Good morning, everyone, and welcome to the presentation of Fasadgruppen's second quarter 2024 results. In the room today, we have our CEO, Martin Jacobsson, our CFO, Casper Tamm, and myself, Head of Comms and Sustainability, Adrian Westman. I will hand over to Martin for the presentation, and then we will conclude with a Q&A. Martin, please take it away.
Okay, good morning, everyone. I'm pleased to announce our Q2 results this morning. Some of the headlines that we will go through more in detail later are then that we see a tough competition still, especially in Sweden. However, we've seen some glimpses of hope here, especially in the Stockholm area. We'll get back to that more in detail later. We have taken measures now, depending on the results that we announced this morning, and there we have changed some of our CEOs, and we've also taken our cooperation between the subsidiaries to another level, in order to stem the results there.
We've also, for the first time in Fasadgruppen's history, started a company from scratch with the help of great entrepreneurs, and that is also a strategy that we will delve deeper into in the coming slides here. In the Q2 results, we've also seen an increase of our important covenant of net debt to EBITDA, which is above our current target of 2.5. We are working then in order to enhance that in the coming quarters here to back to our goal. And during the quarter, we've also signed a lot of letters of intent, which is great. In the coming quarters, we also hopefully see a lot of these acquisitions being signed. We'll get back to that later in the presentation.
Looking then first at sales, we had a total decrease here of 0.5% in the quarter compared to the same quarter last year. Organically, we saw some revenue down of 4.2%, which is then mainly from the Swedish operation, actually only from the Swedish operation, as Norway, Denmark, and Finland are all growing organically. Looking on the Adjusted EBITDA level, we saw a margin here of 6.2% in the quarter, compared to 9.7% in the same period last year. The main reason for the drop here is, as we've spoken about now for at least a year, the increased competition situation, which is then stemming from, we say the new build sector is heavily affected in Sweden.
With that comes a lot of, you could say, market entry participants from the new build sector going into our main market, which is the renovation market. And just to give some perspective here, we've seen at least a doubling of the amount of tenders given from new companies, so to speak, in certain areas. So that's just to give some flavor to how I mean pressured the market is at the moment. And yeah, with that said, I mean, the new build sector is not something that is new, for that it's heavily affected.
But there are, I mean, a lot of positive signs in the market with the interest rate environment, and several other of our customers stating that there is an opening in the coming, let's say, quarters. It's too early to tell exactly when, but hopefully, we've seen the worst in terms of the market. Looking at the order backlog, it was a 16% decrease organically, and there we saw actually a drop in Sweden, Norway, and Finland, but an increase then in Denmark. And I mean, there are some timing issues also on the order backlog, that is to remember. Could also remember that, the renovation markets often have shorter lead times than the new build.
And, so if the, when the new builds, start, going more active again, hopefully, that will have a positive impact on our order backlog. And, with that said, I've seen we have pretty good, foresight for the coming, say, 6-9 months in our orders. And also remember here, as we've spoken about a few times, that, some of the smaller orders or the oral orders are not included in this order backlog. We not have any extra, work in the order backlog either, so that's not included there. So remember with that. And what we also can, conclude regarding order backlog is that the order backlog margin strengthens once more, as it did in Q1.
So it's this time it's better compared to Q1 2024, as well as the same period last year. That is the Q2 2023 then. Looking at cash flow, we have a decrease in our operating cash flow, which is then mainly stemming from our weaker earnings compared to the comparison quarter. We have, as we've spoken about for let's say 6- 8 quarters in a row here, improved our cash flow, and it's a continuous work here, so we are not, of course, happy with this level. I see that it's more to be done here to improve the cash flow even further. So we are working with that continuously, you could say.
Then looking at our financial capacity and our net debt, as I spoke about in the introduction here, that we'll get back to, to see that our average interest rate in the first 6 months of this year was 6.1%. We've seen interest rate cuts, so hopefully we could see some improvements in the interest rate for us going forward. Please remember that we have very short duration, say, interest period rates of 1-3 months is the duration of our loans. But with that said, we can conclude that the net debt to Adjusted EBITDA is 3.2, and it's the same, actually, 3.2, on a pro forma level.
Of course, that is still below the bank loan agreement, which is in 3.5, which we said earlier. As I mentioned in the start, we're working then to get that back to a more, let's say, normalized level around 2.5, which is within our goal levels. So still not satisfied with the cash flow situation in general. We are working with working capital improvements and are looking forward to see some improvements in the coming quarters here. So as I mentioned, we had in this quarter our first startup, which is then in a collaboration, you could say, with us and the entrepreneurs of Elenta Solar Sverige.
For those of you who remember, we have actually a company called Elenta in Norway as well, so we are broadening that brand with more solar cell solutions. This time it's more connected to the Stockholm and Mälardalen area in Sweden. So it's actually both coming from our, let's say from Fasadgruppen, but also from the subsidiaries that is then looking for a professional partner because they're seeing a lot of tenders coming around solar cell solutions. And with this solution, we can now provide this service internally, so we're very grateful for that opportunity. And with that said, I mean, startups can be a great way for us, as we see, to complete our M&A strategy when the opportunity arises. So hopefully you can see more of these kind of startups in the future.
During the quarter, we also announced two acquisitions. The first one is called Brenden & Co, which is one of Norway's largest scaffolding service providers. And, what we like about Brenden is that they are then only, you could say, focusing on the renovation sector. We have been working with Brenden for many, many years with our current Norwegian subsidiaries, so we know them well. And they have actually developed themselves a digital system that follows up this logistics exercise, which is a scaffolding, a larger scaffolding company comprises of. So they have developed that themselves, and we have actually acquired a part of that system called Prostillas. We acquired 15% of that, and we have an option to acquire Prostillas with 100%.
We see Prostillas, the system, as an opportunity to be used within our other, let's say, subsidiaries within scaffolding and, hopefully some other of our subsidiaries in the future, in order to improve efficiency. Since this is a very, very efficient system in order to maximize utilization rates for the scaffolding and other services that we provide. So very impressed by that solution, actually. And Brenden is a very, you could say, a high margin company, and with that, we actually are looking forward to enjoy the collaboration with Brenden going forward. So we welcome them. And the second acquisition is called JJ Svets & Smide, which is located in Saltsjöbaden in Sweden. And they are focusing on steel structures and forging, complementing our other subsidiary called GAJ Stålkonstruktioner, located in Eskilstuna, Sweden.
It's actually GAJ that acquired the company, so they are a subsidiary of our company then. Very expertised within their niche, and have also enjoyed some good results. We're looking forward to improve them even further within the Fasadgruppen family. We welcome JJ Svets & Smide with a warm welcome into Fasadgruppen. As I mentioned, we also had several we have several new signed letters of intent in the quarter. With that, it's actually across the whole Nordic spectrum that we have these new letters of intent. Have some very interesting companies that we are looking forward to taking to the next level and hopefully be a part of Fasadgruppen soon. M&A, as you all remember, is part of our DNA.
Just to reflect, you could say that when we started back in 2016, it was a small group of 2 companies, and now it's more than 50 companies in the group, since 2016. So it's been a very hectic year since the inception, and we're looking forward to welcoming more of these kind of great companies into our home. Yeah. So with that said, before we open up for questions, I would like to highlight that the tough competition remains, but we see some improvements, especially in the Stockholm area. Well, to just dive a bit deeper on that, actually, is that the number of tenders that we've gotten from the Stockholm area is actually better year-over-year, which is a great indicator for us, actually.
So that's hopefully we can enjoy the better results in the coming quarters from that. And just to remember here also that when the price pressure started, it was actually in the Stockholm area that it all started. So hopefully that would be also where it turns first, so to speak. We have taken structural measures within the group and are looking forward to enjoy the results from that. We are focusing to decrease our net debt to EBITDA back to the target level and within the coming quarters. And as I mentioned, several ongoing M&A dialogues, a lot of new letters of intent signed. And well, I would say that we are very well positioned to capitalize on our long-term market drivers, especially within energy efficiency, which we have spoken about a lot of times.
With that said, I would also like to highlight our Capital Markets Day, which is now set on the 7th November, 1:00 P.M. here in Stockholm, where we will dive deeper into the acquisition journey and, let's just say, the latest market trends and where we'll be heading in the coming years. Remember, our 2028 targets, with SEK 10 billion in sales with at least 10% margin, still stands. Great.
Then I think it's time to move into the Q&A session.
Yeah.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Max Bacco from SEB. Please go ahead.
Yes, good morning. Thank you, operator. This is Max Bacco at SEB. Just perhaps starting with your balance sheet and the leverage, which is now, as you said, at 3.2. I mean, you don't seem too stressed with approaching the bank covenants at 3.5, given that you have signed several letters of intent here regarding M&A. So just could you elaborate a bit on your view on the balance sheet and your financial position? Should one be worried about that?
Good morning, Max. I mean, one should not be worried about that. As we see it, Fasadgruppen Group is a very light asset company with strong cash flows. And remember that the cash flow situation is seasonally adjusted, as you remember our fourth quarter is usually the strongest in terms of cash flow. And I would say in Q2, yes, it was an increase up to 3.2, but we had actually, I could say, some headwinds in timing measures from the cash flow working capital-wise. And I would say that, of course, the result is actually, I mean, hard to tell the future.
I wish I could, but as we see the tenders going up, some very strong market drivers around the interest rate, we also see what our subsidiaries are saying, so to speak. So I'm not worried around that. I'm actually looking forward to get past this, let's say, first half year of 2024 in order to enjoy better times ahead. So, no, to conclude, not worried around the balance sheet, but of course, sober enough to understand that this is a focus area for us.
Okay, understood. And then on the order backlog, which was down 16% organically here in the quarter, I mean, if we look back a couple of quarters since Q1 2023, the order backlog has been fairly stable, up or down a few percentage points organically. So this stands out. Is it something special in the quarter that explains the 16% drop, or is it-
Yeah, you could say that, that in Q2 2023, there were actually some large orders that it could easily have been, I mean, signed in July rather than June or so. So there are some timing issues, and it's the same here in this quarter, as some of our orders could have been signed in June or July. So, I mean, there are always some timing issues regarding the order backlog, but with that said, I'm not worried about that kind of, say, 16% organic drop in the order backlog.
Okay, understood. And then on the profitability, I mean, quite significant drop here year-over-year in the quarter. But at the same time, you mentioned that total order backlog margin continued to show a slight increase compared with last year. And you also said, I think the same thing here in the previous quarter, in Q1.
Yeah.
I mean, how should we think about that dynamic, that profitability in the order book is going in the right direction, but in the PNL, in the wrong direction?
Yeah. I mean, I mean, hopefully that the, the, let's say, trough around the margin drop is, is pretty close by in, in those terms. So, of course, it's hard to tell exactly when, when the, the trough has, has been in, in terms of, let's say, year-over-year improvements once more. But that's our best take, is that it's very close by, if not already passed.
So, I mean, to follow up on that, do you see, I mean, entering here, H2, Q3, Q4, I mean, do you see the foundation perhaps for a better profitability, at least compared to the Q2 levels, 2024?
I mean, absolutely in those terms of margin-wise, you could say. But I would say that usually, the second half of our, let's say, our financial year is, of course, the strongest. Remember that Q1 this year was also pretty weak in that terms, but we see a more normalized level in the second half of the year in those terms. So, if you just compare H2... Will H2 be better than H1? Yes, that's our best take as of today, of course.
Better than, okay, yeah, understood. Understood. And then finally, the last one, I mean, when we now enter H2 2024 and look at the price levels in the market, and then perhaps mainly then in Stockholm, Sweden, how does those compare to, to the price levels that you saw in H2 last year? Is it the same level, or is it slightly below?
You mean if the price pressure, so to speak-
Yeah
... has deteriorated or, or?
Mm.
No, I wouldn't say... I mean, same level as in Q1, so to speak, but it not any deterioration, so...
But compared to last, the second half of last year, I mean, the price pressure, is it-
Yeah
Worse, or is it also on the same level?
On the same level, I would say, actually.
Okay, understood. That was all for me. Thank you for taking the questions.
Thank you, Max.
The next question comes from Carl Ragnerstam from Nordea. Please go ahead.
Good morning. It's Carl here from Nordea. A few questions, maybe coming back to the leverage situation. As alluded to, quite close to the covenants now. Maybe if you could give an idea of the combined sales from the signed LOI, perhaps also timing-wise, when you expect to close them. And also how do you plan to finance them, if it's cash or perhaps with shares or yeah.
Yeah, I mean, it's too early to tell regarding any indication of the sales, unfortunately, Carl. But what I can say is that, I mean, regarding the financing, of course, as I mentioned, that we have an improved cash flow situation, usually in the second half of the year, and we see that this year as well. And in terms of, you could say we've already proven that our, let's say, new toolbox, where we don't acquire 100% of the company. So that's also a solution regarding this, but we still have the option to acquire 100%. So that's also one factor that one can use during these, say, times where the leverage situation is around these levels, if you understand what I mean.
And so with that said, it's a combined effort regarding how we can welcome these new subsidiaries. Timing-wise, I would say, if you just take historically, when we have a letter of intent signed, usually it takes between maybe 3-9 months before we see a signing. So that's still the same level as historically. So that's the timing-wise around that, I would say.
And taking a step back a little bit to just know your view, and that we saw a good M&A pace a couple of years back, then we saw you sort of more or less stop doing M&A in order to take down leverage. Then we saw you using another capital allocation measure in terms of share buybacks, which weren't fully materialized, I think. And now you're accelerating M&A again, when the balance sheet is quite stretched. I mean. And also, looking at the, I mean, the net financials currently are paying SEK 110 million, I mean, is eaten out from free cash flow currently. So how do you look at capital allocation? Because we've seen so many changes, I think. So yeah, what is the strategy, more or less, around it?
Mm-hmm.
What is the most creative measure, you think?
Yeah. No, but of course, it's we are a very acquisitive company in the foundation card, and I wouldn't say that if you go back, you alluded to the 2021, 2022 situation, where we, let's say, annually acquired more than SEK 1 billion in sales, and of course, that was not the level of in 2023, but I wouldn't say that it was only due to leverage reasons. It was also a good time to integrate these companies fully into our organization, and good for the company that they took the time to, after these hectic years of 2021 and 2022, to welcome them, let's say, properly in that.
And of course, with that said, the strategy is, of course, to continue with our acquisitive journey, and in terms of the allocation strategy, it of course depends on the situation. As we see it now, we see very favorable market trends. We are, for every acquisition we do, we become just a small step better than we were before. And with that said, I mean, we're looking for these new companies to be welcomed into the group, and of course, to have that in a way where the financial, let's say, situation is under control as well. So of course, we see these companies being welcomed into a professional and structured organization where we can increase the value of this company. So we're looking forward to do that with these as well.
Of course, the share buybacks, as you also alluded to, was in the autumn of last year, when we had an all-time low situation on the share price. It is also a toolbox tool that we can use, but it's up to the board to engage that once more at these levels, if needed. So we have the mandate from the AGM. But of course, at the end of the day, we are an acquisitive company. We continue to acquire the best companies within our niche in the Nordics... hopefully some other market as well, coming in the coming years, in order to reach our goal of SEK 1 billion in EBITDA, and by at least SEK 1 billion by 2028.
So SEK 10 billion in sales and at least 10% margin. So that is still valid, that goal, but, and what we are, striving to achieve.
And coming back a bit to the cash flow then, I mean, for a second half, let's say you will probably pay for Brenden and JJ Svets, right? In the next quarter, which is not shown in the net financial. What is that? SEK 100 million. Then you will have SEK 50 million in net financials, eating up further free cash flow, negative organic EBITDA growth. So how... Where do you think the leverage ratio could end up year-end? 'Cause I struggle a bit, especially when since you plan to do more M&A, depending, of course, on the timing of that. How do you plan to get down the leverage ratio with that in mind?
But of course, I mean, it's tough, unfortunately impossible for me to predict the future here. But of course, as we see the results, as is the most essential part of the, you say, the covenant here. As we see it, have the conditions to improve there. From there, of course, that's the foundation of the acquisition journey, which we've proven throughout the years. And, I mean, with that said, I would say that we will still be within our covenant level at year-end, if that's an indication, at least.
But of course, hard for me to tell the future, but we see we have the possibilities to further grow, and that's what we are aiming to do, and we see that we have the opportunity to do so within, say, a market environment, which is, of course, under pressure, but the long-term drivers are as valid as ever, and that could be a great opportunity, timing-wise, to do these acquisitions.
Okay, very clear. And you also said that you made changes for CEOs, in plural. How many CEOs are we talking about, that you made changes? And do you have an idea of what the extraordinary cost will be? I guess here in Q3 or Q4, when it's executed upon.
Yeah. I mean, in terms it's low single digits, you could say. But I would say that, I mean, we have not included those kind of costs before in adjustments. So it's too early to tell, regarding that.
SEK 2 million, I guess, is realistic.
Yeah. I would, yeah.
Okay. And you have found new CEOs internally to these subsidiaries, or is it still ongoing?
Yeah, it's. That's some solutions we've done that, some externally, so it's a mix, I would say.
Okay, very clear. Thank you so much.
Yeah. Thanks, Paul.
The next question comes from Sofia Sörling from Carnegie. Please go ahead.
Yes. Hi, Sofia Sörling here from Carnegie. I just have one last question to you. It's also about the cash flow. So expect for the more profitable seasonal effect ahead in Q3 and Q4, mainly, how will you improve cash flow even further?
Yeah. Okay. I think it was a pretty bad line, actually, Sofia, but I think your question was around cash flow and working capital improvements. Is that correct?
Yes.
Yeah. Okay. Thank you. So, I mean, so we have seen working capital improvements, let's say, during the last 18-24 months. And you say it's a mix of how we're working with our suppliers in terms of... You remember we have centralized purchasing units where we are improving the number of, let's say, days outstand- days outstanding for the payments. And so that's a continuous improvement around that. And so we're still looking to improve that even further. And of course, working with our customers and could also say, choosing the right project is very important around cash flow-wise. Tougher market environment, that is even tougher to choose the right projects.
But remember that a lot of our companies are actually making, say, all-time highs around these levels. So, with that said, they can also see some. It's not every company that's seen an increase in, on the competition, so some are actually seeing a decrease due to, let's say, various reasons, and bankruptcies could be one explanation, and fewer market participants. So, with that said, they are also in the opportunity to enjoy an even better situation than not only on, on the say, on results-wise, but also on the cash flow situation, where if you could become the most preferred partner for your customer, where you deliver excellent results, which we are aiming always to do, of course, then you can also improve the cash flow situation.
So that's one of the areas where we improve the companies that come into Fasadgruppen Group, and in order to improve this very important aspect of the game, so to speak.
Okay. Thank you.
Thank you, Sofia.
There are no more phone questions at this time, so I hand the conference back to the speakers for any written questions and closing comments.
Thank you, and we have received a few written questions as well. The first one on the leverage: do you see your debt to EBITDA ratio going down from the 3.2 already in Q3 2024? Which is your planned timeline to be back to the desired leverage of 2.5? Yeah, we can start with that maybe.
Yeah, on the first one, of course, it's, it's hard to tell exactly when we see the improvements. Remember that it's usually in the Q4, let's say Q4, Q4 seasonally, that is the best cash flow-wise. But, but so very hard to answer that question now of, around the future, if it's improved already in Q3 2024. Planned timeline, regarding the desired leverage of 2.5 goal level, I would say in the coming couple of quarters, can't be more explicit than that, unfortunately.
Okay. And then, what does the backlog decrease experience in the first half of 2024, the -15% mean for the evolution of sales, looking at the second half of 2024?
Yeah. I would say that it's actually order backlog is not the entire answer to the solutions, easily to stare at that number, so to speak. But remember, a lot of these, let's say, renovation projects, which is at the core of our business, could have very short lead times. It could be that it's raining in through the roof, it's a classic example, and the customer wants help next week or in a couple say, couple of months. And then, if it's that short lead times, it's never shown in the order backlog. And with that said, it is often where we see a lot of those kind of projects going into our sales. So I wouldn't stare too much on the order backlog in that sense.
But, I wouldn't say that that's the full indication for the half year that it should be down 15%. That's not a correct statement in my view.
Great. One final written question. What is your view on share buybacks versus M&A versus dividend? I know this is also a question for the board, but would be interesting to hear your view.
Yeah. But of course, my view is it depends. I mean, if you have your share price at certain levels, it could be beneficial to do buybacks. It could also be in terms of M&A-wise, if share price is, say, very high on what—depending on what your view is on that, to use your stocks as an payment method. And same as if, I would say, generally, a dividend is, it could be a healthy indicator for a company, but of course, as an acquisitive company, we have, in my view, a pretty small dividend in terms of, let's say, net results, 30%, which is the board's view.
So the dividend is, let's say, a healthy indicator, but could those kind of... That capital could also be used to, in terms of M&A or buybacks in another sense. So it depends, is the diplomatic answer, of course. But we want to be using all of those kind of tools in that toolbox in order to optimize shareholder value.
Excellent. But then maybe we can conclude?
Yeah. Yeah. So one concluding remark is that you could already now, actually, engage into our Capital Markets Day through an entry on our webpage, where you can register. So, it's easily to find that link through our. We actually have a new investor site. Hopefully, some of you have seen that. And there you can sign up, and hopefully, we will see you at the Capital Markets Day. So, with that said, as it is no further questions, I would like to conclude by thanking you, all the participants, all of the employees, all of our shareholders, and all of the ones that are collaborating with us.
wish to speak to you soon again, hopefully, at the Q2, Q3 presentation or at the Capital Markets Day.