Earnings Call: Q4 2020

Feb 18, 2021

Thank you. Welcome to the Q4 Balco reporting. It's me, Kenneth Lundahl here and Michael Greenbaum, the CFO. We'll change to Page 2. I will start with a little bit of summary. If you look at the Corona pandemic situation from March this last year until now, that affects BALCO Due to the restrictions in meeting people, we can do all other kind of work meeting customers and doing a lot of work, but the restriction is affecting our possibility to really close the orders. Now, we know that this is the situation and we have created a lot of tools so that we can, In deeper countries, we use deeper talent tools to really close orders. In Sweden, it's one way, Norway one way, then Mark and Adelaide. We also have teams to do the tent shows before the meetings. We have also begun meetings. But to understand the strategy during this pandemic from March until now is that we know the potential Belco have in the market, the organic growth potential. So during whole this process, we have taken the decision not to affect any of Balco's potentials going forward. We want to run through this process without hurting anything of the efficiency for the corona situation. So you should understand what we are doing is that last year, we did increase our sales cost in 18%. And we are not making any changes to reduce any sales force. At the moment, we have more product development resources than ever working for us. So through this process, we are not, How to say, cost cutting any areas that we see that is crucial for us going forward in our with our organic growth possibilities. We know there is a lot of projects working with. We know that the market is tremendous. We know that we are unique And we our strategy is to go through this process coming out in a very good shape. But this, of course, strategy affects turnover and profit. We could have delivered more profit if we made cost cut to somewhere else, but we are not doing that. That was a little bit short introduction. If you look at Q4, strong cash flow and financial position despite COVID-nineteen. Sales and profit negatively affected by COVID-nineteen. Net sales totaled $69,000,000 compared to $333,000,000 last year. Operating profit $3,000,000 compared to $38,000,000 Adjusted EBIT $22,000,000 compared to $38,000,000 last year. Operating margin in Q4, 1.1% compared to 11.3% adjusted EBIT margin, 8.3% compared to 11.3 COVID-nineteen. Cost affecting comparability of SEK 19,000,000 were taken in the quarter in connection with increased risk support you with COVID-nineteen. Michael will explain more about that later. No grants or other support linked to COVID-nineteen will receive in 2020. Strong financial position, operating cash flow of $71,000,000 and operating cash conversion of Joined 25% in the quarter, equity assets weighted 49%. We made an acquisition of Stora facade on February 10. Barco acquired Stora Persaud OIB with wet phase in 2020 of SEK30 1,000,000 and an operating profit of SEK5 1,000,000. The acquisition adds expertise in the facade area and the strength of Belk Group's offer for turnkey contracts for both Belk and in facade renovations. I will go through this lately more in detail in the presentation. Michael? Yes. We're now on Page 4. And As Kenneth said, the net sales in the quarter landed on SEK 269,000,000. Of this, the renovation Segment accounted for 92% of the sales and the newbuild segment up 8%. Our order intake was 30,000,000 compared with NOK 352,000,000 last year. The renovation segment accounted for 89% of order intake and newbuild, 11%. Our order backlog at end of 2020 was SEK 1,100,000,000 compared to SEK 1 point Hi, last the year before. And the reason one reason behind this is that at the end of the year, orders To an amount of roughly SEK 150,000,000 was removed from the order backlog. And these are orders that We estimate we'll not be able to start up within a 12 month period. So due to the COVID-nineteen and Higher risk expectations and risk exposure. We decided to take these Orders out, but we see that a lot of them will probably come back later on, but not within 12 months as we expect. Operating profit amounted to SEK 3,000,000 and adjusted EBIT was 22,000,000 compared to 38,000,000 last year. We took in the quarter a cost effecting comparability of 19,000,000. It was no cash costs, and they are also due to the higher risk exposure linked to COVID-nineteen In projects, in our order backlog, in accounts receivables and in the inventories. These costs Mostly also, as we see it, non tax deductible. So that's also one reason that we show quite high tax Great, both in the quarter and in the year because of these SEK 19,000,000, most of them we have taken as non tax deductible costs. Our operating profit amounted to 1.1%, and adjusted EBIT was 8.3% in the quarter Compared to SEK 11,300,000 last year. The cash flow was strong, SEK 71,000,000 operating cash flow in the quarter with an operating cash Conversion of 2 25 percent. And cash and cash equivalent at the year end was SEK 214,000,000, almost SEK 100,000,000 More than the year before. So if we turn to Page 5, a brief summary once again of These financial figures, order intake, SEK 213,000,000, down 35% from the year before Revenue, SEK269,000,000, down 19 percent. Order backlog, SEK 1.5 SEK 1,100,000,000 compared to SEK 1,500,000,000 the year before. And our adjusted Operating profit, SEK 22,000,000, down 41%, with an adjusted operating margin of 8.3% Compared to 11.3% the year before. So we turn to Page 6 and look at our 2 business segments And start with the renovation segment. The renovation segment had order intake of SEK 204,000,000 in the quarter And revenue of SEK 246,000,000. Order backlog at year end was SEK 882 €1,000,000 And our adjusted operating profit for the renovation segment was €24,000,000 down from €36,000,000 a year before, With an adjusted operating margin of 9.9%. If we turn to Page 7 and look at the newbuild segment, the order intake was SEK 26,000,000, Down quite a lot from year before. But in December 2019, we got an order in the maritime segment of SEK 70 €1,000,000, so that explains more or less the whole difference between the 2 years. Revenue was NOK 22,000,000 in the quarter, and for the backlog at year end is NOK 204,000,000. So it's up 12% from End of 2019. Operating profit in the quarter of SEK 1,000,000 with an operating margin of 2.5%. Turning to Page 8 and look at the full year figures for the company. We had in 2020 net sales of exactly SEK 1,200,000,000. And it's a decrease of €21,000,000 from 2019. And of these €21,000,000,000, 7,000,000 comes from the currency effect Affecting negatively. The renovation segment accounted for 91% of the sales and the renovation new build of 9%. The order intake for the whole year was SEK 933,000,000, down from SEK 1 point SEK 35,000,000,000 the year before. And the renovation segment accounted for 87% of the order intake, newbuild for 13%. Operating profit amounted to NOK 115,000,000 and adjusted EBIT was NOK 135,000,000 Compared to SEK 11,500,000,000 year before. Operating cash flow has been strong the whole year And improved to SEK 196,000,000 for the year compared to SEK 134,000,000 the year before, mostly due to better development of our working And our operating cash conversion for the whole year was 114%. Turning to Page 9 and a look at summary once again of these figures. Order intake, down 31 percent to SEK 933,000,000. Revenue, down 2% and up to SEK 1,200,000,000 of which 1.4% of the decrease comes from currency. Adjusted operating profit Down €5,000,000 to €135,000,000 with an adjusted operating margin of €11,200,000 compared to €11,500,000,000 the year before. And earnings per share decreased quite a lot. As we said, most of these costs non affecting comparability was taken as non Tax deductible, so the earnings per share was SEK 3.58 full year. Look at the 2 business segments for the full year on Page 10. Renovation segment had revenue Of the SEK 1,500,000,000, up 5% in the year and an adjusted operating profit of SEK 123,000,000 Foremost on par of the year before, with an adjusted operating margin of 12.1%. And new build segment revenue decreased quite a lot to $104,000,000 and it's mostly due to a slowdown in the maritime segment. Our customer has put orders forward. We have not lost any orders, but it's been the slowdown in the converting of the maritime orders. Operating profit down to SEK 7,000,000, but the operating margin is still the same as the year before at 6.5%. Turning to Page 11 and our financial position that is still very strong. We had equity assets ratio of 49% of year end 47% the year before. Our net debt to EBITDA was 0.3% compared to 0.9% a year before, And the reduction is due to the strong cash flow we have had for the year. And if we look at net debt to EBITDA, Excluding leasing debt, it's even slightly negative. So we have no debt at all if we exclude the leasing debt. Profit for the year, profit after tax amounted to SEK 78,000,000 with an earnings per share of SEK 3.58 And we are prepared for more acquisitions. As Kenneth mentioned, we acquired Stoa Passat at February 10 With a net sales of SEK 30,000,000 in the year of 2020, but we have still acquisition headroom. We have Cash and credit cash equivalents at year end of SEK 214,000,000. We have a bank agreement until September 2022, And we have also an acquisition credit of SEK 100,000,000. And we are also at price to issue shares to finance acquisitions. We are really prepared for doing more acquisitions. Turning to Page 12 and look at our financial targets. And Banco have a growth goal of achieving 10% growth a year, and we still have this goal even if we was strongly affected by the COVID. So we had a negative growth of 2% in 2020. Profitability, our long term goal is to reach 13%. Adjusted EBIT was SEK 11,200,000 in the year, also strongly affected by the pandemic of corona. Capital structure, we should not have net debt to EBITDA more than 2.5 more than temporarily And we have right now EUR 0.3, including leasing debt. And our dividend policy is that we should distribute half of our profit after tax to our shareholders. But the board will not propose any dividend to the annual general meeting as the company have Reduced occupancy during the first half of this year. And starting in January, we have employees on furlough. So at but at the same time, the board is open for an extra general meeting later in 2021 for a new dividend decision. And turning to Page 13 and the listing of our Sustainability initiatives, we have material and constructions in our balconies that last for 9 Yes. And I'm fully recyclable and only need 2 services during these 90 years. And it's our glazing balconies we talked about here. Our open city balconies have a lifetime of over 7 years, and all of it has Been checked and from outside companies and really we have 4 weeks on documentation. Energy savings from our glazed products is between 15% 30% depending on product and conditions. And it also gives reduced maintenance of facade and windows. We are climate positive After 30 to 50 years with our glazed Falconist in Sweden, and we have set a new goal to reduce this By 5 to 10 years during the first half of twenty twenty one. Now we have also an increased sustainability focus. All our purchase will be made from suppliers in Europe. And we also from this year, we'll have a stand alone sustainability report That will come out at the same time as the annual reports. Turning over to Page 14, then back to you, Kennet. We are very lucky. Acquisition of Store Passages, thanks for bulk goods custom offering. Background Store Passat is a company that offers facade work as well as Reno, with Reno replacement, Belkina and Rup for renovations of our new production and also related to service such as scaffolding work. The acquisition strengthens Barco product and customer offering. We complete facade of invention, but we can take responsibility for the turnkey call of EVALDI products with both Belkonet and facade animation. Initially, the focus is on the Swedish market, but soon we will look at an expansion to other countries where Belco is active. Financials. Revenue in 2020 of approximately $30,000,000 EBIT of $5,000,000 order backlog of possibly $30,000,000 Purchase price was $20,000,000 cash upfront and a possible additional purchase price depending on development between 20 20, 2023, estimated to approximately $10,000,000 Finance, existing cash and cash equivalents. Future outlook, the acquisition will be consolidated from 1st of January this year and the position is expected to make a positive contribution to earnings per share as early as 2021. We have talked about this before to broaden our customer offering and we started this already last year. And this is so we have built already an organization working with general contracts both with Balconyce and Passard. But this acquisition, the expansion is even more. We believe that the Passard part It will be €10,000,000 in short. And then in 3 years, that will be about €30,000,000 Questions? Thank CFO. Our first question comes from the line of Filius Lapri of SEB, please go ahead. Your line is open. Yes. Good morning, guys. It's Jyrdios from SEB. Thanks for taking my Question here. Firstly, relating to the growth outlook. I mean, the long term growth outlook seems good, as you also Mentioned, but just to understand the near term development a bit better. So the question is, in what magnitude are you expecting the short term layers to Impact the operations. One more, last sentence. Yes. So in what magnitude are you expecting these short term layoffs to impact the operations? I will take it from a more broader Perspective, we think that order intake this year will be really good. Now We have gone through a whole year in this pandemic situation. So we have tools today to actually succeed with the closing orders. In Sweden, we feel comfortable even if that today, The restrictions regarding meeting people are the highest ever in all Nordic countries. We have tools today to really close August. So we believe that order intake will be really good this year and the sales people have a lot to do. But during the first, say, Q1 and Q2, we have less to do, mainly in Banco Albion. So in the Tribute operation, they have a lot to do. Danish operation have a lot to do. But in bulk of RB, where We have no layoffs that we have from working less hours in the production in Sweden, not in Poland, they are working And also in some parts in the engineering area and also in product leaders. But we see that we need all kind of these resources Going forward, so we don't do any layoffs. It's more like reducing the capacity during the quarter 1 and quarter 2. And after that, we see that we need all the people to have. Okay. So just that I understood you right. So you are expecting the costs to be at that Check of the EBIT in the first half year. As we see long term, it will be better for us To be able to have reach our strategic long term goals, we have decided to keep Or people because we need them long term and it will have, of course, a slight negative effect in the first half year. Internal All right, perfect. And profits, yes. Good. Thanks. Maybe if I can just I'll add one quick one here. Regarding input costs, are you seeing any impact on your raw material costs, transportation costs and so on? No? No. No big effect. Okay, perfect. That's all for me for now. Thanks. Thank you. And our next question comes from the line of Kenneth Thall of Carnegie. Please go ahead. Your line is open. Yes. Thank you. One question I had on the sort of near term issue. If we play with the thought That the vaccines push down the effect of the pandemic and societies Open up towards the summer. So say from July, that meeting restrictions and so on are taking away Completely. And that this will affect your order intake in a very good way, as you talk about. When do you believe that you can start to deliver on those orders? I mean, usually, you have a delay because you need to wait For building permits and so on. But now you have also said that you try to work a little bit ahead And do more work early in the process compared to usual operation mode. So when do you think that your deliveries can Can start. Could it be already in Q4 if you sort of start getting good orders in beginning of Q3? This is a very good question. I will say that Sweden average now at least 3 months quicker than before. One good thing with Corona is that we have new tools today that we didn't use before. And one of these tools is actually that the customer Except that we start with applying to billing the commission much earlier, even before they have made a commission. So I would say that in Sweden, 90% of Everything they're working with, they are cutting in 3 months. Now the customer in Denmark is starting to accept it also. You know that a couple of years ago, I said that selling 50 balcon is like selling a billing commission. Now in Myanmar, they even have started the billing commission early. So they could I will answer this in a different way. Even if the restrictions would continue the whole year, we believe that we will sell okay With the tools we have today, with the voting system we have, EBITDA shows postures can you use what's the name of that? Posted voting. So we think that even with the existing restrictions, we will cope this year, audience likewise. But If the vaccine is really solving the restrictions until the vacation after the vacation, the order intake will be really good. And we are quick we are not quick in starting the projects. I would say that Projects you will sell in Q2, they will start after the vacation. Yes. And the turnover of the order backlog that I bought was 14 to 15 months. Now we think it would be 10 to 12. But also, Kenneth, there is another thing that we have taken a decision now we are corona cautious. You realize that. But so if we have an order that we are getting and we see that this will come into, let's say, The detailed plan in the building permission or fuel as well, and we see that this will take time. We will not take a deal. We'll wait longer to take in the order. Yes. Okay. Yes. And also, We get to learn more about the facade renovation industry recently when there was an IPO In Sweden, I'm a company focusing on that segment. And now you have made one acquisition in that segment as well. And it seems like that segment has maybe a broader customer base, which means that they have been less affected by the Coronavirus, then the balcony renovation business that you have. And I see a great logic to sort of combine Balcony business with facade renovations and so on. But this company is it's quite small in terms of sales, and I It probably doesn't cover the full Swedish market or other markets also. Could we expect more acquisitions in this segment? Or would you be more interested in buying balcony companies instead? Good question. And the answer to that is that our focus is it will be balcony companies. For some companies, They don't have their own products. They are competence companies. So and Here this we can easily add with adding people. We don't need to buy a lot of facade companies to come even on Nordstrom. We have a total other strategy here, but we will not explain everything about that. And this is open, I think. The answer is the focus It's not to buy a lot of facade companies. We don't need to buy companies. A facade company with they're making 100 auto CDs. And we do start with some company to have like 3 white collar people handling most of the work And then you can hire the people in the space. So our strategy regarding balcony and facade is to create a flexible operation covering the whole Nordic countries. We started this work last year. This is an add on acquisition that will help the competence. Okay. Regarding the I'd say, organic, of course, we our sales model is unique where we really need P2P. We are not working with the new people or not working in the office. So of course, we are affecting more. But if you look at the facade company that I talked about, The order stock went down 22.6%, organic growth was down 12.1% And earnings per share, I'm down 40%. Any more questions? Yes. And also I was trying to go forward is to the acquisitions we are doing is will be done to increase earning per share, short term and long term. And acquisitions we're doing, we'll explain every acquisition we'll explain after this, Why we are doing that? But they are always done to increase the organic growth. The facade company that have bought and the facade Organization we are building up is to strengthen the balcony organic growth path going forward. Okay. Then another thought I had on the acquisition side. I mean, For being a balcony company, you are focusing very, very much on the renovation side. And Some of your competitors are focusing more on the newbuild side. And probably the renovation side Has been more affected by the COVID-nineteen than the newbuild side so far. So now when you consider Buying balcony companies, are you looking to companies that are more exposed to the newbuild side? Are you looking to companies that are more renovation focused? I will say that we have a clear strategy about what we want to do, and we will We should have full control of everything in the Balcon segment. That is our strategy. And then it doesn't matter It's the renovation side, a new building. 1, as I mentioned here before that we have more product development resources been ever working today, even if we are affected by COVID-nineteen. One of the products we are actually launching now, That's a new unique open balcony for new production packed and which no one else has. So our strategy going forward is Not only to be in BRF renovations, we shall have the whole planet of products regarding everything in Banco DOZ. And that is our strategy in the product development and is the strategy regarding acquisitions. Okay. The strategy we have is to grow, strengthen our position in the banking segment and really to be, How to say it? I'm sorry. Yes. Great. Thanks a lot. As there are no further questions on the call, I'll hand back to our speakers for closing comments. Okay. Excellent. Thank you, all of you. Yes. Thank you, everyone.