CONSTI GROUP PLC - Sijoittajat – Constiinvestor.consti.fi/~/media/Files/C/Consti-IR/documents/publications... · CONSTI GROUP PLC SEB NORDIC SEMINAR 9 JANUARY 2018 CEO Esa Korkeela

CONSTI GROUP PLCSEB NORDIC SEMINAR

9 JANUARY 2018

CEO Esa Korkeela

Building renovation specialist | www.consti.fi

Contents

Business and strategy

Market environment and competitive landscape

Guidance and financials in brief


Service business

Share of sales 2016 Wide range of services for HVAC and renovation

contracting

Building facade cleaning and maintenance painting of

building exteriors and staircases

Small-scale building repairs including window repairs,

renewal of lobbies, inspection of premises

Technical Building

Services (“CTT”)

Building

Facades

(“CJU”)

Renovation

Contracting

(“CKU”)

Pipeline renovations

of residential

buildings

Technical

installations to non-

residential properties

and public buildings

Service &

maintenance

Renovation of

building envelopes

(facades, roofs,

windows, balconies,

etc.)

Residential and non-

residential

Renovation of rental

apartment buildings

Service &

maintenance

Renovation

contracting of non-

residential properties

and public buildings

Comprehensive

remodelling and

overhaul projects

Service &

maintenance

Overview of Consti – one of the leading renovation and

technical services provider in Finland

2 Building renovation specialist | www.consti.fi

39%

33%

28%

Consti in brief

Comprehensive service offering covering technical building services, building facades, renovation contracting and maintenance services

Focused on Finnish growth centres

Established in 2008, headquartered in Helsinki, Finland.

08/01/2018

216256 262

187214

3,6 %4,1 % 4,2 %

3,5 % 1,0 %

0,0 %

2,0 %

4,0 %

6,0 %

8,0 %

10,0 %

12,0 %

0

50

100

150

200

250

300

201

4

201

5

201

6

Q3

/201

6 Y

TD

Q3

/201

7 Y

TD

Net sales & Adjusted EBIT margin

Net sales (EURm)

Adjusted EBIT margin1)

Note: 2016 figures if not stated otherwise

1) Adjusted figures excluding items affecting comparability.

15%

Diverse customer mix protects against fluctuations in

the market; presence in Finnish growth centres

3

Diverse customer mix

protects against

fluctuations in the

market

Housing

companies

35 %

Public sector

26 %

Real estate

investors

24 %

Corporations

15%

Net sales realised from one single customer did not exceed

10% of the year’s sales.


Net sales by customer groups 2016

08/01/2018

Helsinki &Uusimaa

Tampere &Pirkanmaa

Others

Number of

personnel 9/2017:

1 117

2016

Net sales by geographical area

12%

10%

78%

Consti Group’s project overview – Dispersed project

base with a relatively small median project size


Project size distribution 2014-2016 (# of projects)

08/01/2018

20%

22%

21%

39%

33%

33%

41%

44%

47%

0 % 20 % 40 % 60 % 80 % 100 %

2014

2015

2016

Project value > €1m Project value €150k - €1m Project value < €150k

Comments

■ In 2016, the company had 806 projects1) with a median project

size of EUR 183 thousand

■ In 2016, net sales was generated from relatively small projects

■ Large projects typically realised in net sales over several years

■ In 2012-2016, net sales realised during one year from one

single project has not exceeded 10% of that year’s sales

79% of the projects in progress in 2016 were valued at EUR 1 million or below

■ 1) Number of projects based on management accounts. Project is qualified if it is accounted for according to the POC method and had realised revenue during the financial year. Total number of work tasks

performed is larger (including non-POC)

# projects

median

project size

806 183 t€

700 222 t€

670 216 t€Fixed price contract

Design and Build contract

Project management contract

Integrated project delivery (e.g.

Alliance contract)

85%

15%

Projects

Services

Contract type / delivery model

Consti Group’s service overview – Service, repairs

and installations across business areas


Contract type / delivery model

08/01/2018

■ Service business consists of small

scale service projects as well as

upkeep and maintenance services

■ Services are offered in all business

areas

■ Service business includes e.g.

maintenance, repair and installation

work, non-residential facility

remodelling and energy contracting

Wide range of services for HVAC

and renovation contracting

Building facade cleaning and

maintenance painting of building

exteriors and staircases

Small-scale building repairs

including window repairs, renewal

of lobbies, inspection of premises

Service projects

Framework

agreement

Fixed-term service

contract

15%

85%

Services

Projects

Service business

2732

40

13% 13%15%

0,0 %

5,0 %

10,0 %

15,0 %

20,0 %

25,0 %

30,0 %

35,0 %

0

10

20

30

40

50

201

4

201

5

201

6

Service business net sales

& share of total net sales

CAGR +21.9%

Net sales (EURm)

Share of total net sales

6

Consti Group’s strategic themes. Strategy implemented through

strategic initiatives.

Profitable and competitive operations in all projects and

services

─ The best lead time and productivity in renovation construction industry

─ Continuous relative decreasing of fixed and procurement costs

─ Systematic development of the business portfolio

1

Professional employees who enjoy their work and are

proud of their work

─ Efficient recruitment and career path planning

─ The most attractive place to work in renovation construction

─ Best competences in renovation construction in use

─ High level of commitment, job satisfaction and safety

2

Clear service concepts to meet customer needs

─ Customer specific key products and adequate product selection

─ Active renovation & service offering management

3

Efficient sales and customer management

─ Clear customer promise – active care

─ Customer specific services and generating value added

─ Key account management

4

5 Expansion in the renovation value chain

─ We offer all services of a building from renovation to maintenance and from

health to energy efficiency.

Building renovation specialist | www.consti.fi08/01/2018

Active seeking of new business and strategic growth areas

─ We seek growth in all business areas, especially in strategic growth areas,

which are to a large extent the same as before.

─ Additionally, we also want new growth in areas we have not previously

operated in, or in which we have not had a strong enough foothold.

6

Co

nsti

Vis

ion

: # 1

in R

en

ovatio

n

Contents





11,0 12,7

35,6 31,9

53,2 52,8

35,7 36,7

17,0

2,6

6,7 6,6

15,518,9

29,434,3

21,3 23,0

9,4

4,4

0

20

40

60

80

100

-1920 1921-39

1940-59

1960-69

1970-79

1980-89

1990-99

2000-09

2010-14

Other

Residential

Non-residential

Renovation market growth supported by a number of key

structural growth drivers

8

Source: Statistics Finland

Million

m2

~2017~2025-2035 ~2040

Buildings age of 50 years (approx):


Finnish building stock by construction year

Ageing building stock Energy efficiency

Urbanisation

Modifications of the

use of buildings

Increased need for building

technology and automation

08/01/2018

50

60

70

80

90

100

110

120

130

140

150

Jan

-07

Jun

-07

No

v-0

7

Ap

r-0

8

Se

p-0

8

Fe

b-0

9

Jul-

09

De

c-0

9

Ma

y-1

0

Oct-

10

Ma

r-11

Au

g-1

1

Jan

-12

Jun

-12

No

v-1

2

Ap

r-1

3

Se

p-1

3

Fe

b-1

4

Jul-

14

De

c-1

4

Ma

y-1

5

Oct-

15

Mar-

16

Au

g-1

6

Jan

-17

Jun

-17

No

v-1

7

ES

I a

nd

CC

I fo

r F

inla

nd

(Ja

n 2

00

7 -

No

v2017)

Economic SentimentIndicator

Lead indicators for Finnish construction suggest a

favourable market environment going forward

08/01/20189

Note: Mean-adjusted figures

Source: European Commission, November 2017


Comments

■ Economic sentiment in Finland

rose above the long-term average

in August 2016

■ Construction confidence surpassed

the long-term average level in

summer 2015 and has steadily

remained above that level

■ Both indicators at good level in the

end of 2017Long-term

average

Economic Sentiment and Construction Confidence / Finland (2007 – 11/2017)

11,1 11,4 11,5 11,8 12,2 12,6 12,8 13,0 13,2 13,4

14,513,1

11,810,9 10,8

12,913,9 14,1

13,1 12,7

25,624,5

23,422,7 23,0

25,426,7 27,1

26,4 26,2

0

5

10

15

20

25

30

2011A 2012A 2013A 2014A 2015A 2016A 2017E 2018F 2019F 2020O

Stable growth in renovation to continue

10

Finnish new building and renovation market development


■ The peak of the economic cycle in

construction sector in progress.

– Challenges in availability of

building technology and

renovation professionals

■ Total construction market forecast for

2017: Euroconstruct +4.8% and

CFCI +4.4%

■ New building forecast for 2017:

Euroconstruct +7.8% and CFCI

+7.3%

■ Renovation forecast for 2017:

Euroconstruct + 1.8% and CFCI

+1.5%

– 1970s apartments’ total

renovations, and renovations for

saving energy, in public sector

schools and hospitals in particular

– Major refurbishments for office

and commercial buildingsSource: Euroconstruct, November 2017

CFCI = The Confederation of Finnish Construction Industries, October 2017

Renovation volume (real)EURmrd New building volume (real)

CAGR

2017-20:

+1.6%

CAGR

2017-20:

-2.8%

08/01/2018

-3.3%

HPAC market estimates improving business conditions

within all sectors (new building, renovation, service)

08/01/201811

* Balanced view = Very good + Good - Weak – Very weak

Source: Finnish Association of HPAC Technical Contractors


Very good Good Satisfactory Weak Very weak

New construction

Renovation

Maintenance

0 %

10 %

20 %

30 %

40 %

50 %

60 %

70 %

80 %

90 %

100 %

Nov-1

3

Ap

r-14

Oct-

14

Ma

r-1

5

Nov-1

5

Ap

r-16

Jun

-16

Oct-

16

Ma

r-1

7

Oct-

17

0 %

10 %

20 %

30 %

40 %

50 %

60 %

70 %

80 %

90 %

100 %

Nov-1

3

Ap

r-14

Oct-

14

Ma

r-1

5

Nov-1

5

Ap

r-16

Jun

-16

Oct-

16

Ma

r-1

7

Oct-

17

0 %

10 %

20 %

30 %

40 %

50 %

60 %

70 %

80 %

90 %

100 %

Nov-1

3A

pr-

14

Oct-

14

Ma

r-1

5N

ov-1

5A

pr-

16

Jun

-16

Oct-

16

Ma

r-1

7O

ct-

17

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

Nov-1

3

Ap

r-14

Oct-

14

Ma

r-1

5

Nov-1

5

Ap

r-16

Jun

-16

Oct-

16

Ma

r-1

7

Oct-

17

Current business conditions

New building


Renovation


Service


Balance of opinion*

-25

25

75

125

175

225

275

Con

sti

Are

*C

aver

ion*

NC

CS

RV

YIT

Ska

nska

Luja

talo

Lem

min

käin

enF

iraP

eab

Jatk

eB

ravi

da*

Leht

o G

roup

U M

-RR

ak.A

ntti

J.A

hola

VR

J G

roup

Ren

ova

tio

n s

ales

, ME

UR

(20

16)

13 %

5 %3 %

79 %

0

1

2

3

4

5

6

7

8

Total market breakdown(2016 renovation excl. households, BEUR)

Finnish renovation market highly fragmented with plenty

of consolidation potential – Consti was #1 in 2016

08/01/201812

Operators in the Finnish renovation market (TBS specialists estimated)


Overall renovation market (excl. households)

Source: Rakennuslehti, Asiakastieto, Consti analysis

* Technical building services specialists estimated on the basis of total Finnish TBS market split: 55% renovation / 45% new building

> 100 MEUR, n=6

> 50 MEUR, n=11

> 30 MEUR, n=17

~7.3 BEUR

Top 6 players

Top 7-11 players

Top 12-17 players

< 30 MEUR sales

Total Finnish renovation market (excl.

households) estimated to total approximately

EUR 7.3 billion in 2016. In recent years, in

general, the share of top ten players has

increased and consolidation is expected to

continue going forward.

Renovation by customer groupRenovation by geography

Finnish renovation market of EUR 12bn is concentrated

in growth centres and residential properties

13

Source: VTT, February 2017


1 2

08/01/2018

Helsinki 30%

Renovation market concentrated in the largest cities and growth

centres where majority of building stock is located

Kuopio

2%

Rest of Finland 50%

Strongest need for renovation from residential buildings,

also stemming from the building stock structure

Housing

companies

24%

Rental

apartment

buildings

10%

Corporations

14%

Households and other

42%

Government and

public institutions

1%precence precence

Contents





Guidance for 2017

“The Company estimates

that its total annual net

sales for 2017 will grow

compared to 2016 but

operating profit will be

significantly lower than in

2016.”

15 08/01/2018 Building renovation specialist | www.consti.fi

Net sales development:

1-9/2017 net sales up by 14.5%

08/01/201816 Building renovation specialist | www.consti.fi

■ 1-9/2017 net sales EUR 213.9 (186.7) million

• y-o-y sales growth 14.5% (EUR 27.2 million)

• organic growth 10.1% (EUR 18.8 million)

• acquisition growth 4.5 % (EUR 8.4 million)

– In Building Facades, growth of 31.9% due to

good performance in Greater Helsinki area

– In Renovation Contracting, growth of 8.3%

mainly from Greater Helsinki area.

– Technical Building Services growth of 9.4%

from renovating residential buildings and

through acquisitions.

Technical Building Services (TBS)

Renovation Contracting

Building Facades

Eliminations

CommentsNet sales development (FY) Net sales development (YTD)

95,4 102,6 103,9

54,568,7 75,0

70,5

89,288,6

-4,5 -4,3 -5,9

215,9

256,2 261,6

-20

30

80

130

180

230

280

2014 2015 2016

Ne

t sa

les (

EU

R m

illio

n)

77,4 84,6

53,658,1

59,5

78,5

-3,8 -7,3

186,7

213,9

-20

30

80

130

180

230

Q3/2016 YTD Q3/2017 YTD

Ne

t sa

les, Y

TD

(E

UR

mill

ion

)

Adjusted EBIT1 development: Corrective actions for improving

profitability initiated and ongoing (1/2)

08/01/201817

1) Adjusted EBIT = EBIT before items affecting comparability (IAC)


Comments

■ 1-9/17 EBIT EUR 2.2m (6.5m), or 1.0% (3.5%) of net

sales

■ Q3/17 EBIT -0.8 (3.7) million, or -1.0% (5.3%) of net

sales

– A detailed project appraisal was carried out in the

Technical Building Services business area, which

covered over two hundred projects that were either

ongoing or at the hand over phase of construction.

As a result project cost assessments were

adjusted.

– Profitability problems in TBS business area

• Problems relating to project management and

execution.

• In part the profitability problems relating to

projects were also due to the staff renewal rate

in project personnel and price competition in the

industry.

EBIT development (FY) EBIT development (YTD)

7,88,4

11,0

0,0

2,1

0,0

7,9

10,511,0

3,6 %

4,1 % 4,2 %

0%

1%

2%

3%

4%

5%

6%

7%

8%

0

2

4

6

8

10

12

2014 2015 2016

Ad

juste

d E

BIT

ma

rgin

(line

gra

ph

)EB

IT, (E

UR

mill

ion, b

ar

gra

ph

) 6,5

2,2

0,0

0,0

6,6

2,23,5 %

1,0 %

0%

1%

2%

3%

4%

5%

6%

7%

8%

0

1

2

3

4

5

6

7

8

Q3/2016YTD

Q3/2017YTD

Ad

juste

d E

BIT

ma

rgin

, YT

D (lin

e g

rap

h)E

BIT

, Y

TD

(E

UR

mill

ion

, b

ar

gra

ph

)

TBS

Adjusted EBIT1 development: Corrective actions for improving

profitability initiated and ongoing (2/2)


Comments (continued)

■ Consti revised its outlook for 2017 on 15th Dec 2017

– During the year's last quarter, the Company has continued to evaluate its

project base. As a result of this evaluation, project cost assessments that

lessen the Group's operating profit in the fourth quarter have been adjusted.

The Company expects operating result for Q4 to be negative.

– The Company's operating profit continues to decrease due to profitability

problems relating to project management and execution.

■ Corrective actions:

– Board of directors appointed new CEO on 21 Dec 2017

– Appointment of new CFO was announced on 3 Jan 2018

– Reorganisation of the Technical Building Services business area

• New Branch level leader in TBS has been hired and multiple changes at

project level executed

• New organisation in place as of 1 Jan 2018

• Implementation of processes ongoing

• Support functions streamlined

• With the reorganisation, our aim is

– to improve the accountability of our businesses and

– ability to response to market needs as well as

– to clarify service offering and to improve project management

New TBS organisation

Technical installations

Service

Pipeline renovations

Three different delivery processes:

■ Technical installations:

– Subcontracting and parallel contracting

■ Pipeline renovations:

– Main contracting

– Main contracting -model related processes

(from RC & BF) to be implemented

■ Service:

– Separate TBS Service unit

Key origination responsibilities Key execution responsibilities

■ Strategic targets

■ Key Account Manager (KAM)

steering and execution

■ Ensure full Consti offering if

possible

■ Standardized project steering

■ Approval of large tenders

■ Detailed monthly monitoring of

projects and forecasts

■ Ensure follow-up / Service sales

■ Project risk assessment

■ Active KAM execution

■ Sales budgets to units

■ Target project margins


■ Approval of mid-size tenders

■ Approval of project budgets

■ Detailed weekly monitoring of

projects and forecasts

■ Project risk assessment

■ Sourcing and selection of projects, ensuring internal resourcing

■ Tender price calculation

■ Approval of small tenders

■ Preparation of project budgets, timetable, resourcing, procurement, etc.

■ Daily implementation

■ Continuous forecasting of project vs. budget

■ KPIs for project manager bonuses in various project phases


Consti has a decentralised operating model

08/01/201819

Management sets targets and monitors actively; branch units have accountability

Source: Consti

Group

Management

CTT

mgmt

CJU

mgmt

CKU

mgmt

Service business

Consti organisation

Branch units Branch units Branch units


Order backlog and order intake development:

New major orders received during the last quarter of 2017 will

increase order intake


Comments

■ 1-9/2017 order intake EUR 173.2 million already at good level compared to order intake 1-9/2016 EUR 157.0 million (growth 10.3 %).

■ New major orders received during the last quarter of 2017 will increase Q4/2017 order intake:

A contract on the complete renovation of the Hotel Scandic Marski. Value of the contract is approximately EUR 26 million.

An order for the complete renovation of two properties, Oy Ässäkeskus Ab and KOy Vallilan toimisto. The preliminary cost estimate for the

project is approximately EUR 35 million.

Both new major orders fall under Renovation Contracting business area.

Order backlog development

Technical Building Services (TBS) Renovation ContractingBuilding Facades Eliminations

Order intake development

69,1 69,2 70,7

36,557,1 43,5

57,8

55,0 76,6

163,4181,3

190,8

-20

30

80

130

180

230

280

2014 2015 2016

Ord

er

backlo

g (

EU

R m

illio

n)

70,6 70,5

46,1 36,9

68,9 91,4

185,6198,8

-20

30

80

130

180

230

280

Q3/2016 Q3/2017

Ord

er

ba

cklo

g (

EU

R m

illio

n)

88,872,4 85,8

57,9 80,5 40,1

84,4 71,7100,5

-3,9 -11,1 -3,4

227,3213,5

223,1

-20

30

80

130

180

230

280

2014 2015 2016

Ord

er

inta

ke

(E

UR

mill

ion

)

66,0 65,2

27,9 39,7

66,2

78,2

-3,1 -9,9

157,0173,2

-20

30

80

130

180

230

280

Q3/2016YTD

Q3/2017YTD

Ord

er

inta

ke

(E

UR

mill

ion

)

-7,3-7,9

-11,3

-14

-12

-10

-8

-6

-4

-2

0

2

4

2015 2016 Q3/2017

Net

wo

rkin

g c

ap

ita

l at

pe

rio

d-e

nd

(E

UR

mill

ion

)

Asset-light business model supporting strong cash conversion;

project business allows negative NWC

21

1) % of rolling 12 month revenue; 2) The cash conversion is the amount of free cash flow divided by EBITDA. Free cash flow means net cash flow from operating activities before financial items and taxes, less capital used for purchase of

intangible assets and property, plant and equipment.

08/01/2018

Negative working capital, 2015-Q3/2017 Strong cash conversion2), 2015-Q3/2017


Key balance sheet ratios

Q3 2017

Net debt (EURm) 13.4

Equity ratio % 31.9%

Gearing % 48.6%

-2.9% -3.9%1)

% = % of net sales

-3.0%

85% 83%

169%

0,0 %

20,0 %

40,0 %

60,0 %

80,0 %

100,0 %

120,0 %

140,0 %

160,0 %

180,0 %

2015 2016 Q3/2017

Realisation of Consti’s long-term financial targets Q3/2017 (rolling 12 months)

22

1) Cash conversion defined as free cash flow divided by EBITDA. Free cash flow equals operating cash flow before net financial items and taxes less investments in tangible and intangible assets

2) While taking other factors such as financial position, cash flow and growth opportunities into consideration.


Growth Profitability Cash flow Capital structure Dividends

Average annual

growth in net sales

of at least 10%

Adjusted

EBIT-margin

exceeding 5%

Cash conversion

ratio exceeding

90%1

Net debt to

adjusted EBITDA

ratio of less than

2.5x while

maintaining an

efficient capital

structure

The Company’s

aim is to distribute

as dividends at

least 50 percent of

the Company’s

annual net profit2

Q3/2017 Q3/2017 Q3/2017 Q3/2017 2016

Target was achieved

in Q3/2017

Target not achieved,

efforts continue to

meet the target level

Target not achieved

although Q3/2017

realization not afar

from target level

Target was achieved

at period end

Dividend of EUR

0.54 per share, or

51.5% of 2016 EPS

10.3% 2.3% 79.3% 1.55 51.5%

Summary


Asset-light business model

Strong cash flow

Well positioned to capitalize market opportunities

Strong order backlog

Steady market growth 1.

2.

3.

4.

5.


CONSTI GROUP PLC

9 JANUARY 2018

THANK

YOU

CONSTI GROUP PLC

HOPEATIE 2

FI-00440, HELSINKI

BUSINESS ID 2203605-05

WWW.CONSTI.FI

Documents

CONSTI GROUP PLC - Sijoittajat – Constiinvestor.consti.fi/~/media/Files/C/Consti-IR/documents/publications... · CONSTI GROUP PLC SEB NORDIC SEMINAR 9 JANUARY 2018 CEO Esa Korkeela