Welcome to the Balco Audiocast with Teleconference Q3 2022. Throughout the call, all participants will be in listen-only mode, and afterwards, there will be a question and answer session. Today, I am pleased to present Acting CEO Camilla Ekdahl and CFO Michael Grindborn. Please begin your meeting.
Thank you. Welcome. Yes, we start with some highlights. The net sales for the quarter increased by 28%, all organic growth. For the nine-month period, the increase was 90%, of which 50% was coming from organic growth. We have a very strong operating cash flow also during the period and also for the start of the year. However, the result is lower than we have expected, and it's mainly the gross margin which is deviated. We have continued project deviations in Norway. Rising material prices for glass, as well as increased energy costs and transport costs are also weighing on the result. We also have some orders which have been taken out of the order backlog due to that the promised finalization to the customers have been taken away.
The main disappointment is the lower order intake in general. Here we can see that the order intake in general is mainly coming from that the customers are postponing their decisions. They still want to have the balconies, but they're postponing their decision. Due to the lower results during the last two quarters and tougher market conditions with expected lower order intake in coming months, we have decided to implement a cost-saving program. This cost-saving program is estimated to save about SEK 20 million. I also want to underline here that we are in the renovation market, and this means that the demand for our products and for our services are not going away. We have 90% of the balcony space is coming from renovation, and the renovation demand is still there, but the customers are postponing the project.
As soon as we can see that the market is going to be more stabilized with the materials, with interest rates and inflation, we are very sure that the order intake will come back again. As you have seen also, we have a very good cash flow, and we have a very low debt also in the group. We have headroom for acquisition, as we said, and therefore we made an acquisition here in the starting of quarter four of Söderåsens Mur & Kakel. I will come back to that a little bit later about that company. I hand over to Michael with the financial figures.
You should take three in the presentation, about the two, three financial highlights. The net sales, as Camilla mentioned, was very strong. It increased by 28% to SEK 311 million. The renovation segment accounted for 91% of the sales, and new build segment for 9%. Our order intake amounted to SEK 265 million. Here, 97% came from the renovation segment and just 3% from the new build segment. Our order backlog is SEK 1.46 billion, from the same level as one year before. Our adjusted operating profit amounts to SEK 17 million, with an adjusted profit margin of just 5.4%, down from 10.4% last year.
Our operating cash flow was very strong, and it improved to SEK 104 million in the quarter. Turning to page four and have a look at the two business segments, and we start with the renovation segment. For renovation segment, order intake was down 30% to SEK 256 million. The order backlog is 6% higher than what came before, so it's just above SEK 1.3 billion. Revenue increased strongly by 34% up to SEK 284 million. The operating profit was SEK 50 million, with an operating profit margin of 5.1%. Here, the main reason for the decrease in operating margin and profit is the Norwegian projects and also the canceled orders. Both of them affect roughly SEK 4 million each.
In the new build segment, our order intake was lower, down to SEK 9 million in the quarter, and the order backlog is also 35% lower than one year before at SEK 136 million. Revenue was also down by 12% to SEK 27 million in the quarter, and the profit was just above SEK 1 million in the quarter with a profit margin of 5.4%. Here is mostly the U.K. project where we don't have material index. That affects the result by roughly SEK 1 million. If we go over to the nine-month period, page six in the presentation, and have a look at the net sales, it has been increased by 19% up to SEK 950 million, of which 15% is organic growth.
Renovation segment has accounted for 88% of the sales and new build 12%. Our order intake amounted to SEK 921 million. Here renovation segment is 92% of the order intake and new build 8%. Our operating profit so far is SEK 71 million, with an operating profit margin of 7.5%. In the nine-month period, the cash flow has been really strong, and it improved to SEK 122 million. Turning to page seven and have a look at the two segments in the nine-month period. Here we see that the order intake for renovation has been down 11% to SEK 846 million. Revenue though has increased by 23% to SEK 837 million.
Operating profit has decreased to SEK 63 million with an operating profit margin of 7.5%. New build segment, here the order intake is higher by 30% compared to one year ago, SEK 75 million. Revenue, more or less the same as one in 2021, so it's SEK 114 million. Operating profit has decreased by 25% to SEK 7 million with an operating margin of 6.2%. Have a look at the balance sheet. We still have a very strong financial position. Our equity to asset ratio is stable at 71%. Our net debt to EBITDA, including leasing, is down to 0.7%, and if we exclude leasing debt, it's just 0.2%.
Our profit after tax has been SEK 50 million so far in the year with an earnings per share of 2.39%. We are prepared for more acquisitions. We have acquisition headroom. We have a banking agreement with DNB Bank ASA until October 2024 with a sustainability RCF of SEK 510 million, and also overdraft facility of SEK 75 million. Our indebtedness is very low at the moment. Our financial targets is that we should have a growth of 10% per year. If we look at the last twelve months and compare it to the twelve months before that, we have a growth of 20%. Our earnings per share, we have a goal that we seek to grow by 20% per year.
Looking at the last twelve months and compare it to the twelve months before, we are at 47%. Our capital structure, our interest bearing debt compared to EBITDA, should not exceed 2.5%, and here we are at just 0.7%, including leasing debt and 0.2% excluding leasing debt. We also should distribute 30%-50% of profit after tax to our shareholders, and last year it was 49% that we gave in dividends to our shareholders. We also have the sustainability goals. That's 30% of our sales should provide 30% of energy savings to our customers. Looking at the last twelve-month period, we are at 15% here. We go to page 10 and have a little look at sustainability and green transformation.
Sustainability is very important for the Balco Group, and it's in our vision that to offer energy savings through innovative solutions and high-quality products to our customers. We also have set goals towards the UN Agenda 2030. We have four goals that we think are the most important for our business, and it's gender equality, decent work and economic growth. It's industry, innovation and infrastructure, and also responsible consumption and production. With you, Camilla, a little bit Green Transformation.
Yeah. Thank you, Michael. Yeah, in the Green Transformation, as Michael said here, we have the goal that more than 30% of our group sales should come that we have 30% energy savings. Here we see the balcony is a trigger for getting these kind of projects. The renovation of a balcony with the Balco method can give us between 15%-30% energy savings. This is a good base for getting up to the 30% needed for getting the green loans.
What we do then is that we meet the customers, they have a demand of a balcony renovation, and then we have a look at their energy costs, and we can offer them making an energy declaration, and we then can give them proposals of how we can transfer them from energy declaration D or E up to B or C. That we can do by taking the glazed balcony, but also making a complementary offer. We can do the façade renovation. We have the roof installation, heat recovery and solar panels. All these we call that we can give them a green transformation and then they can get the green loans.
This is of course one of the most important offers we now have to the market considering the market conditions ahead with higher energy costs and all other higher costs that is coming up. If we take to the next page, this is also why we have decided that we continue our acquisitions. We have then bought a new façade company, which is called Söderåsens Mur & Kakel. Söderåsen was founded in 2000, and they offer façade works. The customers consist of housing associations, public utilities, private property owners and construction companies. They are located in Kågeröd, and they have about 21 full-time employees employed.
We will continue to work with Söderåsen as we do with all other companies. They are an independent company within the Balco Group. The current management, Ola Gustafsson and Emil Johansson, they continue to be the managers of the company. We have that we will consolidate the results for Söderåsen from first of November. We can see that the acquisition is expected to contribute positively to earnings per share already in 2023. We are financing the acquisition with our own cash. This is in line with Balco's growth strategy, both regarding acquisition, but also more on the focus on sustainability and helping customers to the energy savings through green transformation. If you see where this is located, it's located in the south of Sweden, and then we have Stora Fasad, which is located in the mid of Sweden.
This is also a good fit from a geographic point of view. That was all from us. We come to the questions.
Thank you. If you wish to ask a question, please dial zero one on your telephone keypads now to enter the queue. Once your name has been announced, you can ask your question. If you find it's answered before it's your turn to speak, you can dial zero two to cancel. Once again, that's zero one to ask a question or zero two if you need to cancel. Our first question comes from the line of Niklas Fhärm at SEB Equities. Please go ahead, your line is open.
Thanks, operator, and good afternoon, everybody. My first question would be on the cost savings program. Could you give us any idea of the costs to be taken out to achieve the SEK 20 million in savings? Could you also give us an idea of what type of costs you aim to reduce? If you just follow the P&L disclosure line, please.
Yeah, we just start up discussions now with the union, so we have meetings tomorrow. We expect that roughly 25 people will be involved, up to 25, both in Sweden and in other countries around. In total, roughly 25 people. It will be in all lines, both in the production and project line costs. It will also be in administration space, sales, marketing.
Makes sense.
We expect, we don't know exactly how many. What the cost will be right now, we're just starting up the discussions, but it will be, we say perhaps between SEK 10 million and SEK 20 million. That will be a one-time cost in 2024.
Right. Got you. Makes sense. Thank you very much. Very clear. Second question. It's a bit unclear to me when I read the report, but SEK 4 million of the gross margin bridge this quarter is because of accrued expenses. It's a little bit unclear whether those SEK 4 million also include the project costs running higher than expected in Norway or not. Anyway, could you give us a slightly more detailed description of the negative 7.6 percentage point gross margin? Where does that come from in addition to what you write in the report, please?
Yeah. Main cost is that we have continued product deviations in Norway. We expect it's roughly SEK 4 million that is negative deviations in Norway. SEK 1 million negative productive deviations due to that we don't have material index in the U.K. We also see increased energy costs that we can't forward to our customers now, especially in August and September. It was really high energy costs in Sweden, so it's roughly SEK 1 million extra energy costs we have in the quarter. Canceled orders, there we had accrued costs in the balance sheet that was roughly SEK 4 million, that we have started to work on these projects.
They got canceled from the customers because they had financing with the bank, either increased the financing costs so much that the customer couldn't continue or for some reason also that they completely canceled the finance agreement. That was SEK 4 million. Due to that, we didn't have full occupancy in the project organization, especially Balco AB, where we had a cost of roughly SEK 3 million. Especially the increased costs in gas, because gas is linked to glass, because glass is linked to gas index. We got the material increases very high in August, September. It's roughly SEK 2 million that comes from that. They are not part of our material index.
Mm.
We get compensation for aluminum and steel labor that we have in our material index. We get compensation krona per krona, so we don't get the margin. I would say that makes roughly 2 percentage point shift from 27 down to 25. With this other SEK 15 million we should have been on this 25% profit.
Thank you. Currently we have one further person in the queue. Just as a reminder, if you do have a question please dial zero one on your telephone keypads now. Our next question comes from the line of Sofia Sörling of Carnegie. Please go ahead. Your line is open.
Thank you and hello. Thank you for your presentation. I have a couple of questions about the order intake during this quarter. My first question is, could you say something about the order intake and if any of the order intake during this quarter is any of the orders that were deferred during Q2? Also if you can say something about the trend in this order intake, if it differs compared to regions such as Sweden, Norway, Denmark and the rest of the market. Also if you see a trend in the initial part of the quarter compared to the end of the quarter. Thank you.
I think we take them one by one. The first question was if the orders that were canceled, you said, if they were taken in quarter two. Was that correctly understood or?
Yes. The ones that you said were deferred during Q2, if they were now announced in Q3 or if these tenant associations-
No.
...are still pausing the orders?
No. No. Huh? Yeah. Okay. Sorry, I didn't hear. It's a little bit on the line here. Sorry, Sofia. Yeah.
Yeah. No worries.
The postponed we had in quarter two, some of them came in in quarter three, yes. We have seen also from planned quarter three, that has gone to quarter four and even actually one which is some of them are being postponed to next year.
All right.
This postponement of decisions, that is, what we still see on the order intake. Yes.
All right.
As you said, if it's different from different markets, that I could also say yes, we have seen it first from the Swedish market, but we recently also now see from the Norwegian market that they are also starting to postpone.
All right.
It's a very big interest, but they want to wait till quarter two next year, some of them.
All right. Okay. You don't see a declining trend during the quarter, this quarter, I mean, with higher interest in the beginning of the quarter and lower interest at the end or something?
No, I would say that if you look from market perspective, the main markets which is Sweden and Norway. Sweden was already from the start of quarter three, a little bit sort of, say, hesitated to take the decisions. Norway has more started up actually now, so they are a little bit delayed in the postponement on Swedish market.
All right. Then a couple of questions about profitability. There are really good questions from the previous speaker, but I have a follow-up here. You mentioned in your report that you see a cost due to canceled orders. When you mention canceled orders, do you refer to orders already recognized in your order backlog or is it pre-signed agreements that have been canceled, or is it orders already in the order backlog, would you say?
No, it was our orders that we already had in the order backlog. Yes, they were more or less made it worse also because the customer had financing before. In some instances we had started to work with them in the design department and so on. That's why we had SEK 4 million worked up costs in projects that are now canceled by the customers because changed conditions in financing or that they didn't get the financing at all from the bank with the high interest rates.
All right. I see. Do you see a risk that it will continue in the following quarters?
As we see now, we are very, so to say, safe with the order stock we have, with the order backlog we have. Right now we can't see any of these risks.
All right. Okay. Thank you. Also just a follow-up question from the previous speaker about the variation project in Norway. What would you say is the main reason for this pricing or this project to get this lower profitability? Is it due to material price increases or what is the reason for the projects in particular in Norway that they have lower profitability?
It is that to say it's coming from increasing prices and that we have not been able to take out these prices versus the customer. It can be both material, but it can also be when we are working with subcontractors, especially Norwegian projects. We have a lot of big projects where we are working with subcontractors, and the subcontractors are giving us a much, much higher price now than they did, half a year ago when we started up.
Okay.
There have been some problems sometimes to get really firm prices from subcontractors.
All right. Okay. That's all for me. Thank you for your answers.
Thank you.
Thank you. We have some follow questions from Niklas Fhärm at SEB. Please go ahead. Your line is open.
Thank you. While we're on the subject, could you just following up on the previous question in Norway, could you give us any idea of what we should expect here in terms of cost charges also for, say, Q4 and perhaps Q1? If this is something that will have to be annualized, I'm thinking.
You mean if there will be continued to be deviations in Norwegian projects?
Yeah. I guess that's what I'm asking. Yeah.
Yeah. Yeah.
Maybe it's not over yet. Yeah.
We feel much safer with the Norwegian projects as of today. We have better conditions on the Norwegian projects that we are running. We feel more confidence for the future regarding the Norwegian projects. This is because the projects that we have had losses in that we came into, let's just say, by the end of 2021. The projects that we are running more now, they are more into that we have been signing in 2022, and we are more up-to-date with both material prices and other kinds of costs.
Right. Okay.
Yeah. Of course. I also would like to say, so to say, of course, this is under everything what we know today because we are in a project market. Of course, everything can happen, but it's nothing that we can foresee today.
Very clear. Thank you. My second follow-up question would be, could you just revisit and recap where you are in terms of those, larger orders and frame agreements you signed going into this year in, mid-December 2021, that is. I'm thinking about Västerås, the order was worth around SEK 100 million, and then you had some other agreements worth a total of, I think, SEK 250 million-ish.
Yeah.
Are those projects/orders in the books or have they been canceled or changed? Is there any comments you can make?
One of the projects we are running. We're actually running two projects full. One of them, we are still in discussion with the customer. The project is not canceled, but they wanted to wait a little bit. This is a typical project that they wanted to postpone decision. We are working with it full. The two of these projects are running.
I see. All right. Final question from me today. I was very impressed, I have to say, by the working capital management in this quarter. I just realized when I look in the model that you had a similar sort of positive trend in working cap in Q4 last year.
Yeah.
If what we're looking at today is that sort of timing differences or is there anything structural that you have changed that could lead us to believe that you could maintain a very good working capital management also in Q4 this year, despite the very tough comparison?
It's always like it in the project business. It depends a little bit where in the project you are, how much of the working capital. We expect also the cash flow to be pretty good also in quarter four. Perhaps not as good as last year because it was the best quarter and perhaps we have the best quarter now in quarter three. We expect to still have a good cash flow in quarter four as well.
I see. For the record, also helped by or bolstered by, changes in working capital. Is that what you're saying now?
Yeah. Yeah.
Yeah. Yeah. All right. Thank you. That's all from me. Thank you very much.
Thank you.
Thank you.
Thank you. As there are no further questions on the line at this time, I'll hand back to our speakers for the closing comments.
Yes. Thank you for listening to our report and, yeah, goodbye.
Yeah. Thank you. Bye.