Earnings Call: Q2 2021

Aug 27, 2021

Thank you. And once again, welcome to Green Landscaping and our Second Quarter Audio Conference. As mentioned, my name is Johan Holstrom and I'm the CEO of Green Landscaping. And together with me, Hester, we also have Karl Frederik Meijer, who is our C at all. So let's dive into the report and move on to Page 2, please. So overall, we are happy with the performance that we are reporting, and we deliver according to our locations. And that means that sales came in at SEK794 1,000,000 compared to SEK552 1,000,000 previous year, and that amounts to a growth of almost 44%. Whereof the organic part was 2.8%, EBITDA amounted to is SEK 5,100,000 compared to SEK 46,500,000 previous year. That is also a heavy improvement of 40%. Cash flow from operating activities came in at SEK 104,000,000 compared to SEK 63,000,000 years ago, And that's a healthy growth of 65%. So overall, in terms of sales, EBITA and cash flow, we are kind of meeting our expectations. The leverage measured as net debt to EBITA pro form a came in at 2.3. So that one went down from 2.9. And in terms of acquired companies, we acquired for companies during the quarter. And we will come back and comment each one of those later on in the presentation here. But that's the HAPPI in Finland, AF Zwift in Uchohag in Norway and Hakan Trevuschens in Sweden. And Vafirka also meant that we made our first entry into the market in Finland. And so that was a good step for green landscaping. Next slide, please. So looking upon the performance on a more historical and see what trends we are in, we can see that in terms of sales, our CAGR for the last 42 months amounted to 26%. So that's a steady and strong growth, primarily driven from acquisitions. In terms of profitability. We are on an even stronger trend here. So we are growing by 82% in terms of Keiki for the profitability. So overall, if we look upon the sales and EBITA and how we are performing, we are on a very positive and strong trend on both those KPIs. Next slide, please. As mentioned, the primary driver for the growth is adding great companies to the group. And in that, we are clearly very session. The organic growth in our business right now is about 2.9%. It's not a particular high figure compared to high, how fast we are growing on the acquisition side. But nonetheless, it's a healthy growth on the organic side and this is the kind of growth where we see that we can grow and still improve the profitability of the business. So we're kind of happy with having a 3% growth and then we're adding great businesses to the company. So it's a mix, but we This is a healthy development according to our opinion. Next slide, please. This is We have the one pager on the Apergerka and that's a landscaping company, was founded back in 1988. Today, we have the 2 entrepreneurs, Tapi and Tommy, who is on the picture there, who is doing a great work. They are primarily focused around Helsinki, which is the capital of Finland and that lies in the southern part. They have an annual sales of about €10,000,000 and about 50 employees over the years. So it's a nice company that now is a part of the Green Landscaping Group. Then next slide, please. So moving on to AF Drift, which is a company located in Oslo. They have similarities to Hasseland Margreindeft. They are in the same type of business with the same type of contracts they have. It's a fairly young company, founded back in 2012. And as mentioned, it's around Oslo region, Street and road maintenance, a healthy revenue of SEK 140,000,000 and approximately 20 employees. Also a great company that we are happy to be joined by the Green Family Group. Next slide, please. And then we have Oeko Hage, which is a smaller company in the southern part of Norway, And they are in collaboration with Overland Utamiger. So they would actually be a subsidiary to Overland Utamiger, founded back in 1997, landscaping and ground maintenance. So this is the core of what we do. Annual sales of about SEK 50,000,000. So that's a great addition to our company as well. And then the last company here is Hakanst Vegachand, founded back in 2007, operates on the West Coast of Sweden and are now being joined are now joining the group through Karnumut Reguets, which is a current operating company we have on the West Coast in Buchholz in particular. So that's a great company that joins the group as well. So those are the 4 companies that we have grown that have been part of the group during the quarter. And then we move on. So next slide please. Okay. So As usual, we present a few of the contracts that we have been awarded during the quarter. And I think it's worth mentioning that we always have a very high volume of projects that we bid for. And that's, of course, because we have 33 companies now in the group. And in total, there are thousands of customers. And most of these projects are small sized projects between, let's say, 500,000 and 2,000,000 SEK, but sometimes they are larger. And this is an example of a larger contract that our subsidiary, Tormans, was awarded. It's a 7 year contract and the total contract volume is Approximately SEK 100,000,000 at least SEK 100,000,000. And we will provide maintenance services to the city of Norilskoping in the middle of Sweden. And then Another example is that we've been awarded property services in for Umea municipality. And this is interesting. I mean, it's not so large. It's a €10,000,000 contract. So of course, it's a big contract. But It's interesting from another perspective, and that's here's an example of where we followed a customer into providing property services and janitorial services that we are new services for us, but we always follow our customers. And then in terms of order backlog, Our order backlog increased by 50% to just a little bit more than about SEK 5,300,000,000 And this corresponds to a little bit more than 2.5 times our sales LTM. So it's a large and substantial order book. And this is the growth is driven by acquisitions, of course, but also a high retention rate of current customers. Moving on to next slide, which is segment slide. And what we see in our segments is that Norway is performing very well, both in terms of sales and margin. And we you noticed that the margin is 15% on an LTM basis, which is really strong. It's a high margin business. The other regions are moving more sideways this quarter. And I think it's worth mentioning that there will be natural variations between the quarters. So some of the segments are a little bit up Some are a little bit down, and that's just the part of the business and different projects and how income and profit will be distributed through 2 quarters months. We are not happy with the performance in region Stockholm, As we have discussed many times before, we have taken further actions to improve those margins and profit. And it's worth mentioning also that we always evaluate leadership and culture in our businesses. And a natural part of our business is that sometimes replacing CEOs. And we have appointed 3 new CEOs that started this quarter. Moving on to next Slide is the financial position. We had a strong cash flow of NOK 104,000,000, up 65% versus last year. The leverage went down to 2.3 times EBITDA LTM And that's despite significant acquisitions in the quarter. And of course, this is Impacted by the directed share issue that was performed executed during the quarter, where we took in SEK 150,000,000 before transaction fees. And there was a very high demand to participate in that process, and we welcome the new investors. We did that to improve the balance sheet and to make room for high peso acquisitions going forward. Cash and cash equivalents amounted to NOK 336,000,000 at the end of the quarter. And then over to you, Johan. Yes. Just a few words on the financial targets here. So we have 4 financial targets. And the first one is about the growth, where we say we are we should be growing by 10% or more. And right now for the last 12 months, we are at 38.7%. So we are clearly meeting that target. We are also having a target of the EBITA margin of 8%. And for if you're going back to the Q4 of 2020, we were at 4.7%. And then for the Q1 of this year, we were at 5.5%, and now we are at 5.7%. So we are moving in the right direction here in achieving the goal of the EBITA margin. We are not making any public forecast on when we will achieve it, but the trend is clearly that we are moving in the right direction. And not in the too far away future, we will most likely be at the 8%. That's clearly our goal. And we are taking actions, as Kropredic mentioned, We're adding successful entrepreneurs and profitable companies to the business as well as improving some of the existing businesses that does not meet the financial targets in terms of profitability. Then the leverage, we have a goal of 2.5% or 2.3%. And in terms of dividend, we have a goal of 40%. But we are growing quite quickly and we use the cash and the cash flow we have to actually acquire new So far, we have not made any dividends, and we believe that we are creating shareholder value through adding new companies into the business rather than having any dividends being paid out to date. So that's the comments on the financial targets. So let's move on to Page 15, which is the last slide here. And just to sum up the Q2 here, we see that we have a very strong growth of 44%. The profit is up 40% and the cash flow is up 65%. The CAGR on both sales and EBITDA is 26% 82%. We are clearly on a very positive trend here. We have made 5 acquisitions year to date with adding great companies. So it's not only a matter of buying companies to the left and right, but finding the right entrepreneurs who fit into the culture, who are clearly world class entrepreneurs that we bring into the business. So we're quite happy with the companies we are bringing in. And also that we opened up a new market in Finland was a big step for us. So all in all, it's a very strong performance. And that basically concludes the presentation. And then we open up for questions. So thank you very much for listening in. Thank And we have a couple of questions lined up already. And the first is from the line of Frederic Morgod of Pareto Securities. Please go ahead. Your line is open. Thank you very much, operator. Hello, Johan and Kompedrete. Hello. First off, a question on the margin and the margin decline, the EBITA margin decline that we're seeing year over year, Particularly in the South and Middle regions, I mean, these regions are seeing solid top line growth driven by both acquisitions And organic growth, but we're still seeing margin declines and flat to somewhat down in terms of absolute EBITDA. Just hoping you could maybe give us some more details as to why that is. Now like I mentioned before, I mean, I think there will be natural variations between the quarters. We are not worried. There can be a 2%, 2.5% in one segment, 1 quarter up or down. I mean, for example, of course, we started the big new contract in Nordschoping, which, of course, that's an example of a natural variation that happens in some quarters. And some quarters, it's on the other side. So there's no we don't see any trends. We just have to see the full year. Yes. Yes. We've made the analysis of it and it's So variation, I believe in absolute terms, we're talking about SEK 2,000,000 roughly. So it's not any shows trend going on here. It's a natural fluctuations on how you recognize the revenue and the cost associated with the different projects here. So that will even out during the course of the year. Yes. And I think it's worth mentioning the strong cash flow, of course, to support that statement. Yes. Sure. That's fair enough. And on acquisitions as well On this side, is it possible to give some clarification of the impact that acquisitions had this quarter? If you maybe we can say if they were accretive or diluting to the margin? I mean, definitely, I'd say in Norway, I mean, They're not accretive since we had an extremely high margin last year of 31%, and now we're down 15%. But if you take it In relation to the group as a whole, of course, they're accretive. I don't know if that answers your question. Well, it does to some extent at least. So I might have to settle for that answer, I guess. Well, in terms of adding new companies to the group, we clearly favor somewhat smaller companies in terms of SEK 50,000,000 to SEK 150,000,000 revenue. And we are looking for really strong good entrepreneurs who are leading profitable companies. So of course, we are looking for companies who are making good money and adding those to the group. And by that, they are accretive to the profit margin in the long run, yes. Yes, sure, sure. Then on the restructuring charges that you're taking in Stockholm, First off, if it's possible to quantify those? And then also if you're expecting these to continue in the coming quarters, how far are you From completing that restructuring that you're going through at the moment? Well, we made a decision, I think it was last year or the year before, that We will not disclose those numbers and we will not report adjusted EBITA anymore. So that's a natural cause of business. So any Costs associated with basically the closing down of that particular entity will be taken over the P and L as a running cost in this year. Sure. Yes. I appreciate that you don't want to highlight them as sort of nonrecurring items because it's part of the business to make some changes sometimes. But at the same time, just asking if you're expecting these costs To continue over the coming quarters? Or have you sort of taken the charges that you need in order to restructure that business? We are not taking any lump sum costs for the restructuring of that entity during the Q2, we take those costs as the costs appear or actually we see the benefit when The cost disappears from the business as people will leave the business and We will vacate the buildings and we will sell down their equipment and such. Okay. So it's another question And really, it's about that the cost will eventually come down. It will not go up during the course of the year. Will decrease. The cost will be eliminated. Okay. Another question then on the Stockholm transformation. You're saying that you're going to transfer some contracts to other business units from Stockholm North. How confident is this for you to do? And are you looking at any more contract discontinuations going forward? About 50% of the volume this is a rough number, but about 50% of The contract will expire naturally, so to say. And About 50% will be taken over by 2 other entities located in Stockholm. So they will take over the contracts per se and they will start managing those contracts within their own organizations with their own personals and their own equipment and such. And that's very interesting. Is it anecdotal? It's like well, it's to some extent, it's complex, but it's a part of our business, because this is just being like awarded a new contract and we are being awarded new contracts every day. So each one of our companies are having new contracts coming into the business and some of the old disappears and we need new one. So this is not unusual to the business we are in. And for one company who operates in Stockholm to take over 1 new contract, then of course, that's that's based on the business. That's what they naturally do anyway. Okay. And a final question on this topic. Is Possible to say anything about the size of the Stockholm North business? Approximately SEK 100,000,000 per year. In revenue. Okay. Thank you very much. I'll get back in line. Thank you. Thank you. Thank you. And our next question comes from the line of Daniel Hansen of SEP. Please go ahead. Your line is open. Yes. Thank you so much. Good morning, Johan and Karl Friedrich. A couple of questions from my side. Good morning, Dan. Maybe first question perhaps on the consolidation of business units in Region Millburn and Region North. Will you incur any costs related to that? Can you explain a bit why you're taking these measures and what you're trying to achieve there? Thank you. Yes. So I mean like Johan said, we really like these We'll incorporate the companies and not divisions or profit and loss centers. So we're incorporating these businesses and that means changing brand in some instances. It's about having your own balance sheet, setting your own policies that allows a local culture in these businesses to flourish and to really develop the company and adapt to the local market and the customers. And that's a process that will take some time, of course. But yes, that's the strategy we Yes. And just to emphasize that we know that this is working, coming close to the customer and the local needs and being Just being close to the customers and close to their own P and L As the virtues of that actually the possibility goes up. When you try to build a big administration, a big staff and centralized, You clearly see that that's not the way forward in the business that we're operating in. So synergies from large scale operations in this industry doesn't really pay off like in manufacturing or such. So having local businesses with their own P and L, their own cash flow, their own customers and being free to manage the customers the way they need to be managed. That's the way forward. So this is a part of the strategy that we have. Okay. Makes sense. Thank you. And another question from perhaps a follow-up a bit on the margin question. I mean, With acquisitions you made in Norway, I guess, you should, to some extent, smoothen out the margin curve as they have more winter activity. Is that a correct observation? Well, what we've done for the last few years, and we're talking about the quarter here, That is that we have been we had historically and we still have a fairly high exposure to the winter activities in the maintenance contracts and the maintenance businesses we have. By increasing the share of landscaping business, which kind of goes countercyclical to the winter, meaning that if there's a strong winter with a lot of snow and ice and such, Then the landscaping business is somewhat suffering, while JMP has a mild and warm winter, those companies are benefiting from it. So we are striving for having a natural hedging that will make us less dependent on the fluctuations of winter activities. So that's by design that we are adding more landscaping business to the companies. And then we like the segment to begin with, but there is an upside that to some extent, we are less doable to winter fluctuations. And we are very happy with the 15% in Norway, I think. Yes. So essentially Yes. It's a fantastic margin. Yes. Great. Thank you. Maybe I had Two more questions. I mean, in terms of sales cycles and meeting clients, I guess it's still a bit difficult. But has the situation eased a bit now in the beginning of Q3. Are you said to meet clients now in August perhaps than what's in the spring? It's a very difficult question. And we did have a discussion about when we what type of wording we should tab in the report. But overall, I concur because everybody can see that it's easier to travel. I've been in Norway for the first time in a couple of months, which was fantastic to be able to travel. We are on our way to Norway and Finland again. And people are back to work to a certain extent. I'm thinking about the customers, which we have had some difficulties reaching during the COVID-nineteen situation. So it's easing up. That's clearly the case. Whether or not We can see it in the numbers that we are being awarded new contracts, that they are spending more money and such. It's too early to tell. But in general, the society has opened up a little bit and that should be, to some positive to the business that we are having. And also in terms of absentees and such, that should decreased because if you have if a large proportion of the workforce is vaccinated, then the absentee should come down as well. So yes, I expect it should be positive, but let's be careful and look upon the data. So It takes another quarter before we can see it has had any substantial positive impact on the business. Thank you. And maybe a final question, if we still have time. Is it possible perhaps to share some plans for Finland? I know it's a bit Sort of an early stage there, just did the acquisition. But do you think your expansion will be mainly centered around the Helsinki area? Or what's You're thinking and if I understand correctly, it will be reported as a separate segment here going forward? Correct. And just the indication, as you're saying, that if we one company in Finland is not really a segment. So of course, we are planning to add other companies. We clearly see the benefit of having companies Close to each other because one of the driving points here is to actually build a cluster of professional and periscope entrepreneurs through challenges with each other and have colleagues. So yes, we are looking for other companies to bring into the group in the Helsinki area. Okay, perfect. Thank you so much. That was all for me. Yes. Thank you. Thank you. Thank you. And we have one further question in the queue. That's again from the line of Frodeok Mortgaard of Pareto Securities. Please go ahead. Your line is open. Thank you very much for taking a couple of follow ups. First off, tying back to the last question on the Finnish market. Perhaps if you can share some insights as to how that market looks, size of the market, margin profile compared to Sweden, Norway, Have you gotten any sort of ceiling for the number of potential targets in that market? Any such information would be very helpful. Yes, of course, we have that data, but we do not really have it ready at and at this conference here. But we are looking upon the market in Sweden, Norway, Denmark and outside Scandinavian countries. We have a rough estimate of the size of the different markets and how the segments are developing, so to say. But right of where we are right now, I don't have that data available. I mean, we've entered Norway because we think it's an interesting market. So I'm not exactly sure what you are looking for here. No. I mean, I'm looking for some insight into the Finnish market mainly? Yes. Well, our as a general rule, the size of the market equates to the population in our business. Sure. So there's a correlation between their population size and the size of the market. So if Sweden is about Norway is about 50% of the Swedish market roughly And it's the same about the Finnish markets. And then you can slice it down into the different segments accordingly. So there is no major change between the market segmentation in Sweden versus how it looks in Norway or how it puts in Finland. Then there are some changes to it and there are some similarities to it. But on A counter perspective, it's quite similar, I would say. And I mean, there are high profitable companies, There are low profitable companies. There are you have all the variations as well as you have in Sweden and Norway. So as a rule of thumb, the Finnish market, It's about 50% of the Swedish market. And the size of the businesses is quite similar as to the Swedish market means that you have Half the number of companies and we have thousands of companies in our segment in Sweden and you have thousands of companies in Finland as in Norway. So they look pretty much the same and you have government contracts and such. And you have a similar political system between both and the cultural situation between Norway and Finland and Sweden as well. So there are differences, but there are more some similarities and differences in those markets. Okay, perfect. Just a final question then on sort of more of a housekeeping type question. Other operating income, you had Just about SEK 20,000,000 SEK 21,000,000 this quarter, quite a substantial uptick from where you're usually ranging. Is this a result of Some of the companies that you've acquired? Or is there some sort of one off impact in Q2, I. E, should we expect approximately this size Per quarter going forward or is that a bit too big? Well, first of all, I think it will differ somewhat between the quarters, and I think will go up somewhat. I mean, this is sales that are kind of not in our normal type of services That's reported there. So I think the number will be higher than it has been, but it can vary between the quarters. Okay. Thank you very much. Thank you. Thank you. Thank you. As there are no further questions at this time, I'll hand back to our speakers Okay. Thank you for the questions, and thank you very much for listening in. And I think that concludes our presentation here. So thank you very much, everyone, and have a splendid day.