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Dear ladies and gentlemen, welcome to the Nordic Waterproofing Q2 Report 2019. Today, I'm pleased to present CEO, Martin Ellis; and CFO, Jonas Olin. [Operator Instructions] Speakers, please begin.
Hello. Thank you very much. Thank you all for participating. Welcome. We'll go right to Page 2. And as you can see, we have had a good quarter with sales growth and also an improvement in our operating profit. Sales increased by 21% to SEK 889 million, and there was significant organic growth in local currencies of 6%, 13% from acquisitions we've made in the last 12 months and the 2% currency effect from the weaker Swedish krona.The EBITDA increased also compared to the same quarter last year, SEK 124 million, which is actually the best EBITDA we've had in our history. Operating profit is -- follows the same trend, SEK 95 million in the quarter and a significant improvement of our operating cash flow. You might remember that the cash flow was slightly weak last quarter, and we have more than compensated that in the second quarter. And the earnings per share, SEK 2.79 per share versus SEK 2.43.As you remember, probably, we paid out the cash dividends of SEK 4 per share versus SEK 3.75 a year earlier. So I would say the only metric where we are slightly below target is return on capital employed, and we will see that in a few minutes. But all other metrics are basically up compared to a year ago.Moving on to Page 3, the market status right now and how we see the immediate future. We have seen continuing consolidation within our builders merchants customers in the Nordic countries. So that is normally only part of our route to market. We sell a lot through direct sales to contractors, roofing contracts especially, but still builders merchants are a significant group for us, and there is clearly a move to further consolidate the industry right now.The decreased private housing starts in Sweden, which have impacted probably some other companies on the stock exchange, has had no impact on us. And I would say the main reason of that is that it's not a big segment for us, as you know. And also, we can see that all other parts of the specialty flat roofing buildings are still moving in the right direction. So no impact for us from the reduced housing activity in Sweden. We have, nevertheless, active competition in the roofing market, I would say, especially in Norway and Finland. And in spite of that, we've been able to increase our market share in Norway and Sweden. In Denmark and Finland, I would say our market share is basically stable, maybe slightly growing.The flat roofing market in the Nordics is still quite strong. So obviously some active -- expect to see a bit of flattening out in the next 18 months. But so far we haven't seen any concrete fact about this expectation. And as you probably know, we're at historically quite high levels, so that there is a certain likelihood that we can see a flattening out over the next 18 months.Prefabricated facade and roofing elements are still growing very fast. Demand is growing especially in Norway, also in Denmark. Especially in Norway, we see significant growth in that sector.Raw material prices are fairly stable right now, and we don't expect any significant move with the exception of bitumen where there still ought to be some acceleration in Middle-Eastern conflicts there might be a spike in the oil prices, but we don't see a huge probability for that item.Moving on to Page 4. Our strategy has not changed since our last quarterly call. We still have a significant focus on organic growth and profitability. That doesn't mean that we are not interested in acquisitions, but we remain selective in acquisitions. Multiples have come up quite significantly, so it's a bit more difficult to make successful acquisitions right now compared to a year or 2 years ago. So organic growth, especially building on our new platforms. Prefabricated elements and green infrastructure is really focus of what we are doing right now.The focus for acquisitions is unchanged, basically enhance our product service offering, benefit from mega trends in the construction industry, sustainability, prefabrication especially and forward integrate to increase exposure to end customers especially in the SealEco synthetic rubber business unit. If we can, we will again increase our part of sustainable construction solutions in the future. We're -- as you know, we have already a significant basis now with the prefabricated mostly woods-based elements and green infrastructure solutions from Veg Tech. So we would like to expand that part of our business in the future.The footprint on Page 5 basically hasn't changed since the last quarter. So you can see that we still have split by country, which is now quite even across the Nordics. You can also notice that Sweden is 16% of our sales, so it's not a predominant share. We have a big exposure to especially Finland and Denmark. In terms of the segments, the channels and the renovation versus new build split of our sales, there's no significant change. So still predominantly industry versus contracting and still predominantly renovation versus new build.Over to you, Jonas, for the second quarter report.
Thank you, Martin. So let's go to Slide 6. And as Martin said, we see another good quarter with sales of SEK 889 million in the period, up 21%, and this is the quarterly -- the best quarterly sales ever in the history of the group. Organic growth was 6%. We have a high activity in the Finnish installation services both in the roofing and the flooring business, and we also see strong growth in the prefabricated elements business in Norway while we see a decrease in Denmark.However, order books in both prefab business are on good levels and higher than last year. In addition, the acquisitions, Veg Tech and Distri Pond, Veg Tech acquired in July last year and Distri Pond in February this year, both contributed positively. Results have increased EBITDA at the highest level at SEK 124 million compared to SEK 94 million the last period -- last year. However, considering the IFRS 16, we have an increase affecting about SEK 14 million. So still above last year. EBIT increased to SEK 95 million compared to SEK 76 million last year, and once again, this is the best quarterly results ever in spite of the prefabricated business in Denmark and the roofing business in Norway performing below our targets.Let's move to Slide 7 and go into the segment reporting. We see Products & Solutions sales increasing by 22%, ending at SEK 688 million. Organically, this was 3% growth and 13% to 17% coming from acquisitions. Profit EBITDA increased to SEK 112 million compared to SEK 87 million in the last year, and EBIT to SEK 87 million compared to SEK 72 million the last year. Profit in Veg Tech now compensate the loss we had in the first quarter. Veg Tech is now contributing positively to the year-to-date results of the group. Veg Tech is included as of July 2018, meaning that this is the last quarter where we see acquisitive effects from Veg Tech. Next quarter, it will be included in the comparable numbers.In Slide 8, we see the Installation Services segment showing an increased sales of 16% in Swedish krona ending at SEK 234 million compared to SEK 201 million last year. We have a strong -- even stronger organic growth than in the first quarter, ending at 13%, and the currency effect, that was positive by 3%. We have a weaker order intake as the market is softening a little bit, and that makes for continuously competitive marketplace where we see what we have been able to keep up the margins at good levels. Results have increased versus last year, and this goes both for the Finnish consolidated Installation Services business and also the franchise business in Denmark.Breaking down the sales in Slide #9, we see that 21% growth comes from acquisitions 30% (sic) [ 13% ]; currency, 2%; and strong organic growth of 6%.Moving directly to Slide 10. Good sales and results in the second quarter now also mainly improved sales and profit on rolling 12-months basis, sales ending at SEK 2.928 billion on a rolling 12-month basis, and EBIT is up SEK 10 million to SEK 222 million. Amortizations of intangible assets affect the EBIT by SEK 11 million compared to SEK 7 million in the last period -- last year. That is part explained by the PPA Distri Pond. The purchase price allocation in Distri Pond has now been finalized, and customer relationships were identified. These are amortized over 5 years, affecting the result by approximately SEK 700,000 per month. Also, the implementation of IFRS 16 has affected Q2. EBITDA increased by SEK 14 million, and this is primarily connected to the Products & Solutions segment. And EBIT and net result, just like in the first quarter, has only insignificant effect. The net financial items are higher due to increased interest cost, and that follows, of course, the higher net debt and the higher leverage following the acquisitions. We also see a fair value adjustments of the call and put options for the remaining shares in the acquired companies of a net -- negative net effect of SEK 3.5 million. And this negative effect means that the acquired company has actually performed better than we earlier expected. So it's mainly EPDM Systems and how long that performed better.Let's move to Slide 11. There we see the balance sheet showing increased capital employed and leverage; the acquisition of Distri Pond, which is consolidated from February; and Veg Tech from last summer, of course, affects the capital employed. IFRS 16 has increased the leverage about SEK 131 million at the end of the second quarter.In addition to that, we've paid a dividend of SEK 4 per share, totaling SEK 96 million, equivalent to 64% of the net profit last year, and this was paid in May.ROCE ended up 12.5% on a rolling 12-months basis, which is up 0.5% compared to the end of -- for the full year 2018 but still slightly below our long-term financial target of 13%. And in total, this means that the net interest-bearing debt ended at 2.9x EBITDA.Slide 12 is showing the IFRS 16 impact. As I said, we have the SEK 14 million in the second quarter affecting EBITDA. For the 6 months, it has now affected SEK 24 million year-to-date 6 months. It has only a marginal effect on EBITDA net profit while the net debt increased SEK 131 million. This means that net interest-bearing debt compared to EBITDA has increased from 2.6 to 2.9 due to the effects of IFRS 16 on a rolling 12-months basis.Our operating cash flow, Slide 13, has improved, and that was SEK 33 million in the quarter compared to SEK 39 million in the previous year. This is the of both the higher profit and also a lower increase in the net trade receivables in the 2nd quarter compared to the second quarter last year on a rolling 12-months basis the cash conversion increase and is now at 7.6% compared to 65% for the full year 2018.Martin, I hand over to you again.
Yes. Thank you very much. So looking at Page 14, our financial target those have been adjusted to take into account the IFRS 16 effect but are unchanged other the wise sales growth we expect to exceed the market general market growth and we have has been successful this quarter in doing that profitability.We have a 13% ROCE target and that you have seen, we slightly below that, but we will obviously try to exceed 13% in the near future. The capital structure, we -- I have now 3x net debt over EBITDA ratio at year-end, which means that we are still quite significantly below that level since we're 2.9 when our cash requirements. Our biggest during the season. And we expect to come down from the 2.9 ratio quite significantly by the end of the year. The dividend policy remains unchanged at least 80% of our net profitability distributed to our shareholders.Finally, our outlook for this year also remain unchanged. We expect to exceed the results we have had in 2018. And we are assuming obviously a normal winter condition during the 4th quarter, which can make a significant swing and right now we are on target on this guidance. So thank you very much for listening and we very much look forward to your questions now.
[Operator Instructions] And we've received the first question. It is from Kenneth Toll of [ Human Sun Canadia ].
So it's from Carnegie. But anyhow, yes. So a question on Finland. You said that in the order book. Last year you had some ship flooring jobs that you don't have this yearSo I'm wondering does that create an over-capacity or can you move personnel from the ship industry to do roofing work in Finland instead.
Yes, I think basically -- we can move personnel. Probably not the roofing jobs, but to other those so the surface -- within buildings on -- aspects, so what was -- what have you and yes that's quite possible, so that we don't have fixed overhead type of issue-- when -- when to shipbuilding is slightly lower than it used to be.
Okay, good. And the year, the lower order book year-over-year, is that you had such a good organic sales growth for the first half of the year in that business, but we could probably expect it to go down a bit in the last 2 quarters.
Yes, it's -- might be a bit of a longer-term effect because these all can run for up to 2 years -- on -- will be on the shippers. So we don't expect them all significant and effect, and we do expect potentially new orders in the future to come along. No, I would say we don't see any dramatic effect, from the change from the order book evolution.
And then -- regarding the balance sheets, the net debt to EBITDA was a bit high, now of the Q2. But you also had acquisitions and dividends and -- you say that you expect it to come down, quite significantly towards year-end, but do you see that the current, in the nets limiting factor when it comes to -- making more acquisitions, if you were to find one?
Yes and no. I would say no. In the sense that right now as well as in multiples either live, so it's generally a little bit more difficult to strike deals, which we consider -- that this factory, but on the other hand, there might be larger deals -- from time to time where we definitely would need to take on new -- capital or ---change out that structure, if we want to do those, so most likely that would be new shares should if such an opportunity materializes.
And then -- in Denmark, these -- module manufacturing -- that ---the customers are a bit hesitant, do you think is that some individual projects --or do you see it as a general market trend-- that demand --- is more volatile [ or yes ].
Yes, I think we-- which we have -- seen it so far as the channel phenomenon with the number of our customers. So it's something which we are working so to adapt to internally because it has disrupted our manufacturing operations to some extent, and we're working to make as much less sensitive because it's really a market characteristics is not something future, which is going to go away in the future. No, I think we, which has had a very good and favorable period of the previous 2 years, and now we have seen sort of a return to normal behavior from our customers and which is need to add that when they were in the process of thing.
Okay. And then finally in Norway. You say that you are not happy with the development and you're investing to grow your market shares, but you're not reviewing your strategy for Norway with those sort of market investments now that results are not really in line with your expectations or can you.
Yes, basically. That's correct. So we still have a significant effort to sell to build this merchants and which is the segment where we have had some challenges and we are still working on promoting our brands and month active brands in the in that respect and we have been very successful in the sales to contractors, what we call the flat roofing segment where we sell direct its contractors. Is that, we definitely are successful. Also in the products which going to ground proofing so that's obviously no reason to change that part, and then builders merchants we was just have a lower probabilities and have profitability, then we would like. And where we are still working on improving that
At the moment, there are no further questions. [Operator Instructions]There are no further questions at this time. Please go ahead, speakers.
Okay. That concludes our call. Thank you very much for dialing in for listening and we look forward to meet again in 3 months. Thank you.
Thank you.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.