Earnings Call: Q3 2020

Nov 11, 2020

Thank you very much, Evelina, and welcome to our Q3 of 2020 report. As mentioned, my name is Johan Andstrom, and with me here today is our CFO, Karl Sverick Meijer. And then I suggest we dive into the report. So next slide, please. Just a brief information about green landscaping. So green landscaping today is the leading Nordic landscaping service provider. We have presence in Sweden with 24 entities and in Norway with 3 entities. The way we operate in terms of our structure, it's a highly decentralized structure, meaning that we are close to the customers on a local basis, and we have a localized decision making. So we depend heavily on the decentralization idea. We have a very diversified contract portfolio with multiyear contracts, which gives us, I would say, a good visibility in terms of revenue and also profitability moving into the future. We have an active, I would say, M and A agenda. And we have so far this year completed 6 acquisitions. So I would say that we are growing quite nicely in terms of acquired growth. So that's in breed is green landscaping. So let's move on to next slide, please. And that's our key financials for the last 12 months. So right now, we are approaching SEK 2,000,000,000 in revenue. We have an EBITDA of SEK 83,000,000. That gives us an EBITDA margin of 4.2%. They have a very healthy backlog, order backlog, close to SEK 4,000,000,000. And so far, we have had an acquired sales amounting to EUR 420,000,000. So as I mentioned, we have a very active M and A agenda. And then we move on to next slide, please. And that means we are moving into the Q3 highlights, and we are pleased to present a strong development in the quarter as sales is up as well as profitability. And we have also, as I mentioned, acquired 2 more new companies. So that means that we had or achieved SEK 551,000,000 in sales for the quarter. We had an EBITDA of SEK 40,000,000 and that gives us a healthy EBITDA margin of 7.3%, which we are quite pleased with. The net sales growth were 12.1%, and that is also a healthy development. Organic growth was 0.5%. And if we compare the organic growth with comparable entities as we I would say we removed 1 entity loss making entity in the beginning of the year. So if we adjust for that one, we had an organic growth of 3.5%. And that is pretty much in line with, I would say, a normal market growth development, excluding any effects of COVID-nineteen. EBITDA amounted to SEK 40,000,000, as I mentioned, compared to SEK 29,000,000 last year, and that gives us a healthy increase of almost 40%. As mentioned, the EBITDA margin was 7.3% compared to 5.9% a year ago. Cash flow was a negative SEK 30,000,000. Dollars The reasons why that one was negative are 2 folded. Firstly, there is a seasonality effect, meaning that we start up new projects in the Q3 and that consumes cash for us. And also, we have during the course of the year upgraded some of our IT infrastructure systems, and that means that we have had a delay in invoicing going out to the customers. And we are, of course, in the process of remedying that situation. So we don't consider that being a major problem, but of course, it needs to be sorted out before the end of the year. Net debt amounted to SEK 7,700,000 and as also mentioned that we have acquired 2 companies in the quarter, CH Amlag and Hardland, both in Norway, which welcome to the group and are very happy to have as partners going forward. Next slide, please. Just a few words on the COVID-nineteen situation. As we are, as everybody, I would say, in the society, impacted by COVID-nineteen and its effect, and we take it very seriously. In terms of operation, how we manage the situation, I would say it works in a good way. Most of our work is done outdoors. So from that perspective, I think we are in a rather good situation even though we have several activities inside the company to make sure that we do not spread the COVID-nineteen as we are trying to be cautious. In terms of customers and revenue, we see that there is a slow the business is somewhat slow because of the absence of meeting. And that means when we can't meet with the customers, we can't get additional work and we can't get the contracts done. It's not that it disappears or it's a major difficult to us, but it slows the whole process down when you can't have fiscal meetings. Everything takes a little bit longer. So to some extent, we can see that it affects us or we have a slight negative impact in terms of revenue and deal making because of the COVID-nineteen situation. But it's we are talking about a couple of percentage here, not more. So that's pretty much about the COVID-nineteen situation. Next slide, please. As we mentioned, we are growing by 12.1%, and we are quite happy with that growth. It's a high growth company. Primarily, it's driven by acquisition, and that's a central part of our strategy, and it works out nicely. So 12% growth in this situation is a healthy sign, I would say. The organic, we mentioned that 1 on €500,000,000 So we're still growing organically, but not as much as on the M and A side where we are very active. Next slide please. And coming back to the growth here and not going back too much down in history here, but if we look upon the last 12 months for the Q4 of year 2017, We were roughly at SEK 800,000,000 SEK 850,000,000 in yearly revenue and have grown quite steadily ever since. We made one major acquisition in the Q4 of 2018, and that was sent mark service, and they had a revenue of about SEK 800,000,000 with, I would say, a very low profitability. So the growth ever since up to the Q4 of 2019 is pretty much that since Smart Service came into the business. In the meantime, we have had some development on the profitability, but we spent, I would say, the large part of 2019 on integrating SENSE Smart Service and improving the profitability on that company. And that's pretty much what we see in the picture here that the profitability didn't change that much even though we incorporated SEK 800,000,000. Dollars But having SunSmart Serves as part of the group meant that we became the clear market leader in Sweden. And that's the platform that we built, and that's one of the reasons why we have been successful in Norway. That's because of the platform we were able to build in Sweden. And then of course, as I believe everybody knows, we had a very mild winter in Scandinavian countries in the Q4 of 2019 and in particular, the first quarter of this year. And that's why we have some setback in terms of both revenue and in particular, we'll say, in profitability. And right now, we have the 2nd quarter and the 3rd quarter where we show very good progress in terms of both growing the company and in particular growing the profitability. So we're kind of happy with the trend where we're heading at. So I think that concludes this slide. So next slide, please. Okay. Order backlog. As you can see, it's up to almost SEK 4,000,000,000 and it's up 27% compared to Q3 last year. The growth in the backlog is primarily driven by acquisitions. And in specific, it's Hardland Mackindrift, which has large and long contracts. You can also mention that we do have a very large portfolio of contracts. It's thousands of contracts. Typical contract is 3 to 5 years with a few extension years. So it's a strong development. Next slide, please. On Page 9, you can see example of one of the recent projects we've worked on. And this time, we will mention a project by Trondemo, Tecotschenst. It's quite large construction work. It's a warehouse for Neli.com in Brovos. This is an online retailer. And this project is SEK 10,000,000 plus in size. So this is a bit unusual, but it happens. So this is to give a sort of a flavor of the type of work that Trondheim will take a chance to performs and delivers. And we can move on to next slide. On Page 10, we show a second example of a recent project. This is our subsidiary, Jacksons Tradeword, launching a sub brand called Ravenwood. And this is created through demand from customers and skilled employees at Jacksons. And this is interesting because we managed to recycle or use deadwood and create these furniture, art projects, landmarks, meeting places for all park and forest lovers out there. And this is also also you can mention, this is part of a circular business model where we reuse the material and create value. So it's quite interesting. We've done a little bit more than 5 projects so far, and there's a strong interest and demand going forward. Next slide, please. We have a this is the segment slide. So we see healthy performance, a healthy margin in 4 out of 5 segments. As you can see, our biggest segment is Region West, which is 41% of sales in the quarter. Also, we have profitability of between 8% 11% in 4 out of 5 regions, which we are quite happy about. Of course, we see that Region East is not in that league and is a mere 0.8% in profitability. And this is, of course, being addressed. We can see progress in, I'd say, 5 out of 6 of the units where one is not out of the woods yet and more actions are needed. You can also say and point out that Region Mid, of course, has a quite low margin year to date, but they were severely impacted by the mined winter during Q1. Moving on to next slide, Page 12, financial position. And in terms of leverage, our net debt to EBITDA pro form a is 2.9, which means that there are room for continued acquisitions. In this quarter, we have we usually tie a lot of working capital. We did so last year and we did this year. And this, of course, impacts the cash flow in the quarter. And so we expect net debt to come down going forward. Cash flow from operations, as Johan mentioned, was minus CHF 13,000,000. But on year to date, the cash flow is positive with €76,000,000 from operations, €76,000,000 I'd like to mention, we did the rights issue of SEK150 1,000,000 in the second quarter to be used for acquisitions. And we have so far year to date used SEK 202,000,000 for acquisitions. Next slide please. Over to Yes. Okay. So back again. Talking a little bit more about the acquisitions we have done. So far, we have done 6 acquisitions in this year, and they combined have a revenue of SEK 500,000,000. So I would say it's a quite substantial both in terms of number, but in particular in terms of the revenue they bring with us. So the companies that have joined the group, it's Gaston T Manor, who came in the Q4 in Norway. We have Parkinsu. In the south part of Sweden, we have TAH Andleg that came in, in the Q2. And then we have Hartland, who came in, in the Q3 and then Bengtsson's Trego Sanddagnya and Overland, who came in after the closing of the Q3. So those are the 6 companies. Talking something about Pakisud, which is a quality company. They are based out of Helsingborg down south. It's a consultant company, meaning that they lead projects. They actually do physical work as well. In particular, they are focusing on landscaping architecture, design and among the Swedish church is one of their big customers. It's not a super big company. They have an annual revenue of SEK 30,000,000 SEK 13 employees. But they have project capacities. They basically do anything from starting point of a project through the cost and the design phases and down into the execution part of it. And they are quality same time, we At the same time, we acquired Gust Antopenau in Norway, and they are headed by 2 gentlemen here, Lars Ola and Paul. And we are quite happy with having them coming into the company. And they have, I would say, strongly been part of the success we have had in Norway as they had a wide spread contact network in Norway. They have a solid reputation. So they have it was a good first move into that particular market given yes, it was good to come in the market together with them. In terms of size, they had an annual revenue of SEK 85,000,000 and they are quite profitable. So it was a very good addition having Gust coming into the group. Further on, we had T. H. Anlek, a smaller company who worked together with Gus. They were well known. They had discussions about them coming making one company, so to say, and then that was executed down the road. So they are nowadays a part of Gasdan Panau. Moving into the next slide here. Now we are at Hardeland, Mafriendrift. At Hardeland Mafriendlyft, it's a slightly bigger company. They have an annual revenue of SEK 200,000,000. They are doing, I would say, street maintenance in the Oslo region. They have several contracts with the city of Oslo and municipalities of Hardeland. And they basically do anything from snow removal during wintertime to payment and refurbishment during the summertime. So they are a service provider taking care of the roads in the regions. Similar to what other companies do in green, but we do it on the green side, These guys are doing it on the road and maintaining the roads. So we're quite happy having this company being part of Green Landscaping Group. Next slide, please. Moving on to the financial targets. We have a financial target of growing 10%, and we are on track on the 10%. In the quarter, we are, however, growing by 6.7%, Not a major difference there. In terms of EBIT, we have a goal mid term goal of 8%. We are right now at 4.7%. So we clearly have some more work to do there even though for the last two quarters, we have shown that we are moving, I would say, quite rapidly towards our 8% target. The financial leverage, the goal is 2.5 times. We are right now at 2.9 times. And as the company comes in and they are profitable, we expect this number to start to decline for the coming quarters moving into the future. And then we had a 40% dividend. And so far, we have not made any dividend as we are growing quite quickly, I would say, through acquisitions. And it's a trade off between the dividend and the growth rate we have. So right now, we are focusing on growing the business in Sweden and growing the business in Norway. Next slide, please. And that brings us to the last slide here that we are presenting a quarter with strong growth and a significant margin improvement and 2 more acquisitions. So that means we are growing by 12%. We listed the EBIT margin by 1.4 percentage. And in total, we have made 6 acquisitions year to date. So we are quite happy with the performance here in the 3rd quarter. And I think that concludes the report per se. And then we open up for questions. Thank We have a question from Daniel Lansant from FCB. Please go ahead. Your line is open. Hi, Johan and Karl Friedrich. Dan from Essendon. A couple of questions from my side. First question, is it possible to quantify the EBITDA impact on the close down of the unit within Virginiz, just to get a sense of the underlying margin in the segment? Also, have you taken most of the cost now? Or will there be a small impact also in the forthcoming quarters? Thanks. Hi, there. Johan here. Can you please rephrase your question? I missed the first one there. Yes. Sorry, I'll take it again. So is it possible to quantify the profit impact from the close down of the underperforming units within region is just to get a sense of what the underlying margin is in this segment? Also, will it take some more costs related to this or in the coming quarters? To start with the last question there, in the previous year, we had worked with adjusted EBITA, meaning that we have, so to say, adjusted for businesses that is not healthy or when we integrated quite heavily from Transmox service. And then we made a decision saying that moving into 2020, we will not report adjusted numbers anymore. That means we will take any cost in conjunction over the result as they appear. And we have not disclosed the cost per se. It's taken over the as a running cost, I'd say, over the results. So we are not disclosing that type of information. Okay. Thank you. And going forward, I think there is, as I mentioned, more work to be done. We see an improvement, but there is more work to be done. And the second question, in terms of M and A, 4 out of your 6 acquisitions going forward also will be in Norway? Do you still see good opportunities to do more also in Sweden? Yes. Yes, I would say that that's fair to assume. The reason is really that we started out with Gust and before we made that acquisition, we made the assumption that there would be the possibility of acquiring a couple of companies in Norway. Then we were very happy with the inroad we did in Norway. And I would say that we have a healthy list of companies that we are in discussions with in Norway on them being a part of the group. So yes, there are a few companies we are in contacts with in Norway. Sweden is to some extent we consider it to be mature in terms of that we have a good market position. We have an ongoing dialogue with additional companies in Sweden. And we assume it's hard to say a number, but I would say something like 3, 4 companies a year going forward in Sweden. While we are in a peak situation where we build up the market in Norway. And eventually, that will become a new home market. And then I believe that the frequency of acquisitions will normalize in Norway. But at this point of time, I would say it's a fair assumption saying that, yes, it will be a few more companies being acquired in Norway. Interesting. Thank you. Another question on M and A. The latest acquisition of Overland, the company is located in the south of Norway. Will you build further on that platform? And will this part of Norway together with Oslo be the focus area going forward? Or do you see scope to expand to other parts of Norway as well? Yes. We see that we will have one cluster of companies, if you like, in the Oslo region. And if we are successful and adding other companies, which is the plan, in the southern part of Norway, which Overland is located. So yes, the intention is to add a couple of more companies together with Overland, so they will make a new cluster in that region south of Oslo. Okay. Thank you. And one last question from the on the order intake. The COVID situation is obviously an obstacle in terms of meeting customers. But at the same time, your organic growth improved compared to Q2 and was 3.5% adjusted for the closure of the unit in Residenizt, which is, in my view, at least a quite solid number. Is it possible to gain some more flavor on the order intake in the quarter? Did it improve compared to Q2? Are you winning more businesses? What's your feeling about organic growth for the coming quarters? Now we don't give forecasts in that perspective. But as I said, the COVID situation is like a wet blanket on the business. I shouldn't overemphasize it, but it makes it harder to meet with customers. And typically we have to meet with the customers in order to gain business. So as long as we have a situation where it's hard to meet even though, of course, we meet through Teams and other technical medias. So there's an ongoing business and the business is solid, but there it's a bit slow given that you can't have the fiscal meetings. So we see that we have projects that are being pushed into the following year and so forth. So we are not badly impacted by the COVID situation. But we are we see that it's a bit difficult, yes. But I mean the mainstay of our business is ground maintenance and smaller additional works and that continues to a large extent, I mean, and hence slow growth that we're seeing. And I think it's worth to mention that we've studied or know what happened during 2,008, 2009 and 2012, where we saw that the growth rate the market stopped growing, didn't decline, but stopped growing. And then the growth kind of started again afterwards. Maybe this is the situation again, we don't know, but Okay. Thank you, Johan Karl Friedrich. That was all my questions for now. Thank you, Dan. Thank you. We have a question from Sreedik Muregard from Pareto Securities. Please go ahead. Your line is open. Thank you, and good morning, everyone. First of all, trying to bridge the EBITDA development in the quarter, is it possible to give some indication of how much acquisitions contributed? Hi, Fredrik. Johan here. Do we disclose that information? I'm looking at what I call Fredrik here. You can see that the I mean, in terms of profit region, West is, of course, improving a lot. And of course, some of that is from our acquired businesses during the year. So I think it's a like we say, it's a mix of the synergies from Saint Mark's service, the kind of organic development in all our existing customers of becoming a little bit better every year and, of course, the acquisitions made. And so I think it's a mix of those. But it's fair to say that the development of the acquired companies are on the average positive. So we're happy with the performance from each and one of the acquisitions we've done. Okay, sure. So positive mix from acquisitions coming through in the margin then? Yes. Also, is it possible for you to quantify the government support that you received that you talked about in the report? What sort of impact has that had on your P and L? It's very limited during the Q3. Okay. Are we talking about EUR 1,000,000 or EUR 2,000,000 or even below that? No, no, no, no, no. I mean, we have it's in the range of a few 100,000 or something like that. Okay. That's very encouraging. Then I mean, obviously, this far, you said you have had some negative impact from the pandemic with regards to discussions with customers and perhaps some hesitations from customers. With regards to spending their budget and so on, coming into the Q4, where budgets are usually spent at the end of the year, is it possible that we could see some sort of catch up effect during Q4? Or have there been, so to speak, midyear budget cuts for your customers? Given the discussions I have had with the CEOs for the entities, I would say that there are few who have reported that there are budget cuts and of course that to some extent, will have a bad impact on the revenue in the Q4, but it's a limited number. For the remainder, I would say it's more or less business as usual. They have their budgets. They are very tightly linked to the budgets. So on I would say on the average, there won't be to the best of my knowledge today, any significant change in the behavior from our customers. And by that, we don't expect any atypical behavior in the 4th quarter. There's a couple of customers where we know that they are budget cuts and they are careful with spending their money. But it's a limited few reports we have had so far. Most of the customers we are in contact with are more or less business as usual in terms of the budget. Okay. And lastly for me. Obviously, you had you started to see negative impact from the mild winter in Q4 last year, and it got even heavier in Q1. Just thinking about Q4 this year, this is so far starting off quite mild. When should we or when do we need to see to start to see more of a normalized, if I dare use that term, winter in order for you guys to improve your Q4 results from last year? I believe that we are working very actively on changing our business model. I cannot change the temperature. I wish I could, but we all have to accept that, okay, we have to prepare the company for mild winters going forward. So when we plan the work in Southern Park, for instance, and we talk about budget internally, then we basically say that we don't calculate for any winter whatsoever. So how does the company look like if we don't have any winter activities and what can you do instead? So that means that they are focusing on projects, landscaping projects, making sure that they have those orders and the relationship with the customers that we have the capacity to execute that type of work. So I would say that we are, in some cases, changing our business model. And in southern part of Sweden and also in the most eastern sorry, western part of Sweden. That's the same type of discussion we have with entities over there. It's more complicated in, I would say, the central Sweden and the east of Sweden because there we usually have winters. We have the large winter contracts. So they are still, to some extent, exposed. Even though we are changing, I do not see that there will be a material change for this winter in those entities. And also given the recent companies that have been part of the group. And this is by design that we have by purpose acquired companies who are more into landscaping services. And that means that if they don't have any winter, they actually have a good progress with the customers. So we're looking upon GASP, you look upon banks on down south and to some extent actually, Heartland. Those are example of companies who have a good business if you don't have any winter effect whatsoever. So it's a kind of a hedging we are doing there that if it comes a very strong winter, then we have contracts that would benefit from it where we have other entities who will not perform as well. But if I have a mild winter, we have new companies who have joined the group and they will benefit from a mild winter compared to a year ago. So down south on the in the Gothenburg area and the new companies, those are the changes we have done to the business model. Okay. So it sounds to me like even if there is a very mild winter comparable to the last one, we there should be good reason to see some sort of year over year improvement at least? That's the preparations we have done, and that's my expectation that, that should be the case. We should not be as badly impacted this year as we were the previous year, given that we changed our business model and that we have brought a few companies into the group who are, I would say, who are not that dependent on the winter. Okay, very good. Thank you. Thank you. There are no further audio questions registered. So I hand back to the speakers. Okay. We received a few questions here. I think we talked about the most of them. One is you've acquired 6 companies this year, EUR 500,000,000 revenue, which is above your financial targets. Is this a new pace for the company? Do you want to answer that? It's very hard to have saying it's a new pace. If we have good companies and good contacts with the companies who want to join the group, then we make a decision that that's the case we go for. Then in terms of the goal that we should grow by 10%, that's a goal that we communicated a couple of years ago and that goal is still very much valid. We did not change that goal. So our target is to grow by 10%. And right now, we have grown significantly more than for the last 2 years, I would say. We are growing higher than 10%. Yes. Okay. Thank you. That was all the questions. Do you mind? Okay. I think that concludes the Q3 report for year 2020 from Green Landscaping Group. So thank you, everyone, for listening in, and have a nice day.