Hello, and welcome to today's webcast with Balco Group, where CEO Camilla Ekdahl and CFO Michael Grindborn will present the report for the Q2 of 2024. After the presentation, there will be a Q&A. So if you're calling in and want to ask a question, please press star nine to raise your hand, and when you've been handed the word, press star six to unmute your phone. You can also write in a question, and you do that through the form to the right. With that said, I hand over the word to you.
Hello. Thank you, and welcome to our Q2 report. This is Camilla Ekdahl, the CEO, and Michael Grindborn, CFO. First of all, for all new listeners, I will make a very short snapshot of Balco Group. Balco Group was founded in 1987 and consists of several balcony and facade companies. The head office is in Växjö, and the group has today approximately 650 employees. We operate in two main segments, the renovation and new build, and the core expertise is to supply glazed balconies and balcony solutions, primarily on the renovation market and to tenant-owned associations, and replace existing balconies with new glazed balconies according to the Balco method. And with the Balco method, we mean that we cut off old balcony slab, we replace with a new, fresh, and often bigger one, and then we make a glazing on it.
But we also have a broad offering of other balcony solutions, and as well as complementary offerings, such as façade renovations. Balco Group is a market leader in the Nordics with the key markets, Sweden, Denmark, Norway, and Finland, but we also have a strong challenging position on other European markets, mainly UK, but also Germany, and we have a production facility in Poland. All glazings of balconies result in energy savings. Simpler, gives 5%-10% energy savings, while if you use a Balco patented glazing, we can provide a documented energy savings of 20%-30%. That said, we go into the Q2 report and some highlights. We had an increase in the order intake, an increase by 26% to SEK 380 million versus SEK 301 million previous year.
The increase comes from the acquisitions we made during quarter one. The organic order intake was 11% lower than previous year, and this was actually lower than expected, considering the prospects list we are working on. But we still see that it takes longer time to get the orders in, especially on our key customers, tenant-owned associations. We continue to have a good development in sales on our new build segment in U.K. The net sales increased by 8% to SEK 374 million versus SEK 346 million previous year. Here also, the increase comes from the acquisition we made. The organic net sales decreased by 23%, which was expected with a lower order intake we had previous year. We had a strong cash flow.
It improved to SEK 64 million versus -SEK 10 million. We have, during the quarter, continued to focus on our cost, and we will continue to do so. We have a strong focus on increasing our order intake and profitability, and we are working on our cost structure. We made some structural changes during the quarter with moving of production to streamline the production side and focus certain processes in different facilities. I would like to take the opportunity here also to go a little bit more deeper into a market update and to explain a little bit the different situations we have on our different markets and also the focus and the challenges we have on them.
If we start with the Nordic countries, and we talk about the market situation we have on our largest market, Sweden, it has clearly improved with the interest cut, policy rate cut we had in May, and also the clear signals for more to come. We also saw today with the low inflation figures, we hope that that will give a further decrease already in August and then another one or two before year-end. Customer activity has increased, as we said, and the interest in our product is high. But our customers, which I said was mainly the tenant-owned associations, they have also experienced other cost increases during 2023 and start of 2024. So we see that they want to evaluate more options and opportunities before decisions are made.
And this means that we also have we have not seen the real boost for the order intake in the Swedish market yet. If we continue to Denmark, here, it's even clearer for us that it takes longer time. Also here, we have a strong interest in our products, and we are handing out a lot of quotations. But even when there is a decision made that the way they will take the investment, we can see that the final signature still takes a long time and even longer than before. So in the Danish market, we have had a too low order intake, and we have also seen some price pressure from our competitors here. The Norwegian market has made a good development.
Here we see a clear increase in activity and order intake for the first half year if we compare to the same period previous year. We can see that our solution to be a turnkey supplier of balconies and including also facade, air-to-air heat pumps, and solar panels have given good result. We have also seen during the period an increase in the sales of our Climate Wall solution, and a Climate Wall is when you cover the whole facade with a glazing, and this is when you can get up to 30% energy savings. So we see that the energy savings initiative that we're taking are really heading off in Norway.
If we look on Finland, which is a market we have invested a lot in during quarter one, we can see that there is a great need to renovate properties, and there is a demand for both balcony products and major renovations. We see a good sales development or order intake development from our company, Suomen Ohutlevyasennus Oy, and the other acquisition, Riikku, that has mainly been focusing on new building segment before. We are now working on to broaden their portfolio to also talk more about the balcony slab. So they should not be only a glazing company for new building industry ahead, they should also work with as a balcony company for also for the renovation market. But of course, they are not letting the new building market down. They are still on that market also.
If we look on the countries outside Norden, where we are, have the most of the sales, we can take talk about the UK market, and here the sales continues to be good with our product, Levitate, and we are focusing here on the new build of industry, as we have said several times before. Here, we have managed to improve our profitability, even though that we have a quite tough market competition. And after the election, the Labour Party announced that there is a need to build another 1.5 million houses the coming five years. So we see a continuously good potential here for our Levitate products ahead, including also the Irish market. In Germany, we focus mainly on two customer groups.
One is Genossenschaft Gesellschaft, and they have a large portfolio of rental properties in their region, and they annually renovate a share of their portfolio. So this means that they are returning customers. It is important for them to create an attractive housing in their regions, and here, of course, we can contribute with the Balco glazing. The other focus group we have is the modular house builders. Germany, as well as we're talking about, U.K., that needs a lot of buildings. In Germany, they talk about Wohnungsbaukrise, so they need to build a lot of new apartments. But since the increase has been high also on the construction cost, we can now see that it drives more and more the construction to be carried out with modular projects, which means that the high proportion of prefabrication in factories.
We have good solutions for them regarding the balconies, both if they are prefabricated houses for concrete, steel or wood. We have made some smaller projects before within the segment, but during the quarter we received a major order of about SEK 37 million, and we can see also a potential here ahead to be into the new building area, also in Germany. Yeah, that was little bit about the market update, so let's go into the quarterly figures, Michael.
Yeah, some financial update and start with net sales. It increased by 8% in the quarter, up to SEK 374 million. Here, acquired growth was 30%, we had a positive currency effect of 0.4%, and the organic growth was -23%. If we look at the net sales year-to-date, it has increased by 4%, up to SEK 700 million, compared to SEK 672 million last year. Adjusted operating profit on an EBITDA level amounted to SEK 19 million, corresponding to an adjusted operating margin of 5.0%. Year-to-date, our operating profit has been SEK 35 million, also with an adjusted operating margin of 5.0%. Order intake increased in the quarter by 26%, up to SEK 380 million.
Acquired order intake was 37%, and our organic order intake was -11%. Year-to-date, the order intake has increased by 34%, up to SEK 732 million, compared to SEK 547 million last year. Order backlog has increased by 16%, up to SEK 1,384 million, and the earnings per share in the quarter was 0.15 SEK, and year-to-date, the earnings per share is 0.25 SEK. Operating cash flow was good in the quarter and improved to SEK 64 million, compared to -SEK 10 million last year, and year-to-date, it has improved to SEK 82 million, compared to -SEK 20 million last year. And look at the two segments we have, and start with the renovation segment, the largest segment we have.
Net sales in the quarter amounted to SEK 251 million, down from SEK 322 million, and it corresponds to 67% of our total sales. Year to date, the net sales in the renovation segment is SEK 473 million, down from SEK 621 million. Order intake in the quarter amounted to SEK 254 million, down from SEK 288 million last year, and it corresponds to 67% also of the order intake in the quarter. Year to date, order intake has been SEK 539 million, up from SEK 488 million last year. Adjusted operating profit amounted to SEK 11 million, with an adjusted operating margin of 4.3%, and year to date, the operating profit has been SEK 21 million, with an operating margin of 4.5%.
Order backlog is SEK 1,029 million, more or less the same level as last year, and it corresponds to 74% of our total order backlog. Our new build segment increased the sales in the quarter up to SEK 123 million, and year to date, this net sales has increased to SEK 228 million, compared to just SEK 51 million last year. Order intake has also increased in the quarter to SEK 126 million, and year to date, the order intake is SEK 193 million, an increase from SEK 59 million last year. Adjusted operating profit has improved, and was in the quarter SEK 7 million, with a margin of 5.5%, and year to date, the operating profit is SEK 12 million.
We've got an operating margin of 5.4%, and last year we had just 3.3%, so a good improvement in the new build segment in our margins. Order backlog for the new build segment is SEK 355 million, an increase from 141 last year. A look at our financial position. At the end of the quarter, the group's equity was SEK 798 million, with an equity ratio of 47%. If we have a look at our interest-bearing net debt, excluding leasing debt in relation to adjusted EBITDA pro forma, it amounts to 2.4 times compared to 1.0 last year, and it's on, like this, it's calculated when we have discussions with banks, so that's why we want to show that figure.
Our banking agreement with Danske Bank is valid until October 2026, and it is a sustainability-linked revolving credit facility of SEK 510 million and an overdraft facility of SEK 75 million. A look at our financial targets, Balco has a group target that we should increase our sales by 10% per year during business cycle, and here we are at -9 our last twelve months compared to the last twelve months before that. Earnings per share, we have a profitability target that it should grow by 20% per year during business cycle, and here we are at -75%.
We also have a goal of our capital structure, that the net debt to EBITDA shouldn't be more than 2.5, and it's calculated as the net debt, excluding leasing debt, and the pro forma adjusted EBITDA, and here we are at 2.4. We also have a dividend policy that Balco should distribute 30%-50% of profit after tax, taking into consideration needs for Balco's long-term growth and prevailing market conditions. And the decision from the annual general meeting was that we should have no dividend for the financial year of 2023. And back to you, Camilla.
Yeah. Our acquisition strategy, as we have said before, acquisitions has been and are an important part of the Balco growth strategy to grow. We are looking on selective acquisitions which support our strategy, overall strategy, and we are mainly looking for European balcony companies or companies with activities that can complement our green transformation product offering. And this is what you saw when we made the two big acquisitions during quarter one with Riikku and the Suomen Ohutlevyasennus. They are a selective acquisition, and they are supporting our overall strategy. And we are all the time getting in proposal for acquisitions, and we are evaluating them, but we are selective in our when we go ahead with them or if we discuss with them further on. Some concluding remarks.
The net sales in quarter two was 374 million SEK, and the adjusted EBITDA margin 5%. The order intake 380 million SEK, and the operating cash flow was 64 million SEK. If we look, if we summarize the outlook, there is a clear increase in activity in the Nordic markets, but the processes continues to take longer time, as I said. And this means that we estimate that we have an effect on our net sales and earnings also during the second half of the year. We see continued potential in the new build segment in UK, Germany, and also Ireland. And of course, as you understand, we are not satisfied with the profitability that we now have and that we show you.
The entire Group continues to have a strong focus on increasing the order intake, and also continues to work on our profitability levels. As we also previously communicated, the company's priority is to retain our important key expertise within the Group, as we have a long-term focus and know that the market potential remains. That was all, from us, from the reporting side.
Thank you so much for the presentation here, and now it's time for the Q&A. So if you're calling in and want to ask a question, please press star nine to raise your hand, then star six when you want to have activate your microphone. First off, I will give the word to the phone caller that had a number with ends with 1, 2, 3.
Hi, Sofia Sörling from Carnegie here. Can you hear me?
Hello, Sofia. Yes, hello, Sofia.
Yeah. Hello.
Hi. Great. Okay. So, my first question is related to profitability ahead. You mentioned earnings will be negatively impacted also in the second half of 2024. But it seems like the profitability now is low profitability, mostly related to the renovation segment. Do you expect only improved volumes will actually improve profitability ahead, or is something else that you expect that you need to do in order to improve profitability during 2024 or into 2025?
Yeah, we have done some measures, as we mentioned, on the production side, and we are still looking if we should—what we can find—to do further improvement. But we think it still be, will be affected, especially in quarter three and also for the whole year of 2024. So we expect it to profitability be more or less on the current level during this year. But when volumes are coming back, especially, as you said, on renovation side, where we have too much capacity, both in, yeah, in our production and project organizations, we expect when volumes are coming back, of course, the profitability to go back up on better levels. But we expect-
All right
... that, that will happen perhaps in 2020, probably beginning of 2025.
We need the ordering, better order intake and better volumes before.
Okay. And, you mentioned the capacity is very high at the moment. Can you give us some estimate of the current utilization rate, of all production, or the production capacity now and the potential?
I would say in potential, we could cope, perhaps with at least more or less double sales as we have for the moment.
But that,
Without any big capacity.
Yeah, but that doesn't mean that we need to, so to say, that we are only running production on half the speed, because we have, of course, reduced the manning in our-
Yeah
... production. But we can see that we can take in a lot with, with, just-
Mm
... taking a few persons in production, and we can take in a lot of volumes without adding overhead resources.
All right. And you mentioned this, you haven't seen the real boost in order intake, and especially not, on your main market, Sweden. But what do you see or what do you expect needs to happen in order for this real boost to come?
What we expect, what is needed is, of course, to continue to decrease the policy rate. That is very important, that we see a continuously decreasing in this, and that we will get additional, hopefully three, but at least two, during the autumn. And also, that the inflation in total, of course, is calming down as it has done. Because it's not only the interest rate itself that has increased for the tenant-owned associations, it's also other costs. So we need to see that the total cost driven that has been for the last years is calming down, as it is. And then we expect that after a while, when you get used to the new interest rate levels, then the orders would also come.
Okay. And then my last question is about the acquisitions in Finland. Do you have any specific action plan here in order to improve the operations in Finland? And maybe you mentioned it, but is the current level or operation in Finland progressing as expected, or is it below expectations or above expectations?
No, it's actually going according to our expectations, because we expected Riikku to be a lower sales than previous year, depending on that we... A lower order intake also, because we know that the new building industry is going down... and that was known already when we made the acquisitions. So what we are working on is, as I said, they are continuing, of course, in the new building industry, but we are also restructuring the company so that they are able to take projects, more projects within renovation, and not only glazing projects, also balcony projects, and bigger projects. But, as you understand, it takes a while to educate and to build up resources and to change.
We are also decreasing the manning in total there, because we need less people working with new building, and we need more people working with the renovation.
Mm.
So that's ongoing work.
All right. Okay, thank you. That was all my questions.
Thank you so much for your questions. As I mentioned earlier, if any caller want to ask a question, please press star nine to raise your hand, and you will be given the word. We move on right now with two written questions. How is the market in Ireland developing? You received a big order there in the previous quarter.
Yeah. For our side, we have actually we received a big order, and we continuously are on the market. We are working on the market. So far, we have not been able to get any new, big, new orders coming in, but we still see a potential in the market, and we, of course, have a focus on the market also ahead. We don't have any resources dedicated 100% for the Irish market right now. We are splitting them between UK and Ireland, so we will see how we work ahead there.
Thank you. Which level of profitability are you expecting from the Riikku acquisition long term?
We, as we mentioned, on the new build side, we expect them to keep the level as we have on the new build side, and as we take more and more renovation ahead, we expect it to be perhaps in total a Riikku Group Oy, yeah, let's say around 8%, perhaps long term.
Thank you so much. I will give the callers a couple of seconds more. If you want to ask a question, please press star nine. So I believe that we don't have any further questions here, so I'll hand over the word to you again, Camilla.
Yeah. Thank you all for listening to us, even though that it's actually a holiday and summer season, and we, of course, would like—we will improve as much as we can ahead, and we will focus, as we said, on the order intake, and we will focus on our cost and our profitability. But I also would like to take the opportunity to wish you all a nice summer, and we also have some hope for some improvements in the weather here in Sweden. So thank you all for listening, and bye.
Thank you.