Deep talk with Mattias Johansson, CEO Bravida

My name is Mattias Johansson and I am CEO of Bravida. I started my career in Bravida in 1998 and I've been here for 20 years plus, and I've been acting as a CEO for the last five years. Today I will talk about how Bravida will ramp up in the new normal, but first I will do an introduction to Bravida. Bravida is the leading multi-technical supplier in the Nordics. We are represented in four markets: Sweden, Norway, Denmark, and Finland. Sweden is the biggest market.

We have more than 55,000 different customers. Having all these different customers with different needs in many different places gives us a spread in the risk, but also the mix we have between installation and service. Today close to 50% of our sales is service, which gives us a very stable top line when we see a downturn or an increased demand in a market. It's not that the demand for installation projects are increasing at the same time as the service business, so that also means that we are not that dependent on one customer, one different demand in the market. We are less cyclical than you might expect from the beginning.

Big in this industry is good as long as you are using the synergies or the scale advantage that you actually are having, and we are really focused on and skilled at actually using those advantages. We are for example choosing suppliers very thoroughly. We are trying to move volumes from one supplier to the suppliers we think are our partners for the coming years. By collecting the volumes to few suppliers, we can get the best prices, best products that we can offer to our customers. The mix in the different type of contracts we actually are signing as well — we are really skilled at a large project at the same time as we can offer and take care of the small service orders a customer wants us to deliver to them. So that is also a mix that is very good for us in Bravida. It also means that we can attract different type of customers but also attract different type of resources, because if you're working with service or installation there are different type of personalities needed, and that also means that we can actually be a really strong and good employer for different type of resources in the industry.

We are number one in the Nordics today, and that is of course very important. A couple of years ago we started with the position as number one or number two in the Nordics, but we were definitely number one in Sweden, we were number two in Norway, number two in Denmark, and we didn't exist in Finland. Today we are definitely number one overall in the Nordics. We have strengthened our position in Norway to be number one today, and we are, as I see, number one in Denmark as well. And then we have also developed our business into Finland as well. So we today have a business in Finland. We have struggled for a couple of years, but since the last 12 months I would say that we are having a very positive trend in Finland as well, and we see that the margin goes up there as well.

Bravida has been very successful the last five years, I would say. We are not in an industry that we will take a really big jump regarding the sales from one year to another or in the margin, but we think and we have seen, and I'm very confident, that we will continue to develop this company for many, many years ahead. If we look back since 2015, we have taken this business from around 12 billion in sales and around 700 million in EBITDA to sales above 20 billion today, with very stable margin or actually improved margin, and at the same time we have had a really strong cash flow. And this is a development that I think we can continue to do the coming years as well. So when you invest in Bravida, you get a very stable business in a low cyclical industry with very strong cash flow. And this cash flow is something I want to use to continue to develop the company as well. We have a cash conversion for the last five years on an average above 100%. And these cash flows we can use to pay dividend to the shareholders but also take down the leverage. Today we have a really strong balance sheet, meaning that we can continue to do M&A. We have a net debt related to EBITDA that is around below one actually, if we exclude the new rules for IFRS. And this balance sheet means that we can continue to develop Bravida through M&A, and we can also do larger M&A if we get the opportunity and we think it is the right thing to do to continue to create shareholder value.

The last five years we have done around 70 acquisitions. Acquisitions are something we try to do because we want to strengthen our local market position, because we will always, or we want always, to be number one and number two in the local market. We can use M&A to cover white spots, and white spots meaning that we want to have the full scope, being able to deliver all the services to the customers. And that's important; I will come back to that later as well. But doing M&A is also a way to get new competences into the company, into Bravida. But we only want to do acquisitions that we think creates value for Bravida, and in that perspective also for all shareholders. We are doing acquisitions on quite low multiples today. We are always trying to look after strong leaders that are willing to be integrated into our model, because getting all the acquisitions into the same ERP system is important. That's how you can take out synergies, do the internal benchmark, follow up the different KPIs that are needed to be able to develop the business further. And the fragmented market we are in means that we can continue to do acquisitions for many, many years ahead as well. So this is a really good way to create shareholder value for Bravida.

On top of this, we have been able to grow this business organically. Our financial target is that we want to grow this business with five percent plus annually, and that is a combination through M&A but also organic growth. But margin over volume is a main theme in Bravida. We will always focus on margin before volumes. If needed, we take down the volume if the demand is too low just to be sure that we can defend the margin. Lowering the price too much, just in case of defending the top line, means that you allocate or you expose yourself to high risk, which is not what we want to do. It's not in line with our strategy. We want to focus on margin before volume. And if the volume goes down, we prefer to take down the top line and defend the margin and take out a lot of cost, because one advantage in Bravida in our type of business is that if the top line goes down, we can take out a lot of costs regarding material and labor, and the fixed cost in Bravida is somewhere around nine to ten percent, which means that we have a very flexible cost structure. So Bravida is a company that I'm pretty sure that we can continue to develop through organic growth, M&A, and we can continue to strengthen our balance sheet in a really good way.

No doubt there will be a before and after corona and the new normal. Yeah, I think it's quite hard to predict of course, there will be changes, but I think you need to remind yourself what kind of services we actually are offering our customers. Because our services will always be valid for the market, because we need light, we need heating in facilities or buildings, we need some office to be cooled down in the summer, we need to use the toilet, the shower. And you who are watching this movie, you have probably used the system we are building and maintaining hundreds of times already today. Access control system, fire alarms, water, waste water. All these services are services that we offer to our 55,000 customers. But what I think will change is that we will use offices in a different way. Some say that you won't use offices anymore, you won't need them, but I'm not sure about that. As a CEO of a company with 12,000 employees, I want my employees to come into the office so I can meet them, coach, push, motivate our personnel in a really good way. So I think the discussions around that office buildings are not needed anymore is a bit exaggerated because offices will be needed. But I think there will be a need for different type of offices, which means that 99% or something of all buildings, old buildings, a good service business for us. We need to maintain or renovate those offices, and when you need to do something else with existing offices, that's business for us. So far, due to the pandemic, Bravida has of course been impacted to some extent, but I think it's more of a practical reason. It's not demand driven; it's more health driven. It's more like customers don't want to have visits from our service technicians. There is still a demand in the market definitely. There are some price pressure but nothing we can't handle. We have a strong order backlog, but we also see some opportunities because of the pandemic. For example, I think in the longer perspective our customers really want to make sure that they have a really good ventilation in the buildings, offices for example, but also some easy things in the toilets, for example that you have sensor driven taps instead of taps you need to touch. And we also see, of course, in our own office, we see that the use of our digital tools for example in all meeting rooms we today have equipment for Teams meeting, video meetings with a good system both for the audio but also for good screens, and we have that in all meeting rooms today. That was nothing we had a year ago. And I think that's a demand that our customers will see as well when they are moved back to the offices from their remote work from home.

Financially of course we have had some impact as well, but I think we have shown that we are a really stable company even in different types of markets. We have had two quarters of chaos, pandemic in the society, but still Bravida has actually delivered five percent growth on the top line for the first nine months, with an increased profit. We have grown the profit with 11 percent actually. I think that shows the stability in Bravida and that we are not in that cyclical industry that some might think. And that's because the mix in service, the mix between service and installation of course, and different types of customers in different types of markets. Then on top of that, we have a really stable or high order backlog, which gives us the confidence to actually try to wait till we get new contracts to the right price level to where we can price the risk in a good way as well. So when we look back at this quite chaotic period in a couple of years from now, I'm pretty sure that Bravida will be seen as a very stable investment with the fact as a company that has been developing very good both top line but especially on the margins. So my target as a CEO, my ambition as a CEO, we will show the market that Bravida is a stable investment no matter the type of market we are acting in.

Another example is the increasing trend regarding increasing e-commerce, and that will drive the need for new logistic halls, infrastructure, etc. And that's another type of example that actually means more service offers to the customers and an increasing market from our perspective.

The main focus areas for Bravida the coming years is pretty much the same as before, but we are actually launching a new business plan. That means in brief that we want to change the mix between installation and service a bit. We still want to grow the installation business, but we want to grow the service business even more. So in three years from now, we have changed the mix between those areas so we will prefer to have slightly more service compared to installation. Other things we will focus on is of course that when we are working with the customers, we want to act like a one-stop shop for the customer. That's also a trend in the industry that our customers want to buy more from fewer suppliers. For Bravida, that means that we want to offer more than plumbing as a service for one customer for example. We have today plumbing, ventilation, and electricity, electrical as the main business areas. But then we have cooling, sprinkler, power, building automation, we have facility management as some examples as well. But today, 80% of Bravida's customers only buy one of these technical segments, and we want to increase the cross-selling between the areas, and by that growing their business a lot.

We also see that the structural driver in the market is the sustainability. We are working with sustainability, but also all our customers, and the taxonomy that all investors are very familiar with today is of course one driver as well. And that means that doing something about your own energy consumption is important, and we actually offer services that help all our customers to be more sustainable. 40% of all energy today is actually used to heat or cool buildings. One example: one day this spring when I actually drove home, I took a photo of our headquarters from the outside. We had renovated two floors out of four, and on this picture you can actually see the difference between the new system for lighting and the old one. And the good thing with this is not only that we get a better light meaning that all our employees have a better environment, it also means that you use less energy with this new lighting. So you actually get a better climate and a cheaper installation. You use less energy to actually make sure you have a really nice climate in your office. That's one example. Then we have solar panels, we have EV chargers, we are changing fans, pumps, etc. So I would say that a pretty big part of what we are doing helping our customers with today is actually helping them with the sustainability work they are actually struggling a bit with today. So buying from Bravida is a sustainable way of buying services in this industry.

Regarding the digitalization, Bravida has for many years focused on the internal efficiency, using the same systems, ERP systems, a good system for procurement et cetera. But now, in the next business plan, we are focused more on our offer to the customer, put our customers more in focus. Instead of doing a service when it's needed because something has been broken, we are moving more towards predictive maintenance. And that is of course important for some customers, but very many of our customers will still buy services from us when it's needed. We are moving more to remote services, a more sustainable way or cost efficient way to deliver the services, which means that we don't all the time have to go out to the customers by car; we can do service remotely. Meaning that we are taking down the cost, not necessarily lowering the price to the customers, so we can increase our margin but also be more competitive of course. We also want to take a position in the market in an even better way regarding the whole life cycle of a building. We want to come in early and help the customers in the design phase, because we have that knowledge, we are really good at designing cost efficient systems. Then we want to build the system when we're building the new building, and then we want to do the service. So we want to be a supplier for our customers from design throughout the whole lifecycle of the building, and we want to be that partner in all different segments as a one-stop shop, 24/7 both on service and installation.

And just to summarize the whole pandemic situation around the coronavirus, I think we have handled it very well. As I mentioned, a good development both on top line and bottom line the first three quarters. We are late in the cycle, we have a strong order backlog, but we have visibility to adjust if needed. If we take a view on the coming quarters or years, we will be one of the companies or industries that is actually will get some benefits from the new taxonomy, the sustainability work from all our customers, because what we actually are working with is systems and services that helps the whole market, our customers, to be more sustainable. We will continue to develop both the top line and the bottom line. It can vary of course from one quarter to another, but if you take the longer perspective, we will develop Bravida. We will continue to have strong cash flows. The market is good enough so we will be able to continue to do acquisitions. We will continue to pay out dividend, and we can continue to have a really strong balance sheet, which of course will give us a lot of opportunities the coming years.