Good afternoon, and welcome to this presentation of the second quarter results for Borgestad ASA. With us today, we have the Chair of the Board, Glen Rødland, and the CEO, Pål Feen Larsen. If you have any questions to the company, please use the Q&A function, and we'll go through that after the presentation, and with that, I'll leave the word to the company.
Thank you. Thank you, Joakim. Second quarter for Borgestad has been a good quarter, and we deliver a profit before tax of NOK 32.7 million for second quarter, compared to 2.2 million NOK last year. The material increase is due to EBIT increase in Höganäs Borgestad Group, and of course, materially lower interest after the debt reduction end of 2023. We continue the trends from last periods and increase margin, especially for Höganäs Borgestad, and it's good to see that Höganäs Borgestad has, year-to-date, 6% EBIT margin, and actually 10% EBIT margin in second quarter, especially.
In the quarter, Borgestad has entered into a sale agreement with Gunnar Knudsens vei, the headquarters, and sales price is at NOK 10 million, and completion is estimated to be in October. So we will book a gain of approximately NOK 7 million in fourth quarter. Borgestad has also increased the shareholdings in Höganäs-Borgestad Group in the quarter by 5.5%. And currently, we are owning 79.7% in Höganäs-Borgestad Group. I'll leave the word to you, Glen.
Thank you very much. For those of you that don't know Borgestad that well, we are an investment company, currently with two main assets. We have a real estate, which is one shopping mall in Poland. We get back to that, and the refractory business, where we have a leading Nordic position. The strategy of the company is to, first of all, work with the two investments we already have, to mature them, to improve the operation, and then finally find a permanent home, and it might be within Borgestad, but we are kind of agnostic to who owns this business. It is all about running it as best as we can. We are looking for new opportunities.
We have right-sized the balance sheet now. We have some firing power on our balance sheet, but in addition, we have a very strong shareholder base, so what we are looking for are niches where we can consolidate and get a meaningful position where we have something extra to offer, both in terms of return to shareholders, but also to our clients, of course, and we are mainly looking for a capital-light business, not capital-heavy, so real estate, it goes without saying, that's an odd investment in our group, but we get back to that later on. We have plans for real estate that are might be not far into the future.
So if you look on the team in the company, we are increasing our investment team with 100%. Sounds very impressive, going from one to two. In addition, if you look on the board, all of our board members have M&A experience from the industry and from private equity and private office. So we have a good team in the board that support the management. We are very focused, especially now when we are running these two businesses, that's use our capital efficiently. So that have been the topic for the last twelve months. During the last twelve months, we have reduced the working capital with about 150 million NOK in total, especially in Höganäs-Borgestad.
A lot of, yeah, stock and especially all the kind of working capital being outstanding versus clients. And, we have right-sized the balance sheet. The balance sheet was not sustainable. That was done just towards the end of twenty twenty-three. So that's. But capital efficiency continues, and we think there's more capital to be taken out of the balance sheet, especially on stocks or... Yeah. We are very number-driven. That's the, like, the inherit from private equity, kind of thing. Everything is measured, and, you get what you measure, is the saying, and you should incentivize the right thing as well. So I think we have, both in the, in the real estate business and the refractory business, we have changed the incentive program to align it with shareholder interest.
M&A is next on the agenda. We have, first, as I said, focus on operation, not done. We have a long journey left. We have focused on the balance sheet of the group and also daughter companies, and I think we have a good balance sheet in the two investment we have now, but next is M&A, so I'll leave it to you again, Pål.
Let's go into the details for Agora Bytom. Agora Bytom is, as expected and communicating, delivering quite stable operations, both in terms of revenue and EBITDA. That's as communicated after first quarter and what we have been communicating for a long time. The focus for Agora Bytom in twenty twenty-four and both going also going forward is cost cutting and generally margin increase. We believe that we still can increase the margins going forward by at least cutting part of the costs, but also increasing, hopefully, revenue going forward. As communicated in first quarter, we have implemented a cost-cutting program with the full year effect of above 300,000 EUR.
This is in process to be implemented, and full year effect will be from 2025. It will not be seen much of the cost cutting in third quarter, but a bit in fourth quarter, but full effect from 2025. At the same time, Agora Bytom has a sustainable debt level and balance sheet. The debt is decreased with 0.5 million EUR in first half of 2024, and we end up with a debt of 29.4 million EUR at end of June. Estimated loan-to-value is at 47%. That is a sustainable and good level for us. Ex Agora Bytom, we expect Agora to follow the trends that they have been in the last quarters, also the coming quarters.
Stable in terms of revenue and EBITDA. When we look at turnover among tenants in Agora, we see an increase by 4% in second quarter and 7% year to date in 2024. The economic situation in Poland is good. And the unemployment rate is at 4.9%, and it's historical low in Poland. Inflation seems also to have come down on a stabilized level, and it's reported at 2.6% in June, compared to 11.5% in June 2023. The fundamentals looks quite good for operational performances in Poland.
We see a decrease in footfall in second quarter that mainly estimated to be due to warm weather, and people have done other activities than shopping centers. When we look at tenant mix and contract duration, it's not much happening since first quarter. Contract duration is on a good level. We have 19% contract renewals in 2025, but that is something we are working on and believe that we have under control, and we have shown it before that tenant renewals is something we handle okay. We have a WALT today above 3. When you take into consideration that normal contract length of five years is normal in a shopping center, above 3 is okay level.
Glen, how was Borgestad?
Yes, thank you very much. Yes, as I said, there is a nice growth in the company, but actually, the big changes in the company have been, as I said, we have got a new balance sheet. Last year and into this year, we have freed up NOK 200 million in this company from working capital, plus we won an arbitration that had been going on forever, or many years, of NOK 60 million. So NOK 140 million we pulled out of the balance sheet, and about NOK 60 million we got from a former client from Russia. So, but that's one thing. The second thing, we have changed the team. I was mentioning with the team how important it is with people.
It goes for Borgestad, but of course, also for investment and our the daughter companies or in companies we are invested in. There's a new CEO in the company over the last year, new CFO, and we have changed leaders in three out of the five daughter companies we have, all over the last, call it, eighteen months, or especially the last twelve months, there have been a lot happening. So this is part of the... I think it's a big. And then I mentioned also we have changed the incentive program, and we are about to roll that out also deeper into the organization, aligning shareholder interest with the key employees. So if you look on the figures here, we see where we are in this quarter alone.
Of course, we are moving into the high season now, but we are at above 10% of EBIT margin, not the EBITDA, is even higher. So it is a good result, and we'll get back. We'll see on the next slide, we will see how this is developing lately. The two companies that have contributed the most to the turnaround is the installation companies in Sweden and Finland. Both have got new management. So, that, I think that's important to note. And at the bottom, you see we still, this, we sold, we have signed an agreement with the commune in Bjuv. And that will give us 142 million NOK.
That was planned to be closed in the first quarter due to, an, what you, in- or-
Complaint.
A complaint from, from one citizen. This is, has gone to, to, like, to the court, and, we expect, and the, so do the commune in Bjuv, that this should be solved before year-end. No guarantees, it could take more time, but there is nothing as we see in this that has any merit, so to speak. So that's another NOK 142 million. So if you take those into... We have actually improved the balance sheet when this go through, and everything is paid by NOK 350 million, close to NOK 350 million. So the balance sheet looks totally different. Yes, this is a little bit of our position. We are number one in the Nordics, Norway, Sweden, and Finland.
We, our market share have come down. We have had some issues with profitability, and then, but now we see it stabilizing. Maybe if you are very positive, it's gone up from thirty-nine to forty. At the least, it's at least not falling. That's a good sign. And if you look on the margin, we see that we have been, even though we have been the market leader, we have been behind the market. But if you look to the far right, you see that measure of the twelve last months, we are already on par with the market or maybe a little bit above, and, but our ambitions are much higher. And if you look at the best in this industry, being in Nordic or globally, they are between 10% and 15%, actually. So our ambitions are much higher.
Here it's just, there we say, it's fantastic acceleration into 2024, but most of the measures and most of the, what should I say, that is leading to where we are now, was actually put in place in 2023. Takes some time. Next, this is more for you to read, but actually it's what you would see in a lot of private equity or private office when they buy companies. They have a plan, and they buy and build kind of thing. If you look to the far left or at the bottom, there was actually before, before 2024, or back, the last 12-15 years, they've bought nine companies. That's why they are so big in the Nordics. So, but synergies haven't been fully realized.
We are working on that right now and professionalizing the organization. But as we move on, first we need to get our house in order. We are on our way, not done, not... But then we will also be looking at consolidation of nine companies. A lot of them, actually, if you look on where our clients are, they are in the northern part of Sweden and Norway, or in Finland especially, while we are more focused on the south. So we have already started an investment in Luleå, so moving with the clients and a lot of small things. The whole thing is about creating shareholder value and maximize it. So that, that's the game. It's easy to say, hard to be done.
No promises given, but this is the way we are thinking about the business.
Yeah. Let's look at group P&L. We have a turnover increase in second quarter of 6.3% on total, and of course, we have mentioned several times, the EBIT is especially good this quarter, and mainly driven by increase in Höganäs Borgestad, and you can also see the financials is materially lower, and that is because of repayment of debt in end of 2023 and refinancing at the same time. If you look forward, in relation to financing, we have completed a new interest hedging for Agora Bytom. 70% of the loan is hedged at a cost of 3.7% above margin.
And of course, in first half 2024, we have had a much better interest hedging with a cost of 0.3%. So going forward, we can expect that interest expenses are a bit higher than first half 2024. But still, the balance sheet of Borgestad is at a sustainable level and is refinanced, so we will have lower than in the past. If you look at the balance sheet, some comments to the balance sheet. We can see that even inventory has increased compared to end of 2023. That is according to what has been communicated. We need to increase the inventory before high season and through high season.
But second half will, we expect it to be in the same pattern as 2023, that you'll see a decrease in inventory. And we are working on decreasing inventory in general, but you'll see it increasing according to the seasonal seasonality for the refractory business. Receivables is, of course, increasing compared to end of the year because of the high season in Höganäs Borgestad. But we can see that the group is invoicing timely and much earlier than before. So the cash is also, it's converted to cash faster than in the past. We have a good cash position in the group, and should not be an issue.
If you look at the bottom line, held for sale, this is two assets. That's the Gunnar Knudsens vei in Skien and the Bjuv sale-leaseback transaction, and as Glen mentioned, no news related to that. We are still waiting on Fortum to take the final approval, but the judgment is the same as before. We expect that we will have a green light to complete the transaction. If you look at secured debt, that is more or less only Agora Bytom, and because Höganäs Borgestad debt is reclassified to short-term due to the sale-leaseback transaction. Cash flow is. We have a negative operational cash flow, but that is due to the high activity increase of inventory.
We expect that to be positive, really positive in second half. And when we are decreasing operations activity in fourth quarter, you'll see that cash flow will be positive. And hopefully also we can, we then have closed Bjuv transaction. If you look into the summary, we have a fantastic strong operations in first half. We don't believe it's a coincidence. It's for Höganäs Borgestad, it's driven by hard work over some time, and this is expected in a way, in a way, and we expect also that Höganäs Borgestad is delivering going forward. We have increased ownership in Höganäs Borgestad Group with 5.5%, and we have a good order backlog for Höganäs Borgestad.
Liquidity situation is also good for group. We expect stable revenues for Agora Bytom going forward, both in third and third quarter and second half of twenty twenty-four. We expect Höganäs Borgestad to continue the operational improvements and continue capital efficiency. For second half for Höganäs Borgestad, we expect at least the same or hopefully a bit better than last year's second half. But let's see, no promises given, as Glen says. When we look at M&A and Agora, we have communicated that Agora is a asset that we want to sell. Agora is ready for sale, more or less, but the market is not active for shopping center at the moment.
We see some activities in prime markets, prime shopping centers has started. There are some new deals going on. Let's see if this is the start for the transaction market for shopping centers in Poland. Anything to add?
No. Thank you very much. Open for questions.
Yes, we can move over to questions. Please ask them in the Q&A function if you have any. So we can start with the first one. What are the main factors that drives the positive development in the refractory business?
I can start. I think, as Glenn mentioned, we can review that installation companies, both in Finland and Sweden, has increased margins, also activity. For sure, we have had some issues with, especially cremation back in 2023 and 2022, and that is history. Of course, if you go even further back, the production was a problem, that is also taken care of. So I think we have solved a lot of the main problems, so that is the driver for increased margins, but we still have a lot to implement.
Yeah, I would repeat again, it's a new team, fresh eyes, handpicked, focused, and this is attention to detail. This is not a high-margin business, and you need attention to detail. You need attention to your working capital, your project. And we had, going through projects, we found out that they lost money on quite a few of the projects. Others were good, but they were not aware. So it's KPIs, running this professionally.
Okay, thank you very much. Second question: What do you think is the normalized working capital for the refractory business?
It's hard to say a number, but at least we, because that's due to activity, et cetera. But at least we are working for and expect that inventory will decrease heavily over time. Not next month, but heavily over time. So we are, we have still possibilities to decrease, and over some time, I would expect the inventory to at least decrease with 50 million NOK.
Yeah, I would say the same. Last year, they did what the CFO could do himself. Make sure we change or we bill the customers or invoice them timely, and we have changed the contract structure as well, so we get more milestones instead of everything at the end, and then also looking after how we pay our vendors. So that brought improved, like for like, the balance sheet last year with NOK 140 million. But inventory, we have just scratched the surface. There's a lot of inventory, a lot of stone, literally, in the balance sheet. And I would say NOK 50 million, it's going to... While the first NOK 140 took a year plus, the next 50, so it's like you have taken the easy.
So I think it will take a year to take out the next 50. Yeah, I think that's a realistic plan.
Okay, thank you very much. Third question relating to Agora Bytom and the potential sale. What are your plans for the funds that is potentially received from a sale? I think you have been quite clear on this before.
Yeah, we communicated that quite clear in the refinancing process last year. Funds will be given as distributed as dividend. That's the clear message.
Yep.
Okay, very good. I think we're through the Q&A. Thank you very much for your time and your attendance on the webcast, and goodbye.