Green Landscaping Group AB (publ)
STO:GREEN
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Green Landscaping Group AB (publ)
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Ladies and gentlemen, welcome to the Green Landscaping Group Audiocast Teleconference for Q1 2022. [Operator Instructions] Just to remind you, this conference call is being recorded.
Today, I'm pleased to present CEO, Johan Nordstrom; and CFO, Carl-Fredrik Meijer. Please begin your meeting.
Sure. Thank you very much. And a warm welcome to you all. We are quite pleased to report the strong improvements in this quarter. So let's dive into the numbers.
Next slide please, Page 2. As can be seen, sales came in at SEK 886 million, which meant that we grew by 33%, which is a quite high growth, but also according to plan in the quarter. Organically, we grew by 5.1%. We are quite pleased with the 5% because that means we are growing with the market and also given that we have made some changes during the course of last year where we had unprofitable units and contracts, which we are no longer dealing with, and we are still growing with a 5%. So that is, of course, lucky to see that number.
In terms of profitability, EBITA, we came in at SEK 61 million, and that is a significant improvement and a very strong trend. So we are quite pleased with the results. The margin came in at 6.9% in the quarter, and we have been working for the last 2 years in terms of even out because Q1 has been our slowest quarter. And given the recent acquisition and also organic improvements we've made within the business, have led to the result and we're quite pleased to see that we could achieve almost 7% margin in the first quarter.
In terms of profitability for the last 12 months, we achieved 8.2% and that means that we are in line with the 8% target for the first time. So we are quite happy with that one. We have been on an upward trend for several quarters. But it's nice to see that we finally achieved that target. So that was -- to me at least, that's a highlight of this report.
Earnings per share came in with accordance to plan there at SEK 0.27. Cash flow came in at a very strong SEK 79 million, pretty much related to the high activities we had in the fourth quarter. And then we saw that we had a cash flow coming in from the fourth quarter into the first quarter.
Leverage are coming down to 2.3. And also we made several acquisitions. We've made 4 acquisitions within the quarter, and then we have finalized Aktiv Veidrift after the reporting period. So that means that we have made 5 acquisitions year-to-date.
Next slide please, Slide 3. Taking a slightly longer view on what's going on here, we can see that the CAGR for the last 3 years is a quite impressive 34%. So we are growing at a steady pace, even though it's a quite high pace. Profitability-wise, we have a CAGR of 123%. And there we can see that we more recently have increased the profitability of the business pretty much according to plan. So that means that we right now are at SEK 278 million EBITA for the last 3 years here. So it's going pretty much according to plan, and we're happy to see the improvement in profitability as we have been talking about for the last, I would say, 2 years.
Next slide please, Page 4. So where does the growth come from? Well, organically, as I mentioned, we grew by 5%, and that is pretty much in line with what the market is growing with. And then we have made the acquisitions, meaning with another 26.5%. So all in all, I believe that the revenue came in pretty much according to plan. It's a strong quarter, and we are happy to see the growth rate that we are and that we are growing in line with the markets.
Next slide please. A few words on the acquisitions we have made so far. So we started out by Rainset in Finland and this is Arto and Tero. This is basically a sweet spot company. It's a landscaping company with a revenue of EUR 4 million. It's operating -- they are operating in the Helsinki area. They are well known by our 2 guys in Finland, Tapio and Tomi on Viher-Pirkka. And it belonged there at least for a long time. We have been in a dialogue with those guys for quite some time, and we were able to have them coming onboard in the past quarter.
Then we have another company, and this has been in Hallandsasens. This is a company founded back in 2008 by Oscar, and he is a third-generation entrepreneur. So he has the green DNA in the blood, partly customers, also a sweet spot company, and we do welcome them to the group. It's a very nice addition to the companies we have in the region, and we are starting to have, I would say, quite a cluster from basically from Laholm all the way up to the coast here; we have several companies in that region. So it's a very nice fit. And as I mentioned, a warm welcome to the company.
Next slide please. So this is Page 7. We also made an acquisition in Norway in Oslo, Glenn Syvertsen, that was founded not so long ago back in 2011. It's a well-known company by our existing CEOs in Norway, and we are starting to have a quite a cluster of or I would say really excellent companies in the city of Oslo. It's a fine company and we've been having the revenue, as you can see, of about NOK 35 million with 14 employees, and we do welcome this company to the group as well.
Next slide, please.
So we always give example of some projects that we'd like to highlight during the quarter. And first of all, it's worth mentioning that the mainstay of our business consists of small and medium-sized projects. But we are awarded, I mean, of course, several contracts every day. But here are some example of the larger ones.
So the first one is with the city of Helsingborg where we were awarded 5 contracts worth roughly SEK 75 million per year, and they extend on 2 years up to I think it's 7 years. And this is a renewal of some of our existing contracts, but also an expansion with add-on of a few more. And the work is ground maintenance, taking care of this, the green areas in the city.
Next slide please, Page 9. Next project is a large infrastructure project awarded to Hakonsen and Sukke, a quite newly acquired company in Norway. So we are doing the landscaping work in connection with the train station in Drammen in Norway, southwest of Oslo. This is quite unusual project. It's rough spans over 4 years. It's, of course, an example of true infrastructure and the important role we play in creating our cities and creating value to the society. They start 2022 and complete at 2025.
Next slide please, to Page 10. This is another project awarded to Hakonsen and Sukke where we are doing underground work, including technical installations and then above ground work landscaping in Tonsberg, which is also south of Oslo in the oldest city in Norway, I found out. And the work is worth approximately NOK 30 million and it spends over 2 years. So fantastic project for us.
Next slide please, to Page 11. Order backlog increased by 10% to SEK 5.7 billion. So we have good order visibility. The order backlog consists of multiyear contracts, and then we have the below one-year contracts, which are renewed constantly. So SEK 5.7 billion is a healthy order book and gives us good visibility and makes planning for the business possible.
Next slide please, Page 12. So here we look at the income statement and balance sheet. And I'd like to comment on -- we saw the total income of SEK 886 million in the quarter, and the operating profit was SEK 39 million. Earnings before tax SEK 22 million. And I'd like to comment on the financial expenses, which were higher than last quarter. And this is driven to some extent by that we have larger outstanding debt and a commitment fee. But the largest part is actually reevaluation of earnouts due to currency fluctuations between the Norwegian and Swedish crown.
Next slide please, to Page 13. This is performance per segment. So we saw growth in most segments and fantastic margin development in some of the segments. And let me run through segment by segment shortly. So we saw margin improvement in South of 6.1 percentage points and steady sales. Region Mid, we saw an expansion of 5.4 percentage points in margin, which is quite strong, and the growth was quite strong as well, SEK 17 million. Region Stockholm, we've seen a positive trend as we've been talking about for many quarters. Here we actually saw that we increased margin by 13 percentage points between last quarter and this one.
Region North, roughly the same sales. We had a strong quarter actually last year in Region North. But despite that, we will manage to increase profitability by 3.1 percentage points. And Norway had another fantastic quarter with more than double sales and roughly maintained profitability. And Finland, we had a -- that first quarter is low season in the Finnish operations that we have. So all in all, we increased the margin from 2.2% last year to 6.9% this year, up 4.7 percentage points.
Next slide please, Page 14, financial position. Johan commented on the cash flow. The leverage actually decreased to 2.3, down from 2.9 last year. We were at 2.4 I think in Q4. And this is despite actually the acquisitions that we made. We paid some earn-outs during the quarter, and we also repurchased shares of SEK 24 million. So we're quite pleased with the leverage operating locally in this direction, and it's a continued focus on acquisitions. Cash was SEK 332 million.
Next slide please, Page 15. Over to you. Johan?
Okay.
Thank you.
Just to mention or comment on the financial targets we have. So those are the 4 that we are supposed to be growing by 10%. And right now, we are at 40%. So we are probably significantly higher or faster than the financial targets. In terms of the profitability, we have had since we made the IPO 3, 4 years ago that we should reach an EBITA of 8%. And as I did mention, I'm quite happy to report that for the first quarter of this year, we are actually at 8.2% for the last 12 months in terms of EBITA.
So that is a kind of a breakthrough for us. I'm happy with that one. Not saying I'm content with that level, but I'm happy to report that we achieved the target that we have had. Carl did mention about the leverage were the target is 2.5x net debt to EBITDA, and we are at 2.3 even though we are continuing to grow faster and making additional acquisitions. And then in terms of dividend, we had the goal of 40%. And so far, we have not made any dividends.
Next slide please, Page 16. And this is just to sum it up before we open up for questions here that we saw, I would say, a very strong growth pretty much according to plan. But even so, we are growing by 33%. We have a CAGR of 34%. EBITA CAGR of 123%. So we are growing quite quickly and according to plan in terms of revenue and the profitability is coming in very nicely with the 8.2% as reported.
And also in terms of acquisitions, we are quite active in the market. I would say we have a healthy pipeline, meaning that we are in discussions with several companies. And we are trying to stay -- not trying, we are staying prudent in terms of which company that we do acquire. It should be high-quality companies. It will take some time in order to meet with the entrepreneurs and get to know them in a good way. So we have a cultural fit with the entrepreneurs and making sure that we stay on board for a long time with the company.
So that's pretty much. We have a strong quarter, and we are happy to report the financial data.
So by that, I believe we open up for questions.
[Operator Instructions] The first question comes from Dan Johansson, SEB.
I have 3 questions from my side, if I may. I will take them one by one. First question, you experienced quite a good improvement in profitability area compared to last year. Would you characterize this as an exceptional Q1? Or is this sort of the new normal for you right now in this quarter? And if possible, could you also walk us through the main drivers there? What is the mix from your latest acquisition? And what is sort of your efforts of reducing seasonality and also improving the business? Yes. Could you elaborate a bit on that?
Yes, it's a fairly big question that you're coming with. But as you recall, going back into 2020 for the first quarter where we had clearly difficulties given that we had a very warm weather. So we have ever seen that time period when we look upon companies to acquire. We have actively sort out companies who have a strong performance in the fourth and the first quarter to balance the company, so to say. So we don't start on a negative note and in particular. Companies like road maintenance companies, they have the mainstay of their revenue during the winter season. So that's one effect that we see for these 4 and I do currently expect that to continue moving into the future of course. Of course, that's the setup of those companies.
Then we have had a discussion for a long time ever since we acquired Svensk Markservice, and integrated and deep centralized those companies. And as I've been able to mention in the fourth quarter that we now more or less have finalized the decentralization and incorporated those entities to legal entities. And we can now see, as you can see as well that in Stockholm region, for instance, where we haven't made any acquisitions, we can see a strong improvement in profitability in the first quarter. And that is a result of the activities we have done with the companies. We are not showing that good profitability historically. And now we see that some of them have turned the page and improve their business.
I hope I did catch most of that. If [indiscernible].
One, roughly 50%, 50% of the improvement coming from legacy group, so to say, and 50% from newly acquired companies.
Okay. You talked a bit about Stockholm there and there's some more specific question on that. Revenues are lower, as you said, due to the contract terminations, but margins clearly better for the third quarter in a row now. So my question is really, will you remain cautious on growing revenues in Stockholm now wherefore were up to -- you have a few more square quarters with good earnings on the belt or have the Stockholm operations earned a trust to start growing going forward?
We see some growth, but -- and this is not like a fast-moving business even though there's a huge market and you can't go quickly if you choose to put down in a bigger price. But that is not really our strategy. Our strategy is to be a profitable company and not just gaining market shares or growing the revenue. So we are growing in Stockholm region, but I'm still very careful that we have to grow in a controlled way, making sure that we continue the trend of increased profitability in the region.
So I do expect not to say this is a forecast today, but I do expect the improvement to take place in most of the companies who have not met our internal profitability targets and we're working actively with our entities. And of course, during that process, we are careful, we're gaining too much or winning too much new contracts. So it's a bit early to say that we have started to increase revenue in parallel with the profitability improvement in those entities. They still have to show -- most of them still have to show that they are in a stable environment, and they are in a good projection in terms of taking care of the customers and our employees and such before I would see any major growth for those companies.
It does not mean we are showing, but I just want to make sure that they are in control. And to some extent, this is a seasonal business, and that means that right now we are starting out our high season. And that's when you have temporary workers coming in and that type of things. We need to focus on just making sure that we are continuing the trend on increased profitability in those entities.
I mean, we're still at the 2.7% in margin last 12 months in Stockholm. So it's too low.
Yes.
Perfect. That makes total sense. And going to the final question, if I may. On secure increase in cost inflation, I mean it was positive. But is that something that helped you now throughout Q1? And perhaps if you can share some thoughts on how you potentially impact on such factors here over the coming quarters of this year?
Yes, and this is just a big question because we have had to deal with, I would say, the negative impacts from COVID-19 ever since the beginning of the disease back in 2020, I believe. And the side effects or the negative effects have, of course, been that our employees have become sick. We have had customers who have become sick and that means that we cannot execute the projects as we intended, that we could not get the supply of parts that we have been dealing with because we do actually buy parts from China and stuff. And when China is closing down, we can't get the stuff. We have to [indiscernible] locally and those -- there's a price increase you have to deal with and we have to talk to the customers, you have to reschedule. So there's low activities going on.
And right now, it's a big focus on the diesel price has come up, and we have a higher inflation. But for our CEOs who are running their own subsidiaries, it's not that big change. We are bidding on new contracts. And if the cost goes up, then when we do the bidding, we have to calculate with a higher cost. For the long contracts that we have with the public sector, there we have index clauses. It's a bit complicated how they are structured. But in the majority of the cases, we are covered given that it's long contracts with index clauses. So we are in negotiations with the customers on how to interpret it and how to deal with the cost increases.
And also most of our fixed contracts are not that long. They typically are, I would say, 3 months from bid to end of project. And should we have had a price increase during that time frame, then that's something we have to talk with the customers and see if we can get some type of reimbursement. But they will roll out, and you will have new bids and new contracts coming in. So it's a continuous process. So we don't -- of course, we have the negative impact of inflation, but it's not a major difficult for us. We are dealing with it on a day-to-day basis. And it's not a new problem. It's an environment we have had for the last, I would say, 1.5 years.
The next question comes from Fredrik Moregard, Pareto Securities.
First off, very nice to see you exceeding that 8% margin target that you set a few years back. Just hoping you could discuss your thoughts about potentially raising that target going forward. I mean you have a number of acquisitions still coming through your numbers. And if I'm not mistaken, all of those are margin accretive, and there's also opportunities you have within the legacy structure to continue to improve margins there. So why not raise the targets for the coming years?
I believe that -- thank you for the question there. Of course, we are thinking about what is the, so to say, the next level here. And as you know, we are not officially communicating any forecast. But of course, as we see now that we have met the 80% target, then we would do the analysis. I need -- or we need, I'd say, 1 or 2 more quarters to see how stable is the trend, how will the new companies perform because when we were growing at such a high pace as we are, we are being joined by several new companies basically at the quarter. We just need some more time to just make sure that how should we deal with the target we have. And this is something that, of course, would be discussed with our Board of Directors should we choose to change the financial targets. It's a bit too early to comment on that one in reality. But of course, we are happy to see that being in the target that we have promised to the market.
I mean, we see the sales trend that we try to do the best we can every day and every quarter. So let's see where that takes us.
Yes. So independent of the target, we are clearly moving in the right direction.
Sure. That's fair enough. Then a second question. With Stockholm -- and I appreciate what you're saying with margins still being subpar, but Stockholm broadly improving. And I guess it takes less of your time now than it did 1, 1.5 years ago. And then all business units now turn into separate legal entities. What is the next main structural projects that you guys will be conducting from headquarters outside of additional M&A?
Well, we don't have that corporate office to begin with. It's only a handful of employees. And of course, when a company is growing at the pace at which we are growing, we have to stay ahead of the curve, making sure that we have the right structure that we can take care of both the old companies, but also the newly acquired companies that they -- that we have stable processes internally on how do we govern the companies, how do we motivate them, how do we communicate? Basically, how do we take care of all the businesses we have?
And given that we have been growing -- I think the growth, we grew by 9 companies last year. And we're up to 4, 5 companies so far this year. Then that is something that we are occupying ourselves with. We're also changing on making changes to how we deal with sustainability, how we do the digitization and how we do with the work team, making sure that we can support the businesses given that we are a decentralized company to stay true to the strategy and just improving areas where we can see that we can improve the collaboration between the companies, synergies, if you like. And also, as I did mentioned about the relative sustainability and digitalization and the government of the companies that we have in our group, that is pretty much a big focus we have above and beyond keeping the pipeline of new companies coming in intact and growing upon.
But also to some extent, it's a bit too early to talk about geographical expansion. But of course, we did enter Norway a couple of years ago, we did enter Finland roughly a year ago. And of course, we're seeking to see what type of opportunities do we have elsewhere. So I believe that taking care of the business and also see the additional geographical expansion, if you want to sum it down to easy bullets, that's what we are doing.
All right. Very good. And when it comes to geographical expansion, without naming any specific countries, are there any specific market characteristics that you're looking for? And sort of how different are potential additional markets from Norway, Finland, and Sweden in terms of structural competition and so on?
Yes. We have been looking about -- we have been looking into obviously several companies -- several countries in Europe, in particular. Of course, that's close to home. And we clearly see that we have a strategy that we will stay true to and benefit the issuers novel being #1 on the money, not being a subcontractor to the construction companies and such. That strategy would pretty much stay the same. And when we have looked upon what's going on in Denmark, Germany, France, England and so forth or in U.K., we see that there are similarities in the market, which meaning that we do not have to change the strategy should we choose to enter one of those markets. So that's the upside.
And so we believe that we are having a very good strategy with the strategy coming in our favor, and we can actually expand into new geography, keeping the strategy intact. And then is, of course, very positively, we looked upon it like do they have the same type of definition of the market, do they have a public sector that outsource the world in such. And the answer to those questions are basically, yes, it was necessary in the countries that we have been looking at.
There are no further questions. I hand back to you, speakers.
Okay. So if there are no further questions, we thank you for participating and wish everybody a good day. Thank you very much.
Thank you.
Bye-bye.