Earnings call transcript: Balco Group Q1 2025 sees restructuring impact

Balco Group reported its first-quarter 2025 earnings, revealing a challenging period marked by restructuring efforts and market pressures. The company experienced a decline in net sales and a negative adjusted EBITA, leading to a significant drop in stock price by 12.77% to close at SEK 24.60. According to InvestingPro data, this decline is part of a broader trend, with the stock down nearly 37% over the past six months. Despite these setbacks, Balco remains optimistic about future quarters, anticipating market improvements and benefits from strategic shifts.

Key Takeaways

• Net sales decreased by 3% to SEK 360 million.
• Adjusted EBITA fell to minus SEK 3 million from SEK 60 million last year.
• Stock price dropped 12.77% following the earnings announcement.
• Restructuring efforts include production relocation and cost-saving measures.
• Anticipated gradual market recovery and strategic benefits in 2025.

Company Performance

Balco Group faced a tough start to 2025, largely due to restructuring activities and challenging market conditions in the Nordic region. The company’s net sales decreased by 3%, and it reported a negative adjusted EBITA. Despite these difficulties, Balco’s strategic investments in sales, markets, and product development indicate a focus on long-term growth.

Financial Highlights

• Revenue: SEK 360 million, down 3% year-over-year.
• Earnings per share: Minus SEK 1.31.
• Order intake: SEK 275 million, compared to SEK 352 million last year.
• Operating cash flow: SEK 1 million.

Market Reaction

Following the earnings report, Balco’s stock price fell by 12.77% to SEK 24.60. This decline reflects investor concerns over the company’s current financial performance and restructuring costs. The stock’s movement places it closer to its 52-week low, highlighting market apprehension about short-term challenges.

Outlook & Guidance

Balco’s management remains cautiously optimistic about the future, expecting a gradual market improvement and a return to earnings levels similar to the previous year. The company’s strategic focus on the Netherlands and continued investments in the UK and Germany are anticipated to yield results during 2025.

Executive Commentary

CEO Camille Hector emphasized the company’s commitment to growth, stating, "We continue to invest in sales, we continue to invest in our markets and also product development." Hector also noted the enduring demand for Balco’s services and products, expressing confidence in the company’s strategic direction.

Risks and Challenges

• Ongoing restructuring costs and their impact on short-term profitability.
• Market challenges in Sweden and Denmark.
• Slow recovery in Nordic markets affecting revenue growth.
• Dependence on strategic shifts in the Netherlands for future performance.
• Potential macroeconomic pressures impacting customer activity.

Balco Group’s Q1 2025 earnings reflect a period of transition and adaptation. While the immediate financial results are challenging, the company’s strategic initiatives and market position offer a foundation for potential recovery and growth in the coming quarters. InvestingPro analysis highlights the company’s historical revenue growth of 16.71% over the last twelve months, suggesting underlying business strength despite current headwinds. For a complete assessment of Balco’s growth prospects and financial health metrics, investors can access the detailed Pro Research Report available exclusively on InvestingPro.

Full transcript - Balco Group AB (BALCO) Q1 2025:

Moderator: Hello, and welcome to today’s presentation with Balko Group. We have the CEO, Camille Hector and CFO, Mikkel Grinborn, presenting the q one report for 2025. We’ll do a Q and A after the presentation. And with that said, please go ahead with your presentation.

Camille Hector, CEO, Balco Group: Thank you. Welcome to the quarter one presentation for Balco Group. And first of all, I would like to make a very quick snapshot for the new listeners regarding Balco Group. Balco Group was founded in 1987 and consists of several balcony and facade companies. The head office is in And the group has today about 600 employees.

We operate in two main segments, the renovation and new build, and the core expertise is to supply glazed balcony and balcony solutions, but we also have a broad portfolio of different kind of balcony solutions. We are the market leader in the Nordic countries with the key markets Sweden, Denmark, Norway and Finland and a position challenger position in Northern European markets. As saying so, we go over to quarter one and we had a weak result in the first quarter this year. The adjusted EBITA margin amounted to minus 0.9 and there are several reasons for this weak result. The main one is that we have had delays in our processes.

And by saying so, I mean, the permission processes we have had we have in Sweden, but also delays on ongoing newbuild project in UK and Finland. And this has then affect negatively both the revenue and our cash flow. This has also led to that we have had an overcapacity in our production, which we have not been able to compensate for during in short term during the first quarter. On top of this, we have also had project deviation in one of our big projects in Sweden. We have taken actions during the quarter and we have made some major reductions of manning in Finland and Denmark, and we have taken a decision and also started up to close our production in Arboga and move this production to our existing plants in Bekkoye, Poland.

This production will be taken in on existing manning. And we see also here that we can improve our production efficiency by concentrating the production to less production facilities. The move will be ready during quarter two. During the quarter, we have then taken the structural cost for both the planned and implemented actions of SEK31 million, and we are estimating a yearly saving of roughly SEK60 million due to the actions taken and planned. The net sales decreased by 3% to SEK360 million, and that is also mainly connected to the delays we have had in the processes.

The order intake was lower if we compare to the same period previous year, SEK275 million versus SEK352 million. And it’s always very difficult to match order intake quarter by quarter in a project business And we could see that 2024, quarter ’1 ’20 ’20 ’4, we received some really big orders during the first quarter. And of course, we have also big orders in our discussions right now, but we were not able to close them during the first quarter this year. But they are in our quotation portfolio for sure. But also, would like to emphasize that all Swedish balcony companies and also our Finnish balcony company, Rykkov, had actually better order intake this year versus previous year.

If we go and look a little bit on our market update, we can see that throughout the whole 2024, we saw an increase in the number of requests for quotations and that trend also continues the first quarter this year. We are overall positive to the markets in general, but we can also see that the recovery is slower than all economic forecasts indicated during the autumn twenty twenty four. And this is, of course, why we have taken also this needed action and why they were needed to be done. But there is an increased custom activity in the renovation segment for our balcony companies in Sweden and Norway. We can also see that the Finnish newbuild market has bottomed out.

It’s slightly improved, but we don’t see a rapid return for any new construction of multifamily buildings in the Nordic countries, even if there’s a slight improvement, but not a rapid one. But we continue to have a good activity in the newbuild segment both in UK and Germany. And therefore, we have also taken a decision here that we also invested in more local design resources. It is especially important in the newbuild segment to have local resources for design to be able to, in an early stage, affect the project, both of course to be as cost efficient as possible, but also to be able to get our design into the project, so they can only buy the project from us. The Maritime segment has started up again, which is where we are very happy to see after, so say, the pandemic has started up and we can now see that new ships are actually ordered at the shipyards and that is very positive for us for ongoing discussion with the shipyards.

However, there continues to be a strange competitive situation for our Swedish facade companies and also our balcony company in Denmark. And giving you a little bit more about the Danish situation, we can see there that the Danish consumers, they are more cautious in general. And we can also see that on, also to say, driven products in general that quite many companies that have sales in Denmark are having a struggling period right now in the Danish market. But that combined with what we see that we have as a product, the main product that we have, the main project we have in Denmark, where we are actually adding a new balcony, but on an existing old building, that means that we are, so to say, that is even more struggling for us because it’s if you have a balcony today, you want to renovate it. But if you don’t have a balcony, it’s a bigger jump to take to invest in a new balcony when you don’t have one than to just renovate what you have.

But in general, I would say that we have a lot of interesting ongoing discussions on all our different markets. And it’s mainly, as I said, the Swedish for sale companies and the company in Denmark, where we still are struggling. Yes, Michael. Handing over to

Mikkel Grinborn, CFO, Balco Group: Some financial figures for the quarter. Net sales, as Camilla mentioned, amounted to 360,000,000, down from 326. Here, group was 8%, and it’s Sormen Udklewer Sandoz who was part of our group since March, so we had two months of our sales, but were still acquired. Carriage effect was minus 1% and the organic growth was minus 10%.

Adjusted EBITA amounted to minus SEK3 million compared to SEK60 million last year and is corresponding to an adjusted EBITA margin of minus 0.9%. The order intake amounted to SEK275 million, down from SEK352 million and our order backlog March was SEK1238 million. Adjusted earnings per share amounted to minus SEK 0.27 SEK 0 2 4 compared to SEK 0.11 last year, and earnings per share amounted to minus SEK1.31 compared to SEK0 last year. Our operating cash flow amounted to SEK1 million and it was SEK34 million last quarter one. If we look at the renovation segment, here we saw an increase in sales up to 236,000,000 compared to 222 last year, and it corresponds to 75% of our total net sales.

Board intake for renovation segment amounted to SEK $2.00 8,000,000, down from SEK $285,000,000 last year, and it’s 76 percent of the total order intake. Adjusted EBITDA in the renovation segment was minus SEK5 million compared to SEK11 million last year, and it’s here we have had this major deviation in a large project in one of our Swedish companies. And it corresponds to an operating margin of minus SEK1.9 million. Oil backlog for our innovation segment is just south of billion. It’s 91,000,000 this year this quarter, and it corresponds to 80% of our total order backlog.

New build. Here, the sales amounted to 71,000,000, down from 104,000,000 last year, while the order intake was 67,000,000, just exactly the same as we had last year in first quarter one. Adjusted EBITDA in the quarter amounted to SEK2 million, down from SEK6 million last year, with a corresponding to an adjusted EBITDA margin of 2.8. Order backlog for the newbuild segment is million at the end of the quarter, and it’s 20% of the total order backlog. If we look at our financial position at the end of the quarter, the group’s equity amounted to SEK $757,000,000 and the equity to asset ratio is the same as it was quarter one last year, up 0.7%.

Interest bearing net debt excluding leasing debt in relation to adjusted EBITDA amounted to four point zero, up from 3.2. But we can also say the positive thing that we have extended our existing banking agreement with Danske Bank with a sustainability linked credit facility of $512,000,000 and then a withdraw facility of 75,000,000. It’s been extended to 03/31/2028, and we also have an option for a further extension of two years until March.

Camille Hector, CEO, Balco Group: Okay. We go into a little bit outlook. And here again, I would like to repeat a little bit what I said from the market position. Our assessment is that the overall market will gradually improve, and that remains as we have said before. But we can also see that when new unrest and uncertainty arise in our operating environment, as we know it has been doing now during quarter one, we get some setbacks sometimes in our discussions with regarding the projects.

But we know also that the need for the service and the products that we are offering remains. And therefore, we continue to invest in sales, we continue to invest in our markets and also product development. At the same time, as we also make these major structural changes in our operations to improve our profitability. We know that the coming quarter will be affected, but we aim to return to an earnings level in line with last year. There is an increase of customer activity in the renovation segment.

And we can also see, as I said before, that all Swedish balcony companies and our Finnish balcony company had a better order intake this year versus previous year. The Finnish newbuild market has bottomed out, and we see, as I said, a slight increase in the newbuild segment. And finally, I would just like to say that also that regarding this with the big projects, we have ongoing discussion with big projects, but we were not able to finalize them during quarter one. And I think that was all from our side, and I guess we will have a lot of questions now and looking forward to be able to to answer them.

Moderator: Thank you very much for that presentation. And, yes, let’s open up the q and a section here. If you’re calling in and would like to ask a question, please press star nine to raise your hand and star six to mute yourself. You can also type this request using the form to the right. And we’ll start with the first question here.

In the report, you mentioned a major project deviation in TBO Hoglins. Could you specify how much that particular project impacted EBITDA for the quarter? Thank you.

Mikkel Grinborn, CFO, Balco Group: We don’t give exact details for just the project, but I can say that that project and also the delays we had in projects both in Sweden and also the newbuild segment in UK and Finland. In total, if we haven’t had these deviations, we would have an adjusted EBITDA level of between 44.5%.

Moderator: Are all costs taken for that project in the Q1 or should we expect further negative effects from that project in the coming quarters?

Mikkel Grinborn, CFO, Balco Group: All cost that we expect as of today is taken in in this quarter.

Moderator: Okay. Thank you for clarifying that. And what segments renovation or new build did this project relate to?

Mikkel Grinborn, CFO, Balco Group: Renovation. Renovation.

Moderator: Thank you. And adjusted gross margin dropped significantly in both quarter on quarter and year on year to 10.6%. Could you explain what the main drivers of the weaker gross margins in Q1 are?

Mikkel Grinborn, CFO, Balco Group: It’s still there. This of course affects a lot and also due to recent delays in the processes, we have had overcapacity both in production and also some parts in the operations organization.

Moderator: Thank you, Mikkel, for clarifying that. Could you also elaborate a little bit more regarding the financial situation and the covenants? Thank you.

Mikkel Grinborn, CFO, Balco Group: Yes. As you saw, we have been able to extend our banking agreement with Danske Bank, so we have a current discussion with them ongoing all the time and also very good cooperation. So we are just on our covenant right now, but we have very good cooperation with them. They have been informed during this period. And as you saw, we extended another eighteen months agreement with as well another two years after that as well.

Moderator: Thank you. We’ll move on to the next question here. Was the refinancing finalized with the current q one numbers and the current outlook for the remaining year disclosed? And have the covenants been amended compared to earlier?

Mikkel Grinborn, CFO, Balco Group: The the discussions with them started already autumn last year. So it was finalized just last week. As a matter of fact, signed the agreement or two weeks ago, exactly, February ago. And then the exact figures were not ready, but they, as I mentioned, we have discussed and informed the bank when the figures were finalized.

Moderator: And what specific steps are being taken to mitigate the delays caused by building permits and rental board processes in Sweden?

Camille Hector, CEO, Balco Group: What we have done is that since as we said here, we saw that we had a big effect on of course, the result and what has done is to make the reduction actions. So all reductions we all actions we have taken is also linked, of course, to that we had delays in this build up emission, which gave us an overcapacity. Here, it was mainly Balko, which was affected by the delays, Balko Vecco. And therefore, we have now been able to take down production and take it in on existing money.

Moderator: Thank you, Camilla. Given the weaker order intake, what strategies are you implementing to secure more large projects for the coming quarters?

Camille Hector, CEO, Balco Group: It’s not a new strategy. It’s the same strategy as we have had before, but it’s mainly, so to say, that when you are discussing these big projects, it is very, so to say, very difficult to say if they will come quarter one or quarter two or when they will take these decisions. So we have a couple of these big projects that should be decided here now during quarter two. So there are no change in our strategy because we know that our strategy is the right one, which we’re working on to get the big projects. But it’s always a match between quarter.

So therefore, it’s it’s important to see the order intake when it comes to a company like Banca Group, you must see it, so to say, over a longer period.

Moderator: Thank you for that answer. How confident are you that the restructuring efforts and cost savings of sixty million sick annually will be fully realized as planned?

Camille Hector, CEO, Balco Group: Yeah. We of course, we are confident because that is why we implement it. So I don’t know, to be honest, how to answer that. It’s more than what we are confident that we will get it out. We know that we have already taken some of the section, and they are already implemented.

And as we said, we know that we are closing down production in our bogger. We can take it in on existing manning. So we are very secure by that one. And then we have some additional actions which will be taken that we’re also confident on.

Moderator: Thank you. Regarding comments on the outlook and perhaps a needed clarification, Are you saying you expect to have a full year results in line with the 2024 on adjusted EBITDA? Or alternatively, are you saying that the rest of the year, example, Q2 to Q4, are likely to be on par with the same period last year?

Mikkel Grinborn, CFO, Balco Group: We don’t give exact forecast, but we expect it more to be the coming quarters to be on par with last year’s quarters. And it will be tough to reach exactly the same EBIT last year, but with some luck here, could go there, but probably slightly below total.

Camille Hector, CEO, Balco Group: When we say in the report outlook, it’s mainly quarter by quarter, the coming quarters.

Moderator: Thank you for clarifying that. And we’ll take one final question here. What is the timeline and expected impact of your strategic focus shift in The Netherlands towards open balcony solutions and new construction projects?

Camille Hector, CEO, Balco Group: When we go to the timeline when we expect to get the result there, this this we expect to get the result during this year. And I think that that was the question or the timeline or yeah. Exactly. And we expect the result to come during this year.

Moderator: Okay. Thank you very much, Camilla and Mikael, for taking your time to present the report today and also answering all of our questions. And I wish you all a great rest of the of the day. Thank you very much.

Camille Hector, CEO, Balco Group: Thank you all for for participating.

Mikkel Grinborn, CFO, Balco Group: Yeah. And for the questions. Thank you.

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