Earnings Call: Q1 2021

May 5, 2021

Quarterly report

Thank you very much, and welcome to this phone conference, where we will present our Q1 report covering January through March of 2021. As mentioned, my name is Johan Nordstrom. I'm the CEO of Bril Landscaping and together with me here today is also our CFO, Carl Fredrik Maier. And by that, we dive into the presentation here. So next slide. So for the Q1 2021 highlights, we reached a sale of SEK 669,000,000 compared to SEK 375,000,000 in the Q1 of 2020. And that represent and growth, I would say, by 78%. Organic growth was 33%, and we had or carried out normal winter activities during the year. EBITDA amounted to SEK 14,700,000 compared to a negative $18,700,000 a year ago. So it's a significant and sharp increase in the EBITA performance of the company in the quarter. The EBITA margin amounted to 2.2% compared to a negative 5.5% previous year. So and cash flow from operating activities amounted to SEK 36 SEK900,000 compared to SEK42,200,000 previous year, which is a kind of a flat development there. Net debt increased from SEK 719,000,000 to SEK 553,000,000, and that is due to the continued acquisitions of company that we have performed. And subsequently, one company was quarter during the Q1 and that was in Norway and the company was Akkers Husqvarna. And the last bullet here is about the ongoing COVID-nineteen situation, which still is in effect in both Sweden and Norway. And it has, I would say, a negative impact on our business. It's not a significant impact, but we do suffer from some reasons or activity or lack of activities, I would say, because of the COVID-nineteen. Next slide, please. Looking upon the LTM numbers, so the trailing 12 months. We can clearly see that our sales has gone from SEK1.9 million to 2 sorry, SEK 1,900,000,000 to SEK 2,400,000,000 and that represents an increase of 27%. The EBITDA have grown significantly, so that one is up with 160%, so it's a sharp increase where we are quarter ago or year ago had SEK51.4 million in EBITDA and right now we are at SEK 134 0.5%, so a significant change there. In terms of margin, we recorded 3.7% a year ago, and right now we are at 5.5%. So that means we are up by 1.8 unit of a percent and that equates to an increase of 48% in the profit margin. In terms of acquired annual sales, So during the last 12 months, we have acquired companies or other companies have joined us with a combined revenue of yearly revenue of SEK720 1,000,000. So it's a strong growth there. The order backlog had grown significantly both through acquisition as well as through organic renewal of contracts. So a year ago, we were at SEK 3,500,000,000 and right now we are at SEK 5.2 billion. And cash flow is I would say it's a healthy cash flow now where we are at SEK 187.6 SEK 6,000,000 in cash flow from operations. Next slide, please. Taking a somewhat longer look, I would say, on look upon the CAGR for the last three years. And that means that you can see that our sales has grown by 25%. So it's a fairly steady growth, driven both organically, but primarily from acquisitions. And the EBITA has grown significant, I would say. Here we can see we have an 86 percent CAGR in profitability of the business. So it's going according to plan, I would say, and we're happy to report that we continue to improve both in revenue as well as in profitability. Next slide, please. As mentioned, we had made one acquisition in the Q1 of this year and that was Akkers Husqvarna in Norway. It's a well known company to us because they have been in cooperation with, in particular, Hardland Machinedrift in the past. And it's led by Snorve and Halvor. They are 2 very skilled entrepreneurs, and we are quite happy with adding that company to the group. And as mentioned, it's a well company to us and we have been working with that company in the past. So right now, as we're in Norway. I would say that we have a very strong presence in Norway, and we have built up a great team in Norway. Next slide, please. Then we have Harde Land Machine Drift, is, I would say, a major player in Norway in terms of maintenance of the road network. And they have been rewarded their main contract. They are the current supplier to the contract, and it amounts to about SEK660 1,000,000. It's a fixed contract for 4 years with options for 2 additional year. So that means that to a certain extent, the coming 6 years for Huddl and Machine Drift is secured. We're quite happy that they got their renewed confidence from the municipality of Oslo to continue to carry on those services. And by that, we move on to the order backlog increase and Karl Friedrich will take over. So next slide, please. Order backlog increased by 45 percent to €5,200,000,000 as Johan mentioned, up from SEK 3,600,000,000 a year ago. This is driven again by the acquisition of Akershusgartenen and the new contract that Haviland Machinedrift secured. One can also say that this SEK 5,200,000,000 is actually the result of thousands of contracts that we have through our 28 subsidiaries. So it's a quite diverse contract portfolio. Next slide, please. Performance per segment. First of all, we are reporting the segments in a new way starting this quarter to better reflect the group today. So we report Norway as its own segment. The old Mid segment is now part of Region North, and we have changed names. So the old Region West is now Region Mid. And what you can say is that sales is up in all segments compared to quarter 1 last year. The margins is improved in all segments, but it varies. If you exclude Norway, of course, and we had only 1 company 1 month last year in Q1. So the comparison is not like for like. Looking at the LTM numbers, it's quite interesting to see the margins in the different regions. And you see that Region Norway has a quite strong margin. Region North is on a satisfactory level of 8.5 percent. Region South and Region Mid is a bit too low and Region Stockholm is at an unacceptable low level. Next slide, please. Financial position. Net debt in relation to EBITDA pro form a was EUR 2.9 in Q1. Cash flow from operations after leasing payments was SEK 17,000,000 versus SEK 22,000,000 last quarter. Cash flow from working capital was basically 0 this year, where it was quite strong last year of €42,000,000 And that is due to the low account receivables outstanding last year as the revenue was quite low in that year. We have used €94,000,000 for acquisitions during the quarter, and we have repurchased own shares of €30,000,000 in the quarter. Next slide, please, and over to you, Yes, thank you. So moving on to the financial targets here. So we have 4 of those and the first one is that we should grow by at 10% year by year. And right now, we are at 27% on the LTM growth number. So we are clearly surpassing that number. The profitability and the EBIT margin should be 8%. And right now, we are at 5.5%. So we are growing or increasing our profitability, and we are slowly but surely heading towards the financial targets we have there. We have a goal of a leverage of 2.5 And as Carl Fredrik mentioned, we are right now at 2.9%. So we're slightly above or slightly we are above that particular target and the reason being the number of new companies that have joined the group. So we are acquiring at a fairly high pace. And there we use, of course, the leverage and then it goes up as we acquire companies. So given the pace and given the company we have acquired. That means that we are at 2.9%. And it's a bit high, but not to a stretch level at this point of time. And then of course, we have set target of having a dividend of 40% and the status right now are at 0. And the reason being, we are growing quite rapidly as we are acquiring companies and being joined by new colleagues, and that means that we choose to not make any dividend and instead growing by acquisitions. So we use our cash to buy new companies instead of the dividend. So that's pretty much where we are on the financial targets. And to sum up the Q1, it's a quarter with a very strong growth and a significant improvement in margin, reason being that we have normal winter activities and we have acquired great companies who contribute to both growth and profitability. And I would say that the legacy group with our companies have also performed to expectations. So it was a solid quarter in terms of the financial performance. And as it can be seen here, the revenue growth is quite dramatic, it's 7% to 8%. And to some extent, we are comparing to previous year, which was, as we have communicated, a bit unusual in terms of that it was very, very warm. So I would say that the number we are comparing ourselves to is quite easy. And I'm very happy to see that we have an EBITDA margin, which is positive of 2.2%. The Q1 is by default our weakest quarter given the nature of the business and being on a 2.2% margin. It makes us good and it looks good for the coming year, I would say. And we have also made, as we mentioned, one acquisition with Akershusustatnam year to date. So all in all, we are quite happy with the outcome of the Q1 of this year. So that was a formal part of the presentation. And by that, I hand it back to the conference here all and see if we have any questions. We can open up that part. Thank Our first question comes from Fredrik Milgberg from Pareto Securities. Please go ahead. Thank you very much. Good morning, Johan. Good morning, Karl Friedrich. So first off, the question on First off, a question on acquisitions, clearly making a substantial contribution to both EBITDA and to revenues in the Q1. Is it possible to give us a sense of how accretive acquisitions have been to your Q1 margins in bridging that to last year? I think it's I mean, of course, The segment Norway is, of course, a new segment making a big impact on the year to year development. So it's a combination of acquired companies and, you say, lost ground from last year and organic development. You can see that in basically all segments, we're making improvements. So it's Sure. So I understand that Norway definitely makes a massive contribution clearly from acquired companies. Then when it comes to region Stockholm where you've had some issues with some underperforming business units, You're seeing substantial sales recoveries in 60% or so from Q1 last year. At the same time, EBITDA is, I mean quite a small improvement on that sales growth going from a loss of SEK 10,000,000 to a loss of sorry, A loss of SEK 14,700,000,000 loss of SEK 10,000,000 EBITDA. Are there any additional costs that you've incurred in the Q1? Or Could you please help us understand why that difference isn't larger? We are continuing to improve the situation, and I think there is an improvement, and we would like to see a faster pace in the improvement because we are making changes to what we're doing there. The winter in the previous year impacted Stockholm quite negatively. And with the revenue back, of course, we are making more money in the region. But as Carl Fredrik mentioned, we are not where we like to be in some of the companies. We have great companies in Stockholm or good companies in Stockholm as well. But then we have a few companies who are not up to standard in terms of where we would like them to be. And we are continuously improving those units that are underperforming. So in the coming month and the coming quarters, we expect to see a steady improvement in those entities. Okay. And is it possible to get into a bit more detail exactly what you're seeing in terms of improvement in those units? Well, it goes back to the types of contract they have and how they performance. So yes, we are making quite significant changes. I am not Really in a position right now to go into too much details. There are some sensitivities going on in what we are doing here. So I'm happy to elaborate on the question in a couple of months from today in what we are doing in certain entities in Stockholm. All right. All right. Thank you. Looking forward to that. Just a final question then on discussions that you're having with customers ahead of the landscaping season, which I actually, I mean, that This has obviously started here in the beginning of May. Could you just tell us something about what customers are saying? Do they remain cautious? Are you We'll see a negative impact from COVID, any implications for budget allocations, mainly from your public sector customers? Or are we planning to execute on the delayed projects that we didn't do last year? In terms of budget discussions and money allocations and so forth. We have no information that there has been any significant or dramatic or I would say material changes in the budget and the way they have allocated the funds in correlation to COVID-nineteen. So from that perspective, we don't see that there has been any changes or that we foresee any changes to come. But also, we see clearly that Getting into meetings with the customers, getting the purchase order for additional contracts and so forth are complicated because you cannot do the work where you actually physically visit the surroundings and where we can discuss what type of activities should be done. And that makes business a slow. So it's hard to or harder, I would say, to get in contact with the customers and discuss with them additional work that needs to be done because we don't set up meeting, we don't have fiscal meetings, people are hard to reach. So the fixed contract works according to plan. It's the additional work that is harder to get. It's not a major issue, so we can be clear about that. But business is kind of a bit slow in certain areas when you can't have fiscal meetings, and that, of course, has to some extent a negative impact on our business. But going back to the original part of the question in terms of budget or if there has been any changes on the customer's budget. Not to our knowledge at this point of time, no. Okay. Thank you very much, Johan, and congrats. Thank you. Thank you. Thank you. Our next question comes from Dan Johansen from SEB. Please go ahead. Good morning, Karl Erik, and good morning, Johan. I have 2 additional questions from you. First question on Norway. Is it possible to share some insight into the margin profile of the Uniletigen business? Would you say that the margin is more stable compared to Swedish operations with less seasonality given the service offering you have in Norway compared to Sweden. Good morning, Dan. No, there are seasonalities in Norway as well because the companies are operating in the same type of businesses we have. So we have businesses there where they have a kind of even revenue and profitability, but also to seasonality where we clearly see that they have a weaker Q1 compared to the other three quarters of the year. And then we have one exception, that is Hardeland, who basically have, I would say, a stronger 4th and a stronger Q1 compared to the service companies we have both in Norway and Sweden. In terms of profitability, the average profit level is higher in Norway than what we see on the average in Sweden. Perfect. Thank you. And another one on Norway, if I may. How do you feel about the acquisition pipeline you have currently? You get to do more M and A or do you want some time to digest and integrate the companies you acquired during the past quarters and perhaps take down leverage That's why it would be interesting to hear your thoughts about that. I was going into the COVID-nineteen again. I was a bit, let's say, scared that we had pipeline of companies which we were in contact with. And then as we couldn't have fiscal meetings, I was a bit scared that, that could have had a negative impact on the acquisition pipeline. As it turned out, we are still having meetings. We are having meeting by representatives, in particular in Norway, as we have a platform and Norwegian colleagues to carry on the work with meeting with new companies and taking on that discussion, meaning that we don't physically have to meet with them as we can't travel to Norway or outside Sweden at this point of time. So I would say that The pipeline is still active. We still have companies we are in discussions and contact with. We are also from a financial perspective in a position to carry on with the current pace at which we are acquiring companies. So our ambition is not to slow down or consolidate. We clearly believe that we have the momentum going. We have a window of opportunity in Norway, which we would like to pursue. So the current pace and the pipeline, I don't see any major changes going into the future here. So I'm happy with where we are at this point of time. Great. Sounds good. That was all for me for now. Okay. Thank you. Thank you. There appears to be no further registered questions, so I'll hand back to the speakers. Okay. I think we have had a few questions on the e mail as well, but We'll cover those on the questions we received from the 2 previous, Dana and Paquetto. So by that, we're kind of happy with the phone conference. And thank you very much for listening in, and have a good day. Thank you. Thank you.