Earnings Call: Q4 2020

Feb 17, 2021

You very much, Akwasi, and welcome to the Q4 of 2020 report. As mentioned, my name is Johan Ohlstrom, and together with me here today is our CFO, Karl Friedrich Mayer. And with this short introduction, I suggest we dive into our report. So next slide please. Now a short introduction to green landscaping. Green landscaping is the leading Nordic landscaping provider. We consist today of 27 subsidiaries located both in Norway as well as in Sweden. And we firmly believe in our decentralized operating structure. This enables us to be close to our customers and have a local decision making Process. We have a large and extensive customer portfolio with very diversified contracts, and we have become the leading consolidator in the Nordic landscaping market and we have stayed 7 acquisitions in the year of 2020. Next slide, please. So for the key financial for the last 12 months of the year of 2020, we have a net sales of SEK 2,100,000,000. We landed an EBIT A of SEK 101,000,000 and that gives us an EBITA margin of 4.7%. Order backlog have grown significantly and amounts to SEK 4,400,000,000. And last year's Choir company has together an annual sales volume of SEK 650,000,000 and today we are 357 employees. Next slide, please. Now for the Q4 alone, we grew by or sales grew by 29%, so that's a very high growth. The organic growth was a negative 0.5%. And as we've mentioned previously, we had a discontinued unit in the Stockholm area and if we adjust for that one, the organic growth amounted to 1% for the 4th quarter. EBITA amounted to SEK 33,300,000 compared to SEK 15,000,000 previous quarter the previous year and that amounts to an increase of 120.4%. And that gives us EBITA margin of the 4th quarter to 5.1% compared to 3%. We had a very strong cash flow in the quarter of SEK 100,000,000 and net debt grew from SEK 690 SEK 3,000,000 to SEK 796,000,000 and that is primarily due to that we are acquiring businesses. And subsequently, 3 companies were acquired during the quarter, and that was Overland Ustemilia in Norway, Bengtssonstragon Sandernga in southern part of Sweden as well as Tormans and Tanard in the mid of Sweden. Next slide, please. So if we take a somewhat longer view on what's going on here with the revenue as well as the profitability, we can see that we have a very positive development of both revenue and margin over the years. For the year of 2020, we are not I'm not overly happy with the financial development. It was a very challenging year. We had in the Q1, a very mild winter that, to some extent, hampered the development. We have also had some creation costs during the year. And as we all know, COVID-nineteen has been slow for the business and had a negative impact. So taking those challenges into account, I still believe that we had a very strong performance given the challenges. Next slide, please. The order backlog amounted to SEK 4,400,000,000 end of 2020, which is up 24% compared it to Q4 last year or 2019 when it was SEK 3,500,000,000. And this is primarily driven by the orders or the contracts stemming from the acquired companies, especially these companies operating in ground maintenance, which Opener typically have longer contracts. And I mean this is a reminder again that this is a quite diverse customer base, and our 27 business units each have many contracts, up to 100 contracts each building up to this total order backlog. Next slide, please. Okay, just to give you a flavor of what type of work we are doing and how it looks in our business, we have one example here from the city of Linkoping, where we have previously one company, Green Osterholm, and then we acquired Toromont in the same city. And they have a municipality with Neaen Vasterheta. And they had a tender process with 3 contracts, and we were able to win 2 out of 3. And what was significant in this tender process, that's the aviation was, we're saying, a focus or lean towards the quality aspect of it. And if we look upon the competition compared to our companies, we saw clearly that out of 200 possible points that the debtors could achieve, we had 161 154, 154,000,000, while the average was 89,000,000. So when it comes to quality and the companies we have, we see that we have an advantage over the competition. And also that's how we operate that we have 2 companies in one area, and they are bidding for the contracts in competition, both with other competitors, but also among themselves. So that was a good example of how we operate on a local basis. Another example we would like to next slide, please. Another example we would like to show, that's the GE mark in Stockholm. And it's a typical stone laying business where you have natural stone in, I would say, a high profile building and it's a quality work. So that's the type of work we are doing and this is yet the end result you can see on the picture. Next slide, please. That you can see on the picture. Next slide, please. The following example is from Norway, where we have Gust Antfanaer who is doing the work and it's an upgrade of a preschool area of 2,000 square meters. And we basically do anything from surface water drainage to the different equipment for the playgrounds and bicycle parts and that type of thing. So that's a great example of the type of work that we perform. And in this case, it was just entrepreneur in Oslo who had done the work here. Next slide, please. So the 4th example is something that is close to our hearts, and this is to increase the biodiversity in our cities. So this is our subsidiary, Jackson's chat board, who have created something called Malm Boxes, which is basically a hotel for insects. So you can see you place these in the nature, and these are also used as seating benches, but they're quite beautiful and looks nice in our opinion. Next slide please. When we look at our segments, it's more or less the same story that we had last quarter, which is that if you look at the year to date or 2020 numbers, you can see that the margins are quite healthy in 4 out of 5 regions. And we have North in the top followed by the others. Like Johan said, we are not happy with these margins, and we have had some headwind during 2020. What happens from the 1st January 2020 is that Norway will become its own region or segment. And region mid and north will merge into 1. And then we will make some small adjustments to the names of the regions as well. So we will come back to that when we start reporting 2021. Next slide, please. Financial position, the net debt in relation to EBITDA was SEK 2.8 and we believe that there is room for continued acquisitions with this leverage. We had a very strong cash flow from operations after leasing payments of CHF 82,000,000 in the quarter and SEK 116,000,000 in the year. And it's worth to mention that SEK 48,000,000 of these it came from reducing working capital in the quarters, which is something that we always work very hard to do. Like we mentioned before, we did a rights issue to, let's say, fuel the acquisition pace. And I think we delivered definitely on that, which Johan will come back to in a minute. And we used SEK 364,000,000 for acquisitions during 2020 for acquiring these 7 companies. Next slide, please. Over to you, Johan. Okay. Thank you. So we talk about acquisition here, and acquisition is a vital part of our strategy. And really it's about buying profitable companies led by great entrepreneurs. And in the year of or the last year, I would say, we have been able to acquire 7 companies. And it started out with Gust Antpaneur in Norway, I believe it was in February, together with them, Cape Park in Sud in Malmo also in February, and that's 2 quality companies that joined our group. Then right before the summer, we had T. H. Andelig, who came aboard and had become a part of Gas Entrepreneur. And then after the summer, we made another company who came aboard. That was Hardla Ma Finlief in Norway. It's a fairly big company with an annual revenue of SEK 2 SEK 4,000,000 SEK. And that was followed then by Bengtsson, which is a well established company in the southern part of Sweden, subsequently followed by Overland and Thorman's Entrepreneur by the end of the year. So the grand total was SEK 650,000,000 annual revenue and 7 companies. So focusing in on the last acquisitions we made, that was Bengtsson's Krekosanvegnia. It's a very well known company in the southern part of Sweden. It's managed by Bo Bengtsson, and he has been in the business for 35 years. And this is truly a high quality company with, I would say, an extremely strong company culture. So it's it was a great fit to our decentralized model, and they really know what they are doing, and they are quite profitable. So it was a nice very nice addition to the group. Then this was followed by Overland, Utemir. Overland Sorry, Johan. This is at Page 15 now, Page 15. Just fixed slides in the presentation to 15. Okay. Yes. I'm just telling the operator go on, Johan. Okay, so are we talking about Overland now? Yes. Okay, great. So Overland is located in the southern part of Norway and came aboard by the end of the year and is managed by 2 very skilled entrepreneurs. And we I'm quite happy with them coming aboard as a part of Green Landscaping. They have an annual sales of about SEK 50,000,000. They are making profit, and they have the employees. And then the last one was Formas Antranard, who was founded back in 2003, also led by, I would say, 2 skilled entrepreneurs. It's a quite big company. They have an annual sales of EUR 100,000,000 with 100,000,000 employees, and we are happy to have them on board as well. Then we are moving to next slide. It seems we have some disconnected financial targets, Page 17, right? Yes, okay, good. So for our financial targets, we have a target of growing by 10%. And for the year 2020, we managed 7.1%. So that's slightly below our target. However, we have a payer of 23% in growth in 2015. So we are still a fast growing company even though 2020 was a bit of slow year. We have the goal of an EBIT margin of 8%, and right now we are at 4.7%. And as we mentioned, we are not that happy with the financial performance of the year 2020, even though it was a challenging year, so we have several companies who have done extremely well, but the winter was tough both in the Q1 as well as in the Q4 of 2020, we had the headwinds in the COVID-nineteen, and we have had some integration costs in which we have taken out the result and not adjusted for. So overall, the financial levels, so to say, could have been better, but the performance of the entities was quite strong given the circumstances. In terms of leverage, we have a goal of not exceeding 2.5. And right now, we are in 2.8. And we are actively acquiring companies. And that is, I would say, huge share value created for the shareholders. So we are a little bit on the high side, but as we move on into the future here, I believe that we will stay at this level and subsequently come down. Then we have a goal of dividend that is at 40%. And as we are building up the market and building up the company, we have not historically had any dividend at this point of time. Next slide, please. So to sum it up then, we had a quarter with, I would say, very strong growth of 29%. We improved the EBITA margin by 2.1 units on a percent to 5.1 percent, and we completed 7 positioned during the full year. So all in all, we are on track with the company, and I believe we have a very strong performance. And in particular, it's looking very good in to the future. I believe that was the end of the presentation here. And by that, we hand it over for to Akwasi for questions. Thank you. Thank Our first question comes from Frederic Mokudu from Pareto Securities. Please go ahead. Good morning, everyone, and thank you, operator. First off, a question on M and A because obviously, you've had a very busy year, especially towards the end of 2020 with several acquisitions coming on board, several of those with strong full year margins. I was hoping you could give us some indication on how much acquired companies contributed to EBITDA growth In the Q4? We are not sorry, Johan here. We are not disclosing that those numbers at this point in time. Okay. Is it possible to say something about How are those margins compared to, so to speak, the organic margins that you have within the group? Yes. That we can discuss. They are at or above average. So that's a key part of our strategy that we buy profitable companies and not turn around cases or companies that bad issues. So we actively seek companies who are making money, and that's part of our strategy. So typically, a company that we acquire has a margin that is on the group average or better. And for some of the companies that are located in Sweden, those numbers are available, as you all know. Sure. And that's true for the Q4 as well then? I would say yes. Okay, perfect. And then on the also on the EBITDA development because you're right in the form that you had a product write down in the South region, But you didn't disclose any amount on that in the report. Could you give us some figure or quantify that in any way? What we have been quantifying is that if we combine the winter effect, I know it makes it hard for you, but we're talking about 1.5% to 2% of the profit margin. That is part of both the winter effect in the year 2020 as well as, I would say, the effect of the integration of SENSMAK Service because those costs are still linked to the integration of SENSMAK Service. And we are not adjusting the EBITA any longer, and that's why we take it over the result. And then we don't then we don't disclose it. Had we chosen to adjust for it, then we would have disclosed the integration cost. And And I think I mean, Frederik, as you can see in the segment reporting I mean, the quarter, you have an indication of the write down in the report. Okay. So looking at the earnings that you have in reading itself, that should give you a pretty good indication of the size of the write down there? Hey, sorry. Okay, perfect. And then I was thinking about some projects perhaps having been delayed here in 2020, you continue to state that you are seeing some negative impact from COVID. And I was just thinking, how do you see the possibility of there being a catch up effect in the project business in 2021? And if that should materialize, say customers trying to catch up on projects having been postponed. How agile are you in being able to deliver on that boosting demand. Good question. The effect of the COVID-nineteen is there. It's been very hard to quantify it for us. In some cases, of course, it's easier to quantify you can see that in some businesses that was impacted immediately like Jordalit, who is in the gold segment and that basically went away for 1 or 2 months. And then it's recovered and came back again. For the other companies who are more project driven, then some of those projects are being postponed into 2021. Should we see a pickup? To some extent, yes, we will be able to increase our production capacity in order to meet the increase. So this is a huge speculation on whether or not that should be an upside in the year 2020 sorry, 2021. Sure. That remains to be seen. But you're confident that if that materializes, you have the opportunity To address that, you're not Yes. Yes. On employees or so? Yes. Should we see an uptake in the project based business, yes, for sure, we will be capable of harvesting if there's an upside. Okay. And looking at the Eastern region, you've made quite a significant year over year improvement when it comes to margins. Could you perhaps discuss that as to how much Is it an effect of you being better prepared for less snow in Q4 compared to where you were in 2019? And And how much of that might be related to underlying improvements that you made to some of the troubled units you have in the region? Well, I wouldn't contribute too much to the snow in this discussion here. It's more of continued operation and continued focus on improving the performance of those entities. And then, of course, when we had it's been a busy year, both in 2019 2020. Saksmak Service was a fairly big company that had revenue of about SEK 850,000,000, which we integrated into the old legacy green landscaping units. And that's the work that has been going on for the full year of 2019 2020. And then we made, I would say, some changes during the course of 2020, and we are still in the process of improving the performance of those entities, which really do not deliver up to the expectations we have. So there's room for improvement. That's the positive side of that we see that we are moving in the right direction. With most of our entities, there are a few entities that are still lagging behind. And then we have adjust what's going on there and make sure that we are on the right track with most of our entities. Okay. Thank you very much. Thank you. Thank you for the questions. Our next question comes from Dan Johansen from SEB. Please go ahead. Apologies. It appears that Dan has disconnected. Please hold whilst I try to reconnect him back into the question. Okay. Dan, please go ahead. Apologies. It appears Dan does not wish to ask a question. So There appears to be no further questions. And I will hand back to the speakers for any other remarks. Okay, thank you very much. And as we concluded, it was a busy year. I believe we made quite a number of significant changes for the year 2020, and we're moving on. So thank you very much for listening, and this concludes the Q4 report of the year 2020 from Queen Land Shipping. Thank you for listening. Thank you. This now concludes our conference call. 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