Ladies and gentlemen, welcome to the Bravida Q2 Report 2018 call. Today, I'm pleased to present CEO, Mattias Johansson, and CFO, Nils-Johan Andersson. For the first part of this call, all participants are on listen-only mode. Afterwards, there will be a question and answer session. Speakers, please begin.
Thank you, good morning, everyone, and welcome to this presentation of Bravida's Q2 report 2018. As always, it is myself together with Nils-Johan, who will present this report for you. We start, as we normally do, with a recap about Bravida on slide 3. Bravida is the premium multi-technical service provider in the Nordics. We are also represented in around 155 different locations, and we have more than 50,000 customers. On LTM basis, we have, for the moment, slightly above SEK 18 billion in sales, SEK 1.19 billion in EBITDA, and we are around 11,000 employees. This all together gives a low risk in Bravida's business model because of, first, diversified end markets, two, low customer concentration, and third, small average contract size.
The key highlights for the quarter on next slide 4. We can summarize yet another good quarter. Net sales grew 11% to SEK 4.79 billion. Organic growth was 4%, and M&A contributed with 5%. We had growth in all countries, and I'm very glad that our service business continues to develop in a very good way with a growth at 11%. Order backlog is at a record high level, SEK 11.1 billion, and is up 6% year-on-year, despite the strong quarter last year. We have a good ordering take, especially good ordering take in Norway in the quarter as well. Regarding the EBITDA is up 10% to SEK 280 million, and margin is unchanged at 5.9%. EBITDA margin is improved in Norway and unchanged in Sweden.
Finland is in the quarter loss-making due to writedowns in projects, and we will come back to that later. Regarding the cash flow, cash flow from operating activities improved a lot to SEK 390 million from SEK 150 million, and cash conversion is at 94%. Working capital is -SEK 939 million or 5.2% of our sales, which is a very good level. Net debt, SEK 1.9 billion, roughly, and it gives 1.7 times adjusted EBITDA. We continue to do acquisitions due to the plan and due to our strategy. We have completed 3 acquisitions in Q2, adding SEK 68 million, and another 2 acquisitions in July, adding SEK 80 million.
The integration of Oras is going according to plan, and it's actually making money in the quarter again, which is, of course, something we are very happy about. On slide 5, we present our view on the market. In Sweden, we still have a good market regarding both service and installation, and the activity is good. The industry confidence indicator are at high level. Main growth drivers are public investments in buildings and infrastructure, as well as residential buildings, as we see it. We have a decline in production of residential construction that will be replaced by projects from other types of facilities the coming quarters. In Norway, we have a good market as well, driven by public investments and energy efficiency projects. Overall, the service and installation activity is good.
Market drivers are public investments and, to some extent, energy efficiency projects. I think that Norway is a bit ahead of the other countries regarding this, and this will also affect the rest of the countries further on or later on in 2019 and 2020. That's my estimate. We have a decreasing activity in dwelling construction, as everyone knows. In Denmark, good market supported by public investments and residential construction. Healthcare, education, and education buildings are driving the volumes. Construction volumes of commercial buildings increases as well. The confidence, construction confidence indicator is still somewhat below average in Denmark, and that's a bit strange, but I think that's how it has been for many, many years since the crisis 2009.
I think we have a lack of confidence in the Danish market, but as we see it, the Danish market is strong and will remain strong. In Finland, we have a stable market where the construction market is improving. We have safe increase for the construction companies, and we have stable service and installation market, and an improved industry confidence indicator. On the next slide, you can see some charts of the sales and EBITDA development for the Bravida Group. As I said earlier, sales growth is 11%, of which 4% is organic and 5% come from M&A. We have growth in all countries. The reported EBITDA is +10% in the quarter to SEK 280 million, compared to SEK 255 last year, and an unchanged margin.
which regarding Oras, we're still following our plan, and they are profitable in Q2, and we now will see an improved performance in H2, as I see it, because now some of the cost, the synergies is taken out, et cetera. We also have an EBITDA improvement in Norway, Sweden, and Denmark, but negative in Finland, and earnings per share is up 14% in the quarter. On slide seven, you can see that the order backlog is up 6% year-on-year, to SEK 11.1 billion. This is, again, a new record level, and this will support the growth, the coming quarters, of course. We have a growth between the quarters, with SEK 350 million, and it is mainly many small and mid-sized projects in the quarter.
We had some tough comps compared to Q2 last year, where we won a couple of large projects, this time we have improved the order backlog by winning smaller projects, and the risk profile in those projects are lower, and we can, in many cases, see that the prices is slightly higher as well. We are very happy with that development in the order backlog in this quarter. We have one large share order in Norway, a multi-installation project to food industry, this is our first multi-installation project in Norway. Bravida's knowledge in electrical combined with Oras expertise in plumbing and ventilation, gave us the position to win this project. Hopefully, we can see more of this in the future. Turning to the next slide 8. I think you all are familiar with this chart.
The red line shows a good and healthy development in our service business. The gap between the blue line, representing the order backlog and the green showing the installation phase, that gap increases in the quarter. This gap will support the organic growth in the future. We think with the market situation, our own order situation, we think that we will have a good position to continue to grow this business, both organically, but also through M&A, the coming quarters. Now, over to Johan and the financial part of this presentation.
Thank you, Mattias, and we start with page 9, look a little bit deeper into the figures. As Mattias mentioned earlier, we had a top-line growth of 11% this quarter. Organic growth contributed with 4%, and M&A with 5%. We also have a positive impact from currency. This came from the weak Swedish krona, and we have currency effect in all 3 countries, but it's highest in Denmark. The impact was 2% this quarter. If you look at the bottom and look into the earning per share, we see the earning per share is up 14%. It's higher compared with the EBITDA improvement of 10%, and the main reason for this is that we continue to see an improvement in the financial net. We have lower debt compared to a year ago.
We have improved the margin, and this quarter also, we have a positive currency effect in the financial net. I would like to highlight one thing in that we have a higher cost this quarter for a long-term incentive program with SEK 5 million, and this is the main reason for this is that we have higher social cost. The share price went up from SEK 58, SEK 60 to SEK 70. When we deliver the shares to the participants, and we have to pay social cost on the higher value. This is the one reason why we have this, so to say, extra cost this quarter. We go for next slide and start to talk about the different countries. Sweden, our biggest market, continue with a solid development.
We had a top line growth with 4%, and this is mainly organic growth. EBITDA margin was unchanged with 6.5%. If we give a comment about the order intake, that was -10% in the quarter, please remember that last year, in Q2 in Sweden, we reported a couple of large projects, like a big hospital. We also had schools coming in, and we also had a big order to the mining industry. The comps are tough for, in Sweden, for the order intake. Also, as you know, we have the order intake will jump up and down in a specific country from one quarter to another.
If you look at the order backlog, is minus 2 compared to a year ago, but it's up with SEK 160 million compared to the end of Q1. We go to Norway, and look for next slide, and we also have a good development, a good growth in Norway this quarter. Top line was up with 10%. Mattias talked about Oras earlier, you know that the year before we bought Oras, it was a loss-making business. In 2017, we reported a break-even result, and now both in Q1 and Q2 this year, we had a profit. At the same time, we continued to improve the quality in the business and phasing out poor performing projects.
We have had this for us now for a year. This, this, of course, having a negative impact on the organic growth. We also closed two branches that has been underperforming for a quite long period, so it was quite easy for us to take that decision. Most likely, you will see that this will have a negative impact on the organic growth through 2018. We hope that we have phasing out all these products and the impact on the closing branches will end it this year, not impact 2019. In the quarter, we had a small or negative organic growth in Norway. The positive thing, we've taken this action that is that we see an improvement in the margin.
The margin improved in Norway this quarter from 5.5% up to 6.2%. Oras, of course, was one reason, but also if we look into the underlying business, the old Bravida, so to say, the margin increased from 6.4% to 7.6%, so an excellent development in the business in Norway. We also, if you look into the future, we see that the order intake is up with 83% this quarter, and there is one large order coming from the food industry. The order backlog is up on year-on-year basis, up with 21%. Going to Denmark, next slide, as we said, both in the Q4 report and the Q1 report, that we expect that Denmark will have a good development.
We see now that the top line is up with 25% in this quarter in Denmark, and it's mainly organic growth. We have had a couple of larger product, mainly hospital product, that we have had a slow start. This product is now in production, and we are... Of course, this is one of the main reason why we still have a such a nice growth in Denmark. As normally in this larger product, we use, we are slightly conservative in the beginning of the product, not to having negative impact in the end of the project. We see that the margin coming down from 5.0% to 4.7% in the quarter.
But anyhow, the EBITDA is up with 18% in the quarter if you look for the EBITDA money. Order backlog, in line with last year, it increased with SEK 54 million in comparative to Q1. We expect that the development in Denmark should continue to be good, and we have also a good market position in Denmark. Looking for Finland, next slide. Also in Finland, we had a good growth this quarter. The top line was up with 56%. The main reason for this is the acquisition we did in January, Adison, but we also have a good organic growth this quarter. If you look at the EBITDA and EBITDA margin, we reported last year in second quarter, small profit.
This quarter, we have a loss for SEK 2 million. The new division manager, Marko Holopainen, have done a review of the product portfolio and looked through them and have taken a more conservative approach that have adjust the forecast in the product, and this have had a negative impact on the profit this quarter. If we look into to the order take, it's minus 13%, 1 3, but the order backlog is up with 25% year on year. If you look at the volume, the growth we have had is 56%. Of course, we are coming closer and closer to the critical mass we have talked about earlier. We start to should be able to deliver profit in the near future.
If you look for next slide and give comments to the acquisition activity we have, we have so far this year, we have finalized 8 acquisitions, 6 in the first 6 months, and we also completed 2 acquisition now in July, adding another SEK 85 million in sales on these two. If we look for the activity level going on today, I think we have never seen such a high activity level as we see today. There is discussion going on in all countries, negotiation and discussion going on in all countries except Norway, because still we want that the Norwegian organization focusing on integrate Oras in a good way.
As Mattias said earlier, we are convinced that we should be able to continue to grow through M&A in the coming periods. Next slide, some comments about the net debt and the cash flow. We had a strong cash flow in the second quarter, taking down the net debt to SEK 1.896 billion, and the net debt compared to the EBITDA is down to 1.7, compared with 2.2 a year ago. If we look at the bottom, we see the operating cash flow, and we are the last 12 months, we have generated close to SEK 900 million in operating cash flow, and more or less the same figure 12 months before this period.
If you look at this operating cash flow also include tax payment. If you look at the last 12-month period that ended in June this year, we have paid SEK 196 million, compared with SEK 124 million, the 12-month period earlier. If we adjust for this and look into the core operating cash flow, we have a operating cash flow for the last 12 months of SEK 1.08 billion. This have, as you see, the cash conversion increased also in the second quarter, now we are close to the financial target. We are up to 94% in cash conversion. A continued strong cash generation in Bravida. A few comments on the financial target. Top-line growth, we are committed to drive this with 10%.
It's a combination of organic growth and M&A. EBITDA margin, we would like to take the business to margin of over 7%. Cash conversion, as I said earlier, should be around, about 100, and we would like to pay out over time, 50% of the net profit. Look at the balance sheet, the target for the leverage is that we should have it around 2.5. I hand over to Mattias to summarize.
Thank you. I think we can be quite happy with this quarter. There are some things I want to highlight, and of course, the service growth at 11% is something we are really happy about, and that will create some business for the future as well. The installation order backlog, and remember that this is only installation that includes this order backlog. The service business that we will do is not included, but we have order backlog at SEK 11.1 billion. The M&A execution is on track with a healthy pipeline, and the activity, as Johan said, is higher than ever. We have added SEK 300 million in 2018, and we have a stable, as we see, it's good market continue conditions to continue.
On top of this, sale increased 11%, the EBITDA margin unchanged at 5.9%, net debt at 1.7x EBITDA, and we have a strong operating cash flow at SEK 418 million, a cash conversion close to the target at 94%. Overall, a quarter where we think that the business develops as the, yeah, due to the plan, and, we have a quite positive view on the coming quarters as well. I think, said that, we can open up for some questions as well.
Thank you. If you have a question for the speakers, please press zero-one on your telephone keypad. Our first question comes from the line of Fredrik Svanström from Nordea. Please go ahead. Your line is now open.
Thank you very much. A question on the LTIP cost. Is this something that will continue for other quarters as well, or is it isolated to Q2 alone? Do you have any other extraordinary costs in this quarter?
Yeah, no, the LTIP is we normally don't comment this, but we have this extra SEK 5 million this quarter, and normally we take the cost every month for this. We have three program running now, but as we have, the share price went up from 58 or 60 up to 70. We have to recalculate the social cost, and because when we deliver these shares to the employees, to the participants, we have to take the cost this quarter. Normally this is in the figures that we have. You can say any other extra cost, of course, there is things going on in a group like us. We have always some products where we have challenges in, but that's nothing we would really like to highlight.
Right. On the order intake in Sweden, now it's down, and the range was as in Q4. Is there any timing here or which particular segments are slowing, and what do you expect here?
I think that we saw that the order backlog increased in the second quarter compared with the end of Q1. As I said earlier, that why we see 10% in Q2 is, the -10%, is that we have a good order intake in the beginning of last year, and specific in Q2, where we reported a couple of large orders. We don't see that there is specific segment, we don't see that really that many people talk about the residential, of course, it's slowing down.
As we said, we see also, as you see from other company who has reported that the renovation is picking up, and as we said earlier, we expect the renovation will take the new build residential market. Again, please remember that our exposure to the new build residential is limited, and it's still only around this 1% in Norway and in Oslo and Stockholm.
You're closing some branches now in Norway, which had negative profitability. What are the margin implications here, and do you have other ones like this in Norway or in the other countries that you could close as well?
I don't think we want to answer the margin effect or impact of that, this is what our model is all about, the decentralized organization, where we need to close down branches when we don't have the right market support or the right management or are not good enough to deliver what we actually in line with our ambitions. On the same time, we open up a couple of branches in other places. This is very much what our model is all about. That just shows us that the management in the line is doing their job.
Very good, thank you. And on Finland, I mean, without adding scale through new M&A in Finland, what is an achievable margin for you in this region?
Yeah, I, it's quite early to say a specific target on that one, but that we can do much better in Finland, we know that one of our biggest competitors or peers is doing very well in Finland, and I think that's at least tells me that we can do the same. Of course, we need a slightly bigger scale. We did one acquisition at the beginning of this year, taking us to around SEK 1 billion in sales. I have already said that we need to at least be at around 1.2 to yeah, to have a start on using our scale. 1.5 is probably the, an even better level, of course. We need to be slightly bigger to reach the full potential regarding the margin.
That we can improve the margin in Finland, that's definitely sure. We have said that we should have a better second half of 2018 than the first half, of course, and that's something we are quite confident to deliver as well.
Thank you very much for taking my questions.
Thank you.
Just as a reminder, if you do wish to ask a question, please press zero one on your telephone keypad. There will just be a brief pause while any other questions are being registered. The next question comes from the line of Lucas Ferhani from Deutsche Bank. Please go ahead. Your line is now open.
Yeah, good morning. Actually, sorry, it's Tom Sykes calling. I just wondered if in your major markets, you could go through what the difference between the order intake in the public and private sector is, and maybe in your growth, what the difference between the public and private sector is, please? Then, just go through perhaps what some of the wage and raw material pressures are for you, and how you're trying to mitigate those, please.
Yes. Hello, if you look for the prices, and on material and on the wages, salary, of course, we have in Sweden today is a weak Swedish krona, and that, of course, creating pressure on the material prices, mainly that are based on raw materials. Of course, the supplier would like to increase the price. We try to push this back, and we also know that... We see there is a pressure on this, but we are fighting with it, and we don't see that it is really an issue for us. On the salary level of wages, the good thing is that everyone belongs to the union.
Compare with, if we, with our competitors, more or less everyone have the same increase. And we, of course, short term, there could be a pressure on the margin, and on short term, I'm talking for a couple of months, when we have a fixed price contract. But overall, we are quite good in passing on this to our customers. It's not really, that's nothing we really talk that much about internally.
The raw material costs, are there must be a percentage of your contracts where you can just pass that through, rather than it being obviously a fixed price contract, and presumably that is contributing to your growth now as well as volumes.
Yeah, we of course, there is a component of the organic growth. The organic growth is a, it's a two-part.
Yeah.
It's volume, and it's inflation. It's really hard. There are so many products, there are so many components, so it's really hard, closely impossible for us to calculate what the price component is. Of course, it's a combination, and it's a smaller part that is inflation, and we have also some volume.
The inflation you're seeing, you're basically saying that's not margin negative now, even if it's helping the top line?
I usually-
It's not margin negative.
I usually say it like this: We don't think that our margin expansion will come from price increases to our customers, because that's something we need to find some of the increases we get regarding raw material, et cetera. In practice, we work like this. When we have the tendering meetings, we discuss each different project, in what time, the timing of the project, and then we calculate the salary increases and raw material increases in that project as well. Of course, in one part of the portfolio, we also have index clauses in the contract. It's quite tough to answer that question specifically. We are discussing a project that will last for the next nine months or the next 15 months, how much impact will we have in increases in different?
Yeah
Factors, and then we price that to the customers.
Okay, thank you. Is it possible to give a view on public sector versus private sector growth and whether your strengths in the client base? Because obviously for the smaller contracts, it's a little bit difficult to tell where the strength by kind of end markets might be. Maybe if you could give us a view as to what verticals are particularly strong for you, particularly in the smaller contract area, I think?
Yes, yes. If you look for the public sector, it's, I think it's more strong in all countries we are in. We have, we are, we see it in good growth in Norway, coming from the public sector, both from hospitals, from infrastructure projects. In Denmark, it, the public sector have been the main driver for longer period now, both from we have been, have done a couple of hospitals in Denmark. We know there is infrastructure. Now in Denmark, we see also that the residential market is picking up, and will also start to be a driver for the demand. In Sweden, I think we have overall a good demand situation. We know that the residential is coming down. The new build residential is coming down, but there is both, from the public sector, a large demand on schools, hospitals, infrastructure project, et cetera.
If you look specifically then at the Swedish, Sweden breakdown, is in this set of numbers, is your private sector business up or down year-on-year?
I think we try to do this calculation on a yearly basis.
Okay.
I don't have updated figures for Q2 specific, actually. Sorry for that.
Okay, all right, no problem. Thank you very much.
Yes.
As there are no further questions, I now hand back to the speakers.
Okay. If we don't have any more questions, we just want to thank you all for calling in and listening, I hope you will get a great day. Thank you very much.
Thank you so much.
This now concludes our conference call. Thank you all for attending. You may now disconnect your line.