Ladies and gentlemen, welcome to the Bravida Q2 report for 2019. Today, I am pleased to present CEO, Mattias Johansson, and CFO, Åsa Neving. For the first part of this call, participants are in listen-only mode. Afterwards, there'll be a question and answer session. Speakers, please begin.
Thank you very much, good afternoon, everyone, and welcome to this presentation of Bravida's Q2 report. As mentioned, today, it's myself, Mattias Johansson, and our new CFO, Åsa Neving, who will guide you through this presentation and answer your questions later on. Let's start on Slide 3. Bravida has a growing business, we are located in more than 160 different locations in four countries. We have more than 55,000 customers, almost 50% of our sales is service, more than 60% of our sales is coming from service, renovation, and redevelopment. This gives us, as you know, a low risk in our business model. First, diversified end markets, second, low customer concentration, third, small average contract size. I think it's worth mentioning that we have reached a milestone in this quarter.
This is the first quarter where we had an NPM sales higher than SEK 20 billion in sales. Over SEK 20 billion in sales for the last 12 months, I think that's something worth to mention. Let's look at the highlights on the next slide. Net sales grew 6% to SEK 5.1 billion. Organic growth was -1%, and the M&A contributed with 6%. We had growth in Sweden, Denmark, and Norway. We had high growth in service than in installation, which is good. The service sales growth was 11%, installation sales growth was 2%. We have an order backlog at record level at SEK 13.9 billion. We have continued good momentum with ordering pace at SEK 5.5 billion, approximately. We have good order intake in all countries.
EBITDA decreased by 2% to SEK 274 million, and the margin at 5.4%. EBITDA margin improved in Sweden and Finland, and as we have told you earlier about, Norway had a lower margin due to two write-downs in two old Oras projects. Denmark had lower margin due to integration costs related to acquisitions in the quarter. cash flow from operating activity was SEK 131 million, and cash conversion, 113%. Working capital, minus SEK 858 million, or 4.3% of sales, and Net Debt, at SEK 2.6 million, or 1.8 times adjusted EBITDA.
On the M&A side, we have done seven acquisition in the quarter, adding SEK 340 million on annual basis. So far, we have done 12 acquisitions in 2019, adding close to SEK 700 million sales, and we still see a good pipeline for future M&As. On the next slide, I will tell you about our view on the market. Overall, we still see a stable market and a high demand for services for both installation and our service business. There are, within the different countries, of course, some geographical differences, as it always is. Overall, a good market. In Sweden, the service and installation activity is good. The main growth drivers are public investments in buildings and infrastructure. Construction confidence indicator are at normal level. In Norway, the overall service and installation activity is good.
Market drivers in Norway are public investment and energy efficiency projects. In Denmark, the construction of residentials, healthcare, and education buildings are driving volumes. Finally, in Finland, the refurbishment and public investments are at good level. On Slide number 6, you can see group sales and EBITDA development for the quarter. As I mentioned earlier, sales growth was 6%. M&A continues to contribute, and acquired growth was 6%. Organic growth was negative and is impacted from Easter, of course, as you all know, but also the fact that we have a high order backlog that gives us the possibility to be even more careful when it comes to project selection.
We also have some effects from large projects that are in different phases, in phases that are not as intense as they were last year, for example. We also have some regions or branches that aren't allowed to win any new projects, depending on the way they have performed over the last year. Those are more known as the turnaround branches, as you know, or underperforming branches. EBITDA is -2% in the quarter to SEK 274 million, and margin is 5.4%. We had a big margin improvement in Sweden and Finland, and lower margin in Norway and Denmark, and the reasons behind that I have mentioned to you, and we also talked about the Norwegian issue last report as well, or last quarter.
The backlog is shown on the next slide. Again, the order backlog are at record level, SEK 13.9 billion, close to SEK 14 billion. Order backlog is up 25% year-on-year. We have increasing order backlog in Q2 with SEK 400 million, and we have increase in order backlog year-on-year in Sweden, Denmark and Finland. This is mainly medium and small orders. Order intake is up 7% in the quarter. Now, turning to Slide 8 and acquisitions. Acquisitions are a strong value driver for Bravida. We know that there are many possibilities in the market to continue to do acquisitions. We have done seven acquisitions in this quarter, four in Sweden, two in Denmark, and one in Finland.
I told you earlier that we have strengthened our M&A team, this is now seen in our M&A activity, we have done 12 acquisitions, adding almost SEK 700 million in annual sales so far this year. Compared to last year, this is definitely a strong performance. For the coming quarters, we still see a pipeline that will support Q2B to attract these multiples, and I'm convinced that M&A will contribute to Bravida's development the coming quarters as well. Now over to Åsa, as we present our financial performance.
Thank you, Mattias. Let's look into the financials a little bit deeper then. Starting on Slide 9. If you look at the top line, as Mattias said, we grew by 6%. It comes all from acquisitions. We had a negative organic growth on -1% and also some currency effects on +1%. Looking at EBITDA, it decreased by 2% to SEK 274 million, and also the margin decreased from 5.9 to 5.4, and this led to earnings per share decreasing by 5% in the quarter. Year-to-year, year-on-year, they were on the same level. Turning to page 10, and looking to where the figures actually come from, we're starting with Sweden, which is our largest country. You can see that we had a growth of 3%, both in the quarter and year-to-date.
This comes from acquisition, and we had a slow organic or negative organic growth here. As Mattias said, there are different reasons for this, and in Sweden, we can say that, of course, there are some geographical variations, but it's also so that we are more selective when we are taking projects because we have a high order backlog, and we also have some branches, so we don't want to take on any projects. In Sweden, it's also so we have some projects that are either in the beginning, some large projects are either in the beginning or at the end of the project cycle. Not very production-intensive, which compared to last year, where we had some projects that are high production-intensity during the quarter.
Looking at the EBITDA margin, it was better than last quarter, 6.6%, and the EBITDA grew by 4% to 126 million SEK. In Sweden, it's a good market. We had an order intake of +4%. There are a lot of small and mid-sized orders. We had one larger order in the quarter, that is a multi-technical installation in a hospital in the southern part of Sweden. The order backlog is strong, +49% year-over-year, and it increased by 124 million SEK in Q2. Moving on to Norway. Norway grew by 6% in Q2, and 10% year-to-date, and this all comes from organic growth, which is nice. They had a good activity both in service and installation, and especially in service, I would say.
There were also some currency effects here. The EBITDA decreased by 31%. Also the margin is lower at 4%. As Mattias said, this comes from the two projects that have been written down that come from the Oras portfolio. These projects were written down both in Q1 and Q2. They have had a total impact on the result of about SEK 50 million. These projects are now finalized or finished. We don't have anything from the Oras project portfolio going forward now. If you exclude these two projects, the EBITDA margin was in line with Q2 2018. Norway has focused a lot on finishing these Oras projects.
They had a lower order intake, minus 13% year-on-year, and also a lower order backlog, minus 10%. We still had a backlog at a good level in Norway. Moving on to Denmark on slide 12. They grew their top line by 20% in Q2 and 19% year-to-date. They had a very good activity in service. Their growth comes from acquisitions. We had five acquisitions in these first two quarters. There was also some currency effects of about plus 3%. The EBITDA improved 7%, but the margin decreased, and in Denmark, we have had some integration costs related to these acquisitions. It's both, you know, for administration, for taking them into our, you know, systems and so on.
Also we have been a bit conservative with the margins since we really had, have all the projects in our system, so we don't have exact figures, so we've been a bit conservative there. They have a good order backlog, order intake of +27% year-on-year, and an order backlog of +13%, and they also have many small and mid-sized orders. Moving on to Finland. We have a top line at the same level as last year for the quarter, and it grew by 15% year-to-date. They have this growth year-to-date come from acquisitions, and they have a negative organic growth. Also there is some currency effects here, about 3%. The EBITDA improved SEK 6 million to 1.5% in margin. Finland is going in the right direction.
We don't think we grow fast enough, we work on that. They have a good order intake, it is +132%, and also a good order backlog at +48%. That was the countries. If we move to the next slide 14, into the financial position. As you can know, and as you can see, Bravida has a very strong financial position. We have a net debt of roughly SEK 2.6 billion, and a substantial amount of that is from the financial leasing IFRS 16. The net debt to EBITDA ratio was 1.8 in the quarter. It was 1.6 in Q1. The difference here is related to the dividend payout.
The operating cash flow is still strong, although a little bit less than last quarter, but still on a high level. We had a cash conversion of if you exclude IFRS 16, it was on the same level as last year. On 98%, it was 99 last year. If you look on the right-hand side, you also see our financing package. We are in the middle of a refinancing now, and there will be a new package that we will present to you in Q3. Next slide, our financial targets. We have a sales target. We will increase sales growth by 10%, and this will be a combination of acquisitions and organic growth. We have a target on EBITDA. We will reach more than 7% on EBITDA margin.
We are not there yet, we don't see any reasons why we should not get there. We have a target on cash conversion, about 100%. We are on that level. We also have target on dividend payout of at least 50% of net profit. We haven't reached 50% yet, we have increased the payout every year. We also have a target on net debt, we want a ratio, a Net Debt to EBITDA ratio of around 2.5. We are on 1.8 now, including IFRS 16, we believe that it will stay within that ratio. That will not be a problem either, even if you include IFRS 16. I think that was all for, from me, Mattias. I will hand over to you, and you can summarize.
Thank you, Åsa. Before we summarize, I just wanted to take a look at slide 16, maybe we take a step back to show you what we have done the last five years. Actually, Bravida has developed from approximately SEK 11 billion-SEK 12 billion in sales to higher than SEK 20 billion with improved profitability, I think that's fantastic, yeah. Growth comes from both organic as well as acquired growth. Our business model is really great because our strong and stable cash flow enables us to pay down our debt, as Åsa just told you about, at the same time as we can pay dividend. If I remember correctly, I think even if we haven't met the financial target yet, I think we have increased the dividend with 26% on average the last...
five years or something. At the same time, as you take down the dividend, take down the debt and pay out the dividends, we can continue to do acquisitions. I think this slide is a very nice slide to show you before we summarize on slide 17. The Q2 quarter for 2019 has shown on, the result of this is the sales increased at 6%. The inflation order backlog, again, at record high level, close to SEK 14 billion, and we have a continued good business momentum for service that will support growth in the coming quarters. The margin is at 5.4%.
The margin is improved in Finland and in Sweden, which is our largest market, and of course, it's important that in Sweden develops in the right direction. It's good to see that Finland is moving in the right direction, I agree to what Åsa said, even if we don't think it's moving fast enough, so it is a step in the right direction. On the downside, we have two low-performing projects in Norway and integration costs in Denmark that affects the margins in those countries in the quarter. M&A execution, on the other side, is on track with a healthy pipeline. 12 acquisitions completed so far in 2019, and annual sales added at SEK 685 million.
Net, the 1.8x EBITDA, a strong operating cash flow, SEK 1 billion to around SEK 20 million in the last 12 months, and we have a cash conversion above our financial target at 113%. By saying that, I think we can open up for some questions.
Thank you. Ladies and gentlemen, if you wish to ask a question, please press zero one on your telephone keypad, and if you wish to withdraw any question, you may please open pressing zero through to counsel. There's going to be a pause while questions are being registered. Our first question comes from the line of Predrag Savinovic from Nordea. Please, lines are open.
Hello, thank you, and good afternoon. Starting off with Norway, it is a bit worrying to see that the order intake is down 13% and the backlog 10% as well. Could you tell us what the reasons are behind this and how we should interpret this going forward?
Yes, hello from. Yeah, I can do that. I think the reason is, when I spoke to Ture the other day, is that we have another phase of. First of all, of course, it's a result of taking down the Oras backlog. That's one reason. Secondly, we have a lot of projects or negotiation of projects that are in the late phase, that we haven't got any written or signed contracts yet, but we're very close to in Norway that happened to be. That's why it's not in the order backlog, of course, it's just because it's only signed contracts that are in the order backlog. We have also a couple of large projects that we are working together with the customer.
You can say a partnering project where we have two phases, that we help the customer to design in the first phase, and when we have designed it, we set the prices together with the customers which also project. We actually don't put the orders for the second phase into the order backlog until they have signed that phase and agreed upon the final sum of the contract. You know, it can vary from one quarter to another, and I'm not worried about the order intake going down in Norway. I think we will have some deals that will be back in the order backlog, or will be put in the order backlogs the coming months. The demand is still strong.
Okay, super. Then on these projects that you completed with the Oras that are part of this explanation, how big were they? Also, how big were the write downs in the quarter?
The write down in the quarter, those two projects were SEK 25 million or 24 point something, yes, around SEK 25. In the quarter total, this first half was SEK 60 million for Norway. That means that we have the existing Norwegian business on the same level as module wise as last year. How big they were, they're large. One of them was ending up on a total base somewhere between SEK 100 million-SEK 200 million, I think.
Okay. All right. Then on the big swing in working capital in the, in the quarter, what is the reason behind this, and is there anything to worry about, a new normal or something like that?
The reason for that is mainly that we have higher approved incomes that have not been invoiced. Also that we have lower trade payables. This is, we haven't digged into it in detail, but it's probably had a lower production in the installation business, which would lead to a lower trade payables. These two items are the main difference.
Okay. What is this going to look like going forward? Are you going to tie more capital, or how should we see it?
No, I don't. No, I don't think there is any reason to believe that.
You also had some wording in the report that you have more focus on project selection. To me, it sounds a bit more as if you've been able to cherry-pick projects. Does this mean that the overall quality of the backlog has improved in terms of the margins you can achieve? I mean, the underlying market growth is higher than the report suggests today, or how should we square this?
I think the word cherry-picking is quite positive. I think if you isolate it to a branch in Bravida, if you have a really strong order backlog, of course you can have a small period where you haven't where you aren't overloaded with work. At the same time, you have hard or difficulty to fill that space with the new projects. You know that if you have an order backlog that you can and have to produce the coming 18 months, that of course, situations where we are more keen on trying to select the right type of customers with the right type of projects. I think, yes, from that perspective, it will gives us a better quality order backlog.
One other explanation is that we have some turnaround branches that aren't allowed to take on projects for the moment, because we want to bring down the sales. We always have a number of those branches, which is also affecting the growth, organic growth, for the moment. It is, for example, Stockholm area, where we are a little bit more careful, depending not on the market, demand in the market, but more from the perspective that we don't think we have been good enough on executing and negotiating, so we can win the right type of projects. I think that's two reasons.
Okay.
We have sport effect from the east, and of course, but that's a couple of days, and that's hard to estimate, but of course, there is some effect as well.
Okay.
I think the order, the backlog has, Yeah, I think we have a good quality order at least.
Super. Finally, on the calendar impact on top line, do you have any idea of how much that is impacting you?
I would simply say that we have a higher effect or impact in Norway, where they will often take the whole week off, et cetera, and then we have a smaller effect in the other countries. We don't have that. Let's say, I think it had been the right side of the zero if the had been in quarter one. You can do the another type of comparison. The first quarter this year compared to the first H1 this year compared to H1 last year is close to the same organic growth.
Okay. Super. Very good. Thank you. Thank you.
Thank you.
Thank you. Our next question comes from the line of Stefan Andersson from SEB. Please go ahead. Your lines are open.
Thank you. First a question on Mattias, or Gary actually talked a little about the headwind you had in the first quarter, different reasons for that. Could you maybe elaborate on how long those, at least just for this quarter, the other impacts, are they longer than the quarter, or is it just a quarterly impact?
Okay, you mean the organic growth, depending on more selective in projects, et cetera?
Are you talking about, I can't remember. You mentioned a few things.
I said that we have a good order backlog and a good position that gives us the possibility to be more selective regarding different projects and customers. That was one.
Yeah. Yeah.
Large projects are now in a less intense phase, intensive phase.
Yeah.
Also branches that aren't allowed to win any projects.
Okay. Will any of that drag on for a while, or is it mainly quarterly impact?
I think it's quite easy to answer that, because it's very hard for us to forecast, because we don't have those instruments to be able to do it. I would say that, given the nature of this business, the growth can vary from one quarter to another. Of course, it's, we have a strong order backlog, and some of the timing in the order backlog has not changed compared to the past. On the other hand, that could be an effect at least in the next quarter as well, of course. On the other hand, that could be some phases in the project that actually is more intense, that will take out the growth. Of course, it can be lagging into the next quarter as well.
In the longer term perspective, I'm not worried for the moment. I think that's the best way to answer it.
Also just double check here, you made a lot of acquisition in Denmark in the quarter, and that has burdening the margin. Quickly, if I just add on the margin for Q2 last year, would that different, as you mentioned, also, be fully these integration costs?
I think, first of all, acquisition is a really good way to create value to Bravida. We also know that the, in the beginning of, when we're taking those acquisitions to onboarding them into Bravida, it will cost something, of course. It has been shown in the number for Q2, and it will also cost focus, of course, and we know that that will have some impact on the margin in Denmark as well for the coming quarter. That's normally the effect. In the long term, again, this will create value for Denmark.
You can do your own math, and of course, we have lost some margins in Norway and Denmark the first half year in 2019, and of course, it will be tough for both Norway and Denmark to cover that within the existing year. I think we can expect slightly lower margin when we do the mapping in 2019 for those both countries.
My last question. You talked about the margin target that you have, and at the current rate that I think, with good stuff, I mean, that's abandoned, but you've been, sort of, you've been blaming the acquisitions for not really reaching that. Are you now saying that you will be able to reach that with the current acquisitions, or are you saying that you will slow down acquisitions in order to reach that? I mean, can you maybe elaborate a little bit on what you mean by seeing that target is so easy to reach since you haven't seen it, ever?
I don't think we also said it would be easy to reach, and I haven't said it yet. I think we are in Bravida, we are very keen on putting up targets that are actually a challenge at the peak. Of course, doing more acquisitions as we have decided to do, even if we're doing more acquisitions with higher margin today than we did two years ago, of course, we dilute the margin. We are making it slightly harder for us to reach the 7% target. Where we can see what we are doing in the current business, the upsides we should have, I think slightly less overheated market should maybe make it a little bit easier for us to drive the margin even closer to the 7% to start.
Of course, as long as we continue to do acquisitions with this speed, we have slightly more difficult to reach the 7% target than otherwise. On the other hand, we have improved the margin. If we adjust for the acquisitions, we have improved the margin 10 basis points every year, and we're getting closer and closer to it. We have no reason to put up targets that we already have reached. We want to reach 7% before we change it.
The way to reach it is with the current model of also doing acquisitions?
Yeah, I think we, well, we don't want to stop. I think it's more important that we continue to do acquisitions. We reach 7% margin just by stopping doing acquisitions. I think it's that's the best way to create value for the shareholders to getting closer and closer to the 7% margin as well as, and doing acquisitions at the same time.
Cool. Thank you.
Thank you.
Thank you. Our next question comes from the line of Karl-Johan Bonnevier from DNB Markets. Please go ahead, your line is now open.
Good afternoon. To continue on Stefan's question on the acquisitions, when I look at the companies you have acquired in Denmark so far this year, all of them seem to be having higher margins than you have in your legacy business. Could you just explain how this works coming into your model and becomes diluted?
Yeah, you are right. I think that supports well what I said, that we are buying higher companies with higher margin today than we did a couple of years ago. When they come into our accounting, they are charged with an overhead, of course, and the downside to them is the overhead. The upside is the synergies we can give them as a member of the Bravida Group. Of course, taking out those synergies in form of purchasing, getting them into our platform, et cetera, that will take a couple of months. We haven't been able to do that yet in Denmark. I think that's the reason. We normally, in a fast case, get the company into our platform within three months or something.
In Denmark, they have done a number of acquisitions in a short while, which means that it will take a slightly longer time. I think that's the reason. Before we have taken out the synergies, they would have a slightly lower margin. The synergies we are calculating are hard synergies, like purchasing, which is probably the fastest synergy to take out. We also calculate the cost for premises, et cetera, that will take slightly longer time before we can relocate and get rid of one contract for the premises, et cetera. In some cases, we have the synergies for administration costs, and that's also a slightly longer time before we have taken those type of synergies out. I think that's the reason.
When I look at the performance in Q2 in Denmark, it's really the sheer size of the number of acquisitions you added and then integrating them quickly that has taken the short-term profitability.
Yeah, I think that's a good way to answer it. If I'm correct, I think we have added close to SEK 100 million in the quarter, 90-plus something with a lower margin. As a result of that they are not on our platform, we don't have the same transparency regarding margin performance, et cetera, in the projects, which actually mean that we are slightly more cautious about or conservative regarding the bottom line when we put them into our quarterly results this quarter.
Excellent. Then just, how do you see the opportunity for you to source the skilled staff you need? Obviously, you continue to drive the service operation in double digits, and you have a record order backlog in the installation. Is skilled staffing a limitation for you at this stage?
I think in some places there are limitations. We can use subcontractors to a certain extent, but and also that's an explanation why we say no, thank you to some type of projects where... We don't want to take on a bigger risk in our own portfolio by selling a fixed price project when we need to use subcontractors on that are on a fixed price to us. We are in some cases more cautious where we don't think that we can use the right type of subcontract, just to the right contract type of contract, I would say.
If you sum it up, you say that keeping service growth at good positive numbers and continue to build order backlog, that wouldn't be a problem from a skilled personnel point of view, still?
Yeah, I think that's. Yeah, I say yes, on that one.
Excellent. Thank you very much.
Thank you.
Thank you. Gentlemen, just to remind you that if you wish to ask a question, please press 0 on your telephone keypad now. There'll be a further pause for questions are being registered. It looks like there are no more questions registered at this time, so I'll hand the call back to the speakers for your closing comments.
Okay. Thank you very much. Thanks for good questions as usual. Just want to wish you all a great summer, and I think, at least some of us in this room, need some vacation as well. I hope you get a great summer, all of you. Thank you very much.
That just now concludes our conference call. Thank you all for attending, even though there's thank you mind.