Nordic Waterproofing Holding AB (publ) (NWG) Earnings Call Transcript & Summary

So there, it's 10:00 Swedish time. So welcome, everybody, to this Webex following the Nordic Waterproofing third quarter interim report. We're going to go through this presentation. And after that, there will be time for questions to be asked. I will let you know the details about how to do that when we get there. But let me start with the presentation and introducing our President and CEO, Martin Ellis. So Martin, please go ahead and take us through the slides here.

Yes. Thank you very much, Palle. Welcome all. Thank you very much for participating. So we are happy to report on our third quarter, which showed improved profitability compared to last year on stable turnover. Next. We have obviously, as you are aware, had a recent change in ownership. Late last week, Kingspan announced the acquisition of a further 26.5% of the shares of our company. And with the previously owned shares, Kingspan now has 62.6% at this point in time. I would like to say that we are, as management, we are very happy about this step because it obviously clarifies the situation. And we very much look forward to being part of the Kingspan family in the, hopefully, near future. And we believe that this is a very good news for Nordic Waterproofing and that there's a number of synergies, which we -- both Kingspan and ourselves can benefit from. The increased ownership by Kingspan at this point doesn't trigger any obligation to make a mandatory public offer since that's been already done earlier this year. The change in ownership structure also doesn't affect our listing on Nasdaq Stockholm at this point, and we will continue to be listed on the Mid Cap list. You can also see on the right-hand side, the present situation of the minority shareholders. And I think we won't go into the details of each line, but it is clear that there's a number of minority shareholders still remaining in our share ownership. Next. So back to our third quarter, net sales slightly down, minus 2% organic development and also a currency -- negative currency effect and a slight effect from acquisitions, but basically it's stable. EBITDA increased to SEK 177 million, up from SEK 159 million last year. EBIT increased by a slightly high amount to SEK 140 million compared to SEK 115 million last year. Cash flow from operating activities was SEK 101 million compared to SEK 149 million. I may remind you that last year, we had a very significant inventory decrease, which explains the difference. Net debt stands at SEK 815 million and it was, a year ago, SEK 985 million. And at the end of the last year, it was SEK 749 million. So in all likelihood, we would expect to have a significantly lower debt level at the end of this year. Next. A few comments on the Q3 demand. Obviously, one of the key drivers of our results, and it is impacted by a slowdown in commercial new build, which is nothing new, but it persists. Renovation, we see stable, while residential new build continued weak in most of our geography. Bitumen-based waterproofing operations are stable in Sweden and Denmark with obviously good profitability. And the market situation is significantly more challenging in Finland and also, to some extent, in Norway. Sales for our EPDM products, synthetic rubber, are slightly below last year, but margins are slightly higher. Prefab elements, wood-based, which has an exposure -- a bigger exposure to residential new build than the rest of our business, had a nevertheless positive development in sales on the Danish market, while it was negative in Norway. Profitability remains unsatisfactory, but we have accelerated our restructuring programs, and we do believe that we might reach a breakeven situation next year. Our Green infrastructure business had a flat development in sales, but operating results clearly improved over last year. And Installation Services, last but not the least, we had an unchanged sales level in Finland with a weaker margin, quite aggressive competition in the face of weaker demand. And the operating result from our franchise units in Denmark improved. So all in all, the result of this sector was at the same level as last year. Order books for business units within Installation Services are generally weaker compared to the same time last year, obviously, Finland being the main driver here. Next. So we continue to see flat or slightly deflated cost development for most of our input materials. We have a continued focus on our debt level, as I already mentioned, of course. And in a somewhat soft interest environment, we expect opportunities to emerge to further expand the group in accordance with our strategic plan through acquisitions. Our expectations for demand in commercial new build and renovation remain on current level for the rest of this year and, I could say, for the beginning of next year. Residential new build will remain depressed in the very near future. Obviously, somewhat lower interest rates might help in that respect, and we also have an exception of Denmark where we see a normal demand. In '25, we expect more favorable market conditions on our main markets with, again, the exception of Finland where overall market conditions are expected to be unchanged. So over to you, Palle.

Yes. Thank you very much, Martin, and let's look a bit more into the numbers here. So as we said, the net sales decreased to SEK 1.167 billion. Organic development, minus 2%. We had a bit of acquisitions with 1%, and currency had a negative impact with minus 2%. We had a record third quarter on EBITDA. It's actually the highest EBITDA we've had in the third quarter at SEK 177 million compared to SEK 159 million last year. And the EBITDA margin increased in the quarter, too, with 2 percentage points to 15.1%. And on a rolling 12 basis, we're at now 10.7 percentage points here. Looking a bit more at the income statement here, I think you recognize the net sales, but gross margin for the quarter was at 28% versus 25.3% last year. Net financial items at minus SEK 18 million in the quarter where most of that is, of course, interest cost that we expect to continue to see go down. It was SEK 2 million lower this quarter than it was last year, but both interest rates come down and our net -- interest-bearing net debt as well is decreasing here. And EBIT margin for the quarter was then, of course, as well up to 12%. And on a rolling 12 basis, we're at 7% now. We continue to have a strong balance sheet when we look at this, and it allows us to do selective acquisitions, of course. The interest-bearing net debt at SEK 788 million. It is -- the third quarter is typically a seasonally strong quarter for us when it comes to cash flow as well what we expect in the fourth quarter here. We have an equity/asset ratio of almost spot on 50%, and the net debt-to-EBITDA ratio is at 1.8 currently, well below the covenants we have in our financing agreement. Moving on to look at ROCE, that improved 1 percentage point in the quarter from 9.7% to 10.7% now and also higher than it was when the year started at 10.2%. And the improvement actually comes from both capital employed coming down as well profitability increasing here. Cash flow from operations on a rolling 12 basis at SEK 399 million and with a cash conversion of at a high 89%, I would say. We continue to see the normal seasonal changes in working capital. But as Martin said, last year, we had throughout the year a very good decrease in inventory that we, of course, cannot repeat this year. And considering the business climate generally for the construction industry, we, of course, continue to closely monitor our operating receivables very much. Good. Looking into our 2 business areas and starting with Products & Solutions, where we saw a decrease of net sales of 2%, all related to currency with no acquisitions in this area in the most recent 12 months here. Positive development for sales in Finland and Denmark, Sweden on par with last year where -- while we see a tougher development in Norway with negative sales. And on a rolling 12 basis, we're just above SEK 3.1 billion. EBITDA continues to develop positively, as it's done for a bit more than a year here. And we have an EBITDA margin of 18.2% in the quarter for this business area compared to 15.6% last year. And generally, I would say, all the different businesses have maintained or improved their margins. We still have some areas for improvement still and, in particular, the Taasinge group where we continue to see an unsatisfactory profitability level. And the restructuring initiatives we've mentioned before are being accelerated as we speak, basically. For the latest 12 months, EBITDA margin at 14.4%. And then Installation Services where net sales decreased 8%, minus 8% organically as well, where impact from acquisitions was plus 3% and balanced by currency being minus 3%. EBITDA and EBIT, I think we can say is basically on the same level as last year, whereas EBITDA margin increased slightly. And at the latest -- for the latest 12 months, we're at 4.4% EBITDA margin. We do see a tougher development in Finland, tougher market and reduced profit levels generally in that market, while that is balanced with improved results from the Danish franchise network where we have a minority stake and only consolidate our share of the net results. Yes. Then moving over to the financial targets and handing back to you, Martin.

Yes. Thank you very much, Palle. So as you can see, in terms of sales growth, we believe we have achieved our target since we are faced basically with a slower demand and actually probably very slightly increased our market shares. In terms of profitability, we are still lagging our threshold of 13% in ROCE, we are approaching 11%. So not very far, but obviously, we would like to return to the 13% as fast as we can. And the capital structure, you've seen that our debt level is at not historic lows, but certainly at a relatively low level, so a very solid balance sheet. Thank you. And I guess we can now take questions, please.

Yes. Let's open up for questions. Thank you very much, Martin. [Operator Instructions]

Sofia Sörling from Carnegie, please feel free to ask your questions.

Sofia here from Carnegie. Can you hear me?

Yes, very well.

Great. So I have a first question regarding, when you talk about Kingspan and you mentioned that you are happy about this new acquisition and you see that you can gain quite synergies given this, could you please give more details on what type of synergies you see that you can gain in the near and midterm? And yes, that's my first question.

Yes. Thank you very much. Important question. And I think basically, more and more, all of our competitors offer package solutions where you have a one-stop shopping opportunity for our customer base. And clearly, the insulation material Kingspan provides at least in some geographies will certainly be an integral part of that package. And also, I would say, in terms of strategic synergies, we could see a situation where with Kingspan's help, we can make further acquisitions in the Nordics where Kingspan has probably a slightly lesser presence than in most of the other geographies. So again, strategic synergies are also down the road an important factor.