Earnings Call: Q2 2021

Aug 18, 2021

Hello, and welcome to the VAALCO AudioCast with Teleconference Q2 2021. Throughout the call, all participants will be in a listen only mode. Afterwards, there will be a question and answer session. Today, I'm pleased to present CEO, Kenneth Lundahl. Please begin your meeting. Thank you. Welcome to the Q2 reporting of Falco. It's me, Kenneth Lindahl, CEO here and the CFO, Michael Greenbaum. We will start with some introduction music. Please listen to the text. The translation of that song is over now, the year the May. And what we mean with that, that the boring period is over. Danco's sales model is unique. No one else is working like us, but we are dependent on physical meetings with The Board and the Board and the Board and customers. So even though we have developed digital tools that's in process, physical meeting is important for us. But you can see really that this boring period is over. Before the restriction period, we had a 17% growth, 7 years in a row for the restriction period. We believe that from Q4 this year, We will get into good growth path, turnover wise and EBIT wise. During this restriction year, there are Some things that we have developed and that we will bring with us. The 10 shows, they are physically and they shall be that in the future also, but we will Still continue the digital 10 shows meeting showing our products because in some cases people are sick or are old and can't attend physically. And also the cultural change that has happened during the restriction period where the customers have allowed us to start early with the building permission process that we will really continue to even after this period. Also, the different kind of voting processes we have developed during the boring period, That too, Keith, we will continue to give the customers because in some cases, they are actually better with The mail voting. During this boring period, Balco has not been lazy. We have done a lot of Big movements in the sustainability work that will step by step be informed to the market. During this period, everyone knows that Material prices have increased heavily. So we have increased our prices this year with 3 times. But during the boring period, we have improved the financing in all Nordic countries. And this has given the effect that today, after the boring period, even though that the cost increase It's perhaps 7%, 8% of our product. From material cost. From material cost increases. The monthly cost That the customer get on the monthly invoice is today lower for our products that it was before the boring period. And that's due to that we have improved the financing in all countries all Nordic countries during the boring period. If we look at the existing situation, Q2 order intake was good. We believe that With the visibility we see today, Q3, Q4, Q1 next year, order intake will be really good. And we believe that from Q4 this year, turnover and profit will be nice and good. And we also believe that from Q1 2022, we will be back on the original business plan that we had before the Boeing period. That was a little bit the introduction. We start with Page 3. Q2, best order intake so far in the quarter. The release in COVID-nineteen restrictions during the latter part of the second quarter has started the order intake. Order intake is 66% higher than sales and 82% higher than Q2 last year. Order backlog increased $267,000,000 in the quarter. Net sales and EBIT still affected by COVID-nineteen. Net sales 304,000,000 and operating profit 34,000,000 And this low turnover and low profit explained by the weak order take that we had during the Bjerg born period. We had a strong financial position, equity assets ratio 51%, net debt to EBITDA 1.3 We've done 2 acquisitions this year, Stora Fazade and ErcoTechnique. And these two companies Really good competence, strong organization, good product. So actually, it seems it looks more positive than we believed Yes, before we bought the companies. And we can say that when we see the effect we get of 2 companies like this organization in the bulk group, It gives us even more taste to do more acquisitions. Michael? Yes. Page 4. Page 4 and look a little bit at Our financial highlights in the Q2. As Kjell has mentioned, the net sales was NOK 304,000,000 compared to last year's 352,000,000. But then we should note that the Q2 last year was so far our best quarter ever In both sales and profit, so it's tough figures to compare about compared to. Renovation segment accounted for 88% of our sales and Renewables segment 12%. Our order intake was very strong, 66% higher than the net sales, and it was an increase of 82% compared to last year up to NOK 505,000,000. Board intake is the best ever in the quarter so far. The renovation segment accounted for 94% of the order intake in the quarter. Our order backlog is almost back on the same level as We had last year SEK 1,400,000,000 with an increase of SEK 267,000,000 in the quarter. Operating profit of €32,000,000 or 11.3 percent in profit margin, And our operating cash flow was negative in the quarter of €41,000,000 Going to Page 5, a little bit summary of the financial figures. Order intake increased 82% up to 505,000,000 Order backlog, almost back on track, SEK 1,400,000,000 revenue, down 14% to SEK 304,000,000 and operating profit SEK 34,000,000 or 11.3 percent in profit margins. And now we'll have a look at the 2 business segments going to Page 6 and start with the renovation segment. Here, we had a really strong order intake in the quarter. It increased by 75% up to SEK 476,000,000. The order backlog also here is almost back on the same level as last year, SEK 1,200,000,000. Revenue for the Renovation segment was $267,000,000 in the quarter with a margin of 11.5 percent And the profit was €31,000,000 Look at the newbuild segment at Page 7. Also here, the order intake increase was high, but from a very low level. So we had SEK 29,000,000 in order intake. Order backlog is a little bit higher than compared to last year, SEK 233,000,000. The revenue Had an increase of 38%, up to 36,000,000 and it's coming mainly from maritime segment and also the Acquisition of Stokke Passard. Operating profit was €4,000,000 with a stable operating margin of 10%. And now look at the 6 month period with 1st half year at Page 8. And our net sales in the first half year have been SEK554,000,000. Renovation segment has accounted for 84% of its sales and the newbuild segment, 16%. Order intake has been 39% higher than net sales and has increased by 24% compared to last year, up to SEK 768,000,000. The renovation segment has accounted for 94% of its order intake. Our operating profit for the 1st 6 months has been €56,000,000 with a profit margin of 10.2 percent. And the cash flow has been negative so far by €54,000,000 and it's coming from the lower Profit and also increased the working capital. And turning to Page 9, quick summary of these 6 month figures. Order intake increased 24% or 39% higher than The revenue up to SEK 768,000,000 revenue down 18% to SEK554,000,000 Operating profit also down to €56,000,000 or 10.2 percent and earnings per share also down the same level to SEK1.93 per share. And now going back to the 10 Page 10 and the 2 segments in the first half year. Renovation segment has been affected mostly and has gone down in sales by 23% to 466,000,000, But the order intake for the renovation segment has increased 34% up to SEK 722,000,000. Our operating profit for the renovation segment has been €49,000,000 or 10.5 percent in the profit margin. New build segment has had strong revenue increase at 34 €1,000,000 plus up to €88,000,000 in net sales. Order intake for the newbuild segment has been €46,000,000 so far, 6% of the total order intake and the operating profit has been with a stable margin of 8.5% Has been SEK 7,000,000 so far. Now going to Page 11 and have a look at our balance sheet and financial position. And we have still a very strong balance sheet with equity to asset ratio of 51%. And the net debt to EBITDA has increased due to the 2 acquisitions of EcoTechnique and Stora Passard, And it's now at 1.3% compared to 0.5% last year. But if we exclude leasing Debt, it's just 1.0. Our profit after tax, 1st 6 months, EUR 42,000,000 corresponding to an earnings per share of SEK 1.93. And we are prepared for further acquisitions. We still have an unused acquisition credit of €100,000,000 and we're also at authorized to issue Shares for Financial Acquisitions. So and we also we have a current banking agreement that is To September 2022, but we are right now looking to prolong the banking agreement. And so we will have Quite surely, a new agreement ready in September this year. Turning to Page 12 and have a look at Our financial targets of the Belkom Group, and we have a group target of 10% per year. And as Genniss mentioned, normally, We have very strong growth, but now the last 12 months due to the COVID-nineteen and the restrictions from Vest, We have had negative growth of 17%. We have a profit target of 13% in operating profit margin. And for the last 12 months, we have had 9.9%. Our capital structure, we should have a net debt to EBITDA not exceeding 2.5 more than occasionally, And we are right now at €1,300,000,000 And excluding leasing debt, just €1,000,000 And we also have a dividend Policy that we should distribute half of our profit after tax to our shareholders, but due to what we have had Furlough during the first half year, we are not able due to the rules in Sweden to have the dividend. So therefore, the Annual General Meeting decided not to give any dividend for the year 2020, so it will be no dividend this year. Now turning to Page 14 and a little bit have a look at Sustainability initiatives we have in the group. Firstly, we have a product with our glazed balcony With material and construction that last for at least 90 years and are fully recyclable after this period. And during these 90 years, it also just needs 2 minor services. And this has been Checked and documented by external parties. Our open city balconies also have a long lifetime of 70 years. And our glazed Falconets gives energy savings of 15% to 30% Depending on the product you choose and also the conditions where the house is situated. It also gave reduced maintenance of the facade and windows. And this combined gives that we are climate positive Of the 30 to 50 years with our outlays balconies. And we have set a new goal that will be reached during this year To reduce this period of 5 to 10 years. So at the end of this year, we'll be climate positive up to 25 to 4th years instead. We have also during this, as Kenneth mentioned, boring period, really focused and increased our sustainability Work and focus. And one thing is that we decided to all purchases should be made from supplies in Europe. We have also improved our information to the market and our customers on our website About our sustainability initiatives and our goals and also from this year's stand alone sustainability reports. And we have seen that we have also from this get better sustainability ratings from Big Bear and Institutes. I'll hand it back to you, Gilett. Excellent, Michael. Any questions? We have a question from the line of Julius Rabelais from SEB. 21. Congrats on a good Q2 report. I would like to start off with a question regarding the order Strong order intake figure you had in the quarter and quite a bit compared to at least our estimates. So maybe to understand better the figure, so could you maybe describe a bit of what this impact of pentap Demand from previous quarters or did you have some extraordinary large orders during the quarter that contributed to the figure? Thanks. No extraordinary large orders. During the Boring period, we have offered more than ever that we have had problems in the last meetings and voting processes on. I would say that this is not an extraordinary order intake. We believe that The order take in Q3, Q4, Q1 will be really good. So this was not just, I want to say, a ketchup thing, One blip. The need and demand during the next three quarters looks Really promising order intake wise? No order intake just came in May, June more or less. And we saw that As soon as the restrictions was a little bit less, it started in May in Sweden and June in Norway. And now it looks very promising. All right. Thanks. That's very helpful. Maybe to follow-up You mentioned that you have been working on getting building permit before the actual Orders closes and you aim to continue this work also going forward. So what is your estimate of how will this impact your lead times that has historically been north of 1 year or so? I will say that order stock, I think it was 1.2 now. It will go down perhaps 1.1. So if you shorten the lead time with, say, 1 month average? All right. Thanks. The country change that was good. So there were actually some good things happening during the Borrowing period, that went quicker than it should have done recently. Okay, great. That's All questions from my side at this stage. Okay. Thank you. Thank you. And we have one more question from Kenneth Towle from Carnegie. Please go ahead. Yes. Thank you. Just to discuss the order in Take a little bit more. In terms of segments, was it mainly housing cooperatives or was it more broad based for customer segments? I would say broad based. Quite broad based, but still of course tenants on the same basis. Yes, because it's mainly our main business. Yes. Great. And also Kenneth, some markets like Norway was dead, 6 months, of course, and that's a permanent owned market. Okay. And then also the orders you got now in Q2, do you think you will be able to deliver That in Q4? Or will it stretch more into 2022? Some of them will start in Q4, but most of them will be in Q, of course, in the next Yes. But from everything we see, we have had a very low turnover during, I say, 1 year. But we see that from Q4, we will have it will be really good turnover in all our companies. So already now, we are starting to we have not filed people before, but now we are starting to recruit product leaders, Engineers, technicians, production, order them now to cope the need we have from start from Q4. I'll say for Q4, we will be, say, back on track with really good growth turnover profit. Okay. Sounds good. And then a question that I probably asked the last quarter as well, but we see a lot of increases Prices for steel and other raw materials and also transport costs are moving up and so on. How do you feel when it comes when you compare your own pricing and your ability to Price and change prices versus your input costs in Q2 and also in coming quarters? We have changed the prices now, say, already now this year, so I think it's averaged 8%. But as I mentioned in the introduction that You said that we have improved the financing in all Nordic countries. The real monthly cost they get It's today lower than before the restriction period. So I would say that if you look at the invoicing that the people get Due to our product, that's lower, perhaps between 0% to 20% lower. At the end user. The end user. They get that invoice that is Being able to 20% lower due to our financing that we connect the financing to the lifetime of our product, Even though that we have increased the pricing with the average 8%. So we select this, We have increased the prices a lot. We have a good order intake and we will continue with a good order intake Going forward? Yes. And the positive thing for us, Kenneth, is that we have a project business, so each Projects is new prices and you can't compare one project to another because we have no standard products. And Then we also have material index in our prices to customers. Yes, great. So there is little chance Or little risk that you are being squeezed in the little results? Yes. You can say that we are very quick regarding the new offering. Yes. But also when you look at the order book, we are not so afraid of the order book because we have the in house majority of all the orders in one store. We have this Index Regulation. Great. Great. Yes. Then Yes. Also, you talked a lot about now Sweden and Norway and those countries. But Have you had any progress or something happening in Germany, U. K. Or the Netherlands during this time? Or have that Yes. Being slower than restarts now? Little bit Slower because it's very short period that the restrictions have been held back. So in Q2, little Slow, but it looks good going forward. But as we see that the new sales model in Germany that we mentioned before, If we call Essenbrand sales semester, that it's pretty similar to the sales model we have in the Nordic countries. That is working, And that's really promising. And the effect of that is that you get bigger projects, Perhaps 1, twice as big size on each project and you get a higher margin. Great. That's good. That's all for me. Thank you. Good. Thank you. And as there are no further questions, I'll hand it back to the speakers. Excellent. Thank you everyone for listening to us and our music. Yes. Thank you. Thank you. This concludes our conference call. Thank you all for attending. You may now disconnect your lines.