Earnings call transcript: Borgestad A sees Q1 2025 revenue drop, stock declines

Borgestad A reported a decline in revenue for Q1 2025, with figures falling by 8.8% compared to the previous year. The company also faced a negative adjusted EBIT, contributing to a stock price decline of 2.82% in early trading. According to InvestingPro data, the company maintains a solid financial health score of 2.9, rated as "GOOD." Despite these setbacks, Borgestad remains optimistic about its future prospects, particularly in the Nordic refractory markets.

Key Takeaways

• Q1 2025 revenue decreased by 8.8% year-over-year.
• Stock price fell by 2.82% following the earnings announcement.
• Borgestad remains optimistic about future revenue growth and market resilience.
• Ongoing cost-cutting measures and strategic initiatives are in place.
• The company plans to refinance Nordea debt by June 2025.

Company Performance

Borgestad A’s performance in the first quarter of 2025 was marked by a notable revenue decline, attributed largely to the typically slow activity in the Nordic refractory markets during the winter months. The company reported Q1 revenue of SEK 206.5 million, an 8.8% drop from the previous year. Despite this, Borgestad continues to hold a strong position as a market leader in the Nordic refractory sector, with plans to strengthen its management team and explore new market segments.

Financial Highlights

• Revenue: SEK 206.5 million, down 8.8% year-over-year.
• Adjusted EBIT: -NOK 11.5 million.
• Net Interest Bearing Debt: $249 million.
• Trailing 12-month EBIT margin decreased from 7.5% to 6.7%.

Market Reaction

Following the earnings release, Borgestad’s stock price fell by 2.82%, reflecting investor concerns over the revenue decline and negative EBIT. The stock currently trades at $0.09, showing remarkable strength with a 250% return over the past six months and a 183.78% year-to-date gain. Based on InvestingPro’s Fair Value analysis, the stock appears fairly valued. With 6 additional ProTips and comprehensive financial metrics available, investors can gain deeper insights through the Pro Research Report, part of InvestingPro’s analysis of over 1,400 US equities.

Outlook & Guidance

Despite the weak first quarter, Borgestad remains optimistic about the remainder of 2025 and early 2026. The company, with a market capitalization of $81.33 million and a strong current ratio of 2.69, anticipates increased revenue and EBITDA for its Agora Bitum property, with expected occupancy rates rising to 97-98%. Trading at just 0.25 times book value, Borgestad is preparing for the high season in the Nordic refractory markets, which typically sees peak activity in July and August. InvestingPro analysis suggests net income growth is expected this year, supporting management’s positive outlook.

Executive Commentary

• "We do not view this weak first quarter as a sign of a broader slowdown," stated Bendik Peers Anderschen, Head of M&A. This suggests confidence in the company’s strategic direction and market resilience.
• CEO Paul Fenlarchen emphasized Borgestad’s focus on expanding into niche segments, underscoring the company’s commitment to growth and innovation.
• Anderschen also noted the resilience of the refractory installation business to market fluctuations, highlighting a key strength in Borgestad’s operations.

Risks and Challenges

• Seasonal fluctuations in the Nordic refractory markets could continue to impact revenue.
• The company’s high net interest-bearing debt presents a financial challenge.
• Project postponements in certain industries may affect future revenue streams.
• Dependence on successful refinancing of Nordea debt by June 2025.
• Potential delays in the conversion of the Agora Bitum parking facility.

Q&A

During the earnings call, analysts inquired about the alignment of property valuations for the BUV transaction and sought clarity on the ongoing cost-cutting strategy. Additionally, questions were raised about the exploration of the Agora Bitum parking facility conversion, with executives confirming their commitment to this initiative.

Full transcript - Borgestad A (BOR) Q1 2025:

Moderator from Arctic Securities, Arctic Securities: On behalf of Arctic Securities, I welcome Borgesda to this Q1 presentation. With us from the company, we have CEO, Paul Fenlarchen. We also have Head of M and A, Bendik Peers Anderschen. If you have any questions, please feel free to write them in the chat. Thank you very much, and I’ll give the word to to Paul and Bendik.

Paul Fenlarchen, CEO, Borgesta: Thank you very much, and thank you for the invitation. Let’s go to some highlights. Bergista released first quarter this morning, and for sure, it’s a weaker quarter than last year due to lower activity within in low season. Bendik will elaborate more later, but Hornsbergastat has a slower start of the year mainly within the service and installation business in the Swedish market. When we look at the order book for second quarter and the rest of the year for Hohensburgusa, it looks healthy and the prospects looks good.

Hohensburgusa do not foresee a general slowdown for the refractory market in The Nordics, but are optimistic on the rest of the year for Hohensburgstadt. It’s very good to see Agora Butom is continuing its good momentum in the quarter and report higher revenue and EBITDA than same quarter last year. Borgesa is an industrial investment company focused on real estate and refractory aiming to expand into niche segments in the future. Berguszar has initiated some key tools that we are driving the company for to review the success. One of them is to have the right team And April 1, it was done a material change.

Bendik took to then the role as CEO of Hohensbooze Group, we can all already see that he’s he has implemented changes and has worked with a team that we will see success going forward for Hones Bergstrom. After Bendig has joined Hornsburgista, Bogista will also need to strengthen the team. And from, June, we have hired an investment manager, that will join Burgista and take part of the role that Bendik has had until before April. We’re looking forward to have Jan Fredrik on board. Our portfolio includes the shopping center Agora Bitum and the refractory company Hohensburgista, both dominant in their respective markets.

Agora Bitum is a shopping center in Poland and is the largest investment of the group. Agora is centrally located in the Silesian region of Poland and holds a strong market position in its primary catchment area. Owns 100% of the shares of the company and the center. Is a manufacturer and supplier of refractory quality products, installation and solutions that are essential for industrial high temperature processes. Is the market leader in the Nordic refractory market and owns 69.7% of the shares.

Let’s go into the details and start with Agora Bito. For first quarter, the rental income is relatively stable, that is due to tenant changes in first quarter and we will see increase going forward. EBITDA increased due to cost cuts implemented in 2024 and as communicated before, we have seen the full effect from first quarter twenty twenty five and onwards. If we look at the future, Borgista expect that revenue and EBITDA will increase going forward. Debt towards Bank Pokal with due date 12/31/2028 stands at euro 29,300,000.0 at the end of first quarter.

That is a loan to value below 50% and at a sustainable level. If we look into turnover among tenants, those are down 2.8% in the quarter, and this can be seen as a seasonal flotation due to timing, mainly timing of Easter. Easter in ’24 was in first quarter, while in 2025 it was in second quarter in April. Easter in Poland is a is has historically been a good period for shopping and turnovers in Agora Butom. And it’s important to understand that Easter in Poland has less days closed for shopping center than in in the Norwegian market.

So this will affect going forward for second quarter. Agora Butom keeps a steady high, vault, both by years and income. As communicated several times, a normal contract length in the search shopping centers is around five years. So a vote of almost four is in the high end. 5% of the contracts has are ending in 2025, several with option to renew.

The main part of the contracts will be will be renewed in as Agora is reviewing the situation at the moment. Historically, the renewals and strategy strategy for renewal has been a good story for Agora Bitum, and we are confident that this this will be the same for this year. Agora Bitum continued to develop a strong position in the local market and increased occupancy in the quarter. Occupancy stands at 95.8% based on signed leases end of first quarter. Burgista expect further increase in occupancy based on signed leases and several on based on several ongoing advanced negotiations.

Agora Bitum is in advanced negotiations of above above 2,400 square meters. The negotiations are a combination of renewals of existing leases and new leases. If all negotiations will be signed, occupancy can be expected to increase up towards 97 to 98% within next three to six months based on signed leases. Agora has a good momentum in the rental market and management are working to capitalize the momentum into rental income. With the occupancy rate above 95% Agora at Agora Bitum, we expect for further increase going forward and as a natural consequence, it’s hard to find available units in Agora Bitum.

If we need if need to if we have tenants, need to then change to optimize and the strategy for going forward is to increase the rent per square meter and work to optimize the parcel in the center. That is a strategy that Bergsar is confident that will be implemented in Agora due to our local management that is incentivized to do and complete that puzzle and work with it every day. Let’s go into and over to Bendik.

Bendik Peers Anderschen, Head of M&A / CEO of Hohensbooze Group, Borgesta: Thank you, Paul. Let me start with the Q1 results before moving on to our outlook ahead, and I will also provide an update on the previously announced sale leaseback agreement in Sweden. As shown in the chart to the right, we saw a revenue drop of 8.8% for first quarter this year compared to the same quarter last year, ending at 186,000,000. And as we do have a relatively high operational leverage with a lot of fixed costs, we are obviously quite dependent on sufficient revenue each month to reach breakeven. And during Q1 this year, which is always our weakest quarter as consequence of low maintenance during the winter in the Nordic refractory markets, we recorded an adjusted EBIT of minus NOK 11,500,000.0, about NOK 9,500,000.0 behind last year’s performance.

If you look at the year overall, we see that historically and generally, q one and q four are weak quarters for the Nordic refractory markets, and that’s that goes for for us as well, largely due to the cold weather where a lot of industries are prohibited from to make make maintenance. And as as the chart shows, activity typically picks up during the spring and peaks in July, August, when a lot of planned maintenance is scheduled during the the summer holiday. But as the bottom chart shows, we delivered a weaker first quarter this year compared to previous years. As Paul mentioned in the intro, that’s due to lower activity in the subsidiaries, whereas the Norwegian and the Finnish subsidiaries are continuing to perform well also in Q1. We do not view this weak first quarter as a sign of a broader slowdown or a general setback in the positive momentum we have seen in the last few years.

But we are obviously not satisfied with the first quarter this year, and we are working hard to ensure that we will increase our revenues for next year’s Q1. In addition to that, we are also implementing cost cutting measures to reduce our operational leverage for the quarters and years ahead. Looking at our trailing twelve months performance, the weaker Q1 reduced our average EBIT margin from 7.5% in full year 2024 to 6.7% as of q one twenty twenty five. But as I said earlier, we do not view this downturn as dramatic. We have good prospects for the remainder of ’25 and also what we see shaping up in 2026.

But, of course, it’s it’s natural to ask whether this this downturn is might be linked to a to a broad the broader, let’s call it, macroeconomic environment with with trade tensions and more uncertainty. And and we do observe some slowdown in certain industries with especially some larger projects being postponed. And we also note that other refractory actors have reported a weaker Q1 this year. But as the history has shown, the installation business in our refractory business is quite resilient to market fluctuations and rather rather steady. But but we are, of course, monitoring the market closely, and we’ll assess whether we should implement further actions to reduce costs ahead of next year’s low season.

Finally, a brief update on the sale leaseback agreement in BUV. As announced in late twenty twenty three, we agreed on the sale of our two properties in Bjug with to the local municipality with an option to lease them back for another five years, after which we will relocate our own production. Following this announcement in 2023, a local citizen in the municipality submitted a complaint claiming that the agreed price was too high. And in March, the administrative court in Malne reviewed the the complaint and ruled against the completion of the transaction, citing insufficient documentation to support the the evaluation. The municipality has now, in April, appealed the ruling and submitted additional documentation supporting the the evaluation.

And we expect initial feedback on whether the appeal will be reviewed now before the summer. And if it is, then the communicated processing time is nine to ten months, meaning that we should have a final feedback on the case by the end of this year or early twenty twenty six. And from our side, we still expect the transaction to go through and and as planned, and any updates will, of course, be announced as soon as possible.

Paul Fenlarchen, CEO, Borgesta: Thank you, Benik. Let’s go into the financials and sum up at the end of the presentation. Bergstad Group has not started the year as in 2024 due to slower start of Hones Bergstad reporting a revenue of SEK206.5 million and EBIT of negative SEK11 million. Debt financials are also negative affected due to increased costs in first quarter twenty twenty five. The increased cost is due to that Agora Bitum in first quarter twenty twenty four had the old interest hedging on very favorable terms.

For those who remember good, a new interest hedging was in place from third quarter twenty four and onwards. Profit before tax ends up at negatively 20 3 million. And let’s look into the balance sheet. Bergsta has a strong balance sheet with a sustainable debt level and a good cash situation. Net interest bearing debt at $249,000,000 at end of first quarter.

Debt towards Nordea for Haggenburgista is due June 30 this year. We have a good communication and process with Nordea for refinancing and expect to close a new financing or refinancing through June or probably June this year. Inventory is increasing in the period as we are entering into high season for installation and maintenance business for the whole Nordics. The property in Bijl stays as held for sale until final clarification is received related to the complaint that Wendig talked about previously. Looking at a cash flow statement, net cash from operating activities is negative mainly due to negative results in the quarter and the increased inventory.

Debt decreased according to amortization plan and Borysa holds a good cash situation at the end of the quarter. If you look on the outlooks, is optimistic for remaining part of the year. The order book and prospects for looks good and Hohensburgusa will implement activities to secure lower cost base going forward and focus on order log for low season already at this stage. Agora Butom has a good momentum, and Bogusa expect occupancy to increase, including increased revenue and EBITDA going forward. Thank you.

Moderator from Arctic Securities, Arctic Securities: Thank you very much, Paul, and thank you, Bendik. As mentioned in the introduction, if you have any questions, please feel free to write them in the chat. We have a few questions, and I can start regarding the real estate property in Sweden in view that you mentioned, Benrik. So it was a question from one of the listeners regarding the values. I mean, because you have two different valuations on the property.

And the question is related to if those valuations are in line with the sale price that has been negotiated or if it’s, yeah, Higher or lower? So

Paul Fenlarchen, CEO, Borgesta: had a compare compare compare evaluation completed evaluation in 2022 for for the two properties in in view. And those valuations are then based on of course

Moderator from Arctic Securities, Arctic Securities: the

Paul Fenlarchen, CEO, Borgesta: interest and market rates at that moment. Those two valuations are in line with the transaction price that we have agreed with BUV. BUV municipality has also order external valuation and that valuation is also on or or in in line with with the transaction value. So I I would say it’s it’s at at the same value.

Moderator from Arctic Securities, Arctic Securities: Okay. Good. That’s that’s supportive.

Bendik Peers Anderschen, Head of M&A / CEO of Hohensbooze Group, Borgesta: That that’s also, as you say, that that the reason for why we are expecting the transaction to go through because now there are multiple valuations supporting the negotiated price. Yes.

Moderator from Arctic Securities, Arctic Securities: Thank you. And then to Hogenas Borgester, you mentioned the cost cutting measures. Yep. Can you provide any more specific details on

Bendik Peers Anderschen, Head of M&A / CEO of Hohensbooze Group, Borgesta: We we are outlining the the details now. We have a lot of rents, which we will which we are looking at, and and also, of course, other other parts of the of the of the of the cost base. And it’s about finding the balance between having sufficient, let’s say, a sufficient base for the high season while reducing the cost as much as possible during the low season. So we need to find the optimal balance there. But we are looking at it, and we’ll be implementing it in the months ahead.

Moderator from Arctic Securities, Arctic Securities: Good. And of course, if you follow the company for a while, you know all about the seasonalities. So it will be interesting to look at Q2 going forward. And Agora, in the I think it was the Q3 or Q4 report, it was mentioned that the parking facility could be converted into what was it? Consumer store for groceries or yeah.

Any new developments on that?

Paul Fenlarchen, CEO, Borgesta: We are still working on it. The prospects looks good and the financials also looks good. What we are working on is local permissions, etcetera, and and, of course, negotiations with with potential tenants. I would say that the timeline is a bit extended, but I expect that we have a final communication by the end of the year, if it’s possible or not. Yeah.

Moderator from Arctic Securities, Arctic Securities: Good. That was the questions that were asked in the Q and A chat. If you have any additional questions, please feel free to reach out to Arctic or to management directly. Yeah. I think that’s good.

Thank you very much for a good presentation. Thank you. And looking forward to the rest of the year.

Paul Fenlarchen, CEO, Borgesta: Thank you.

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