Green Landscaping Group AB (publ)

STO:GREEN

Earnings Call Transcript 2024-Q1

[Operator]

Welcome to the Green Landscaping Group Q1 presentation for 2024. [Operator Instructions]. Now I will hand the conference over to the CEO, Johan Nordstrom; and CFO, Carl-Fredrik Meijer. Please begin your meeting.

[Carl-Fredrik Meijer, executive]

Good morning, Carl-Fredrik here. Today, I am joined by my long-time colleague, Jakob Korner, part of management team and Head of M&A instead of Johan. And Johan is temporarily on leave due an accident in his family. He is expected to be shortly back. And Jakob will present Johan's parts in this presentation, and we will then answer questions together. Jakob?

[Jakob Korner, executive]

Perfect. Yes, I'm Jakob Korner, as Carl-Fredrik just mentioned. I've been in the company for plus 10 years, and we say, I know our company really well. I'm Head of M&A in the group since 2020, and I've been a part of the management team at Green for a long time. Well, before we dig into the numbers, I would like to say that we started the year really, really well. Our model truly shows itself being resilient both because of the characteristic of our business, but also because of the super skilled entrepreneurs we got inside the group. Sales and profit margins were up or at least on par with last year for all 3 segments. Apart from the first quarter being a pronounced low season for us, it is really the quarter where weather impacts our financial outcome most and snowfall was a bit heavier than normal this year, at least in parts of the Nordics, and that contributed notably in sales to our performance.

Apart from that, we have announced 2 acquisitions, both in Germany, and we do have a solid M&A pipeline. And I believe that really indicates that who we are and how we do things, works really well with entrepreneurs also in Germany and on the DACH market. Presenting Green Landscape being group then where we are and what we are. So we are active on a super attractive market, it's large, it's steadily growing, driven by megatrends as urbanization and sustainability. It's got low cyclicality. It's highly fragmented. And a big part of the market consists of demand from the public sector. And to this market, we're applying what we believe, a really good business model. And the main thing about the model is that it is decentralized. This is about local decision-making in our plus 50 subsidiaries. We're entrepreneurs. We're large owners. We've got an evergreen horizon. We love the public customers being #1 on the money, and we also like to learn from each other between the subsidiaries. We say we are decent people making decent money in a decent way, and we are working really hard. Other than that, I would say we've got approved an M&A strategy with unlike plus 40 companies since 2017. We are disciplined regarding segments and some other criterias of ours. You could say -- I mean, we are looking for success and successful entrepreneurial, successful companies. We're looking for companies with long-term customer relations. We're looking for entrepreneurs of people that really like what they are doing. We're looking for culture, culture, culture, good culture because that is what makes the good companies really, really successful. To sum it up, we're looking for the best. So summing up where we are and by the end of March '24. Starting off with RTM, we increased net sales by 15%, EBITA by 19%, and our RTM EBITA margin by end of March increased from 8.3% to 8.7%. Looking into same figures, but for Q1 in '24, while net sales increased by 11% to SEK 1,383 million. 8% of the growth is organic, partly driven by snow and 4% coming from acquisitions. EBITA increased by 5% and reached SEK 90 million in the quarter and our EBITA margin amounted to 6.5% compared to 6.9% same quarter last year. The decrease in margin is due to slightly higher overhead since all our 3 segments are performing better than Q1 in 2023. Financial gearing is at 2.4, with other words, in line with our targets. We repurchased shares during the quarter to the amount of SEK 32 million and regarding our expansion, we could say that it continues as it should. We acquired 2 companies in Germany, 1 in February and 1 in April. And I'll get back to these 2 companies shortly. Zooming out on our financial performance over time, we are pleased to present that we are trending well above our targets. By the end of 2022, we decided to take a step back in our M&A growth just to monitor the market and our development. We also invested that time into building the infrastructure in Germany needed to reach our long-term goals basically. So because of this, there is a decrease in our growth rate, both regarding sales and EBITDA as of today. But I think it's fair to say that we expect to get back on track. During the quarters, that lies in front of us by acquiring, well, around 8 to 10 companies a year. That's the pace that we really like. So again, the long trend of net sales and EBITA is just as we like it. Digging into our segments then, starting off with Sweden, first, the RTM numbers. Net sales increased by 1% and EBITA decreased by 14%, ending up with an EBITA margin of 6.1%. As we have disclosed during previous calls, this is because of substantial loss-making in one subsidiary, especially in Q2 and Q4 2023. Furthermore, it's basically about one really loss-making project that will end in Q3 -- in the end of Q3 this year. Actually, most Swedish companies are doing really good.

Looking into Q1, net sales increased by 4% to SEK 729 million and EBITA increased by 3% to SEK 59 million. It gives us an EBITA margin of 8.1%, in other words, stable compared to last year. Regarding Sweden then, I said in the beginning that we had a little bit more snow than usual in part of -- in the southern part of Sweden, driving our sales in our maintenance companies. But on the other hand, our landscaping companies struggles a little bit more because of snow and cold Q1. But this is basically how we design our group to decrease the dependency of winter. So I would say all good and according to plan.

Jumping over to Norway. Looking at net sales, RTM it increased by 17% where acquisitions contributed by 20% and organic growth by 2%. EBITA increased by 2%, which leads up to our RTM EBITA margin of 10.4%. Regarding Q1 then, net sales increased by 10% to SEK 549 million, and EBITA increased by 31% to SEK 48 million, sorry. So our margin -- EBITA margin in the quarter reached 8.8% compared to 7.4% in Q1 '23. And regarding segment Norway and it's basically the same story as in Sweden with a high amount of snow, really rewarding our maintenance companies, and it drives both sales and margin in the quarter. Even though our landscaping companies are affected somewhat in the other direction. And of course, it must be said that we got really, really skilled entrepreneurs and managing directors all over our 3 segments, and they are acting very well to adjust their business according to external circumstances, regardless if it's weather or something else. So very well done. Last one, Rest of Europe. Our net sales, RTM is up by 153% and EBITA increased by 527%, leading to an EBITA margin of 20.8%. This dramatic growth numbers is, of course, mainly driven by acquisitions. In this quarter, net sales increased by 121% to SEK 105 million and EBITA decreased to minus SEK 7 million, which gives us an EBITA margin in Q1 on minus 6.6%. So regarding this segment then, I would say that the absolute majority of our companies in this segment are landscaping companies. And because of that, I mean, the first quarter, it's basically loss-making by design. But if you take a look at the graphs on the right-hand side of the slide, one can immediately see like the seasonality within this segment and we expect the segment to follow the same pattern as previous years, basically. Overall, good growth by defining the segment, and we expect the growth to proceed in this segment during the quarters that, yes, lies in front of us. So let's take a look what we did on the M&A side of the business. In February, we joined forces with Lässle Landschaftsbau & Tiefbau. It's a stable landscaping company in Offenburg in Germany, that is just east of Kaufbeuren, but of course, on the German side of the border. It's a well-run company founded back in 1968, has Rainer Lässle, who is running the show over there is a skilled entrepreneur, providing landscaping services, including some water and sewage services in and around Offenburg. They're also working with a pretty advanced recycling business regarding soil and got around 25 employees within the company.

Then just outside of Q1 in the beginning of April, we agreed we will have Wolfgang Kuchler to be a part of Green Landscaping Group. He is running a company named Gartenidee Kuchler just outside Munich in Ingolstadt with his around 100 employees. Gartenidee Kuchler is a very well-known and well-reputated brand on the landscaping scene in Bavaria. So really glad for this one as well. The company provides services within landscaping and maintenance. And to sum it up, we are super delighted that both Gartenidee Kuchler and Lässle Landschaftsbau & Tiefbau are on board in the green landscaping group by now. So that's all for me for now. So Carl-Fredrik.

[Carl-Fredrik Meijer, executive]

Thank you, Jakob. Looking at the key financials. We talked about net sales, SEK 1.4 billion, and we're just below SEK 6 billion on rolling 12 months. EBITA and EBITA-margin a bit lower this quarter due to the normal seasonality. And as Jakob said, all our segments are actually performing slightly better than last year in terms of margin, but we did have higher overhead costs of SEK 10 million versus SEK 3 million last year. Part of that is due to higher M&A cost of SEK 2.5 million this quarter, but we've also taken a look at the routine for accruals for various compensation so that we actually accrue it more evenly distributed between the quarters than we had before. So it's not a step up in costs -- overhead costs that we're looking at here. It's slightly this quarter will be impacted. We have a strong cash flow this quarter in line with normal seasonality. I will get back to that in a few slides. We had return on capital employed of 38% if you exclude goodwill and return on equity of 14%. Our order backlog is solid. It varies slightly over time and financial leverage, 2.4x. It's expected when we have a strong cash flow that we will deleverage and earnings per share were SEK 0.4 per share versus SEK 0.63 last year. And here, it's worth reminding that we had SEK 0.38 in exchange rate gains last year in Q1 as the Swedish krona gained value versus NOK and euro. And we actually highlighted this in the quarter last year. Looking at the cash flow, it amounted to SEK 366 million on a rolling 12 months and SEK 208 million in the quarter versus SEK 221 million. And we had SEK 368 million cash and cash equivalents at the end of the period. And if you look at the chart to the right, you will see that it varies quite a lot between the quarters, but it's usually strong in Q1, and this was what we expected this quarter as well. Definitely, having the last of March -- 31st of March on Sunday and also having Easter before that weekend impacted payment patterns from our customers. So we did again see a large amount of receivables being paid in the start of April. Looking at the cash flow bridge, we have SEK 90 million in EBITA. We had net depreciation of interest and tax of SEK 30 million a positive change in net working capital, so releasing SEK 148 million, meaning we had those SEK 208 million from cash flow from operations.

We spent or used SEK 36 million on acquisitions. We did investing in CapEx of SEK 39 million. We took up new loans of SEK 9 million, but we repaid loans of SEK 165 million. And then as Jakob mentioned, we used SEK 32 million to repurchase our own shares during this quarter, which means that we had a minus SEK 54 million in net cash flow for this period.

Looking on the financial leverage. We have a target of maximum 2.5x. Given the stability of our business and the stable cash flows, I think it's quite prudent to be at this level and it's in line with our financial target. I think we should definitely be -- we should be between 2x and 3x in leverage. And again, like we said, this is something we can, to some -- to a large extent, impact and of course, our cash flow will mean that we will deleverage naturally over time. But then we like to use that money to grow by acquisitions, which has the opposite effect, of course.

Our loan maturity profile is the same. They are maturing end of 2026. It's bank loans from 3 different banks, and we have 1 covenant being net debt to EBITDA pro forma, which leaves us plenty of headroom to continue to grow. And my last slide is the financial targets. We have a growth target of 10%. As you know, we are now at 14%. Looking at the last 12 months. Our margin is 8.7%, well ahead of our margin target, leverage 2.4x versus 2.5x. That's in order and we have that proposal from the Board is to make no dividend regarding 2023. And that means back to you, Jakob.

[Jakob Korner, executive]

Yes. Thank you, Carl-Fredrik. And just summing it all up. We believe we delivered a solid Q1. Net sales increased by 11%, mainly driven by organic growth, even though we should keep in mind, a portion of it is variable revenue from snow. Our acquisition contributed with 4%. EBITA increased by 5% and amounted to SEK 90 million and EBITA margin of 6.5% financial gearing in line with our targets. And last but not least, we made 2 acquisitions in Germany following our plan for the DACH expansion. So by that, we came to the end of the presentation. So I believe it's time to open up for questions, and then we'll try to answer them the best way we can.

[Operator]

[Operator Instructions]. The next question comes from Karl Bokvist from ABG Sundal Collier.

[Karl Bokvist, analyst]

My first one is on just, if possible, can you say anything about the start of April and how we should think about the potential lack of weather effects or how we think about -- did snow have a positive impact also now in Q2 potentially or just colder conditions overall just to get that dynamic right first.

[Jakob Korner, executive]

Yes. Jakob here. Well, basically, the second quarter that's less -- definitely less seasonality compared to Q1 regarding weather. So we do not like -- believe that weather will like impact our financial performance in Q2. Well, not at all compared to Q1. So the answer is no.

[Karl Bokvist, analyst]

Understood, yes. Sorry for -- Jakob. So -- and then on the -- in Norway, I'm just a bit curious about -- the -- I mean, previously, you talked a bit about the sort of normalization in profitability here. And would you say that this is now more or less complete in a way?

[Jakob Korner, executive]

Well, it's I'll say, a little bit harder to answer that one. Mean we had a really good quarter, this one. Our maintenance companies did really well. And I believe our landscaping companies during the circumstances, while Q1 is a tough quarter for the landscaping segment. They also did well. So I believe it could fluctuate a bit. But again, I think we had rough last couple of quarters in Norway. And hopefully, there's is a little bit of a normalization. But wait and see.

[Carl-Fredrik Meijer, executive]

I mean, what we can see is, to some extent, a little bit more positive tone or more activity from the customers. And we, ourselves are we're super happy, of course, with our companies and are proud of our Norwegian colleagues, but we think we should do better than 10%. We could do that.

[Karl Bokvist, analyst]

Okay. Understood. And then the Swedish business overall and the -- just to understand the impact of this one or one project in particular, you have already taken provisions for it. So should we expect that we will not likely not at least see any further kind of margin pressure from that one?

[Carl-Fredrik Meijer, executive]

I agree with that. So like-for-like, it should be an improvement versus last year.

[Karl Bokvist, analyst]

Understood. And my final one before getting back in the queue is just on M&A here. Of course, you've clearly ramped up efforts in the DACH region. But M&A opportunities overall. What is your view on the markets in the Nordics and in -- well, for example, Lithuania, where you've previously found good acquisitions as well.

[Jakob Korner, executive]

I think, well, in some way, the M&A market is coming back. So we see a bigger inflow of opportunities from all our channels, all over our -- in all our geographies. So there are a lot of opportunities out there. And of course, we got this DACH focus. And I believe that, that is, well, maybe our #1 market M&A wise at the moment, but still we will do add-ons in -- on all our other markets as well, and we got some good dialogues, not only in the DACH region. So it looks good. We just have to be careful, welcoming only the best companies into our group.

[Operator]

The next question comes from Dan Johansson from SEB.

[Dan Johansson, analyst]

I think 3 additional questions here. Maybe starting with -- on the question on snowfall here. You mentioned there was a bit more than Q1 last year in Norway and part of Sweden. Is it possible to quantify that impact? Is it -- are we talking 4%, 5% contribution? Or is it even more than that, if you have any ballpark figure on that, it would be great.

[Jakob Korner, executive]

This is a tough one. I mean, to give you some kind of perspective here and going back in time. So there was days a couple of years ago where we were highly dependent on weather and on snowfall. We didn't really like that situation. So we worked really hard for the last couple of years to like hedge that dependency. And I believe we've done fairly well. And it's not like all our maintenance companies, just cherished the snow profitability-wise. So it's a mix even between the -- or among the maintenance companies. But overall, I would say our dependency margin-wise, is much smaller today. We might not be out of it regarding sales yet, but it's hard to say. But we're not super dependent anymore.

[Carl-Fredrik Meijer, executive]

But also, even though it does contribute to our growth definitely in the quarter, especially in Norway. Some other companies are being hit by. So that means that we can do less of other type of landscaping work. So it's a nice balance.

[Jakob Korner, executive]

It's hard even for us to quantify down to like -- yes, with really, really like -- with precision.

[Carl-Fredrik Meijer, executive]

But the majority of the organic growth is most likely due to the winter.

[Jakob Korner, executive]

Yes, correct.

[Dan Johansson, analyst]

And maybe touching a bit on the competitive environment. And you saw some increased competition during the last year in Sweden, for example, perhaps lower construction market where some companies move into your space. So how do you view the competition in the competitive environment so far in the beginning of 2024. Is it a bit back to normal? Or is it still high competition in certain areas of your business?

[Jakob Korner, executive]

I think we moved side ways regarding that. So we still see a lot of competition from like players that normally is not our competitors. So still a lot of competition out there. But again, we are -- we said we are really close to our customers. I said in the beginning, our entrepreneurs are super skilled maneuvering their companies in bad times and in good times. So we're not super affected of it. Of course, we are affected, but not like in -- not in a dramatic way. So the same answer will be, I mean, when the tide is shifting, we won't be super affected on when times are better and when competition is less than now. But I would say an overall answer to your question is that basically nothing has changed compared to like Q4.

[Dan Johansson, analyst]

Sounds good. And maybe a final question from my side, a bit on the DACH opportunity there. If we take the 2 acquisitions you made here on a combined basis, is it fair to assume that they are above the group average in terms of profitability? And also a question on multiples in Germany. Now you've done a few deals so maybe have a bit better data now perhaps on the multiple levels? Are they on similar levels in the Nordics or higher, lower? I guess it depends on what types of company you buy and what type of size. But just in general terms.

[Jakob Korner, executive]

So regarding margins, we're not disclosing that one actually, but super good companies, and we really believe that taking contribute in a really good way for the long term for the group. Regarding multiples, I mean, there's no dramatic like differences between our markets. That would be my answer.

[Carl-Fredrik Meijer, executive]

Meaning we're still between sort of 5x to 6x EBITA around there.

[Operator]

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

[Carl-Fredrik Meijer, executive]

Okay. So thank you for listening into our Q1 presentation. Again, we are really happy with the strong start of this year. And that concludes our presentation and Q&A. Thank you very much.

[Jakob Korner, executive]

Thank you all.