Green Landscaping Group AB (publ)
STO:GREEN
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
60.9
88.2
|
| Price Target |
|
We'll email you a reminder when the closing price reaches SEK.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Green Landscaping Group AB (publ)
You don't have any saved screeners yet
Welcome to the Green Landscaping Group Audiocast Teleconference Q2 2021. [Operator Instructions] Just to remind you, this conference call is being recorded. Today, I am pleased to present CEO, Johan Nordstrom; and CFO, Carl-Fredrik Meijer. Please begin your meeting.
Thank you. And once again, welcome to Green Landscaping and our second quarter audio conference. As mentioned, my name is Johan Nordstrom, and I'm the CEO of Green Landscaping. And together with me, as said, we also have Carl-Fredrik Meijer, who's our CFO. 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 expectations. And that means that sales came in at SEK 794 million compared to SEK 552 million previous year, and that amounts to a growth of almost 44%. Whereof, the organic part was 2.8%. EBITA amounted to SEK 65.1 million compared to SEK 46.5 million previous year. That is also a heavy improvement of 40%. Cash flow from operating activities came in at SEK 104 million compared to SEK 63 million 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-EBITDA pro forma came in at 2.3. So that one went down from 2.9. And in terms of acquired companies, we acquired 4 companies during the quarter, and we will come back and comment each and one of those later on in the presentation here. But that's the Viher-Pirkka in Finland, EF Drift and OK Hage in Norway and Håkans Trädgårdstjänst in Sweden. Viher-Pirkka 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 CAGR 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 successful. The organic growth in our business right now, it's 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 a 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% organic 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 just one pager on Viher-Pirkka. And that's a landscaping company, was founded back in 1988. Today, we have the 2 entrepreneurs, Tapio and Tomi, who's 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 EUR 10 million 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 EF Drift, which is a company located in Oslo. They have similarities to Hadeland Maskindrift. 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 NOK 140 million and approximately 20 employees. That's also a great company that we're happy to be joined by the Green family group. Next slide, please. And then we have OK Hage, which is a smaller company in the southern part of Norway. And they are in collaboration with Oveland Utemiljø. They would actually be a subsidiary to Oveland Utemiljø. Founded back in 1997. Landscaping and ground maintenance. So this is a core of what we do. Annual sales of about NOK 15 million. So that's a great addition to our company as well. And then the last company here is Håkans Trädgårdstjänst. Founded back in 2007. Operates on the West Coast of Sweden and are now being joined -- are now joining the group through Tranemo Trädgårdstjänst, which is a current operating company we have on the West Coast in Borås, 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, SEK 500,000 and SEK 2 million. But sometimes, they are larger. And this is an example of a larger contract that our subsidiary, Thormans, was awarded. It's a 7-year contract, and the total contract volume is approximately SEK 100 million, at least SEK 100 million. And we will provide maintenance services to the city of Norrköping in the middle of Sweden. And then another example is that we've been awarded property services in -- for Umeå municipality. And this is interesting. I mean it's not so large. It's SEK 10 million 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 5.3 billion. And this corresponds to a little bit more than 2.5x 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 the 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, and 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 quarters and 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 as 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 the next slide. It's the financial position. We had a strong cash flow of SEK 104 million, up 65% versus last year. The leverage went down to 2.3x 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 million before transaction fees. And there was a very high demand to participate in the process, and we welcome the new investors. We did that to improve the balance sheet and to make room for a high pace of acquisitions going forward. Cash and cash equivalents amounted to SEK 336 million 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 we go back to the fourth quarter of 2020, we were at 4.7%. And then for the first quarter 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're taking actions, as Carl-Fredrik mentioned, with 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 businesses. 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 comment on the financial targets. So let's move on to Page 15, which is the last slide here. And just to sum up, the second quarter 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 EBITA is 26% and 82%, so we are clearly on a very positive trend here. We have made 5 acquisitions year-to-date. We're adding great companies. So it's not only a matter of buying companies left and right, but finding the right entrepreneurs to fit into the culture who are clearly world-class entrepreneurs that we bring into the business. So we are 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.
[Operator Instructions] And we have a couple of questions lined up already. And then the first is from the line of Fredrik Moregard of Pareto Securities.
Johan and Carl-Fredrik, first off, a question on the margin and the margin decline, the EBITA margin decline that you see year-over-year, particularly in the South and Middle regions. I mean these region are seeing solid top line growth driven by both acquisitions and organic growth, but we're still seeing margin decline and flat to somewhat down in terms of absolute EBITA. 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 1 segment, 1 quarter up or down. I mean for example, of course, we started the big new contract in Norrköping, 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.
We made the analysis of it, and it's a natural variation. I believe in absolute terms, we're talking about SEK 2 million roughly. So it's not any structural trend going on here. It's a natural fluctuations on how you recognize the revenue and the costs 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 as on EBITA. Is it possible to give some quantification of the impact that acquisitions had this quarter, if you maybe you can say if they were accretive or dilutive 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. 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 million to SEK 150 million in revenue. And we are looking for a 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 off 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 course of business. So any cost associated with basically the closing down of that particular entity will be taken over the P&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, they kind of 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 have not taken any lump sum costs for the restructuring of that entity during the second quarter. 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 will vacate the buildings and will sell down their equipment and such. 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. Yes.
Okay. Another question then on the Stockholm transformation. You're saying that you're going to transfer some contract 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 contracts will expire naturally, so to say. And about 50% will be taken over by 2 other entities who are 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 personnel and their own equipment and such.
And that's the equipment [indiscernible]
It's like -- well, 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 you win new one. So this is not unusual to the business we are in. And for one company who operate in Stockholm to take over one new contract, then, of course, that's the state of the business. That's what they naturally do anyway.
Okay. And a final question on this topic. Is it possible to say anything about the size of the Stockholm North business?
Approximately SEK 100 million per year.
In revenue. Yes.
And our next question comes from the line of Dan Johansson of SEB.
Johan and Carl-Fredrik, a couple of questions from my side. Maybe first question perhaps on the consolidation of business units in Region Middle 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 try to achieve there?
Yes. So I mean like Johan said, we really like these real incorporated 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'll...
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 your own people has the virtues of that -- actually the possibility goes up. When you try to build a big administration, a big staff and centralized, we clearly see that, that's not the way forward in the business that we're operating in. So the 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&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. And another question from me. 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, I'm not 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 if you have 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, that there's an upside that, to some extent, we are less vulnerable to winter fluctuations.
We are very happy with the 15% in Norway, I think.
Yes.
It's worth mentioning.
Yes. Yes. It's a fantastic margin. Yes.
Yes.
Great. Maybe 2 more questions. I mean in terms of sales cycles and meeting clients, I guess, it's still difficult. But the situation eased a bit now. In the beginning of Q3, it's the easier to meet clients now in August, perhaps than it was in the spring.
It's a very difficult question. And we did have a discussion about when we -- what type of wording we should have 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-19 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 extent, positive to the business that we are having. And also in terms of absentees and such, that should decrease because if you have -- if a large proportion of the workforce is vaccinated, then the absentees 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 if it has had any substantial positive impact on the business.
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 of an early stage there as you just did the acquisition. But do you think your expansion will be mainly centered around the Helsinki area? Or what's your 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 skilled entrepreneurs to challenge each other and have colleagues. So yes, we are looking for other companies to bring into the group in the Helsinki area.
And we have one further question in the queue. That's again from the line of Fredrik Moregard of Pareto Securities.
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, the size of the market, margin profile compared to Sweden and Norway. Have you gotten any sort of feeling for the number of potential targets in that market? Any such information would be very helpful.
Yes, of course, we have that data, but that we do not really have it ready at hand at this conference here. But we are looking upon the market 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. Yes.
So I'm not exactly sure what you are looking for here.
No. I mean I'm looking for some insights into the Finnish market mainly.
Yes. Well, our -- as a general rule, the size of the market equates to the population in our business. So there's a correlation between the 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 market. 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 looks in Finland. Then there are some changes to it. And there are some things largest to it. But on a country 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 thousand of companies in our segment in Sweden. And we have thousands of companies in Finland as in Norway. 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 they are moreso on the 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 above SEK 20 million, SEK 21 million 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 the 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 it will go up somewhat. I mean this is sales that are kind of not in a 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.
As there are no further questions at this time, I'll hand back to our speakers for the closing comments.
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. Thank you.