Good morning, ladies and gentlemen, and welcome to the Bravida Q4 2017 report. Today, I'm pleased to present CEO, Mattias Johansson, CFO, Nils-Johan Andersson. For the first part of the call, all participants will be in a listen-only mode, and afterwards, there will be question and answer session. Speaker, please begin.
Okay, thank you, and good morning, everyone, and welcome to our 10th report as a listed company, and also actually to the presentation of the best year ever in the Bravida history. We have high, high growth, good margin, strong cash flow, and earnings per share is up 26%, so I can't be anything more than satisfied today. I also want to take the opportunity to say thank you to all our employees out in Bravida that has contributed to this development, and also will continue to contribute to the development of the Bravida for the coming years as well. Today, as usual, myself, will present the report together with me, Johan. Turn to slide three. I think it's important to one more time explain what Bravida is, in some way.
You know that we are represented in more than 150 locations. We have more than 50,000 customers, and top five customers only represent 15% of sales. You know that these customers are the big construction companies that as also exist on many, many relations on, and on not one single customer as well. 90% is recurring customers. Our exposure to new build residential in Stockholm and Oslo are extremely low. It's very limited, and it's about around 1% of our sales. If we look at the earnings, it's even lower as well. Our end markets are many. Net sales by order sales is also very many small and average-sized contract, as you know. Actually, the contract above SEK 50 million has go down a bit, which is okay, and good for us as well.
This takes us to our business model and the risk profile in that. We have a low risk in the business model, diversified end markets, low customer concentration, and small average contract size. On the next slide, I want to take you through the highlights for the fourth quarter. Net sales grew 15% to SEK 4.9 billion. Organic growth is 6%, M&A is 10%. We have growth in all countries, and installation grew 7%, and good to see a major growth at service, which is 25% in the quarter, takes us to 50% of total sales, which is a good mix for us. Order backlog is at a very high level, over SEK 10 billion, up 19%.
We have a good, continued good order intake at 7%, and we have a really strong intake in Denmark, Finland, and Norway. EBIT is up to SEK 389 million, and the margin at 7.9%. As you know, Oras is still on the first year in the group, and they dilute the margin in the quarter with 0.6%. The underlying EBIT margin improves to 8.5%, which is on a very high level. Improved margin in Sweden, as well as the underlying margin in Norway, which is important, really strong performance in our two biggest markets. When it comes to the cash flow, it's also good to see that that has improved as well, up to SEK 650 million in the fourth quarter, and the cash conversion at 106%.
Negative working capital at -5.5% . Net debt at SEK 1.8 billion, takes us to 1.7 x adjusted EBITDA on LTM basis. We also had a dividend proposal at SEK 1.55 per share, and that is an increase with 24%. Our M&A story continues. We have completed one acquisition in Denmark in the fourth quarter. The integration of Oras is going according to plan, and we also have done three acquisition in January as well. The first quarter in 2018 has started in a good way as well. We have a strong pipeline, and we continue to develop the business with more M&A, of course. On slide five, you see the present market trends.
I'm not going into very specific details, but the demand in the market is still strong. If you read the comments from the big construction companies, which are our biggest customers, they have published or said that the demand from their side is strong as well. They have improved the order backlogs, that shows us that the demand for our services will be strong the coming quarters as well. We're really looking forward to 2018. As you can see on this slide, the confidence indicator are at high levels or are improving in all countries where we are in actually. In Norway, we have a construction installation activity, which is up 8% year-on-year. Market drivers are public investment.
We have a decrease in residential construction. As I said earlier, this exposure we have to this market is small. In Sweden, we have growth drivers from public investment in buildings and infrastructure, as well as residential buildings, because we see the demand for residentials as quite strong if we look in Sweden, except for center of Stockholm. Denmark, strong market as well. Construction confidence indicators still somewhat below average. We see a really strong demand from public investment regarding healthcare, education, and so on. In Finland, the market is improving. We have a strong growth not in all, but in building and construction, I would say. Turning to the next slide, on slide six, you can see the sales development. It's up 15% in the quarter, as I said earlier.
Year-on-year, we have improved the sales from SEK 14.7 billion up to over SEK 17 billion, +17%. Sorry. The margin is up, if we exclude Oras, to 8.5%, which is a really strong performance. On year-on-year basis, we are flat margin-wise, but I think that's a strong evidence of how we manage growth versus price and margin. Earnings per share is up 26%. We have an improvement in Sweden, Norway, regarding the margin, and reported EBIT is up 10% in the quarter to SEK 389 million.
I think it's worth mentioning, I think Johan is going to mention that later on as well, last quarter, we have some tough comparison figures because we had a positive one-off of SEK 25 million as a refund of pension money. If you compare to that one-off, we are still improving the result with this much, and I think that's really strong, of course. Slide seven, the order momentum. Order backlog is up 90% year-on-year. In the quarter, we have mainly many small and mid-sized projects that we have won in Q4, and this will vary between the quarters. We are already up in the Q1 in 2018. January was +60% in order intake. The level we are at regarding the order backlog is something that we feel very comfortable about.
The next slide, six, shows the order backlog compared to our LTA sales. First, I want to underline that we have a strong development in our services. As I mentioned earlier, our services grew with 25% in the quarter, and that is shown by the red line, a positive development for the since the start of 2016, as you can see in this slide, and service is, of course, very important for us. The blue line shows the order backlog, and our order backlog is on very high level, and we are confident and relaxed on lower level than this as well.
Again, it's about manage sales versus margin, and we are confident that the order backlog is well above what we actually need. This will support the organic growth the coming quarters as well. If you compare the LTA sales, the green line, with the order backlog, that is the blue line, you can see the gap. This gap will support growth coming quarters in a good way. Now, over to Johan, and he will take you through the financials.
Thank you, Mattias. Let's look a little bit deeper into the figures, starting with sales. We continue with a good organic growth in the fourth quarter, 6%. This figure was in line with the full year. If you look for acquisition, contributed with 10% to the top line. Of course, Oras was the biggest contributor to this growth. Currency effect, we had a small negative effect explained by a weak Norwegian Krone. This ending up in the total sales increase about 16%. Looking to the key highlights, we also see that the financial net continued to improve.
This quarter, we came down to SEK 16 million compared to SEK 18 million a year ago, this is explained by both lower interest rates and lower debt. If you look for the earnings per share, we are on for 2017, up with 22%, in the quarter, we're up with 26%, and this, of course, is a high figure compared to EBITDA and explained by lower financial net and improved debt, improved tax situation. We look for next slide and start to look into our markets. We continue to have a strong development in Sweden. Sales this quarter is up with 11%.
This is mainly coming from organic growth. EBIT margin is up from already a high 8.2% last year to 8.7% this year. As Mattias mentioned, we had a positive one-off in the fourth quarter 2016, when one of the pension funds, we have a refund from one of the pension funds for SEK 25 million. We are really pleased to see that we can deliver SEK 239 million in the fourth quarter in Sweden. Looking for the order intake and order backlog, we see that the order intake was down -8%, the order backlog was up 9%.
Then you also said, as Mattias mentioned, if we look into January, we continue to see a good growth in the order intake. On group level, it's up 16%, and the order backlog is back on the same level, record level we had a couple of months ago. If we continue with Norway, we see we continue to have a strong sales growth in Norway. Of course, this is mainly driven by the Oras acquisition. This quarter, we reported a growth for 24%. If we look for the EBIT margin, you see it came down from last year, we have 8.9%. We reported this quarter 7.1%.
But of course, if we exclude for the dilution from Oras, the underlying is 9.7%, which is a new record level for Norway. Looking to the order intake, we see that the order intake is up with 15%, and the order backlog is up with 67%. Of course, the big increase explained by Oras. Also, if we exclude for Oras, the order backlog is up with more than 20%. Just take you through the Oras, and please remember that this is a turnaround case. We have communicated earlier that there will be a dilution during 2017. But from now, Oras is in our operating organization in Norway. They are using our RFP system and our purchasing system.
We expect that we should see synergies, both on the cost and purchasing side and also in the organization. This has been confirmed during 2017. All the costs related to integrate the company into Bravida is taken in the profit in the Q4 results. Of course, we have realized some of the synergies in 2017, but of course, the larger part of the synergies will be realized in 2018. Going to Denmark, we see a stable development in Denmark in Q4. Sales is up with 14%. It's a split between organic growth and acquisition. You see also stable margins in Denmark.
The profit is up from SEK 44 million- SEK 49 million. The full year EBIT margin is up from 5.0% - 5.1%. We continue to see a good order intake development, and the order backlog is also higher compared to a year ago in Denmark. Finally, Finland on next slide. We continue to take steps in the right direction in Finland and build our platform. Sales this quarter is up with 15%, and we do see a stable margin and also small increase in the profit from SEK 7 million- SEK 8 million.
Of course, we are also really pleased to see that Marko Holopainen, the previous CEO for the Consti Group, will join us in end of March and take up the responsibility for the development in Finland. Looking next slide, just a few words about the acquisitions. As you as said earlier, acquisition contributed with 10% to the growth. Of course, the most important acquisition was Oras in Norway, by doing this acquisition, we became the market leader. When we took over the business, it was a loss-making, as you have heard, that we now for 2017, reported a break-even result for Oras.
The turnaround have started, and we expect that this development will continue in 2018, that we expect that we can report a positive result for Oras in 2018. If we look for what were the current discussions we have, we feel that we continue to have a strong pipeline, and the multiple is on the same level or even lower, what we have seen during in 2014, 2015, and 2016. I think this is confirmed by that we have announced 3 acquisition in January, one in Sweden, one in Denmark, and one in Finland, adding roughly SEK 230 million to the top line.
If you look for next slide, just to see the earning per share, you to the left, you see a steady growth of earning per share, adding up in over SEK 4, SEK 4.06 in for rolling 12-month for the Q4. To the right, here we have a gap for Oras and Finland, that's call it two projects or two activities that will contribute to the profit, to the increased profit in 2018 and 2019. As you see, we have, since the IPO, we have taken the EBIT margin from 6.3% to close to 6.8%. Cash flow and net debt on next slide.
We had an excellent cash flow in the last quarter, and we have taken down the net debt to SEK 1.862 billion, and the net debt to EBITDA on 1.7x. If you look into the bottom of the page and look into the operating cash flow, we generate over SEK 1.038 billion in operating cash flow in 2017, and this is more than double, you know, compared to 2016. 2016 was a low figure, for sure, but the cash flow we generate, we are really pleased to see the cash flow we generate in 2017. This also took us to a cash conversion that's, again, is about 100%.
We reported 106% for the full year 2017 in the cash conversion. We proposed a dividend, SEK 1.55, increase for 24%. We paid out SEK 1 in 2016, SEK 1.25 in 2017, we proposed to the annual meeting SEK 1.55. If you average, we have seen an increase for 24%-25% since we did the IPO. Looking through the financial targets and how we've performed compared to them, we are committed to grow the sales with 10%, to over 10%. As you know, the figure was 17% for last year, this is the organic growth is 5%.
We had an organic growth of 6% in 2017, and M&A 5%-7%, we had a growth from 10% from M&A. We should take the margin over 7%, and as you saw in the slide, we have increased it from 6.3% to now to something between 6.7%-6.8%. If we adjust for us in Finland and the improvement continue. Cash conversion at 100%, we have 106%, and we would like to pay out 50% of net profit. We increased the proposal is increased with 24%, and it's 38 of the net, 38% of net profit. If you look into the balance sheet, the targets were should be around 2.5% . We came down to low 1.7%. That, of course, give us ammunition, and we are really for M&A, and we're prepared for further acquisition and also for development of the company. Next slide, Mattias.
Thank you very much. As the headline says on slide 18, a strong quarter to end our best ever year. Again, sales increased 15%, organic growth is 6%. Installation order backlog is up 19% and continues the business momentum for service we support the growth, the organic growth, the coming quarters. As Johan mentioned, the margin is something we are very pleased to present. Underlying EBITDA margin improved to 8.5% in Q4 and is unchanged for 2017, 6.5%. We have a strong margin in both Norway and Sweden, which is our biggest market, and I think this is something.
This is an evidence that our model and our culture is strong enough to deliver margin in in in our industry, and I know that this is something that both Finland and Denmark are looking at, and we have a strong platform in those countries for the coming years as well. M&A execution is on track with the healthy pipeline. We added SEK 13 million, SEK 17 million in sales during 2017. Strong cash flow in Q4 has strengthened the balance sheet.
Net debt is at 1.7x the EBITDA, adjusted EBITDA, and cash conversion above 100%. 106% is a strong evidence that we have a strong performance in the business, healthy projects, customers who can pay the bills, et cetera, et cetera. Looking forward, we also can see stable, good market, that will continue for a while, at least as long as we can see. Thank you for listening. This has been a good start on this Friday, and we have been waiting a while to be able to present this strong report. Now, we can open up for some questions.
Thank you, ladies and gentlemen. If you do have a question at this time, please press zero one on your telephone keypad. There will be a brief pause while questions are being registered. Our first question comes from the line of Silvia Cuneo from Deutsche Bank. Please go ahead. Your line is now open.
Hi, good morning. I want to ask three questions, please. Firstly, if we look at your growth within installation and service, would you be able to perhaps provide a little bit of color around how what that looked like organically? Secondly, on the balance sheet, obviously, you have delevered, and it seems that you can do a lot more M&A. Are you perhaps accelerating the rate at which you think you can close acquisitions? Maybe if we can look on slide 20, and this is the final question, which regions would you be focusing on now? Where do you think that you can build further, given the targets that you've, you can see in the market, and where do you think you can generate the most value? Thank you.
We are, thank you for the question. I can start with the organic growth and service and installation. Of course, we are, we're really pleased to see that we have an excellent growth in the service, 25% up in the quarter. We have, as you know, initiative in place. We have worked with this, the more, something between one and two years now. So we hope, and we expect that the growth will coming. If you look for the figures, I think we have the acquisition is close to 10% of the 25%. We have a good underlying organic growth in the service businesses. Normally, Q4 is the strongest growth quarter where we see it's for service.
We in the quarter, before the year, and we normally send the last invoices, and we finalized a couple of contracts. If you look for the development, for the service growth, you can see it's all divisions and all countries increase the service business. Even if you go deeper and look into the regions, you can see we have 35 regions today, more than 30 regions increased the service business. It's not one explanation. I think the work we have done the last year start to pay off. Of course, this is an extremely high figure, but we are really pleased to see that the growth starting up now.
Okay. Regarding the regions where we want to, as I understood it, grow the business further on, I think we see this market still as a very fragmented market. I think we have the same recipe, both from the organic growth perspective as well as the M&A perspective. We want to focus to get a complete offer with all the segments in the places where we are represented. We also want to be number one, or at least number two in the local market. We are the market leader on overall in the Nordics, it's most important to be a market leader in the local market, and this is where we focus to strengthen our position. We also have some white spots in some cities or areas where we think we can win the market.
We also see that the creation of Division National last spring has increased our focus on what we earlier called our special segment. This has actually given ourselves the potential to develop those segments in a much, much better way, in a faster way. This is what we continue to do. We are not planning to go outside the Nordics for the near future. We still think this is fragmented enough to continue to develop Bravida within the markets we are in today.
Thank you. Can I just ask the follow-ups on these? Firstly, on the organic growth, can you just give us the installation as well? Obviously, we can see that the last 12 months, installation sales in December were lower than in November. If you can just talk a little bit around that organic development, that'd be very helpful. Then on the acquisitions, maybe if you can just talk about kind of specific regions or white spaces, that'd be very helpful. Thank you.
We are, as we see that we, of course, the organic growth varies from one month to another, depending on, at least on the, you can see it on the installation side, where if we have a couple of larger projects or not. It's not really any big differences compared to the Q3 or Q2. We have in Norway finalized one big hospital in Tromsø. We are starting up now in a larger hospital outside Oslo. We saw a slightly weak organic growth in Norway in the quarter. Otherwise, that there is, on the installation side, it could varies from one quarter to another.
Yeah, I think, just to underline what Nils-Johan says, we still think that we have a strong growth in the installation business, but it will vary from one quarter to another. If you look back at last year, we had 12 in Q1, 0 in Q2, then we had 6% organic in Q3 and Q4, if I remember correctly. You have the Easter effect between the Q1 and Q2. The most important thing is the longer, let's say, forecast regarding this, and we still have a strong order backlog that will support growth in the future.
Acquisition we...
Yeah, acquisition, we will continue to do so, yeah.
Thank you.
Our next question comes from the line of Stefan Andersson from SEB. Please go ahead. Your line is now open.
Hi. Thank you. Just some quick, short come questions. Finland first, it's been, I mean, the margin there is, of course, volatile, given the small, the size of the operation and, of course, the growth you have there. If you look at the margin development that we've had, I mean, are you seeing that you're on a level where the margin are stabilizing on a, you know, on a current level or on a positive level, or will we still see some ups and downs going forward? That's one part of the question. The second part is, you made a, for Finland, rather big acquisition will that dilute or support margin as we go into 2018? I don't really know the margin, only the revenue stream from that business.
Okay. First of all, I want to say that we think that Finland today is stronger than it was a year ago, and we are taking the steps we want to see we improve the business. As you mentioned, Stefan, mentioned, Stefan, that it's a quite small business so far, and it will probably be two steps ahead and one back because of the dynamics, both in the market and from one quarter to another. We are stronger today than we were nine months ago, so to say. We are still slightly too small to have the critical mass that will support the margin improvement in a better way, of course.
Regarding the last acquisition, first, it took us a little bit closer to critical mass, and it's important for us in a, in a strategically important market. They also have a business that is a bit closer to the end customer that we have at the moment in the rest of Finland today, and they will support the margin ongoing. They have a higher margin than we have on average in Finland.
Thank you. When it comes to Oras, I mean, you mentioned it's been breakeven throughout the year. Could you say anything about the quarter? Are you on the profitability in the fourth quarter, or has it been... I mean, are you seeing a progress and improvement gradually, or has it been flat at breakeven the whole year?
If I start, first of all, we have focused a lot since summer to educate personnel. We have educated more than 700 employees in Oras. We have done it by our own personnel. We have held close to 200 different courses and training sessions. Of course, that do something with the focus and where you spend your time. Said that, I think that it's the same with Finland. We are moving in the right direction. We take out cost to reach the synergies. The synergies haven't been seen or visible yet in the P&L, but it will be helping and supporting us in 2018. I think, as Johan mentioned, that we have taken approximately slightly above SEK 10 million in cost.
It's hard to estimate and calculate exactly, but more than SEK 10 million in cost for those trainings and integration work so far. Oras is definitely moving in the right direction. If you look at the order intake, that is one example where we actually take down the order intake because how we want Oras to behave in some way. They are focusing more on margin than volume, and before they focused a little bit more on volume.
We have said that we will take down the volume in Oras, and that means, of course, that the order backlog in Oras will go down for a while, and that is actually impacting our figures as well. That's closer strategy, and no major negative surprises. If I should say in what direction Oras is today compared to last time we spoke, I think it's we're more confident that this is the right thing to do for Bravida, so.
Yeah, I think you summarized in a good way. I said earlier that, of course, we expect that we that we will take the push to a profitable business next year or this year, 2018, supported by that we are able now to fully and take advantage of the synergies. Also, they are now following our, what we call Bravida Way. They are now fully integrated in the organization. No, we are looking forward to the 2018, and we hopefully see we continue to see a good development in the profitability in Oras.
Maybe last but not least, I think it's the personnel we have left in Oras is very motivated and are very competent as well, within Bravida, where we focus on their core business, and that's a difference from before from their side. A lot of competent people that are motivated, and that's always a good place to start.
The final question is on the financial markets are always surprised that Easter comes every year, this year, it's a little bit earlier. Should we be a little bit cautious on the Q1 due to the fact that that might have for you in Norway and Sweden?
Actually, I haven't been looking in the calendar. I think it's quite easy in our business because it's about working days in some way.
Yeah.
I actually don't know where it is, but, where the holiday, holidays are, it will impact the sales, of course, and it's in fact impacting more in Norway than in the other countries, and I think that's something you can think of.
Yeah. Thank you.
Our next question comes from the line of Predrag Savinovic from Nordea. Please go ahead. Your line is now open.
Thank you very much. A few ones for me as well. The margin in Sweden is very strong here, even in spite of the positive one-off you had last year. Maybe if you could just elaborate a bit on on this performance is due to improved pricing? Is it some kind of scale benefits? Just to get a feel for it. Maybe also Norway, which records the record high margin, pretty much?
Yeah. I think that's a good performance. We have been successful in choosing, if you can call it choosing, or maybe avoiding bad projects with high risks or where we haven't been able to price the risks, margin over volume, as we always say, we try to avoid projects where we think we can see a risk, and we can't price the risk. Of course, we have the initiatives about the productivity, improving our purchasing and also the service initiatives. All these initiatives drives the margin, and service drives the sales as well. A good performance in projects, good project management, productivity within the projects have been improved and delivering in all regions. It's fun to see that we actually have a couple of regions that delivers above 8% EBITDA margin. We have more branches that delivers above 10% EBITDA margin than we had last year.
I think this is it seems like many try to copy what we do in Bravida, but I think this is combination about culture, people, and the will to improve. We have seen people that actually, of some reason, have left Bravida, to try to do the same in an external place. It's not that easy. It's a combination about knowledge, competence, resources, personnel, and the strong culture we have. I think both Sweden and Norway have done a good job in that perspective in 2017.
Thank you. Maybe if you can comment on the order intake for the Swedish market, which is down a bit year-over-year, and then, what drives this development?
Yeah, the, as we said, the order intake is down 8% in, if you look for the same period last year. It varies from one quarter to another, in one market to another. There were no large orders in Q4 this year. As we said earlier, if we have included, if you look into if you have cut the calendar in a different way, we have reported much higher figures. We said January, we are up with over 16% on group level, and of course, Sweden is part of that. The order backlog is again up on record level, in line what we were a couple of months ago. Yeah, you, this, you will see it, and you have seen it, that it will varies from 1 quarter to another in the market. There's nothing that we are concerned about.
Thank you very much. One final for me, what are your thoughts on cost inflation for personnel going forward? How has that been trending? Are there any lags in this, that we should expect some kind of wage increase, closely over?
Yeah. First of all, we are quite good in pass on these cost increases. In most of the countries we are in, the people are part of the union. The cost increase will be the same for everyone, more or less. We don't see that it's. If we compare six months or eight, or nine months ago, I think the situation is not tougher today compared to. I think we should be able to handle this. In some cases, with some delays, but we should be able to handle this.
Okay. Thank you very much.
Once again, ladies and gentlemen, if you do have a question, please press zero one on your telephone keypad. There'll be a brief pause while questions are being registered. There don't seem to be. There seems to be a follow-up question from Silvia Cuneo from Deutsche Bank. Please go ahead, your line is now open.
Hi, morning. Just two very quick follow-ups. Just quickly on the order backlog for the group. Could you just let us know, kind of how that's developed in January quarter? Sorry, the order backlog, yeah. It was obviously down 3% quarter-on-quarter.
Yeah.
if you can just let us know whether January is actually above, December.
Yeah, as I've said, if we look at the development in January, or in the end of January, we are back on the level, on the record level we were a couple of months ago.
Okay, sorry, I must have missed that.
Yeah.
Secondly, just on the tax rate, where do you see that going forward?
Sorry, tax rate or... Yeah.
Tax rate, yes. Sorry.
We are I think we saw a decrease in Norway, and but it should be around the 21%-22% for the group.
Okay, great. Thanks very much.
We appear to have no further question at this time. I'll hand the conference back to you.
Okay, thank you very much. Let's hope for a green day on the stock exchange. Once again, thank you for listening. Thank you to all Bravidians, all the Bravida employees who have made this possible. I know, I also know that you are in line with the thoughts about that we can do this even better next year. Thank you very much, and good luck, and have a nice day, everyone. Thank you.
Thank you.