Norva24 Group AB (publ)
STO:NORVA
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Good morning, and welcome to the presentation of the Q1 report of Norva24. My name is Henrik Norrbom and I am the Group CEO. With me on stage, I have our Group CFO, Stein Yndestad.Okay. Before we start jumping into our Q1 report, I would once again like to take the opportunity to share my reflections on the Norva24 case.We start from the left. This is a market that has experienced and will experience strong growth for many, many years to come. The underlying trends show strong growth due to some key drivers. The infrastructures where we are present in is critical, it's old, and has a huge investment debt.Climate changes are putting the system under severe pressure, which will require more preventive maintenance going forward. For example, the cleanup after heavy rainfalls. We have all seen the flooded streets when extreme rainfall hits.Going forward, the market is huge and far from consolidated. The market we are currently serving is estimated to be close to NOK 40 billion. That means that we have a market share of less than 10% that are still the clear market leader in Northern Europe. We are operating in a large and acyclical growth market with proven resilience throughout the downturns.Lastly, into the right, we have shown that we have a proven model for growth and value creation. After 2023, with 4 deals, we have stepped up and done a handful of acquisitions so far this year, and we will -- and we still have a solid pipeline.Before going into the Q1 numbers, I want to present a slide with our key priorities going forward. The same priorities as we had in our last earnings call.We continue to work with our price component in combination with proactive cost handling.High focus on improved utilization, maximize utilization of vehicles and personnel.Improve underperforming units, work in a structured way to lift them up to the right profitability levels and make sure that we have the right people in the right place.And focus on growth, both organic and through M&A. These are 4 important areas going forward. In addition, we also pay attention to our capital allocation and working capital.Okay. Now on to the Group numbers and the highlights. Operations in the quarter are affected by fewer working days, which are down by almost 5% in the quarter. Still, our revenues were up by 9% and organic growth was up 2%. But adjusted for the number of working days by using the first 4 month of the year, the organic growth was 7%.The number of working days has a strong impact on the adjusted EBITA, which is down by 12% in the quarter. But the effect of fewer working days in Q1 is eliminated after April. We see an improved margin during the first 4 month versus the same period last year.Our cash flow is usually soft in the first 2 quarters and strong in the last 2. This is also the pattern this year, but also enlarged by the end of the quarter, being a number of non-working days [ hence ], payments of our receivables are pushed into April.Looking at the operational highlights. Over the last month, we have made important acquisitions in all markets, adding over NOK 430 million of revenues and strengthening our market position.Highlights on the segments. Norway, winter effects with a tough start in January and 5% reduction in number of working days, lowering profits.Sweden, showing strong growth at 23.5% and stronger margins, helped by acquisitions and more efficient operations.Denmark, keep delivering on the improvement and delivering both growth and strengthened margins of 1.3%.Overall, operations are affected by seasonal effect that are neutralized by looking at the 4-month period.This is a new slide where the calendar impact is neutralized and we look at the first 4 month and this gives a more fair view. Looking at Norway, Q1 currency adjusted growth was only 1.3% but first 4 month it was 9.3%.And another example is Denmark where growth went from 6.4% to very strong 14.8% growth looking at the first 4 month. So this changes the pictures for the Group significantly.Currency adjusted organic growth was 1.6% in Q1 and increased to 7.1% in the first 4 month of the year. We do not give profitability numbers for the first 4 month, but as stated, we see an improved EBITA margin.Now, let's go through the segments. Starting with Norway, repeating myself, Q1 was affected by the reduced number of working days, which were down by 5% versus Q1 2023. Norway achieved a total growth of 4.4% and an adjusted EBITA margin of 9.1%. But as we know, showing a stronger result looking at the 4-month picture. We have done 2 transactions in Norway the last month where Vitek is the most significant adding more than NOK 120 million of revenues. We expect closing of the deal in the coming weeks.Germany, 5.4% total growth and an adjusted EBITA margin of 7.5%. Of course, also affected by the seasonality and the number of working days. Germany had 62 working days in Q1 this year versus 65 last year, a 5% reduction. In Germany, one of our larger operations have a timing issue in some large assignment that unfortunately weakened the result. These larger assignments are expected to pick up in the next month. Baier, the deal we announced in Q4 last year and closed on the 3rd of January, is performing according to plan and works well with Kanal-Türpe, building density in the region.Okay, next slide. Sweden. I'm very pleased to see the development in Sweden in Q1. Despite 2 fewer working days, revenues are up by 23.5% and an organic growth of 11.8%. Sweden is the market that is the least impacted by working days in Q1. The underlying margin improvement is strong and the overall margin is also supported by ControTech, which joined Norva24 in November last year. The margin improvement is driven by higher activity and utilization leading to a 380 basis points improvement of the EBITA margin of 12.6%.The Swedish operation have a good speed and operational improvement. Last week we announced the acquisition of Högtryckstjänst Syd, an operator in the Malmö region, strengthening our already strong position in Skåne.Okay, to the Danish operation. It is good to see the positive development in Denmark. Despite seasonal effects, Denmark continues to deliver improvements. Profitability is up by 140 basis points in the quarter and we see the strong development of recent quarters continues. We are excited to have signed the Nordic Powergroup and the deal is closed as we speak. Nordic Powergroup lifts the revenues in Norva24 Denmark by close to 50% and contributes nicely to the Danish margins.Okay. We continue to grow. And as normal, Q1 is the low quarter. This year is even more so due to the fewer working days, which is impacting profitability of the quarter.I want to underline that we are still on track to reach our NOK 4.5 billion of revenues in 2025.Okay. I hand over to Stein to go through the financials.
Thank you, Henrik. Let me run through the financials. As you already heard, Q1 was impacted by the reduced number of working days. Hence, it is a challenging quarter to form an opinion on based on the performance. For that reason, we've also given you the organic growth numbers for the 4 first months. But back to the first quarter.To start from the top, total operating revenues are up by 9% for the quarter, from NOK 705 million to NOK 770 million. On the cost side, we see operational service expenses only increase by 1%, and personnel costs increase by 16%. This is driven by the reduction in number of working days as salaries of non-operational staff is fixed monthly pay. And we usually see these 2 cost elements together because sometimes we use more subcontractors, sometimes less, but the joint number is quite relevant for our performance.This year, the total cost of those elements were 59.7% versus 58% last year, but this is very much due to the fact that we had fewer working days in the quarter.Vehicle operating expenses were reduced marginally in the quarter due to the reduction of fuel prices in Sweden. Fuel prices were down by 17% in the Swedish market, whereas in Norway, Denmark and Germany they were quite stable compared to last year.This leads to an increase in operational expenses from -- of 61% on the back of revenues, which increased by NOK 65 million. EBITA for the quarter is up by NOK 4 million and the margin is down by 0.5%.Depreciation makes up a larger share of the cost base this quarter due to new vehicle purchases and leases and the modest growth that we saw in revenue for the quarter.We have significant capacity and we are able to increase our production with the current equipment that we have in place. So we can continue growing without having to increase our investment further than we have seen lately.Net financial items are only NOK 1 million this year and last year. The items this year is very much impacted by a currency gain of NOK 19 million. So it's hard to actually understand the NOK 1 million compared to last year.Interest costs from loans and leases were NOK 21.7 million this year, up from NOK 15.1 million last year. And this is mainly due to higher interest rates on our loans. And this gives central earnings before taxes of NOK 37 million, down 17% from the NOK 45 million last year.After adjusting for nonrecurring items, the adjusted EBITA for the quarter came in at NOK 52 million compared to NOK 59 million last year.So on to the balance sheet. We can show a very strong balance sheet. Our net debt is NOK 1.4 billion at the end of the quarter, representing a net interest-bearing debt over adjusted EBITDA of 2.2x. And this ratio gives us significant room for up to our covenants of 4x. And this will enable continued growth.Our net debt of NOK 1.4 billion at the end of the quarter representing a net interest-bearing debt over adjusted EBITDA of 2.2x. This gives us significant headroom up to our covenant at 4x and enables continued growth.Goodwill at NOK 1,787 million at the end of Q1. It shows an increase due to the latest acquisitions. With impairment tests showing ample headroom i.e., there is no imminent danger for write downs. The lease liabilities of NOK 906 million refer to leasing of vehicles and property rentals. The noncurrent loan of NOK 670 million is primarily the bank loan.Over to our net debt structure. We stress this in all our presentations. Most of our debt is related to IFRS leases that needs to be capitalized. These lease liabilities amounted to NOK 906 million at the end of the quarter. Total interest-bearing net debt was NOK 1.4 billion at the end of the Q1, of which approximately 65% are capitalized IFRS leases. Depreciation of the leased assets is included in the total depreciation in the P&L.Net debt excluding lease liabilities amounted to NOK 498 million at the end of the quarter. Out of the NOK 1.1 billion credit facility, close to NOK 500 million was unutilized and available at the end of the quarter. This, combined with the cash flow from operations, gives us financial capacity for M&As.Last fall, we exercised a 1 year extension of the credit facility of NOK 1.1 billion, and this facility now expires in December 2026. A part of the facility will be drawn upon over the coming months related to the transactions in or the M&A deals we've done in Denmark and primarily Norway then. And we are discussing additional funding facilities with several sources, and we're very confident that this will be in place shortly.We can show you a solid cash flow from the operating activities over the last 12 months, although Q1 was on the softer side. We had NOK 553 million of operational cash flow over the last 12 months, and this is up 56% on the previous 12-month period and gives a cash conversion of 85%.We have been tying up too much capital in net working capital, and this was still the case at the end of Q1. And March was a poor month in terms of cash collection due to the fact that we had a number of nonworking days leading up to the end of the quarter. We have seen these outstanding receivables being paid to a large extent in April.And just to recap the financial results, we have good growth in revenues, 9%, but it's very much impacted by the number of working days.Margin for the quarter is down due to the number of working days. We have a strong cash flow and focus on improving the cash flow further through better working capital management.We have a strong balance sheet that has enabled larger M&A deals over the last months, and there is still room to continue the growth.Acquisitions are a key component in our buy and build strategy. Almost all of those transactions are done in bilateral deals, where we seek out the targets and we introduce ourselves and we engage in a dialogue. For such dialogues, we involve both Henrik and myself, but also country management, and we give support from the M&A side. And we benefit from the companies that are already part of Norva24, where founders have a good understanding of where to find companies within their market.2023 was a year with limited conversion on the M&A transactions. And we managed to stick to our strategy and not get too eager to do transactions if the deal and the valuation was not right. Over the last months, we've done 6 transactions with more than NOK 430 million of revenues. And I'll get back to that in more detail on the following slide.Here we have listed the 2024 deals, but we have also included Baier, given that it was never part of the 2023 numbers, as it was closed on January 3. Baier supports our business in the south of Germany, and it works well with the Kanal-Türpe operation we have there. It gives us about NOK 50 million of revenues. It is margin accretive for the German operation. It is within the enterprise value range of 6x to 9x that we have stated that is where we do transactions. And we will have current management stay on going forward.The next transaction is Kyrsting, which gives us some special competence within -- amongst pressure testing in the Danish market. Same with this. I mean, it's a more modest transaction adding NOK 15 million of revenues, but it does have some special features in terms of the competence that they are contributing to the Group. It's also margin accretive. It is within the range in terms of valuation and management will stay on going forward.And then we have Svein Klungtveit, also a more modest transaction. It's where we buy the UIM division of Svein Klungtveit, adding NOK 15 million of revenues, valuation within the range. Management will not stay on and management will be done by our existing operations in the west of Norway.And then we have Vitek Miljø, which is an acquisition in the Bergen area, and it's a large acquisition with NOK 120 million of revenues, strong profitability, strong operations, fits both the margin targets that we have, and it also fits our valuation targets. Here, management will stay on until 2025 where we have a proper organization in the west of Norway to take it over. We are expecting this to close during Q2 and we are awaiting approval from the Norwegian competition authorities.And then we have Nordic Powergroup, which is a very large operation, adding more than 50% or adding 50% to our Danish revenues with their NOK 210 million of revenues. Valuation range is correct, margin accretive for the Danish operation, and management will stay on.And finally, last week, we did the transaction in Malmö. We acquired Högtryckstjänst Syd, which will be part of our Malmö operation. NOK 20 million of revenues, but it ticks all the boxes when it comes to valuation and margins. And also here, the management will stay on going forward.Okay, Henrik, I'll hand it over to you.
Thank you, Stein. Okay, before I summarize and give some key takeaways, I always want to underline that we are on track to deliver on our financial targets. NOK 4.5 billion in 2025 through organic growth and acquisition.14% to 15% EBITDA margin mid-term, and we still have a good capital structure to support the journey.Next slide. Okay, final slide before Q&A. Key takeaways from this presentation. Strong conversion in M&A, 6 companies bought during the year, adding over NOK 430 million of revenue. Good organic growth in the first 4 month, 7.1%.We are uniquely positioned in an attractive growth market and show resilience in a tough economic climate. Over time, Norva24 lifts margins of acquired companies and we are on track to deliver on our growth and profitability targets.Thank you. Now we open up for Q&A.
[Operator Instructions] The next question comes from Karl-Johan Bonnevier from DNB Markets.
Henrik and Stein, thank you very much for the presentation and the show of what happened in the first 4 months, rather than just giving us the Q1 numbers, which I think will take away a lot of the questions, no doubt. But if you look at it, last year in Q2, you had the utilization challenge that you detailed and unevenness, as you talked about, in utilization. Given the numbers in our show for, say, the fourth -- first 4 months, and how do you see Q2 this year in comparison to last year?
Karl-Johan, yes, last year we had some utilization issues, especially in Sweden, which we sort of did not see into Q3 and the rest of the year. So far, we're not seeing that in this Q2. I mean, as you've said, it started well, and that we see in the numbers that we published this morning. So we're optimistic about the quarter. It looks as if it will be continuing the trend that we've seen lately.
You also mentioned saying that CapEx is -- we should expect CapEx maybe to be on the slightly higher note driven by the high growth rates. Do you -- are you willing to give us some sort of indication what kind of CapEx level you see for this year
No, that was a bit of a clumsy expression there. But I think, the CapEx that we've seen in '22 at the lower level, then we saw a higher level in '23 and then also Q1 is slightly higher. I think that's something we'll see normalized a bit. So I don't think, we'll see a pick up in CapEx. And my point was really that with the capacity we have these days, we should be able to increase or there is capacity to increase our production.
So no major change to historical patterns basically then?
No. No.
Maybe if you could allude a little how you have seen tender win rates look going at that of late. Is it still a positive momentum underlying in the business?
If I heard it right, the tender. Yes, maybe we...
Yes, tender win rate.
Yes, we continue to be successful in the tenders and winning more than we loosen. So actually, in all countries. So we have a good commercial drive out there that we're proud of. And also, not only -- we're not only celebrating winning, we're celebrating winning with good prices.
And one final for me, Nordic Powergroup in Denmark looks to be an excellent addition to your business and obviously looks to be an operation with a higher margin profile than your legacy business in Denmark. How do you see that playing out? How do you see your units being combined to, say, maybe get closer to what the Nordic Powergroup is achieving rather than your old legacy level?
I think what we're seeing is that the Danish operation, and we see that in the numbers here as well, they're ticking up and we've seen a great improvement in the margins in the Danish operation over the last couple of years. And we expect that to continue. I mean, we're all aiming for the double-digit margin in Denmark. We're not promising anything this year, but we do expect that we'll continue that improvement. The Nordic Powergroup has a margin which is more in line with the rest of the group or maybe we should even a little bit stronger. So that will of course also play in very nicely with the overall margin in Denmark which will be then not the kind of laggard that it has been historically, but being very much closer to the other markets.
And when you have looked into Nordic Powergroup, is it their business exposure to be more of a flashing operator that is giving them that kind of margin profile compared to you, or?
They have some expertise in some areas in the flushing business and they have a lot of customers and they're able to do this in a very efficient way. So they -- it's not that they have a technology that is unique, but I mean, they're very good at doing these large assignments and they get good profitability out of this. And I mean, they've proven this over some years. And the 3 top guys there are staying on. And we expect that they will be fully motivated and continuing to develop and grow that business. Very nice guys that are joining the group.
[Operator Instructions] There are no more phone questions at this time, so I hand the conference back to the speakers for any written questions and closing comments.
No. I think we've already spoken to some of the analysts earlier today, so I think, yes, they've all been answered so far. Okay.
Okay. Thank you.