Welcome to the Fasadgruppen Q4 2022 report presentation. For the first part of the conference call, participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing star five on their telephone keypad. Now I will hand the conference over to the speakers CEO, Pål Warolin, and CFO, Casper Tamm. Please go ahead.
Welcome everyone to this presentation, Fasadgruppen's fourth quarter 2022. My name is Pål Warolin. I'm the CEO of the Fasadgruppen, and together with our CFO, Casper Tamm, we will guide you through this presentation. Let's start as usual with Fasadgruppen in brief. Fasadgruppen is the market leader in Scandinavia within facade work. Facade work is a highly specialized and local market with a high level of craftsmanship. By facade work, we mean almost everything related to the shell of the building. The service offering consists of, for example, masonry, plastering, installation or renovation of balconies, installation or renovation of windows, roofs, glazing, almost everything you need a scaffolding to do. We are focused on mid-size projects in the range of 1 million SEK- 100 million SEK, with an average project size 3 million SEK-SEK 4 million SEK. At least 75% of our projects relate to renovation.
We have an active M&A agenda with the aim to consolidate the highly fragmented Nordic facade industry. The group currently comprises approx 50 businesses across Sweden, Denmark, Norway, and Finland in a very decentralized structure, with about, almost, 2,000 employees. Take a look at some key finances for the full year 2022. We have increased the net sales a lot, so we can see that we are getting closer to 5 billion SEK. With an adjusted EBITDA margin, 9.5%, close to our financial target. Actually, our financial target is over 10% over a business cycle. I'm not satisfied with the margin, but we must keep in mind that it's been an extreme year regarding the cost inflation this year. I'm more satisfied with the cash conversion. We can see that we have improved the cash flow.
I'm also confident with a healthy order backlog close to 3 billion SEK. We wanna take a look at how Fasadgruppen, how we have developed since the IPO. The fact it's been two years since we went public, it's actually a pretty nice picture that I'm proud of. First of all, if you take a look at the net sales, we have more than tripled the net sales since the IPO, and we have also almost tripled the adjusted EBITDA from 149 SEK to 432SEK. If we take a look at the earnings per share, it's more than doubled from 2.71 SEK 5.62 SEK. The cash flow is almost triple from 156 SEK to 402SEK.
Go to the fourth quarter in brief. We really had a strong organic growth, but a lower margin driven by material cost inflation. We have been able to pass on the extra cost to the customer, but not in the with full margin. We have a strong cash flow, more normalized than earlier this year. The net sales was up 62.5% compared to last year, of which 20.4% was organic. The adjusted EBITDA margin of 9%. The order backlog was up 54.6%, of which almost 13% was organic, to really see that the demand remains strong. We made 1 new acquisition in the fourth quarter and 20 in total for the full year.
I wanna take a closer look to the acquisition, first to the acquisition we made in the fourth quarter. We acquired Sydskiffer Byggnads AB, located in Halmstad, southwest Sweden. It's a very typical Fasadgruppen company, founded in 1980, focusing on renovation of historic buildings and church, specialist in schists. There's also extensive experience from public procurements. They really strengthened the Fasadgruppen in southwest Sweden. The sellers were two great entrepreneurs that I'm very proud joining our journey. If we take a look at the acquisition for the full year, 2022, it's actually been a record year in terms of acquired annual sales. 20 businesses acquired within a sequential sales of 1.25 SEK billion. We have really strengthened positions in all our markets.
We made the first entry to Finland. We have also, this year, seen very stable acquisition multiples. We have an exciting pipeline ahead with several ongoing dialogues. We're gonna take a look at the market situation. We have a stable order backlog and healthy amount of requests on all our markets, so the underlying demand remains stable. I mean, most property owners continue to follow maintenance plans. Order backlogs within new construction on par with last year. If you take a look at our subsidiaries, which have a large amount of new production, they have great orders for 23. Energy efficiency measures increasingly important for property owners, especially as the energy price has increased so sharply.
If we take the look at our 3 major market drivers, the first, housing shortage, number 2, delayed renovation needs, number 3, energy efficiency, we can, we can see some movement from one driver to another, but the total picture is very, very stable. If you take a look at the pictures, here you can see, 4 different, 4 different typical projects ongoing from different subsidiaries in Fasadgruppen, and they all come from different customer bases. A reason why the market driver energy efficiency probably will increase even more going forward is that, very recently, the European Union has moved forward the positions further. A draft legislation to be put to a vote by the European Union Parliament in spring 23.
If the legislation goes through, it will lead to all buildings within the European Union need to be at least class D regarding energy performance by 2033. To achieve the new minimum energy performance standards, the renovation rate would at least need to be doubled. We take a look at some case study for the fourth quarter, and this time we wanted to present one of our subsidiaries, Bruske & Dellér Fönsterrenovering. They founded in 1988, Fasadgruppen acquired them in 2021. They make it 20,000 window repairs each year. In many of them, they change the glass to a more energy efficient. I mean, it's very typical for a Fasadgruppen company that we help our customer improve their energy savings.
They really have a strong position in the Stockholm region, serving tenant owner association, property owners, and property managers within Stockholm municipality. They have several active framework agreements. They are also involved in many multidisciplinary projects working together with other Fasadgruppen subsidiaries. To give you some examples of ongoing new projects for 23, they have Nicolaiskolan in Nyköping, the Nobel Foundation building, and 5 projects from Stadsholmen. This was to give you a better understanding of what a typical Fasadgruppen company. It's time for financials. I will leave it over to Casper.
Thank you, Pål . I will take you through some highlights in the Q4 financials. Next slide. Strong organic pro and cash flow characterized it for the fourth quarter. We had revenues, which reached almost 1.4 billion SEK with an organic growth of 20%. We had 40 companies that were comparable out of a total of 50 companies. Adjusted EBITDA was up to 125 million SEK with a margin of 9.0%, negatively impacted from cost inflation on materials, as Pål already talked about. Our order backlog reached nearly 3 billion SEK and is up 1.1 billion SEK since start of the year. Profit for the period was 67.6 million SEK, with basic earnings per share at 1.36 SEK.
In the period here, number of shares is up approximately 9% during the year. Operating cash flow was 210 million SEK. The strong operating cash flow was due to the improved net working capital development in the quarter. We will return to above figures later in the presentation. Next slide then. Looking on our net sales, we saw an acquired growth of nearly 42% in the fourth quarter. As already talked about, this is of course due to the 20 new acquisitions that has been made until the end of the year. We also had a very strong organic growth in the quarter here, which reached 20.4%, and it is the strongest in 2022 with an upcoming trend over the quarters of the year.
Exchange rate changes had a positive effect on the organic growth with 1.7 percentage point. Besides the exchange rate changes, we have also saw essential effects from cost inflation on materials, which we estimate to more than 10% in the quarter. Order backlog, we saw a strong increase in organic growth also here, up with nearly 13%, mainly driven by effects from cost inflation on materials. New acquisitions amounted to approximately 0.8 billion SEK out of a total increase of 1.1 billion SEK since start of the year. We go further in the presentation here and look on our adjusted EBITDA for the fourth quarter. We saw an adjusted EBITDA increase of 19% on year-on-year basis with a margin of 9.0%.
As already talked about, the cost inflation for materials had a negative impact on the margin for the fourth quarter in line with third quarter this year. We have seen an increasing negative impact from cost inflation, especially in the second half of the year. Non-recurring on items amounted to 9.4 million SEK and included M&A costs with - 1 million SEK, earn out revaluations with a net positive effect of 3.4 million SEK and other costs here of 3.1 million SEK. Then we go further here and look a bit on our P&L here and some comments. In other revenues, you will find effects from positive non-recurring items, like revaluation of earn outs, which was +SEK 86 million in the quarter and +SEK 153 million in the full year.
Going further down in the P&L here, we have depreciation and amortization. In depreciation, we have acquired intangible assets which amounted to 13 million SEK in the quarter and 37 million SEK in the full year. Further down, other operating expenses. Here we find the negative, mainly the negative non-recurring items like M&A costs and earn outs. Negative effects from revaluation of earn outs was minus 89 million SEK for the quarter and 142 million for the full year. Finally, a net financial cost. Here we have an interest cost on external debt, which was 16 million SEK in the quarter and 30 million SEK in the full year. Next slide here, looking a bit on the balance sheet and leverage. We had a total balance sheet of billion, sorry. On the asset side, we see increases, of course, in brand and especially good due to the active acquisition agenda during the year. But this has no depreciation included. On the equity side, healthy increases also, we did a targeted new share issue in March 2022 which increased the equity with 410 million SEK. During the year, we have seen offset share issues on acquisitions that added a further 125 million SEK. We also had a dividend which had a negative impact of 58 million SEK. Though in total down, we are on the debt side. We are in debt for for financing instutions for 1.6 millon SEK at the end of the year and the next interest debt 1.58 million SEK
This leaves us the leverage key indicator here, net debt through adjusted EBITDA. That has improved compared to third quarter and was down to 2.5 times at the end of the year. Net debt through adjusted EBITDA pro forma was approximately 2.2-2.3 times at the end of the year. We go further in the presentation here, and we have cash flow and cash conversion. The net working capital development for the current quarter performed significantly better than last year, up with 126% on year-on-year basis. This is the main reason for the strong operating cash flow and improvement in cash conversion for the fourth quarter this year.
The change in net working capital was negative for the full year, the cash conversion improved compared to last year and reached nearly 80%. The main reason for the improvement in the net working capital for the fourth quarter is the seasonal development of the project activity during the year. A large number of the projects will normally be completed primarily during the fourth quarter in the seasonal cycle, which had a positive effect on the net working capital development for the last quarter of the year. I leave it over for Pål here to make some conclusive remarks.
Thank you, Casper. It's time for me for a quick summary, but let's start with a look at our financial target. The fact this is the fourth quarter. First of all, regarding the financial target, the revenue growth, is the annual growth of 15% over business cycle, and the outcome for 2022 was almost 70%. Regarding profitability, to have an EBITA margin more than 10% over a business cycle, and the outcome was 9.5%. Regarding the cash conversion, to achieving cash conversion of 100%, and the outcome was close to 80%. It's actually an improvement on last year, but it's still not quite there.
The capital structure, interest-bearing net debt shall be less than 2.5x adjusted EBITDA. It's the outcome of 2022 is 2.5x. Regarding the dividend policy, Fasadgruppen's aims is to distribute 30% of the group's consolidated net income. Today, the board of direction give a suggestion to the annual general meeting, a little bit more than 30%. Some concluding remarks. First of all, extraordinary impact from material prices in 2022, but more stability expected ahead. I mean, we have certainly had challenges with our material suppliers this year. We received several price increases at short notice, but now we see a completely different stability back to normal, I would say, where they hold the prices through the projects, and this gives us much better conditions.
We have stable underlying market with a healthy amount of requests, so demand is there. We're gonna have focus on margins and cash flow going forward. We have many ongoing M&A dialogues. All in all, of course, we are obviously humble about the future, because if there anything we learned in recent years is that almost anything can happen. I mean, COVID-19, price inflation, war in Europe. I also believe the way we have handled and the way we have performed the recent years and what I can see right now, I'm very positive for 2023. Thank you. We are ready for some Q&A.
Thank you. If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Carl Ragnerstam from Nordea. Please go ahead.
Hi, it's Carl here from Nordea. A few questions. Firstly, on the margin during the quarter looks a bit thin. As you said, it's partly due to raw materials, but is it possible to help us bridge the margin year-over-year? I mean, what portion of the margin drop would you say is due to raw materials solely? If you had any other headwinds during the quarter, it would be good to know. I mean, it sounds like the raw materials are starting to ease out. Is that correct? If so, when would you say that we will see a more stabilizing margin from here? I mean, looking back a few quarters here, it rather looks like the margin is accelerating downwards. Thank you.
Thank you, Carl. First question, regarding weak margin in the fourth quarter. I mean, I would say the cost inflation has a bigger impact in the fourth quarter. As you also see, the organic growth was even stronger in the fourth quarter. Perhaps I didn't expect it to be that strong organic growth, and therefore also I didn't expect a lower margin than I was expected.
Going forward, I mean, I'm very comfortable that the cost inflation has a really huge impact for us. Going forward, when we have this feeling with not only feeling, we have the knowledge about a more stable market from our suppliers, then it's much better conditions for us. It's actually not a big deal if the material price is increasing. The problem we told you this year is when they increase it with very short lead times. That was the big change going forward.
Is Q1 too early for us to see the more neutral impact from raw materials, or will it take a couple of quarters until you catch up with pricing?
Perhaps. I mean, perhaps it will take a little bit longer to find out. It's more like, you know, the first quarter is much lower activity than the other quarters. But I probably expect that we from most projects that we start this year, it look much better. The conditions are better.
Okay. Also good. I mean, correct me if I'm wrong, but it sounded like you had flat order backlog growth year to year in the quarter for new construction. Is it correct?
Yeah. For new construction, actually, the order backlog for new construction has been very strong, both a year ago and right now. I believe we mentioned that before that we're... I did it in the presentation. The order backlog for 2023 from new construction are looking very good. What happens 2024 and 2025, it's impossible for me to have any point of view or thoughts about right now.
We should expect you to deliver a flattish sales growth in new construction during 2023 then, if you see no cancellation, that is. Is it correct then?
Yeah. Yeah.
Yeah.
Okay.
Okay, very good. Could you shed some light on the demand by end market groups, if you have seen housing cooperatives being more cautious or commercial property owners, if you have seen any trends worth mentioning?
No. The only thing we really notice is on new construction side, on the residence is going down. On the other side, we see an really increasing demand on the energy efficiency, as I mentioned in the presentation here. The total picture is very stable.
Okay. That's very good. Maybe you mentioned it, I'm not sure, but I mean, leverage has come up a bit, 2.5 times. What would you say is the pro forma leverage number in your view? Also secondly, would you say that you have a good M&A headroom here entering 2023, or will you be more, or will we see a slowdown in the M&A pace here in order to delever?
No. As we said in the presentation, had a net debt through the.
EBITA.
EBITA pro forma was approximately 2.2-2.3 times. What was your next question there, Carl? I didn't.
Whether you feel that you have... I mean, with the uncertainty in the end market and with the 2.2-2.3x net debt EBITA pro forma, would you say that you have M&A headroom entering 2023, or will we see a more focus on more organic growth and more consolidation phase?
No. I mean, we have absolutely headroom for more acquisitions, but we will probably focus much more on our own cash flow. We probably will not have this exactly the same headroom as we had a year ago, but we have still plenty of headroom and can still do a lot of interesting acquisitions. Absolutely.
Okay. Very good. That's all from me. Thank you.
The next question comes from Jon Hyltner from Enter Fonder. Please go ahead.
Good morning. Can you hear me?
Absolutely.
Super. First question is on your cash flow. It looks, even when adjusting for the net working capital effect, it's a bit stronger than the P&L. I see some differences. Just to start, your tax and your interest rate are much lower in the cash flow than in the P&L. Will that come back, or is there something else behind it?
No, that's one time effect then for the quarter. The split between the quarters can be a bit different there. It will not. I would say it will not come back, I mean, later on in 2023 there. Over the year you have a correct, so more. You will see the more even number.
Okay. That's just timing effects?
That's a timing effect, yes.
The other part, when I look at the adjustments for non-cash items from SEK 48 million, it's a bit more than the depreciation and amortization of SEK 35 million-SEK 36 million. What are you adjusting for in addition to depreciation?
You mean the non-recurring items, or? Yeah.
No. In your cash flow, you have adjustments for non-cash items.
sorry.
SEK 48 million. Usually that is pretty close to the depreciation and amortization.
Yeah.
I'm just trying to figure out if you're being overly conservative in your P&L as your cash flow is a bit stronger.
No, no.
...or if there's something else behind it.
Yes. I would say it's, it looks pretty normal. I mean, when you compare over the quarters and also to last year, there's nothing different there. it's. The different parts of the these items are looking quite really quite normal.
Okay. We should just be used to the cash flow being significantly better than the, the P&L?
If you look on the cash flow as a whole of the year, I mean, we have the seasonal cycle we every year here. We start the year quite weak, I mean, and especially in quarter 1 and quarter 2, and then we have a more stable cash flow in quarter 3, and then normally a very positive cash flow in quarter 4. I think you, you saw exactly the same cycle in 2020, and then we have a slightly different cycle in 2021. Then it was an overprove for between the fourth quarter and January. I mean, if you take that together, it looked more or less the same as it, as it does for this year.
I would say.
Yeah.
This is quite normal cyclical development over the year that we see for 2022 here.
Yeah, the working capital changes, I totally understand. It's just the other adjustments, that are... Looks like you're taking more cost on the P&L than you adjust for, than maybe you should need, given how the cash flow looks.
I think you have to look on it on the whole year. Between the four quarters.
Okay.
That can be timing effects also.
All right.
So-
Sure. Get it. Then the second one on raw material, did you lose money on the raw material, or did your margin go down just because you perhaps could adjust for price with the same amount as the cost increases, but that meant zero margin on that increased sales from price adjustments?
Yeah.
Did you actually lose, money on the raw material?
No, I wouldn't say that we have lose any money on the raw material, but we haven't been able to move. I mean, we have probably moved the total cost but not with the margin. We lose margin.
Okay. Going forward, is your aim to get the margin on the price increases for raw material as well?
Yeah. It's much easier when it's not so short lead times.
Mm-hmm. Super. Thank you very much.
Thank you.
There are no more questions on the teleconference, so I hand the conference back to the speakers for any written questions.
We have received a few written questions. I think we've covered most of it already. Questions on the organic growth, we've touched upon it, but what organic growth should be expected in the near term?
That's a good question. I mean, I believe we will have the organic growth will probably go on for the first quarter. It's hard for me to say if it's at the same level, but I believe the organic growth is going for the first quarter. Then we, when we are getting closer to the summer, we will have much tougher organic growth numbers to compare with the last year. Also to the fact that it's started to be more stable, the prices material.
Two more questions. What is your best guess then for organic growth in 2023? When do you see margins going back over 10%?
I will not promise anything of that, but I believe absolutely that our, First of all, our margin, we have a financial target over 10% for a business cycle, so. That's really a focus for us. Shortly, I believe we'll reach that target again. What an organic growth in a specific numbers, it's very hard for me to say. Let's say this way. For the full year 2023, I believe we perhaps are starting to get back a little bit more to normal. I don't believe that organic growth will be in big numbers for the full year.
Great. That was the written question. Pål, if you want to conclude.
I just want to thank you all, everyone, every listeners, also a special thanks to all our employees and our shareholders. I really hope to see you all, the 11th of May, when we have the next report, the first quarter for 2023 and also our annual general meeting. Thank you.