President and CEO André Strömgren’s comments from Wall to Wall Group’s latest quarterly report
The first quarter of the year had a quiet start, in line with normal seasonal patterns. The activity improved progressively and was clearly stronger towards the end of the quarter. The improvement in earnings compared with the previous year was driven primarily by lower indirect costs, improved working methods and a more focused organization, partly offset by lower revenue. Following the structural transformation carried out over the past year, the focus is now fully on sales and revenue growth.
Within the energy business, decision-making processes remain longer than normal, primarily within geo energy and ventilation solutions where project starts continue to be postponed. Duct sealing, where ventilation ducts are renovated from the inside and heating costs can be reduced by 40–70 percent, is developing well with growing demand for cost-effective solutions that quickly improve properties’ energy performance and operating economics. The energy segment as a whole looks promising as the investment needs addressed by Wall to Wall are easy to justify economically. Upcoming regulatory requirements may also contribute to increased demand.
Pipe flushing and pipe relining meet property owners’ critical maintenance and renovation needs within wastewater pipes and will increasingly operatery together as Water & Sewer. Within pipe flushing, the year began slowly but showed good improvement towards the end of the period. Within pipe relining, geographical differences remain significant, with stronger development in and around the Stockholm region compared with the rest of Sweden and Norway. Denmark and Finland improved compared with the previous year, but profitability is still not at the expected level and the work on production efficiency and working methods continues.
On a comparable basis, the gross margin for the last twelve months increased to 32.1 percent from 30.9 percent in the previous year. During the quarter, the gross margin improved to 31.8 percent (31.5). Several units already deliver margins above the Group average and in line with our long-term targets. This means that continued improvements in a limited number of larger units can have a significant impact on the Group’s overall profitability.
The definitions of direct costs have been adjusted since the turn of the year, resulting in a reclassification corresponding to approximately two percentage points from indirect to direct costs. Indirect costs for the last twelve-month period therefore amounted to SEK 165.9 million, a decrease of 12 percent compared with the previous comparable period. As a result of the reclassification, the target for indirect costs is updated to a maximum of 18 percent of net revenue, indicating further opportunities to improve the efficiency of the cost base from the current level. Cash flow in the first quarter was weak, which is normal due to seasonal patterns.
The market continues to be characterized by caution, but also by pent-up investment needs among property owners that will need to be addressed. The need for measures has been deferred but not cancelled. With a lower cost base, improved structure and gradually higher activity, the Group is better positioned to convert recovery and growth into improved profitability. Expectations remain that providing higher net sales, some ten percentage points higher than current levels, a double-digit EBITA margin can be achieved as a step towards the long-term profitability goal.
