F&G Annuities & Life, Inc. Price & Performance (FG)

In the room today, we have Mathieuko CEO Casper Tannen, CFO and myself, Adir Baestmann. Head of Comms, Investor Relations. We'll start off with the presentation. Martin will take you through the slides and then we will conclude with a Q and A session. So please Martin, go ahead. Thank you, Adrian, and good morning also from me. Glad to present this report for you today.

We have comprehensive reports to go through today. And first of all, just like to highlight that We have stable development in Denmark, Norway and Finland. But what stands out today is clearly the Swedish operations.

And it has been a weak unusually weak fourth quarter for us, especially in Sweden. And with that said, we have also implemented a new organizational structure from From today, And [indiscernible] are looking into to improving the Swedish situation from here. Get back to that from further in the presentation. Another thing that stands out is the implementation, the integration of Clearline, which have gone well. They've been in this report with us two months and have clearly affected results positively. And I would like to highlight that there's plenty of projects to calculate on in at a clear and facilities. So there's plenty to do for them, which is very positive. And that affects also the Order backlog which has increased here even if we exclude Clearline and the project [indiscernible] from Q3. However, with the weak results, we have seen an increase of NOI important covenant net debt to adjusted EBITDA pro form a. Which is around 3.3 times.

Then the Board also proposed to have no dividend for 2024. And remove the dividend policy And hence, we are very focused on taking back leverage back below 2.5x. So some further details on the net sales. First of all, it was a total decrease of roughly 1.6%. However, organically, it was down sharply by roughly 50.6% where the Swedish operations, as I mentioned, continued to decline. There was a very low activity unusually [indiscernible] Low demand in new construction and also some seasonality effects in December, especially with less working days, And we have also experienced continued tough competition throughout the quarter. However, as I mentioned, pretty stable development in the rest of the Nordics. It was organic growth in 2024 for all of the other countries except for Sweden. Then looking at Clearline, they were part of the group for two months, as I mentioned, and managed net sales of roughly $126,000,000 Then looking at the adjusted EBITDA margin came in at 6.4%. Decline versus last year, which was at 9.1%.

It was once more the Swedish operations that stood out [indiscernible] took a hit in conjunction with the bankruptcy of [indiscernible] CHF10 million However, there are some possibilities that we can maybe start up on those projects again but that's not included in our books. [indiscernible] we have been working closely with with bankruptcy lawyers there.

Then As I mentioned, December was very unfavorable for us. It's usually quite a good month, but we once again had a disappointing end to to a quarter and that spills over them. To the results clearly. Then we've had some subsidiary specific challenges such as the low demand on the new construction, as I mentioned, very weak activity. We've had some extra works that usually have pretty high margins at I was talking about historically which did not have quite as good margins as usual.

And some we say minor customers have also had to problems with with paying up and And with that said, it is a super tough situation. In Sweden. We're very humble about that. With that said, it is back to what we said, I think in Q2, Q3 that We took a diversification path where we chose to to grow into the other Nordic countries, which is which we were very glad for. Today.

And of course in The U. K. Markets.

And diversifying our portfolio. And adapting to the various markets that is throughout Northern Newburton. Then Clear that came in a bit stronger than historical figures around €57,000,000 on this two months in EBITDA. And looking at the order backlog, as I mentioned, it's on historical all time high. However, there was some drop organically, probably 8%. [indiscernible] you see here that's the Clearland acquisition also had an increase here of the order backlog of some SEK1 billion. [indiscernible] As I mentioned also, we've seen an increase in prices that is affecting the order backlog margin. One percentage point increase in the order backlog margin compared to Q3, it's 24 Excluding Clearline then. Which are obviously a much higher order back of margin. And with that said, it's Since we are mainly focusing on inflation, as you know, it is also some variance, some when exactly the projects will start. It can be some delays when they start, but usually with order backlog with Starstruck is something maybe six to nine months ahead from when you From when you signed the order, So with that said, it's very hard here to see exactly when the increase will come. [indiscernible] clearly positive that the order backlog margin is growing.

Then on the cash flow side, we had decrease here in the operating cash flow, mainly then due to the lower earnings. However, it was a much lower decrease mainly affected by the working capital improvements and That I would like to highlight that's been a continued focus for us We've seen longer payment terms as an example from our suppliers. Clearly affecting us positively in the cash conversions and we are roughly at 118% cash conversion for the full year. 20% in the Then looking at the important numbers here in the financial capacity and net debt, The average interest rate was around 6.1% here for 2024, we still have a very short interest rate period one to three months. Then our key covenant here is, as I mentioned, initially, around 3.3 times which we're monitoring very closely and focusing to decrease of course. Then we've also converted our credit facilities [indiscernible] Then we've added lately two new acquisitions. First of all, Clearline, which I'd like to highlight once more. Very strong foundation United Kingdom. And performs then [indiscernible] often complex high rise buildings plenty of facade fire remediation projects, but also more classic facade renovation projects. The thing with ClearLAN is that it's a total solution company.

Which provides design, pre contract service agreements delivery and execution to the customers for us. So from start to finish, which also stands out Due to the fact that they have all of the competencies in house. With ClearLAN, also a very established customer base and great network in The UK and and also outside The UK.

But the focus is now of course, in The UK for clear lines since mainly due to the Grenfell Tower fire disaster, which was in 2017. Which then led to, you could say, a new focus on facades. In United Kingdom. From the government, not to say the least, And it is a huge problem in The U. K. Where these kind of facades are dangerous. Claire Rana is one of the experts that are assisting United Kingdom with implementing new battery facades. And I would like to stress that this has led to a more professional markets in The United Kingdom and ultimately leading them to to better, let's say, Yeah.

Margin possibilities.

In in The UK for our kind of work. Then roughly for the what we mentioned when we acquired Clearland that they had revenues of approximately 49,000,000 Then I'd also like to highlight a new acquisition we've made And Fantastic company situated in Sotalia. Focusing on sheet metal forging assembly work and for steel hulls.

Throughout Manalad on the Stockholm area.

And they have plenty of industrial customers and various [indiscernible] military sector also customer groups. So we acquired 80% of the company existing management and also the rest of the shares which we think is creating a strong incentive. The ad revenues of approximately EUR80 million in twenty four million, and this has been also a minimal impact on our net debt to EBITDA proof form We've spoken to Lia would say more or less first contact maybe three years ago. So it's been a long process for RAS ultimately leading to this great acquisition. Then, of course, I would like to highlight that we are implementing a new flatter organization as of today order to create a more efficient governance. So we have removed bond level between group management and subsidiaries. And each subsidiary will report to a Chair of the Board [indiscernible] also to further optimize our governance, we will also taking a small number of subsidiaries that would be a part of the larger subsidiaries in order to to optimize and make the governance as efficient as possible. So that will lead to decreasing the number of units in roughly 10%. [indiscernible] Then looking at the Cost side, with this setup [indiscernible] possibility or an opportunity to reduce costs and profitability over time with this new setup.

So I'm also very glad to be able to present our new group management team which will then be included myself [indiscernible] So we are then as I mentioned, creating a flat organization and and this group management is also directly some of them are also directly from our subsidiaries and representing all of our nationalities within the group. In form of whether So with this setup, I'm certain that we will work in a more efficient way and closer to our subsidiaries, which is the key to our success. Then looking at our financial targets and how We have been fairing I mean 2024, I think we'll go down to history as one of the toughest years at least in our in our history, if not the toughest. As you remember here, we have a net sales growth target to [indiscernible] of at least 15% per year over a business cycle we managed than in 2014 to decrease by 3.6%.

On the profitability side, we have a target of at least 10% per year of our business. I can manage 5.7%.

Cash conversion stood out, of course, as I mentioned on on a grid level. Capital structure wise, we have our targets not to exceed 2.5 times and it's currently at 3.3 times a month. Pro form a level.

Then we've had a dividend policy, as I mentioned, which has been removed by the Board yesterday evening. [indiscernible] just to focus on that a bit more than I think it's it's clear here that we want to create shareholder value mainly then through our previously announced strategy where we focus on taking down debt improving profitability and growing through mainly through acquisitions, but also organically. And so with that said, we clarified the dividend policy here. Meaning that As of now, Ozolubit would not pay any dividend.

Okay. So priorities 25 to 28, this is as you may recall, a slide from the Capital Markets Day, which we had last [indiscernible] top focus areas.

And now we're stressing that once more It is truly our focus areas now [indiscernible] we want to focus on ensuring continuous improvements in our subsidiaries our efficiency in operations and cooperation within the group. And with that, I think, will lead also to a more healthy [indiscernible] So with that said, before we open up for questions, I would like to do some concluding remarks. So we see 2025 as it is now would be a year of deleveraging and the profitability measures We need to conclude 24% was disappointing. Even though it was a very, very tough market situation, especially in Sweden. Made a strategic acquisition Clearline back in the October 29 Which I think is [indiscernible] The largest acquisition as of yet, and have been welcomed very warmly into the group, and we feel very glad to welcome such a fantastic company to the group. In, let's say, quarter over quarter, [indiscernible] So some positive signs also on the pricing side. We have created a new Flatter organization with more efficient governance. I would like to stress here also that The Chairman of the Board of our subsidiaries. Will be working very closely to the companies and have plenty of experience of running companies themselves. [indiscernible] the profitability improvements and the deleveraging, that's our top priority is now for 25 And With that said, we will also introducing segments of water here in the first quarter of twenty twenty five which will reflect more closely with more granularity on how group is varying.

Which I'm very glad to announce today that we will But we'll get back to that in the next quarter.

And with that, we would like to open up questions.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Alvin Rollder from Carnegie Investment Bank AB.

Hi, good morning. Good morning, Alvin. Good morning, Martin. Morning, Martin and team. I hope you are well. I have a couple of questions here, Nish, from my side. If we begin a little bit about the organizational messages that you're taking, if especially in Sweden.

Can you give a little bit more color on why you take these measures now? I mean, the margin trend in Sweden and the competitive landscape has been troublesome for quite a couple of quarters now. Is there anything specific happened in Q4 and and now in Q1 that makes you want to take these measures now? Or can you just comment a little bit more about that?

I mean, good morning, Alvin. Martin here. Well, I would like to say that what stands out is, of course, key was not [indiscernible] [indiscernible] of course, We aim to be as close to the subsidiaries as possible. We implemented an infrastructure in November 23, as you may recall. And our purpose was to work even closer to the subsidiaries with operations units and that was not I mean, it's impossible to know if if those measures that were taken then led to to worse result of or better results. It's hard to tell, but with with that said, what we are doing now is implementing a structure where we are getting even closer to subsidiaries.

And I think that is what we are seeing as the most efficient way at the current times And I think we're very humble about the market situation Still it's we've seen some positive signs, yes, but there is Let's say, all happens on deck at this moment.

Because the subsidiaries are Forsythograf's total operations. And We want to come as close to the operations as possible at at this time, especially and that's why we are implementing these kind of measures now that Okay.

Perfect. Thank you. And I mean roughly, what type of cost savings could one may expect from this? And it's the beginning now entering Q1 or is there will there be some some delay before we can see those measures? Take action, so to say, if you can comment a bit on that?

Yes. I mean, not really quantify that But I mean, it's Let's say in the range of €10,000,000 to €20,000,000 But maybe full Full effect is maybe a year from now or something like that because it's also hard to tell on how much it will affect On the, let's say, efficiency side, where we work even closer to the companies. But that is yet to come, but we will get back to that regarding how the new organization will fare.

Okay, perfect. Thank you. And then a little bit of a question regarding the acquisition of of Ligab, which you announced a week or so ago. I mean, I understand that you now want to focus on getting the profitability right for the existing subsidiaries and that you focus on efficiency and trying to navigate this market. But was there any specific reason why you went ahead with the [indiscernible] sense? Or because I mean the picture from someone looking on the Alts bifurcated one. When an acquisition was announced last week and then we see that you want to stop or not stop, but pause it for a while to get the efficiency out of the existing companies, if you could comment a bit on that?

Yes, absolutely. And as I mentioned, we've spoken to Lee several years. It is a unique asset in that sense, where we feel that these opportunities is too good to parcel. And we mentioned also that it's minimal impact on the important covenant figures here. So of course, I can see that that it can look like that from the outside, but we have been discussing with them for several years and wanting to do this badly. And and it is Yes, a unique asset in that sense and we're very glad to have Lia on board and welcoming to them to the group. We also have very strong [indiscernible] Which we are happy to take part of, so to speak.

Perfect. And then just the final question for me. While we're on the topic of the order backlog, you mentioned if I didn't hear you, I had quite a bad line there in the beginning, but you said that the order pack backlog margin was up 100 basis points or something like that. Is that on a like a year over year sense or on a Q on Q sense? I mean, how should we think about the increased margin within the order flow? Because I want to recall that you during the beginning of last year also mentioned that that the margin within the backlog was strengthened and then I mean, what the picture we've seen during the second half of the year has been I mean, it's obviously quite a weak margin in Sweden.

Regardless.

So if you could just comment a bit on how we should think about when that margin is executed and yes, just some more color on that.

Absolutely. Yes. So what I said, Elvie, was that yes, if we exclude Clearline, the order backlog margin is up roughly 100 basis points. Quarter over quarter. Q3 twenty twenty four compared to now then Q4 twenty twenty four.

And yes, we've also seen some strengthening during 2024, but remember here that the order backlog margin does not give the full picture Usually, a project that we get grows by roughly 20% to 30% on extra work. And there's mean, there's still the same amount of extra works in in properties, but customers are more price sensitive in a sense So With that said, it is hard to determine where this extra works are going. But we've seen historically is when let's say, in better times, there is plenty to do for all players, meaning that once you have a project, you're kind of inside the loop. But in tougher times, there are, let's say, more more placed, more competition are also around extra work where the customers have possibility to to take contact with several competitors to bring pricing around these kind of extra works down, which leads to ultimately an a weaker profitability for for planes. But so with that said, we've we've mentioned that on a newbuild basis that yes, we are renovation, but the total market is still affected by the weak activity on the newbuild side. [indiscernible] plenty of players still in the loop for these kind of works.

However, we've seen some easening. Yes, but [indiscernible] not enough to distort the kind of [indiscernible] [indiscernible] Numbers.

Thank you so much. I'll get back in the queue and see if there are any other questions.

Five on your telephone keypad.

No, it's There are no more questions at this time. So I hand the conference back to the speakers for any closing comments or written questions.

Thank you. So we'll we have received two recent questions. It sounds like you have closed the line of Alvyn.

But we'll continue. So they're on the same theme. What was clear line EBITDA contribution? And just Yes. So EBITDA for for Clearline is quite close to EBITDA. They have very little depreciation. And on adjusted EBITDA contribution, we was on the same level. There were no adjustments for Clear line in the quarter.

You will follow we could add also you will you can find the performance for fourth quarter for Careline in Note eight business acquisitions, We have also received another question here. Well, at least two actually two questions, so we can take them both at the same time. So first one, when do we expect to see an up uplift in the Swedish market?

The other one on a bit different. Can you give some more details on the tax expense in the quarter?

Yes. As you have seen, probably, we had quite quite a high tax in the fourth quarter here and also on the full year here. [indiscernible] [indiscernible] deductible cost that we have, and that's that makes up mainly of our write down of goodwill and trademarks and which was approximately NOK 45,000,000 and then also acquisitions costs that we have had during both the quarter and the full year. So that's the main reason And then the comparison between these costs and the weak result before tax, then that's the reason that we have this abnormal multi. No.

And then the other one then on the Swedish market. Margin, maybe you want to comment on that.

Yes. So we are humble about when we see an uplift in the Swedish market, of course. I mean, If we should, let's say, looking to some kind of directions where we see customers uptick and more demand. I would say in the second half of twenty twenty five, [indiscernible] improvements, but it's too early to tell.

Then actually, we are receiving a few more questions now in writing, so we'll continue.

So there are quite a lot of one offs, EUR35 million for M and A, EUR10 million from the Seneca bankruptcy. Would net profit be positive without them?

It is maybe we'll have to double check that. But I think on the net net yes, probably.

And then looking at the interest rates, Q1 twenty twenty five, how much will they decrease?

Yes, I would say on the interest rate level, of course, the Stival, which we are connected to is on a lower level than a year ago.

But at the same time, it is let's say, some have a range where we see, let's say, a range between how our leverage covenant is compared to compared to the underlying cyber hundred and eighty days So With that said, it's a bit too early to tell exactly how much it will decrease But We can double check that if you want to write us through our Investor Relations mail.

Okay. I think we have reached the end of the Q and A session. So, Martin, if you want to make any concluding remarks.

Yes. No, I think we've gone through it all. Of course, super tough 24, all in all, When I've spoken to, let's say, entrepreneurs that have been with us for a very long time, they also bring some memories back to the situation in Sweden, which was in the the beginning of the 90s to compare to '24 levels. So that says something about the tough situation as I would like say. But positive on the future, we are full of confidence that we will get through this even stronger. And I would also take the opportunity to thank all our employees for their outstanding work. I know it's tough out there, but together we will make this fantastic company. So thank you for that.