Welcome to the Green Landscaping Group Audiocast with Teleconference Q3 2021. Throughout the call, all participants will be in listen-only mode. 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.
Excellent. Thank you. Once again, good morning and welcome everyone to our third quarter report of this year. Once again, the introduction was already mentioned, but myself, Johan Nordström. Together with me here today we have Carl-Fredrik Meijer, our CFO. We're quite pleased to present another strong report here where we can see a significant growth and increased profitability. Let's dive into the presentation. Next slide, please. As mentioned, it was a strong quarter for us with a positive trend in both sales and profitability. In terms of sales, we came in at SEK 761 million versus SEK 551 million a year ago. That means we have a growth of 38%, so a significant growth.
As well as we could see that we had, I would say, quite strong organic growth of 4.5%. Altogether, given the circumstances, we're quite happy with the growth rate in terms of sales. Profitability and EBITA amounted to SEK 68.6 million versus SEK 40 million a year ago, and that's a significant improvement of 72%. I would like to, in particular, the EBITA margin of 9% was a very strong margin, which I'm kind of happy with for the quarter. Profitability-wise, we're moving definitely in the right direction here. Also, if we jump to the last bullet there, we closed one acquisition, which is Utemiljö Skellefteå. Not the biggest company, but it's a well-managed company with a great entrepreneur who's leading that one.
We are well-positioned to continue to grow through acquisition, both in Sweden as well as in Norway, and as we opened up Finland right before this summer. That means we are present in three markets, and we have, I would say, a good pipeline of companies who we are in discussions with of joining Green Landscaping. That's for the numbers. Next slide, please. For the last three years, if we elevate the vision a little bit more, we can see that we have been growing quite significantly. We are shy of 40% growth CAGR in terms of sales. Profit-wise, it's actually even higher. We have a CAGR of 85% growth in profitability for the last three years. Those are quite strong numbers.
As I mentioned, we are present in Sweden, we are present in Norway as well as in Finland. The group today consists of roughly 34 different companies and growing. Of course, it is our ambition to continue to grow and building clusters of companies where we are present. From that perspective, we are growing quite quickly, and profit-wise, we are increasing the profitability of the group, and we are growing the number of companies. All in all, we're kind of happy with where we are today. Next slide, please. Contributing to our success is of course our ability to acquire great companies led by great entrepreneurs. As can be seen, a significant portion of the growth comes from companies who join the group.
A cornerstone of being successful by acquiring other companies, that's the strategy of decentralization and how we take care of the entrepreneurs and the businesses who comes into the group. This is a recipe that we have been working on for a number of years, and we are quite successful in taking care of the entrepreneurs who comes in and being able to acquire new companies. The organic growth of 4.5% is in line with market growth and the expectations. Of course, the acquired growth of 32% is a quite high number. We have been successful in acquiring new businesses. Next slide, please.
There are four initiatives as we are spearheading as being a large group, and those four initiatives is really about the purchasing, where we combine the spend from all the different entities into central contracts. The other part we were working is about Green Steps, and the environmental side of the business. The third one is digitalization, and the fourth one is about lean tools.
What we are presenting here is just one example of digitalization where it benefits from being a bigger group, because that means we can invest and develop different types of solutions for our customers as well as for the individual companies who are a part of the group. On the left-hand side, you can see what we are doing in for the maintenance contracts, for instance, where you can create a digital map with different layers, and on those layers you can have the work that needs to be done. That could be that you have grass, you have trees, you have for the winter, you have the roads and such. By having this ability, that means that we know exactly what to do, when it needs to be done, and who did it.
It's a checkpoint both internally as well as we can provide this data to our customers. That brings us closer to the customer because we can provide them with quick and accurate data on what we have done, when it was performed and such. Also it can be linked to internal systems like payroll and other systems that enables us to actually be more efficient and provide accurate data to the customers. On the right-hand side, we have an example of another tool, and that this is just a special niche for us, but in terms of inspecting playgrounds.
Instead of sending out an inspector who takes some photographs, who goes back to the office and then writes a report, everything is done by the cell phone in an application where you take the photographs, you have the checklist, and you make sure that you don't miss anything. Once you're done, you basically complete the whole report while you are still on site, and then you go over to the next one. This increases the quality of the report per se, but it also speeds up the whole process because you don't have to go back and write the report afterwards. This is just two very small examples of digitalization initiatives that we are spearheading on a group level. Next slide, please.
Construction of Kungshögskolan.
Our subsidiary, Bengtssons Trädgårdsanläggningar, has been awarded a contract to end customer Malmö Stad to build the outdoor environment for a new school. The scope here is that we do everything from below ground to above ground. It includes groundwork and landscaping and stuff like technical shafts for all the cables and stuff, water and sewage. Then we come above ground to do playgrounds, sports turf, tiles, trees, flower beds, etc. This is a quite large project for us, and it starts now and will be finished in approximately 18 months. Next slide, please. Another example on the one of the initiatives that we work on, like Johan mentioned, one of the four is sustainability.
This is a small example of where we work with nature to create naturalistic planting, it's called. This is a method where you mimic nature's own vegetation, and this is also good for bees and other pollinators. You might have heard of the High Line in New York City, which is an example of naturalistic planting. Next slide, please. Order backlog increased by 30% to SEK 5.2 billion. This is driven by a mix of acquisitions and retention of contracts that we already have, but also a few wins, of course. A big backlog is a healthy one, and we think the order situation looks promising going forward. Next slide, please. Performance per segment.
What we see this quarter is that generally we see that the margins in the different segments have increased. You can also see that it varies somewhat between the different segments, and this is just natural variations on projects and stuff, but the trend is of course positive overall. A few things to comment specifically is Stockholm. We're pleased to see that we have increased profitability in Stockholm since we have been working for a long time to do just that. We think it's early days, but we see a positive trend. Let's get back to that in Q4 and see where it takes us.
I also like to comment on Finland, which shows a very strong margin this quarter, and I want to remind you that this is just one company, one quarter. It's a very, very high margin right now, but that can't be expected to be as high going forward. I'm sure we will have questions on this later as well. Let's see what questions pops out during the Q&A. Next slide, please. Financial Position. The cash flow for the quarter was negative as well as it was in last year, and this is due to increased working capital, and it's a seasonal pattern in Q3 where we have a lot of projects going on. We have a leverage of 2.4. We were 2.9 a year ago.
We have a new financing contract in place, just short of SEK 2 billion, and this is to refinance current debt and for us to be able to facilitate new acquisitions going forward. The interest spans from 1.25%- 2.05% depending on leverage. Solidity was 30% at the end of Q3. Next slide, please.
That brings us back to the financial targets, and we have four of those. In terms of growth, we have a target of growing by 10%, and we are exceeding that target by quite a margin. In terms of profit margin, we are aiming for 8%, and we are getting closer and closer to the 8%. We're not there yet, but it's improving.
The leverage where we said we should be at the 2.5x, we are at 2.4. I believe that is well under control. As Carl-Fredrik mentioned, we have a new facility, a new agreement with the banks. That means that we continue on our growth journey by acquiring companies while keeping the leverage in check. In terms of dividend, we have yet to date as we are growing quite quickly. We have not had any dividend, and that's where we are. Those are the four targets we have and our progress against those targets. Next slide, please. To sum it up, as mentioned, we are pleased to present another strong financial report here in the third quarter of this year, where we are growing significantly by 38%.
The EBITA grows by 72%, and earnings per share are growing by 41%. All in all, it's a strong quarter for us and the CAGR for the last three years, again, there we are growing by almost 40%. Again, the profitability are growing by 85% in terms of three-year CAGR. We're kind of happy with the performance so far, and I think that concludes the conference, let's just say, where we present the numbers, and then I believe we open up for questions.
Thank you. If you 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. There will be a brief pause while questions are being registered. First, we have Dan Johansson from SEB. Your question, please.
Thank you so much. Good morning, Johan, and good morning, Carl-Fredrik.
Good morning, Dan.
A couple of questions from there. Maybe I'll start with operations in Stockholm, which was very encouraging to hear that decisions you made is starting to pay off. Do you feel that you are in better shape now, or do you still expect it to be a bit of a bumpy ride now for the coming quarters? Or have you sort of established yourself as there is some profit margins in Stockholm? Can you share a bit more about how you feel about that?
I believe, as Carl-Fredrik mentioned, we have been working for quite some time on improving the performance of the entities in Stockholm, and some of them are in a good shape, doing good, while others are still struggling a bit. On the trend, they are improving, but it's still. It's never a straight line. You take one or two steps forward, and then you have one step back, and then you keep moving forward again. The trend is to what we believe here, or what we can see actually, in a few of the entities, they are improving, and we are very pleased to see that they are improving. They have been working hard for a long time, in a challenging environment.
Stockholm is a tough market, but they are improving, and we're happy to see and report and appreciate the progress that we are making in that area.
Sounds good. Very encouraging. Perhaps on Finland, I know it's only one company, but it's a very strong margin there in the quarter. My question is really, is it a seasonally strong quarter for that company, or is it just a really high-performing company you acquired there?
It's a great company, but that margin is not representative of the profit level of that company for the full year.
There's a seasonality here, Dan.
Mm-hmm.
Which plays in favor for us this quarter.
Yep. Makes sense. Thank you for that clarification. Perhaps also following up on Finland. Now you've been there for a quarter, how do you feel about the reception so far? Do you get some inbound from other companies that would like to join the group, or are you still a bit unknown in Finland compared to Sweden, where you've been for a while? Can you share your thoughts about that on the Finnish market, going forward?
We have been in Finland since the time going back, and had quite a few meetings and done roadshows and such. Of course, we expect to continue to be joined by other companies in Finland as we move forward. Otherwise, we wouldn't have opened up the market from that perspective. Are we well-known? I believe that we are known, at least. It takes time to build a new market for us. At the same time as we can also disclose that there's a high level of activities in all the markets, that's not a big secret, where there are other buyers out there who are quite active. We are just one of the companies who are active.
We also try to stay very prudent and really are careful when we do an acquisition, making sure that there's a cultural mix and that we like the entrepreneurs and what they do, and so forth is quite critical to us when we do an acquisition. Of course, we expect to do one or two more acquisitions in Finland in not too far away future.
Okay, perfect. Thank you. Competition, I mean, there's a lot of companies out there acquiring. Do you see some inflation in terms of the acquisition multiples or can you still manage to be within a range where you are comfortable? Or, I guess the stock markets are coming up as well, so I guess that also inflates the private market. Are valuation multiples on what you're looking at still decent?
They are still decent, even though, as you are alluding to and as I am experiencing, the competition or the number of buyers out there, going back two years in time, yes, there's a higher competition. There's a much higher activity. The way we have constructed our offering package means that we are still quite selective in the companies that we would like to acquire. We basically say no to more acquisitions than we accept, of course. We can also see that in structured processes, prices have come up. From that perspective, it's been more expensive. It's quite seldom that we take part in a structured process, but it's quite seldom that we actually acquire a company through a structured process.
We are still prudent, and even though the competition has gone up, it has been slightly more expensive, but it's still within a decent region when we do the acquisitions.
I mean, we are a picky buyer. We want companies with a strong profitability and where we get really good match with the entrepreneurs, and that the entrepreneurs want to stay on and join the group.
Yep.
I mean, that's crucial for us. It takes time for us. I think that's good. That's our strategy.
Yeah. It sounds very reasonable. Of course, you perhaps have more synergies than some other buyers out there as you are the largest player in the Nordics, of course, within your niche. Maybe also last question, if I can. On Norway, you mentioned experienced a slight increase in material prices. For example, is it possible to share how you typically pass that on to customers? Is it immediately, or do you see a little bit of a lag in some projects? Also, if it's possible to sort of say the magnitude of these increases and how much you pass on, that would also be very helpful. Thank you.
There are two questions going on there. The one is the cost side that it's become more expensive, but it's also due to the logistics situation with parts coming, raw materials coming from China, which you can't get hold of while the project is still running. That means you have to source material, if available, from other sources, i.e. local sources, like stone from Sweden or stone from Norway instead of from China. Of course, that is more expensive. To the best of my knowledge, we are in a good discussion with the customers, both in terms of the timing of the projects so you don't have any delays, and also should you have any cost increases, that, to some extent, can be shared between ourselves and the customer. We are.
There has been some challenges in Norway, even though the situation is improving. I haven't seen any major or large negative impact in our profitability. I know that there has been a lot of discussion and a lot of work being done in order to make sure that the projects are being executed on time and to the right margins. I haven't seen any major negative impact from it, but I know there has been a lot of work behind the scenes on executing the projects.
I think it's worth mentioning that we have quite many projects going on all the time.
Yeah.
We're able to adjust prices not only sometimes in the current projects, but of course, we adapt our prices to customers all the time.
Should we have had any major negative impact on raw material price increases, those numbers would have shown already in the third quarter.
Yeah, exactly. I mean, your margin is very good in this quarter, so that's good.
Yes.
Just more interested in understanding dynamics there. Thank you very much for that. I think I'll jump into the queue. Thank you so much.
Thank you.
Thank you.
Thank you. Next, we have Fredrik Moberg from Pareto Securities. Your question, please.
Thank you. Good morning, everyone. I'm Fredrik. First off, question on the substantial margin improvement that you're seeing in Region South. You commented that you're getting a few of these profitability initiatives through in a very nice way. At the same time, you know, the South region has, at least to my understanding, been a couple quarters ahead of other regions when it comes to getting the corporate structure in order and sort of turning business units into companies.
How has that impacted your profitability journey itself, being done with that? Has management attention been able to focus more on sort of margin enhancing initiatives, and if that's sort of leading what you're going to do in Mid and North as these regions are completing the corporate structure and turning business units into companies?
Being a decentralized company means that we actually have individual strategies for each and one of our entities. I wouldn't draw any conclusions that if we do something in South, that would be done in a similar way in another area. What we have been discussing is about that we have companies at the lower end of the profitability level, and we are working actively with those companies. Stockholm has of course had a great focus because that's where we had the biggest room for improvement, so to say. We also have entities both on the West Coast as well as in the Southern part of Sweden, where we are working diligently in order to improve their quality as well as their profitability.
Are they, so to say, on the right track? Yes, I believe they are. Do we still have things to do in some of the entities in the Southern part of Sweden? Yes, we have. We are not by any means happy with every company's performance down South, even though we appreciate the improvements they have done, and we know that they are working diligently on improving the situation. In other areas, you have other challenges compared to what you have in the Southern part of Sweden. I would say that the biggest, from my perspective, the most challenging environment has been in Stockholm, and that's the one we have been in discussions about.
There we can also see, I would say the trend is the most visual in the entities in Stockholm that they are actually improving, even though from very low levels. That's the key point I can see in the third quarter report. That is actually that the entities in Stockholm are improving.
When it comes to South, is it possible to be a bit more specific on what initiatives have been most important in driving that margin expansion?
I mean, of course, the acquisition of Bengtssons is of course a positive contribution to the margin. I think these became own subsidiaries with their own cash and balance sheet and everything a year ago, approximately.
Mm-hmm.
I think it takes time for you know to see that we have the right leader in place to for them to adapt and kind of nourish their own local culture. I think that some of that is actually in play here and making sure that the margins are high. As you know, we focus more on margins than on sales. We'll see. I think it's too early.
I concur. It's a bit too early to draw any major conclusions at this point of time. We need another a couple of quarters before we can say that there's a substantial and solid improvement in the profit margins.
Sure. Fair enough.
In regions, yeah.
Yeah.
Typically what we do is of course looking at costs, how we have calculated the projects, how many, you know, entities we are. Do we get the add-on sales? Is the customer happy? Are we losing money in any contracts? I mean, this is going on in every. This is going on all the time.
Mm-hmm.
We're working with those questions. Yeah. Of course that pays off after a while.
Speaking of add-on sales, I mean, you mentioned in the forecast that it's impacting you less. You're seeing a month-by-month improvement in that situation. Has add-on sales sort of resurged as well, or is that something yet to come?
I would like to say that we haven't been that severely impacted by the COVID-19, and that means I don't expect any major uptake either now as the situation is improving. Our business model is kind of resilient, and we're kind of happy being where we are in not being impacted as we expected in a major negative way. That means, of course, that I don't expect us to be positively impacted in a major way once jurisdictions are being less rigid. It's a resilient business model.
Sure. Yeah. I guess, I mean, we're talking, I guess, a couple of percentage points.
Correct.
Up or down when it comes due to these issues. Clearly not a major issue, but still interesting to hear your thoughts on that coverage because clearly growth hasn't really been as strong as you would have expected over the past year when it comes to sort of long-term market trends.
Yeah. What we can say is that we still have projects that are, for various reasons, being postponed. It could be material shortage, as I mentioned. It could still be that for other reasons that they are being postponed. There are still postponements going on where they move projects into the future. They are still a bit tricky to get hold of people who make decisions and such. It's not a normal situation to us. We can still see the effect of COVID-19 in play. It's improving. The more immediate situations where you have absentees because of COVID-19 and such, that situation has improved.
Mm-hmm.
In terms of customers and the projects per se, there are still effects of the course of COVID-19 in our business.
All right. That's helpful. The final topic from my side, I mean, other operating income was - SEK 5 million. I think that was the first time that item turned negative since you guys went public. Maybe you can help us understand what the dynamics at play are here. Why is that figure negative and how should we interpret it for coming quarters?
Yeah, I think we have new auditors, and this was like an interpretation of sales, a classification matter. That's why it's negative in this quarter. It's a correction. I think the trend or the kind of size of it will, you know, go back to what it has been historically after this quarter.
All right. Underlying, you have a positive contribution sort of in line with this quarter's, but that is offset by the-
Yes.
Revision of sales from previous quarters. Okay.
Of classification. Yes.
A follow-up then on how you're reporting that. Is that included in any specific region, and is it included in your organic sales figure or where does it turn up in the rest of the figures?
Yeah, no, I have to get back on that.
All right. Thank you. We'll get back on that then. Thank you very much.
Excellent. Thank you.
Thank you.
Thank you. All you participants with questions to pose, please press zero one on telephone keypad now. There are currently no questions in queue. If you would like to ask a question, please press zero one on telephone keypad. As there are no further questions, I will now pass back to the speakers for the closing remarks. Please go ahead.
Okay, excellent. As we don't have any other questions, I think that concludes the presentation. Thank you everyone for listening in, and thank you for the questions and, yeah, thanks Russ. Thank you. Bye.