetera. So there's some operational inefficiencies linked to that, but almost all of that is behind us now.
All right. And if you could have perhaps provide an indication of what you have seen so far during April and end of March throughout the different regions here. You mentioned that you have seen limited COVID-19 impact. But in the Nordic countries, perhaps have you had any issues related to being restricted from the building construction sites, restrictions to delivering the products, installation technicians not being able to perform the duties. Anything like that?
Yes, very little. So I think, obviously, we're lucky in the Nordics, the situation has been managed quite flexibly by the government. So extremely marginal impact. Obviously, we do -- we work from home much more than before. And we, like everybody else, we expect that probably to continue in the future. Because in some cases you'll discover efficiencies and you don't want to go back to slightly less-efficient modus operandi. But the impact on building sites has been marginal. Of course, there is rules for distancing, et cetera. So there's a slight inefficiency. But in terms of the behavior of our customers, nothing material.
Okay. And then on pricing, have there been any changes here recently in terms of price changes to your customers or to the DIY merchants or anything?
Yes. Short answer, no. And again, I think the word of caution is that this might change in the future. I think if there is a GDP impact, if there's a volume impact, then you might see additional price pressure, but we haven't seen anything of that so far.
Okay. And my final question relates to Veg Tech. You mentioned that it had a quite good development here, one can see it quite clearly. But is it related to increased demand for those types of solutions? And how much is related to good weather conditions that has allowed the Veg Tech business to, I can just assume, grow and produce more of their material?
Yes. I think most of it is really a short-term demand effect. So I don't see as like an acceleration of the trend to use green surfaces. I think we're just seeing the continuation of the trend we've had before. But I think probably, yes, favorable circumstances, probably a good work by our team. Definitely, we're quite happy with how the operation is managed. And I think that's most of it. But the underlying trend is quite stable, positive and stable.
Okay. And sorry, just a quick follow-up here. As you mentioned, you aim to build up inventories to secure capacity. But if you were to sort of look back from a [ FX ] standpoint, as you would have prepared for any other season in the past years, in your view, do you think that the inventory levels per se, deviate from what they have been in the past?
No. I think it's really 100% voluntary buildup, that's really quite clear. We've been very careful. I think as you know, the customer focus, delivery capability is really crucial in our business, and we've immediately reacted and decided to be on the safe side and to do everything we can to supply our customers. So that really explains the move in inventory level.
[Operator Instructions] There seems to be no further questions at this time. So I'll hand back to our speakers for the closing comments.
Okay. Then...
Martin, I just received a question on the web here. So we received a question from Marcus Bellander and the question is, how come your admin expenses increase at the level they do? And I think the short answer is it's a couple of different components in that, a lot of small items, I would say, that drives this increase of just above 20%. And one is the legal costs that we've had in the quarter for the competition case in Denmark and also the read on the [indiscernible] project. We're also running a couple of different improvement projects, among others, in the Taasinge Group. And there were also some costs in the quarter for the LTIP programs that we run. And last but not least, we had some reclassifications within the P&L of some amounts. So that will basically sum up what's driving the increase in admin here year-over-year. So I hand back to you, Martin.
Okay. Thank you, Per.Thank you very much to all participants. And we very much look forward to talk to you again in 3 months. Thank you very much for participating.