Ladies and gentlemen, welcome to the Bravida Q4 Report 2018. Today, I am pleased to present CEO, Mattias Johansson, and CFO, Nils-Johan Andersson. For the first part of this call, all participants are in listen-only mode, and afterwards, there will be a question and answer session. Now, I'll hand the word over to Mattias. Please go ahead.
Thank you very much, good morning, everyone, and welcome to this presentation of Bravida's Q4 Report. Today, as usual, it's myself, Mattias Johansson, and Bravida CFO, Nils- Johan Andersson, who will do the presentation and answer your questions. Let's start on slide 3. Bravida is, as you know, a growing company and has a growing business. We are now located in more than 160 different places in four countries. We have more than 55,000 customers, we are not dependent on any specific markets or customer. Close to 50% of our sales is service, more than 60% of our sales is coming from service, renovation, and redevelopment. This gives us a low risk in our business model. First, we have diversified end markets, 2, low customer concentration, 3, small average contract size.
I think this is another solid and good quarter, so let's look at the highlights on the next slide 4. The key highlights for Q4 2018 is that the net sales grew 12% to SEK 5,521 billion, and the organic growth was 4%, and M&A contributed with 6%. We had growth in all countries, and the service sales growth was 4%, and the installation sales was high at 20%. The slower service growth is dependent on fewer working days in December, in the end of the quarter. The order backlog is at good level, close to SEK 12 billion. We have continued good momentum in order intake, and the order intake is SEK 6.6 billion, where our Stockholm Bypass project is included with SEK 1.6 billion.
We have good order intake in Sweden and Finland. We have growth in Sweden, even if we exclude Stockholm Bypass project. EBITDA is up 12% to SEK 438 million, and the margin is at stable 7.9%. I'm very happy to see and announce that the EBITDA margin improved in Denmark and Finland. The EBITDA margin in Norway and Sweden was a slightly lower level this quarter. We're coming back to that later on. We can already now say that the lower margin in Norway is due to high production in remaining low-margin project in Oras AS. We had a very strong cash flow, I would say.
It was SEK 807 million from operating activities, the cash conversion is above 100% at 102%. The working capital is minus SEK 940 million or minus 4.9% of sales, net debt is down to SEK 1.365 billion, that's 1.1x adjusted EBITDA. The strong cash flow enables increased dividend to 29%, we can continue to do acquisitions and take down the leverage even if we do this increase. That's the strong evidence that our business model is cash generating, we can do other things to develop the company at the same time.
In the quarter, we did four acquisitions that were completed, adding SEK 420 million. So far, we have done three acquisitions in Q1 2019, adding another SEK 105 million. The Oras AS integration is according to plan, and we also have strengthened the acquisition team to ensure a continued high pace of acquisitions. On the next slide, we'll take you through the view on the market. Overall, we still see a high demand for both the service and installation. We have heard earlier this month that the construction companies in the Nordics say the same. They have also increased their order backlog since last year. In Sweden, we see a good market. Service and installation activity is good. The main growth drivers are public investment in buildings and infrastructure.
The industry confidence indicator is at normal level, and we also see that declining production of residential construction will be replaced by projects from other types of facilities, for example, renovation of residentials instead. In Norway, the market is good as well. Public investment and energy efficiency project is driving that market. Overall, service and installation activity is good, and we also can see a decrease in activity in residential construction. Overall, our market, the market we are exposed to, we see a good demand for the service and installation we are delivering. In Denmark, the market is good. Construction of residential is actually growing. Healthcare and education buildings are driving volumes, and construction volumes of commercial buildings increases as well as data centers. In Finland, the market is stable.
The construction market is improving. We can see that the sales have increased for construction companies, and we also see stable demand for service and installation in our market. The industry confidence indicator for all countries, I would say, is at normal level. On slide 6, we take a deeper look into how sales have developed in the Q4. We had growth at 12%, as I mentioned earlier. 4% was organic and 6% came from M&A. If we split up the Q4 regarding the organic growth, we can see that we had a good growth in October and November, and a lower growth in December, depending on fewer working days that I mentioned earlier. If we look into how this year has started, we are back on good growth again.
Overall, Q4 was a good quarter when we look at the growth side. We also can see that we have growth in all countries, and we have especially strong growth in installation. The EBITDA is improved by 12% in the quarter to SEK 438 million, and the margin is unchanged at 7.9%. The EBITDA margin improvement in Denmark and Finland is something we are really happy about. Of course, we still see a gap between the average in the group and the market we have in those countries. We think we can improve that even more, of course. It was slightly lower in Sweden and Norway, but still at very good levels, I would say. All in all, 12% growth regarding sales and 12% growth regarding the EBITDA.
On the next slide, we look at the order backlog. I mentioned that the backlog is at levels that we are very confident about, and it's on record high level, of course, when we have booked one part of the Stockholm Bypass project, is now close to SEK 12 billion. It's 17% higher compared to last year. We have increased order backlog in all divisions in Sweden, even if we exclude Stockholm Bypass project, that I think is a good proof of the demand that demand we see in the market. We have a declining order backlog in Norway, mostly depending on Oras AS, where we still produce on the order backlog they came into our books with, on low margin as well. That's why they use our margin.
We have been taking down that order backlog since two years back. We see that this part of the Oras AS order backlog will end out in Q1 2019. Otherwise, if we exclude the Stockholm Bypass project, we have won mainly small and mid-sized projects. We will also book the second phase of the order by the Stockholm Bypass project in Q1 2019, and we will add around SEK 1.1 billion regarding this project. Turning to acquisition on slide 8, as you all know, in this call, acquisition is an important value created in Bravida. We know that there are many possibilities in the market to continue to do this. We have therefore strengthened our M&A team to enable more deals and improve the integrations.
So far in the quarter, we did four acquisitions, three in Sweden and one in Finland. In total, we did 12 acquisitions in 2018, adding around SEK 800 million sales, and we did acquisitions in all countries. So far in 2019, we have done another three acquisitions, adding around SEK 100 million in sales. For the coming quarters, we still see a strong pipeline to attractive multiples, and I'm convinced that the M&A will contribute to Bravida's development in 2019 as well. Said that, now over to Nils-Johan and the financial performance.
Thank you, Mattias. Yeah, let's start to dig into the figures. As Mattias said earlier, we had a top-line growth for 12%. This is the same figure for the quarter and for the full year, this is actually in line with the financial target we have. If we look into the organic growth, 4%, it was negative affected from a long Christmas vacation. We lost days in December. We had a good organic growth in October, November, a week in December, I think Mattias also mentioned this, that we are back on track again in January. EBITDA increased with 12% and earnings per share increased with 17%, we see a positive impact from a lower tax rate. We have used loss carryforward mainly in Norway during 2018.
We also have positive currency effect in the financial that make that the earnings per share is increasing faster than the EBITDA level. You can say, overall, there is a good financial performance in Q4. Let's look into next slide and start to look into different countries, and starting with the largest one, Sweden. We see a stable top-line growth with 5% in the quarter, and this is mainly organic growth. EBITDA margin came down slightly from 8.7% to 8.5%. This is mainly explained by that we had a positive one-off last year, where we had repayment from pension companies. The amount was SEK 10 million to SEK 15 million. But anyhow, it's still good development in Sweden, if you look for the margin-wise.
If you look for the order intake and order backlog, the overall, it was really good. Order intake was up 91%, and of course, the main explanation is the first bypass Stockholm order. But I think it's even more important is to look into, if we exclude this one, the order intake was up with 27%. It's also good to see that all division, we have four division in Sweden, all the divisions increased the order backlog in the last quarter last year. We have talked quite a lot about the impact on residential, and I think we start to see that with the impact on residential is limited for Bravida in Sweden. We continue with next slide in Norway.
Also in Norway, we continue with a good growth, 13%. This is also mainly organic growth, but also some currency impact. EBITDA margin was 6.6%, and here we have the dilution for Oras AS. If we exclude for a minute, Oras AS, and look into to, say, the old Bravida, we had a EBITDA margin 7.1% to 7.5% in the old Bravida. A continuous, stable, good development in the old Bravida. This dilution will come to send after Q1, and when we are phasing out the old Oras AS product with low profitability. If you look into the order backlog and order intake, order backlog slightly decrease in year-on-year with 9%.
But as we had said many times earlier, that we are working and try to finalize the old Oras AS backlog. If you look to the last 12 months, we have produced 75% of the old order backlog we bought in May 2017 for Oras AS. Okay, we continue with Denmark, and Denmark, top line growth with 23%. This is also mainly organic growth, but also some currency impact. We have had a high production in a couple of large products. There is two hospitals and one data center. Margin wise, we continue to improve the EBITDA margin. If we look for the full year, I think we have taken the step to a new level.
We have increased from 5.1% to 5.8%, and we start to have a really nice business now in Denmark. Order backlog, it's more or less flat. It's increased with 2% year-on-year. As I said earlier, we have had a high production in three large product, but it's good to see that the order backlog is continue on a high level, and it has been replaced by a couple of many small and mid-sized orders. If we look for the full year growth in Denmark, 24%, of course, it's hard to have these next year on 2019 as well, but it's explained by these three large orders.
If we go to Finland, top line is up with 63%. This is mainly explained by the acquisition we made in 2018. We see a large improvement in the EBITDA margin from 3.9% to 5.5%. Here it's also mainly the two acquisition we finalized in 2018, it's Adison and Hangö, who actually deliver better than the plan we had. It's great to see that we have been successful in this acquisition. If we look into the order intake and order backlog, we see a strong development. It's both order intake and order backlog is up with over 60%. This is promising for 2019.
If we look for next slide and start to look into the cash flow and net debt development, as Mattias said earlier, Bravida continue to deliver strong cash flow. We have taken down the net debt to SEK 1,365 billion, from SEK 2,062 billion in Q3. Also, the net debt EBITDA were on 1.7% in the end of Q3, and now it's down to 1.1%. If you look to the bottom of the page, we see the operating cash flow, and it's more or less the same figure for 2017 and 2018. Please remember that we have paid SEK 219 million in tax in 2018, and it was only SEK 95 million in 2017.
If we look for the real operating cash flow, it's actually increased with 12% year on year-over-year. It's good to see that cash conversion is one of the two, and actually that's slightly above our financial target. If you look for the dividend, we proposed to the annual meeting an increase with 29%. This is more or less 42% of the net profit. If you look for the average increase since we did the IPO in 2015, there has been an average increase of 26% since the IPO. As many other companies, we will start to implement or use new accounting rules, IFRS 16, from January.
We have quite many lease cars, lease service cars, with 5,600, and we more or less rent all the buildings, more or less 265 buildings we are using. According to the preliminary calculation we have done, the EBITDA will increase from 6.3% to 6.4%, and the net debt EBITDA will go from 1.1% to 1.5%. There will be an impact on this figure, but we don't see for this reason, there is no really reason, any reason to change the financial targets when we start to use the IFRS 16.
If we look for next slide and look, just look for the financial targets, we are committed to grow the business with over 10%, and as I said earlier, Q4 was 12%, and full year was 12%. EBITDA we will take this to 7%. We improved it from 6.2% to 6.3%, and there is still a dilution from Oras AS and Finland, you can say, and we are quite sure they will start to improve the result in 2019. Cash conversion, about 100, we have delivered 102, and if you look for the dividend, its proposal is up with 29%, corresponding to 42% of the net profit per share.
As I said earlier, it's an average increase of 26% since the IPO. Net debt in the balance sheet, we are saying that we should be around SEK 2.5 billion. We were on SEK 1.1 billion in the end of December. When we now start to implement IFRS 16, it will increase with SEK 0.4 million up to SEK 1.5 million. I think I leave over to Mattias to summarize.
Thank you. Slide 16, we have the summary of the Q4 report. It's a lot of things to summarize. An overall, a really strong performance that we are happy to announce, of course. Sales increase at 12%, mix between organic growth and acquisitions, well in line with the financial target. The order backlog is at a good level, record level. We can see a good continued business momentum and for service in the future, that will support the organic growth on the quarters as well. The EBITDA margin is stable at close to 8%. We see, and we have seen improvements in Finland and Denmark. M&A execution is on track with a healthy pipeline.
We did 12 acquisitions in 2018, adding SEK 800 million in sales. We have started 2019 good as well, and we have reinforced the M&A team, as I mentioned earlier, to improve this part of the business even more. Net debt, as Nils-Johan just said, 1.1x EBITDA. We have operating cash flow improved compared to last year, and cash conversion is above financial target and is at 102%. The proposed dividend is at SEK 2.00 per share, and that's increased by 29%, and therefore, to 2% of the earnings per share. We still see a good market condition to continue. I think this shows the business model, the beauty of the business model.
Strong cash flow generating, we can take down the debt ratio, as well as we increase the dividend, we can continue to do acquisitions. I think this is a good quarter, and we have positive view on the coming quarters as well. Thank you very much, and now we can open up for some questions.
Thank you. If you do have a question, please press zero one on your telephone keypad. Our first question is from Predrag Savinovic, from Nordea. Please go ahead, your line is now open.
Thank you very much. On the order intake in Sweden, it is very strong from a Stockholm bypass. Even excluding these, it's up considerably, which is very positive. Can you talk about this? Where does this come from? Why now, after it has been in negative territory for a couple of quarters?
I think our business model, our footprint, is actually that we are located in many different places, and there has been a lot of focus on the residentials. As you know, residentials is a small part of our business. We are not dependent on any single market, any single customers, et cetera. Actually, regarding residentials, we have said earlier that the new build part of the residentials has been 10% of our sales, and that's very stable. We have also seen, and we have expected that the renovation of residentials will go up, and that's something we can see as well in the books, and that's a much better business for us. I think the mix between the service and renovation is more than 60% of our sales in total.
That mixed together with our diversified markets on many different places in four countries. When you ask about Sweden, we are in very many places in Sweden as well. The demand for our services and the installation part is overall good in Sweden. I think that's the reason behind the order intake or the order backlog in Sweden. I also think that, as you know, this can and will vary between different quarters, depending on where we book the new signed contracts into the system, et cetera. I think overall, it just showed me that we have a good organization, and we have a strong demand in the market.
Just to mention the construction companies as well, I think all the big construction companies that we can see so far has announced increased order backlogs compared to last year as well. That's also, they are ahead of us in the cycle, and we can see numbers about confidence indicators regarding the technical consultants, et cetera, and they have flattened out as well. Yeah, a strong demand in the market, I would say.
These orders here, they're not main since it's almost a 30% figure. Are there any bigger contracts here, any change in terms of average order size or in line with usually?
No, if you exclude or combine fast projects, I would say it is only small and mid-sized projects that we actually have won.
All right. You still have some backlog left in Oras AS in Norway, where the deliveries will be finalized in Q1 next year. Upon completing this, do you expect to end up at the same margins as your other Norwegian operations right away? Will there still be some dilution from organizational differences, et cetera?
I think it will take some time, of course, but in the long-term perspective, or it's possible to get the same margin, of course. Our business is very much about changing people's behavior, and we don't have any machines we are adjusting. Regarding the dilution from Oras AS, I would say it's one, maybe two projects that we're struggling with for the moment that dilutes the margin most. If we look at Oras AS as the broader picture about Oras AS, I would say that 12 out of 13 places, or 11 out of 12 places, we are heading definitely in the right direction. It's an isolated challenge, I would say, and that will phase out in Q1 2019.
Right.
The margin will gradually improve, and hopefully we can, of course, meet the same margin in Oras as we have in the existing Norwegian business. We need to remember that will take a couple of years or more than a couple of years. I think also we should remember that the Norwegian margin is on high levels.
Mm-hmm. On the Danish operations, here you speak of 2 large orders driving the growth, particularly in 2018, and could you quantify how much these add to the top line for Denmark?
Do we have that number?
No. I think it's 2 hospitals orders, and I think I have to come back.
Yeah.
how much we produced on these orders in last in 2018.
The growth is not only coming from...
No, no.
Because we have.
No.
That's what you're asking for, so.
Mm-hmm.
We have strong growth in Denmark.
Super. How much would you say that the calendar affects you negatively in the quarter on the service side? Is it like 1.5% on organic growth?
I think we. It's hard. We have seen other companies coming up with they are talking about days, et cetera. We saw it clearly in mid-December that the activity levels slowed down, we saw it also when we material purchasing also came down. It's had the biggest impact on the service business. It's hard to estimate, and it will be. It was a clear, it with clear effect in we would saw also, we look for what people use, look into the books and how they use the holiday. It was on a higher level in 2018 compared to 2017.
It has an impact in December, but it, as we said earlier, it's good to see that we are back on track again in January.
Very good. Thank you. Finally here, in terms of M&A growth in the Nordics, could you update us a bit on the current market share in the respective countries and how much bigger you can get before it's too much? I mean, are we talking about double your size here before authorities say anything more?
I think the pipeline is or I know the pipeline is strong. We can continue to do M&A for a long time. We have the cash to do it, we have the organization to do it, we have the organization to integrate it. Remember that we have a market share in Sweden, which is our biggest market, at around 11%. I think that just shows us that we can be much, much bigger before we meet that type of resistance, I would say. That's nothing we think about for the coming business time period, at least.
Very good. Thank you. Thank you very much for that. That's all for me.
Thank you.
Thank you. Bye-bye.
Our next question is from Lucas Ferhani, from Deutsche Bank. Please go ahead. Your line is now open.
Hello. I just wanted to ask a question on the mix in Sweden between service and installation over the year rather than just this quarter. It does seem installation grew at a slower pace and the service grew very highly. Kind of what's your thinking around handling this mix? Are you still trying to grow as much in installation as possible versus service, or has this changed? Whether the, possibly the market kind of forced you to go more towards service?
Yeah, I think this is a dual track, if you can call it by that, like that. We have two different ways of working with the different segments. We, of course, always want to improve and increase the services, definitely. We see, the demand in the market, and we also think that we can act more proactive, to be able to win more, service contracts, service agreements, et cetera. On the other hand, we see a strong demand for the installation, which means that we of course, want to kind of take the advantage of that demand and try to win, the projects we can on the installation side as well. The margin is more important than volume.
We price the risk, and we have high production in Sweden on installation for the moment. The mix can change from one time to another, depending on how high the production is on the installation side. The most important thing is that we can see growth in service and installation, parallelly. I don't know if I answered your question, but it's important to develop the service business because that's more stable in the long term. On the other hand, of course, we want to contribute from this high demand, and on the installation side.
Yeah, no, that does answer. I mean, it was just before you said you're still trying to grow as much as possible in installation, but like you said, maybe at a point in the cycle where the situation becomes probably harder to grow in installation. Do you, I mean, meaningfully try yourself to go towards service, you've pretty much answered that question. Another one was on working capital. You said you made improvements, the cash flow is really good. Can you talk about what kind of improvements were made and whether you still see progress on the working capital?
Yeah, we, there is a clear seasonality in our cash flow. If we take the overall picture where we always have the strongest cash flow in the fourth quarter and the weakest normally in the third quarter. We continue to work on the both side, both on the receivables and payables. I think there was We are that there is no real big changes in if you look for the receivables and payables, we of course, we are really pleased that we are again, coming up with a strong cash generation, and we are able to keep the cash conversion over 100% in this quarter as well.
Great, thank you. The last one would be, can you have a quick update on the bypass project? I remember last quarter, you said that you were looking to hire a bit more people, maybe some consultants to help you, given the scale of that project.
Yeah, I think it's an early stage in the project. Of course, we have started the work. It's around two years of designing preparation now, and the organization is built up. I think I said some of the resources will be internally, and we will of course use some external consultants in this project as well. When we say external consultants, that's people that we have been working together with in earlier projects as well. They are semi-hired, can you say that? Only known people and with experience from the same type of project. I think this is going, it has just started, but it's following the plan.
We have a steering committee where I take part as well in this project, and we are confident and looking forward to executing this project together with the customer, of course.
Great. Thanks a lot.
Thanks.
Our next question is from Karl-Johan Bonnevier from DNB Markets. Please go ahead. Your line is now open.
Yes, good morning. You gave us some good guidance for IFRS 16 inclusion in your numbers coming up to Q1. Could you just clarify, if possible, to what kind of impact would you see on the EBITDA line, and do you expect anything at the bottom line in that profit?
EBITDA will, according to the preliminary calculation, increase with 1.8%. As I said, EBITDA will increase with 0.1%, and there is limited impact on the net profit. It's as I said, that the net debt EBITDA will increase from with 0.4% going, if you look for the pro forma in the end of last year, going from 1.1% to 1.5%. So the net debt will increase with we have a figure for SEK 1.038 billion. That's the impact on the balance sheet.
I guess the change in net debt won't have any impact on your covenants or anything like that?
No, no, not at all.
What you have with them.
No, the bank agreement we have, they exclude changing accounting rules. It's not. Of course, the covenants compared to where we are today is on a completely different level. It's not really an issue.
Excellent. Then just on the M&A pipeline, do you see that you have any larger transaction of the Oras AS size or upwards in the pipeline as well? Or should we expect more of the smaller mid-size kind of acquisitions?
No. The answer is no for the moment, I think it's hard to guide on that one as well. Of course, we look into everything. I think what really creates value for us when we look back to what we have done is of course, a deal like Oras AS, it's very often, more convenient and more efficient to actually integrate the bolt-ons, slightly smaller, somewhere between SEK 50 million and SEK 100 million in that area, or SEK 50 million to SEK 150 million or whatever. It's
Of course, we have a position, and we want to have the position, even if we increase the dividend with, was it 29%? We still have a position to act on that type of target, is the, yeah, if the opportunity comes. We're open for it, but we don't have any discussion of that kind for the moment.
Excellent. Thank you very much.
Thank you.
Just as a reminder, if you do wish to ask a question, please press zero-one on your telephone keypad. Our next question is from Stefan Alexandersson from SEB. Please go ahead. Your line is now open.
Thanks. Two questions, just, first on Finland, small division, but anyhow, on the margin there, I mean, the new management there made a clean out two quarters ago, and now all of a sudden, it bumps back to 5.5%, which is the highest we've seen. Just to give us a flavor, you know, is that some adjustments in the fourth quarter, as it might be, or is this really the level you operate in Finland on?
Yeah, no, you're correct. We said that when Marko joined us, he took out some costs in the second quarter. But it's not really that we are releasing some reserves in Finland now. It's, as I said, we see a good development in the acquisition we did in Adison . We bought in January, and Hangon Sähkö Oy, we took over in, I think, the beginning of October. Good development. We have now also changed the team. We have a new regional manager coming in here in the Jyväskylä, Tampere area, and also, of course, Marko and the team is doing an excellent work now.
Type one five is, as yes, so when we look into this figure, is that this, Q4 figure, where we normally have always the highest margin. Of course, there is, it's a much more stable situation in Finland today compared to a year ago. Yeah, we look forward with a strong order and take a strong backup to 2019 as well.
Yeah, I think just to go back to what we said earlier, Stefan, we have, of course, said that we haven't reached critical mass before, but we all have also said that we were not in a hurry to reach that size. We said it's important to build the building brick by brick, and also when we do acquisitions, to do good acquisitions. I think this is a result of two good acquisitions that have come into Bravida in combination with the existing business that is improving in many places, even if we are not happy in all places. As you said, looking in the margin, of course, as in the minutes you were mentioned, we definitely see a much better 2019 than 2018.
We continue to implement Bravida Way, and now educate everyone in our productivity of what we call Bravida BOSS Programme, that hopefully will support the business, the coming quarters.
Okay, great. Thanks. On Sweden, I mean, you mentioned that you had this positive effect last year in Sweden. If you look at that margin in this quarter, I know that you sometimes have successful ending of projects that could release a little bit. I mean, I know there's seasonality here, would you say that that margin is normal at the level you're operating right now for being a Q4? Is there something extra in there that it's good for us to know when we do our estimates for 2019?
No, I think with the, the margin, we have the 8.5%. There is nothing, there is no extra money, otherwise positive or negative. This is, I think this is a normal or clean result, so to say.
Okay. Thank you.
Thank you.
Our next question is from Lucas Ferhani from Deutsche Bank. Please go ahead. Your line is now open. Lucas, can you hear us?
I'm sorry, that's fine on my end already.
Sorry? Do you not want to ask a question?
No, no, that's fine on my end. Sorry.
Okay. As there are no further questions, I will hand over back to the speakers for any final comments.
Okay. Thank you very much, everyone. Good questions and, a good report. I think that's, a good start for this day. Thank you very much, all of you, and, see you soon again, and have a nice day. Thank you. Bye.
Thank you. Bye.
This now concludes our conference call. You may now disconnect your line.