Earnings Call: Q1 2021

May 20, 2021

Thank you. We'll start with presenting the Q1 report of BALCO. Go to Page 2. ALCO is helping customers which have problems with existing balconies and our solution is to calculate our own balconies and put our bigger balconies open, is open, all glazed. We are mainly focused in the Reinvestment segment where we will face process and a very strong reduced rate of the legal function, Page 3. Sales and profit it's negatively affected by equally mountain in the quarter. Order tax, plus 5% higher than sales. Order by growth increased by SEK 40,000,000 in the quarter. Net sales challenged SEK 50,000,000 compared to $321,000,000 last year and operating profit $22,000,000 compared to $34,000,000 last year in the quarter 1. COVID-nineteen, Balco is heavily affected of COVID-nineteen. The last 12 months, our order intake has been weak and this affects turnover and profit in Q1. We believe it will have affected also negatively Q2 and Q3. But we believe that the order intake this year will be good. So Q4, we will be back on track as it looks today. We had strong financial position, equity asset ratio of €50,000,000 and our net debt to EBITDA is 0.4 On April 8, BALCO acquired Alco Technical Alder in net sales in 2020 of SEK 150,000,000 and operating profit of SEK 10,000,000. The acquisition strengthens and complements bulk of good product range and our customer offering. I will come back later to the acquisition in the presentation. Michael, Stacey, it's yours. Yes. Michael Brinkhorn, CFO of BALCO. And I'll give you some financial highlights of the quarter. Our net sales was down from SEK 321,000,000 down to SEK 250,000,000, where the renovation segment accounted for 79% of the sales And the newbuild segment for 21%. Our order intake was stronger than the net sales, up 5% higher. So it was NOK 263,000,000 but down from NOK 341,000,000 last year. Renovation segment had Order intake, that was SEK 93,000,000 of the total order intake in the quarter. Order backlog is SEK 1 point SEK 13,000,000,000 down from SEK 1,560,000,000 last year, same period. And our net Profit operating profit for the quarter was NOK 22,000,000, down from NOK 34,000,000 And the operating profit margin, 8.7 percent, down from 10.7% last year. Our operating cash flow amounted to minus SEK 13,000,000 and we had cash and cash equivalent at quarter end of SEK186 1,000,000. Turning to next page, Page 5, and a quick summary of the Q1. Order intake down 23% to NOK 263,000,000 Revenue down 22%, of which 26% negative organic, and we had acquired order Revenue of 4%, so down to SEK 250,000,000. Order backlog down 28% to SEK 1,130,000,000 and operating profit down to SEK 22,000,000. Turn to Page 6 and look at our 2 business segments and start with the renovation segment, our biggest segment, and it's heavily affected by COVID-nineteen. But we see some light in the tunnel when it comes to order intake. So the order intake was just down 7% to SEK 246,000,000 from down from €265,000,000, so almost the same at flat here, while the revenue is heavily affected and down 29% to SEK199,000,000. Wall to wall, the backlog has decreased quite a lot, 30% down to SEK 935,000,000 And also the operating profit down to SEK 18,000,000 and then operating profit margin of SEK 9.1 billion. Last year, we had Operating profit operating margin of 11.3%, quite heavily affected and it is, but because we Have decided not to hurt the company long term and want to keep all resources and also We have worked quite a lot with the development and R and D during this period and so we don't want to have our long term growth. Look at the newbuild segment. Order intake decreased quite a lot down to SEK 17,000,000 and the main reason is that last We got a big order in the maritime segment in quarter 1. While revenue Increased €31,000,000 up to €52,000,000 and it comes from both the acquisition of Stora Passard, that is mainly in the newbuild segment And also quite strong sales in the maritime segment and also in U. K. When it comes to newbuild segment. Oil backlog down slightly to SEK 193,000,000 and the operating profit improved by 31%, up to SEK 4,000,000 and then operating profit margin of 7.5%, so it increased slightly compared to last year. Turning to Page 8 and look at our financial position and it's still very strong. We had an equity to asset ratio of 50.5% and it's an improvement of more than 4 percentages Compared to last year when it was 46%. Our net debt to EBITDA is still very low, just 0.4 and if you exclude leasing debt, it's just 0.2 and it's also an improvement compared to last year. Our profit asset to tax was NOK 16,000,000 in the quarter, down from NOK 25,000,000 last year And it corresponds to an earnings per share of SEK0.74. We still have acquisition headroom. We have been in the banking agreements until September 2022, and we have also Undused acquisition credit of SEK 100,000,000. And as mentioned, we had cash and cash equivalent at quarter end of SEK 186,000,000. We also have the possibility to uprise and issue shells for our for acquisitions. And as mentioned, we acquired AquaTechnique on April 8 And they had net sales in 2020 of SEK 115,000,000. And turning to Page 9 and the financial targets of Volker Group. We had a Group target of 10% per year and we have been heavily affected now when it comes to our revenue. So it's been down 11% for the last 12 months. We also have a proper target of reaching SEK 13,000,000 And looking at the last 12 months, we are currently at 10.8%. We also have a goal for our capital structure That our interest bearing net debt compared to EBITDA should not be more than 2.5, more than temporarily And there we are at low as EUR0.4 billion. And there we also have a dividend policy that We should distribute half of the profit of the tax to our shareholders. Given the reason that we right now since January have people on parlor, We are not able to given any given for the current period, but also the board is We're open to have an extraordinary general meeting later in 2021, if it should be possible to give dividends. And turning to Page 10 and a little bit about our ESG In utilities, we have products with material and construction that last at least 90 years And it's fully recyclable after that and only need 2 minuteus services in the visit for our late balconies in Sweden. And we have this documented by external companies. Also our city balconies, open balconies, last for over 7 years. And our glazed balcony gives energy savings of 50% to 30% depending on which products You buy and also the conditions if it's in the south or west or east where we put up the balcony. It also give reduced maintenance on facade and wheels. So that also saves money. And giving this, we are climate positive of the 30 to 50 years for outlays balconies in Sweden. And we have a goal that will be reached here in the first half year of this year, but we'll reduce this by 5 to 10 years, so it will be climate positive 25 to 40 years instead. We have also decided that oil purchase will be from supplies in Europe and we are almost there right now. And from this year, we also had a stand alone sustainability report that came out the same day as our annual report, April 16, and it's available on our web page. You can also order it if you want it in a printed copy. Back to you, Kannes. Excellent, Michael. New acquisition strengthens and complements Balco's product offering. AlcoTechnique offers BALCO use for extension, renovation and new construction and assembly operation as well as related services. The company products strengthen and complements the Belco products range and custom offering. Of course, in Sweden, that is our main market, but Arco Technic don't sell anything outside Sweden. So here we can really expand with their product offering in Denmark, Norway, Finland initially. And in addition to this, they have started the city balconies, which is really big for us in Denmark. And this area we will really focus in Sweden together with ArcoTechnic, both with our financing and also with the product range we have in the demo. Financials revenue, 2020 of approximately So it's SEK 150,000,000 EBIT SEK 10,000,000 order backlog of about SEK 60,000,000 Purchase price of €62,000,000 set in cash upfront and a possible additional purchase price depending on the development between 2021 to 2023. And we estimate that to approximately €20,000,000 This is financed for existing cash and cash. The outlook acquisition will be consolidated from 1st April and the acquisition is expected to make positive contribution to earnings per share already in 2021. Yes, I said before that we make 1 to 3 acquisitions a year. This is the 2nd acquisition and this really So it's a good acquisition. We did TBIO a couple of years ago and that was really excellent. And the complement now with BALCO in Sweden, TBIO, Aqua Technique and also Storer for Totsav gives us a really, really strong position in Sweden, which we also can expand in the other countries. So questions, answers, please. Go ahead. Thank And we have a couple of questions coming through. The first is from the line of Julius Rapalik of SEB. Please go ahead. Your line is open. Thank you. Hi, Kennet and hi Mikael, and thanks for the presentation. I have a couple of questions. I could start with one regarding order intake development. And maybe if you could just elaborate a bit The of order intake developments, we didn't acquire there. Did you see some improvement towards the end of Q1? And then To follow that up, how has the development been between different geographies you're operating in? Thanks. You could say like this that we have Q1, the restrictions in Q1 has never been harder and although we have advanced ways of selling, So even if now it's open up in every country, quick. Sweden now, the change from 8 people to 50 people is really important. But even if the restrictions wouldn't change, we see that we are selling and we are selling going forward. But due to the ways we have implemented how we attend shows, meetings, mail voting, digital voting. But of course, the demand, the need from the customer is really, really high. So as I said before, that order intake this year will be good, even if there still would be some restrictions. But now we see that it's opening up. In Sweden, every country actually, I will say. So there are I will say it's going very, very quick in the opening up. So order intake the last 12 months really weak. The interest from customer offering calculation is really, really high. And as we have said in the report, These 12 months, we really have tried not to destroy anything of the good parts that we are doing in Balco. We have Putting a lot of development resources, new products, new segments. We have worked with the financing a lot. We have Really, I would say, in most of the countries we're working with, we have actually decreased the monthly cost to 20% during this corona period. So if we look we have done some of the acquisitions we want to do and we are working continuously with that. So I would say that 12 months of weak sale, high interest from customer, we believe that order intake this year will be good, Absolutely. But due to the low order intake last year, the turnover and profit will not will be pretty weak in Q2 and Q3. But we believe that Q4 would be really good. And we also think that due to the way we have been working with COVID, we think that when we go into next year, we will we think we can be pretty good on track with our old business plan. That was a very short answer to you, Julius. Thank you. Thanks for the answer. Maybe if I can follow-up with another question regarding revenues during the quarter. I mean, At least on the renovation side, the actual revenues in Q1 came slightly below what I had expected. And you mentioned the low order intake during the previous quarter being the main reason for that. Was there something else, I mean, timing issues during the quarter or postponement in some projects relating to COVID that They have affected negatively the revenue generation on the renovation segment, especially during Q1. Yes, actually, Norway, problem with the order intake has been a problem 1 year, but we have been able pretty well with operation. That Norway did some stupid things in Q1, so we could actually not bring people there to build some of the projects. Projects leaders were not allowed to go there. Assembling people were not allowed to go there. It was a mess in Q1 in Norway due to the how to say how you could move through the border? That when you close the border? Yes. But that's No, no problem. All right. Good. That clarifies That's somewhat. Thanks. Maybe my last question relating to the raw material situation. We are seeing globally Quite, quite swift price increases in some input materials. How are you seeing the development? And how do you perceive Your possibility is to bypass this cost on to your end customers. We can say like this, we have increased the prices twice this year so far, and we are really on the correct side then we look at the calculation of the material prices. So the customer will they will pay this absolutely. You should know that we have actually decreased the cost to the customer with average 20% for the end consumers with our lifetime of the product and we are financing. But of course, the investment cost will go up for them pretty much. As we see that we have the get material, we booked materials, we have no problem with supplies. We don't believe that it will be a problem during the year. Actually, the actions regarding price increases are done. All our personnel problem, Orders without building permission, there we can also do index changes. But if we have started the building, we cannot increase the prices, of course. So it will affect us some, but not so much. And normally, the material Part of cost is slightly 20% to 25%, sorry. Maybe of course, it will have some effect, but not very much. All right. All right. Thanks, guys. That's all from my side as of now, at least. Thank you. Thank you. And our next question comes from the line of Kenneth Towle at Carnegie. Please go ahead. Your line is open. Yes. Thank you. So first, on R Okay. Technique, from their perspective, what can you add to their business to improve their business? Why are you better owners, so to speak? We believe that we can increased this company with a lot more than our financial growth. Due to this is that they are only in Sweden today. They are good complement to other countries. And it's also like this step. When we if you look at all customers in Sweden, we shall be able to deliver all product segments to all our customers. You can say like this and this means that we will help them to sell. So the sales organization in Balco, TPO will also sell their product. And the sales organization outside Sweden will also sell their product. What you should know is that This is a concrete plate. We have the integrated system with other patents. We have the T View system. This is another system that is, in some cases, really, really unique. They can actually make a balcony that is 11 meters wide. We can't do that in other situations. This is also a good complement in some cultures when it's open Balcon. So you could say like this, people who know this factory, the factory size is as big as the factory between Sweden and Poland together. And actually, yesterday, we took an investment decision to invest in this factory so that we can increase the capacity in the Balcon plate production was 100%. And this is needed to be done very quick. So I would say that the TLB acquisition, that was a smash hit. This is even better. And also, so yes, the LEMS kind of my position, that's really, I'd say, Perfect for Balco and for them, of course. And also, they have a good competence. They have a good organization. And also, the deep seat to Balcon is, We are now the first one we were the first one offering monthly cost of seatbelackhoes in Denmark. Now this month, we are the 1st one offering to Balcon with all financing in Sweden. So this I'm really happy of this acquisition. The Stora Passada acquisition, perfect. This acquisition really good and strengthened them and Balco a lot. Then you said also in the beginning that you target 1 to 3 acquisitions per year. So do you think you have the capacity to make the 3rd acquisition this year? Yes, yes. We believe that we'll do 1 to 3 acquisitions this year and the coming years. Taking a decision regarding our strategy in the Balcon segment. And we are the biggest one in the renovation segment. And we will really take a full grip of the Balcon segment in the Nordic countries. Okay. And then you're talking the report and also now quite a lot about the Nordic territories, And that's where you have most of your activities, of course. But is there anything happening in markets outside of the markets Like the Netherlands and Germany or Yes. Good that you mentioned that. Thank you, Kenneth. Finland, Holland, Germany and U. K. Looks really promising order intake wise. And what is interesting also is that if you hold on and Germany, that's the country that is actually educating You know with the financing, with the ESG, the sustainability. So the things that is happening Holland and Germany. And also Germany now, that I think will happen also in the Nordic countries. So you can say that in Holland and Germany, the projects we're running there, we help the customer with the balcony. They have a problem with the balcony. But pretty much of the projects is more that help and beat the Balcony and with the, I want to say, energy analysis and Yes, and subsidies you can get from Energy Savings. So actually, Kennen, you know about the taxonomy and the money floating there. That is actually what we see in Holland and Germany. So everything regarding renovation, solve the problem, the old building and revenue saving. Energy saving is the key for the memory segment. And we see that they are pushing in London to actually solve all buildings. So actually, we are pretty optimistic about the very optimistic about the future, but We have had 12 months with a weak organ test. Sounds good. And then you can take those what you learn in Germany and Holland, you can apply to Nordics and sort of be I have the competitors here, I guess. Yes, we have yes, yes. We did the financing, the way we're working. We have actually in South of Sweden today, we have a company that is working in this way. They help the customer with The balcony, it helped them with the energy efficient solutions regarding the building. So this is a trend. The big, big product we did run-in sold in Holland, That's actually, you could say, renovate the building and solve the energy problem they have. Sounds great. And on the cruise ship side, is there anything to report there? Is it business execution or? It's running very well, and we are earning pretty much more than that. So it's a strong stable segment with high profitability. And then one of our customers, they have actually sold a new ship, new cruiser ship that we will offer. So it's not stone dead going forward. And I think that there are so many cruise ships now that have been done standing still with high corrosion. So they probably have to buy a lot of new ones. Okay, thanks. That's all for me. Thank you. Okay. There to be no further questions on the line. So I'll hand back to our speakers for the closing comments. Okay. Excellent. Thank you, everyone. Have a wonderful day.