Welcome to the Balco Audiocast with teleconference Q4 2021. Throughout this call, all participants will be in a listen only mode, and afterwards there will be a question and answer session. Today, I am pleased to present CEO Kenneth Lundahl and CFO Michael Grindborn. Please begin your meeting.
Excellent. Thank you. Welcome to this Balco presentation. Michael, page two.
Yeah.
Q4 more than doubled order intake in the quarter. The order intake increased by 111% to SEK 184 million, compared to SEK 230 million last year quarter, and it was 38% higher than in the fourth quarter of 2019. The order intake was 49% higher than the revenue in the quarter. The order intake is really working well, and it looks good going forward the next quarters. We have some new financial targets. We have a new profitability target. Earnings per share should grow by 20% per year. We have also a new sustainability target. More than 30% of the group sales should be within the EU taxonomy and provide at least 30% energy savings for our customers.
This is what we call the green transformation of estates. I will come back to that later more in detail what it is. Green transformation of estates. We had an order, green transformation order in December of SEK 1.3 million. That's a single order. Of course, we had also other orders taken in green transformation, but this was a little bit bigger. We had signed also two cooperation agreements that were also two green transformation projects together with total of SEK 250 million, and expect these to be orders in, I would say, first half of 2022. Balco Living. I would say that in this presentation, the most important that has happened, this is actually the Balco Living product segment. It's the most important thing that has happened Balco the last 20 years.
If you look at green transformation of estates, I think that will be 30% of our business pretty quick. Balco Living will be an even bigger product segment than the green transformation of estates. We are putting significant development resources. We have invested that over a period of one and a half years to develop this product segment. We are the first in Europe to offer this product segment. It's a new unique product segment to solve the cramped living space. Of course, you could say the marketing is to two areas. One is, of course, Allmännyttan, BRF, Sweden, where you have some political focus, of course. I would say the quickest orders we will get that will be from BRF Norway and private owners of buildings.
This new living space has a very low construction cost, and it gives an additional square meter price on a new space. It will be extremely attractive, and it can be a way to lift vulnerable areas and make them more attractive. This product segment should be able to provide major positive social effects. Yes, Michael, please go on.
Turning to page three and have a look at the Q4 financial highlights. They start with the net sales. Net sales increased by 20% up to SEK 324 million. Of this, 8% was organic growth and 12% was acquired growth from our two acquisitions this year. Renovation segment accounted for 83% of the sales and the new build segment for 17%. Our order intake, as Kenneth mentioned, really strong, 49% higher than the net sales and increased by 111% up to SEK 484 million. Of this, 103% was organic growth. The order intake was also 38% higher than in Q4 2019 before the pandemic.
The renovation segment accounted for 87% of order intake, new build segment for 13%. Our order backlog has increased 43% during the year up to SEK 1,557 million. Our adjusted operating profit for the quarter was SEK 38 million, compared to SEK 22 million the year before. We have an adjusted operating profit margin of 11.8% compared to 8.3% year before. We also had a really strong cash flow in the fourth quarter of SEK 125 million. Our board of directors proposes a dividend of SEK 2 per share for this year, divided into two payments, SEK 1 in May and SEK 1 in November. Turn to page four and have a look at our two business segments, and start with the Renovation segment.
The renovation segment has also really strong order intake, an increase of 106% compared to 2020 up to SEK 420 million. The order backlog for the renovation segment has increased by 56% up to SEK 1,379 million. The revenue increased in the fourth quarter by 9% up to SEK 268 million. The operating profit margin also improved by 38% up to SEK 33 million, with an adjusted operating profit margin of 12.4% compared to 9.9% in 2020. We turn to page five and have a look at the newbuild segment. Also here, good order intake increased by 150% up to SEK 64 million.
The order backlog of a newbuild segment has decreased by 13% down to SEK 178 million, and that's due to we had one maritime order that was canceled by our customer in December last year. Revenue increased also strongly 148% up to SEK 56 million. The operating profit was SEK 4 million with an operating margin of 8.1%. It's a big improvement compared to 2.5% that we had in 2020. We go on to page 6 and have a look at the full year figures for the year of 2021. Our net sales amounted to SEK 1.12 billion compared to SEK 1.2 billion the year before.
The renovation segment accounted for 84% of the sales in the full year, newbuild segment to 16%. Order intake was really strong, 16% higher than net sales and increased by 67% in the full year, up to SEK 1,558 million. Renovation segment accounted for 92% of order intake, newbuild segment for 8%. Our adjusted operating profit was SEK 20 million, with an adjusted operating profit margin of 10.7%. Our operating cash flow for the full year was SEK 96 million. We turn to page seven and have a look at the two business segments full year of 2021. The renovation segment, slight decrease in revenue, down 14% to SEK 946 million.
We have an operating profit of SEK 106 million and an operating profit margin of 11.2%. The order intake for the renovation segment has been really strong, 78% higher than 2020, up to SEK 1,446 million. When we go to the newbuild segment, a good increase in the net sales, 67% up to SEK 174 million. Also improved operating profit up to SEK 40 million with an operating margin of 8.1% compared to 6.5% in 2020, and a stable order intake of SEK 122 million. We turn to page 8, and I will have a look at our financial position, which is still really strong. Our equity to asset ratio is at 56%, an improvement compared to 49% the year before.
Our net debt compared to EBITDA is 0.6 if you include leasing debt. If you exclude leasing debt, it's just 0.3. Profit after tax improved to SEK 90 million compared to SEK 78 million, the full year of 2020, and it's corresponding to an earnings per share of 4.12 SEK. We are prepared for further acquisitions. We have an acquisition headroom. We extended our banking agreement with Danske Bank, so it's valid until twelfth of October 2024. With a sustainability link, the revolving credit facility of SEK 510 million, and we also have an overdraft facility of SEK 75 million. Where the board have also an authorization to issue shares to finance acquisitions if that should be necessary.
We turn to page 9 and have a look at our updated financial targets that we communicated in January 10 this year. We still have our group target as before, that we should achieve 10% growth per year. 2021 was really, depending on the pandemic and the bad order intake in 2020, we had a negative growth of 7% in 2021. Earnings per share shall grow by 20% per year. We had 15% growth in 2021. Our net debt to EBITDA compared to EBITDA should not exceed 2.5 more than temporarily after an acquisition, and it's currently at 0.6, including leasing debt.
Our dividend policy is that we should distribute between 30% and 50% of our profit after tax to our shareholders, and the proposed dividend of 2 SEK per share corresponds to 49% of the profit after tax. We also have this new sustainability target that more than 30% of the group sales should be within the EU taxonomy and provide at least 30% energy savings for our customers. The order intake of 2021, we had 12% that would provide at least 30% energy savings for the customers. I return to page 10, and back to you, Kenneth.
Excellent. Well done, Michael. Of all the figures that Michael mentioned, I think one is really interesting to look at. That's the order increase in the renovation segment during the year, +78%. That's really good. Now we talk about Green Transformation. During the years we are when we are helping customer with solving the balcony issues, there is very and this process is of course a lot of work involved in with meetings, votings, financing, building permission, applying for approvals, et cetera, et cetera. Many times the customer have asked us to do more and more. Step by step we have done that. In Holland, we have an energy consultant helping to transform the buildings to zero emission building. In Germany, we have a resource also energy consultant helping the customer transform a building.
In all these cases, it always starts with the balcony. Because the balcony, when you change that and you do it correctly in our way, it has an energy saving of effect of between 15% and 30% depending on solution and building. A clima wall covering the whole wall, in the south, that will give an energy saving of 30%. What we have said and taken decision now is that always when we go to customer, find a building, we will also look at the building and see do they need to do something else. If we can see that they have to do the facade within five years, we should absolutely do the balcony and facade at the same time.
If they haven't solved the roof insulation or if they haven't solved the mechanical ventilation and how you handle the energy solutions there, then we shall offer them really to look at this. This will happen together where we sign the corporate cooperation agreement that we have. We will look through the energy declaration they have, really try to improve it from ED to BC. We have an energy consultant that is helping us with this. Of course, the combination balcony facade, roof insulation, heat recovery, solar panels, this is the solution where we pretty easily can make an energy saving more than 30%.
Of course, important here is that the combination energy saving, helping with the building permission, voting and the financing. Also that we are general contractor. This is really the key for success. We find it really our obligation to tell the customer the possibility they have. Because if they only do one thing, the solar panel, the roof insulation, I mean, with some years in between, you can never do this big transformation of the building and also solve the green financing. If you look at, objective is that we should have at least 30% of business during the year, now it was with an energy segment of more than 30%. During the year it was 12%.
In the quarter you see now that it was 25% in Q4. This means that 25% of the order intake was in the EU taxonomy. We see that we have a very good interest in this and we already now we have sold pretty much you see that in Q4. I think that in net this year we'll probably sell for between EUR 30 million-EUR 50 million in the green transformation segment. Okay, we change page to page 11. Balco Living. This is a totally new segment and it's simple said like this. If you have an old facade, old balcony, and you really need to do something, instead of building a clima wall, you can actually build a living area with the opening functions that we have for glazings.
This, there are major advantages of doing this. Of course, the value of the property, you get more space. This project you can do combined with a Green Transformation project. If you do a Green Transformation project for the whole building combined with extending your space, say up to 20%, we can extend the space with up to 20% without increasing your total energy cost. The extra space, the energy cost for that will be theoretically zero. Of course, if you look at what kind of customer, what segments will this be, and, I mean, you could say that there are two parallel levels here. In Norway, it is BRF, tenant-owned, absolutely. In Sweden, private owners, and it can be hotel.
A hotel that have a nice area to the lake, they can easily on one side, if they have 10 levels, put up five levels of these and you'd have an extra space. There will be some quick projects. In the other areas like Allmännyttan or in BRF, tenant-owned area in Sweden, every time when we work with glazings, there is a process regarding building permission and also Hyresnämnd. Here we will have the same issue. It will not be more difficult, but it's the same issues that we have in the glazings, when we are seeking building permission here. In this marketing area, we will of course go a little bit the political way because this is really one way to solve that people had too little living area.
This segment here, we worked with this, say 1.5 years. It's only us doing this. The only area I've seen someone using the space like this, that's in Spain. In Spain, they have glazing, but they are uninsulated, but they live in this area anyway because they have so little space. This is new segment. There are, of course, a lot of patents here already now. Step by step, there will be even more patents going forward further here because we will be able to introduce 75% of all the patents we have in the existing systems. There will be also new patents, especially when you assemble and you produce this and also regarding the floor.
Also already now in last two weeks, we have found out that we can, if we want to build this space here, that we can also have open sliding doors in the front and put an open balcony, Levitate expanded on this. So they're co-adding more and more opportunities all the time. If you summarize this, I would say this is the biggest thing that has happened to Balco in the last 20 years. We will have three development resources working with this all the time because this will be able to develop, find new ideas and we're really happy to be able to do this. Of course, like some person asked me that this is a lot of education of the customer.
I said, Yeah, but hello, who are meeting all these customers today in the renovation segment? Balco is meeting them. This, the key combination here of product, patents, knowledge that the sales organization will have meeting the customer, total contractor, green transformation and financing. If you don't have the correct product here with any of the savings, the lifetime of them and the financing, then you cannot do this. There is a lot of also general contractor. There's a lot of combination. This is not just about the product, it's a lot of combination that make this really strong for Balco. Okay. Anything to add, Michael?
No, I think we can head over to Q&A.
Yes.
Thank you. Ladies and gentlemen, if you do wish to ask a question, please press zero one on your telephone keypad now. If you wish to withdraw your question, you may do so by pressing zero two to cancel. Our first question comes from the line of Nicklas Fhärm from SEB Equities. Please go ahead. Your line is now open.
Thanks, operator, and good morning, everybody. So I would like to start this Q&A session by asking you a little bit about the gross margin and the SG&A cost situation as you believe it is right now. First of all, could you walk us through the main parts of the gross margin change year-over-year, which I think is quite good. Also my second question is, do you expect to be able to extract additional cost leverage? I think the SG&A cost to sales ratios are also moving in the right direction at this point in time. Or should we expect these levels to be base case going into 2022, please?
Michael, it's your ballpark.
Yeah, I can start. Our gross margin, we have seen improvement during the year, and this is really despite that we had, especially in the beginning of the first quarters, have had a little bit too little to do in operations and production. Main reason is that the biggest part of our sales has come from our higher gross margin markets with Sweden and Norway having a big part of the total sales. Despite the material increases that have been really high in some, especially in aluminum, we have been able to increase our prices at the same levels, and we also have indexes in our order backlog.
We are confident that we can keep good gross margin on this level going forward. When it comes to sales administration costs, they have been quite, I would say stable, especially the administration cost. Sales, we have increased some resources and also been more active now in the marketing area, being able to travel more and meet our customers. But I would say when sales are growing, the ratio of sales and admin costs should decrease. We should see a positive impact of our EBIT margin when net sales are increasing.
Excellent. Very clear. Thank you. My second question is, if you put any range or any number of what a continuing good order intake actually means in current trading. My second question is the two agreements that you landed towards the end of last year. Best guess, when do you expect that to be in your order book in 2022, please? The SEK 250 million, that is.
I think that if we look two quarters in front, order intake more than 40% or 50%. I would say 50% then perhaps. These two cooperation agreement, the best guess is the first half year. There will be more cooperation in the coming year. It was really a lot to happen in Q4 last year.
Mm.
I would say the first half year.
Very much appreciated. Just for the record, the SEK 250 million, whenever they land in your order book, is that included in the, say, 40%-50% growth you expect for the first half in the order intake?
Perhaps half of it. You should know that there are so many orders. I mean, depending on when they land, it's a big hit.
Yeah.
I would say that if one of them lands in, you will still have a very good order intake.
Right. Gotcha. All right. My final question then I may come back into the call later on. That would be just for the record, I was also a bit surprised on the lower tax rate in full year and implicitly in Q4. Is there any reason for why we should not expect a more sort of tax cost in line with the standard tax, corporate tax rates going forward, please?
We had some good opportunities with our two acquisitions that they have not made excessive depreciations until before. That's the main reason coming from two acquisitions. Going forward, as you said, we should be more on the standard tax level of a Swedish tax.
Right. Gotcha. All right. Thank you so much for now.
I can also just mention that we changed our profitability target we had before, that we should have a profitability of 13%. One reason that we changed it to earnings per share is that we see that the acquisitions and the companies we are looking to acquire, they more or less all have lower profitability than us. Without the two acquisitions, really our operating profit margin would have been 1 percentage higher in the full year this year.
Mm.
That's one impact that we changed the profitability goal to earnings per share instead. They add to earnings per share, but they decrease really the margin more or less all acquisitions we will do.
Right. Gotcha. All right. Thanks. Thanks again.
Ladies and gentlemen, once again, I remind you, if you do wish to ask a question, please press zero one on your telephone keypad now. Our next question comes from the line of Sofia Sörling from Carnegie. Please go ahead. Your line is now open.
Right. Thank you and hi, everyone. Great question from the previous speaker. My first question now, do you see that you will need to increase your workforce during 2022 to meet the demand for these larger orders, including the façade renovation and balcony renovation?
Yes, that we started with that already in Q4. I would say that, going forward, we can hire people in all areas so far.
Mm.
Of course, it's a little bit more difficult in different countries, I would say. A bit. But we get people, and we are in advance. I will say that order intake will be really good first half year.
Mm.
Turnover profit, yes, of course. I think our issue now is not people. We are hiring people all the time. It's building permission. I mean, we increased order intake in the renovation segment with 7%-8%. Everything is about when do you get the building permission for each one of these projects. Of course, if you get three-four big building permissions in the same week, then of course. We have a long history of this. We know a little bit what happens, but this is always what the operation side is working with. Where shall we have the resource? The operations, of course, are really flexible.
Mm.
I mean, we can move resources, project leaders, assembly leaders to different companies depending on which situation they have. I mean, already now we can see that if all the building permissions lands in TBO-Haglinds and RK Teknik from what they have sold, then after the vacation, they will not have a chance to do all this work themselves. Already now, Balco AB is preparing and thinking how can we help them if these building permissions coming.
All right. The building permission, then you mainly mean the Swedish market, or is it, the same in other markets as well?
No, it's the same in other markets, but it's very different depending on how they are working with it.
Mm.
You can say that Norway is very quick. Germany, extremely quick.
Mm.
Sweden, okay. Stockholm, disaster.
Mm-hmm.
I would say the new thing that has happened now in Stockholm, we have seen that for the first time, is that the waiting time for Hyresnämnd is two years. Now some of the big ten BRFs, they are actually taking the decision to not go to the Hyresnämnd because in 99.9% when they go to the Hyresnämnd, they go, they get yes anyway. This is just a delay stupid issues. When a tenant owner in Stockholm now feels secure that people won't have a problem with the Hyresnämnd, they don't even apply for, they go directly after the building permission. This is the answer to your question is very different depending on which country you have. If you try to build something in Stockholm, that's the longest time.
I understand. Thank you. All right, and a question about the price index that you mentioned. How much of your order backlog is tied to this price index? I think you mentioned before, like 80%. Is that still the case?
Yes. Yeah. I would say this is why Michael feels strong about, how to say, comfortable about the gross margin.
Mm.
I would say if we wouldn't have material index as we have, then we would have stomach pain. But our calculations, like, how we calculate the orders in the order stock, if you look at the material prices we have had, the material prices we have booked or the materials prices we are going to get, this is the key issues first. Of course, here we are prudent. Then material index. If you have material index, this is many, many millions. This I would say that's, Michael, I think it's EUR 3-4 million in the order stock.
Mm-hmm. Yeah.
This you don't take in in the beginning of the product. You never do that. Project lead will never do that. The first three months he will not touch it. Perhaps after six months, he will take in some of it. Of course, there will be negotiations with the customer. You will only get out the material index when the product is ready, when you invoice the last invoice. Here I will say that we are really having control of this, which kind of index we are using and offering in the different companies and in different countries. One thing we actually changed now is that one of the companies we have what you call a smidest index that a lot correlated to steel.
Mm.
That one we changed now to the building index instead because we think that steel is flat now going down. Steel price is going down. Okay, good. Aluminum prices from December went up. Not a problem for us, but probably they will go down later on. We use index now where you have more workforce involved because we think that the next coming years you will have little more, bit higher, wage inflation.
Yeah.
It's important to modify the index depending what's happening.
All right. Thank you. The new build division, is the sales for this mainly driven still by the maritime projects, or it seems to have increased due to your acquisitions in 2021, or what is perhaps driving both the order intake for new build and the sales in new build?
What is driving the new building area going forward will look pretty nice because of a patented product called Levitate.
Mm.
That's really a product we are selling initially now in U.K. We have done really good work here getting the cost down, made it more efficient and so on. Here I would say in U.K. this year, I think we will sell perhaps EUR 8 million-EUR 10 million of this product patent, and that's only in the new building area.
Mm.
This is interesting because this is, as I said before, patented product, customer like it, where you actually can earn more than 10% in the new building area. That we like. This product, when you have sold it to customer, you send some of the steel beam that they put in the building. Then later on when the building is ready, we come there and we can put up 50 balconies in one day at one, and then we are done, and we can go from the building area. That we like.
Mm.
Because being at the building areas at the same time as building, that never works good. We like this product, and this product is unique, and I think it will also sell in other countries than Germany. It will sell in Holland, Germany, and also in Finland.
All right. Thank you. My last question, the order intake, can you give us a split between the organic and, how much is structural, driven in the quarter?
Michael?
Yeah, in the quarter we had organic order intake increase of 103%.
Mm.
And, uh-
All right.
Yeah. The remaining 8% was from our two acquisitions.
All right. Thank you so much, and thank you for this presentation.
Our final question comes from the line of Nicklas Fhärm from SEB Equities. Please go ahead. Your line is now open.
Thanks again, operator. Thanks for letting me back into the call. Just some more details on the financials. I was just noting the quite significant improvement in working cap in the quarter, and especially the +100 item in there. Could you give us an idea what's happening in the working capital development, please? Or, I guess the question is really whether there's any structural change that we should be aware of going forward or if it's more a year-on-year outcome.
It's more of a, I would say, quarter-to-quarter outcome. It really depends as we say where we are in our projects when we have a possibility to invoice customers. We have in general very good paying customers. Thirty days after we send an invoice, we get paid. It's more when where we are in the different phases of the building different projects. If we have a big project that are in a phase that we can invoice, we get a good receivable.
Mm.
Payment after 30 days.
Right. You don't mind.
You should really see when you look at our cash flow and operating cash conversion, operating cash flow, you should see it with a 2-3-year trend, and then it's quite stable. I would say our operating cash conversion is 70%-75%.
Very clear. Thanks. My final question, if I may. Could you just give us an update on sort of your M&A strategy? Last year you acquired sales of SEK 145-ish million in revenue. What would be the sort of the average or typical acquisition target on your list? And could you also perhaps voice what you actually think, given your current balance sheet, given your new financial targets, what is your acquisition capacity going into 2022, please?
I can answer the first question, Michael.
Yeah.
We think we will do between 1 to 3 acquisitions this year, and that will be mainly in the balcony segment in the Nordic countries where we can see that it can support organic growth. We can also add companies supporting the green transformation part. Solar panels companies, now we don't see that we need to buy something with the cooperation agreement. Roof insulation, yes, that would fit us perfectly. That's the answer to first questions. Michael?
Mm.
Yeah. When it comes to acquisition headroom, we have done some simulations on that, and we have financial muscles to handle this kind of acquisitions without any problems.
Yep. I just noted your proposed dividend is also at the upper end of the range. Hence my question. Very clear. Thank you so much.
The main reason for that is that we didn't give any dividend last year. So that's why.
Yeah. Yeah
We thought it should little bit cover the not giving the dividend last year.
I'm sure it's well received. Thank you for a good call and taking all these questions.
Thank you. We currently have no further questions. I'll hand back to the speakers for any final remarks.
Okay, excellent. Thank you. We wish you all a really good day.