Earnings call transcript: Borgestad A Q2 2025 sees stock drop amid revenue decline

Borgestad A reported its Q2 2025 earnings, revealing a challenging quarter with a 6.5% decline in group revenue compared to the same period last year. Despite strategic acquisitions and operational adjustments, the company’s stock price fell by 7.5% following the announcement. According to InvestingPro data, the company’s market capitalization stands at $119.35 million, with the stock showing remarkable resilience year-to-date with a 339.19% return despite recent challenges.

Key Takeaways

• Borgestad A’s group revenue decreased by 6.5% year-over-year.
• The company reported a negative cash flow from operations of NOK 92.7 million.
• Stock price dropped 7.5% in reaction to the earnings report.
• Acquisition of Emcotek AB aims to enhance service offerings in flue gas cleaning.
• Borgestad A is targeting a mid-term EBIT margin of 10%.

Company Performance

Borgestad A experienced a challenging second quarter, with a notable decline in revenue and a negative cash flow from operating activities. Despite these setbacks, the company remains a strong player in the Nordic refractory market and shopping center sector, with a diverse tenant base and strategic initiatives aimed at strengthening its market position.

Financial Highlights

• Q2 2025 adjusted result before tax: NOK 20.9 million.
• Group revenue fell by 6.5% compared to Q2 2024.
• Negative cash flow from operations: NOK 92.7 million.
• Total interest-bearing debt: NOK 508.6 million.
• Net interest-bearing debt: NOK 391.6 million.

Market Reaction

Following the earnings announcement, Borgestad A’s stock price dropped by 7.5%, reflecting investor concerns over the company’s declining revenue and negative cash flow. InvestingPro analysis suggests the stock is currently overvalued based on its proprietary Fair Value model. Despite recent challenges, the company maintains a GOOD overall financial health score of 2.87, with particularly strong momentum metrics. For deeper insights into Borgestad’s valuation and 6 additional exclusive ProTips, consider exploring InvestingPro.

Outlook & Guidance

Borgestad A anticipates a stronger performance in the second half of 2025, with a focus on achieving a mid-term EBIT margin of 10%. The company is also exploring mergers and acquisitions in the Nordic refractory market to bolster its offerings and market position. InvestingPro analysts expect net income growth this year, with comprehensive analysis available in the exclusive Pro Research Report, part of the extensive coverage of 1,400+ US equities on the platform.

Executive Commentary

Paul Van Laarsen, CEO, emphasized the importance of having the right team in place to navigate the current challenges. Ben Nik Onersen, Head of M&A and Investor Relations, expressed confidence in the Emcotek acquisition, stating, "We strongly believe that this acquisition will be a fruitful acquisition, both financially and operationally for the group."

Risks and Challenges

• Revenue decline: The 6.5% drop in revenue poses a significant challenge for Borgestad A’s financial health.
• Negative cash flow: The negative cash flow from operations could impact the company’s ability to fund future growth initiatives.
• Market conditions: The refractory market slowdown and seasonal fluctuations may continue to affect performance.
• Debt levels: High interest-bearing debt levels could pose financial risks if not managed effectively.
• Economic environment: Changes in the Polish economy and interest rates could impact Borgestad A’s operations and profitability.

Q&A

During the earnings call, analysts questioned the strategic rationale behind the Emcotek acquisition and its expected impact on Borgestad A’s financial performance. Executives assured that the acquisition aligns with the company’s broader strategic goals and is expected to enhance its service offerings in the industrial sector.

Full transcript - Borgestad A (BOR) Q2 2025:

Moderator/Host: Welcome to Borgesagtas Q2 presentation. With me from the company, I have CEO, Paul Van Laarsen and Head of M and A and Investor Relations, Ben Nik Onersen. If you would like to ask questions, please use the chat function in the webcast. So with no further ado, I will hand over to Paul.

Paul Van Laarsen, CEO, Borgesagtas: Thank you very much. Bergstad released its first second quarter this morning. Let’s go into the highlights. In second quarter twenty twenty five, Bergstad Group delivered an adjusted result before tax of 20,900,000.0. Agora continued its positive momentum, posting an EBITDA of NOK 12,100,000.0 in second quarter, up from NOK 10,700,000.0 in second quarter twenty twenty four, a positive really positive development for Agora Bitum.

Hoegh LNG export delivered a weaker quarter compared to same second quarter twenty twenty four, reporting revenues of NOK 296,400,000.0 compared to NOK $318,000,000 last year. Adjusted EBITDA in the quarter was NOK 27,500,000.0, down from NOK 39,800,000.0 last year. In the quarter, Hoeghenspausta acquired 100% of Emcotek AB, a Sweden based company specializing in industrial flue gas cleaning. Just it’s okay to mention that Emcotek was acquired the last day of the quarter, so no P and L effect for the quarter is included in the quarter. But of course, from third quarter and onwards, we’ll review MCOTEC included in the P and L of the group.

Hornungsporustar refinanced its existing loan facilities with Nordea Bank, extending maturity date until 06/30/2028, on very good margins and margin reduction of 0.8% compared to the last facility. Let’s take an introduction to Bogista. Bogista is an industrial investment company focused on real estate and refractory, aiming to expand into niche segments in the future. Bogista strengthening its existing investments through operational improvements, and we want to expand into niche segments with consolidation potential. Going forward, we’ll leverage on the networks and expertise of management and the Board to unlock new opportunities for the company.

We are using different tools. And for Borgisa, it’s important to have the right team at in place. We are looking for effective use of capital. We measure everything and develop KPIs for our investments and will be active in M and A. Borgista’s portfolio today includes the shopping center Agora Bitom and refractory company Hohens Borgista, both dominant in the respective markets.

Agora Bitom shopping center in Poland is the largest investment for Borgista, accounting for over half of the balance sheet. Agora Bitom is centralized centrally located in the Silesian region of Poland and holds a strong market position in its primary catchment area. Hoenbergstadt is a manufacturer and supplier of quality products refractory quality products, installation and solutions that are essential for industrial high temperature processes exceeding 1,200 degrees in various industries such as steel and cement. Agora Bitum is owned 100% by Bogista and Hones Bogista Group is owned by 69.7% by Bogusta. Let’s go into the details and start with Agora Bitom.

Agora Bitom continued to deliver increased revenue and EBITDA in the quarter. We deliver margin improvements through revenue growth and cost reductions increased EBITDA from NOK 41,300,000.0 for full year 2024, up to NOK 43,500,000.0 for last twelve months end of second quarter twenty twenty five. As of June 30, occupancy based on signed leases was at 94.8, a decrease of 4% since March 31. As as the date of the report, the estimated occupancy on signed leases stands at 96.6%. This is due to an active summer in relations to closing negotiations and signing new leases.

Those leases will have a full effect from first quarter twenty twenty six. The shops will open during fourth quarter twenty twenty five, but will not have full effect in that quarter. In addition, Agora Bitum are in advanced negotiations with several tenants at the moment, and Agora estimates to close and to sign new leases in third and fourth quarter, increasing 2% or the leases will increase 2% of the leasable area, and especially on plus 2% level, will be improving during third potentially improving during third and fourth quarter. So we have guided that at the end of the year Agora Butom will probably have an occupancy rate above 97% going out of the year. Agora Bitom has over recent periods shown good development in increasing the occupancy rate and has now nearly fully leased out the center.

With this strong occupancy as a foundation, the focus is shifting towards renegotiating or replacing lower leases to increase the actual rent per square meter per month. At the same time, we’ll continue to increase the center’s commercial attractiveness. A combination of high occupancy, improved rent levels and increased attractiveness is critical for any potential value increase going forward. The Polish economy is developing good and this is also reviewed in the consumer confidence within Poland. It’s also worth mentioning that Poland’s reference interest rate was decreased to 5% as of July 2025.

Agora Bitum has a diverse tenant base and a healthy weighted average unexpired lease term, ensuring low contract duration risk. As you see in this slide, Agora has a highly diverse tenant base, and top 10 tenants only contribute to 43% of leasable area. And this is okay level and a low risk compared for the big leases. Contract duration is spread over time and renewal risk is low, With 5% due in 2025 and eight percent of leases due in 2026, it’s a comfortable level and a low end of normal years related to contract renewals. So we are comfortable with the total situation for Agora Bitom.

Let’s move on to Hoeghens Bergsta, and Benik will take it from there.

Ben Nik Onersen, Head of M&A and Investor Relations, Borgesagtas: Thank you, Rupl. Let me start with the Q2 figures before moving on to how we see the remainder of the year and also 2026. I will also provide an update on the previously announced sale leaseback agreement in view. And finally, I will also provide some insights into our latest acquisition of Emcotek AB in Sweden, announced in June. Looking at the second quarter figures.

Revenues declined by 7% in this year’s second quarter compared to the same period last year, and our adjusted EBIT came in at 21,800,000.0, down from NOK 33,300,000.0 in the same quarter last year. This decline reflects both a general slowdown in the refractory markets, where we experienced both higher degree of price sensitivity and also some projects being postponed until later in the year or even next even 2026 or 2027. We are, however, also experiencing some loss of market share in the Swedish markets, which we are working actively to turn in the coming quarters. On a regional level, Norway and Finland continue to deliver strong results despite having less project activity, with both subsidiaries delivering a rolling 12 EBIT margins above 10%. While in Sweden, we are, as I said, still facing challenges with high cost base and loss of market share.

And our all of our three Swedish subsidiaries are having a rolling 12 EBIT margin of about 2.5%. To address these challenges in Sweden, we have implemented cost cutting measures, which will take effect from September. In addition, we are appointing new Managing Directors internally for both our production and installation companies in Sweden, also taking effect September 1. The current Managing Directors will transition into new roles as Sales Director, being fully responsible for the sales in Sweden, and Director of Strategy and Business Development. And we strongly believe that this will contribute positively going forward.

As we have highlighted in previous presentation, the Nordic refractory market is highly seasonal with generally low activity during Q1 and also Q4, primarily due to cold weather. And activity typically picks up during Q2 and peaks in Q3 when a lot of our customers perform planned maintenance during or after the summer holiday. After a weak first quarter this year, the activity picked up in second quarter as expected, although it came in below our midterm targets. For the quarter, we delivered an adjusted EBIT margin of 7.4%. I want to highlight that, in general, we are not in favor of reporting adjusted figures.

But in this case, we are adjusting for layoff compensations in as part of the cost cutting program in Sweden. We are also adjusting for a write off of our ERP system in the Swedish installation company. It will not have any cash effects, and that’s why we are also reporting adjusted figures to report on what’s our core business. If we look at our trailing twelve months performance, the second quarter pulled our rolling 12 EBIT margin down from 6.7% after Q1 this year to 5.8% as of Q2. With this weak first half, we do not expect to exceed last year’s performance of 7.5% for the full year, but we do expect a stronger second half and that we will continue a positive development through 2026.

And of course, it’s natural to ask whether this weaker first half is a sign a lasting downturn or a slowdown. And I would say, in the short term, it’s a sign of a slowdown in the markets, but history has shown that the refractory market is rather resilient. And that following slowdown periods, we often see a catch up effect. Maintenance has to be done even if production is being reduced, and that’s why we expect the activity to pick up in the next quarters. And with the organizational changes made now in Sweden with effect from September, we strongly believe that we will be able to increase our sales in the second half and also through 2026.

And by also maintaining a strict cost control, we expect that we should be able to reach our midterm EBIT target of 10%. At the 2023, we announced that an agreement had been signed to sell two of our properties, both in BU to the BU municipality with the possibility to lease them back for up to five years, after which our production in BU will need to be relocated. After the announcement, a private citizen submitted a complaint stating that the price was too high. In March, the administrative court in Malmo reviewed the case and decided not to approve the transaction, referring to a lack of sufficient documentation supporting the price agreed between Hagensburgista and Bjorg Municipality. The municipality subsequently appealed this decision, submitting further supporting documentation.

And in June, the court confirmed that the appeal will be taken up for review based on this new documentation. It’s also stated that the case is likely to take nine to ten months to process, meaning that we should expect a decision either by the 2025 or early twenty twenty six. So from our perspective, we still expect the transaction to be completed, but we will, of course, post any updates on the stock exchange. Finally, a brief summary of our latest acquisition, which was announced just before the summer when we acquired Encotech AB, a small Swedish service company within industrial flue glass cleaning, serving both some of our existing refractory customers and also potential customers. And in 2024, MCOTEC reported revenues of SEK 45,400,000.0 and an EBITDA of SEK 6,400,000.0, primarily serving customers within Pulp and Paper and also the steel industry.

With this acquisition, we strengthened our offering on industrial flue gas cleaning, which is increasingly important for many of our customers. And we also expect synergies, especially within sales, between Emcotek and our Refractory business, especially within Sweden. The purchase price amounted to SEK 10,500,000.0 at closing with an additional performance based earnout of up to SEK 10,000,000. Financing was secured through loan agreements with Nordea, including a SEK 9,000,000 mortgage loan and a SEK 10,000,000 overdraft facility to account for seasonal fluctuations in operational working capital. And we strongly believe that this acquisition will be a fruitful acquisition, both financially and also operationally for the group.

And we look forward to integrating Emcotek and the whole team into their group.

Paul Van Laarsen, CEO, Borgesagtas: Thank you. Let’s go into the financials, sum up for the group. Oyster has a decrease in revenue in second quarter by 6.5% compared to same quarter in 2024 due to decrease in Hohens Boegsta activity, as Bendik has already mentioned. It’s a profit decline in second quarter compared to the same period 2024, driven by lower revenue in Hohensburgstad. But also, I would like to point out that Agora is Butom is increasing the profit.

Negative effects from financial items due to increased costs of hedging for Agora Butom. First half last year, we had the old hedging, while in second half twenty twenty four, the new hedging was entered and that is affecting first half twenty twenty five. Adjusted profit before tax at 20,900,000.0 for the quarter, a bit weaker than last year. Working capital increased ahead of high season. Mortal debt in Hohens Boysa was refinanced during second quarter on better terms.

If you look into details of the balance sheet, our investment property Agora Bitom increased in NOK due to a weaker NOK compared to euro this year. Working capital increased to 321,100,000.0 compared to NOK 312,500,000.0 2024, mainly due to increased inventory. Total interest bearing debt stood at 508,600,000.0 2025, with net interest bearing debt at NOK 391,600,000.0. Margin debt in Hohensboise was refinanced in the quarter with 0.8% margin improvement. New due date is June 2028.

For financing in Bangkokaw connected with Agora Butom, the due date is 12/31/2028. And total debt stands at NOK28.9 million 2025. In the quarter, total dividend of 4,600,000.0 was distributed to shareholders of Borgista and minority shareholders of Hovns Borgista, which impacts of course the equity and equity ratio compared to 2024, and of course decreases the cash situation as well when you compare to 2024 and same period last year. The property in Biew remains classified as held for sale pending expected court decision as outlined by Bendik. If you look at cash flow, the group’s year to date cash flow from operating activities was negative with 92,700,000.0 compared to negative NOK 13,600,000.0 in 2024.

The material change is due to shift in inflow from high season activity within Hornsbergistan. For 2023 high season, the liquidity inflow was mainly in first quarter twenty twenty four, while due to more timely invoicing during 2024, the inflow was received in fourth quarter twenty twenty four. This is, of course, affecting the comparison figures, and we expect that the inflow from the high season will come in fourth quarter this year as well, meaning that we expect a positive net cash flow from operating activities going forward in second half. As Bendik elaborated, in second quarter, the group closed the acquisition of the shares of MCOTEK, influencing the net cash flow from investing activities within the quarter. Cash flow from financing activities was positive 14,700,000.0 year to date compared to a positive NOK 4,900,000.0 last year.

The group has in second quarter distributed dividend as mentioned, and this is affecting the financial activities. Available liquidity as of 06/30/2025 was million, which include million of undrawn credit facilities, a comfortable level when we have entered the high season within Hohensbodjistar. When we look at outlooks and priorities, Hohens Bordista remains focused on operational improvements, capital efficiency and cash flow gains in 2025. And as Bendik communicated, we are positive for 2025. Revenue and EBITDA for agorabutom are expected to increase slightly in the years ahead with the impact of cost cutting and increased occupancy rates.

The last year’s has been really good on increased occupancy rate, and we expect also that to be seen going forward. Focus is shifting towards renegotiating or replacing lower leases to increase the actual rent per square meter per month to increase the total rent from the property. Bogstad will continuously review strategic M and A opportunities and other liquidity events for Agora Bitum while exploring add on acquisitions for further strengthening Hans Bogstad’s position in the Nordic refractory market. Thank you.

Moderator/Host: Let’s move on to the Q and A. And I would like to remind everyone listening in, they can still ask questions using the Q and A function. So I guess you touched on many of the questions there, but I will still read them out and then you can fill in if there’s anything you would like to add. So regarding the acquisition of Encotech, what is the strategic rationale? And what kind of synergies do you expect in the short term and the long term?

Ben Nik Onersen, Head of M&A and Investor Relations, Borgesagtas: Well, can answer that. The strategic rationale is, I would say, twofold. First of all, many of our customers, they demand a better fuel gas cleaning in general, and they also request a broader offer from us as a supplier. So with this acquisition, we are able not only to provide refractory services, but also flue gas cleaning as many of these projects are run-in parallel. So when a factory is paused and we are performing refractory services, that’s also when the flue gas cleaning is serviced.

So that’s one part. And the other part is that we see that although we do have many of the same customers, Emcotek also has customers which are some of our potential targets for on the refractory side. So we see MCOTEK as a potential door opener for our refractory business and vice versa. So that’s the strategic rationale. And financially, we believe that with the agreed terms that this should be a favorable acquisition given that we succeed with the integration of Encotech into the group.

Moderator/Host: Thank you. And then along the M and A lines, do you see further M and A opportunities along the same value chain?

Ben Nik Onersen, Head of M&A and Investor Relations, Borgesagtas: I would say that we are not focused at the moment on M and A within Hoegh LNG, but you saw too much. We are optimistic. But our main focus is to improve our existing business. But of course, if opportunities appear, which we see favorable, then we will, of course, consider it. But our main focus is now to improve our existing business.

Moderator/Host: Yes. Thank you. Moving on to two questions regarding Agora Vitan. Agora continues to perform well. What is driving the growth?

And how do you view the Polish shopping center market going forward?

Paul Van Laarsen, CEO, Borgesagtas: So what is driving the growth is both increase in revenues due to the increased occupancy, but also the cost cutting implemented 2024 that we are, of course, having a full effect now in 2025. And the focus in Agora is by management is good. We have now a good pattern going forward and good momentum on new leases, I would say. So we are optimistic for that part. Yes.

Moderator/Host: Perfect. And then we have one last question, if you don’t receive any in the last minute there. What can we expect or when can we expect an exit in Agora? And

Paul Van Laarsen, CEO, Borgesagtas: of course, that is also referring to the second half of your last question. Exit of Agora, I would say that from an operational perspective, the center is ready for an exit. But the Polish property market and especially shopping center market is not there yet to start an exit process. But of course, we are following it closely. But as mentioned in the last presentation, in the past it has been or 2024, it was a couple of interesting transactions for prime shopping centers in Poland.

That is hopefully the start of the prime transactions, but it will take some times before I think we’ll see secondary cities to be involved in that transaction journey. Thank you so much.

Moderator/Host: That concludes today’s presentation. Thank you, Paul, and thank you, Wendig. And thank you to everyone who was listening in.

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