Welcome to the Green Landscaping Group Audiocast with Teleconference Third Quarter 2022. Throughout the call, all participants will be in listen-only mode, and afterwards, there will be a question- and- answer session. Just to remind you, this conference call is being recorded. Today, I am pleased to present CEO, Johan Nordström, and CFO, Carl-Fredrik Meijer. Please begin your meeting.
Thank you, and a warm welcome to everyone. As usual, it's myself, Johan Nordström, together with our CFO, Carl-Fredrik Meijer, who are presenting today. We are pleased to report another strong quarter. Let's move into page two, please. Even though there are, or there is some uncertainty in the market caused by high inflation, we have higher interest rates, and we still are seeing some logistical challenges. This really shows the strength of our business model and we believe we have a solid report. Looking up on the revenue, we can see that we have a very strong growth, where we're growing by 64% in the quarter, and that means that for the last 12 months, we are right now at SEK 4.1 billion in revenue.
EBITA, there we came in at SEK 89 million, and that's also an improvement by 31%. For the last 12 months, we are up at SEK 325 million. In terms of EBITA margin, we came in at 7.6% compared to 9% previous period. For the EBITA LTM margin was 7.9%. As everyone can see, we are slightly down on the profit margin, and that is mainly due to inflation pressure. This is a temporary situation, and we have a follow-up slide in the presentation further down, where we in more detail will elaborate what is going on.
For the last three years, we are on a strong trend where we are improving the margins, and then we see that in the high inflation environment, we are kind of flattening or on a plateau, but we are still expecting the EBITA margin to continue to improve as we move forward in the fourth quarter and moving into the next year. Earnings per share is still up 0.89 SEK, and that's a significant growth of 56%. We had a positive cash flow of SEK 53 million. The leverage is up from 2.4-2.7, and this is due to that we continue with the pace of acquisitions that we have been following for, I would say, the last 24 months.
We made two acquisitions in the period, and that then will follow up with another three after the period. Even though we have acquired quite a number of companies, we are at the same pace as we have been historically. As we move into the fourth quarter and the first quarter of next year, we believe that the leverage will keep in line with or in line with our expectations, and that is about 2.5x . Also by the end of the period, we have extended our credit facility by another year. All in all, it's a strong report, and we're kind of happy to be where we are and see what is going on here. We are growing quickly. We have a healthy margin and a solid order backlog.
Next slide, please. Moving into page three. This is just where we take a step back and look upon what's the trend of the company for the last three years. What type of journey are we on? What we see here is that we have a healthy growth. It's quite high growth with a 31% growth in revenue. In terms of earning, we are at a very strong growth of 100%, mainly driven by not-so-healthy margins in the beginning, but still we are on a very positive trend. It's a stable, from our perspective, a stable growth both in terms of earnings in particular, but as well as in sales. Next slide, please. That's slide four.
For this conference, we have actually added a slide where we can see the trend in terms of the revenue. How that has been growing since the second quarter of 2019 up to the third quarter of 2022. We also have the profit margins, and that's really what we would like to highlight. That is that we have continuously improved the profit margins since 2019 and been on a positive trend. Then in the second quarter of this year and the third quarter, we can see that we have to some extent hit the plateau. On it, that the profit margin is now flattening out around 8%. The primary reason is inflation. We are basically moving sideways.
Looking into what will happen in the future here, we still see room for improvement to organically increase the profitability. We have companies within the group who do not meet our expectations and requirements. That will mean that the trend to improve profitability-wise will continue. Also the effect of the inflation will disappear as the inflation rate down, that will also have a positive impact on our profit margins. We are in a situation where we are plateauing out on 8%, and we expect the trend to continue once we move into the coming quarters. Next slide, please. That's slide five. Just a short information about the acquisitions we made, and here we're talking about Voldens, who is, I would say, one of the leading companies in Norway and in Oslo in particular. It's a well-renowned company. It's been a long.
Been around since 1968. It's also a fairly big company. It has a revenue of SEK 300 million. From our perspective, this is one of the biggest company we have in the group with a stable, let's say it is quality player with stable revenue and stable profit. They do share the culture part of it, that is kind of important to us when companies are coming in. We are selective, also very selective in the companies that we choose to partner with, and this company fits quite nicely into the culture context. It's also a landscaping company with the same type of customers, the same type of tasks they perform that we know of. This is, I would say, a bull's eye acquisition for us.
We do welcome them to the group, and we're happy with that one. Next slide, please.
At page seven. We have also been acquiring Sorex Entreprenad, who we welcome into the group. This is a younger company founded in 2015, operates in Stockholm and Mälardalen region. The main type of work is water and sewage, and with managed sales of SEK 70 million at good margins. The logic behind this acquisition is that we see a greater demand for water and sewage work in the coming years. This is a strategically well-positioned company to continue to grow alongside with our customers. Welcome, Sorex. Next slide, please. Page eight.
We will talk about two examples of new contracts that we have in this presentation. The first one is the example of our core business within ground maintenance. It's in the Gothenburg region and a customer we've been working with for a long time. The property owner, we will provide all year service of the outdoor environment. It's quite a large contract with SEK 70 million in total for the four years that this duration of the contract. Just an example to show what we do. Next slide, please. Page nine. This is an example where we will provide maintenance of a nature reserve in Stockholm. This is an example of the work that we do within. It fits nicely within our ESG strategy.
This is both playing to the environment side, but also the social side. In this contract, we will work together with the customer, City of Stockholm, to provide work for 10 unemployed young adults in Järva, and the contract is in total four years. This is a win-win, we think between ourselves and the customer. Next slide, please. Page 10. Order backlog has increased by 36% to SEK 7 billion. This is one of the strengths of Green Landscaping that we have such high order stock and good visibility on what happens forward. In particular, now we see that the order books for the year are almost full, and we see a strong demand even going into 2023. Next slide, please. Page 11.
This is showing the P&L and the balance sheet. Just a reflection is that what I'm happy about is to see that the growth and the profitability is reflected through the P&L all the way down to net income. It's also worth mentioning that we started kind of ramp up the acquisition pace back in 2017-18. The amortization of customer contracts and all the material assets from the purchase price allocation has come to an end for the first contract. The amortization of intangible assets of SEK 25 million is not increasing linear to the sales, so revenue.
That, of course, helps that even though the EBITA margin that Johan Nordström talked about did not increase linear to our revenue, we see that net income is up 60%. Year-to-date net income is up 77%. The EPS growth is 56% in the quarter. I'm really happy about that. Next slide, please. Page 12. Performance per segment. What we've seen is that we have growth driven by both organic growth and acquisitions in almost all the segments. Johan Nordström talked about the lag in price adjustments, which impacted the margin this quarter and the quarter before that. This is some simply technical issue that the indexation is done annually in our contracts, in those contracts.
We expect the prices to increase going forward and meet these cost increases that we're seeing. We expect the margins to rebound gradually going forward. We see that we have strong margins in Norway, Finland, Region North and South, whereas the margins in Region Mid and Stockholm are too low. Though we do expect a stronger finish this year than last year in these two regions. The trend in Stockholm is quite positive, whereas we have more work to do in Region Mid. A notation that we will report our new acquisition in Lithuania, as well as Finland. We will do a different segment reporting on a higher level starting 2023. Next slide, please. Page 13, financial position.
The cash flow, it was SEK 53 million, as Johan mentioned. This has been, to some extent impacted by the working capital increase that we've seen. This is in turn driven by higher outstanding accounts receivable, which is driven by the growth, the sales growth that we've seen, the organic growth. Also that we have a mix effect of more landscaping business in the group, and they use a little more working capital, especially during end of September. The leverage is 2.7 up from 2.4. We expect that to deleverage, as Johan mentioned. We think that 2-3x is a healthy level given the low cyclicality of the business and the strong cash flow. Next slide, please, handing over to Johan. Okay, thank you.
Just short, let's say, going through the financial targets here, where we are according to the targets or versus the targets. That means we are growing by 45%, and we have a 10% growth. We're kind of, as we have done for the last two years, we are growing quite much quicker than the financial targets. In terms of EBITA margin, we are at 7.9%, and that's pretty much in line with target. In terms of leverage, we are at 2.7 versus a 2.5. As Carl-Fredrik mentioned, we are not really that concerned about being at 2.7 given what will happen in the fourth and the first quarter coming. Dividend, we talked about that one previously.
This is really up to the board and the AGM to decide on how that will be handled. So far, we have not had any dividend. We have used the cash in order to grow the business. Next slide, please, Linda. Yeah. Just to sum up the third quarter here. As mentioned, we have this year very strong growth, both in terms of revenue as well as in EBITA. I do prefer looking, taking a longer look where you see the CAGR of 31%, that is really the growth rate we have had for the last three years. Also the very positive trend, and I would say a very strong focus we have had since many years in order to improve the profitability.
One has to keep in mind that the market out there is quite big. If you also want to grow by market share or grow volume, that is kind of easy. You just have to lower the profit margins, and all of a sudden you can see nice growth. The tricky part is of course to grow organically and also grow profitability at the same time. That's where we have had our focus, and we have been quite successful in doing so. That means that the last 12 months, EBITA margin at 7.9%, that is significantly up from the 6.3%. Also, we are looking upon the earnings per share, that one is growing by 56%. We did two acquisitions in the third quarter.
As we mentioned, it's Voldens and Sorex, and we do welcome them to the Green family. They are, I would say, very strong additions in terms of entrepreneurs who share our values who are coming aboard. A good quarter for us. By this, I will open up for questions, and we hand it over to the operator. Thank you.
Thank you. Ladies and gentlemen, if you do wish to ask a question, please press zero one on your telephone keypad. If you wish to withdraw your question, you may do so by pressing zero two to cancel. Once again, zero one to ask your question. The first question comes from Dan Johansson from SEB. Please go ahead.
Thank you so much, and good morning, Johan and Carl-Fredrik.
Morning.
Good morning. Happy to see another stable quarter from you guys. A couple of questions from me. I think I'll take them one by one, if that's fine. First one, if it's possible to give sort of a rough estimate how large part of the contract portfolio that are subject to these sort of annual indexation clauses. I guess that mainly impacts you, if I'm not wrong, within ground maintenance where you perhaps have longer contracts with municipalities. In terms of indexation, does most of it occur on the first January or is there other periods where you also have indexation going on? Thank you.
You're right about that it's mostly in the long contracts that we have these index clauses. It's not really the same type of problem in our other business because we quote so often, so we can adjust the prices there. In terms of when this is happening, it's done, you know, when the contract has started normally, and that is typically either during the springtime or in the autumn. Those are the two, but it can happen any month over the year. What we've seen is that the index that is most common has increased up to 11%-12% starting from this summer. Therefore, we expect quite yeah big revisions when it comes to pricing over the coming months and quarters.
Okay, very interesting. Still you had quite good organic growth in this quarter. I mean, 12% is obviously quite strong. Is that mainly volumes and you're gaining market share or is there also a significant price component into that?
Yeah, it's a good question. We are still looking for the answer to it. To our best understanding, as we... If you look upon the maintenance business, it's really not that much material versus labor cost and stuff in that one. If I look upon the growth there, I would say that two-thirds is to our... This is just a qualified guess. We don't have firm data on it. We kind of expect that, of course, that if you have a high inflation, prices go up, then you invoice the customer, then of course their revenue goes up. It's, yeah, inflation.
To the best of our understanding, I would say that 1/3 of the growth you look at is probably due to inflation, and 2/3 is actually down to winning new contracts and to some extent the market is growing. It's not necessarily so that we are growing market share. There is a small proportion is market share growth. Another small proportion is of course the inflation part of it.
Okay, interesting. Thank you for that clarification.
The market, as I said. If the market grows by 5% without inflation, and then you add inflation to the growth rate, and we have an ambition to grow with the market growth. You probably gain some market share, but not that much. That's my point.
Okay. Yeah.
We are growing. Yeah.
Yeah. Okay. Yeah, makes sense. I get it. Perhaps, I mean, it sounds like we're entering a bit more challenging market now in 2023 or with construction activity primarily coming down perhaps on the private real estate side. It sounds at least for the near term, what you see in your order book that you expect organic growth to hold up quite well there, given at least what you have visibility for. Is that the correct interpretation that you're seeing very little of perhaps what you read in the newspaper right now?
Yeah. There are defensive qualities in green landscaping and you can clearly show them at this point of time. We have a very strong order book to begin with. We have stable customers, so we do expect the order book to be solid. I don't think we have a lot of air in the order book. We do see some changes in terms of perhaps a bigger contract that might be postponed into another year or so. We see that there is an increased competition in the larger contracts, meaning that there are other companies who have been harder hit by inflation and the decreased activity in the construction sector, then they are looking upon what's going on here.
Some of our companies are changing focus also and going for somewhat smaller contracts than they have done historically. From a volume perspective, the way the backlog is and the way the order book is built in the individual companies, we are not that concerned about any downturn in the first half year of 2023, and that's where we have this ability. I would say the situation is kind of good and the absolute majority of our companies are having a good situation for the first half year of 2023.
Sounds good. I think two more questions if there's time. I mean, also if you could specify a bit more in terms of the cost of the improvement work you're doing within Region Mid. I guess it's SEK a few million or is it more than SEK 5 million? Do you expect also to take some costs now in Q4 or are you already done with a majority of the part of the work with improving the margin there?
Yeah. Lessons learned from previous activities that we've done, in particular in Stockholm, it takes some time in order to do so, but let's say the magnitude of the need, the improvement needed is significantly less in Region Mid and the root cause and the issues are not as deep as we saw in Stockholm. Stockholm was a big problem for us, and we have spent several years improving and that has cost us a lot of money. We don't have this situation in the Region Mid. It's a typical situation where you have to start looking upon what type of leadership do we have in the entities. We have changed a couple of leaders in the entities we have there.
We have had customer contracts where we haven't made any money, and we haven't had that good progress in terms of improving the profitability. That means that now we are starting to look upon what's going on here. Having that said, the process will continue, but it will not. I have looked upon the data here, but I don't see it will have a significant negative impact on the group as a whole.
Perfect. Thank you for that. One last question. A bit on the reasoning of entering, Lithuania and the market structure there. How is the competitive situations? Are there any players like really active in that market, or is it more fragmented? Are the market dynamics, the customers similar to the North, or are there any big differences that we should be aware of?
Yeah. As we entered the market, we started to look upon what's going on in the Baltics. Shame to say we didn't have that much previous knowledge about that market that we were approached by. This was a structured process that we ended up with. I have to say, the more we looked upon the market, the more positive we came. The market is, in particular if you look at. We started to look upon corruption and all that type of thing. What's going on there? They had high inflation historically and a lot of corruption. What's going on? Is this a market we should enter? The market is stable. It has been improving for the last 15 years.
The last 10 years have been quite, I would say, good or the borderline of an extraordinary development in that country. Lithuanians who used to move out of Lithuania are actually coming back again, so the population is growing. They are kind of low in terms of corruption index. Stebulė is a really great company. It's quite a big company, even though it's, let's say, only EUR 50 million in revenue. But you have to take into account the cost side of that one. should you have that company in Sweden or Norway, it would have been double the size of the company in terms of revenue. They are making a healthy profit. They have a very good reputation. They are stable in terms of the contracts they have there. They have solid relationships with the customers.
It's really a company that fits nicely into the group. From our perspective, when we judged the market, it was a mature market. Yeah, we kind of saw that this is pretty much the same as we can see in Sweden and Norway. Once we landed in that conclusion, it became clear that this is company that belongs into the group, and we followed suit, and they came aboard a couple of weeks ago.
Thank you so much, Johan.
Customers, Dan, is, I mean, a lot of public customers.
Yeah.
Same type of tendering process.
Yeah.
Very rigid, very good, focus on quality and stuff like that.
Yeah.
We like it.
Yeah. Sounds interesting. Looking forward to follow it here in the coming quarters. I think that was all the questions I had for now, so I'll jump back into the queue. Thank you so much, Johan and Carl- Fredrik.
Thank you for the questions.
Thank you. The next question comes from Alexander Siljeström from Pareto Securities. Please go ahead.
Hi, Johan and Carl- Fredrik. Most of my questions have already been answered, but I have one follow-up on the expansion to Lithuania and sort of how the inflationary pressure in the country is affecting Stebulė and sort of if that's a risk with regards to the strong profitability going forward. If you could give us a flavor on that.
Yep. Because that was one of the main questions we had. Equally as we have in Sweden and rest of the company countries in Europe, we are suffering under inflation. When you have long-term fixed contract, that is not a good idea to do. Not a good place to be unless you have index clauses in the contract, which they have. From that perspective, given that they have a good customer relationship, because that's a primary driver. If you want to make sure that you can enforce the index clauses, you need to make sure that you are doing the work properly and that you have a good relationship with the customer. Stebulė has been able to already start the implementation of the index clauses in some of the contracts.
The way we judge that situation was that, yes, it's a high inflation, and they will likely be able to get compensation for the inflation and to the best of our understanding, that process has already begun in Stockholm. I would say they are to some extent ahead of some of the companies in Sweden in this area.
Okay, great. Thanks. On the sort of the M&A pipeline, will you then focus on building a cluster here in Lithuania now in the coming quarters? And do you have some new interesting targets already there, or how should we think about M&A going forward?
Yeah. As you know, our strategy or model is built around having colleagues, having a cluster where you can share knowledge and also learn market data. Of course, that's one of the advantages you see right now that when you have a high volatility in pricing because of inflation, having more companies in the group actually means that you have a greater visibility on what's going on in the marketplace, as long as they are connected in the same geography, i.e., if they are in the same city, they can see what happens with the price in the bidding process in Stockholm or in Gothenburg. The prices might go up 5%-10%, so they might come down 5%-10%. Having numerous companies actually gives us a better picture on what's going on in a local market.
As we did talk about on another call here about electrification, for instance, having great companies who are leading in the area of electrification, in particular in Norway, where they, the four, I would say, the most advanced companies who have came together and created a council to discuss how they can improve and what's going on and the lessons learned, when they are doing a project with electrification. That's really the strength of the company, that you need to have two, three or more companies in the same city, to create this dynamic where you can support the other companies, and by that way, they can improve in their performance. Naturally, we are looking to add more companies in the geographies where we are present. Now we are present in Lithuania. Yes, we would like to see more companies coming into the group in Lithuania. That's all.
Yeah. Okay, perfect. That's very helpful. I'll jump back in the queue again.
Excellent. Thank you.
Thank you. Thank you.
And then I think-
Later. Go on, sorry.
No, it's okay. Yes, over to you.
Thank you. I just wanted to remind our participants, if they want to ask a question, please press zero-one on your telephone keypad. Thank you. There are no further questions. Dear speakers, back to you.
Okay. By that, I believe we conclude this telephone conference. Thank you everyone for listening in, and thank you for the questions we received. Yeah, thank you very much, and have a good day. Bye-bye.
Bye.