Hello, and welcome to the Balco Q2 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note, today's event is being recorded. I would now like to turn the conference over to your host today, Kenneth Lundahl. Mr. Lundahl, please proceed.
Thank you. Welcome. From Balco here, it's me, Kenneth Lundahl, CEO, Michael Grindborn , CFO, and Camilla Ekdahl, COO. Second page, Michael. Q2 continued net sales growth, but a smaller number of lost projects negatively affected the result. Net sales for the quarter increased by 16% on organic growth, and net sales year to date increased by 15%, of which 9% was organic growth. Order taking the quarter was not as expected. We had about EUR 40 million of orders that was moved to next quarter, and the reason for this is discussion about material price level, material index, and what interest rate level we shall be on. We see now that the long-term interest rate level seems to be stabilizing, and we also see that material prices are going down.
We see that for the second half year, the interest in our products and the products we have, the level of the possible products is higher than last year. That was a little bit about the order intake. Margin deviation from some projects. The margin deviation in the quarter is due to lost projects in Norway, which together have had a negative effect of SEK 40 million in the quarter. The large deviations in Norway have meant that we have implemented necessary changes in the Norwegian organization, and we feel comfortable that this is a one-time effect and the margin level going forward in the whole group will look good. Next page, Michael. Acting CEO of Balco Group.
The board of directors of Balco Group has decided to appoint Camilla Ekdahl, currently COO and Managing Director of Balco AB, as acting President of Balco Group from first of September until the recruitment process is completed. Camilla, I recruited her three years ago, and now she's ready for some new challenging tasks. Of course, I will support Camilla with whatever she needs going forward. Camilla, please explain who are you.
I'm Camilla Ekdahl. I'm 55 years old, and as Kenneth said, I worked as a CEO for Balco Group and Managing Director for Balco AB since October 2019. I have a background of a Master of Science in Mechanical Engineering, and I have worked in several manufacturing companies which are acting on the international markets before, such as Pelly Group , Isaberg Rapid, Thule, Continental, and I have had different positions within these company as CEO, site manager, and also managing director. That was a very short introduction of myself. Please.
Thank you. Michael?
Yeah. Turn to the next page and have a look at the financial figures for the second quarter. Our net sales increased by 16% to SEK 351 million, of which 87% came from the new renovation segment and 13% from the new build segment. The order intake amounted to SEK 364 million. Here the renovation segment had 96% of order intake, while the new build segment had only 4% of order intake. Our order backlog has increased by 14% compared to one year ago, so it's now close to SEK 1.6 billion. Adjusted operating profit, as Kenneth mentioned, there was a bit of a disappointment.
It amounted to SEK 28 million, and it was negatively affected by these lost projects we had in Norway, which had a negative effect of SEK 14 million, and we also took SEK 1 million as a non-comparable cost for the reorganization of the Norwegian organization in the quarter. Operating profit margin amounted to 8.1%. Operating cash flow amounted to SEK 32 million, better than last year where it was -SEK 41 million. Turn to the next page and have a look at the business segments. I'll start with the renovation segment. Order intake was 25.6% lower than we had before, SEK 350 million, and it was, as Kenneth mentioned, due to delayed decision-making from some customers. We had roughly SEK 140 million that was moved to the coming quarter.
We're expecting more, but it's in the renovation segment and the renovation need will not disappear, so we know that the orders will come further on instead. The order backlog for the renovation segment has increased by 23%, and it's now more than SEK 1.4 billion. Our revenue increased by 14% to SEK 306 million, and the operating profit was SEK 24 million. All the Norwegian projects were in the renovation segment, so its negative effect of SEK 40 million was all in the renovation segment. Otherwise, we would have been on the same margin as the year before. Have a look at the new build segment. Here the order intake was just SEK 40 million in the quarter.
We have no new orders, for example, in the maritime segment, but we still have now new offers out in the maritime segment. The hope that it will become some orders in the second half of the year. Our backlog has gone down 31%, down to SEK 161 million. Revenue though has increased by 25% to SEK 45 million, with an operating profit of SEK 3 million, and it's 7.3%. Here we have a negative effect from projects in the U.K. where the market doesn't accept material pricing indexes, and we know that we would have some negative effect. It was just above SEK 1 million that had the negative effect this quarter. We turn to the next page and have a look at the first half year period.
In the half year period, we have positive effect in our net sales. It's increased by 15% to SEK 640 million. 9% of it was organic growth, and then Aqua-Technique was part of the group since the first of April last year, so this comes from the acquisition of them, this account, the other 6%. The renovation segment has 86% of the sales, and the new build segment, 14%. Order intake has been SEK 656 million so far this year. 9% is coming from the renovation segment and 10% from the new build segment. Adjusted operating profit, fifty-four million, with an adjusted operating profit margin of 8.5%. Operating cash flow, better than the year before. It's at SEK 18 million.
Last year, we had - SEK 54 million at the same, half year period. Let's come to the next page and look at the two business segments over the first half year. Order intake for the renovation segment has been SEK 519 million. Revenue, SEK 552 million. The operating profit, SEK 48 million, with an operating profit margin of 8.7%. Of course, also affected by the negative effects we had in the second quarter in the Norwegian market. New build segment, order intake increase of 44%, up to SEK 66 million. Revenue on the same level as last year, SEK 87 million. Operating profit, also close to last year's profit at SEK 6 million. Here we have the negative effect from the U.K. market, where we don't have material index of more than SEK 1 million.
We turn to the next page and have a look at our financial position. Our equity to assets ratio is still very strong, at 55%. It's better than last year, we had 51%. Our net debt to EBITDA is still at a very low level, including leasing debt, it's at 1.3. If we exclude leasing debt, it's just 0.7, lower than last year. The big difference comes from we have a new leasing contract for our building in main office in Växjö. That's a new ten-year lease contract, and of course, that have an effect when you include leasing debt. Our profit after tax has been SEK 29 million so far this year, corresponding to an earnings per share of SEK 1.91.
We are prepared for further acquisitions. We have a banking agreement with Danske Bank, which we signed a year ago, that is valid until October 2024. We also have a very low net debt, so we have money to do further acquisitions. We have quite a lot of discussions ongoing. Turn to the next page and have a look at our financial targets. Balco has a target of 10% growth per year. If we look at the last 12-month period, again, compared to the 12-month period before that, the sales growth have been 12%, so we're above that target. We also have a profitability target of earnings per share that it should grow by 20% per year.
Also look at the 12-month period, it's the growth have been 54%, so it's much higher. Our capital structure is that our interest earning debt per share shouldn't exceed 2.5 of adjusted operating EBITDA. Here we are at 1.3, including leasing debt. It's just 0.7, excluding leasing debt. Our dividend policy is that Balco should distribute 30%-50% of the profit after tax to the shareholders. The delegation this year was that we have a dividend of SEK 2 per share, and it's 49% of the profit after tax.
We have a sustainability goal as well, that 30% of the group's sales should be within the EU taxonomy and provide at least 30% energy savings for our customers. For the last 12-month period, we are now at 17% year.
Good, Michael. If we summarize this, Balco is a growth company with a very low debt.
Yeah, exactly.
Next page, Camilla.
Yeah. We will talk a little bit about our sustainability and green transformation. Our vision is to offer energy savings through innovative solutions and high quality products in the form of balconies and facade solutions. As you all know, the discussions about how we can reduce the total energy consumption is now discussed all over the world. 40% of all energy consumption is used for heating up our buildings. Based on this, we have said that we will focus even more on offering to our customer this with a green transformation. A glazed balcony can give 15%-30% reduction of energy usage, and therefore a glazed balcony is a trigger for doing even more.
This is a base that we have set that we will work on, and this is a base for our goal, as Michael just said, that we will have more than 30% of the group sales to be within the EU taxonomy and give 30% energy savings. How shall we then do this? We will use our balconies as a starting trigger, as we said. We are also offering now, where we have cooperation agreement with the customers, we are giving them the opportunity to get an energy consultant and help them to suggest different actions. We have broadened our offer to the customer also. We can do facade solutions, we can do roof installations, heat recovery, and we also have solar panels now in our product portfolio.
That is the key thing for us now ahead to really help our customers with the energy savings by this green transformation.
Excellent. We are building projects like this, we are selling products like this, and the interest going forward looks really good regarding.
Really good, yeah.
Green transformation. Excellent. I think that was the quick presentation. Now, questions, please.
Yes. Thank you. At this time, we will begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble the roster. Today's first question comes from Sofia Sörling with Carnegie.
Yes. Thank you. Hi, everyone, and thank you for your presentation. I will start with a couple of questions about the loss-making project in Norway. Would you say that this is related to specific projects or the operation as a whole in Norway? If you can give us some more details, what is the main reason behind this loss-making? Because usually you, from a material cost perspective, you usually have a cost index clause. Is that not the case here, or what is the main reason for this loss-making project? That's my first question.
Good question. It's not overall, it's only specific projects, and it's not due to material prices and so on. It's more that they are really badly planned and badly executed cost-wise. The projects are more or less ready. The customers are really, really happy, but the customer didn't know that we are losing money on the projects.
All right.
I will not go into exactly detail what we have done, but we can say like this, specific loss-making projects that are executed, they are built, customer is very happy, but they went really wrong in our profitability. This has. That's. I have been in Balco nine years. I think the last time we had it like this was in England, we had a project where we made a lot of loss due to some fire issues. This is bad management.
All right. Okay. My second question then, you said that these projects are finalized now, or will we see any effect or negative impact in the following quarters as well?
No. I think you—this is a one-time effect that doesn't happen very seldom, and it's handled. I think that you should see this just as a one-time effect. I think if we take away these single specific projects, I think our contribution margin is on the same level as last year, I think, Michael.
Yeah. Yeah.
If you're correct.
If we shouldn't have these loss-making projects in Norway, our operating profits have been between 11.5% and 12%.
All right. Okay. If it's bad management, what is your plan to have good management for the upcoming quarters then?
It's already handled.
Mm-hmm.
It's already handled, if you say like that.
Yep, it's already handled.
Yes.
All right. Thank you. Okay, I have a couple of questions regarding market. You mentioned increasing interest rates that customers are reluctant to actually go into a project right now, and I can fully understand that one, and it's a psychological effect that you want to pause larger investments. What is your plan to convince people that this is still a good customer case, even if long-term interest rates increases to perhaps reach 4%? Because I've seen if we look historically that you have operated successfully when the interest rates are high as well.
Oh, yes. Good comment.
Can you give your?
Now, I'm giving you another glance of it. Don't forget that now we are in July. In the beginning of the quarter, we didn't even get correct prices of aluminum. I mean, we couldn't even get the correct pricing in Q4. I mean, we didn't even get the price, so we were guessing. You could say that, I don't know the word of
Mm-hmm.
That was the case in the beginning of the quarter with the material prices. Today, we feel very comfortable of the material prices we have, and we see that they're going down. Perhaps we had a little bit of headroom before because we didn't know. Material prices going down, stabilizing. Also in the beginning, it was really difficult to what should interest rates shall we calculate with. Already now we can see that the long-term interest rates are stabilizing. We know a little bit what we can. I mean, in Sweden now, 3.5%.
Yeah, it was in the news late yesterday that the long-term interest rates is starting to stabilize and even perhaps go down a little.
Yeah. I think so. The only thing we need is little stable situation, then the customer will act.
Yeah.
Of course, so if we look at the next quarter, the interest from the customer is much higher than last year. That's the situation.
Yeah. Okay. Given your case to the customer, do you have any like break even, a level on your interest rate that is like a break even for your customers that you see as like, this is, a way too high interest rates? Or if you can give us some thoughts about that.
No, it's always a smash hit for the customer to get a new big glazed balcony. If you look at the valuation-wise. The investment is always a good return. Of course, you don't want to get too high monthly cost.
Mm.
That is really important. The way to work with this is of course to have the correct interest rate, have the correct amortization, and of course a stable price. We feel already now we have a little bit got through this, but we don't have any, how to say, break-even. I don't know. I think that the.
All right.
Interest rate of 6%, 7%, 8%, perhaps then it's going to be pretty tough.
All right. I see. Some last questions about your M&A agenda. Given the high interest rates, have you seen?
Another thing.
Oh, yeah.
Just another question here. You know, for example, everything is about how to say, getting used to the situation. Like you said, couple of years ago.
Mm.
We had 3% interest rate and the world didn't stop. We are building three big products at the moment. One is already being built, and then the prices, we had to adjust the prices. Prices went up, our product pretty much. The customers started to hesitate. They were-
Mm.
Two months later, they started because they were getting used to that, "Okay, now we go." It is a little bit, how to say, takes time to get used to that.
Mm.
the new level.
Yeah.
Acquisition, M&A. Shall you try to take that, Michael?
Yeah. She can make the question first.
Okay.
Oh, yeah. It's about if you can give us some update on your M&A agenda, and if it has changed given that the interest rate has increased now, and if you can give us some color on your M&A pipeline. Thank you.
Michael.
Yeah. Now, as we said, we have a very low net debt, and we are not using very much of our revolving credit facility. We have a lot of possibilities to acquire companies. We have right now ongoing discussions with companies in three or four different countries. We have a lot of discussions ongoing, and we hope to close a couple of them during the year.
All right. Okay. Thank you so much for your answers.
Thank you.
Thank you.
Thank you. The next question comes from Henrik Enbäck from SEB.
Well, a lot of my questions have already been answered, but perhaps I can go into the last part of your presentation about the sustainability and green transformation. Your goal about having 30% of sales providing at least 30% of energy savings, is it tougher now in this environment to convince the customers to accept what you call our complementary offers to reach those 30% energy savings?
No, it's totally opposite. Mike, Camilla, you can take it.
Oh, it's actually the opposite because what we are offering them, we are offering them even more energy savings, and energy savings give them contribution to pay for the balcony. That is actually helping them in these decisions. That is also why we are focusing so much on it.
Okay.
To compensate for high interest. Of course, it and with higher energy prices, the saving in money is even higher when.
It's even higher, yeah. It's helping us.
That was everything I had. All of my previous questions were answered.
Okay, good.
Thank you.
Thank you. As there are no more questions, I would like to return the call to management for any closing comments.
Yeah. What shall we say? We're a little bit disappointed about, of course, the reported order intake and then the loss-making projects. We see that many interesting projects going forward order-wise, and we are not so concerned going forward regarding our margins. Anything to add, Camilla, Michael?
No.
We're also working with some really interesting acquisition projects.
Yeah.
That fits Balco very well, and also with a good valuation for Balco and for the shareholders.
Yeah.
Okay. Thank you from us.
Thank you.
Have a really good day.
Yes. Thank you.
Thank you.
As mentioned, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Thank you.
Thanks.