© 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 Q2 2018 Conference Call. Today, I'm pleased to present CEO, Martin Ellis and CFO, Jonas Olin. [Operator Instructions] Speakers, please begin.
Okay, thank you very much. Good morning, everybody. Happy to have you listening. Thank you for your time and attention. We are happy to announce good results for our second quarter 2018. If you look at our Page 2 in the presentation, you can see that our sales have increased by 22% over the same period last year. 16% of that is acquisitions, and it really means we're continuing our active and selective acquisition policy successfully. We also had 2% organic growth in local currency and basically stable markets, stable demand situation. And we benefited from the weaker SEK in terms of the currency effects of 4% translation effect from our operations outside Sweden. EBITDA has increased also quite nicely by close to 22% over last year. And it's actually the best EBITDA quarter ever we've had at Nordic Waterproofing, even slightly higher than 2016 when we had a very favorable cost situation. The operating profit EBIT amounts to SEK 79 million against SEK 72 million last year, also a significant increase. Our ROCE target, which is the key financial performance measure we have, is at 15.2%, slightly lower than last year because of a portfolio mix effect basically, but above our long-term threshold of 15%. Operating cash flow has been at SEK 41 million, significantly better than last year. And earnings per share amounted to SEK 2.43, again ahead of last year of course. Moving on to our footprint. The key thing I would like to mention is that you can see there's quite a few green points, which are new operations since, I would say, the end of '16. Basically over the last 1.5 years, that's all the acquisitions we've made. Again, I would like to emphasize that we are happy with all our acquisitions. Performance in all of the new companies is at least as good as we expected though when we made the acquisitions. So that's very important, I think. And this confirms that we should continue our acquisition policy along the terms we've set in terms of being selective, usually trying to buy on a one-on-one negotiation basis companies which we know already and as much as possible where management stays on, of course, and also have some formal financial interest in the acquired company. In terms of the sales by country, we have the 2017 figures here. So there will be slight changes when we integrate the latest acquisitions. But you can see there's still a good balance between the 4 Nordic countries basically. In terms of the portfolio structure, we haven't changed -- that hasn't changed significantly either. We still have about 1/3 of our business in contracting and what we call Installation Services here and 2/3 in industrial activities. In terms of renovation, that's still about 60%, so a predominant share of what we sell. And that obviously adds to stability in the demand we are serving. Moving on to Page 4. We are happy to present Veg Tech, which is our latest acquisition, which you've probably heard about. Veg Tech is a leading company in the Nordics in terms of green roofs and green surfaces in general. The reason we've made this acquisition is that we see a very good operational fit with our waterproofing business. But even maybe more important, we want to benefit from one of the megatrends, which is towards environmentally efficient building solutions. And the recent weather events, I would say, concern that there's going to be increased demand for surfaces, which are able to retain water when there is heavy rain. And we've seen throughout Europe that, that phenomenon seems to be increasing right now. So Veg Tech is a very good player in that respect. They have a turnover of SEK 125 million, 45 employees. And they're already established in most of the Nordic countries, but we plan to increase that presence and try to help with our network in countries where Veg Tech is developing outside of Sweden. The sales and results will be consolidated starting this quarter, quarter 3 of the year. We have acquired 83% so far, and we are, in principle, planning to acquire the remaining minority shares as and when that is possible. On the next page, you just have a link, which you can click from our website, if you want to do that. And that's a short video describing what Veg Tech is all about. Moving on to Page 6. I'll ask Jonas to take us through the financial second quarter report.
Thank you, Martin. And as you said, once again, we have a quarter with strong sales SEK 736 million compared to SEK 603 million last year. We see the growth being driven by catch-up effects in Sweden, up 19%, following the cold and winter weather during the first quarter. And Denmark, also very strong due to the acquisitions of Taasinge and Ugilt. That also caused strong organic growth in Denmark. Norway shows 51% increase, out of which RVT account for 47%. Due to the weaker SEK, once again, there is a positive effect with the Norwegian kroner. So in local currency, there is a slight decrease in the business in Norway. We see good growth in EBITDA and EBIT. And of course, EBIT is still affected by the amortizations of the order book and customer relationships, primarily connected to Taasinge, Ugilt and RVT. And just to remind you all that the order book is now fully amortized in Taasinge and also in Ugilt. RVT will remain 1 more quarter to be amortized. Moving on to Slide 7, looking at our growth, again. Acquisitions account for 16%. The organic growth in total was 2%. But I would actually like to point out, which is probably even more important that the Products & Solutions segment increased by 6% organically, which is a very strong number in our business. The Installation Services decreased 8% organically at the same time, and that is due to the deliberate and selective approach towards more profitable projects and, of course, the successful execution thereof. Moving to Slide 8. We have sales of SEK 736 million, transforms to SEK 2.4 billion on a rolling 12-month basis, which is up 10% compared to 2017 at the running speed at the moment. EBITDA follows this at SEK 271 million, which is up 9% compared to 2007 full year number. Items affecting comparability are, as we have seen the last 2 years, only related to acquisition and the competition case in Denmark. But primarily, the acquisition costs in the period of SEK 3 million in total. If we look at Slide 9, we see the segment Products & Solutions. Sales is SEK 565 million compared to SEK 430 million in the previous year, which is up 31%; EBITDA, SEK 89 million compared to SEK 72 million. And once again, Sweden and Denmark is -- they're both performing very well with the strong sales in the quarter. The prefabricated elements business continued to develop very well, and there we see a strong order intake in both Denmark and Norway. We have been implementing price increases by the end of the first quarter, and we are now also implementing a second price increase for this year. And that is to address the recent further bitumen price increases that we have seen primarily following the U.S. sanctions towards Iran in May. On Slide 10, we see the Installation Services segment. We see sales decreasing for the first time at SEK 201 million compared to SEK 207 million last year. In Swedish crowns, that is a decline of 3%, but the organic decline was 8%. And that is, as I said, previously due to the more deliberate approach towards the profitable projects. The order book is still higher than last year, but we need to notice that we have lower order intake due to the same focus as we've had the last half year. However, that also means that we see improved profitability. We see a slight increase in both EBITDA and EBIT of SEK 1 million, so that is promising for the future. The balance sheet, we see on Slide 11. There is an increase in the intangible assets and also the net debt following the acquisitions of Taasinge, Ugilt and RVT. And a reminder that Veg Tech is not yet consolidated at the end of June. That will be done in the beginning of July from the third quarter. That has been financed through an extension of the existing revolving credit facility, an increase of EUR 20 million. And we are currently, as Martin said, we've acquired 83%, and we are currently acquiring the remaining minority shares, expected to be finalized during the second half of this year. A dividend was paid, by SEK 90 million in the end of April. And in total that means at the end that of our capital employed ended at SEK 1,529,000,000 and an ROCE of SEK 14.2 million -- 15.2%, sorry. Moving to Slide 12. We take a look at the operating cash flow. We have been talking about this previous years, previous quarters. There are temporary variations in the operating cash flow, as you can see. So we have shown that on the right side of this slide. There is a typo, however. It should, of course, say 2018 first half, not the second half, looking at 2018 numbers. So as you might remember, we had a negative cash flow of SEK 61 million in the first quarter. Now we have a positive cash flow of SEK 41 million. Year-to-date, we're at minus SEK 20 million. And that is in line with previous years. So here you very clearly see what we tried to explain after the first quarter, that we have big effects on the operating cash flow depending on weather and Easter. So Martin, I hand over to you again.
Yes. Thank you very much, Jonas. So moving on to our financial targets and dividend policy on Page 13. There's no change there. So we've demonstrated that sales growth is something we've been able to achieve. Profitability, we are in line with the ROCE target we've set last year. And in terms of the capital structure, we've moved a bit higher towards the 2.5x debt on EBITDA ratio, which we would like to hit in the future. And so we're on our way. We're halfway towards reaching that goal, and we have a pipeline of potential acquisitions as we've had in the last quarter. So there might be further acquisitions in the second half of this year, which would probably take us closer to the 2.5 ratio. Our dividend policy, of course, has not changed, and we are going to distribute in excess of 50% of our net income next year. The last slide gives the outlook statement for 2018. So we confirm that we expect to increase our EBIT before items affecting comparability to -- compared to last year. Previously, we mentioned a slight increase. Obviously, now the year is progressing, so we had a bit more information about what we can expect. And we now expect just an increase, and so that this is a sign of a bit more confidence, a bit more information about what we expect to happen in the second half of the year. So this is what we had to present, and we're now very much looking forward to your questions.
[Operator Instructions] We've received the first question. It comes from Anders Idborg of ABG.
So starting just with the input cost versus price realization, which is a bit difficult to track from the outside. So first of all, if you could talk about how that net was in the second quarter in the products business? And secondly, in terms of your hedging for -- and your price expectations, particularly for bitumen for both the second half of the year and then into 2019, that will be useful.
Yes. Thank you. So the situation is that we are back to the historic mean, I would say, the historic norm in terms of our margin -- EBITDA margin, let's say, on the flat roofing products. That's probably what you're referring to, our core business. So we're quite -- you could say, we're quite satisfied with that situation. We are below 2016. You know -- you probably remember that 2016 was a positive outlier for us. So we have not reached that level again, and we don't really expect to hit that level in the foreseeable future. But we are in line with the historic average margin percentage. In terms of the bitumen situation, as you rightly mentioned, we've hedged 3 quarters of our demand -- expected demand for next year, 2019, at a price which right now is relatively favorable compared to the stock prices. And we -- I mean, it's very difficult to predict what the oil price is going to do in the rest of the year. We would -- if we had to bet, we will bet it will remain stable from now on, but nobody knows. It's very dependent on geopolitical events rather than the demand-and-supply situation. So very difficult to predict. But we feel that the -- with the current price level of bitumen and the price increases we've made already and which we're planning to make in the rest of the year, we will be able to hold our margins stable.
Right. And if I understand correctly, then the input cost will be slightly higher in the second half versus the first. But then probably down in the first part of 2019.
Yes. Yes. Exactly, that's right.
Okay. Great. And just a second question on the selectivity on projects in Finland. How big impact -- or for how long do you think this impact will last? This is a pretty representative level that we see already now in the second quarter with some more to come.
In -- are you thinking of our sales figures or the...
No, the sales.
Yes. No. I think in sales, we are now probably in a stable situation. We have decided to be a bit more selective in terms of the price levels. But I don't see any further restriction in that respect. So I think from now on, it will be stable and very much linked to demand.
We have a next question. It comes from Kenneth Toll of Carnegie.
So I was just wondering how often you change prices more than once in a year. I believe that before you told us that often you, sort of, correct prices in the spring when the main selling season starts. So now you're correcting prices again. Do you think that your competitors will follow? Or is it harder to do in the middle of the summer season, so to say?
Yes. Yes. That's an interesting question. And obviously, we would like to have maximum flexibility in our price definition. But there's pushback, of course, from customers, especially, the builders' merchants. But nevertheless, the bitumen price change has been, I would say, big enough to justify a second price increase, and we've been successful in most cases, at least, talking to our customers about this. And we've also seen our competitors following through or even taking the initiative in some cases. So customers recognize that there are percentages of our cost increases, which just make a price change necessary. And I would say also, in the building material industry in general, you see a lot of price increases in other materials, like wood for example. So customers are sort of in a mood where they understand that there's a general inflation right now in terms of the cost of what they sell.
Okay. And as we move into next year, there are some -- the residential construction is likely to cool off a bit in Sweden after several years of strong growth. We've seen housing starts coming down in Sweden, but also in Denmark. Are you feeling a bit nervous on the demand side there?
Yes. The short answer is, no, because it's quite a small part of our sales. I think we discussed this item before. Sweden, all in all, Sweden is going to be bigger for us now with Veg Tech, of course. But before Veg Tech, Sweden was less than 15% of our total sales, so not a huge impact. And within our sales in Sweden, a big part goes to big boxes. So we're not very much affected by any individual housing economy change. So it's not positive, of course, but the impact for us is very small.
Okay. And then on this fairly new operations you have on these modules that you acquired some time ago. There is a Finnish company called Lehto Group that are in a similar business. And they've had some poor profitability with some projects and so on. How are you feeling on that side? Do you see price pressure on building modules? Or do you think it more company specific from their side?
Yes. Now again, a very interesting question. And our positioning is quite specific. We do complex projects, which are designed specifically for each product -- project, sorry. And the competitor you are mentioning and a large number of prefab producers also in Sweden make much more standardized products. So they do individual houses where they just have a few models, for example, or -- so a very standardized offer. And there, you have probably a lot of competitive price pressure. But it's a segment, which is quite isolated from what we do. So what we do is high complexity projects where our CAD/CAM capabilities are necessary, and not a lot of players, if any, have our capabilities in that respect. So from that perspective, it's something, which doesn't affect us. And we also are not planning to make acquisitions in that more standardized product segment. And what we've seen actually in our business is rather a possibility to increase our sales prices slightly.
Okay. Great. And for that specific segment, the exposure to residential construction is fairly low. Or is it high?
Yes. It's, it's -- I wouldn't say it's low. It's higher than in our legacy business because you have quite a few renovation projects of collective housing where our products come into play. So I don't have a precise figure. But clearly, the residential part is significantly more than in our legacy business.
At the moment, there are no further questions. [Operator Instructions] We have received another question. It comes from Karl Bokvist of RBG -- ABG.
You mentioned strong organic growth in Taasinge, for example. I was wondering if you could specify that. Is that above 10%? Is it above 20%? And can you be a bit more elaborate on what kind of growth rates you're seeing both in Taasinge and in Ugilt and RVT, for example?
Yes. I think we could probably say, it's more than 20%. We don't want to be more specific than that, but it's a significant double-digit growth.
Okay. And no further specifications for the other parts. Or is this true of [indiscernible], the Ugilt and RVT?
Yes. That's the consolidated figure.
Okay. And also, we saw here in Norway that you continue to have low growth here even though calendar effects should have been quite positive, at least. Can you elaborate on the market dynamics there?
Yes. In Norway, there is -- I would say unfortunately, there is not much change since last quarter. So as you know, we lost a big customer almost 2 years ago and weren't able to come back to that customer. And we've managed to get 2 significant new customers, which are large chains of builders' merchants, but where it takes quite a while to get introduced to each of the outlets. So it's sort of a general coop we have with the central organization, but then we need to convince each outlet to buy our products, and that's underway. But it's a bit of a lengthy process, I would say. So the builders' merchant segment hasn't seen any significant improvement for us. In the Flat Roofing segment, we've been able to increase our sales compared to last year. So the situation, I would say, is overall, it's stable. So we can't talk about any huge success compared to last year. But the situation is clearly under control from our point of view, where we are not losing any significant sales compared to last year.
Okay. And then just a final one here regarding the M&A pipeline. Do you sort of -- or can you perhaps say, which areas you are looking into? You said you were not looking to standardized prefab. Or is this more of legacy? Is it green roofing? Or is it even further diversification of your business?
Yes. It's -- I would say, it's mainly in the prefabricated element area right now because we -- there are still companies out there, which could be a good fit for us. In the green roof, it's a bit early days. We want to better get to know Veg Tech first and then see. But we're obviously open to increasing that business area because we do think it's an area, which benefits from environmental trends. And we also have maybe opportunities in contracting and insulation services. But again, we'll do that very carefully and on an opportunistic -- in an opportunistic way. So we're not sure what is going to happen there, but it's also an area where we are quite open to acquisitions.
Thank you. There are no further questions at this time. Please go ahead, speakers.
Okay. Well, thank you very much for attending, for your interest. And we are looking forward to the next quarter now. And we'll do our best to achieve good results there. Thank you very much.
Thank you.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.