Bravida Holding AB

STO:BRAV

Earnings Call Transcript 2018-Q1

[Operator]

Hello, ladies and gentlemen, welcome to the Bravida Q1 2018 Report. Today, I am pleased to present Mattias Johansson, CEO. [Operator Instructions]Mr. Johansson, please begin.

[Mattias Johansson, CEO & Group President]

Thank you, and good morning and welcome, everyone, to this presentation of Bravida's Q1 report. Today is as usual, myself, Mattias, and Bravida CFO, Nils-Johan Andersson, who will take you through this presentation.And on Slide 3, you can see to the right that our LTM sales is now close to SEK 18 billion and adjusted EBITA is SEK 1.101 billion. Our share of large projects is now 7%, which is a low figure and is explained by our increased service and our order backlog and that consist of mainly small and medium-sized contracts. This is important and will support our low risk profile in the future as well that we have in Bravida. As you remember, we have small average contract size and that is explained by a lot of service. We haven't diversified end markets and low customer concentration.Turning to Slide 4 and the Q1 highlights. We had an organic growth despite the Easter at 1% and the net sales grew 11% to SEK 4.557 billion. We had growth in all countries and growth came from both the service and installation at 11% respectively. Our order momentum is strong, order backlog is a once again at record high level at SEK 10.825 billion and that's up 20% compared to last year. We have a continued good momentum with order intake plus 9% to close to SEK 5 billion as well.EBITA is up to SEK 226 million and margin is 5.0%. Adjusting for Oras, our underlying EBITA margin is unchanged at 5.1% compared to last year. We have improved margin in Sweden as well as underlying margin in Norway.The cash flow from operating activities is SEK 58 million and cash conversion is 75% and that is explained by payment that came in late from customer -- customer delay due to Easter and that gives us, if we adjust the cash conversion of 99% which is almost spot-on our financial target. The working capital is SEK minus SEK 837 million or minus 4.7% of sales and net debt is SEK 1.8 billion roughly and 1.6x our adjusted EBITDA on LTM basis.We continue to do acquisitions. We completed 3 in Q1, adding SEK 232 million. We did those acquisitions in 3 countries, in all countries except for Norway, which are still busy with Oras integration. We did one in Finland, one in Denmark and one in Sweden. We have also completed 2 acquisitions in April adding another SEK 50 million in sales. And the integration in Oras is going according to the plan.On Slide 5, we can see an update on the market. And the technical installation and service market is, as I see it, will remains good in Sweden, Norway and Denmark and it will be stable in Finland. Our order backlog is, as I said earlier, record high and when I listen to some of our customers, but also colleagues in our industry, they say the same.I don't think I need to go into specific details. But we have some decline in production of residential, of course, in the market in some places. But my estimate is that this most likely will be replaced by projects from other types of facilities. Drivers as energy efficiency and renovation has not yet impacted the demand in our market, so my forecast is that this will happen in the coming years and, of course, will be positive for Bravida and will support demand in coming quarters and years as well.On Slide 6 we present the sales and EBITA development. And the sales growth was 11%, 1% organic and 9% from M&A. Sales at last 12 months was up 15%. We had sales growth in all countries, which is of course very positive. Regarding the margin, we have improvement in Sweden and Norway if we adjust Oras once again, and reported EBITA is plus 7% in the quarter up to SEK 226 million and earnings per share is up 12% in the quarter. And last 12 months adjusted EBITA is SEK 1.101 billion or 6.5% adjusted for Oras.On the next slide we have a picture showing the order momentum. And yes, we -- as I said this couple of times already, and I said that the same in the last report as well, we have an order backlog that is strong. It's healthy, it's mainly small and midsized projects and we are very positive and that will support our development in the future of course. 20% up compared to last year and maybe the most important thing in this order backlog is that it's small and average sized contracts, which also affects the risk profile in a positive way. But I also think it's worth mentioning that the order backlog in Bravida only includes our installation business. We have 47% of our sales coming from service business and these are not included in our own order backlog, so that will come on top as well.On Slide 8 you can see our order backlog compared to our LTM sales. The red line -- we'll start with that one -- shows the service sales development. And as we've told you, this has been positive and that's important for us to continue to grow the service and we don't lose focus on the service business while the installation demand is very high in the industry. So that's a very good sign of course. The green line shows the LTM sales on installation and the blue line is the order backlog.And as you can see the gap between the blue and the green line is stable. It might have increased a bit the last quarter and this is what we support the organic growth the coming quarters or -- yes, or months. But I think it could be worth mentioning that both order backlog, how we win new orders, how the organic growth develops et cetera, et cetera, can vary from one quarter to another. But, overall, the outlook is of course quite good I would say.Now over to Nils-Johan, who will take you through the financials.

[Nils-Johan Andersson]

Thank you, Mattias, and we will start on Page 9 and look little bit deeper into the figures, starting with the sales bridge. As Mattias mentioned earlier, we report organic growth of 1%. And as you know, the Easter have moved between Q1 and Q2 the last year, so -- and if you look back to last year, we had an organic growth of zero in the quarter where we have the Easter and also going back to '16, the organic growth in the quarter where we have the Easter was minus 3%. So it shows that this -- we have a slight improvement compared to this, but it also have an impact.Looking to the acquisitions, they contributed with 9% and of course here is Oras the big biggest driver. The currency effect was plus 1%. We had a positive effect in Denmark and Finland, but actually a negative impact in Norway where the Norwegian krone was quite strong in the beginning of last year. If you look to the earnings per share, it's up with 12% and looking for the last 12 months earnings per share, we are now up with 19% and SEK 4.15.We, looking to next slide, start to look into different markets, starting with Sweden. We continue to see a good development in Sweden. Top line sales is up with 4%. This is mainly driven by organic growth. But we also see a continued good service growth in Sweden. EBITA and EBITA margin improved from 4.7% to 5.0% and of course here we see an impact from the increased service sales have higher EBITA margin. If we look at the order backlog increased with 6% compared to 12 months ago.We'll continue with Norway on Page 11. In Q1, in Norway, we continued to have a good growth and we also improved the underlying EBITA margin. Top line sales was up with 21% and, of course, here is the main driver, the Oras acquisition. We had the biggest impact from the Easter holiday in Norway. EBITA margin, the reported was 5.4%, but if adjusted for the Oras acquisition it increased from 5.7% to 6.0%.Looking to the order backlog, up with 49% and, of course, the biggest explanation is Oras. If we adjust for Oras, we have an organic growth in the backlog with roughly 11%. If we look into -- give some comments about the Oras acquisition. As Mattias mentioned earlier, integration followed a plan and, of course, we continue to take the integration cost in the operating result. We also expect that we will see more synergies mainly on the administration side and also on the rental side during 2018. And I think it's worth mentioning that Oras was profitable in Q1. We are really happy to see that and just to remind you that Oras made a loss in '16 -- 2016, SEK 30 million, SEK 40 million. We reported breakeven result in 2017. And as we said earlier, we expect a profit in '18.Denmark, next slide, we see also an overall good development in Denmark. And most likely, if we look at the macro perspective, Denmark will have the strongest market in Bravida the coming years. So if we look at specifically the first quarter, we had a top line growth with 20%. It's a combination of both organic growth and acquisition and we see that demand is coming from both the public and the private sector.We also -- now if we look at the residential that has been weak for many years, at the price level now, the residential is back on the level we saw in 2008. So we hope and we strongly believe that also the residential will be a driver the coming years. EBITA and EBITA margin stable. We increased the profit from SEK 30 million to SEK 35 million in the quarter and you see that the order backlog was up with 18%. We reported a large order in the quarter was hold by hospital, SEK 140 million. But, of course, most of the increased sales is based on small and mid-sized orders.We go to next slide, and Finland. Growth in Finland was up with 28% this quarter and it's -- the main driver behind this is the acquisition we did here in January of Adison. But we also had organic growth in the quarter in Finland. We have a flat result, a breakeven result. And as we said earlier we expect that the profit in Finland will be better in '18 compared to '17. This is based on both internal improvement, but also based on the acquisition we did in January of Adison. Adison is another step to create the platform for us in Finland. So we have the critical mass and we can also serve our customers in a better way. I think another important thing is to mention that Marko Holopainen joined Bravida, the new Head of Finland in end of March, and he will drive the development now in the Finnish organization.If we look in next slide and give you a quick update regarding the acquisitions. As Mattias mentioned earlier, we did 3 acquisitions in Q1, one in Finland, one in Sweden, one in Denmark and we have signed another 2 here in April. And we -- sometimes we say we have an internal target that we would like to do one bolt-on acquisition per month and so far we have followed this target.Looking to the price level and pipeline, nothing have really changed. We continue to have a good pipeline and we have many discussions going on. And the price level is still on the same level as we have seen in the last years. That we talk about multiple of sites, based on 12 months' EBITA result before we taking over the business.If we look for next slide and look into the net debt and cash flow. Net debt ended up being SEK 1.841 billion, giving a net debt EBITDA of 1.6x and this is improvement -- improved from -- compared to year-end from 1.7x. Looking into the cash flow, it's actually declined, if we look for the last 12 months from close to SEK 800 million to SEK 715 million. And we saw that in the end of March that we have look into the receivables that was -- and the due were something between 1 and 7 days was SEK 250 million higher compared with the same period a year ago. And many customers paid after the holiday period, so we have really strong cash flow 2 first days in April. So adjusted for this, we are back more or less on the financial target. We have a cash conversion rate on 99%.We look into the financial targets. We are committed to grow the business with 10%, combination of organization growth and M&A. We also would like to take -- to see EBITA margin over 7% and cash conversion above 100% and the target is to pay out at least 50% of the net profit. And looking to the balance sheet, our net debt, the target for the leverage is 2.5x net debt/EBITDA.I think I hand over to Mattias to summarize.

[Mattias Johansson, CEO & Group President]

Thank you, Nils-Johan. The sales -- I think we can summarize a good quarter first of all. The sales were increased by 11% and we had organic growth even if we had the Easter in Q1 affecting us this year. Installation order backlog is at record high level plus 20% and we can see a good business momentum for the service and that will support the organic growth in coming quarters as well.Underlying EBITA margin is unchanged at 5.1%. M&A execution is on track with a healthy pipeline. We had SEK 232 million added in the quarter. Net debt adjusted to EBITDA 1.6x and the cash conversion, if we adjust for the delayed payment as Nils-Johan just told you about, is close to 100% which is our financial target. And if we see, we have a stable, good market conditions continued and -- yes, this was all for us. And I think we can open up for some questions if you have any.

[Operator]

[Operator Instructions] Our first is over the line of Stefan Andersson of SEB.

[Stefan E. Andersson, Analyst]

First, if we look at the Oras operation. I could be wrong here. But if I break -- calculate backwards, looks like its 3.5% margin or something like that. If you can confirm that. And also then [ clean ] that's impressive to already be at that level. So if that is true, is that the clean margin so to speak or is there one-offs in there?

[Mattias Johansson, CEO & Group President]

As you know there, first quarter is a quite small quarter and we think the result can vary from one quarter to another. We still have some synergies that we haven't been able to actually -- yeah, we are taking them out. But the cost savings are not here yet. But roughly...

[Operator]

Sorry, Stefan, you have noise on your line. So I'm just going to mute your line.

[Mattias Johansson, CEO & Group President]

I think if you do the calculation, you are around right there or about there. We still stay to the guides we have given that we will have some better result in '18 than in '17. I think the second half will be better than the first 6 months in '18, but we are still very early. But its follow our plan and so far we are happy with the development in Oras also.

[Operator]

Okay, Stefan, I'm unmuting your line.

[Stefan E. Andersson, Analyst]

Then I will do the remaining of the questions together. So if you look at Finland, it's back to breakeven again. Is this is the seasonality or is there something else there? And also what kind of margin do you have in the acquired business, the SEK 190 million revenues that you are adding? And then also if you were to adjust for Easter, what kind of growth pace do you have? I think you normally -- historically have been commenting on that. What kind of negative to the growth is Easter in the quarter.

[Mattias Johansson, CEO & Group President]

Yes. If we start with the Finland and then the breakeven result in Q1. I would say that -- Finland is a small part of the business and one single mistake or some single project effect -- will affect the whole results. I think we are in the right -- moving in the right direction in Finland and that we will be throughout the year. So I think that is just one small mistake that actually have been seen in the result so far. And then asked about the margin in Adison Oy. I will saying that that's more profitable than our -- the rest of the Finnish organization and that will improve our margin in the coming year. They are adding both sales and profits to the business. The Easter effect, we normally say that that is 3 to 5 days. Now we are depending on the working days, so I think that's what we can tell about that part.

[Operator]

We are now over to the line of Sylvia Barker at Deutsche Bank.

[Sylvia Barker, Research Analyst]

Can we just talk a little bit about your staffing and just whether you are still seeing any constraints within any of the regions around employing people. Is that limiting the growth in any of the regions. And I think you were talking about looking for people potentially from the Baltic countries or if Europe as a whole and maybe working with companies from those regions. And also around procurement, what are you seeing in terms of and from your suppliers and in terms of your procurement initiatives?

[Mattias Johansson, CEO & Group President]

Okay. I would say both regarding staffing and suppliers, there is actually nothing new. But of course there is -- especially bottleneck in Denmark, I will say, regarding resources. We still see Bravida as an attractive employer and we attract a lot of resources, of course. But I wouldn't say it's worse now than it was 6 months ago. It's unchanged. Regarding the suppliers I would say the same. It's always a battle between, they wanting to have as high price as possible and we want of course the opposite. So we haven't seen a major impact or change in that perspective now if we look at the whole picture. Of course, there is some certain suppliers who tries to increase the prices, but we -- what we are doing in that -- those cases, we actually tried to steer away from buying from those supplier and are very, what you say -- we tried to buy from our partner so to say. And if we don't want to work together with Bravida, take out costs from the processes et cetera, et cetera, than we rather work with someone else who wants to deal with us. So we don't see that factor in our real partners. So we will continue to strengthen the partnership with those suppliers as well today.

[Sylvia Barker, Research Analyst]

But just on the Oras and run rate. So you still have some cost of integration running alongside the improvements? Or -- and did you see, let's say, April and beginning of this month or you already seeing better profitability, i.e. it's improving as you go through the year. So should that Norwegian margin presumably had some Easter in there and you had -- I see, Oras, you're still running some of the costs and that should be getting even better as we go through?

[Mattias Johansson, CEO & Group President]

I would say regarding the synergies there are some costs related to premises and some administration cost that we actually have taken care of in the perspective that we have been taken the decision and done what we are supposed to do. But we still have the costs within the profit and loss so to say. And in some places, we haven't been able to move together yet, because of type the contracts we had. But it no change regarding to our plans. When it comes to their margin, I would say that it's still work regarding -- it's not only the cost side, it's still a work regarding the Bravida Way. How we want to do business margin over volume et cetera. And will take some more months or quarters in some places in Oras. While we're having in some other places in Oras margin that is well aligned with rest of Bravida. So -- and Nils-Johan I don't if you want...

[Nils-Johan Andersson]

No. And still we have a backlog in Oras when the orders that they took before we acquired the company and we have to produce on this backlog and the backlog -- the margin of this big backlog is lower than average in Norway. So we still see that we have to work a couple of more months before we have working down the order backlog that was required.

[Operator]

We are now over to the line of Predrag Savinovic of Nordea.

[Predrag Savinovic, Analyst of Consumer Goods]

Could you comment a bit on the -- maybe the organic growth between service as well as installation and maybe also on the order intake side to get a better view?

[Nils-Johan Andersson]

You said organic growth in service and installation, you saw the service growth was 11% in the quarter and it was more or less in line with the total figure. We have most likely -- we have the best service growth in Sweden where we also actually -- we start off with initiatives in Sweden. So I think that's one of the explanation why we see a better service growth in Sweden. If you look at installation growth, is good in Denmark based on the good market conditions and we have a couple of larger products that we're now working on.

[Predrag Savinovic, Analyst of Consumer Goods]

Do you have any effects from the winter in Q1 and what would -- I mean, if you would adjust for that, what kind of figures who would we have been looking at in that case?

[Nils-Johan Andersson]

Of course, it's -- when we look into our customer, the construction companies there could be some delays. But it's -- for us mainly its internal work. We are work inside the houses. So we -- as we see it must be a quite limited figure.

[Mattias Johansson, CEO & Group President]

Yeah, I would say that maybe some in Denmark, but it's not being that we internally discuss. And I would say if that's have happened it will affect us in the Q2. But it's nothing that we have heard or seen as I think from the industry we are working in and that's not -- having -- doesn't have an effect impact this year.

[Predrag Savinovic, Analyst of Consumer Goods]

And then how should we regard Denmark here going forward? You say the macro is very favorable, momentum is solid and you have some good -- I mean hospital orders, for example, which is very good for your profitability. But then the resource constraints et cetera, which may limit the upside area. How -- what kind of potentials are we looking at here?

[Mattias Johansson, CEO & Group President]

Yeah. I would say that we have been telling you for the last 24 months, I would say, that the resources in Denmark is a maybe the most important bottleneck. But we have handled it so far. And actually still we are asked about some other resources from some other areas as well, and we are working with serious subcontracts and try to take our own peaks by using subcontractor and sell out some risk. So that's how we try to handle it. And of course, to price, slightly higher as well. But let's see, you always have a buying side who try to do the opposite, of course.

[Predrag Savinovic, Analyst of Consumer Goods]

On M&A you say that pipeline it's solid, but maybe if you could give us maybe in terms of both targets and also in terms of revenue, how much is up for grabs here and your scope maybe for the coming year or 2 for us try to capture potential here?

[Mattias Johansson, CEO & Group President]

It's hard to estimate because we have discussions going on in all countries except Norway and we sometimes say the you need to tango and it is more or less in line what we have seen earlier and price level are also on the same level as I said earlier that, that we expect that we continue to do these bolt-on acquisitions in both Sweden and Denmark and Finland. And when we come to towards the end of this year, most likely Norway can also start looking for new acquisitions.

[Predrag Savinovic, Analyst of Consumer Goods]

And finally for my side, could just talk a little bit about the duration in the backlog?

[Mattias Johansson, CEO & Group President]

Yes, we do this -- analyze this couple of times per year and the duration is more or less unchanged compared to a year ago. So, it's not that we have a longer backlog. And please to remember that it's only installation product and it's all signed contract. So, we still have a really good quality in the backlog and that will support the business the coming quarters. Thank you.

[Operator]

[Operator Instructions] As there are no further questions at this stage, Mattias, pass it back to you to any closing comments.

[Mattias Johansson, CEO & Group President]

Okay. Thank you, everyone, for good questions and for listening in to this call. And yes, I think we say thank you very much and have a nice day. Thank you. Thank you. See you again.

[Operator]

This now concludes our call. Thank you very much for attending. And you may now disconnect your lines.